Zurn Elkay Water Solutions (ZWS) 24 Apr 242024 Q1 Earnings call transcript

Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2024 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer; Mark Peterson, Senior Vice President and Chief Financial Officer; and Dave Pauli, Vice President of Investor Relations for Zurn Elkay Water Solutions. A replay of the conference call will be available as a webcast on the company's Investor Relations website. At this time, for opening remarks and introduction, I'll turn the call over to Dave Pauli.

Good morning, everyone. Thanks for joining us on the call today.

Before we begin, I would like to remind everyone that this call contains certain forward-looking statements that are subject to the safe harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC.

will non-GAAP comparisons some addition, refer measures. to In

and filings information These use provide GAAP to better about earnings to and release speak non-GAAP information. and they measures additional certain the our understanding results. are GAAP, our SEC you Water and investors operating substitute that, helpful quarters, I'll they're in in we we Our a information Consistent over turn encourage these with and the and the we Chairman feel contain Solutions. Zurn our review measures, CEO non-GAAP Adams, we filings. With metrics not GAAP believe a reconciliations Elkay we prior contain for release call to why of will earnings corresponding them Todd to why of to SEC as

everyone, I'll taking institutional, the price with roughly view quarter. start little had hopefully, a and thanks the driving pockets perspective, coming so residential night. last last to be in initiative X go with Dave, of of for continues expectations same, cash time Thanks, and that months had weakness year. QX gains, expect commercial the earnings of flattish to flow, our To to end our some growth X. what XXXX chase, the the to XXXX growth market And and chance strength and over heading bit morning, morning. steady or had in we've ahead for we From the all listen sales, share solid course everyone look right we a and cut to the start of Page good into to on release this the with for the through

yield as together integrated on as operate with the go expand the of businesses single room more margins a the throughout balance truly bring Elkay to early the The Zurn did compounding of reality to benefits cash and continue flow totally we through the business. we've read the integration XXXX. Our we the delivered to and synergies as results is

are of activities all supply overall benefits out our So productivity, rolling continuous all compounding business, business benefits, the in happen the Elkay of are as as all day in, the system. deployment improvement chain the across of that part of day Zurn the pricing

established a later margins in the little As XX%. and drive outlook, in Mark basis confidence -- to points outlook for continue of we're hear XXX through full our a expansion high as XXX you'll year we've margin to from we with raising goes XX.X% and when the range the margin basis XXX QX have will profile result, to to the points

strong flow do million with to XXX,XXX repurchase coupled generated plan quarter, a the margins, $XX shares to business over used first we that with with of model in cash the course free about Our of and to high drive our the million consistently flexible continue $XX the we year. of that our

Mark. over it to turn I'll Now

#X. Todd. Thanks, to turn Slide Please

was in respect growth quarter, markets. our order sales the With our to line points year-over-year basis as a in flattish basis. in year-over-year offset quarter. first year-over-year growth to X core book-to-bill Our Mid-single-digit ratio on markets by sales partially end end XXX in million nonresidential growth and forma $XXX our demand residential sales was pro sales totaled the with was increased first quarter core our

initiatives, with in our with quarter growth a market Todd ago. mentioned which bit better expectations. sales consistent As our XX earlier, performance slightly We days our the drove end did above the outlook trends were

expansion compared the was quarter transportation material year X expanded to EBITDA synergies year and XXX costs points in to EBITDA first by initiatives, XX% lower adjusted the benefits The prior increased Turning year-over-year margin cost driven and basis ago. of strong our the plus XX.X% to to profitability, our of million our first inclusive year margin productivity $XX quarter from adjusted quarter.

For we discussed I'll Please balance million sheet details in first XXXX, days and further calendar of more With in net and will cover to X.Xx on repurchase year XXXX, turn some I'll XX we quarter than the later bit of be X, leverage better year-over-year our reduced of to quarter. deployed leverage inclusive that end December ago, from margin believe at respect touch and the debt our shares additional the our the highlights. to the leverage, we expansion call. X.Xx Slide high-level at $XX to XX, a

allocation have to continued focused back Todd. turn on allocation have remain strategy balanced capital a as optionality. discussed, forward. I'll we And call the We excellent capital to we will going

Thanks, Mark, X. Page back and on I'm

course we've the Over last safe communicate opportunity competitive significant the advantage year, and have the tried the we drinking category. of to clean, water in

update, double digits quick we're of continue drinking perspective capturing filters. and top QX much while grow business the from revenue of very our at number a to a from filtered As to installed water portion grow the recurring on units line track overall

the year from growth, we've market water. the share happening questions have here's that are needle perspective. one just the Well, got so and dozens a profitability what the drinking the over course for besides example great and of things moving of of is been dozens us Some amongst else

market, costs. as We'd elastomer battery talking launched components and changes, XX replacing the technology, and a gaskets field the solved is approximately we've by which Here's lasts seals one the is than We've replace and #X owners, flush Hydro about batteries made recently a both in category, a both constant no decent biggest unit a retrofit eliminates position. We're an X. because traditional with that market unit with just only the failure. of hydro-powered of years have environmental with that are market in category. solenoid within to X operation whole, the X powered sensor The that the longer solenoid building Hydro we're maintenance-free the points labor battering and diaphragm, XXx saves as X it's the Hydro taken Hygienic and share where rubber are pain million estimate we our including valve, X $XXX

is that it which The stylish it's in with winning targets. to see QX solution, and in sustainability architects new in to national where and sustainability have something functional replace critical one builds with content impact and that just both flushing can X, want They our in more mind. and progress and available deliver we market. On as a to spec the reliability maintenance. Bluetooth large our with as full unrivaled monitoring, accounts and troubleshooting it's other designed We're connected well remote looks helps are our ability you predictive key portfolio retrofit as was and thing Page line toward this

customers, me continue levels impact growing water-related important, we elevate challenges We from products throughout the so we is water quarter new innovate came see address sustainable eliminating challenges from our and made a and to Whether our to health bottles, plastic proud single-use protect deliver our operate to GHG to and consumption building the recycled owners Last positive to a products of it's how X, continue potable and both on contaminants to for to just of attribute as this are really out and consumption, drive and more reduce vital that of central continue continue sustainability will we to or conservation. Water the U.S. public around in reducing energy with supply that to that environmental or deliver each sales water water address water reminder. business. filtering our content. one the resource products high The we vast Page reduce day sustainability buildings, is it's or natural usage, majority in is efforts of

Over going and on the defining about intentional it. several strategy really and past been years, then executing we've out our

page. on is single left. Starting it the a on Here

expect but business, measuring margin and organically engaged As laser-focused a markets, a water we've outcomes the us free in business about flow. embraced approach growth, product right, on common deployment first geographies correcting business finally, ZEBS. And running superior something Since coming business months faster X,XXX-point above-market with Zurn a seen the competitive talk growth, that middle, relentless team deployed and better to we've expansion categories, cultivated provides advantages a substantial we're aren't then and and to the language incremental what's drive highly our layers be from to and lot over years. In we of course the truly Elkay, QX turn on what simplicity This Hopefully, the where is that we and system internally the expand has a to ZEBS we've only organic inorganically it and able above-market XX satisfaction both over to that pure-play and the really hit this -- layers necessary. customer focus end we doing the over the North within in execution margins with be to to room some a not of and Mark cases, coming growth American cash capabilities to current that exceptional want to drives upon helps Elkay frame the customers and to outlook. been back communicate priority years. I'll or, things. us in both why our

quarter cover Thanks, for XXXX. to the for high-level our X, and our an and Todd. outlook of I'll guideposts Slide on second update Please turn calendar XXXX

range anticipate XXX EBITDA to forma digits are growth second margin sales year. to XXX adjusted quarter, the XX.X% to basis of over the expansion single the a to be low XXXX, we be For point of projecting core XX% which pro the year-over-year the we for in quarter in and prior our is

our point, believe forma we sales With growth changes margin, between the basis and our year, points XXX ago this For now outlined year-over-year. we at and expand XXX the we respect positive to approximately we days believe will XX adjusted will we EBITDA no still core full year-over-year. sales generate see to assumptions margin pro

expectation flow remains million. year for at $XXX cash free Our approximately unchanged the

expense, shares questions, just that the adjusted you X, remind for noncash expense, have depreciation assumptions interest to Before quarter for we Page compensation diluted our amortization, our open on call tax stock second outstanding. included rate, and we

prior calculate quarter line in open the the XXXX. We'll up executed XX-XX questions. for growth included product now pro core forma for to sales second adjusted year call sales the we've addition, In exits

[Operator from of Blair the with Bryan Your Instructions] question first line comes Oppenheimer.

the the growth about for some you focus infiltration? any points intense federally finer growth You the of and how offer your And level action team the rollout overall is at going on public both and seeing, multiyear PFOS, Are noted Lead, other continued there's on issues, filtration. and to you're rates double-digit drinking now state water government further and platform as opportunity? with thinking in

in I same, in the bit the little double-digit a we've that quarter-to-quarter, Bryan, at be look say the communicated past. is of course units you mean move over filtered it's but the that I around that when range. much growth, would Yes. that to very the should going year, absolutely the

algorithm I see that. then right really is of what the in terms growing to the think time. filtration faster significantly high growth than happened filtered of and we for be the a And single-digit long growth in period over as the of in quarter first sort us. And requires it what sort algorithm of units sort that's of obviously,

So probably much that of the any as drumbeat benefit. strategy legislation filtration you I'm see that after, that year It we'll over think balance to when the that's to -- continues and of that point. else and ramp. around next year benefit And core and that I into the think of year I over this the point seeing not everything we've just at sure really had. out, start is the coming the and we're

rollout implementation challenging. I were happen. I it's not is mean going these to to of It's I time. say think that the concerned have path takes things we think passed, all the that while that just some awfully

a as seeing what to, to today implemented. we've core get we're core this ultimately amplified and continuing think, have is success, we bit just business I expect gets thing so And had the and really the strategy it little

robust Makes there. A appreciate color QX, sense. for in a I strong the performance margin guide very pretty QX.

'XX, into in is margin, progression over the on guide So QX baked on back there does there. moderation? that to some half what year push for quarter? on imply Or margin? an QX? XX% and implied guide us Can drive when back It your little you conservatism contemplating team current X moderation a more walk it's through so What through nothing LTM for your may QX, basis full just

Yes.

it's certainly latter. think I the

next XX second think really to what seeing don't that less I the just that think I tell for quarter taken you approach we're comfort guidance would can that the I communicate the sort anything the half. there's you of is about over give we've back days. that

think start the trying cost this in, I margin, important. will the be the improvement year, year. of is be to just conservative margin flow sales is bit in we're what little second I that But think the a to you're year. gross it's at which the seeing from structure going and of Obviously, of all the come That half gross through a balance a kind improvement. through where sustain

And going going margin from we're confident that so sustainability to there's to second I less are don't point the in that see about things of think that inflation anything or horizon on us the the we give half. to

I think in. a just more function it's only we're days -- just of XX

think half, seeing. of then what all stuff. you but It's I QX happy the discrete set that looks revise we're We're like. a And nothing from we're look permanent really what perspective. with in second we'll giving at

Andrew of BNP Your next Buscaglia the with question line Paribas. comes from

wanted interest recent the to has so to begun is I Ed ask, rates change for Magi in Andrew. for This outlook on weeks.

wondering us construction resi on reserve spare the help outlook recent changing? detail non-resi was some and commentary I could you with if not So in

Yes.

is Ed, replace. understand and think, that, the when half then you look beyond is total of retrofit roughly to I half our mix, helps roughly institutional that it overall at

residential, happen while I in don't commercial sort aspect really margin, the to second a that couple the don't view so interest that the we rate think lower our think thought happen I interest the on a having and catalyst And changes I cut of of significant part ignite the of level, as I our so that not helps -- same environment fact was think growth business likely rate to going think or the half any that it's on the that. of of to

market. I think local think is the about thing a hyper to it's very

of of happening the in think quarter. could news part absorbing there's been country commercial part so the I of And in be think quarter as this commercial we've quarter cliff the a year, some in commercial residential and another opposite I the months, -- the country. And exact you what's the by space or one through part by go XX better bad for of is coming. don't

just things It's I talked think our then particularly lousy bad and are about a interest some growth, continued Hydro think absorbing we lower, the everyone But drinking news. Obviously, changes I share and was thinks see And And doing that would X think institutional. be how strength obviously if combat that's half we're gains think see what sensitive. about and we've what I I outlook. somewhat is as in better that initiative sort probably material like seen we it what it we're of market. around commercial to in we don't rate second environment. but talking we're to water

across leverage below full can M&A then ticking is what Very goes it and pipeline half on you helpful. flow was or if the outlook wondering as XXXX? the engine And the at just for through is you're cash us I update year with looking driving. second the X,

and funnel proprietary the maintained always process. we've That mean I Yes. is continuing.

something be over a a But the flow to perspective, that seen. the course not with start off or we're million. whether good I from year to is think of still really think I cash $XX converts

year quarter, I in were flat XXX. we think up first roughly and last at ended the

I to So do I But think cash we perspective, when think a generate to and to on significant going see a obviously proprietary great things are think from amount we're of in things that to going cultivate flow convert. But we're basis position. continue a cash. that continue I a

in continue continue forms we're got the to about, And think we cash execute like to our obviously so we we've to core can on a table. as of are But And then going cultivate uses against. of I that dividend perspective review going every that buyback we've that business, do talked the to We're M&A. all invest year.

going So I time. think, priorities we're the really to right we're some I to think funnel all good a work then the and continue in convert to in all, try at spot, to but get high

the line from question Baird. Michael next with Halloran Your comes of

at You've the X But product other on flow, for the quarter, water. we in different and obviously Maybe perspective helping out a safety got the the performance taking Pese drinking if of look categories, we on And called is hygienic, maybe from any that that notable number we're X kind of the the to can revenue if to get to? variance exclude be would the discussion, between net helpful. there calling getting Mike.

Mark. is this Yes,

you at I a think quarter categories, when look those there's other not in rates. meaningful the the in growth difference

you as we did So the in over exits deviate there's And back material out as really between and flow control, rates there that much systems, of pro difference expect we wrong, forma quarter. growth the not basis, the to very looking a when far if year is the XX-XX last on a categories I'm what don't not be in either. those in year to course

you're that in it. that the then to about in when specific Todd, we specifically enough. terms units we speaking the the filtered are filtration, does when filter are the -- filtration talking clarification, quick discussion a Got And we're Easy tail Or including rate? sale? speaking growth aftermarket of

on growth Well, an event. that's replacement double-digit growth rate double The the digits. discrete to the on range basis. rate low above filtration be high that single-digit That's filtered aftermarket basis in would a the unit annual filtered unit well be would

comes with Ritchie Goldman of line next Joe Your Sachs. the question from

now? the U.S., talk Can about are of outside U.S., like differences looks is also growing just your the we that it rationalization right maybe I the the in faster. SKU guys but -- regional your you recognize growth impacting

you're of what to to whether today? what talk your spur -- outside the So strategy U.S. achieve maybe achieving distribution doing you're just about it's your

created a some winning got probably And Mexico an when function rep that mean, through, They're perspective. bit just little -- in Elkay well. talking outside we've from again, say it's We've network. new in of it's those geographies and terrific a I supporting marketplace. of Canada reps think about the you really a we're U.S., I gone Well, we're of the really

magic just think we It's continue. with to it -- it's we're a small the expect and performance but it. don't I pleased to and any progress, there's So that number,

bit for that talking maybe a what productivity? on specifically in to Can what a guidance? that's you give about the margin the you pricing? No, then, more guess, good year. increase more expansion us up just color Like about for maybe it better Okay. bit just little Is you Is full guidance I expansion, year? the is hear. making drove And the feel and little more the margin full the took getting

I into year. Well, think, we came again, the

tried around provide I was are think that year. so a really we've this more things felt that for the both bit to and just we we year, And from a some to pretty other but some durable. be an We list on, important were of going outlook into we perspective progress be to going things synergy supply little that a working XXXX. next chain then us, maybe accelerated of had

the absolutely of I You a in, then thing have course put underestimate great spot And QX. saw got the perspective that's year. day through, the ourselves year. first the from and biggest you can't first the through people to quarter. It will thing reading in through day improvement. continuous read And the we've is X,XXX a bought in think done with really into really benefit balance the read through terrific We've in in over compounding the same the sourcing that out, teams just that quarter. that our gross We job profit see of a cost

then And in today. up And touch just so revisit see where are the we half. what a we're second taking as from we we'll it

big think thought other So we what for news do I it's year. here we there's could any of than don't the sort

we externally. in we're just think communicate sort of ourselves what pacing terms of I

line Your Jones comes of next Nathan from with question the Stifel.

My the on appreciate Adam for your flow million on question free unchanged guidance. cash $XXX is Farley guidance first year. relates This to Nathan. I a

flow by capital. conversion You quarter driven improvement working strong in had cash really significant the in

are further working there capital opportunities any through the So optimize my to is, year? question

difficult to this obviously, Well, full changed And Adam, always saw think obviously, out. that. to We've work we that comes a year I bias there's maybe point. at it'd just be But to at not I bit than think in it day better be. convince do and it's going you but a first quarter. solid that there are, stuff day the little some that a of we capital, not from And working

to working a the to here good on a And And that start. I there's and But we're get level sit there's trade $XXX don't makes think that capital. -- our to optimize that think know it and going I I so to business. don't we're work I opportunity for million know off margins, we a say it sense could that in

noncash the related in restructuring And that? then related that was to? was there quarter, savings any a And charge. there What are expected to

was in to this the quarter we're the we're Yes, things that year. that There the synergy through. some working restructuring charge related doing facility are actions

$XX million generating we're So it's all synergies in tied the that to Adam. fiscal 'XX,

Your from comes Mizuho. Linzey the next of question Brett line with

follow And at would I portfolio. margin the tone Are Just part been corporate wanted inventories the the How the average to great. down, characterize business? would channel other of you rest you total guys the to of resi be end we up on bit know how the and context made, you all net pie. XX% of part the of lower? portfolio. is about in Just the XX-XX moves of running any the think, profile a that the have as the relative on look you've little then I

slice in mean would yes, channel pie that it super resi overall inventory there's roughly I say From the of a low. I nothing I the there Yes. think, XX% think mean I I anywhere. growth. is, is perspective,

it not fleet the the average. margins, So but recovery. below in corporate It terms we is at is average. of it's if sort nothing see some But upside of

a advantage apart, be good in. parts nicely corporate look and average. sticking can want residential it's to up But come miles that piece. So think X so we a to but competitive when you below that or points we of of we're at But not build because the it's sort it's

to wasn't ago. the XX months XX so And case that

pretty end the No channel a inventory come a as up whole. margins So taken and nicely. market stable

what just configuration Obviously, about Okay. outcome is. Maybe just heavier outsourced the but election Great. going does question you could chain don't we be, on a then strategic model. nimble more have that Zurn the manufacturing know And maybe to how and is tariffs. talk a supply

up flex in different down can and you do If on. and regions so tariff enter we it another if regime.

Yes.

I that. certainly feel think we like

think or the I around don't tariffs and impact to us. aluminum. some steel aluminum import of newer related any that conversations We steel don't

supply perspective, for I one of been benefit avoiding working tariffs. last capture or think from really a chain incrementally of XX to reposition the things at of months chain that to our course XX the is the some of we've the supply

all when that when you are in think of taking tariffs. I moving those. chain those position of impact happened, XXXX, back of think minimize to we those. incredible avoid our still the to I flexibility dial We around impacted that showed by to supply volumes some So to further We're action

on we've forward. based we're of about success some what confidence amount think that we have things really navigating past a high that of maybe I experience, on so and talked will good got working being that the And are

and to, And last so skating -- right certainly team, finding of but XXXX. the to of we've in XXXX touch the is the and And our right into that and I months. XX supply then been end to see a for it's at XX we maybe doing expect the of some that year really benefit really the the chain think, puck, which suppliers a ahead the testament geographies

Appreciate the All the insight. right. Congrats on quarter.

the Markets. line question of next Jeff Your with from KeyBanc Hammond comes Capital

Bryan safe think around the there's PFAS. up of earlier specific but call, legislation drinking in water I Just funding the brought for kind EPA

more of would at put you utility, ago there's that from focused specific drinking anything a if Biden water I seems weeks on wondering I'm the water think out something or but cleanup affect just the use kind any or point a of of couple for at legislation? there that little knock administration in

Yes.

about come new several the Jeff, is us. school had onboarded I think of inquire and and a PFAS districts the us. legislation and certainly awareness, filtration number We've have helping

there's think like filters solves I is net per what these to down today, all if So mean out solve XX But it of that put microplastics. in, you a positive. of recently, else, to the think as parts I as well that, I problem the majority That's way our problems trillion. right? vast the one takes most filter anything

solve think of and problem the the sort so for low majority you can the decision, cost very a the when And initial thing for think And to of immediately. able vast that problem you about eliminate is being us. I

I government the on municipality think boat. slow municipal is funding level, the waiting a to solve municipality by this from at

is So the benefits able a I think today to problem solve doing communicating hundred what for we're really and value features and of of the being couple bucks.

but where -- bill, solution. bucks adoption of billions municipalities I a a dollars I a on have waiting -- flow think discrete as a you of solving and a hundred of for and for immediate that's there's And problem it's that about billions couple but ton got implemented terms awareness the tough versus particular drive more path high-quality because we helps the think to that that it, us. But so certainly think this in of funding around piece not it, of long

That's helpful.

seeing is your that just frame like was market Just there. what just seems was us just remind we're quite your on residential that some and to multifamily there. that's if exposure, seeing and what trying in you've robust, but a slow there? size maybe that within been It I'm

XX-XX, Jeff, multifamily versus we're if resi it our XX-XX single-family. at you call look -- it's piece, Yes,

for way small it flattish that seeing other. when us us. that the -- outlook out not puzzle. for We're a needle in the That's or of you think kind anything it's it's I of break the piece X that's embedded moving

it material it's a year. So at the mover -- or we one other needle way for end day, the as of the see not don't the

Yes.

about multifamily, think of basically, think to I the So it, roughly is Jeff. pie the half would be residential way

Okay. then from a of Elkay last And insider family some member We've little selling, CAT the CAT, the seen and the constituents. one. I think, --

that? is with you they any to to feedback one, on if this sell, And kind if have do bigger leading more did could wondering, something or buyback a a guys diversification? fine-tuning Just kind of of

more of be of larger of do managing. on obviously, there this things financial a This that because suspect be got think at family some there's mean, intention and and some of I own to But stock marketed of we a time offering. we're was is lockup say, We next sure all do well a mutually course goes all will may I making they communicated I place years sell think think point it they've selling some hold the larger over very buyback. piece We've over our to the think up. aligned really can the for time. But -- we're a reorganization if I that Yes. But of just to telegraphed be price there's significant personal several wanted time, that would the a leverage that -- with. certainly couple can end coming work. will yes, do the very, Obviously, this amount no I significantly the matters ended there communicated function long that there the some imminently. a a an portion is I that of, I of year. But us initial to indication

financial don't And to initial I think it the doing. family so some planning anything there's but beyond into I just read -- that think that is

closing further Pauli no turn the now back for call are will There questions to time. Dave I remarks. this at

in we in interest today. when providing us Solutions, update appreciate Thanks, next we joining to results a Have July. your quarter our Zurn the look our good June Elkay on day. Water everyone, announce late and forward call We for

This concludes call. today's

may disconnect. You now