Zurn Elkay Water Solutions (US:ZWS)2023-10-31 20:35Merger and Acquisition - The Elkay Merger was completed on July 1, 2022, for a purchase price of $1,457.8 million, which included $1,411.9 million in Zurn's common stock and $45.9 million in net cash payments[110] Financial Performance - Net sales for the three months ended September 30, 2023, were $398.4 million, a decrease of 4.6% from $417.7 million in the same period of 2022[116] - Income from operations for the three months ended September 30, 2023, was $60.1 million, compared to a loss of $10.1 million in the same period of 2022, representing a significant improvement[117] - Net income for the three months ended September 30, 2023, was $41.4 million, compared to a net loss of $19.1 million for the same period in 2022[123] - For the nine months ended September 30, 2023, net sales increased to $1,173.7 million, a 24.7% increase year-over-year, driven by a 28% increase from the Elkay combination[124] - Income from operations for the nine months ended September 30, 2023, was $158.6 million, an increase of 81.7% from $87.3 million in the same period of 2022[125] - Net income for the nine months ended September 30, 2023, was $98.8 million, a significant increase from $47.5 million for the same period in 2022, representing a year-over-year growth of 107%[129] - Diluted net income per share increased to $0.56 for the nine months ended September 30, 2023, compared to $0.33 for the same period in 2022, reflecting a 70% increase[129] - Adjusted EBITDA for the nine months ended September 30, 2023, was $255.4 million, compared to $200.0 million for the same period in 2022, indicating a growth of 27.7%[135] Cash Flow and Investments - Cash provided by operating activities was $195.7 million for the nine months ended September 30, 2023, compared to $12.6 million in the same period of 2022, showing a substantial increase driven by lower cash use for trade working capital and higher net income[144] - Cash used for investing activities was $6.6 million for the nine months ended September 30, 2023, compared to $12.8 million in the same period of 2022, reflecting a decrease in capital expenditures[145] - Cash used for financing activities was $141.5 million for the nine months ended September 30, 2023, compared to $23.1 million for the same period in 2022[146] - The company repurchased $100.2 million of its common stock during the nine months ended September 30, 2023, up from $20.1 million in dividends paid in the same period of 2022[146] Tax and Interest - Interest expense for the three months ended September 30, 2023, was $9.9 million, up from $8.0 million in the same period of 2022, primarily due to higher interest rates[118] - The effective income tax rate for the three months ended September 30, 2023, was 26.2%, compared to (9.1)% for the same period in 2022[120] - The effective income tax rate for the nine months ended September 30, 2023, was 27.7%, down from 32.9% in the same period of 2022, primarily due to various tax accruals and benefits[128] Discontinued Operations - Net income from discontinued operations for the three months ended September 30, 2023, was $6.2 million, compared to $0.0 million in the same period of 2022[123] - Net income from discontinued operations for the nine months ended September 30, 2023, was $8.1 million, up from $0.8 million in the same period of 2022, marking a significant increase[129] Debt and Leverage - Total indebtedness as of September 30, 2023, was $554.2 million, consisting of $532.4 million in term loans and $21.8 million in finance leases[147] - The current maturities of debt amounted to $6.3 million, with the long-term portion at $547.9 million[147] - The Net First Lien Leverage Ratio as of September 30, 2023, was 1.26 to 1.00, well below the maximum allowable ratio of 5.00 to 1.00, indicating strong compliance with debt covenants[136] Risk Management - The company has exposure to market risks from foreign currency exchange rates and interest rates, managed through operating activities and derivative financial instruments[150] Internal Controls - As of September 30, 2023, the company's disclosure controls and procedures were deemed adequate and effective by the CEO and CFO[152] - There were no changes in internal control over financial reporting that materially affected the company during the last fiscal quarter[154] Restructuring - Restructuring charges for the three months ended September 30, 2023, totaled $2.2 million, compared to $11.7 million in the same period of 2022[115] Other Expenses - Other expense, net for the nine months ended September 30, 2023, was $3.3 million, a shift from other income of $0.3 million in the same period of 2022, largely due to increased interest costs and environmental remediation accruals[127]