Zurn Elkay Water Solutions Corporation

Good morning and welcome to the Zern LK Water Solutions Corporation fourth quarter 2023 earnings results 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 LK 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 an 8K with the SEC yesterday, February 6th. At this time, for opening remarks and introductions, I'll turn the call over to Dave Powley.

Good morning, everyone, and thanks for joining us 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. 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 Zurn LK Water Solutions.

Thanks, Dave, and good morning. Thanks for joining us again this morning for our fourth quarter call. The fourth quarter ended on a strong note with sales, EBITDA, and free cash flow above the outlook we provided at the end of Q3. Mark will go through the specific numbers for the quarter and the year with everyone in just a minute. But perhaps the most important thing to highlight right away this morning is that the end market view we laid out last quarter as it relates to 2024 is unchanged. Steady strength in institutional, some pockets of weakness in commercial, residential flattish, essentially with share gains, initiative growth, and a little piece of price driving what we expect to be our growth over the course of the coming year. Specifically, we see the opportunity to deliver positive organic sales growth, robust profitability, and significant free cash flow for 2024. And as you'll see in a few minutes, our outlook for the first quarter puts us off to a good start in accomplishing those objectives. And while there's still a lot of road to go, I think it's entirely reasonable to begin to think about an improving end market outlook into 2025 and 2026, coupled with accelerated momentum around our strategic breakthroughs. Things like drinking water and filtration growth, The profit realization from some supply chain actions we've been working on over the past year, both of those should enable us to drive solid growth, profit, and cash flow improvements from 2024 levels. As it relates to 2023 performance, we grew the top line 3% on a pro forma core basis amidst a market that we would say is flat to downs to touch. We leveraged that growth into a 320 basis point EBITDA margin expansion driven by synergy benefits and normalizing supply chain and the continuous improvement benefits we get from the Zearn LK business system year in and year out. We turn that profitability into a record free cash flow of $233 million and throughout the year we leverage that to repurchase 5.3 million shares or about 3% of our outstandings. Raise the dividend 14% and deliver the balance sheet to only 1.1 times at the end of the year. As you may have also seen we completed a transaction in the fourth quarter of where we essentially divested the entirety of our legacy asbestos liability to a third party, along with the related insurance assets and $12 million of cash to effectively remove any future risk related to asbestos. It was something that we had managed very effectively for the past 17 years, but we also feel it's a really good use of some cash, and the overall benefit the shareholders have had behind us, I think, is an important milestone. So with that, I'll turn it over to Mark.