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

Executive Summary & Highlights This section provides an overview of Zurn Elkay Water Solutions' strong second-quarter performance and updated financial outlook for the full year. Second Quarter Highlights Zurn Elkay Water Solutions achieved strong Q2 2025 results with 8% core sales growth, record 26.5% adjusted EBITDA margin, over $100 million in free cash flow, and 0.7x net debt leverage. - The company demonstrated strong performance in navigating global tariff dynamics through supply chain diversity, flexible pricing strategies, and the Zurn Elkay Business System[2] - The non-residential end market remained positive and stable, while the residential market showed slight softness but represents a smaller portion of the business, with the company's targeted growth initiatives driving solid organic growth[2] Key Financial Metrics (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | Notes | | :--------------------------------- | :------ | :------ | :--- | :--- | | Core Sales Growth | 8% | - | +8% | Includes early benefits from customer pull-forward and pricing actions | | Net Sales | $445M | $412M | +8% | | | Net Income from Continuing Operations | $50M | $45M | +$5M | | | Diluted EPS from Continuing Operations | $0.29 | $0.26 | +$0.03 | | | Adjusted EPS | $0.42 | $0.33 | +27% | | | Adjusted EBITDA | $118M | $104M | +13% | | | Adjusted EBITDA Margin | 26.5% | 25.3% | +120 bps | Record level, above the high end of guidance range | | Free Cash Flow | >$100M | - | - | Exceeded $100M for the first time, including $33M in share repurchases | | Net Debt Leverage | 0.7x | - | - | As of June 30, 2025 | | Share Repurchases | $33M (1.0M shares) | - | - | | Third Quarter and Full Year Outlook The company raised its full-year 2025 outlook, projecting at least 5% core sales growth, adjusted EBITDA of $420M-$430M, and approximately $300M free cash flow. - The company raised its full-year 2025 outlook based on strong second-quarter performance and slightly higher expectations for the second half of the year[2][4] - Third-quarter core sales growth and adjusted EBITDA margin are expected to be consistent with the second quarter[4] Full Year 2025 Outlook | Metric | Full Year 2025 Outlook (New) | Full Year 2025 Outlook (Old) | Change | | :----------------- | :------------------ | :------------------ | :--- | | Core Sales Growth | At least 5% YoY | - | Upgraded | | Adjusted EBITDA | $420M - $430M | $405M - $420M | Upgraded | | Free Cash Flow | Approx. $300M | - | Upgraded | Company Overview This section provides a brief introduction to Zurn Elkay Water Solutions, highlighting its business focus and commitment to sustainability. About Zurn Elkay Water Solutions Zurn Elkay Water Solutions is a growth-oriented pure-play water management business based in Milwaukee, Wisconsin, focused on sustainable water solutions for health, hydration, safety, and environment. - Zurn Elkay Water Solutions was recognized by Newsweek as one of "America's Most Responsible Companies" and "America's Greenest Companies," and by TIME as one of the "World's Best Companies for Sustainable Growth"[16] - The company offers professional-grade water safety and control products, flow system products, hygienic and environmental products, and filtered drinking water products for public and private spaces[16] Financial Performance This section details the company's financial results for the second quarter and first half of 2025, including key statements and balance sheet information. Second Quarter 2025 Overview In Q2 2025, net and core sales grew 8% to $444.5 million, with operating income increasing year-over-year but remaining consistent as a percentage of net sales due to offsetting factors. Key Financial Metrics (Three Months Ended June 30) | Metric | June 30, 2025 | June 30, 2024 | YoY Change | | :----------------------- | :-------------------- | :-------------------- | :------- | | Net Sales | $444.5M | $412.0M | +8% | | Core Sales Growth | 8% | - | +8% | | Operating Income | $77.6M | $71.9M | +$5.7M | | Operating Income as % of Net Sales | 17.5% | 17.5% | 0 bps | | Adjusted EBITDA | $117.9M | $104.3M | +13.0% | | Adjusted EBITDA as % of Net Sales | 26.5% | 25.3% | +120 bps | Condensed Consolidated Statements of Operations The company reported year-over-year growth in net sales, gross profit, and net income from continuing operations for Q2 and H1 2025. Consolidated Statements of Operations | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------- | :------- | :------- | :------- | :------- | | Net Sales | $444.5M | $412.0M | $833.3M | $785.8M | | Cost of Sales | $242.2M | $225.7M | $450.0M | $429.4M | | Gross Profit | $202.3M | $186.3M | $383.3M | $356.4M | | Operating Income | $77.6M | $71.9M | $141.0M | $125.1M | | Net Income from Continuing Operations | $50.1M | $45.3M | $91.1M | $79.3M | | Net Income | $50.5M | $46.0M | $94.1M | $80.3M | | Diluted EPS from Continuing Operations | $0.29 | $0.26 | $0.53 | $0.45 | | Diluted EPS | $0.29 | $0.27 | $0.55 | $0.46 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income increased year-over-year in Q2 and H1 2025, driven by net income growth and positive foreign currency translation adjustments. Consolidated Statements of Comprehensive Income | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------- | :------- | :------- | :------- | :------- | | Net Income | $50.5M | $46.0M | $94.1M | $80.3M | | Foreign Currency Translation Adjustment | $4.9M | ($1.5M) | $4.7M | ($4.0M) | | Total Comprehensive Income | $55.4M | $44.5M | $98.8M | $76.3M | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets slightly increased, with higher cash, receivables, and inventory, while total liabilities and equity remained stable. Consolidated Balance Sheets | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------- | :------------- | :--------------- | :--- | | Cash and Cash Equivalents | $201.9M | $198.0M | +$3.9M | | Accounts Receivable, Net | $240.1M | $202.2M | +$37.9M | | Inventories, Net | $275.8M | $272.6M | +$3.2M | | Total Current Assets | $754.0M | $722.1M | +$31.9M | | Total Assets | $2,654.3M | $2,648.5M | +$5.8M | | Total Current Liabilities | $278.3M | $247.8M | +$30.5M | | Long-Term Debt | $495.1M | $494.8M | +$0.3M | | Total Liabilities | $1,089.9M | $1,061.7M | +$28.2M | | Total Stockholders' Equity | $1,564.4M | $1,586.8M | -$22.4M | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly increased in H1 2025, with slightly higher investing outflows and financing outflows primarily due to share repurchases and dividends. Consolidated Statements of Cash Flows | Metric | H1 2025 | H1 2024 | Change | | :----------------------- | :------- | :------- | :------- | :------- | | Cash Flow from Operating Activities | $153.5M | $139.0M | +$14.5M | | Cash Flow Used in Investing Activities | ($13.3M) | ($7.0M) | -$6.3M | | Cash Flow Used in Financing Activities | ($138.7M) | ($104.2M) | -$34.5M | | Net Increase in Cash and Cash Equivalents | $3.9M | $26.0M | -$22.1M | | Cash and Cash Equivalents at End of Period | $201.9M | $162.7M | +$39.2M | Non-GAAP Financial Measures & Reconciliations This section defines the non-GAAP financial measures used by the company and provides detailed reconciliations to their most directly comparable GAAP measures. Definitions of Non-GAAP Measures Management uses non-GAAP financial measures to assess operational performance, trends, and comparability, aiding investors in performance analysis and debt covenant compliance, but these are not substitutes for GAAP information. - Non-GAAP financial measures are used to enhance understanding of the company's underlying operating performance trends and provide comparability with historical and future periods, as well as with peers[7] - Management believes these measures are useful for investors to analyze performance and evaluate debt covenant compliance, but emphasizes they should not be considered a substitute for GAAP financial information[7] Core Sales Core sales exclude the impact of acquisitions, divestitures, and foreign currency translation to facilitate meaningful comparisons of net sales performance. - Core sales exclude the impact of acquisitions, divestitures, and foreign currency translation, aiming to facilitate easier and more meaningful comparisons of net sales performance with prior and future periods and with peers[8] Adjusted Net Income and Adjusted Earnings Per Share Adjusted net income and EPS exclude specific non-operating, non-cash, or non-recurring items such as actuarial gains/losses, restructuring costs, and intangible asset amortization. - Adjusted net income and adjusted diluted earnings per share exclude actuarial gains and losses on pension and post-retirement benefit obligations, restructuring and other similar charges, gains and losses on divestitures, discontinued operations, gains and losses on debt extinguishment, acquisition-related fair value adjustments, intangible asset amortization, LIFO inventory adjustments, and other non-operating, non-cash, or non-recurring gains or losses[9] EBITDA EBITDA, representing earnings before interest, taxes, depreciation, and amortization from continuing operations, is a key supplemental metric for evaluating performance and debt service capacity. - EBITDA, representing earnings before interest, taxes, depreciation, and amortization from continuing operations, is a key supplemental measure of performance often used by analysts and investors to assess the company's performance within its industry and its ability to service debt[10] - EBITDA is not a GAAP financial performance measure and should not be considered an alternative to cash flow from operating activities, liquidity, or net income, nor does it adjust for capital expenditures or recurring cash requirements[10] Adjusted EBITDA Adjusted EBITDA reflects the company's unlevered, pre-tax operating performance by excluding non-operating, non-cash, or non-recurring items, aiding in understanding debt covenant compliance. - Adjusted EBITDA aims to present the company's unlevered, pre-tax operating performance, reflecting financial performance based on operating factors, by excluding non-operating, non-cash, or non-recurring gains or losses, and helps investors understand debt covenant compliance[11] - Adjusted EBITDA has limitations, as it does not reflect cash requirements for capital expenditures, working capital needs, interest expense, tax payments, or future asset replacements[11] - "Adjusted EBITDA Margin" is defined as Adjusted EBITDA divided by net sales; "Net Debt Leverage" is total debt less cash divided by Adjusted EBITDA; and "Incremental Margin" or "Decremental Margin" is the change in Adjusted EBITDA divided by the change in net sales[12][13] Free Cash Flow Free cash flow, defined as cash flow from operations less capital expenditures, is used to analyze debt repayment capacity and forecast future periods. - Free cash flow is defined as cash flow from operating activities less capital expenditures, used to analyze the company's ability to repay debt and forecast future periods, but does not represent funds available for investment or other discretionary uses[14] - Free cash flow conversion is defined as free cash flow divided by net income[14] Return on Invested Capital ("ROIC") ROIC is a key supplemental financial performance metric and a long-term incentive measure, assessing management's ability to deploy capital for shareholder value creation. - ROIC is a key supplemental measure of financial performance and a performance measure for the company's long-term incentive plans, used to evaluate management's ability to deploy capital to create shareholder value[15] - ROIC is defined as net operating profit after tax for the trailing twelve months divided by average total invested capital for the trailing four quarters, where total invested capital is defined as stockholders' equity plus debt less cash and cash equivalents[15] Reconciliation of GAAP to Non-GAAP Financial Measures The company provides detailed GAAP to non-GAAP reconciliations for Q2 and H1 2025 and 2024, transparently showing the calculation of adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Three Months Ended June 30, 2025 This section presents the reconciliation of GAAP to non-GAAP financial measures for the three months ended June 30, 2025, detailing adjustments for key metrics. | Metric | Reported Results (GAAP) | Adjustments | Non-GAAP Results | | :--------------------------------- | :-------------- | :----- | :--------- | | Net Sales | $444.5M | $0 | $444.5M | | EBITDA | $99.7M | $18.2M | $117.9M | | Operating Income | $77.6M | $18.9M | $96.5M | | Income Before Income Taxes | $67.9M | $26.5M | $94.4M | | Net Income from Continuing Operations | $50.1M | $20.2M | $70.3M | | Net Income | $50.5M | $19.8M | $70.3M | | EBITDA Adjustments: | | | | | Restructuring and Similar Charges | $1.9M | | | | LIFO Adjustment | $7.3M | | | | Share-Based Compensation Expense | $9.0M | | | | Income Before Income Taxes Adjustments: | | | | | Intangible Asset Amortization | $14.6M | | | | Supply Chain Optimization and Footprint Relocation | $0.7M | | | | Other Expense, Net | $2.0M | | | Six Months Ended June 30, 2025 This section presents the reconciliation of GAAP to non-GAAP financial measures for the six months ended June 30, 2025, detailing adjustments for key metrics. | Metric | Reported Results (GAAP) | Adjustments | Non-GAAP Results | | :--------------------------------- | :-------------- | :----- | :--------- | | Net Sales | $833.3M | $0 | $833.3M | | EBITDA | $185.8M | $30.1M | $215.9M | | Operating Income | $141.0M | $31.9M | $172.9M | | Income Before Income Taxes | $124.0M | $43.7M | $167.7M | | Net Income from Continuing Operations | $91.1M | $33.3M | $124.4M | | Net Income | $94.1M | $30.3M | $124.4M | | EBITDA Adjustments: | | | | | Restructuring and Similar Charges | $3.6M | | | | LIFO Adjustment | $7.0M | | | | Share-Based Compensation Expense | $19.5M | | | | Income Before Income Taxes Adjustments: | | | | | Intangible Asset Amortization | $29.3M | | | | Supply Chain Optimization and Footprint Relocation | $1.8M | | | | Other Expense, Net | $2.0M | | | Three Months Ended June 30, 2024 This section presents the reconciliation of GAAP to non-GAAP financial measures for the three months ended June 30, 2024, detailing adjustments for key metrics. | Metric | Reported Results (GAAP) | Adjustments | Non-GAAP Results | | :--------------------------------- | :-------------- | :----- | :--------- | | Net Sales | $412.0M | $0 | $412.0M | | EBITDA | $93.6M | $10.7M | $104.3M | | Operating Income | $71.9M | $10.7M | $82.6M | | Income Before Income Taxes | $61.8M | $17.7M | $79.5M | | Net Income from Continuing Operations | $45.3M | $13.5M | $58.8M | | Net Income | $46.0M | $12.8M | $58.8M | | EBITDA Adjustments: | | | | | Restructuring and Similar Charges | $0.7M | | | | Other, Net | $0.2M | | | | LIFO Adjustment | $0.4M | | | | Share-Based Compensation Expense | $9.4M | | | | Income Before Income Taxes Adjustments: | | | | | Intangible Asset Amortization | $14.8M | | | | Other Expense, Net | $1.6M | | | Six Months Ended June 30, 2024 This section presents the reconciliation of GAAP to non-GAAP financial measures for the six months ended June 30, 2024, detailing adjustments for key metrics. | Metric | Reported Results (GAAP) | Adjustments | Non-GAAP Results | | :--------------------------------- | :-------------- | :----- | :--------- | | Net Sales | $785.8M | $0 | $785.8M | | EBITDA | $168.4M | $25.9M | $194.3M | | Operating Income | $125.1M | $25.9M | $151.0M | | Income Before Income Taxes | $104.8M | $39.0M | $143.8M | | Net Income from Continuing Operations | $79.3M | $29.7M | $109.0M | | Net Income | $80.3M | $28.7M | $109.0M | | EBITDA Adjustments: | | | | | Restructuring and Similar Charges | $7.0M | | | | Other, Net | $0.4M | | | | LIFO Adjustment | ($0.9M) | | | | Share-Based Compensation Expense | $19.4M | | | | Income Before Income Taxes Adjustments: | | | | | Intangible Asset Amortization | $29.5M | | | | Other Expense, Net | $3.0M | | | Adjusted EBITDA Reconciliation This table provides a detailed reconciliation of net income to Adjusted EBITDA for Q2 and H1 2025 and 2024, outlining specific adjustments. | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------- | :------- | :------- | :------- | :------- | | Net Income | $50.5M | $46.0M | $94.1M | $80.3M | | Net Income from Continuing Operations | ($0.4M) | ($0.7M) | ($3.0M) | ($1.0M) | | Provision for Income Taxes | $17.8M | $16.5M | $32.9M | $25.5M | | Other Expense, Net | $2.0M | $1.6M | $2.0M | $3.0M | | Net Interest Expense | $7.7M | $8.5M | $15.0M | $17.3M | | Operating Income | $77.6M | $71.9M | $141.0M | $125.1M | | Adjustments: | | | | | | Depreciation and Amortization | $22.1M | $21.7M | $44.8M | $43.3M | | Restructuring and Similar Charges | $1.9M | $0.7M | $3.6M | $7.0M | | Share-Based Compensation Expense | $9.0M | $9.4M | $19.5M | $19.4M | | LIFO Adjustment | $7.3M | $0.4M | $7.0M | ($0.9M) | | Other, Net | $0 | $0.2M | $0 | $0.4M | | Adjusted EBITDA | $117.9M | $104.3M | $215.9M | $194.3M | Adjusted Net Income and EPS Reconciliation This table provides a detailed reconciliation of net income to Adjusted Net Income and EPS for Q2 and H1 2025 and 2024, outlining specific adjustments. | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :--------------------------------- | :------- | :------- | :------- | :------- | | Net Income | $50.5M | $46.0M | $94.1M | $80.3M | | Net Income from Continuing Operations | ($0.4M) | ($0.7M) | ($3.0M) | ($1.0M) | | Intangible Asset Amortization | $14.6M | $14.8M | $29.3M | $29.5M | | Restructuring and Similar Charges | $1.9M | $0.7M | $3.6M | $7.0M | | Supply Chain Optimization and Footprint Relocation | $0.7M | $0 | $1.8M | $0 | | LIFO Adjustment | $7.3M | $0.4M | $7.0M | ($0.9M) | | Other Expense, Net | $2.0M | $1.6M | $2.0M | $3.0M | | Other, Net | $0 | $0.2M | $0 | $0.4M | | Tax Impact | ($6.3M) | ($4.2M) | ($10.4M) | ($9.3M) | | Adjusted Net Income | $70.3M | $58.8M | $124.4M | $109.0M | | Diluted EPS from Continuing Operations (GAAP) | $0.29 | $0.26 | $0.53 | $0.45 | | Adjusted Diluted EPS | $0.42 | $0.33 | $0.73 | $0.62 | Free Cash Flow Reconciliation This table provides a detailed reconciliation of cash flow from operating activities to Free Cash Flow for Q2 and H1 2025 and 2024. | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----------------------- | :------- | :------- | :------- | :------- | | Cash Flow from Operating Activities | $110.6M | $85.1M | $153.5M | $139.0M | | Capital Expenditures for Property, Plant and Equipment | ($9.0M) | ($4.9M) | ($13.3M) | ($8.6M) | | Free Cash Flow | $101.6M | $80.2M | $140.2M | $130.4M | Additional Information This section provides details regarding the upcoming conference call and important cautionary statements about forward-looking information. Conference Call Details Zurn Elkay Water Solutions will host a conference call and webcast on July 30, 2025, to discuss Q2 2025 results, provide business updates, and answer investor questions. - The conference call and webcast will be held on July 30, 2025, at 8:30 AM ET[17] - Todd Adams, Chairman and Chief Executive Officer, and Dave Pauli, Chief Financial Officer, will co-host the call[17] - Investors can participate via domestic toll-free dial-in at 800-715-9871 or international dial-in at 646-307-1963, using access code 6071902; the webcast will be available on the company's investor relations website at investors.zurnelkay.com[17] Cautionary Statement on Forward-Looking Statements This press release may contain forward-looking statements subject to risks and uncertainties, with no obligation to update, and actual results may differ materially from current expectations. - Forward-looking statements are based on information available as of the date of this release, and the company undertakes no obligation to update any such statements[19] - Actual results may differ materially from current expectations due to various factors, and investors should refer to the "Risk Factors" and "Cautionary Statement on Forward-Looking Statements" sections in the company's 10-K, 10-Q, and 8-K reports filed with the SEC for more information[19]