Zurn Elkay Water Solutions Corporation

Corporation fourth quarter 2021 earnings release conference call with Todd Adams, Chairman and Chief Executive Officer, Mark Peterson, Senior Vice President and Chief Financial Officer, and Dave Pauley, Vice President of Investor Relations for Zern Water Solutions. This call is being recorded and will be available on replay for a period of two weeks. The phone numbers for the replay can be found in the earnings release. The company filed in an 8K with the SEC yesterday, February 1st. At this time for opening remarks and introduction, I'll turn the call over to Dave Pawley.

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

Hopefully everyone had a chance to read through the release last night. As I thought Dave was going to mention, this is the quarter where you'll see the former Rexnord PMC results presented as discontinued operations. There's a fair amount of moving parts when you go through one of these complex transactions, but from our view, there were no surprises as to how everything shook out as we went through all the transactional accounting. other than a lot of work for Mark and Dave and our mean and lean team, but no surprises. We're really pleased with our fourth quarter results and frankly, the whole year of 2021. We drove terrific results and executed at a very high level amidst both the complexities of the RFMP transaction and separation work, as well as the supply chain and logistics dynamic that when you step back from it, believe we manage exceptionally well. As far as the quarter sales, we're up 23% year over year, 16% organically. And this is against the fourth quarter last year, where we grew 15% and 10% organically. As we communicated last quarter, we successfully worked through some of the temporary logistics constraints we saw in the fall and continue to see a gradually improving market around transportation with respect to availability and costs and expect that we taper back towards more normal levels as we go throughout 2022. Our segment margins were 24% in the quarter, very much in line to slightly ahead of our expectations. Pre-cash flow of $26 million drove our core formal leverage to 2.1 times at the end of December. You can see for the year, record results across the board. And we start 2022 with a lot of positive organic momentum, along with a market outlook that is clearly better than we've seen in the past several years. Our team is energized about the future for Zurn Water Solutions and anticipate 2023 will be another record year for us. I'll quickly move to slide four. I've mentioned in the past that one of the big decisions around the timing of the RMP was ensuring the trajectory for a standalone business was really strong. And with the benefit of another year of strong execution and visibility into the next level, into the next year's level of activity that's happening in our markets, along with organic investments reading through and even more in the early stages, we really see incredible one-way for growth over the next three to five years. Every year we do a detailed three-year strategic plan, something we've been doing for the last 15-plus years. It's the absolute foundation of the Rexnord business system. It creates a roadmap for our strategic deployment of breakthrough growth or margin opportunities, prioritizes resources towards our biggest opportunities, and takes big three-year objectives and makes them come to life every day with tangible objectives and accountability. It creates the framework and alignment throughout the organization that has matured continues to improve, and most importantly, measures performance and progress. At any point in time, everyone knows the priorities, why they're important, and how we're doing. It's relentless in providing clarity on why what we're doing today, next week, and next month helps us three years from now. This year's plan is something we've called the next wave because it really does build off of prior year successes and course corrections. It capitalizes and compounds on unique competitive advantages we've created. We also benefit from the opportunity to focus on ZERN and only ZERN. And we see a path of substantial increase in the size of ZERN organically with really the same financial characteristics that we have today. Well, optimistically, seeing M&A opportunities convert over the planning horizon, allowing us to double the business over the coming years. To the right, you'll see the strategic framework we've consistently used to evaluate our performance for the strategic planning guests. starting with getting into the right markets where we can build real, sustainable, competitive advantage, and then leverage the CERN business system to develop plans to drive above-market growth, strong incremental margins, and superior free cash flow to continue to invest in our business and create capacity for M&A while returning cash to shareholders. In order to do all of that, our teams have to be incredibly engaged and delight our customers. We're not going to get ahead of ourselves, but it's clear to me that as we execute the next wave Zurn Water Solutions can be a much larger company with a consistent financial profile while continuing to build out the business very much focused on the types of things we do today. I'll move to page five. One of the things that we've made tremendous progress over the last three years on is ESG leadership. I truly believe it's a critical pillar in creating superior shareholder value moving forward. The progress over that time has included things like establishing board-level committee oversight to oversee our ESG efforts, as well as an internal steering committee. Streamline reporting by adopting the SASB framework and enhancing our CDP disclosures. Implement and refine policies that reflect our commitments in the areas including diversity and inclusion, human rights, environmental stewardship and sustainability, product safety, and supplier diversity. We have integrated ESG into our strategic planning process, which includes evaluating how climate-related issues impact our business strategy and financial planning. We were recently named one of America's most responsible companies by Newsweek for the second year in a row. In December, we joined the UN Global Compact to reaffirm our commitment to universal principles on human rights, labor, anti-corruption, and the environment. Our entire business aligns incredibly well with the UN goal to ensure availability and sustainable management of water and sanitation for all. And just this week, we're launching an employee-led social impact fund to provide financing, support, and resources for associate ideas that advance our ESG efforts. We know that the best and most innovative ideas come from our teams, and we're ready to fund those ideas. In mid-February, we'll be issuing the inaugural Zurn Sustainability Report. In there, you'll see that we have established ESG-related targets, including commitments to reduce greenhouse gas emissions and energy use and goals for diversity among leadership and suppliers. We have provided 1% of company time for employee volunteerism and renewed our philanthropic commitment, including setting a $5 million giving target by 2024. We will remain aligned with industry-specific sustainable accounting standards board metrics from the Value Reporting Foundation and will expand our ESG reporting to measure and disclose our performance on issues that affect people and the planet. You will see an expanded ESG content index adding multiple new metrics from GRI and from other SASB sectors that apply to our business operations. And we're also adding a table in the report that cross-references ESG topics covered within our report and our other published documents with the corresponding SASB Sustainable Industry Classification System Code and GRI. Operating as a pure play water management company presents new opportunities to embed ESG principles and practices into every aspect of our business. We're committed to continually evaluating our approach to ensure that we're committed to the targets that matter, discussing our progress transparently, and always improving. So look for that in just a couple of weeks. So with that, I'll turn it over to Mark to walk through some of the additional details on our performance and provide some color on our Q1 outlook.