Zurn Elkay Water Solutions Corporation Q3 FY2025 earnings call

• Sales grew 11% organically year-over-year, EBITDA grew 16% to $122 million with margins at 26.8%. Leveraged free cash flow of $94 million to repurchase ~600,000 shares, year-to-date repurchases at $135 million. Dividend raised 22%, and Board refreshed share buyback program to $500 million. Completed U.S. pension plan termination. • Highlighted sustainability initiatives, including delivering 1.8 billion gallons of filtered drinking water and eliminating 14.6 billion single-use plastic bottles, and launching Elkay Liv built-in filtered bottle fillers. • Discussed market data including Dodge Momentum Index, Architectural Billing Index, and construction backlogs, and how Zurn Elkay's product portfolio participates across the construction cycle with a lag effect on sales. • Emphasized the Zurn Elkay Business System as the glue driving strategy, continuous improvement, and alignment throughout the organization.

In aggregate, sales grew 11% organically year-over-year. EBITDA grew 16% to $122 million with margins expanding 120 basis points to 26.8%. Year-to-date, sales increased $93 million and EBITDA increased $39 million. Core sales grew by 8% year-to-date, and adjusted EBITDA margin expanded 120 basis points year-over-year to 26.8% in the third quarter.

• Fourth quarter 2025: Projected year-over-year core sales growth in high single digits, adjusted EBITDA between $99 million and $102 million. • Full year 2025: Revised to core sales growth of approximately 8%, adjusted EBITDA in the range of $437 million to $440 million, and free cash flow greater than $300 million. • Tariff costs for 2025 revised to modestly higher at approximately $50 million due to updated country-specific tariff rates and new tariffs on copper.

• The environment around tariffs continues to be a moving target, which could impact pricing and costs in the short and long term.

Q: Has there been any meaningful divergence in the growth rates across legacy Zurn product categories over Q3 or into Q4?

A: Todd Adams stated almost all core categories are experiencing solid unit growth on top of market and price, no significant change from Q2, and momentum expected to continue into Q4.

Q: Update on reception of Elkay Pro Filtration and market opportunity with Liv EZ line?

A: Todd Adams said Elkay Pro Filtration had strong uptake with easy installation and filter changes, expected to continue. Liv EZ line is an extension to a small residential market, expected to grow nicely but not a major pillar.

Q: Thoughts on volume expectations and capital allocation?

A: Dave Pauli noted ~$8 million pulled from Q4 into Q3 due to late September price increase, unit volumes continuing to grow nicely. Todd Adams said capital allocation priorities remain generating free cash flow, investing in core business, cultivating M&A, and evaluating stock value relative to intrinsic value.

Q: M&A funnel and mix of product segments?

A: Todd Adams said M&A funnel near bottom hasn't changed much, top of funnel modestly larger over 12 months, funnel is broad across flow systems, valving, etc., not unique to drinking water.

Q: Aspirations for residential drinking water beyond Liv EZ?

A: Todd Adams said appetite for residential filtration isn't high, Liv EZ is an extension to test and learn in a small market.

Q: Margin results and tariff management?

A: David Pauli said consistent margin expansion due to synergies, Zurn Elkay Business System, and #CI improvements. Todd Adams said Zurn Elkay moved over 50% of COGS out of China to U.S. to navigate tariff environment well.

Q: 2026 market outlook and outgrowth levers?

A: David Pauli said 2025 and 2026 market growth looks similar, growth levers include market, price, and initiatives like drinking water and new products.

Q: Filter First program and project cycle inflection?

A: David Pauli said good progress in Michigan with Filter First, state set aside $50 million, and New Jersey enacting legislation. Todd Adams said flow systems business has grown at or above fleet average, encouraging for market outlook.