Zurn Elkay Water Solutions Corporation

earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them, and why we believe they are helpful to investors, and contain reconciliations to the corresponding GAAP information. 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. We encourage you to review the GAAP information in our earnings release and in our SEC filings. I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Alkay Water Solutions.

Thanks, Brian, and good morning, everyone. Hopefully, everyone's had a chance to read through the release and the charts from last night, so I'll get right to it on page three. We had a solid Q1, 5% organic growth, 110 basis points of year-over-year improvement in EBITDA margins, and cash flow ahead of our expectations. I think it's important to point out that there is little to no impact on the Q1 results from the implementation of tariffs. either in terms of additional costs arising from the tariffs and certainly no realization yet from the new price increases we've announced that will be effective as we get into Q2. We're going to get into the details regarding the impact of tariffs in just a few minutes and share what it means to us from both a supply chain strategy perspective as well as from a pricing standpoint, but I'll give you the punchline ahead of time. First, we have high confidence we will be price-cost positive based on the work and actions we've already implemented and will continue to optimize. Second, which is really important because there's been some confusion by the sell side on this, by the end of 2026, only 2% to 3% of our COGS will be coming from China based on a glide path that Dave will share in a bit. But before I turn it over to Dave, I think perhaps the most important takeaway this morning is that organizationally, our deep expertise and track record going back decades and tested throughout the initial tariff environment in 2017 and 18, and again, during the pandemic has only been enhanced through the breakthrough work we've been at for years now. That breakthrough work is us spending the last four to five years to restructure our supply chain towards a scenario where we are sourcing as close to zero as possible from China in the medium term. And as you'll see and hear this morning, we come very close to that by the end of 2026. While our supply chain exposure gets smaller by the day, it's also likely that we may end up with some level of new tariffs from non-China sources moving forward. Even with that understanding, we believe we have repositioned our supply chain to be both competitively advantaged relative to our industry and with the lowest total cost supply chain in whatever the new world might look like, along with being dual sourced. The time being, we're accelerating everything that can be accelerated, and like everyone else, hoping for a little more clarity and certainty on what this ultimately looks like over the coming months. Now I'll hand it over to Dave to take you through some more color on the quarter. Thanks, Todd.

Please turn to slide number four. Our first quarter sales totaled $389 million, which represents 5% core growth. Our reported growth was 4% and impacted by one point of currency. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Mid single-digit core sales growth in our non-residential end markets were partially offset by softness and residential and pockets of the commercial segment within non-residential. Solid execution on our growth initiatives drove our sales performance to the higher end of the outlook we provided 90 days ago as our first quarter results were volume driven and as Todd said, not impacted by the announced tariff related price increases as those start in the second quarter. Turning to profitability, Our first quarter adjusted EBITDA was $98 million, and our adjusted EBITDA margin expanded 110 basis points year-over-year to 25.2% in the quarter. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives leveraging our Zurn LK business system and continuous improvement activities across the organization, as well as some carryover benefits of the synergy actions we took last year. Please turn to slide five and I'll touch on some balance sheet and leverage highlights. Back to our net debt leverage, we ended the quarter with leverage below one at 0.9 times. Our 0.9 times leverage is inclusive of the 77 million we deployed to repurchase shares in the quarter. 55 million of our share repurchases were part of the share offering that we executed in mid-February. Our balance sheet, leverage, and cash flow generation are in a good spot as we continue to evaluate our funnel of M&A opportunities. I'll turn the call back over to Todd.