UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-36557 ADVANCED DRAINAGE SYSTEMS, INC. (Exact name of registrant as specified in its charter) (State or Other Jurisdiction of Incorporation or Organization) Delawa ...

Financial Data and Key Metrics Changes - Revenue increased by 2% to $830 million, primarily driven by the Orenco acquisition despite challenging end market demand [20][6] - Adjusted EBITDA margin was 33.5%, one of the highest in the company's history, indicating strong profitability [20][14] - Free cash flow generated was $222 million year-to-date, compared to $126 million in the prior year, driven by better working capital performance [22] Business Line Data and Key Metrics Changes - Organic sales were down slightly, but higher-margin categories like Allied Products and Infiltrator saw revenue increases [7][11] - Infiltrator experienced 21% growth, supported by strong performance in commercial applications and on-site wastewater tanks [11][12] - Domestic Allied Products sales increased by 1%, driven by demand in the multifamily residential market [11] Market Data and Key Metrics Changes - Residential market demand was variable, with multifamily construction improving while single-family housing faced challenges due to interest rates [12] - Non-residential market growth was driven by acquisitions and strong execution in commercial construction, particularly in the Midwest and Southeastern U.S. [13] - Infrastructure revenue was down compared to the prior year but was still the third highest revenue quarter in the company's history [13] Company Strategy and Development Direction - The company remains focused on driving profitable growth through market share expansion, new product introductions, and strategic acquisitions [6][19] - Investments in innovation and product development at the new engineering and technology center are prioritized to enhance capabilities [23] - The long-term outlook for the business is strong, supported by secular tailwinds in water management solutions [19] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the tepid demand environment but noted resilience in core markets [34][108] - The company is cautious about demand impacting absorption rates but remains confident in its ability to manage costs and maintain margins [46][95] - The competitive landscape remains stable, with consistent pricing and effective cost management strategies in place [72][76] Other Important Information - The company plans to spend approximately $200 million to $225 million on capital expenditures for the full year, focusing on innovation and customer service [23] - The company ended the quarter with over $1.2 billion in available liquidity, including $638 million in cash, providing flexibility for strategic investments [23] Q&A Session Summary Question: Impact of weather on project delays and comparisons to last year - Management noted that weather caused some project delays but overall demand remained stable, with no significant detrimental impact [30][32] Question: Expectations for Q2 price-cost dynamics - Price-cost is expected to remain flat for the year, with some favorable conditions anticipated in Q2 [35] Question: Changes in capital expenditure guidance - The reduction in CapEx guidance is attributed to timing rather than changes in project plans [39] Question: Organic growth in Infiltrator and outlook - Infiltrator's growth is driven by tanks gaining market share, with expectations for continued strong performance [41] Question: Margin outlook for the year - Management remains cautious about demand impacting margins but does not foresee significant changes in margin expectations [92][95] Question: Competitive landscape and inventory dynamics - Management indicated that competitive pressures have stabilized, with no significant inventory issues affecting the business [71][100] Question: Long-term vision for the product mix - The company aims to grow higher-margin product lines faster than the pipe business, maintaining a balanced product mix [102][104]

Financial Data and Key Metrics Changes - Revenue increased by 2% to $830 million, primarily driven by the Orenco acquisition despite challenging market conditions [19][5] - Adjusted EBITDA margin was 33.5%, one of the highest in the company's history, indicating strong profitability [19][13] - Free cash flow generated was $222 million year-to-date, compared to $126 million in the prior year, driven by better working capital performance [21][22] Business Line Data and Key Metrics Changes - Organic sales were slightly down, but higher-margin categories like Allied Products and Infiltrator saw revenue increases [6][10] - Infiltrator experienced a 21% growth, significantly contributing to overall performance, with double-digit organic growth in on-site wastewater tanks [10][11] - Domestic Allied Products sales increased by 1%, driven by demand in the multifamily residential market [10] Market Data and Key Metrics Changes - Residential market demand was variable, with multifamily construction improving while single-family housing faced challenges due to interest rates [11] - Non-residential market growth was supported by acquisitions and strong execution in commercial construction, particularly in the Midwest and Southeastern U.S. [12] - Infrastructure revenue was down compared to the prior year but was still the third highest in the company's history, with strong long-term demand drivers [12][13] Company Strategy and Development Direction - The company remains focused on driving profitable growth through market share expansion, new product introductions, and strategic acquisitions [5][6] - Investments in innovation and product development at the new engineering and technology center are prioritized to enhance capabilities [22] - The long-term outlook for the business is strong, supported by favorable trends in water management solutions [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the tepid demand environment but noted resilience in core markets [33][19] - The company is committed to maintaining pricing discipline and managing costs effectively despite competitive pressures [66][67] - Future cash flow generation is expected to be bolstered by the OBBBA, providing additional flexibility for investments [22][46] Other Important Information - The company has successfully reduced fixed costs by closing inefficient operations without compromising customer service [14][15] - The new engineering and technology center has enhanced the speed of product testing and commercialization [8][10] Q&A Session Summary Question: Impact of weather on project delays and prior year comparisons - Management noted that weather caused some project delays but did not significantly impact overall performance, with a balanced view of demand [29][31] Question: Expectations for Q2 price-cost dynamics - Price-cost is expected to remain flat for the year, with stable pricing and favorable material costs contributing positively [34] Question: Changes in capital expenditure guidance - The reduction in CapEx guidance is attributed to timing rather than a change in strategic projects [37][38] Question: Organic growth in Infiltrator and outlook - Infiltrator's growth is driven by tanks gaining market share, with expectations for continued strong performance in on-site wastewater [39][40] Question: Competitive landscape and demand environment - Management indicated that competition remains but emphasized the company's ability to maintain pricing and margins despite a tepid demand environment [62][66] Question: Infrastructure demand trends - Infrastructure sales were impacted by tough comparisons from previous strong projects, but underlying demand remains stable [72][73] Question: Non-residential project pipeline - The project pipeline is tracking with a tepid environment, but the company is successfully gaining market share in key states [76][78] Question: Long-term vision for product mix - The company aims to grow higher-margin products faster than the pipe business, maintaining a balanced product mix [92][93]

Financial Performance - Q1 Fiscal 2026 revenue shows mixed results, with ADS Legacy sales decreasing by 2% from $668 million to $652 million, while Infiltrator sales increased by 21% from $147 million to $178 million[9] - Adjusted EBITDA margin slightly decreased by 30 bps, from 33.8% in Q1 FY25 to 33.5% in Q1 FY26[11] - Consolidated Adjusted EBITDA increased from $275 million in FY 2025 to $278 million in FY 2026[20] - Consolidated Free Cash Flow increased from $126 million in FY 2025 to $222 million in FY 2026[20] Business Operations and Strategy - The company completed the River Valley Pipe acquisition in Q1 FY26 and launched Arcadia™ Hydrodynamic Separator technology[14, 16] - Capital expenditures are expected to remain elevated in Fiscal 2026 due to investments in growth, recycling capacity, productivity, and automation[16] - The company's diversified product mix is shifting towards higher margin categories, with Allied Products accounting for 56.2% of revenue and Water Management Solutions contributing 53.6% to Adjusted Gross Margin[26] Market Outlook - The company anticipates net sales between $2.825 billion and $2.975 billion for Fiscal Year 2026, representing a change of -3% to +2% year-over-year[22] - Adjusted EBITDA is projected to be between $850 million and $910 million for Fiscal Year 2026, indicating a change of -4% to +2% year-over-year[22] - Adjusted EBITDA margin is expected to be between 30.1% and 30.6% for Fiscal Year 2026, reflecting a change of -50 bps to flat[22]

Company Performance - Advanced Drainage Systems reported quarterly earnings of $1.95 per share, exceeding the Zacks Consensus Estimate of $1.78 per share, but down from $2.06 per share a year ago [1] - The earnings surprise for this quarter was +9.55%, while the previous quarter saw a surprise of -5.5% with actual earnings of $1.03 compared to an expected $1.09 [2] - The company posted revenues of $829.88 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.14% and up from $815.34 million year-over-year [3] Market Performance - Advanced Drainage shares have declined approximately 1.5% since the beginning of the year, contrasting with the S&P 500's gain of 7.9% [4] - The current consensus EPS estimate for the upcoming quarter is $1.76 on revenues of $808.05 million, and for the current fiscal year, it is $5.88 on revenues of $2.92 billion [8] Industry Outlook - The Building Products - Miscellaneous industry, to which Advanced Drainage belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [9] - The performance of Advanced Drainage's stock may be influenced by the overall outlook for the industry, as research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [9]

[First Quarter Fiscal 2026 Financial Results](index=1&type=section&id=First%20Quarter%20Fiscal%202026%20Financial%20Results) This section provides an overview of the company's strong Q1 FY2026 performance, detailed financial results, balance sheet, and fiscal year 2026 outlook [Performance Overview](index=1&type=section&id=Performance%20Overview) ADS reported strong Q1 FY2026 results with a **33.5% Adjusted EBITDA margin**, driven by strategic investments and acquisitions despite macroeconomic headwinds - The company achieved a strong **Adjusted EBITDA margin of 33.5%** despite macroeconomic headwinds including wet weather delaying projects and elevated interest rates[2](index=2&type=chunk) - Strategic initiatives in the quarter included the formal launch of the Arcadia stormwater separator, scaling advanced treatment solutions at the newly acquired Orenco, and acquiring River Valley Pipe to strengthen geographic presence[2](index=2&type=chunk) - Management believes the company is well-positioned for long-term growth due to strong fundamentals and growing awareness of the value of stormwater and onsite wastewater management, which drives market conversion and demand[2](index=2&type=chunk) [Detailed Financial Performance](index=1&type=section&id=Detailed%20Financial%20Performance) Q1 FY2026 net sales grew **1.8% to $829.9 million**, driven by Infiltrator segment growth, while net income and diluted EPS declined Q1 Fiscal 2026 Key Financial Metrics | Metric | Q1 FY2026 | YoY Change | | :--- | :--- | :--- | | Net Sales | $829.9 million | +1.8% | | Net Income | $144.1 million | -11.2% | | Net Income per Diluted Share | $1.84 | -10.7% | | Adjusted EBITDA (Non-GAAP) | $278.2 million | +1.0% | | Adjusted EPS (Non-GAAP) | $1.95 | -5.3% | Q1 Fiscal 2026 Net Sales Breakdown by Segment (YoY) | Segment | Q1 FY2026 Sales (million USD) | YoY Change | | :--- | :--- | :--- | | Domestic Pipe | $415.5 | -2.5% | | Domestic Allied Products & Other | $187.5 | +1.9% | | Infiltrator | $178.4 | +21.1% | | International | $48.5 | -16.0% | - Gross profit decreased by **0.6% to $330.4 million**, primarily due to unfavorable fixed cost absorption and the mix impact from the Orenco acquisition[4](index=4&type=chunk) - Selling, general and administrative (SG&A) expenses rose **10.5% to $104.0 million**, largely driven by the acquisition of Orenco[5](index=5&type=chunk) [Balance Sheet and Liquidity](index=2&type=section&id=Balance%20Sheet%20and%20Liquidity) The company significantly improved liquidity, reducing net debt to **$792.0 million** and increasing operating cash flow to **$275.0 million** Key Balance Sheet and Cash Flow Metrics (as of June 30, 2025) | Metric | Value (million USD) | Change from Prior Period | | :--- | :--- | :--- | | Net Cash from Operating Activities | $275.0 | +$91.6 million (YoY) | | Free Cash Flow (Non-GAAP) | $222.4 | +$96.7 million (YoY) | | Net Debt | $792.0 | -$170.4 million (from Mar 31, 2025) | | Total Liquidity | $1,228.1 | N/A | | Leverage Ratio | 0.9x Adj. EBITDA | N/A | - The company did not repurchase any shares of its common stock in the three months ended June 30, 2025. Approximately **$147.7 million remains available** under the existing share repurchase authorization[10](index=10&type=chunk) [Fiscal 2026 Outlook](index=2&type=section&id=Fiscal%202026%20Outlook) The company reaffirmed its FY2026 guidance, projecting net sales between **$2.825 billion and $2.975 billion** and Adjusted EBITDA of **$850 million to $910 million** Fiscal Year 2026 Guidance | Metric | Expected Range | | :--- | :--- | | Net Sales | $2.825 billion - $2.975 billion | | Adjusted EBITDA | $850 million - $910 million | | Capital Expenditures | $200 million - $225 million | [Financial Statements and Reconciliations](index=4&type=section&id=Financial%20Statements%20and%20Reconciliations) This section presents the consolidated financial statements and detailed reconciliations for key non-GAAP financial measures [Consolidated Financial Statements](index=4&type=section&id=Consolidated%20Financial%20Statements) This section presents unaudited consolidated statements of income, balance sheets, and cash flows for Q1 FY2026, showing revenue growth but lower net income [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Q1 FY2026 net sales increased to **$829.9 million**, but income from operations and net income declined due to higher costs Consolidated Income Statement Highlights (Three Months Ended June 30, in thousands USD) | (In thousands, except per share data) | 2025 | 2024 | | :--- | :--- | :--- | | Net sales | $829,880 | $815,336 | | Gross profit | $330,438 | $332,454 | | Income from operations | $205,746 | $226,215 | | Net income attributable to ADS | $143,922 | $161,402 | | Diluted net income per share | $1.84 | $2.06 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to **$3.91 billion** as of June 30, 2025, driven by a significant rise in cash and stockholders' equity Consolidated Balance Sheet Highlights (in thousands USD) | Account | June 30, 2025 | March 31, 2025 | | :--- | :--- | :--- | | Cash | $638,268 | $463,319 | | Total Current Assets | $1,517,026 | $1,324,783 | | Total Assets | $3,909,945 | $3,690,360 | | Total Liabilities | $2,131,669 | $2,054,572 | | Total Stockholders' Equity | $1,690,291 | $1,543,136 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly increased to **$275.0 million** in Q1 FY2026, resulting in a **$175.0 million** net cash increase Consolidated Cash Flow Highlights (Three Months Ended June 30, in thousands USD) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $274,977 | $183,426 | | Net cash used in investing activities | $(69,934) | $(57,217) | | Net cash used in financing activities | $(31,132) | $(73,895) | | Net change in cash | $175,009 | $51,522 | [Segment Results](index=7&type=section&id=Segment%20Results) In Q1 FY2026, Infiltrator segment sales grew significantly to **$178.4 million**, while Pipe and International sales declined Net Sales from External Customers by Segment (Three Months Ended June 30, in thousands USD) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Pipe | $415,538 | $426,388 | | Infiltrator | $178,353 | $147,302 | | Total International | $48,491 | $57,705 | | Allied Products & Other | $187,498 | $183,941 | | **Total Consolidated** | **$829,880** | **$815,336** | - In Q1 FY2026, the company realigned certain wastewater products from the Pipe and Allied Products & Other segments to the Infiltrator segment. Prior period segment information has been recast to conform to the new presentation[25](index=25&type=chunk) [Non-GAAP Reconciliations](index=7&type=section&id=Non-GAAP%20Reconciliations) This section provides detailed reconciliations of non-GAAP financial measures, including Adjusted Gross Profit, EBITDA, Free Cash Flow, and Adjusted EPS [Reconciliation of Adjusted Gross Profit](index=8&type=section&id=Reconciliation%20of%20Adjusted%20Gross%20Profit) Total Segment Adjusted Gross Profit for Q1 FY2026 increased to **$365.6 million**, resulting in a GAAP Gross Profit of **$330.4 million** Reconciliation of Adjusted Gross Profit (Three Months Ended June 30, in thousands USD) | Description | 2025 | 2024 | | :--- | :--- | :--- | | Total Segment Adjusted Gross Profit | $365,606 | $361,007 | | Depreciation and amortization | (33,512) | (27,212) | | Stock-based compensation expense | (1,656) | (1,341) | | **Total Gross Profit (GAAP)** | **$330,438** | **$332,454** | [Reconciliation of Adjusted EBITDA](index=8&type=section&id=Reconciliation%20of%20Adjusted%20EBITDA) Adjusted EBITDA for Q1 FY2026 was **$278.2 million**, reconciled from GAAP Net Income by adding back non-operating and non-cash expenses Reconciliation of Net Income to Adjusted EBITDA (Three Months Ended June 30, in thousands USD) | Description | 2025 | 2024 | | :--- | :--- | :--- | | Net income | $144,091 | $162,322 | | Depreciation and amortization | 50,228 | 41,098 | | Interest expense | 23,029 | 22,824 | | Income tax expense | 46,674 | 49,886 | | **EBITDA** | **$264,022** | **$276,130** | | Other Adjustments | 14,145 | (4,632) | | **Adjusted EBITDA** | **$278,167** | **$275,498** | [Reconciliation of Free Cash Flow](index=8&type=section&id=Reconciliation%20of%20Free%20Cash%20Flow) Free Cash Flow significantly improved to **$222.4 million** in Q1 FY2026, derived from operating cash flow less capital expenditures Reconciliation of Free Cash Flow (Three Months Ended June 30, in thousands USD) | Description | 2025 | 2024 | | :--- | :--- | :--- | | Net cash flow from operating activities | $274,977 | $183,426 | | Capital expenditures | (52,598) | (57,715) | | **Free cash flow** | **$222,379** | **$125,711** | [Reconciliation of Adjusted Earnings per Share](index=10&type=section&id=Reconciliation%20of%20Adjusted%20Earnings%20per%20Share) Adjusted Earnings per Share for Q1 FY2026 was **$1.95**, reflecting adjustments for restructuring, realignment, and transaction costs Reconciliation of Diluted EPS to Adjusted EPS (Three Months Ended June 30, USD) | Description | 2025 | 2024 | | :--- | :--- | :--- | | Diluted Earnings Per Share (GAAP) | $1.84 | $2.06 | | Restructuring and realignment expense | 0.13 | — | | Transaction costs | 0.01 | — | | Income tax impact of adjustments | (0.03) | — | | **Adjusted Earnings per Share** | **$1.95** | **$2.06** |

Investors with an interest in Building Products - Miscellaneous stocks have likely encountered both Heidelberg Materials AG Unsponsored ADR (HDLMY) and Advanced Drainage Systems (WMS) . But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out. The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank is a proven strategy that targets companies with p ...

Core Insights - PULPO WMS has launched an advanced integration with Microsoft Dynamics 365 Business Central, developed in partnership with Aident, enhancing warehouse management capabilities for users of Business Central [1][3][4] Group 1: Integration Details - The integration combines PULPO's mobile-first WMS technology with Aident's expertise in Microsoft Dynamics 365 Business Central implementations, providing a comprehensive warehouse management system [3][4] - This integration allows for seamless data flow between Business Central and PULPO WMS, automating inbound and outbound workflows, achieving real-time inventory visibility, and synchronizing master data [5][11] Group 2: Strategic Partnership - Aident's extensive project experience across various sectors has enabled the development of this integration to meet the complex warehouse management needs of international businesses [4][9] - The partnership ensures successful deployment and optimization of the integrated system, supported by Aident's consulting and project management services [7][9] Group 3: Company Profiles - PULPO WMS is designed for fast-growing e-commerce merchants, 3PL providers, and brands with in-house fulfillment, operating in 25 countries [8] - Aident specializes in the introduction, adaptation, and optimization of ERP solutions for businesses, focusing on developing industry-specific functionalities for Microsoft Dynamics 365 Business Central [9]

Core Insights - The article discusses the author's background in analytics and accounting, highlighting over 10 years of experience in the investment arena, starting as an analyst and progressing to a management role [1]. Group 1 - The author holds a master's degree in Analytics from Northwestern University and a bachelor's degree in Accounting [1]. - The author has a personal interest in dividend investing and aims to share insights with the Seeking Alpha community [1].

Group 1 - The article highlights Advanced Drainage Systems, Inc. (NYSE: WMS) as a focus, noting that the stock has decreased approximately 40% from its summer highs [2] - In May, the company reported quarterly results that included an increase in its dividend payout [2] - The Insiders Forum, which specializes in small and mid-cap stocks, aims to outperform the Russell 2000 benchmark over time [2]