WMS

Unless the context otherwise indicates or requires, as used in this Quarterly Report on Form 10-Q (“Form 10-Q”), the terms “we,” “our,” “us,” “ADS” and the “Company” refer to Advanced Drainage Systems, Inc. and its directly- and indirectly-owned subsidiaries as a combined entity, except where it is clear that the terms mean only Advanced Drainage Systems, Inc. exclusive of its subsidiaries. We consolidate our joint ventures for purposes of GAAP, except for our South American Joint Venture. Our fiscal year begins on April 1 and ends on March 31. Unless otherwise noted, references to “year” pertain to our fiscal year. For example, 2027 refers to fiscal 2027, which is the period from April 1, 2026 to March 31, 2027. The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with our Condensed Consolidated Financial Statements and related footnotes included elsewhere in this Form 10-Q and with the audited Consolidated Financial Statements included in our Fiscal 2026 Form 10-K, as filed with the Securities and Exchange Commission (the “SEC”) on May 21, 2026. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. This discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in the forward-looking statements. For more information, see the section entitled “Forward-Looking Statements.” Overview ADS is the leading manufacturer of innovative water management solutions in the stormwater and onsite septic wastewater industries, providing superior drainage solutions for use in the construction and agriculture marketplaces. Our innovative products, for which we hold many patents, are used across a broad range of end markets and applications, including non-residential, residential, infrastructure and agriculture applications. We have established a leading position in many of these end markets by leveraging our national sales and distribution platform, industry-acclaimed engineering support, overall product breadth and scale plus manufacturing excellence. Executive Summary First Quarter Fiscal 2027 Results •Net sales increased 20.6% to $1,001.1 million •Net income from continuing operations increased 22.5% to $176.6 million •Adjusted EBITDA, a non-GAAP measure, increased 28.8% to $358.3 million Net sales increased $171.2 million, or 20.6%, to $1,001.1 million, as compared to $829.9 million in the prior year quarter. Stormwater sales increased $157.8 million, or 24.2%, to $809.4 million. Stormwater sales include $94.7 million of revenue from the acquisition of NDS. Wastewater sales increased $13.4 million, or 7.5%, to $191.7 million. Gross profit increased $77.6 million, or 23.5%, to $408.0 million as compared to $330.4 million in the prior year. The increase in gross profit is primarily driven by the acquisition of NDS, volume growth, and favorable price/cost and manufacturing costs, partially offset by higher transportation costs. Adjusted EBITDA, a non-GAAP measure, increased $80.1 million, or 28.8%, to $358.3 million, as compared to $278.2 million in the prior year. As a percentage of Net sales, Adjusted EBITDA was 35.8% as compared to 33.5% in the prior year. - 21 - Table of Contents Results of Operations Comparison of the Three Months Ended June 30, 2026 to the Three Months Ended June 30, 2025 The following table summarizes our operating results as a percentage of Net sales that have been derived from our Condensed Consolidated Financial Statements for the periods presented. We believe this presentation is useful to investors in comparing historical results. Consolidated Statements of Operations data: For the Three Months Ended June 30, (In thousands) 2026 2025 Net sales $ 1,001,112 100.0 % $ 829,880 100.0 % Cost of goods sold 593,065 59.2 499,442 60.2 Gross profit 408,047 40.8 330,438 39.8 Selling, general and administrative 130,818 13.1 103,961 12.5 Loss on disposal of assets and costs from exit and disposal activities 2,621 0.3 7,024 0.8 Intangible amortization 20,060 2.0 13,707 1.7 Income from operations 254,548 25.4 205,746 24.8 Interest expense 27,040 2.7 23,029 2.8 Interest income and other, net (1,452) (0.1) (6,705) (0.8) Income before income taxes 228,960 22.9 189,422 22.8 Income tax expense 53,689 5.4 46,674 5.6 Equity in net income of unconsolidated affiliates (1,297) (0.1) (1,343) (0.2) Net income from continuing operations 176,568 17.6 144,091 17.4 Net loss from discontinued operations (5,653) (0.6) — — Net income 170,915 17.1 144,091 17.4 Less: net income attributable to noncontrolling interest 2,394 0.2 169 — Net income attributable to ADS $ 168,521 16.8 % $ 143,922 17.3 % Net sales - The following table presents Net sales to external customers by reportable segment for the three months ended June 30, 2026 and 2025. (Amounts in thousands) 2026 2025 $ Variance % Variance Stormwater $ 809,376 $ 651,527 $ 157,849 24.2 % Wastewater 191,736 178,353 13,383 7.5 Total Consolidated $ 1,001,112 $ 829,880 $ 171,232 20.6 % Our consolidated Net sales for the three months ended June 30, 2026 increased by $171.2 million, or 20.6%, compared to the same period in fiscal 2026. The increase in Stormwater sales was primarily driven by NDS net sales of $94.7 million and an increase in volume in both Pipe and Allied Products. The increase in Wastewater sales was primarily driven by volume. Cost of goods sold and Gross profit - The following table presents gross profit by reportable segment for the three months ended June 30, 2026 and 2025. (Amounts in thousands) 2026 2025 $ Variance % Variance Stormwater $ 302,130 $ 233,484 $ 68,646 29.4 % Wastewater 104,320 97,711 6,609 6.8 Intersegment eliminations 1,597 (757) 2,354 (311.0) Total gross profit $ 408,047 $ 330,438 $ 77,609 23.5 % Our consolidated Cost of goods sold for the three months ended June 30, 2026 increased by $93.6 million, or 18.7%, and our consolidated Gross profit increased by $77.6 million, or 23.5%, compared to the same period in fiscal 2026. The increase in gross profit for Stormwater is primarily due to the acquisition of NDS, volume growth, and favorable price/cost and manufacturing costs, partially offset by higher transportation costs. The increase in gross profit for Wastewater was driven by volume. - 22 - Table of Contents Selling, general and administrative expenses Three Months Ended June 30, (Amounts in thousands) 2026 2025 Selling, general and administrative expenses $ 130,818 $ 103,961 % of Net sales 13.1 % 12.5 % Selling, general and administrative expenses for the three months ended June 30, 2026 increased $26.9 million from the same period in fiscal 2026 and as a percentage of Net sales, increased by 0.6%. The increase in Selling, general and administrative expenses was primarily due to the operating expenses of NDS, integration costs of $3.2 million and increased stock-based compensation due to performance. Loss on disposal of assets and costs from exit and disposal activities - The loss on disposal in fiscal 2026 was due to exit and disposal activities. See “Note 3. Restructuring and Loss (Gain) on Disposal of Assets and Costs from Exit and Disposal Activities” for additional information. Intangible amortization - Intangible amortization increased by $6.4 million primarily due to the increase in intangible assets due to the NDS acquisition. Interest expense - Interest expense for the three months ended June 30, 2026 increased by $4.0 million from the same period in fiscal 2026. The increase was primarily due to increased debt levels. Interest income and other, net - Interest income and other, net decreased by $5.3 million for the three months ended June 30, 2026 compared to the same period in fiscal 2026. The decrease was primarily due to decreased cash balances. Income tax expense - The following table presents the effective tax rates for the periods presented: Three Months Ended June 30, 2026 2025 Effective tax rate 23.4 % 24.6 % The change in the effective tax rate for the three months ended June 30, 2026 was primarily related to a discrete income tax benefit for the change in valuation allowance on deferred tax assets for net losses on outside basis differences. See “Note 11. Income Taxes” for additional information. Net loss from discontinued operations - The loss from discontinued operations was attributable to the NDS International entities classified as held for sale as of June 30, 2026. Adjusted EBITDA and Adjusted EBITDA Margin - Adjusted EBITDA and Adjusted EBITDA Margin, which are non-GAAP financial measures, have been presented in this Form 10-Q as supplemental measures of financial performance that are not required by, or presented in accordance with GAAP and should not be considered as alternatives to net income as measures of financial performance or cash flows from operations or any other performance measure derived in accordance with GAAP. We calculate Adjusted EBITDA as net income from continuing operations before interest, income taxes, depreciation and amortization, stock-based compensation expense, non-cash charges and certain other expenses. We calculate Adjusted EBITDA Margin as Adjusted EBITDA divided by Net sales. Adjusted EBITDA and Adjusted EBITDA Margin are included in this Form 10-Q because they are key metrics used by management and our board of directors to assess our consolidated financial performance. These non-GAAP financial measures are frequently used by analysts, investors and other interested parties to evaluate companies in our industry. In addition to covenant compliance and executive performance evaluations, we use these non-GAAP financial measures to supplement GAAP measures of performance to evaluate the effectiveness of our consolidated business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We use Adjusted EBITDA Margin to evaluate our ability to generate profitable sales. Adjusted EBITDA and Adjusted EBITDA Margin contain certain other limitations, including the failure to reflect our cash expenditures, cash requirements for working capital needs, cash expenditures to replace assets being depreciated and amortized and interest expense, or the cash requirements necessary to service interest on principal payments on our indebtedness. In evaluating Adjusted EBITDA and Adjusted EBITDA Margin, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments in this presentation, such as stock-based compensation expense, derivative fair value adjustments, and foreign currency transaction losses. Management compensates for these limitations by relying on our GAAP results and using non-GAAP measures on a supplemental basis. - 23 - Table of Contents The following table presents a reconciliation of Adjusted EBITDA to Net income, the most comparable GAAP measure, for each of the periods presented. Three Months Ended June 30, (In thousands) 2026 2025 Net income from continuing operations $ 176,568 $ 144,091 Depreciation and amortization 62,157 50,228 Interest expense 27,040 23,029 Income tax expense 53,689 46,674 EBITDA 319,454 264,022 Restructuring and realignment expense(a) 5,336 8,795 Loss on disposal of assets 459 1,198 Stock-based compensation expense 13,274 8,404 Transaction costs(b) 3,244 807 Inventory step up related to acquisition of NDS 14,197 — Interest income (1,291) (5,405) Other adjustments(c) 3,597 346 Adjusted EBITDA $ 358,270 $ 278,167 Adjusted EBITDA Margin 35.8 % 33.5 % (a)Includes costs associated with closure of one distribution yard, as well as professional fees incurred in connection with supporting enterprise-wide restructuring and realignment initiatives. Excludes gain on sale of properties previously held-for-sale and equipment. See “Note 3. Restructuring and (Loss) Gain on Disposal of Assets and Costs from Exit and Disposal Activities” for additional information. (b)Represents expenses recorded related to legal, accounting and other professional fees incurred in connection with business or asset acquisitions and dispositions. (c)Includes derivative fair value adjustments, foreign currency transaction (gains) losses, the proportionate share of interest, income taxes, depreciation and amortization related to the South American Joint Venture, which is accounted for under the equity method of accounting and executive retirement expense. Liquidity and Capital Resources Historically, we have funded our operations through internally generated cash flow supplemented by debt financings, equity issuance and finance and operating leases. These sources have been sufficient historically to fund our primary liquidity requirements, including working capital, capital expenditures, debt service and dividend payments for our common stock. From time to time, we may explore additional financing methods and other means to raise capital. There can be no assurance that any additional financing will be available to us on acceptable terms or at all. Free Cash Flow - Free cash flow is a non-GAAP financial measure that comprises cash flow from operations less capital expenditures and is used by management and our Board of Directors to assess our ability to generate cash. Accordingly, free cash flow has been presented as a supplemental measure of liquidity that is not required by, or presented in accordance with GAAP, because management believes that free cash flow provides useful information to investors and others in understanding and evaluating our ability to generate cash flow from operations after capital expenditures. Free cash flow is not a GAAP measure of our liquidity and should not be considered as an alternative to cash flow from operating activities as a measure of liquidity or any other liquidity measure derived in accordance with GAAP. Our measure of free cash flow is not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation. The following table presents a reconciliation of free cash flow to cash provided by operating activities, the most comparable GAAP measure, for each of the periods presented: Three Months Ended June 30, (Amounts in thousands) 2026 2025 Net cash provided by operating activities $ 260,395 $ 274,977 Capital expenditures (57,151) (52,598) Free Cash Flow $ 203,244 $ 222,379 - 24 - Table of Contents The following table presents key liquidity metrics utilized by management including the leverage ratio which is calculated as net debt divided by the trailing twelve months Adjusted EBITDA: (Amounts in thousands) June 30, 2026 Total debt (debt and finance lease obligations) $ 1,765,658 Cash 162,251 Net debt (total debt less cash) 1,603,407 Leverage Ratio 1.5 The following table summarizes our available liquidity for the period presented: (Amounts in thousands) June 30, 2026 Revolver capacity $ 750,000 Less: outstanding borrowings — Less: letters of credit (11,365) Revolver available liquidity $ 738,635 As of June 30, 2026, we had $24.8 million in cash that was held by our foreign subsidiaries, including $9.8 million held by our Canadian subsidiaries. We continue to evaluate our strategy regarding foreign cash, but our earnings in foreign subsidiaries still remain indefinitely reinvested, except for Canada. We plan to repatriate earnings from Canada and believe that there will be no additional tax costs associated with the repatriation of such earnings other than any potential non-U.S. withholding taxes. Working Capital and Cash Flows As of June 30, 2026, we had $900.9 million in liquidity, including $162.3 million of cash and $738.6 million in borrowings available under our Revolving Credit Agreement, net of outstanding letters of credit. We believe that our cash on hand, together with the availability of borrowings under our Credit Agreement and other financing arrangements and cash generated from operations, will be sufficient to meet our working capital requirements, anticipated capital expenditures, and scheduled principal and interest payments on our indebtedness for at least the next twelve months. Working Capital - Working capital decreased to $655.3 million as of June 30, 2026, from $721.4 million as of March 31, 2026. The decrease in working capital is primarily due to decreased cash on hand and increased accounts payable offset by increased accounts receivable due to seasonality. Three Months Ended June 30, (Amounts in thousands) 2026 2025 Net cash provided by operating activities $ 260,395 $ 274,977 Net cash used in investing activities (55,006) (69,934) Net cash used in financing activities (268,608) (31,132) Operating Cash Flows - Cash flows from operating activities decreased $14.6 million during the three months ended June 30, 2026 primarily driven by changes in working capital. Investing Cash Flows - Cash flows used in investing activities during the three months ended June 30, 2026 decreased by $14.9 million compared to the same period in fiscal 2026. The decrease in cash used in investing activities was due to the prior period acquisition of River Valley Pipe. Capital expenditures totaled $57.2 million and $52.6 million for the three months ended June 30, 2026 and 2025, respectively. Our capital expenditures for the three months ended June 30, 2026 were used primarily to support facility expansions, equipment replacements and technology improvement initiatives. We also acquired $2.8 million of property, plant and equipment under finance leases, which includes material handling transportation equipment to update our fleet of forklifts, trucks and trailers. We currently anticipate that we will make capital expenditures of approximately $200 million in fiscal year 2027, including approximately $110 million of open orders as of June 30, 2026. Such capital expenditures are expected to be financed using funds generated by operations. - 25 - Table of Contents Financing Cash Flows - During the three months ended June 30, 2026, cash used in financing activities included the repurchase of common stock of $233.2 million, $15.3 million of dividend payments, $10.7 million for shares withheld for tax purposes and $9.5 million of payments of finance lease obligations. During the three months ended June 30, 2025, cash used in financing activities included $14.0 million of dividend payments, $8.3 million of payments of finance lease obligations and $6.7 million for shares withheld for tax purposes. Financing Transactions - There have been no changes in our debt disclosures from those disclosed in “Liquidity and Capital Resources” in our Fiscal 2026 Form 10-K. We are in compliance with our debt covenants as of June 30, 2026. Off-Balance Sheet Arrangements Excluding the guarantees of 50% of certain debt of our unconsolidated South American Joint Venture as further discussed in “Note 8. Related Party Transactions” to the Condensed Consolidated Financial Statements, we do not have any other off-balance sheet arrangements. As of June 30, 2026, our South American Joint Venture had no outstanding debt subject to our guarantees. We do not believe that this guarantee will have a current or future effect on our financial condition, results of operations, liquidity or capital resources. Critical Accounting Policies and Estimates There have been no changes in critical accounting policies from those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Fiscal 2026 Form 10-K, except as disclosed in “Note 1. Background and Summary of Significant Accounting Policies.”