Q4 2022 Zurn Elkay Water Solutions Corp Earnings Call
Good morning, and welcome to the Zurich, Okay Water Solutions Corporation fourth quarter 2022 earnings results Conference call with Todd Adams, Chairman and Chief Executive Officer, Mark Peterson, Senior Vice President and Chief Financial Officer and.
Holly Vice President of Investor Relations for Zurn L. P water solution.
This call is being recorded and will be available for one.
Our numbers for the replay can be found in the earnings release the company filed in an 8-K with the SEC yesterday February seven at this time for opening remarks, and introduction I'll turn the call over to Dave Poly.
Good morning, everyone and thanks for joining us on the call today before we begin I would like to remind everyone that this call contains certain forward looking statements that are subject to the safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP .
Our earnings release, and SEC filings contain additional information about these non-GAAP measures why we use them and why we believe they're helpful to investors.
Contains certain 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 and we encourage you to review the GAAP information in our earnings release and in our SEC filings with that I will turn the call over to Todd Adams, Chairman and CEO of Zurn LTE water solutions. Thanks, Dave.
And good morning, everyone. This is what we hope is a relatively straightforward call will take everyone through what we saw in the fourth quarter along with some even more recent trends will also lay out what we believe next year could look like which is broadly reflected in the current consensus and then we'll get back to work and execute to maximize what we're actually holding ours.
Shelves accountable too.
After a couple of years of big transformative transactions to completely change our business to a premier pure play water business. This upcoming year is simply about executing on whites, what's right in front of us and we really like our hands. It's also not lost on us the noise of the past few quarters is not what investors expect of us and realize the only way to do so.
Something about it is to execute at a high level and so that's what we're going to go do.
There were a lot of fastest for 2022, including some real challenges in some more perception base. The good news is that over the past six months. We've acted quickly got to the core of what the new Zurn LK is and can be and the overall cadence at which were off but we've operated historically is fully embedded across the new zurn LK to start 2023.
Six months after the close of the deal.
The third party Rep changes 80, 20 simplification decisions integration planning supply chain constraints and extended lead times are largely all behind us and now it's about leveraging the zurn LK business system to drive performance and build upon our competitive advantages as Mark will discuss the fourth quarter was impacted by some near end.
Macro issues, including a weaker residential market and some wholesale inventory destocking that is also now essentially behind us.
And what's been a pretty eventful last three years I think it's important to highlight the strength of the legacy <unk> business, which is growing the topline at a compounded annual growth rate of 14% since 2019.
You could turn to page four.
We've just taken our board through our three year strategic plan and with that as a backdrop, we decided to take the opportunity to formalize a more comprehensive and balanced capital allocation strategy as we start 2023.
It's grounded in the resilience of our business strong balance sheet and consistently high free cash flow profile cash flow profile, we see over the next several years and our commitment to delivering exceptional shareholder value.
Our view of the intrinsic value of the company is materially higher than it sits today and as a result, we're integrating a significant share repurchase plan into our near to medium term capital allocation strategy.
Our current dividend yield of <unk> 28 on an annual basis represents a current dividend yield of about one 3% we're committed to continually continuing.
The dividend and we'll look to review any increases to that annually given the fact that we just increased the dividend in our third quarter. This is something we'll look at over the course of the year and then obviously moving forward.
The $500 million buyback represents about 13% of our current market cap and a size in concert with maintaining our leverage profile between one to two times, while also accommodating macro driven risks in the economy over the next couple of years for 2023, the minimum repurchase will be $100 million and it's something that.
Both programmatic and opportunistic about <unk>.
Finally, M&A has historically been important to us to fill in product categories and enhance our competitive advantages within our portfolio at the bolt on tuck in level.
Okay transaction was transformative transformational and provides us multiple levers to enhance our core growth over time, while we continue to cultivate other opportunities for this year think of as a singularly focused on delivering the value we see and saw in the combination with LK the.
The punch line is we believe this formalized comprehensive approach provides even more levers to drive shareholder value and as you've seen in the release, we've already been executing on it across all fronts with $25 million of shares repurchased in the fourth quarter.
Move on to page five.
I touched on our strategic plan, just a minute ago, which is our 15th plan since the original Zurn acquisition in 2007, what started as a carve out diversification play for a private equity owned multi industry business and part of the prior Rexnord has now become our core business and we've taken a step further with the <unk> transaction.
Last year.
As we've developed the now zurn LK business system, one of the significant pieces of learning and change over time has been the benefit of pure focus and when I say focus what I really mean is an 800000 and focus in our opinion spending time effort and resources on pieces of our business, whether it's products customers channels, where we are.
See real strategic upside as pure waste and it comes at the expense of what really matters is.
That learning that led us to make the decisions on portions of the LK residential sync business since closing with that behind US our teams have gone out and executed an integration plan that puts us in a position to deliver at least $50 million of synergies over 'twenty, three and 'twenty four and Thats before we capture the growth benefits of what the new Zurn LK can deliver.
The second significant thing to pointed out pointed.
Point out in our strategic planning process is a concept of deploying breakthroughs in this three year plan, we're over indexing our strategy deployment process around drinking water actually safe drinking water.
Focused on K through 12.
Students and schools, which we believe is worth hundreds of millions of dollars of growth moving forward as the states and legislation are now beginning to take meaningful action to solve the issue.
The business model framework, we leveraged over time has gone through some modifications, but the critical piece of leveraging Z. Ebs is unchanged. We start 2023 in a spot that places a premium on execution and I can't thank our team enough for all their hard work. This past year and I know, we're going to do great things in the coming years as we execute like we can.
If you could turn to page six I'll spend just a minute on our drinking water strategy.
The reality is in this country over half the population drink drink water from lead service lines. The most vulnerable kids with the impact felt not only in places that you've heard of like Flint, but very very likely in the schools, where you live your kids your neighbors nieces nephews, our grandchildren go to school.
With over 131000, K through 12 schools in the U S. Over 13 million Kids went to school last year with elevated lead levels.
There is however, a growing awareness and legislation that is beginning to take shape and we're investing to make sure that we are the go to solution to address this incredibly solvable problem.
It starts with having a leading market share and largest installed base of point of use drinking water solutions and L. K.
And if you turn to page seven.
The inherent competitive advantage, we have as a starting point is so important the competitive moat is large and growing and one that's been built by okay. Over time now it's time to take it to another level and our approach to not only grow the category, but ensuring that the follow on filtration business model is locked in.
The category has changed over time from drinking fountains to now bottle fillers that was the initial evolution largely away to improve hygiene and eliminate plastic waste. We believe the next evolution will be ensuring safe drinking water and public and private spaces with the devices and ensuring that through filtration by improving the attachment rate and continuing to grow the installed.
Base, we're confident that filtration can be $100 million of high margin recurring revenue in the coming years as we expand accessibility provides for subscriptions and embed some proprietary technology to ensure that we're getting the replacement event.
Finally, both.
Both the funding and awareness is there whether it's essar funding filter first legislation or simply parents teachers community members, taking some accountability to solve what again is a very solvable problem. This will be our Y walking to talk not only on being recognized for being an S. ESG compliant company, but to actually be an ESG company.
Which is a nice segue to page eight.
To give everyone a sense of the progress we've made in bringing these two businesses together to truly operate as one beginning in 2023, we've already fully aligned zurn LK under a comprehensive and uniform ESG strategy and will issue. Our first combined report later this month.
As a combined organization, we made solid progress in 'twenty, two and are firmly on track with the initial set of ESG targets, we announced that our 2021 report.
In fact, the combination did not require us to step back from our targets instead, we'll be announcing seven new ESG ESG targets at our upcoming report that are aimed at improving supplier diversity air emissions waste plastic bottle elimination engineering and research and developments that.
These new targets provide additional transparency transparency and accountability.
For the first time, we're aligning our reporting framework with the task force on climate related financial disclosure framework to guide our climate related risk strategy and targets, we've leveraged a zurn LTE business system and applied core our core values of continuous improvement to advance our sustainability efforts, we continued to reduce our greenhouse gas emission.
By completing several electricity and natural gas reduction projects. In 2022, we also launched energy audits of key facilities, which will identify significant energy reduction opportunities in our 2024 target and.
And finally on page nine.
Here, you'll see just a few of the highlights the statistics of the progress we've made over the last several years.
Our customers our customers care about the sustainability of their buildings and retrofit products. That's why we will soon complete our first product lifecycle analysis to document and to and environmental impact of our <unk> stainless steel sinks with plans to do more.
<unk> alongside environmental product declarations gives our customers additional confidence with zurn LK products will help them achieve their own sustainability goals and earn sustainably sustainability certifications like well to point out and lead.
We simply believe that doing the right thing and we're proud of our sustainability efforts continue to be recognized for the third consecutive year. Newsweek has named Zurn LK one of America's most responsible companies, we're continuing to build on all the work, we've done and including <unk> and including embedding ESG into our strategic planning process efforts and hope that you will.
Look at our report later this month with that I'll turn it over to Mark Thanks Todd.
Slide number 10.
On a year over year basis, our fourth quarter sales increased 46% to $340 million.
The recently completed merger with LK contributed 50% year over year growth, while foreign currency translation reduced sales by 100 basis points from the prior year and core sales declined 300 basis points sales for residential end markets down, 30% and sales for nonresidential end markets expanding low single digits versus the prior year fourth quarter.
Our fourth quarter sales were impacted by two things.
During the quarter, our lead times continue to improve and are back to historical normal levels and improvement at a near term impact on order patterns from our channel partners in the quarter as we reacted to our improved lead times. In addition, our residential end markets were approximately 10 points tougher than we had anticipated heading into the quarter.
With respect to <unk> in the quarter I will provide some color on fourth quarter.
Update on demand trends in <unk> 'twenty product line exits.
Our nonresidential business, which is comprised of drinking water and commercial things continued to experienced low double digit demand growth on a year over year basis.
As Todd discussed earlier, we are aggressively investing in our growth initiatives to further accelerate demand for safe drinking water.
With respect to residential thinks we continue to execute on our 80 20 simplification actions in the quarter to exit certain residential commodity private label and OEM <unk> Skus and remain on track to our targeted SKU reduction and related profitability improvement.
Our cadence of exits is unchanged from our last earnings call, but just as a reminder, we exited another 20 million in the fourth quarter, bringing the total for the second half of 2000 $22 million to $25 million or $100 million on an annualized basis, we will be completing the balance of the exits in the first quarter of 2023, bringing total exits of annualized 100 <unk>.
$15 million and as Youll see in the next slide I guess, we'll have a year over year sales impact of $90 million for calendar year, 2023, and a $28 million year over year sales impact in the first quarter of 2023.
Turning to profitability, our adjusted EBITDA totaled $65 million in the quarter and our adjusted EBITDA margin was 19% compared to $45 million and 19, 4% in the prior year fourth quarter.
The price realization and our productivity initiatives on our fourth quarter margin was more than offset by the sell through of higher cost inventory purchased earlier in the year investments in our growth and supply chain initiatives as well as the impact of the <unk> merger.
Please turn to slide 11, and I'll touch on some balance sheet and leverage highlights.
With respect to our net debt leverage we ended the quarter with leverage at an all time low at one four times inclusive of approximately $25 million of cash used to repurchase common stock in the quarter.
As Todd highlighted earlier, we intend to utilize a minimum of $100 million of our free cash flow in 2023 to continue to execute our share repurchase plan, while targeting a net debt leverage ratio in the 1% to two times range over time.
Please turn to slide 12, and I'll cover some of the highlights of our outlook for fiscal year 2023, as well as the first quarter of the year.
To help better understand the growth trends in the business in 2023, we have presented zurn LTE pro forma 2022 sales for the year and first quarter, which takes reported sales for 2022, plus <unk> sales for the first and second quarters of 2022 lots of year over year impact of the 80 20 product line exits we have executed.
As you can see on the slide that results in a pro forma calendar year 2022 jump off point of $1 49 billion and that is the number will be working off of to discuss pro forma core growth in the combined business in 2023.
For 2023, we're taking a view on our external outlook that encompasses a broader range of volatility that we have the past couple of years.
For the full year, we are projecting consolidated zurn LTE sales in the range of $1 5 billion to 155 billion and our consolidated adjusted EBITDA to range from 325 million to $345 million, resulting in a year over year margin expansion of at least 110 basis points up to 170 basis points.
On the slide you can see our assumptions weighted sales trends for our nonresidential and residential product groups at the low and the high end of the range.
For the first quarter of 2023, we are projecting sales to range from 340 million to $355 million and our adjusted EBITDA margin range from 19% to 19, 5%.
With respect to our sales outlook you can see on the page our assumptions for growth trends in our nonresidential and residential product groups, which also incorporates a more cautious approach to buying patterns in the channel given the recent improvement in our lead times.
Turning to profitability.
Our first quarter margin will be temporarily impacted by the sell through of higher cost inventory purchased in 2022 as well as some accelerated investments primarily related to our safe drinking water growth initiatives Todd covered earlier on the call.
Firstly offset by the benefit of our synergy savings related to the <unk> merger, which is on track to deliver the $25 million in 2023.
With respect to margin progression over the course of the year starting in the second quarter, we will begin to benefit from lower material and transportation costs as well as a sequential step down in the growth investments, resulting in an improving margin profile as the year progresses.
Before opening the call for questions I'll touch on a few additional outlook items on page 13.
We.
Our interest expense to be approximately $11 million in the first quarter and approximately $44 million for the full year, our noncash stock comp expense should be about $12 million in the first quarter and approximately $47 million for the full year.
Depreciation and amortization will come in at around $23 million in the first quarter and approximately $90 million for the full year.
Our tax rate on adjusted pretax earnings will be in the range of 27% to 28% from the first quarter and a range of 28% to 29% for the full year.
And finally diluted shares outstanding will be approximately $180 million in the quarter and for the full year before the impact of share repurchases.
We'll now open the call up for questions.
And if you would like to ask a question.
A question Star one.
Okay.
Our first question from Bryan Blair from Oppenheimer.
Please go ahead.
Thank you good morning, guys.
Good morning, Brian Brian .
I was hoping you could offer a little more color on the impact of Destocking in Q4.
Now perhaps off of your views on channel positions in Q1.
Know that resi remains.
On a downward trajectory for the time being that that's unsurprising more so curious the.
The trends in any insight you can offer on the non res side and how we should think about Q1 impact and then going into the seasonally stronger quarters.
Yeah, Brian It's Todd I'll start and let mark will sort of fill in some of the blanks.
Fundamentally the order patterns really sort of in the back half of November into December .
We're sort of unprecedented in terms of.
How weak they were in a lot of it.
Materially driven by.
Wholesale inventory Destocking as our lead times came down and so when we crossed over the year.
They've gotten through January and sort of most of the.
First couple of weeks of February or at least first week of February it's sort of much better.
Then it has been and I would say.
Obviously.
Theres not a lot of inventory, where non res products in the channel. So what we saw was maybe a lot less inventory destocking and also a combination of our lead times coming in and being sort of back to normal and so are our order patterns really through the first five or six weeks here has been I would say very much in line.
With what we would expect to see at this time of year, and then obviously ramps heading into the busier parts of.
The middle of the year for us.
Yes, I think just to put some numbers to the first part of your question. Brian . If you think about the outlook that we had and just use the midpoint is simple starting point be fair to say if you look at the Delta from there to 340 mid to high single digit millions will be coming from the residential decline and the balance of it really commercial phenomenon Todd talked about the <unk>.
Order patterns so.
That just kind of puts and some number of stopes without discussing.
Okay I appreciate the color and if we think of the year.
Core non res outlook.
Growth in the mid single digit range.
How are you.
Is your team contemplating the growth trajectory for your key vertical view disc.
<unk> discussed education, specifically in the context of the <unk> opportunity, but that is your largest end market in cancer therapy.
Broader opportunities beyond what was presented their funding backdrop seems quite good.
Any incremental color you can offer an education and then of course health care matters quite a bit as well.
Again, I think half of our half of our non res.
Are those two verticals, which as you pointed out continue to be.
Quite good I think the initial framework that we've laid out.
Certainly hedges.
Hedges all of that.
That growth to.
To get to the range that we're sort of talking about in that mid single digit range I think with you.
Intentionally cautious view.
To start 2023, but I think qualitatively from an end market standpoint, those two are actually still quite good and obviously.
The drinking water opportunity, we see in schools and the way we're investing we certainly hope to do better than that so I would just I would characterize it as sort of a <unk>.
Cautious way to start the year.
<unk>.
With a variety of outcomes that are going to play themselves out over the next 11 months ago I think we feel really good about.
Those two verticals in particular.
That makes sense and one last one if I may.
Thinking about 2020 through EBITDA guidance.
Maybe walk us through the bridge, starting with 265 and in 'twenty two how to think about a year on year contribution from Kors earnings the full year of sign.
Okay contribution and then layering on deal synergies and within that.
Yes, perhaps on how you think of it as a potential risk to the framework.
And.
Yes also upside to that range.
Sure.
I think if you were to pro forma <unk>.
Two to include sort of a more full year of LK, you really start to the year closer to 300, obviously, we've got $25 million of synergies.
And then if we get some some of the growth. We expect if you find your way to the higher end of the range, obviously as Mark pointed out we're chewing through some of that high cost inventory to start the year.
And so I think the framework around guidance really puts a premium on just executing.
At a high level to start the year worked through that high cost inventory and then.
Obviously, you get the synergies from the <unk> transaction that we're highly confident in and we're starting.
The year with the range of $3 25 to $3 45, and I think we're optimistic that if.
If we execute well in the world sort of hangs together we've.
We've got a chance to clearly end up inside that range at the end of the year.
Throughout a variety of different.
Scenarios.
So rather than try to work it for you, Brian I think thats more of the context of how we're how we're thinking about it.
That's understandable.
Thanks again guys.
And our next question will come from Jeff Hammond with Keybanc capital markets.
Please go ahead.
Hey, good morning, everyone.
Good morning, John Jeff.
So just wanted to go back to the to.
So the margin ramp one can you just talk about how much of this accelerated investment.
Falls into Q1, and then just maybe talk through a little bit more the.
The higher cost materials, because it seems like you guys had been pushing price in staying ahead in and now it seems like you're kind of maybe maybe having a price cost issue in <unk> and then just the cadence of the synergies. Thanks.
Yes, just to start with the high cost inventory I think it's been and when we thought over the course of the year and this is really gets back to the same phenomenon with the fact that.
Yes, it's covering.
The higher inventory cost, but it's adversely impacting margin as we're not as we've not been generating a normal incremental margin on those price dollar. So I think it kind of.
Came to ahead in the fourth quarter end of the first quarter.
And I think we're at the point, where we're we're still covering the cost but the margin pressures is peaking at this point in time. So I think as Todd mentioned look we feel good about working through that during the second quarter is also a part of the margin progression over the balance of the year is that finding its way too.
More of a.
I'll say, a normalized incremental margin on that.
Price and then getting some some benefit in the back half of the year as the pricing we put in place last year specs and you start getting the full benefit of the improved transportation costs in.
And in the commodity environment.
As far as investment goes.
Yes, again, H, one weighted given some of the things we're trying to get in front of us.
Around safe drinking water.
<unk> campaigns getting pretty aggressive with that early in the year, so thinking about that as something that youre going to be again weighted heavier in the first half and in Q1, probably being the heaviest overweight quarter of all of them and that will slowly.
Reduce as the year progresses.
And al case synergies.
Think about it relatively relatively flat over the course of the or I should say consistent with the question about $25 million, we will start with that.
$6 million in Q1 was a couple of things you've got to get done this quarter, but then kind of getting back to that a little over $6 million cadence over the balance of year to equal 25. So.
A long winded answer to your question, but hopefully I covered it in Europe , you were trying to touch on.
No.
That's very helpful.
And then just just.
Some of the non operating items, just can you walk through what's driving the higher tax rate and the interest rate looks.
Oddly high for $540 million of debt. So just maybe hit those two items.
Yes interest, we've just kind of use the forward curve, assuming interest rates stay high for the balance of the year.
So we're hopefully we'll get some of that but we're assuming that they stay elevated over the balance of the youre using the forward curve for 2023 tax rate taxes is really a function of.
So timing.
Compensation that ties into this 160 <unk> adjustment is effectively a fixed tax item that this year just increases for us for numerous reasons. So it's not a variable element, though to deal with I also say too Jeff in our tax rate.
We don't assume any.
Equity.
Year to the extent there are agri exercise that would drive the rate down as people exercise.
Some of equity so we assume that doesn't happen in our base rates. So hope it has a chance to do a little bit better better than that over the course of the year.
Okay. Thanks, guys.
Our next question will come from Mike Halloran with Baird.
Please go ahead.
Hey, good morning, everyone. Good.
Good morning, Mike.
I just wanted to I, just want to make sure I understand the dynamic and how youre thinking about the cadence or the growth cadence through the year on the non res. It seems like the first quarter is simply.
Sell out still strong, but sell in a little softer as the as the order patterns normalize but beyond the first quarter. The expectation is to have sell out sell in be more aligned.
And therefore, the commentary on the end market strength coming through more fully in your numbers right I mean, it's as simple as that.
That's it Mike.
Alright, great.
So mark touched on the.
Some of the growth initiatives talk about some of the promotional activity maybe just highlight some of the other things you guys are working on on the growth side of things.
On the <unk> piece that you think are going to gain traction as we work through the area.
Well I mean again I think we are.
We're leading with.
Safe drinking water and <unk>.
And obviously adjacent that filtration and so I would say the thrust of what you're going to hear us talk about what we're focused on are really those two things obviously, we've got.
Some other opportunities, particularly around building upgrades at MRO now that we have the entire package between all of the hygienic products that we had historically and now pairing that with drinking.
Drinking water in sync so.
The way to think about what we're focused on is really that drinking water piece, but also the leverage we're getting out of having this broad portfolio that we have.
Sort of unrivaled in the ability to specify that spec it pull it through.
It's an advantage for.
Building owners, it's been a hit with the wholesale community and we're really excited about that first turn of traction we're getting with.
Our new.
Newly instituted third party Rep network that as relationships.
And.
In territories, where we are we went through a lot of change over the course of the last year, but but now.
Six seven months in we're really starting to see the traction of driving change in preference and share opportunities with the with the new fully constituted portfolio.
And then thanks for that and then last one if I may.
The share buyback commentary makes a lot of sense.
I just wanted to clarify something from your prepared remarks, it sounds like you feel comfortable that.
Given the cash flow situation and the leverage levels on the balance sheet that you'd be able to.
Do a complement of buybacks as well as strategic M&A and then just flex the buyback piece if the M&A opportunities ramp is that a fair thought process.
Yes, I think the way to think about it really over the course of the.
At least as we start the year here is.
We set a minimum of $100 million.
You think about the earnings sort of range that we've provided and then the $200 million of cash flow you can see that you end up in a leveraged scenario that is frankly below where we are today at the end of next year and so we do have room to do more on the buyback and we also have room.
To continue to cultivate some of the bolt on tuck in activity that that we historically do and so I think that this framework at least initially accommodates sort of a very balanced view of the world with the opportunity to do to do more on the buyback and then clearly the $100 million.
Appreciate it thanks.
Thanks.
And our next question will come from Joe Ritchie with Goldman Sachs.
Please go ahead.
Thanks. Good morning. This is <unk> on for Joe Ritchie.
Okay.
My first question is just on the residential side. So now that you are exiting the <unk> business on <unk> can you help us understand how much residential exposure is left in <unk> and then on the van side given the demand for residential of Noah. If you help us understand how you are managing factory throughput.
And with demand environment.
Sure.
Vivek.
<unk>.
We really are just one company and so we're not going to talk about it is <unk>. It's one company the residential exposure of the entire company is probably in the 12% range of total sales maybe 13%.
Today, so all of that.
Sort of non <unk> branded.
Home Center private label business is the stuff that we've decided to walk away from it.
And if you were to look at how are we managing.
The production of that portion of our business, we're managing it very much like we manage the rest of our business.
We have a combination of.
Third party suppliers, we do some assembly and test we do some late point modification and so just like we manage the rest of our business reflecting.
Those product categories those cells.
To meet what we see is the current demand so nothing nothing different than frankly, just to sort of one business in aggregate.
That's helpful. Thanks, and then maybe just zooming in within the nonresidential verticals.
How much office exposure do you guys have in that.
Mindful.
In the office vertical, Dave Neu big rate and occupancy.
Any concern can demand this year.
<unk> site.
Yes, I don't think there is a specific call out there.
For the businesses.
Institutional there's a sliver of office.
And I don't think that Theres anything that I could sort of give you a qualitatively that makes me.
Excited one way or the other.
It has not been a big part of our business.
For really at any point in time, and obviously the <unk>.
Somatic no one's ever going to work again.
So that part is dead has sort of played itself through so I'm not sure exactly how to.
Characterize.
What you are trying to zoom in on there but.
I wouldn't think of it as a significant.
Headwind or frankly tailwind to our business whatsoever.
Thank you that central.
And our final question will come from Nathan Jones.
Please go ahead.
Good morning, everyone.
Good morning.
Beck.
I'd like to go back to this safe drinking water for students slide that's up there and specifically the $2 9 billion Tam that you've that you've put up there.
<unk>, obviously has a very large market share.
What that Tam with Bay can you talk about.
Over what kind of time period, you would be looking to address that opportunity how much of that you think will actually be realized.
$2 $9 billion, we would allocate market share would be extremely NATO, maybe for the company. So just any more color you can give us around that.
Well Nathan I think it's some.
The realities of having a large aged infrastructure in this country and I think we've been fortunate to.
Developed products that are beginning to replace some of that large age infrastructure, but it's been done at a product level as opposed to these devices actually provides safe drinking water and in many cases in schools for kids and so I think where we're headed with this is to begin to occur.
As Mark said.
Begin to help shape the narrative around what the opportunity is through some broader awareness.
And then obviously bookend that with providing the right kind of filtration to ensure that when you drink out of these things you know that the water is actually safe and so I think we've taken a cut at it three years out and it's as we talked about measured in the hundreds of millions of dollars and so we're just going to.
Continue to sort of go back to work and begin to build this thing out.
Bolt on the conversion strategy as well as the filtration strategy, but I would say that we would see it.
Hundreds of billions of dollars over the next call it three years.
So that $2 9 billion would be the opportunity. If we kind of re did the 131000 K 12 schools and we got somebody to pay for it all.
Yeah.
As a country and really really sort of ahead of timeline, yeah, and that's a conversion that's over.
I wouldn't even big the guests the number of years, but it's 10 plus years, but it's a big number yet.
Okay.
It should continually be refreshed over time, so it's a tam that's going to continue to grow as we install more units.
But that's a big number for sure.
Got it that makes sense.
So I'm going to go back 12 months here to the announcement.
Okay deal.
The <unk> deck that day had 2023 EBITDA target of 425 to $4 50, obviously, a lot has changed over the last 12 months.
Hi, Rage West you've got <unk>, you've got some price cost stuff in the first quarter can you talk about the things that need to happen to get back onto a path to that kind of number whether that recovery in end markets things.
You guys need to do internally.
Or whatever else the contributing factors to get us back onto a path to that kind of target that was laid out a year ago.
Sure.
I think the biggest is obviously the.
Embedded run rate.
In 'twenty two for Al-qaeda, frankly was behind the curve and I think it's been a well.
Well traveled story really since we announced the deal that.
The combination of the change.
In the Rep network in the lead times coming down and a lot of different things created a little bit of a hangover in 'twenty two that we're going to think about 'twenty. Three is a really strong downpayment on getting that back on track and I can tell you that we feel very good about that.
The residential piece of both our business and the combined business.
We certainly didn't we certainly didnt have that dialed into what we thought 'twenty three 'twenty four could look like back in February of 'twenty. Two so that's obviously a piece.
But I would say the vast majority of things to get us on that trajectory are in our control.
There's nothing structural there is nothing.
Permanently.
Off track.
$50 million of synergies are on track, obviously, we had a double digit.
Topline growth plan for Zurn at that point in time, we don't have that today is what we talked about we've got a.
A more conservative growth rate and so I would think about 'twenty three is sort of a stir.
<unk> downpayments on getting back on that kind of trajectory and obviously.
A lot of it has to do with the.
The macro side of life that is out of our control.
Great. Thanks for taking my questions.
Yep.
And that will conclude today's question and answer session. At this time I would now like to turn the call back over today's call My closing remarks.
Thanks, everyone for joining us on the call today. We appreciate your interest in Zurn Al Qaeda and we look forward to providing our next update when we announce our March quarter results in late April have a good day everyone.
And that will conclude today's conference. Thank you for your participation you may now disconnect.
[music].
Sure.
Okay.
Okay.
Yeah.
Okay.
Yes.
Sure.
Okay.
[music].
Sure.
Yes.
[music].
Yes.
Okay.