Financial Data and Key Metrics Changes - The company reported a 11% organic sales growth year over year, with total sales reaching $455 million in Q3 [4][9] - Adjusted EBITDA grew 16% to $122 million, with EBITDA margins expanding 120 basis points to 26.8%, marking the highest quarterly margins since the Elkay merger [4][10] - Free cash flow for the quarter was $94 million, contributing to a year-to-date total of $135 million in share repurchases, representing about 3.8% of total shares outstanding [4][11] Business Line Data and Key Metrics Changes - The non-residential market remains positive, while the residential market continues to experience softness [9] - Incremental demand of approximately $8 million was shipped in Q3 due to customers ordering ahead of a pricing action [9][10] - The company has seen solid unit growth across almost all core categories, with no significant changes from previous quarters [38] Market Data and Key Metrics Changes - The Dodge Momentum Index, Architectural Billing Index, and Construction Backlogs are key indicators for future non-residential construction spending [16][19] - The company expects the market outlook for 2026 to resemble that of 2025, with low growth anticipated [5][26] - The company is over-indexed to stable segments within non-residential construction, particularly in education and healthcare [25] Company Strategy and Development Direction - The company aims to leverage internal growth initiatives and competitive advantages to drive organic growth [6][30] - There is a focus on expanding into adjacent markets with innovative products while maintaining a strong core business [30] - The company has refreshed its share buyback program to $500 million and raised its dividend by 22% [4][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate the current tariff environment and maintain price-cost positivity [32][68] - The company raised its full-year estimates for growth, profitability, and cash flow, projecting core sales growth of approximately 8% for the full year [31] - Management noted that the tariff costs for 2025 are expected to be approximately $50 million, slightly higher than previous estimates [32] Other Important Information - The company completed its U.S. pension plan termination, eliminating approximately $200 million in liabilities [11][12] - Sustainability initiatives have advanced, with significant contributions to cleaner drinking water and reduced plastic waste [13][14] Q&A Session Summary Question: Divergence in growth rates across product categories - Management noted that almost all core categories are experiencing solid unit growth, with no significant changes expected as they head into Q4 [38] Question: Update on Elkay Pro Filtration and LIV EZ line - The Elkay Pro Filtration system has seen strong uptake, and the LIV EZ line is expected to tap into a small market with good growth potential [40][42] Question: Volume expectations for the back half of the year - Management indicated that good volume growth is expected, with some pull forward in Q3 offset by weakness in the residential market [47][48] Question: Capital allocation priorities - The company continues to generate significant free cash flow, focusing on reducing leverage, investing in core business, and evaluating stock value for share repurchases [53] Question: M&A funnel and market opportunities - The M&A funnel has seen modest growth, with a focus on returns on invested capital rather than specific valuations [59] Question: Aspirations for residential drinking water - Management characterized the appetite for residential filtration as low, viewing the LIV EZ product as an extension rather than a significant market entry [62] Question: Consistent strong margin results - Management highlighted consistent margin expansion since the Elkay merger, with a new baseline for margins established [66] Question: Navigating the tariff environment - The company has proactively moved manufacturing out of China, positioning itself well to manage tariff impacts [68]

Financial Data and Key Metrics Changes - Sales grew 11% organically year over year, totaling $455 million in Q3 2025 [4][8] - EBITDA increased 16% to $122 million, with margins expanding 120 basis points to 26.8% [4][10] - Free cash flow for the quarter was $94 million, with year-to-date repurchases reaching $135 million [4][11] - The company raised its dividend by 22% and refreshed its share buyback program to $500 million [4][11] Business Line Data and Key Metrics Changes - The non-residential market remains positive, while the residential market continues to experience softness [9] - Core growth reflects higher realization of tariff-related price increases implemented in April [9] - Incremental demand of about $8 million was shipped due to customers ordering ahead of a pricing action in mid-September [9][10] Market Data and Key Metrics Changes - The Dodge Momentum Index, Architectural Billing Index, and Construction Backlogs are tracked as key indicators for future non-residential construction spending [15][19] - The market outlook for 2026 is expected to resemble that of 2025, with low growth anticipated [5][26] - The company is over-indexed to stable segments within non-residential construction, particularly education and healthcare [24][25] Company Strategy and Development Direction - The company is focused on leveraging internal growth initiatives and competitive advantages in product portfolio and market positioning [6][30] - Plans to sharpen focus on driving organic growth into adjacent categories while maintaining a premier pure play water business in North America [30] - The company aims to exploit competitive advantages in specification, supply chains, and go-to-market capabilities [30] Management's Comments on Operating Environment and Future Outlook - Management raised full-year estimates for growth, profitability, and cash flow, projecting core sales growth of approximately 8% for the full year [31] - Tariff costs for 2025 are now expected to be approximately $50 million, slightly higher than previous estimates [33] - The company remains confident in its ability to navigate the tariff environment and maintain price-cost positivity [33][74] Other Important Information - The company completed its U.S. pension plan termination, eliminating approximately $200 million in liabilities [11][12] - Sustainability initiatives have advanced, including delivering 1.8 billion gallons of filtered drinking water and eliminating the need for 14.6 billion single-use plastic bottles [13][14] Q&A Session Summary Question: Any meaningful divergence in growth rates across legacy Zurn Elkay product categories? - Management noted that almost all core categories are experiencing solid unit growth, with no significant changes expected as they head into Q4 [38] Question: Update on the reception of Elkay Pro Filtration and market opportunity with LIV EZ line? - The Elkay Pro Filtration system has seen strong uptake, and the LIV EZ line is expected to grow nicely, though it is not anticipated to be a major pillar of the commercial drinking water offering [40][42] Question: Clarification on volume expectations and capital allocation priorities? - Management indicated that Q4 growth is expected to be equal to Q3 momentum, with a focus on maintaining a steady repurchase strategy while generating significant free cash flow [50][56] Question: Insights on the M&A funnel and aspirations for residential drinking water? - The M&A funnel has seen modest growth, with no significant changes in valuations. The company does not have a high appetite for entering residential filtration but sees the LIV EZ as an extension of existing offerings [60][62] Question: Consistent strong margin results and future expectations? - Management expressed confidence that the current margin levels represent a new baseline, with expectations of 30% to 35% incrementals on volume in the long term [71]