Zurn Elkay Water Solutions Corporation

Good morning and welcome to the Zurn Elkay Water Solutions Corporation second quarter 2026 earnings results conference call with Todd Adams, Chairman and Chief Executive Officer Dan Kuhn, Chief Financial Officer Dave Pauli, Chief Operating Officer Jeff Schoon, President and Bobby Balsner, Vice President and Corporate Controller for Zurn Elkay Water Solutions. A replay of this conference call will be available as a webcast on the company's investor relations website. At this time, for opening remarks and introduction, I'll turn the call over to Bobbi Bouncer.

Good morning, everyone, and thanks for joining the call today. Before we begin, I'd like to remind everyone that this call contains certain forward-looking statements which are subject to the safe harbor language outlined in our press release issued yesterday afternoon and 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 are 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. 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 Elkay Water Solutions.

Thanks, Bobbie, and good morning. I'm on page three in the slide deck. So this morning, I'll start with some comments on the quarter and trends in our business. then our CFO Dan Clune will cover the Q2 results and then just a little bit later our outlook. You'll then hear from our President Jeff Schoon on the IntelliHUD acquisition followed by our Chief Operating Officer Dave Pauli who will provide an update on drinking water as well as some color on the operations and what's driving our record operating results. After that we'll open it up to your questions. Sales grew 10% organically in the second quarter while EBITDA grew 15% as margin expanded by 120 basis points. to a record 27.7%. In the quarter, we generated $112 million of free cash flow and repurchased $50 million of Zurn Elkay at roughly $48 a share, bringing our year-to-date investment and repurchases to $100 million. With respect to the IntelliHot acquisition, this is a category and a company we've been interested in for a really long time. It's a terrific adjacency for us and a category that we feel we can really grow over the coming years as we leverage all the capabilities we bring to bear. The most important being the approach we're going to take to really scale this business by leveraging the Zurn Elkay business system. The great thing about IntelliHot is that its products are best in class from a performance perspective, but there is work to do around the integration. The primary integration work centers around the things that we're really good at. Scaling a specified product into our core verticals through the same path we take to market with respect to specification, relationships at the end user, engineer, contractor, and at the wholesale level all nationally, followed by supply chain excellence, and finally, the power of bringing this additional content to market alongside our leading market share positions within our core verticals in institutional and commercial non-residential construction. In terms of the deal, we paid $109 million in the transaction, $100 million net of a tax asset for a business that will generate about $37 million of sales this year with 50% gross margins and low teens EBITDA margins. We see a very clear path for a double-digit return on invested capital in three years. In our view, we believe that IntelliHot can be a $100 million business with a 30% EBITDA margin in the next five years. To be conservative, maybe it's six. The point is that to get on that kind of trajectory, we're going to invest in it, add products around it, work the efficiency and regulatory angles, and grow the installed base. A great example of where we've done that with great success is what we've been able to do with the Elkay infiltration. Dave will take you through an update on that as part of his remarks in just a couple of minutes. The final point for me this morning is on our full year outlook. We've had a solid first half and are raising our outlook for the year for sales, EBITDA, and free cash flow. From an underlying market perspective, there's always a few small puts and takes to our underlying assumptions, but generally consistent from what we've assumed for the year. For the year, we've got three to four points of price, a point of market growth, and the rest coming from share gains or simply our exposure to higher secular growth categories, some of which the guys will point out later in the call. The highlight to point out in our outlook is the increase in our anticipated EBITDA margins and free cash flow, which at the midpoint equates to 140 basis points of margin expansion year over year. As you've heard us say many times, we develop a three-year strategic plan annually We then prioritize a small handful of things to focus on and we call these breakthroughs. We then leverage the Zurn Elkay business system to create the capabilities to bring these to life. Whether it's product, channel, supply chain, and sometimes it's some or all the above. What you're seeing in our results and outlook is the compounding benefit of the success of those things happening over the last three to four years. Where the fastest growing parts of our business also happen to be amongst our most profitable. We've also leveraged a disciplined approach to prune certain things in our business that we don't feel provide us the ability to create a sustainable competitive advantage, which then gives us the flexibility to flow resources to and reinvest the management time into things that can. Last but not least, I think it's critical to highlight the significant competitive advantage we've created with all of our supply chain work over the last several years. Thanks, Todd. Please turn to slide number four.