Zurn Elkay Water Solutions (ZWS) - 2025 Q2 - Quarterly Report

Part I - Financial Information This part presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets and liabilities, with a minor decrease in total stockholders' equity from December 31, 2024, to June 30, 2025 Condensed Consolidated Balance Sheet Highlights (in Millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Total current assets | $754.0 | $722.1 | | Total assets | $2,654.3 | $2,648.5 | | Total current liabilities | $278.3 | $247.8 | | Total liabilities | $1,089.9 | $1,061.7 | | Total stockholders' equity | $1,564.4 | $1,586.8 | - Receivables, net increased from $202.2 million at December 31, 2024, to $240.1 million at June 30, 2025[14] - Trade payables increased from $71.7 million at December 31, 2024, to $88.9 million at June 30, 2025[14] Condensed Consolidated Statements of Operations The company reported increased net sales and net income for both the three and six months ended June 30, 2025, compared to the prior year periods Condensed Consolidated Statements of Operations Highlights (in Millions, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $444.5 | $412.0 | $833.3 | $785.8 | | Gross profit | $202.3 | $186.3 | $383.3 | $356.4 | | Income from operations | $77.6 | $71.9 | $141.0 | $125.1 | | Net income | $50.5 | $46.0 | $94.1 | $80.3 | | Diluted net income per share | $0.29 | $0.27 | $0.55 | $0.46 | - Net sales increased by 7.9% for the three months ended June 30, 2025, and by 6.0% for the six months ended June 30, 2025, compared to the respective prior year periods[17] - Diluted net income per share from continuing operations increased from $0.26 to $0.29 for the three months ended June 30, 2025, and from $0.45 to $0.53 for the six months ended June 30, 2025[17] Condensed Consolidated Statements of Comprehensive Income Total comprehensive income increased for both the three and six months ended June 30, 2025, primarily driven by higher net income and positive foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Income Highlights (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $50.5 | $46.0 | $94.1 | $80.3 | | Foreign currency translation adjustments | $4.9 | $(1.5) | $4.7 | $(4.0) | | Total comprehensive income | $55.4 | $44.5 | $98.8 | $76.3 | - Foreign currency translation adjustments shifted from a loss of $(1.5) million in Q2 2024 to a gain of $4.9 million in Q2 2025[20] Condensed Consolidated Statements of Cash Flows Cash provided by operating activities increased significantly for the six months ended June 30, 2025, primarily due to higher net income Condensed Consolidated Statements of Cash Flows Highlights (in Millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash provided by operating activities | $153.5 | $139.0 | | Cash used for investing activities | $(13.3) | $(7.0) | | Cash used for financing activities | $(138.7) | $(104.2) | | Increase in cash, cash equivalents and restricted cash | $3.9 | $26.0 | | Cash, cash equivalents and restricted cash at end of period | $201.9 | $162.7 | - Repurchase of common stock increased to $109.9 million for the six months ended June 30, 2025, from $79.9 million in the prior year period[22] - Expenditures for property, plant and equipment increased to $13.3 million for the six months ended June 30, 2025, from $8.6 million in the prior year period[22] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, significant estimates, and specific financial statement line items Note 1. Basis of Presentation and Significant Accounting Policies The financial statements are prepared under GAAP and SEC rules, with new accounting pronouncements on income tax and expense disaggregation under evaluation - Zurn Elkay is a pure-play water management business focused on sustainable, specification-driven solutions for health, hydration, human safety, and the environment[27] - The company operates under the Zurn Elkay Business System (ZEBS), an operating philosophy grounded in continuous improvement to drive customer satisfaction and financial results[27] - ASU 2023-09 (Income Tax Disclosures) is effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 (Expense Disaggregation) is effective for fiscal years beginning after December 15, 2026[28][29] Note 2. Restructuring and Other Similar Charges The company continued restructuring actions to drive efficiencies, reduce operating costs, and optimize its manufacturing footprint Restructuring and Other Similar Charges (in Millions) | Charge Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Employee termination benefits | $0.8 | $0.2 | $1.3 | $0.4 | | Contract termination and other | $1.1 | $0.5 | $2.3 | $6.6 | | Total | $1.9 | $0.7 | $3.6 | $7.0 | - The restructuring accrual at June 30, 2025, was $0.9 million, down from $1.2 million at December 31, 2024[31] Note 3. Discontinued Operations The operating results of the Process & Motion Control (PMC) business, spun off in October 2021, are reported as discontinued operations Income from Discontinued Operations, Net of Tax (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income from discontinued operations, net of tax | $0.4 | $0.7 | $3.0 | $1.0 | - The Spin-Off Transaction of the PMC business in October 2021 represented a strategic shift with a major impact on operations and financial results[33] Note 4. Revenue Recognition Revenue is recognized when control of products is transferred to the customer, typically upon shipment Revenue by Customer Type (in Millions) | Customer Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Institutional | $217.8 | $196.1 | $409.2 | $374.4 | | Commercial | $125.6 | $118.1 | $234.5 | $224.9 | | All other | $101.1 | $97.8 | $189.6 | $186.5 | | Total | $444.5 | $412.0 | $833.3 | $785.8 | Revenue by Geography (in Millions) | Geography | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $410.4 | $378.3 | $767.9 | $719.5 | | Canada | $25.3 | $23.8 | $45.4 | $44.9 | | Rest of world | $8.8 | $9.9 | $20.0 | $21.4 | | Total | $444.5 | $412.0 | $833.3 | $785.8 | - The company provides volume-based rebates and the right to return products to certain customers, which are accrued based on current facts and historical experience[42] Note 5. Income Taxes The income tax provision increased, with effective tax rates above the U.S. federal statutory rate due to various factors, and the impact of the OBBBA is under evaluation Income Tax Provision and Effective Rate | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax provision | $17.8 million | $16.5 million | $32.9 million | $25.5 million | | Effective income tax rate | 26.2% | 26.7% | 26.5% | 24.3% | - The effective income tax rate is primarily above the U.S. federal statutory rate of 21% due to compensation deduction limitations under Section 162(m), state income taxes, and foreign income taxes[47][48] - The total liability for net unrecognized tax benefits was $2.0 million as of June 30, 2025, up from $1.8 million at December 31, 2024[49] Note 6. Earnings per Share Basic and diluted net income per share are calculated based on continuing and discontinued operations - Diluted net income per share from continuing operations was $0.29 for Q2 2025 and $0.53 for the six months ended June 30, 2025[17] - 0.1 million shares were excluded from the diluted EPS calculation for the three and six months ended June 30, 2025, due to anti-dilutive effects[52] Note 7. Stockholders' Equity Total stockholders' equity decreased from $1,586.8 million at December 31, 2024, to $1,564.4 million at June 30, 2025 Stockholders' Equity Changes (in Millions) | Metric | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :------------------ | :------------ | | Total stockholders' equity | $1,586.8 | $1,564.4 | | Repurchase of common stock (6 months) | N/A | $(109.9) | | Common stock dividends (6 months) | N/A | $(30.3) | | Stock-based compensation expense (6 months) | N/A | $19.5 | - The company repurchased 972,619 shares of common stock for $32.5 million during the three months ended June 30, 2025, and 3,244,641 shares for $109.9 million during the six months ended June 30, 2025[55] - Approximately $130.3 million of repurchase authority remained under the program at June 30, 2025[56] Note 8. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss improved from $(74.4) million at December 31, 2024, to $(69.7) million at June 30, 2025, primarily due to positive foreign currency translation adjustments Changes in Accumulated Other Comprehensive Loss (in Millions) | Metric | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :------------------ | :------------ | | Balance at beginning/end of period | $(74.4) | $(69.7) | | Foreign currency translation and other | $(81.5) | $(76.8) | | Pension and Postretirement Plans | $7.1 | $7.1 | - Other comprehensive income before reclassifications was $4.7 million for the six months ended June 30, 2025, driven by foreign currency translation adjustments[57] Note 9. Inventories Total inventories, net, increased slightly from $272.6 million at December 31, 2024, to $275.8 million at June 30, 2025 Inventories by Class (in Millions) | Inventory Class | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :------------------ | | Finished goods | $233.2 | $228.7 | | Work in progress | $11.8 | $12.1 | | Raw materials | $50.8 | $44.8 | | Total inventories, net | $275.8 | $272.6 | - The LIFO adjustment increased from $(13.0) million at December 31, 2024, to $(20.0) million at June 30, 2025[58] Note 10. Goodwill and Intangible Assets Goodwill increased slightly due to currency translation adjustments, while net intangible assets decreased primarily due to amortization Goodwill and Intangible Assets (in Millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :------------------ | | Goodwill | $795.6 | $794.2 | | Total intangible assets, net | $863.9 | $891.6 | | Intangible asset amortization expense (6 months) | $29.3 | $29.5 | - The company expects to recognize $58.7 million in amortization expense for intangible assets in the year ending December 31, 2025[60] Note 11. Other Current Liabilities Other current liabilities increased from $136.2 million at December 31, 2024, to $153.4 million at June 30, 2025, driven mainly by increases in sales rebates, commissions, and income taxes payable Other Current Liabilities (in Millions) | Liability | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Sales rebates | $77.9 | $73.2 | | Commissions | $12.4 | $9.2 | | Income taxes payable | $7.2 | $2.3 | | Total other current liabilities | $153.4 | $136.2 | Note 12. Long-Term Debt Total long-term debt remained stable at $495.1 million, comprising a term loan and revolving credit facility, with the company in compliance with all debt covenants Long-Term Debt (in Millions) | Debt Type | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :------------------ | | Term loan | $475.7 | $475.0 | | Finance leases | $20.2 | $20.6 | | Total long-term debt | $495.1 | $494.8 | - The Term Loan has a maturity date of October 4, 2028, and its interest rate is based on Term SOFR plus an applicable margin, which was 2.00% at June 30, 2025[69][70] - The Revolving Credit Facility of $200.0 million had no amounts borrowed at June 30, 2025, with $10.1 million utilized for outstanding letters of credit[74] Note 13. Fair Value Measurements The company measures certain assets and liabilities at fair value on a recurring basis, primarily related to its nonqualified deferred compensation plan Fair Value of Deferred Compensation Plan Assets and Liabilities (in Millions) | Metric | June 30, 2025 (Level 1) | June 30, 2025 (Level 2) | June 30, 2025 (Total) | December 31, 2024 (Level 1) | December 31, 2024 (Level 2) | December 31, 2024 (Total) | | :------------------------------ | :---------------------- | :---------------------- | :-------------------- | :-------------------------- | :-------------------------- | :------------------------ | | Deferred compensation plan assets | $2.1 | $15.9 | $18.0 | $1.2 | $15.1 | $16.3 | | Deferred compensation plan liabilities | $20.9 | — | $20.9 | $18.9 | — | $18.9 | - The fair value of long-term debt was approximately $503.0 million at June 30, 2025, based on quoted market prices[80] Note 14. Commitments and Contingencies The company accrues for product warranty claims, with the liability increasing to $5.6 million, and is involved in legal actions, though management expects no material adverse effect Product Warranty Liability (in Millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Balance at beginning of period | $4.9 | $4.7 | | Charged to operations | $2.0 | $1.2 | | Claims settled | $(1.3) | $(1.1) | | Balance at end of period | $5.6 | $4.8 | - The company establishes accruals for legal matters when a liability is probable and costs are reasonably estimable[83] Note 15. Retirement Benefits Net periodic pension cost decreased for both the three and six months ended June 30, 2025, primarily due to a curtailment gain recognized in Q1 2025 Net Periodic Retirement Benefit Cost (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net periodic pension cost | $0.6 | $1.1 | $0.4 | $2.0 | | Net periodic other postretirement benefits cost | $0.1 | $0.1 | $0.2 | $0.2 | - The company terminated its U.S. defined benefit pension plan effective April 1, 2025, resulting in a curtailment gain of $0.7 million in Q1 2025[85] Note 16. Stock-Based Compensation Stock-based compensation expense remained stable, with various equity awards granted and 1,909,866 shares remaining available under the Employee Stock Purchase Plan Stock-Based Compensation Expense (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $9.0 | $9.4 | $19.5 | $19.4 | Equity Awards Granted (Six Months Ended June 30, 2025) | Award Type | Number of Awards | Weighted Average Grant-Date Fair Value | | :---------------------- | :--------------- | :------------------------------------- | | Stock options | 66,540 | $13.11 | | Restricted stock units | 187,490 | $35.34 | | Performance stock units | 388,651 | $35.47 | | Common stock | 123,550 | $34.28 | - The ESPP, approved in May 2024, has 2,000,000 shares available, with 1,909,866 shares remaining for future issuance as of June 30, 2025[89][90] Note 17. Business Segment Information The company operates as one reportable operating segment, managing and evaluating its operations on a consolidated basis due to similarities in products, processes, and customer base - The company is a pure-play water management business with a broad portfolio of specification-driven solutions[92] - The Chief Operating Decision Maker (CODM) is the Chief Executive Officer, who assesses performance based on Net income from continuing operations[93] Segment Profit (Net Income from Continuing Operations) (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $444.5 | $412.0 | $833.3 | $785.8 | | Segment profit (Net income from continuing operations) | $50.1 | $45.3 | $91.1 | $79.3 | Note 18. Subsequent Events On July 24, 2025, the Board of Directors declared a quarterly cash dividend of $0.09 per share, payable on September 5, 2025 - A quarterly cash dividend of $0.09 per share was declared on July 24, 2025, to be paid on September 5, 2025[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, condition, and liquidity, highlighting revenue and earnings drivers, restructuring impacts, non-GAAP measures, and debt covenant compliance General Zurn Elkay Water Solutions Corporation is a growth-oriented water management business, providing sustainable, specification-driven solutions - The company designs, procures, manufactures, and markets a broad portfolio of sustainable water management solutions[98] - The Zurn Elkay Business System (ZEBS) is the company's operating philosophy, emphasizing continuous improvement for superior customer satisfaction and financial results[98] Recent Developments The company's business is subject to risks related to tariffs and other trade protection measures - Additional tariffs on goods imported into the U.S. from numerous countries were announced in Q1 2025, impacting company costs[100] - The company is well-positioned to respond to the tariff environment despite the cost impacts[100] Critical Accounting Estimates The condensed consolidated financial statements require management to make estimates and assumptions - No material changes to critical accounting estimates were reported as of June 30, 2025, compared to the prior Annual Report on Form 10-K[101] Recent Accounting Pronouncements Information regarding recent accounting pronouncements is detailed in Note 1, 'Basis of Presentation and Significant Accounting Policies,' within Item 1 of this report - Refer to Item 1, Note 1 for details on recent accounting pronouncements[102] Discontinued Operations The Process & Motion Control (PMC) business, spun off in October 2021, continues to be reported as discontinued operations Income from Discontinued Operations, Net of Tax (in Millions) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income from discontinued operations, net of tax | $0.4 | $0.7 | $3.0 | $1.0 | - The condensed consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations[103] Restructuring and Other Similar Charges The company continued restructuring efforts to enhance efficiency and reduce costs, resulting in charges of $1.9 million for the three months and $3.6 million for the six months ended June 30, 2025 Restructuring Charges (in Millions) | Period | Restructuring Charges | | :------------------------------- | :-------------------- | | Three months ended June 30, 2025 | $1.9 | | Six months ended June 30, 2025 | $3.6 | - Management expects to continue similar initiatives to optimize operating margin and manufacturing footprint, anticipating further expenses[106] Results of Operations - Three Months Ended June 30, 2025 compared with the Three Months Ended June 30, 2024 For the three months ended June 30, 2025, net sales and income from operations increased, while interest expense decreased Net sales Net sales increased by 7.9% year-over-year to $444.5 million, with core sales improving by 8% across all product categories Net Sales (Three Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | % Change | | :------- | :----- | :----- | :----- | :------- | | Net sales | $444.5 | $412.0 | $32.5 | 7.9% | - Core sales improved 8% year over year, including growth in all product categories[107] Income from operations Income from operations increased by 7.9% to $77.6 million, maintaining a consistent 17.5% of net sales Income from Operations (Three Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :----- | :----- | :----- | :------- | | Income from operations | $77.6 | $71.9 | $5.7 | 7.9% | | % of net sales | 17.5% | 17.5% | —% | | - Operating income as a percentage of net sales remained consistent year over year at 17.5%[108] Interest expense, net Net interest expense decreased to $7.7 million from $8.5 million in the prior year, primarily due to lower interest rates Interest Expense, Net (Three Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :--------------- | :---- | :---- | :----- | | Interest expense, net | $7.7 | $8.5 | $(0.8) | - The decrease in interest expense is primarily attributable to lower interest rates[109] Other expense, net Other expense, net, increased to $2.0 million from $1.6 million, mainly due to higher non-operational and foreign currency transaction losses Other Expense, Net (Three Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :--------------- | :---- | :---- | :----- | | Other expense, net | $2.0 | $1.6 | $0.4 | - The year-over-year change is primarily driven by increased other non-operational and foreign currency transaction losses, offset by lower defined benefit plan costs[110] Provision for income taxes The income tax provision increased to $17.8 million, with the effective tax rate at 26.2% Income Tax Provision (Three Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :-------------------- | :----- | :----- | :----- | | Income tax provision | $17.8 | $16.5 | $1.3 | | Effective income tax rate | 26.2% | 26.7% | | - The effective income tax rate was above the U.S. federal statutory rate of 21% primarily due to compensation deduction limitations, state income taxes, and foreign income taxes[111] Net income Net income for the three months ended June 30, 2025, increased to $50.5 million from $46.0 million in the prior year Net Income (Three Months Ended June 30, in Millions, except per share) | Metric | 2025 | 2024 | Change | | :-------------------- | :----- | :----- | :----- | | Net income | $50.5 | $46.0 | $4.5 | | Diluted net income per share | $0.29 | $0.27 | $0.02 | - Net income from discontinued operations, net of tax, was $0.4 million in Q2 2025, down from $0.7 million in Q2 2024[113] Results of Operations - Six Months Ended June 30, 2025 compared with the Six Months Ended June 30, 2024 For the six months ended June 30, 2025, net sales grew by 6%, and income from operations increased by 12.7%, leading to a net income of $94.1 million Net sales Net sales increased by 6.0% year-over-year to $833.3 million, with core sales improving 7% across all product categories Net Sales (Six Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | % Change | | :------- | :----- | :----- | :----- | :------- | | Net sales | $833.3 | $785.8 | $47.5 | 6.0% | - Core sales improved 7% year over year, including growth in all product categories, while foreign currency exchange rates reduced net sales by 1%[114] Income from operations Income from operations increased by 12.7% to $141.0 million, with the operating margin improving by 100 basis points to 16.9% Income from Operations (Six Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | % Change | | :-------------------- | :----- | :----- | :----- | :------- | | Income from operations | $141.0 | $125.1 | $15.9 | 12.7% | | % of net sales | 16.9% | 15.9% | 1.0% | | - Income from operations as a percentage of net sales increased by 100 basis points year over year[115] Interest expense, net Net interest expense decreased to $15.0 million from $17.3 million, primarily due to lower interest rates Interest Expense, Net (Six Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :--------------- | :---- | :---- | :----- | | Interest expense, net | $15.0 | $17.3 | $(2.3) | - The decrease in interest expense is primarily due to reduced interest rates in the current year[116] Other expense, net Other expense, net, decreased to $2.0 million from $3.0 million, mainly due to lower defined benefit plan costs Other Expense, Net (Six Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :--------------- | :---- | :---- | :----- | | Other expense, net | $2.0 | $3.0 | $(1.0) | - The year-over-year change is primarily driven by lower defined benefit plan costs, partly offset by foreign currency transaction losses[117] Provision for income taxes The income tax provision increased to $32.9 million, with the effective tax rate at 26.5% Income Tax Provision (Six Months Ended June 30, in Millions) | Metric | 2025 | 2024 | Change | | :-------------------- | :----- | :----- | :----- | | Income tax provision | $32.9 | $25.5 | $7.4 | | Effective income tax rate | 26.5% | 24.3% | | - The effective income tax rate for the six months ended June 30, 2025, was 26.5%, compared to 24.3% in the prior year[118] Net income Net income for the six months ended June 30, 2025, increased to $94.1 million from $80.3 million in the prior year Net Income (Six Months Ended June 30, in Millions, except per share) | Metric | 2025 | 2024 | Change | | :-------------------- | :----- | :----- | :----- | | Net income | $94.1 | $80.3 | $13.8 | | Diluted net income per share | $0.55 | $0.46 | $0.09 | - Net income from discontinued operations, net of tax, was $3.0 million in the six months ended June 30, 2025, up from $1.0 million in the prior year[119] Non-GAAP Financial Measures The company uses non-GAAP financial measures like Core sales, EBITDA, and Adjusted EBITDA to supplement GAAP results, providing insights into operating performance, comparability, and debt covenant compliance - Non-GAAP measures are used to enhance understanding of operating performance trends, improve comparability, and provide insight into debt covenant compliance[120] Core sales Core sales is a non-GAAP measure that excludes the impact of mergers, acquisitions, divestitures, and foreign currency translation, facilitating more meaningful comparisons of net sales performance - Core sales excludes the impact of mergers and acquisitions, divestitures, and foreign currency translation[121] EBITDA EBITDA represents earnings before interest, taxes, depreciation, and amortization, used as a supplemental measure of performance and to evaluate debt service obligations - EBITDA is earnings before interest and other debt related activities, taxes, depreciation, and amortization[122] Adjusted EBITDA Adjusted EBITDA is a key measure for debt covenant compliance, reflecting unleveraged, pre-tax operating results by adjusting net income for non-operational, non-cash, or non-recurring items - Adjusted EBITDA is defined and adjusted in the credit agreement, used by lenders to measure performance with a Net First Lien Leverage Ratio[123] - Adjusted EBITDA is intended to show unleveraged, pre-tax operating results, excluding non-operational, non-cash, or non-recurring losses or gains[123] Covenant Compliance The company's credit agreement includes restrictive covenants, with a maximum Net First Lien Leverage Ratio of 5.00 to 1.00, and was in compliance at 0.79 to 1.00 as of June 30, 2025 - The credit agreement requires maintaining a maximum total Net First Lien Leverage Ratio (consolidated indebtedness to Adjusted EBITDA) of 5.00 to 1.00[127] - As of June 30, 2025, the company's Net First Lien Leverage Ratio was 0.79 to 1.00, indicating compliance with debt covenants[127] Adjusted EBITDA Reconciliation (in Millions) | Metric | Six months ended June 30, 2024 | Twelve months ended December 31, 2024 | Six months ended June 30, 2025 | Twelve months ended June 30, 2025 | | :------------------------------------ | :----------------------------- | :------------------------------------ | :----------------------------- | :-------------------------------- | | Net income | $80.3 | $160.2 | $94.1 | $174.0 | | EBITDA | $168.4 | $332.9 | $185.8 | $350.3 | | Adjusted EBITDA | $194.3 | $390.4 | $215.9 | $412.0 | | Consolidated indebtedness (June 30, 2025) | N/A | N/A | N/A | $326.6 | | Net First Lien Leverage Ratio (June 30, 2025) | N/A | N/A | N/A | 0.79 | Liquidity and Capital Resources The company's primary liquidity sources are cash, cash flow from operations, and a $200.0 million revolving credit facility, deemed adequate for its short-term and long-term needs - Primary liquidity sources include cash and cash equivalents, cash flow from operations, and a $200.0 million revolving credit facility[132] Liquidity Position (in Millions) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :------------------ | | Cash and cash equivalents | $201.9 | $198.0 | | Additional borrowing capacity (revolving credit facility) | $189.9 | $188.7 | Cash Flows Operating cash flow increased due to higher net income, while investing cash flow rose from capital expenditures, and financing cash flow increased due to stock repurchases and dividends Cash Flow Summary (Six Months Ended June 30, in Millions) | Activity | 2025 | 2024 | | :-------------------------- | :------ | :------ | | Operating activities | $153.5 | $139.0 | | Investing activities | $(13.3) | $(7.0) | | Financing activities | $(138.7) | $(104.2) | | Repurchase of common stock | $(109.9) | $(79.9) | | Payment of common stock dividends | $(30.3) | $(27.7) | - The increase in operating cash flows was primarily a result of an increase in net income[135] - Capital expenditures increased to $13.3 million in 2025 from $8.6 million in 2024[136] Indebtedness As of June 30, 2025, total indebtedness was $495.9 million, primarily consisting of a term loan and finance leases Total Indebtedness (in Millions) | Debt Type | Total Debt at June 30, 2025 | Current Maturities of Debt | Long-term Portion | | :---------------- | :-------------------------- | :------------------------- | :---------------- | | Term loan | $475.7 | — | $475.7 | | Finance leases | $20.2 | $0.8 | $19.4 | | Total | $495.9 | $0.8 | $495.1 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency and interest rate changes, managed through operating activities and derivative financial instruments - The company is exposed to market risk from changes in foreign currency exchange rates and interest rates[140] - Risk management strategies include normal operating and financing activities, and derivative financial instruments such as foreign currency forward contracts and interest rate derivatives[140] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they are adequate and effective - The CEO and CFO concluded that the company's disclosure controls and procedures were adequate and effective as of June 30, 2025[142] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[144] Part II - Other Information This part includes information on legal proceedings, equity security sales, other disclosures, and a list of exhibits Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 14, 'Commitments and Contingencies,' to the condensed consolidated financial statements in Part I, Item 1 of this report - Legal proceedings information is incorporated by reference from Note 14, 'Commitments and Contingencies'[146] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 972,619 shares of common stock for $32.5 million during the three months ended June 30, 2025, under its authorized repurchase program Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Approximate Dollar Value that may yet be Purchased Under the Plans or Programs | | :----------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------- | | April 1 - April 30, 2025 | 474,146 | $30.83 | 474,146 | $148,186,986 | | May 1 - May 31, 2025 | 290,022 | $35.70 | 290,022 | $137,826,462 | | June 1 - June 30, 2025 | 208,451 | $36.12 | 208,451 | $130,293,403 | | Total/Average | 972,619 | $33.41 | 972,619 | N/A | - The Board of Directors approved increasing the share repurchase authority to $500.0 million on February 8, 2023[147] - The repurchased shares were canceled by the company upon receipt[147] Item 5. Other Information During the three months ended June 30, 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025[149] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various plans, agreements, and certifications required by SEC regulations - Exhibits include the Performance Incentive Plan, forms of stock unit agreements, the Deferred Compensation Plan, and certifications from the CEO and CFO[151] Signatures The report is duly signed on behalf of Zurn Elkay Water Solutions Corporation by David J. Pauli, Chief Financial Officer, on July 29, 2025 - The report was signed by David J. Pauli, Chief Financial Officer, on July 29, 2025[156]