Zurn Elkay Water Solutions Corp Q4 FY2024 earnings call

• Sustainability: Continued to advance sustainability strategy, with tangible results in 2024, including product donations and advocacy for filter-first legislation. • Business System: Clear strategy around being a pure-play water business, using a business system rooted in continuous improvement. • Continuous Improvement: Institutionalized #CI (continuous improvement) with 3,749 unique submissions in 2024, up 33% from prior year, saving an aggregate of about $5.9 million. Aim for 5,000 submissions in 2025. • Three-Year Plan: Conducts a tops-down, bottoms-up three-year plan to allocate resources and set long-term incentives, with four breakthrough initiatives for 2025.

Fourth quarter sales totaled $371 million, representing 4% core and reported growth year-over-year. For the year, the company delivered 4% organic growth, with EBITDA growing about 15% to $390 million. Margins for the year ended at 24.9%, up 270 basis points. Free cash flow in the quarter was $55 million, bringing the full year to $272 million. Net debt leverage ended the year at 0.8x. The company deployed $150 million to share repurchases and $57 million to dividends for the year.

• 2025 Outlook: Expect core sales growth similar to 2024. Adjusted EBITDA projected to be $405 million to $420 million, free cash flow approximately $290 million. • First Quarter 2025: Projected core sales growth in low single-digits, adjusted EBITDA margin in range of 24.5% to 25%, which is 40 to 90 basis point margin expansion over prior year. • Tariffs: Actively monitoring tariff environment, with exposure to China expected to be less than 10% by end of 2026, having already reduced exposure significantly from prior years.

• Tariff Environment: Uncertainties in tariffs, though the company has navigated previous tariffs well and has a strategy to reduce exposure to China. • Market Uncertainties: General market uncertainties that could impact performance, but the company's continuous improvement and business system aim to mitigate these.

Q: Good morning guys. Nice finish to the year. Maybe offer a little more color on everything you've got – first, second half dynamics across institutional waterworks, resing, and commercial exposures.

A: Todd Adams mentioned that Dodge Starts data predicts a decent increase in starts from 2024 to 2025. Institutional, heavy in healthcare and education, could accelerate in the second half. Commercial may see some growth but not as much as institutional. First half looks like 2024 quarters.

Q: Your next question comes from the line of Nathan Jones with Stifel. Adam Farley on for Nathan. I wanted to start on expectations for tariffs. Were any incremental tariff impacts contemplated in the guidance range?

A: David Pauli said they haven't contemplated tariffs in guidance as the environment is changing rapidly. The company navigated prior tariffs well, has reduced exposure to China, and will react to tariffs accordingly. Todd Adams added they are laser-focused on price increases where needed and are well-prepared to navigate tariffs.

Q: Hey, good morning guys. Just on the vertical growth assumptions, one, I'm just wondering if anything has meaningfully changed in how you're thinking about those versus 90 days ago...

A: Todd Adams said the numbers are on the same trajectory as the update provided at the end of the quarter. When talking about institutional growth, it's the aggregate impact of starts, lead lag, etc. Jeffrey Hammond also asked about tariffs and exposure to China, with Todd Adams and David Pauli discussing current exposure to China and the company's ability to flex supply chains.