- Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to the Zurn Elkay Water Solutions Corporation Third Quarter 2022 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. This call is being recorded and will be available for one week. The phone numbers for the replay can be found in the earnings release the company filed in the 8-K with the SEC yesterday, October 25. At time for opening remarks and introductions, I will turn the call over to Dave Pauli.

Dave Pauli

Good morning, everyone and thanks for joining the call today.

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

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

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

Todd Adams

over that the some on taking XXXX. and There everyone XX in first And contains we'll two that we And color share issued through concerned made in that thinking perspective we're a and end, with in the progress about significant also the provide of businesses which the these everyone into amazing fold taking view night morning two performance significant good aligned everyone. we morning. a the just approach finally and categories perspective on detail of this into very this simplify taking Elkay we've is like. had Elkay go like respect from obviously that the beginning, the now bring was spend we're bring through the that a bit. sharing morning. work that essentially are the time businesses and the the We've days. moving earnings to we're really is time on as and with morning product quarter We'll we view how some looks from on And number parts integration path be last call appreciate the streamline to what release fourth we'll together some done Dave, The we'll the perspective, Thanks, the this the but outlook. clear,

with on margins As to it third growth, our heading relates and very solid quarter, the solid results the into track, cash line and much free flow. our Elkay of the quarter were quarter, core in expectations first

quarter X.Xx. and Our at expect further leverage between ended the reduction X.Xx X.Xx year the and December and we in in

to expectations unpack the digit for and the as provide just a as You'll I've our few a inclusive core years, which reiterated some core growth core equates the on and chart color the year, see quarter, for we our third guidance will growth well in XX% right XXXX for three both year. the and outlook for additional this quarter for with the fourth the minutes. growth Mark communicated in is of double line stacking throughout growth the past our

as for plus start business we of fully plan integrated for it embed and the plan Elkay. significant. plan that If significant putting all and new systems third Zurn And one is or be because party and it's a which now lines to one huge to team of all of the set harmonizing the Elkay weeks, start the into with up while rep around we're XXXX agencies into that wrapping their we're months or the to plans while practices. business doing We undertaking normal new over a will is a really third commercial four thing completed transacting single a X. portions have XXXX since you In to can us our We'll we even transaction. different Elkay create made representation Having is and as in we several of up The the on as competitive huge us XX XXXX. first plan changes, which change quality a our we've sets of opposed organizations first different our we synergy a will change a have expectations Zurn of has move not business. to Page our from that XX-days, behind lot is in But closed of asking integrated the common strategic reality the in days executing. growth products, leverage cadence amount next as independent so head progress business developing party learning

is whether owned we've a rationale being doing of for own Elkay thing a is them point the remember it across for privately the single business already distribution. deployment manager The significant and We roles Without organization. in business, made was categories, The done the around lines the and the as serving organizations as the other to business to single rigorous water, change growth. a with its had first on a XX:XX. SKUs, sense entire business, time. channels with with we months question, product product drinking profitable supply have a organization essentially established organization the way sinks way model in across is or things these entire in chain or marketing organize, engineering most sales well thing the certain Zurn as mirroring aligned and align at over management general that made We've focus or the single impactful certain customers four they it did,

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happen product the highlight level around. all in clear with the like quarter a the obligations our point And sink Hopefully, rate of of run sometime some core profitability that XXXX. assets Business want have this started returns The and business going to the this other but exit growth, And the what of exit we're can more and from share we also and maximize of this areas overnight. going thing look and this view. and Zurn of the drinking characteristics also core We've second commercial to we is, is same water associated value got it's fulfil. categories to build the that isn't estimate to contractual best to it's the we inventory

we X, mix If to forma I'll looks you how the pro of business the a turn after of think view rationalization. the Page share

the you'll categories see left, highly water around have profitable significant the aligned in. market shares specified we of On solutions, four advantages we're that in real competitive still

healthcare exposure. the we commercial and replace With being verticals between and our construction new of sub and significant institutional On right, have with exposure. U.S. retrofit largest institutional balance the a construction and nice education

time sinks, substitution residential of and a material forma to primarily in leverage of focusing business our look our over sold All-in-all, highlight. you built wildly business serve both The something will centers than online commercial. our revenues around. two home that come have at through comprising product revenues trend pro We residential When case where parts the by we quarter as through focused quarter, reality that our our number before five strategic or I'll to number well. the to packs only and from being over a third this or XX% and the do fourth that tightly position. isn't strategy we in offering is one different not are residential XXX% a the it Mark of and of or to think six have number we turn XX% on leveraged walk but

Mark Peterson

contributed Thanks control, coming softening balance to market, growth sales was increased a offset and year partially capture our Todd. On number digit with basis, from business completed environmental the of recently year-over-year product growth single and our XX% million. the realization non-residential and XX% year-over-year, price growth strategic with The hygienic core Drains to markets the third safety all growth. growth, growth year-over-year contributed acquisition sales control and $XXX high share prior by flow initiatives. Slide X. the core XX% sales water categories turn This residential to drove Please core quarter and our and Elkay merger the contributing Wade

Foreign currency basis reduced to third Elkay by quarter. about provide XXX sales on respect With color some points. translation the I'll

in business drinking water standard implemented driven digits declined comprised is on product price quarter as began XX:XX the and more OEM as non-residential realization discussed. private by the sink the well across market, basis double line all Our was the softening quickly and categories exit the within improving realization SKUs solid our in simplification we've sink The product and million product both which market water group improved mid-single sinks, $X Elkay digits overall quarter by price price than exits as actions commodity, certain in product residential the started groups. year-over-year as the product just residential I demand to of ZEBS realization categories commercial as of we label offset residential in a below

our our the our excluding Turning quarter of costs expectations profitability, at at corporate XX.X%. and for the the $XX end EBITDA million EBITDA totaled margin was to adjusted high adjusted in quarter

move in and well growth into and Elkay anticipated, As in the with these the and we margins initiatives. integrate did Elkay, year-over-year, we growth, price actions color our I'll as early to the to corporate to investments on margin Todd business basis Starting XXX digits becoming sheet can legacies touch and as of substantial quickly between transportation highlights. XXX low discussed material well inflation. impact structures prior on costs, businesses partially one. actions legacies million as decline some earlier in leverage and a X directional business, provide the With are quarter quarter we the the price in totaled sales points related the respect balance benefits discussed earned saw only X said, needed the to offset an productivity Please in call, investments That in improvement respect accelerating two and margins earlier, we With to on earned as adverse from quickly transportation integration business, one. well by benefits turn cost I to the expected. Slide inclusive quarter in as they approximately realization, was partially costs, realization third had by the the double our third as material of increase chain as as some some offset driven mid-teens as year the the our by XXXX from supply

expense with line term their well expectations the inclusion costs the combination. $XX pro leverage to adjusted related a in close, as net rate forma utilization and Elkay loan quarter transaction approximately of of Our million off legacy run debt as cash pay X.Xx, for the end annual of at to

did that into result goes the in during our quarter. a trigger base reduction, point a fourth rate we basis XX effect As terminal reduction leverage the of

continue the net X cover looked leverage. ending the anticipate outlook Slide in of the end Please the highlights debt at to year we we at As of year, X.Xx and quarter. to of for the some X.Xx to our fourth I'll turn

sales and $XXX costs, consolidated which corporate we details in projecting of the we're of XX% to million Zurn our inclusive quarter to be million on I'll quarter the million consolidated XX% quarter. of margin come in back range X. and the in be adjusted approximately to EBITDA expect For our Page XXXX, of $X the Elkay $XXX fourth the to some between

some our are Let's items of cover the Page to and the quarter fourth move quarter our that XX, walk of to sales on third outlook.

the regions fall and categories business the As has you groups. just the the as in know, well fourth lesser the the certain issue, in the a approximately to side third for quarter $XX you legacies fourth and unusual season quarter earned our in Elkay container But traditionally quarter due place. did usual Note, of degree fourth days, QX delays. as third quarter construction product slowdown to fewer enter we The as decline winter if to a given and Zurn year the primarily seasonality that the your was seasonal scheduled apply shipping take non-res product to shifted as year country. activity certain last of million and early QX shipments quarter impacts timing

might call, accelerated earlier well we have XX:XX in simplification discussed Todd the have As our actions.

level, past the to to better say thoroughly we've simplify plan days, Elkay XXXX. of on a second capital. of on growth, to to margins exits review XX SKU volume million late XX that we been focus business Over In and returns and the finalize half better the better at invested sales July, XX align in million to to at and least the level customer able

the fourth in XX with second from the our to XX half occurring exits XXXX, quarter XX quarter, With incremental place in in for analysis, sequential we an basis the of on million of taking QX already a QX. completion third million of exiting be X the will million million and

ago. quarter low third were the residential from softened residential experienced market days Lastly, has decline in we XX we our served In double digit where the market. a

serve of ahead fourth and into that we of the It's products approximately for decline, more include the our we we sales our outlook destocking. end the client and sentiment look end appears a customer to our fact stock just I'll calendar to that environment as that market more our quarter the we to note a on market given entering the result, third quarter, into are our the as quarter in built of As behavior we're XX% our cover be fourth be outlook as well to conservatism that the additional quarter the of for further third in items the By market the to be believe high And quarter. And the residential the outlook. -- slide. fourth deteriorating, fourth the and assumptions highlighted quarter year-over-year tend macro volatile. walk important residential right contraction in products side as of market into declines experienced anticipate could adding a the as year, some we

in improve third At guidance lower less product continued profitability than and our XX%. actions Exits to range price our third fourth one midpoint of are of the into integrate is midpoint to of Elkay sales the lower all sequential Turning margin quarter contributing the controls the range, our quarter to the for from margin margins, and despite decremental SKUs margin business the adjusted realization quarter. the sales. cost groups, the EBITDA to improving of

We to additional touch interest million. items few call on comments, be expense Page on for I'll $X some anticipate the over were a closing outlook our X. to turn approximately I Before Todd that

at Our come should in $X be non-cash $XX will million. amortization and about stock expenses million. Depreciation around comp

With to diluted to XX. will the back million be outstanding the XX%. pre-tax XX% adjusted And call Our to earnings tax Todd rate million be on that, I'll Page will XXX.X in on turn quarter. shares XXX.X approximately about

Todd Adams

Thanks, Mark.

took this wanted cover over ideal everyone appreciates an the it about turn last even perhaps be a XXXX transparency off we I conversations that your or and morning. have had of amount to bit went been Before a little scenario, just work some through questions, time. level little of decisions the to we you of bit simplification entire In this and lay just to the quarter would Hopefully perspective. we reality story is before, able needed and but

on simplification. quarter You know, reflect the on we And last with went, not pride on and I ourselves think I as it. happy you we're core know, how reflect we

we institutional of the the and 'XX The XXXX. on second. strong huge 'XX. -- always an that morning quarter. appreciate. the spend contractor providing In clarity but at we're see an of the aggregate, not hopefully profit, market strong. have the forma this look very the more But impact market construction Obviously, a purpose amount half on only community. in indicators be a pro some to fourth or can the margins perspective, I the the on We -- hyper-local. end From wanted non-residential we changes construction will dramatic construction mixed to in the so And taking on you a and Commercial appropriate in year, basis and record probably first 'XX momentum of time with than think continues can as we levels impact half, dollars will super will confidence backlog next cautious up exit be so as least exit view we're more more still believe be to first you confidently around

how to on develops. that watch So we'll continue

lagging we Our our any residential a is from Mark mortgage Residential not without things. residential model highlighted our adverse the of demand see are it's we're slowdown seeing product of of XX% only have impact And question should inside having impacted. saw and quotation volume, now reaction that near But growth an lines. where earlier, material variable however, across you and continue and the multifamily serve going inside continues Near to in as business. rates highly side board. whatsoever. to gotten impact on we're be a to have A seeing be term jerk as strong

that rep absorb, got don't benefit vast slow, cash have reductions and to And And inventory that of assemble in lines profitability backlog our supply our through which of we profile dollars flow and to smaller strong lower think we're XXXX of of very we've and seeing in costs we'll to finally, the lower on is live demand we benefit majority the distribution. next commissions. have input prices, have. a will In more when combination strong. chain Container are means all So ordered fixed way being the of be be the back costs flowing on will model all dynamics test and markets Lead should we challenge normal. that muted is we synergies design, two with that chain. inventory our a I markets the positive and our After any times sheet watch, years lot $XX impact selling a understanding relative product down dramatically lower start behavior other relatively costs And to how stable. to as something will are don't ESG to changes three we with the order on and continues end retail really end we sitting than all shelves expenses through scenario our great year much from impact U.S. procure procures think much a at that years, or We're a started. wholesale supply input generally rates. positive. And of the is variable higher But next have all QX, have QX the the and we heading into Particularly of for freight, some balance net I don't year up of year. improve. quite much a inventory confident a million monetize cost of -- -- the the with tied the throughout we we are

all on going As the the System sit both key questions. business we months. believe lot call look other business the full a the as water. overall and deliver to marketplace takeaway resilient for Zurn we'll continue add is on that model, the open our With that a we and with half over pillars We're our think value Coupled half point of Business we to great But empty years. to this time monitor the more year, of in over time. lot our at than coming We to And next setup and everyone's business a it the of that that, years team. four up is, Elkay we a tonne focus this we appreciate your coming shareholders our morning. this at from here can

Operator

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

Bryan Blair

much healthcare and as then, projects education question of reset I just how verticals those key resi-side, guess ahead I appreciate And setup. and I team after we the is a detail you New XXXX the course, know, can sides about maybe And your setup guess, the how Year. in core QX? are perspectives progressing the interested we are on pain how on growth is little non-residential and your is approach the channel if the the of -- offer on more for QX, thinking of

Todd Adams

I 'XX to to country, roll levels. cycle, And whole, all through overall is for at the know, of institutional record a across think business. build And taken when they're as that the near about end non-residential, it's probably approaching we XX% backlogs amount Yes. Look, our at as you that you of look at look 'XX. really time the of it's and going you take when think part of

quotation Our to really good. levels be continuing are

aggregate. know, that going is believe year, to in be up the And you so, next market we

time construction commercial first XX that in more is, But to retail mixed. we're you in for continue the I the years. think growth seeing segment office be of will know, muted. Obviously,

hyperlocal a really that's think game. a I So, very

the So, Midwest of to and see Southern Northeast. Florida California as a lot Texas in you the activity might and in Upper and much maybe not

three year, points. a to next the as taken whole, we one is So, think up market

the I as and there, of do think waterworks. to into non-residential months that But market we're think course as going well four is in going in next to the monitor be the it year. over growth I next

be housing thought the relates you pain which, to a of of at not fourth it's step critical places you it still to strong is more third lines people look, in some six But to be new quarter as perhaps going level live. residential know, product things that of same take is in back, everyone as as quarter, the the as sort highlighted. far trend around frankly, in continue but to we giant more so some to is months going you the took There construction, built. some need multifamily when And ago, the take under the level we have, should know, we're

we're would to But think quarter be next quarter or the and as second know, and big dodgy. to as it's that sort two, headwind half XXXX. year, will the hopefully of I so, going likely and quarter is say I on was little And of you for start we not we third by a be get time next in the residential play fourth the as a the it

Bryan Blair

I plan synergies of with continued outlook, rationalization think maybe, color. should growth XX:XX earnings a And seems little cadences going? rationalization impact first against offer about and a in basis we base to how more XXXX that cross-selling letting detail Elkay on extremely and regard we think appreciate netting should on how terms the weighted half the about net then

Todd Adams

Yes.

to over that, be I have think to what something going that communicate. we it's is recognized we Bryan

our XX to this basically do of I of accomplished XX this think that. with do million tried there. we'll we and and have XXXX look prospectively that was full results form that were a what from million around million articulate XX is EBITDA we to morning at if take give to you all What

margin quarter. for quarter see, and exit go exiting As is revenue to to through obviously some stuff left that we'll what the business but what in to try related the articulate to think, core we continuing we Elkay the we're go, did that have isolate profile And you'll grow. how I is much the we'll

time, in And real happening so, core quarter-by-quarter. the growth the see you'll Elkay

be like So, from it two may we're running growing now big Elkay XXX won't show opportunity initiatives with mean, is the be, what's side strategic and Zurn growing really, it the of from cross-selling on input, takeaway, pricing that million lines run, side. the 'XX, we'll being what's it's either product up from try to or around I is a Zurn and one a market just the really transparent think growing that what's are business. structured business a starting additional really dynamite standpoint, the I

as best So, very and going kind framework to articulate do around get into that XXXX. our we're of communicate we to

Bryan Blair

level Okay. XX:XX much rationalization more just taking place That And how your exceeds deal I plan? implied? detail does some commercial of helpful. where the set on seems mathematically is bit planned initial by guess, now very is the And then there that side the

Todd Adams

given us of confident we with from. months we talked away three XX budget the to When million, very million, under XXX, When to reduction before away Board going that announcement XX approximately this, that walk happening we XX was roughly the And revenue owned felt were real there made the should get happened the million really of something conviction over I million went the Elkay under backlog obviously last that stuff noise we and sort call think of that had we the have we that Sure. that review. it evaluated review we to details our about from in business in XXX all was and time. and to what's was we that, walk that and a that XXX another, said obviously, we the

because case through, So, is of you return analysis the and approvals on three, and our year year basis capital four, we the when combination than, had to positive. maybe the starting that then that point to a difference we and decisions maybe look synergies you able that with reducing would to and Elkay make do the the XXX. of felt do net we costs walkaway XX nothing using lower the being what base the numbers. at a at we It has points really when business fixed really invested within be do went And with look like

business because, initially, on anticipated we six So, returns I had -- very, probably much some logic, when away the the very we looked probably walking and invested capital you carefully away case it's much from. less on return when industrial at is is just financial things where off when of today. of strategic And The is on charts that -- months, something capital the on logic, we're question, the continue logic that push the very you see invested incrementally line to when the we strip track. cash But on it look better even gets very deal get the that's are deal. I the said we targets much, to the with appreciate that's timing you in than relative rates the think very our we at returns run we've we with asking because hit what the

Operator

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

Mike Halloran

questions last one Just the on to of of follow-up there. couple

revenue executed be incremental So, been million of the run a Is the as or of half you're the process? to of thought executed so as goes. year is And having called about the be XX fair to left year. end front talking far by million next the on on going or rate what's so XX that

Todd Adams

than No. different Mike. It's a bit little that,

get to XX net XXXX. So, XXXX in think by we go will with end of XX the million the we remaining

Mike Halloran

XX that Was an number? quarterly annualized or number

Todd Adams

quarter. is it the No, in

Mark Peterson

In the quarter.

Mike Halloran

Okay.

I'm to So, that you and to confused guess XXX wouldn't why be as to get million? -- I the number able annualize

Todd Adams

[indiscernible].

Mike Halloran

in saying you've of revenue fourth you're million revenue, XX called XX, XX right? So, quarter, million to XX the or

Todd Adams

Yes.

Mike Halloran

to an that revenue that Or the is number represents that is fourth is that annualized that number? attached annual quarter? the So,

Todd Adams

the That fourth attached is to revenue the quarter.

Mark Peterson

So, yes.

as Mike, year-over-year. more to all XX.X year, and [XXXX] So, so in in walk you XX total, this be come watched would there'd out you XX - XX, XXX that

Mike Halloran

year I'm or? executing what from rate And then executed a you've or saying full the guess the you've run you're on the is like XX I on XX fourth that's if what But perspective. what run got XX so from or quarter, perspective from Right. a so remainder rate because is,

Todd Adams

at you've we'll is there, rate right? saw XXX Mike, out the you we issue, away got the at walk away When from the or revenues XXX that think roughly From XXX. we'll to that million. of year ago, from look walk for I start basis, run revenue was reported XXX, XX it days

Mike Halloran

Yes.

Todd Adams

is run right. will million come The $XXX Mark exactly think specific year XX rate. next is XX of off what I said So, to that the quarter. The

you're Had to have saying be if a could So, we're impact the we way, have with the started line that that's it done, the from XX, walkway that different you we're more will quarter. would run point, would we reporting a absolute starting maybe it done talking the have in happens the about it of looked, static numbers going away. in that doing rate level but have since the of walk

Mike Halloran

we're offline, deal. I it Yes. a big I'll different the actually thing, take it's same just phrasing think not saying

Todd Adams

Yes.

Mike Halloran

the in about really piece, talked strategic execute of shape, comfortable feel on be you sheet balance the that being allocated to the it. good made you So, right kind you've decisions

has multiples, that How So, in what's look? the that? anything looks changed? pipeline willingness to And What the like that pipeline does bring environment stuff today? like

Todd Adams

it's say, pretty pipeline expensive. think early very look if think extensive I opportunities, our to know, we at I look, You probably and but it's of

have like outlook we we are confidence to that, XX the how I outlooks maybe okay, us? think exactly going these of front get the six we're what's months understanding look do, are next it you an is over that, businesses to of, and is through in so convert market they their what certain understanding impacted by do like. what There going know, because things

it's So, I relatively unchanged. think

do levels and integration have fit inside the returns. confidence think lot pace great the And of that the core. we've can last I six create we think and that months we team that over can M&A, a do really, of it I to built the continue capacity we think of to to right really added our gives at well and us the things the

I of do be it a terms grow from reset, think expectations and have a cultivate value really things to time what going at time, And levels of there'll so, to get there. period our reasonable integrate but well we we've which I core think then need in is long of we're transact been to understand where, and doing to inside for that fit continue

Mike Halloran

right long Appreciate or think another the inventory is the channel that. level opposite. to take and normalized get the going then maybe based also, destocking way side? businesses that to side, on of the destocking no do non-residential if the destocking you needs to in the one residential on one perspective there, Last just commentary under sounds how the anything, there's and positive like Confirm

Todd Adams

from non-residential the So, there's a really side channels. inventory you're much all that at correct. various throughout I all not mean,

is And the us backlog majority behind with of so, order more probably we're in the little times lead now we in think people bit seeing being patterns and reduction, coming what that fourth of little a bit cautious is a vast quarter. of

in I be material you grand but residential, non and the that may don't when quarter, the think there little at look a taking think fourth scheme think I On a in whack out we're bit the big things. it in third of first res-side, I of it's quarter, the

QX So, we and numbers, I through QX. get think clean the demand shelf in the late

of model, a on our the where have So, really I spec not lot think, pulls business push stuff a is a through. it's we shelf,

they not nobody's of And inventory. much really procuring before shelf in it. way there's this really the need So,

coming being be as basis. rates in backlog So, lead real time we be a speaking this driving you But to side, long people think, that said, think, the as deliver see broadly we'll times I going know, the channel dynamic all impact we'll I of that I case-by-case dramatically, being specification changed that's this more think we're and stronger see and continuing to are, growth preference demand. non-residential than cautious,

Operator

from Jeff Your Keybanc a Hammond Capital with next line Markets. comes of question

Jeff Hammond

we how sense as go look, well in give back a just 'XX the about kind Just to can you of of as as kind us the carryover thinking outgrowth price, core? you're momentum of

Mark Peterson

Yes.

progress of made lot pricing gain next standpoint, half. ahead In we've carryover go only faster. in Elkay terms [indiscernible] obviously you a think of there's the about back didn't of year, We a yes, if allocate,

say type So, if categories. think you on the pricing, Zurn about I'd product

that the more it comps, that capital think debt on next a we're a mid-single low into probably about digit think together, blend single side, a as given little the to digit about you that year, mid-single if price Elkay was going to of realization in from it's fact digit going range our Elkay year, as bit Jeff. step, first the a You the stronger. number low the on next the type In given

Todd Adams

on as I -- costs. and with we've a a we don't heading lower input world really price But evaluate have -- coming continue we more We'll else the got everything say really is today a Jeff, a obviously sits lot point, don't 'XX. input down tailwind At to would this into pushing view costs sizeable it. of

the to pricing to room. we areas, the we leave little the get ourselves so, bit If sharper certainly have carryover on tailwind. we have and certainly a And want need we

of aggregate can non-risk number concentrated will 'XX. a know, so you digit in it So, talked then, think it When if it some pretty to you down to, that on How these think, look and the a But, reasonable it's know, I outgrowth of shakes is full about of in side really the my impacted March half course empty. find dynamics out mid-single by market think growth be way simplified that business clearly comments of more it's your quarter, you little about. the some we've than and you is rationalizations. call at by we low touch more the the over We think more posts some carryover, you up. res, -- half

Mark Peterson

think course mark share strategically if trying you what of any year, feel two to I'll we're doing we're ultimately, comment to we on three given of right capture your missed I points, get Jeff, And, side. Yes. the

to growth about different have and any in we initiatives. on years that feel that execute So, ability the won't that prior our vision we strategic

Jeff Hammond

then, like pretty the water the commercial sink Okay, grew looks in business great. well. fountain it And

quoting I with think you about said and low of commercial legacy that double does order kind trending? digits, Zurn align how's that talk or in just the just activity the of kind

Todd Adams

yes. things, Commercial

having portfolio. business think Zurn would already power within brands our and it with both on to element -- I -- of seen similar product our very in the our categories we've it our looks that raised

standpoint, quarter. growth digit a from in low double think, brands quarter that for our category the the so in third both I So, growth sure

fourth very be to the that quarter. similar in expect We

Jeff Hammond

some been one. then, resets last some Okay. just here. mean, certainly the stocks And the I pressure with under Elkay of considerable

of Just share use of buybacks thinking a you flow as cash how for cash generation? have you kind are revisited you free or

Todd Adams

We have.

-- -- have number, what's XXX the roughly We

Mark Peterson

Yes, XXX.

Todd Adams

XXX, -- repurchase our on XXX plan. left million

cash strong very very, of year a have, free also flow We ahead us. of

end of a a by And combination leverage you all your work -- number of can half so, way to of that, next turn of a the year the

Mark Peterson

Without doing anything.

Todd Adams

without -- anything. doing

Mark Peterson

Yes.

Todd Adams

we And we've But want of pretty the go are some sheet bit that balance appropriate should the little we uncertainty. table. share talked conservative on so, keep to definitely got M&A a period do, we to as we want through earlier, this buybacks as we feel

dislocation, to do know, and know, confident I a something. a our at ability in a chance You least we're think we that we execute situation 'XX you in there's may see, near if that And is in 'XX. term, the

revert think to M&A, I as we dividend probably we'll part capital business, the other prior did to we scale to the RMT. of the it more of shareholders return is, through a I stock just balanced think and buyback like

have of away probably I profile do We definitely But from the on sheet with cash flow kind so, think the to moment. and think table. we're balance we do capacity the quarter And that's have. I that that the in a

Operator

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

Nathan Jones

I pricing. question want around the of ask a on to stickiness

this flowing lot You of obviously inflation a had through year.

how that that guess You deflationary price you've some a How that you implies accretive I And about this lower early to late some year, sticky XXXX? likely be priced inventory you talked be is in along. priced next higher already monetizing increases year, margins which put coming have in inventory the from now pricing to environment? do could think through

Todd Adams

sticky. it's Yes, very

business when And XX know, specified it you being years, said, expect sticky. early around I has market products, And I've the of the the have scenario to set. at you is we've you not seen competitive know, pricing that to-date, we continue. where you recall think, don't cleaning I what's aware happening opportunity-by-opportunity, That project-by-project, a amongst would be to in been a look the very been.

costs. where know, to with choose you sizeable if prices be. selective input is so, not to through the tailwind we lower And it There continue where coming a And be out sticky. we're plays

costs our to it's that categories we've And non-residential the position way anything, the the our really pricing seen we have passed other And is so, of fallen of positioned you we're that we margins, of well strong to a think the we've down We're go input based are we've we've in tailwind. we but room about some left model, you that haven't But a it, and next our it's growth to significant. managed of Even not into about to fixed all costs. if accretion sticky. not a year afraid to look some without if well. thought do mean in see doubling maybe that, on of to commodities. double prices, have don't capture offset sort margin construction, see spot inflation that at really the of that been through And products ourselves even may when level. XXXX could we've to the that position -- some digit mine increases because we relative pretty what on into price and that

is So, kind of I built think this our business environment. model for

Nathan Jones

Thanks. I had Elkay. around a of questions couple

assume been have I you're growth that revenue the that you're lower would than revenue maintaining. that would So, the exiting

growth be I think growth of long disruption kind of market outside to increase the Does expectation you'd Elkay? already term targeted profile for the long this a the business. Elkay term double of other any over XXXX digit

Todd Adams

absolutely drinking the look term really up I that constitute the would that growth make don't Elkay. We now has trend know think that. when secular water at longer up a think to we increasing you I market of sign categories and the share But and of Mark outgrow above just we market in with commercial have spec pointed the have. we things, size, category. because opportunity what a the overall scale, terrific have And that nature to out we as presence, relative core

maybe so, higher opposed to outgrowth. much of as the the about think, I it much, And degree think outgrowth a increasing that around absolute is confidence kind of to way

Nathan Jones

And talk generation assume liquidation. about see business? of business, I then cash residential of fair amount inventory you from would Can comes the exit that things the The of the should just exit one. last a with that you

Todd Adams

positions, of be core. Obviously, outsized the relative support to It any Yes. the that sizable. business inventory in is was of investment was profit will what not generating inventory the much to portion

I liquidate those as it's, think and more. least you likely at inventories so XX we And know, million

Operator

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

Vivek Srivastava

that Elkay even This is but horse on on Ritchie. half. a goes that XX Thanks in the of you Not XX question. Is it year million of exit Vivek beat to way Srivastava quarter XX is for dead Joe 'XX. most that in as the and second here goes quarter first next and to fourth think away million the for each first then right million 'XX

So quarter the sequentially, basically, like 'XX inventory XX million higher exit was of 'XX? fourth

Mark Peterson

You I but is, lot annual as more turning five think way the the impact the this so. a XX last million talking The with now more quarters of big do in the the that right? accurate $XX next accurate, have laid you of you drive right? I've walk, got So, Those as describing chunk you way, so quarter I those but analyzing as was this a start the year-over-year, a million I taken about impact next out. of think in year is think numbers. incremental laid the year will think right back first half. as walk, actions about was in a annualize, Mike half as they actions yes, taking are place the the I in really the got as walk actions in And place $XX intact, said Mike out impact

Todd Adams

Yes.

QX it I at million QX and growth the anything. think, do before rating XXX maybe very million simple, initiatives, that's run we QX make or to market at strategic before XXX -- at price and any base

Mark Peterson

Correct.

Todd Adams

We're margins try walk XXX related -- talked that That's give and this. isolate but that we walked about. way you what that's How year-over-year? I away that? is the to around And away communicate to we'll are from the what think going As to part impact million that from then is we and growing really to about it. the the what of

Vivek Srivastava

flow. That's And cash Thanks. free question have I helpful. a on

which will I think you about That from free else SKU inventory rationalization, conversion should term? your And is provided conversion. cash anything impact FCF flow we your think helpful longer the liquidation. color how on the

Todd Adams

specifically be flow XXXX free that think the $XX in enterprise to quarter, I we about the range. sizable. inventory cash to is going Well, across fourth to it call see If we're going as reduction million we million the the think $XXX to it think relates

got would And next flow this be factor cash should outsized year. permanent. you've liquidation is relative free to be so obviously say that that then, I And year to going

see, don't synergies that I obviously that else and there's some pay restructuring but the to signed than should flow We've is, be very, of for. anything these unusual. very so, million And we've I think of think free $XX like very, And other to got nothing things cash up for strong. next get year

Vivek Srivastava

Thanks. and timing And Are already color one then just and you if on on on what to opportunities and provide this maybe, the revenue some on color I've quickly. front this? last get are traction can some you any starting synergies here

Todd Adams

as think we're When Yes. also secondary right it now. you some not funding I know, to shield offering. the throes conversations around only our the we're it mean, adding about immediately her and of education, the in drinking bright you S-X water, around but of relates

real you some know, the we're, get doing and so, work school at targeted convert And around we've funding the XX to that time. seeing all we're country where those districts of

years, growth or And versa, where with conversation drinking we've opportunity combined pulling we're more had the several leading amongst filtration pull to through million some is and The high of around a some million other significant. not very, we're that business I creating at position highlighted through good hygienic over think opportunity with initially we is $XX next so, we're of started around the $XX school hygienic The spaces the the then vice margins. products more water. in very districts a to drinking water filtration

commercial customers say that are things. two going how those. already of in being even provide the we the through these the specified to so, bringing strategic content deploy our and teams these working. field together to of some And on I But more is businesses plan engaged case would on able We're

Operator

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

Brett Linzey

I come makes you Elkay selling you through maybe pieces still these are negative these future channels. the back corporate just are Are you this the know, can, want revenue enhance or retained closer you're think to pools review existing maybe that average, in to time over revenue profitability earning and that to million date? the of that XX a under resi

Todd Adams

course Elkay with They customers. I They conveyance think element an these are wholesale you average. that of a But with branded. are in they little other do bit have products. the fleet below our know, come

So, type plumbing, grade these are products. in sort of professional of showroom

the can in. so, it That to And I was really margins question, there's the a closer, in why cost don't there decided together, work price the that that, there's more efficient simplifying at that over But opportunity eliminate that opportunity. as opportunity And time. party consolidating, if know, just and the up. know we without improve and we on companies our drive we two improvement partners stay you a specification, SKUs, that bring through to as that on continuous focusing we're calculus on drive with wholesalers have SKUs, you go-to-market, look overall conveyance terms and mean, think spend reps, as not two together. products companies like. the average these is manufacturing combining strategic in all manufacturing, margins bring things to of with I certainly the way, third fit fleet I should we and the was meaningful the branded to the

put to it. really that business going of to it we when these lot wanted other inventory never it up kind in and -- a never had of going be totally stuff, and to returns tied two was was resource create the a lot be The detached was we And together. of

Brett Linzey

on tonne efforts. my integration follow-up, like just Yes. sense. you're That sounds well progressing And makes a then the of

the terms in of how than earlier basis maybe a quarterly in see you a efforts bit those as a of next up. bit 'XX. just and know, curious be would in savings rationalization I year And changed of margin little to might here you have, those you ramp some mean, there you early start pull earlier the think relative synergies, and any and change quicker know, seasonal Just a these expectations. phasing typically QX that normal you now little realization of on if would to these and, ramp

Todd Adams

to the to a creating on ground product running I and hit Yes. lines some it No, costs going that line moving -- I the of with as result and realization to patterns. know, our think Mark on we've to, of know, the I Dave XXXX significant of work synergy we're think you mean, obviously, we around leave I'll seasonal you the in done sight had communicate. these as

our is on and And second third. construction. is patterns Our the as quarter our based in generally first than lower non-residential well, fourth weather

going the So, that they've been I that to next. think generate, but quarter to don't relative outsized it's perspective by one to because where the amplified know margin solely of we're synergies relative at I be any all they'll

Mark Peterson

now, that pretty Yes. We'll now we the out wouldn't a the front, know, That's occurring of are that feel the back say that at or fair. at rates run about right way being think going we lot what year. actions it's obviously you provide I next good overweight but it's into close, more colors

related outsize an So there -- isn't really

Todd Adams

I the quarter, probably It it. incremental about to will be to think way think is each

Operator

And there at remarks? Are questions. closing further any this there no are time,

Todd Adams

for announce forward in interest And when today. everyone update we our Solutions. We a results next your our Elkay quarter joining appreciate we Water Have on good early Thanks in Yes. December call day. to Zurn February. us providing look the

Operator

This concludes today's conference.

You may now disconnect.

Zurn Elkay Water Solutions (ZWS) 26 Oct 222022 Q3 Earnings call transcript