Zurn Elkay Water Solutions Corporation

Good morning and welcome to the Zurn LK Water Solutions Corporation fourth quarter 2025 earnings results conference call with Todd Adams, Chairman and Chief Executive Officer, and David Pauley, Chief Financial Officer for Zurn LK Water Solutions. A replay of the conference call will be made available as a webcast on the company's investor relations website. As a reminder, this call contains certain forward-looking statements which are subject to the safe harbor language outlined in Zurn LK's press release issued yesterday afternoon and in the company's filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. The company's earnings release and SEC filings contain additional information about these non-GAAP measures. why they are used, and why the company believes they are helpful to investors and contain reconciliations to the corresponding GAAP information. Consistent with prior quarters, the company will speak to certain non-GAAP metrics as they feel they provide a better understanding of the company's operating results. These measures are not a substitute for GAAP. Zurn LK encourages you to review the GAAP information in its earnings release and SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurin LK Water Solutions.

Thanks, Rebecca, and good morning, everyone. I'll start on page three. We wrapped up calendar year 2025 with a pretty decent fourth quarter as sales grew 10% organically over the prior year Q4, and EBITDA grew 14% to $104 million with margins expanding 100 basis points to 25.6%. In the quarter, we generated $83 million of free cash flow, bringing the full year to $317 million, which was up 17% over 2024. Over the course of the year, we repurchased about 3% of our outstanding shares for $160 million and paid $64 million in dividends. All this while leverage declined to 0.4 times. Taken as a whole, we accomplished a lot over the course of 2025. The most important of which are the additional sustainable competitive advantages we built in our business that will help us grow faster and be more profitable in the future. And I'll touch on those in just a bit. Along the way, 2025 afforded us the opportunity to live test the supply chain optimization plan that we had been deploying and talking about for several years. And for the most part, it's worked flawlessly. After we quickly celebrated 2025 here, our attention has turned to the next three years and even more specifically delivering another record year in 2026. For us, leveraging the TURN-LK business system in everything we do and how we operate keeps us relentlessly focused on getting just a little bit better every day. To that end, one of the core pillars of ZEBS is our strategic planning and strategy deployment process. We wrapped up our annual three-year strategic planning process in Q4 and are now actively deploying year one of that plan. It's a process we've used and done annually for about the last 18 years or so, and we think we've made continual improvements in that process. But this process isn't a desk exercise. It's a full contact sport where we evaluate every aspect of our business, from our markets, competition, and our industry, to products, customers, channels, and adjacency, as well as larger, more disruptive ideas. We ask what's changed, what did we get wrong last year, and what are our risks? And importantly, where can we further exploit the competitive advantages we've built? This defines and aligns our organization around what our priorities are going to be over the next coming one, two, or three years, the resources and investments required, as well as the tools, processes, and capabilities we need to leverage or develop to get there. While we're not going to be super specific this morning about the exact things we're up to, at least at this juncture, I can say this. We see more new organic growth opportunities largely in adjacencies and underserved verticals than I can remember. We have a plan to attack these opportunities, and assuming we execute, which we have a reasonable track record of doing, I'm confident this only enhances our organic growth trajectory over the coming two to three years. And I also believe that in time, our approach in attacking these adjacencies and verticals will have an incrementally positive impact on our M&A cultivations. Before I turn it over to Dave, I'll touch just briefly on our initial outlook and framework for 2026. The approach we're taking to our outlook this year is exactly the same approach we've taken in the past. We start with a range of outcomes that are reasonable, not back half-weighted, and in line with our demonstrated performance. We then go about retiring risks quarter by quarter while we work on our strategic breakthroughs. We gave everyone our view on the market last quarter, and that hasn't changed. We also have some carryover price from last year. And most importantly, we're executing well. All things equal, we're off to a really good start in January, but still 11 months to go in 2026. So now I'll hand it over to Dave to take you through some more color on the quarter.

Thanks, Todd. Good morning, everyone. Please turn to slide number four. Our fourth quarter sales totaled $407 million, which represents 10% core and reported growth year over year. Continuing what we saw throughout 2025 and in line with our expectations going into the quarter, core sales growth in our non-residential end markets outpaced the softness we experienced within residential and pockets of the commercial segment within non-residential. In the fourth quarter, we continued to deliver positive price-cost position with respect to tariffs and saw the benefit of roughly five points of price in the quarter from our previously announced tariff-related pricing actions. Overall, we continue to have solid execution on our growth initiatives, and they helped to drive our sales performance above the outlook we provided 90 days ago. Turning to profitability, our fourth quarter adjusted EBITDA was $104 million, and our adjusted EBITDA margin expanded 100 basis points year-over-year to 25.6% in the quarter. This strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives leveraging our ZearnLK business system and continuous improvement activities across the organization that Todd will touch on in a few slides. For the fourth quarter, profit performance continued on a trend we saw all year of strong year-over-year margin expansion. 2025 our sales and adjusted EBITDA have increased 129 million and 52 million respectively, which represents a 40% drop through on the year over year volume increase. Our full year adjusted EBITDA margin improved 120 basis points year over year as core sales grew by 8% in 2025. Please turn to slide five and I'll touch on some balance sheet and leverage highlights. With respect to our net debt leverage, we ended the year with leverage at 0.4 times, the lowest leverage we've had as a public company. We continue to repurchase shares, and in the quarter, we deployed $25 million to repurchases. That puts our 2025 full-year repurchases at $160 million, with an average repurchase price of $36.74. Pre-cash flow finished strong at $83 million in the quarter, bringing our full year total to $317 million, or a 17% improvement year over year. We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage, and cash flow generation all support our ability to execute on the right M&A opportunity. At the same time, we're actively working on entering organic adjacencies through the through investment and internal development. I'll turn the call back to Todd.