Q2 2025 Mueller Water Products Inc Earnings Call

Operator: Good morning and thank you for standing by. Your lines are in a listen-only mode until the question and answer session of today's conference. At that time, you may press star followed by the number 1 to ask a question.

Good morning, and thank you for standing by your lines are in a listen only mode until the question and answer session of today's conference at that time, you May Press Star followed by the number one to ask a question. Please I know your phones and state your first and last name Unprompted. Today's conference is being recorded if you have.

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Speaker Change: Have any objections you may disconnect at this time. It is now my pleasure to turn the call over to Mr. Whit Kincaid, Sir you may begin.

Whit Kincaid: It is now my pleasure to turn the call over to Mr. Whit Kincaid.

Whit Kincaid: Sir, you may begin. Good morning, everyone. Thank you for joining us for Mueller Water Products' second quarter conference call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended March 31st, 2025. A copy of the press release is available on our website, MuellerWaterProducts.com I'm joined this morning by Marty Zakas, our Chief Executive Officer, Paul McAndrew, our President and Chief Operating Officer, and Melissa Rasmussen, our Chief Financial Officer. Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep to one question and a follow-up and then return to the queue.

Whit Kincaid: Good morning, everyone. Thank you for joining us for Mueller water Products' second quarter conference call.

Whit Kincaid: Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended March 31 2025.

Whit Kincaid: A copy of the press release is available on our website Mueller water products' Dot com.

Speaker Change: I'm joined this morning by Marty <unk>, our Chief Executive Officer, Paul Mcandrew, our President and Chief operating Officer, and Melissa <unk>, Our Chief Financial Officer.

Speaker Change: Following our prepared remarks, we will address questions related to the information covered on the call.

Speaker Change: As a reminder, please keep to one question and then I'll follow up and then return to the queue.

Whit Kincaid: This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion. They also address forward-looking statements and our non-GAAP disclosure requirements.

Speaker Change: This mornings call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion.

Speaker Change: They also address forward looking statements and our non-GAAP disclosure requirements.

Whit Kincaid: At this time, please refer to Slide 2. This slide identifies non-GAAP financial measures referenced in our press release on our slides and on this call. It discloses the reasons why we believe that these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.

Speaker Change: At this time, please refer to slide two this slide identifies non-GAAP financial measures referenced in our press release on our slides at all of this call.

Speaker Change: He discloses the reasons why we believe that these measures provide useful information to investors reconcile.

Speaker Change: Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website.

Whit Kincaid: Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends the 30th of September.

Speaker Change: Slide three addresses forward looking statements made on this call.

Speaker Change: This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward looking statements.

Speaker Change: Please review slides two and three in their entirety.

Speaker Change: During this call all references to a specific year or quarter unless specified otherwise refer to our fiscal year, which is the 30th September.

Operator: A replay of this morning's call will be available for 30 days at 1-800-568-3652.

Speaker Change: A replay of this morning's call will be available for 30 days at one 805 68365 to the archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.

Whit Kincaid: The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website.

Marty Zakas: I'll now turn the call over to Marty. Thanks, Whit. Good morning, everyone. Thank you for joining our second-quarter earnings call. I'll start with a brief overview of our performance and then turn it over to Paul. We delivered a solid performance this quarter, where we achieved second-quarter records for consolidated net sales, adjusted EBITDA, and adjusted net income per share. Healthy order levels and resilient end-market demand supported net sales growth of 3.1%. We exceeded our strong results from the prior year quarter, which included benefits from elevated backlogs for service brass and natural gas distribution products. This quarter, we were pleased to see a sequential increase in net sales of repair products thanks to everyone's efforts over the past year.

Marty: I'll now turn the call over to Marty.

Marty: Thanks, what.

Marty: Good morning, everyone. Thank you for joining our second quarter earnings call.

Paul: Start with a brief overview of our performance and then turn it over to Paul.

Speaker Change: We delivered a solid performance this quarter, where we achieved second quarter records for consolidated net sales adjusted EBITDA and adjusted net income per share healthy.

Speaker Change: Healthy order levels and resilient end market demand supported net sales growth of three 1% we exceeded our strong results from the prior year quarter, which included benefits from elevated backlogs for service bras and natural gas distribution products.

Speaker Change: This quarter, we were pleased to see a sequential increase in net sales of repair products. Thanks to everyone's efforts over the past year are.

Marty Zakas: Our focus on delivering exceptional customer service, improving operational excellence, and maintaining cost discipline enabled us to increase both our gross margin and adjusted EBITDA margin compared with our first quarter. Our teams are diligently working through the challenging external environment as we maintain our focus on providing outstanding customer service while closely managing our supply chain. We expect that the recently enacted tariffs will increase costs for many of our products to varying degrees. We are taking appropriate steps to mitigate the higher costs through pricing actions, supply chain mitigation plans, operational initiatives, and cost discipline. We are pleased to be increasing our annual guidance range for 2025 net sales and are maintaining our adjusted EBITDA guidance range due to the higher costs associated with the recently enacted tariff.

Speaker Change: Our focus on delivering exceptional customer service, improving operational excellence and maintaining cost discipline enabled us to increase both our gross margin and adjusted EBITDA margin compared with our first quarter.

Speaker Change: Our teams are diligently working through the challenging external environment as we maintain our focus on providing outstanding customer service, while closely managing our supply chain. We expect that the recently enacted tariffs will increase costs for many of our products to varying degrees.

Speaker Change: We are taking appropriate steps to mitigate the higher costs through pricing actions supply chain mitigation plans operational initiatives and cost discipline. We are pleased to be increasing our annual guidance range for 2025, net sales and are maintaining our adjusted EBITDA guidance range due to the higher costs.

Speaker Change: With the recently enacted tariffs.

Marty Zakas: Before Paul provides details regarding terrorists and our work to mitigate the impacts for Mueller and our customers, I want to express my continued confidence in our ability to adapt and overcome external challenges. Mueller has been a leading supplier of infrastructure products and solutions for more than 165 years. Approximately 92% of our net sales are in the U.S., and we are largely vertically integrated for our major product categories, like iron gate valves, hydrants, and brass products. We estimate that 60-65% of our net sales are used for the repair and replacement of municipal water infrastructure. We have leading brands, a large installed base, and a comprehensive distribution network which gives us a strong foundation.

Speaker Change: Before Paul provides details regarding tariffs and our work to mitigate the impacts from ULA and our customers I want to express my continued confidence in our ability to adapt and overcome external challenges.

Speaker Change: Miller has been a leading supplier of infrastructure products and solutions for more than 165 years, approximately 92% of our net sales are in the U S. And we are largely vertically integrated for our major product categories like Iron gate valves hydrants and brass products.

Speaker Change: We estimate that 60% to 65% of our net sales are used for the repair and replacement of municipal water infrastructure.

Speaker Change: We have leading brands, our large installed base and a comprehensive distribution network, which gives us a strong foundation, while we were operating in a significantly more volatile external environment. We have teams that have been tested with many challenges before and after the pandemic.

Marty Zakas: While we are operating in a significantly more volatile external environment, we have teams that have been tested with many challenges before and after the pandemic.

Paul Mcandrew: With that, I'll turn it over to Paul. Thanks, Marty.

Paul: With that I'll turn it over to Paul.

Paul: Thanks, Marty good morning, everyone.

Paul Mcandrew: Good morning, everyone. I was pleased with our second quarter performance. This quarter we saw a strong sequential increase in order activity across most product lines. Reflecting our customer experience investments. Also, our improved execution enabled us to benefit from healthy order levels, which were supported by continued resilient end-market demand. While facing increased external challenges, we delivered sequential improvements in margins, supported by our focus on improving operational excellence. Increasing supply chain efficiencies and developing advanced manufacturing capabilities to drive productivity. Over the past few years, we have invested in our supply chain and operational teams to enhance our team's skills and resources.

I was pleased with our second quarter performance.

Paul: This quarter, we saw a strong sequential increase in order activity across most product lines.

Paul: Reflecting our customer experience investments.

Paul: Also improve execution enabled us to benefit from healthy order levels.

Paul: Which were supported by continued resilient end market demand.

While facing increased external challenges, we delivered sequential improvements in margins supported by our focus on improving operational excellence.

Paul: The increase in supply chain efficiencies and.

Paul: In developing advanced manufacturing capabilities to drive productivity.

Paul: Over the past few years, we have invested in our supply chain and operational teams to enhance O teams skills and resources.

Paul Mcandrew: Our team has continued to work diligently through the rapidly changing tariff situation. Our manufacturing facilities and vendors are mainly in the U.S. and we are largely vertically integrated for our major product categories. Our core products, including iron gate valves, hydrants, and brass products. are primarily supported by five manufacturing facilities in the U.S. including two iron foundries and the new brass foundry. In addition, we have a facility in Israel for most of our repair products, and one in China for some of our specialty valve products. Therefore, China and Israel account for a substantial portion of our supply chain exposure.

Paul: Our team is continuing to work diligently through the rapidly changing tariff situation.

Paul: Our manufacturing facilities and vendors are mainly in the U S.

Paul: We are largely a vertically integrated for all major product categories.

Paul: Our core products, including Iron gate valves, hydrants and brass products.

Paul: Primarily supported by five manufacturing facilities in the U S.

Paul: Including two iron foundries and the new brass foundry.

Paul: In addition, we have a facility in Israel for most of our repair products and one in China for some of our specialty valve products.

Paul: Therefore, China and Israel account for a substantial portion of our supply chain exposure.

Paul Mcandrew: From a cost of sales perspective, approximately 15% of our total cost of sales is exposed to the newly enacted tariff. We estimate that the annualized impact of the recently enacted tariffs is approximately 8-9% of our cost of sales. with China related tariffs accounting for approximately 75% of our analysed tariff exposure. This estimate excludes any benefits from our price or cost mitigation action. Due to the magnitude of the enacted tariffs, we have recently implemented targeted pricing actions for specialty valve and repair products. We expect to see a lag between the higher tariffs and the associated price action.

Paul: From a cost of sales perspective, approximately 15% of our total cost of sales is exposed the newly enacted tariffs.

Paul: We estimate that the annualized impact of the recently enacted tariffs is approximately 8% to 9% although cost of sales.

Paul: With the China related tariffs accounting for approximately 75%, although annualized tariff exposure.

Paul: This estimate excludes any benefits from a price or cost mitigation actions.

Paul: Due to the magnitude of the enacted tariffs we have recently implemented targeted pricing actions for specialty valve and repair products.

Paul: We expect to see a lag between the higher tariffs and the associated price actions.

Paul Mcandrew: While we anticipate tariffs will start to phase in later during the third quarter, we don't expect to see the benefits from the higher pricing until the fourth quarter. Given the uncertainty associated with tariffs and their potential impact on broader inflation and end-market demand, We will closely monitor the situation and take additional price actions as needed. In addition to implementing targeted pricing actions, our teams are taking steps to mitigate the tariffs through supply chain and operational initiatives. including shifting sourcing geographies, implementing supplier cost sharing and driving productivity at our facilities. Over the past few years, we have worked to expand our international sourcing options outside of China, including opening our specially-valved manufacturing facility in Kimball, Tennessee.

Paul: While we anticipate tariffs will start to phase in later during the third quarter, we don't expect to see the benefits from the higher pricing until the fourth quarter.

Paul: Given the uncertainty associated with tariffs and the potential impact on broader inflation and end market demand.

Paul: We will closely monitor the situation and take additional price actions as needed.

Paul: In addition to implementing targeted pricing actions our teams have taken steps to mitigate the tariffs through supply chain and operational initiatives.

Paul: Including shifting sourcing geographies.

Paul: Implementing supplier cost sharing and driving productivity at our facilities.

Paul: Over the past few years, we have worked to expand our international sourcing options outside of China.

Paul: Included opening our specialty valve manufacturing facility in Kimball, Tennessee.

Paul Mcandrew: Given our recent investments and experience with the post-pandemic inflationary cycle, I am confident in our team's capabilities as we continue to strengthen our presence in the market. We remain vigilant and are monitoring our channel partners and end customers closely to evaluate impacts on order patterns to remain nimble and adjust quickly as patterns evolve.

Paul: Given our recent investments and experience with a post pandemic inflationary cycle I am confident in our team's capabilities as we continue to strengthen our presence in the market.

Paul: We remain vigilant in monitoring our channel partners and end customers closely to evaluate impacts on order patterns to remain nimble and adjust quickly as patents evolve.

Melissa Rasmussen: With that, I'll turn it over to Melissa so she can take you through the financials. Thanks Paul, and good morning everyone. Before reviewing the financials, I want to express my gratitude to the Mueller team for their warm welcome. I am thrilled to be part of such an iconic company which plays a vital role in our critical water and natural gas infrastructures throughout North America. I am quickly getting up to speed and have had the opportunity to see some of our facilities and interact with many team members across the organization. I look forward to continuing this collaboration as well as working with the investment community.

Paul: With that I'll turn it over to Melissa So she can take you through the financials.

Melissa: Thanks, Paul and good morning, everyone before reviewing the financials I want to express my gratitude to the Mueller team for their warm welcome.

Speaker Change: I'm thrilled to be part of such an iconic company, which plays a vital role in our critical water and natural gas infrastructures throughout North America, I am quickly getting up to speed and have had the opportunity to see some of our facilities and interact with many team members across the organization.

Speaker Change: I look forward to continuing this collaboration as well as working with the investment community.

Melissa Rasmussen: Now turning to the second quarter, consolidated net sales increased 3.1% to $364.3 million, surpassing the strong second quarter net sales delivered last year. The growth was primarily due to the higher pricing and increased volumes across most of the product line. We saw growth in net sales at both segments. In the second quarter, gross profit of $128 million decreased 1.8% compared with the prior year. in gross margin of 35.1% decreased 180 basis points year over year. Though benefits from the increased volumes were notable, they were more than offset by manufacturing inefficiencies. most of which were expected as a result of the brass foundry transition.

Speaker Change: Now turning to the second quarter consolidated net sales increased three 1% to $364 $3 million, surpassing the strong second quarter net sales delivered last year.

Speaker Change: The growth was primarily due to the higher pricing and increased volumes across most of the product lines.

Speaker Change: We saw growth in net sales at both segments.

Speaker Change: In the second quarter gross profit of $128 million decreased one 8% compared with the prior year.

Speaker Change: And gross margin of 35, 1% decreased 180 basis points year over year.

The benefits from the increased volumes were notable they were more than offset by manufacturing inefficiencies.

Speaker Change: Most of which were expected as a result at the brass foundry transition.

Melissa Rasmussen: Excluding asset write-downs of $800,000 associated with the Legacy Brass Foundry, our gross margin was 35.4%. We remain excited about the efficiencies we are gaining as the new brass foundry ramps up and we continue to expect margin benefits in the second half from the legacy brass foundry closure. For the quarter, total SG&A expenses of $55.7 million were $8 million lower than the prior year. This reduction was primarily driven by lower amortization expense, favorable foreign currency fluctuation, and diligent expense management of third-party fees and personnel-related costs, partially offset by inflationary pressure. Operating income increased 10.1% in the quarter to $69.9 million compared with the prior year.

Speaker Change: Excluding asset write downs of $800000 associated with the legacy brass foundry, our gross margin was 35.4%.

Speaker Change: We remain excited about the efficiencies we are gaining as the new brass foundry ramps up and we continue to expect margin benefits in the second half from the legacy brass foundry closure.

Speaker Change: For the quarter total SG&A expenses at $55 $7 million were $8 million lower than the prior year. This reduction was primarily driven by lower amortization expense favorable foreign currency fluctuation and diligent expense management of third party fees and personnel related costs.

Speaker Change: Partially offset by inflationary pressures.

Speaker Change: Operating income increased 10, 1% in the quarter to $69 $9 million compared with the prior year operating income includes $2 $4 million at strategic reorganization and other charges primarily related to the leadership transition and fixed asset impairment as well.

Melissa Rasmussen: Operating income includes $2.4 million of strategic reorganization and other charges primarily related to the leadership transition and fixed asset impairment, as well as other asset write-downs which have been excluded from adjusted results. Turning now to our consolidated non-GAAP results for the quarter. Adjusted operating income in the second quarter was $73.1 million, an increase of 9.6% compared to the prior year. This improvement was primarily due to lower SG&A expenses including lower amortization and increased volumes, which were partially offset by manufacturing inefficiencies. Our adjusted operating margin improved 120 basis points to 20.1% compared to the prior year.

Speaker Change: As other asset write downs, which has been excluded from adjusted results.

Speaker Change: Turning now to our consolidated non-GAAP results for the quarter.

Speaker Change: Adjusted operating income in the second quarter was $73 $1 million, an increase of nine 6% compared to the prior year.

Speaker Change: This improvement was primarily due to lower SG&A expenses, including lower amortization and increased volumes, which were partially offset by manufacturing inefficiencies.

Speaker Change: Our adjusted operating margin improved 120 basis points to 21% compared to the prior year.

Melissa Rasmussen: Adjusted EBITDA came in at $84.5 million, an increase of 2.8% versus the prior year quarter which was a record second quarter adjusted EBITDA. We achieved a digested EVADOM margin of 23.2% in the quarter, which was 230 basis points higher on a sequential basis and down 10 basis points from the prior year. For the last 12 months, Adjusted EBITDA was $305.7 million, or 22.3% of net sales, a 320 basis point improvement compared with the prior 12-month period. Net interest expense in the second quarter declined $1.3 million year-over-year to $2.3 million, primarily due to higher interest income.

Speaker Change: Adjusted EBITDA came in at $84.5 million, an increase of two 8% versus the prior year quarter, which was a record second quarter adjusted EBITDA.

Speaker Change: We achieved an adjusted EBITDA margin of 23, 2% in the quarter, which was 230 basis points higher on a sequential basis and down 10 basis points from the prior year.

Speaker Change: Over the last 12 months adjusted EBITDA was $305.7 million or 22, 3% of net sales a 320 basis point improvement compared with the prior 12 month period.

Speaker Change: Net interest expense in the second quarter declined $1.3 million year over year to $2 $3 million, primarily due to higher interest income.

Melissa Rasmussen: For the quarter, we increased adjusted net income per diluted share by 13.3% to $0.34 per share compared with the prior year, setting a new second quarter record.

Speaker Change: For the quarter, we increased adjusted net income per diluted share by 13, 3% to 34 cents per share compared with the prior year setting a new second quarter record.

Melissa Rasmussen: Moving on to quarterly segment performance, starting with WFS. Net sales increased 5.1% to $216.2 million compared with the prior year. primarily due to the increased volumes of iron gate and specialty valves and higher pricing across most product lines.

Speaker Change: Moving on to quarterly segment performance, starting with W. S S.

Speaker Change: Net sales increased five 1% to $216 $2 million compared with the prior year.

Speaker Change: Primarily due to increased volumes of iron gate, and specialty valves and higher pricing across most product lines.

Melissa Rasmussen: While we experience lower volumes of service brass products due to the timing of backlog normalization and customer and channel destocking, we remain optimistic about future volume growth. As a reminder, our prior year shipments benefited from serving an elevated backlog which was down more than 50% compared with the prior year. Adjusted operating income increased 6.3% to $55.9 million in the quarter. The benefits from increased volumes and lower SG&A expenses, including lower amortization, more than offset manufacturing inefficiencies primarily associated with the lower volumes of service brass products.

Speaker Change: While we experienced lower volumes at service brass products due to the timing of backlog normalization and customer and channel Destocking, we remain optimistic about future volume growth.

Speaker Change: As a reminder, our prior year shipments benefited from serving an elevated backlog, which was down more than 50% compared with the prior year.

Speaker Change: Adjusted operating income increased six 3% to $55 $9 million in the quarter.

Speaker Change: The benefits from increased volumes and lower SG&A expenses, including lower amortization more than offset manufacturing inefficiencies primarily associated with the lower volumes of service brass products.

Melissa Rasmussen: We are excited about the transition to our new brass foundry and the efficiencies it will bring, especially as volumes normalize. Adjusted EBITDA decreased 0.3% to $62.2 million and adjusted EBITDA margin was 28.8% compared with 30.3% in the prior year.

Speaker Change: We are excited about the transition to our new brass foundry and the efficiencies it will bring especially as volumes normalize.

Speaker Change: Adjusted EBITDA decreased 3% to $62.2 million and adjusted EBITDA margin was 28, 8% compared with 33% in the prior year.

Melissa Rasmussen: I'll now move on to quarterly results for WMS. Net sales increased 0.3% to $148.1 million compared with the prior year. The growth was primarily driven by increased volumes of repair products and higher pricing across most product lines. We saw lower volumes of natural gas distribution products due to similar factors as service brass products at WSS. Adjusted operating income increased 8.3% to $31.4 million in the quarter. The benefits from lower SG&A expenses, including lower amortization and favorable price cost, more than offset lower volumes and manufacturing inefficiencies. Adjusted EVDA in the quarter increased 2% to $36.4 million with adjusted EVDA margin improving 40 basis points to 24.6%.

Speaker Change: I'll now move on to quarterly results for WNS.

Speaker Change: Net sales increased 3% to $148 $1 million compared with the prior year.

Speaker Change: The growth was primarily driven by increased volumes of repair products and higher pricing across most product lines.

Speaker Change: We saw lower volumes of natural gas distribution products due to similar factors as service brass products at W. S.

Speaker Change: Adjusted operating income increased eight 3% to $31.4 million in the quarter.

Speaker Change: The benefits from lower SG&A expenses, including lower amortization and favorable price cost more than offset lower volumes and manufacturing inefficiencies.

Speaker Change: Adjusted EBITDA in the quarter increased 2% to $36 $4 million with adjusted EBITDA margin, improving 40 basis points to 24, 6%.

Melissa Rasmussen: Moving on to cash flow. Net cash provided by operating activities for the six-month period was $68.4 million, an increase of $6.2 million compared with the prior year period. The increase was primarily driven by higher net income, partially offset by changes in working capital including decreases in other current liabilities such as incentive compensation.

Speaker Change: Moving onto cash flow.

Speaker Change: Net cash provided by operating activities for the six month period was $68 $4 million, an increase of $6 $2 million compared with the prior year period. The increase was primarily driven by higher net income partially offset by changes in working capital including decreases in other.

Speaker Change: Liabilities, such as incentive compensation.

Melissa Rasmussen: Through the first six months of the year, we invested $21.1 million in capital expenditures compared with $15.8 million in the prior year. This increase was primarily driven by investments in our founders. Our free cash flow for the first half of the year was $47.3 million, which was $900,000 higher than the prior year period and was 51% of adjusted net income, which is in line with expectations.

Speaker Change: Through the first six months of the year, we invested $21 $1 million in capital expenditures compared with $15 $8 million in the prior year.

Speaker Change: This increase was primarily driven by investments in our foundries.

Our free cash flow for the first half of the year was $47.3 million, which was $900000 higher than the prior year period and was 51% of adjusted net income which is in line with expectations.

Melissa Rasmussen: At the end of the second quarter, our total debt outstanding was $451 million and we had cash and cash equivalents of $329 million. We continue to have a strong and flexible balance sheet with a net debt leverage ratio below 1. No debt maturities until June 2029 and a 4% fixed interest rate on the $450 million senior note. We did not have any borrowings under our AVL at quarter end, nor did we borrow any amounts under our AVL during the quarter. We ended the quarter with $492 million of liquidity, including $163 million of excess availability under the AVL.

Speaker Change: I'd be ended the second quarter, our total debt outstanding was $451 million, and we had cash and cash equivalents of $329 million.

Speaker Change: We continue to have a strong and flexible balance sheet with a net debt leverage ratio below one no debt maturities until June 2029, and a 4% fixed interest rate on the $450 million senior notes.

Speaker Change: We did not have any borrowings under our ABL at quarter end, nor did we borrow any amounts under our ABL during the quarter we.

Speaker Change: We ended the quarter with $492 million of liquidity, including $163 million of excess availability under the ABL.

Melissa Rasmussen: Now turning to our outlook for 2025. We updated our fiscal 2025 outlook and are increasing our guidance for consolidated net sales by $15 million at the midpoint of the range. which is between $1.39 billion and $1.4 billion. This increase reflects our second quarter performance, expected benefits from new price actions being implemented to help mitigate tariff impacts, and current expectations for end market demand. We are maintaining our adjusted EBITDA range between $310 million and $315 million. This guidance reflects our second quarter performance and expected benefits from higher net sales and lower total SG&A expenses, which are offset by the increased costs related to the newly enacted tariff.

Speaker Change: Now turning to our outlook for 2025.

Speaker Change: We updated our fiscal 2025 outlook and are increasing our guidance for consolidated net sales by $15 million at the midpoint of the range.

Speaker Change: Which is between 1.39 billion and $1 $4 billion.

Speaker Change: This increase reflects our second quarter performance expected benefits from new price actions being implemented to help mitigate tariff impacts and current expectations for end market demand.

Speaker Change: We are maintaining our adjusted EBITDA range between $310 million and $315 million. This guidance reflects our second quarter performance and expected benefits from higher net sales and lower total SG&A expenses, which are offset by the increased costs related to the newly enacted tear.

Melissa Rasmussen: For clarity, our guidance reflects the anticipated cost from the recently enacted tariffs as of May 5th.

Chris: Chris for.

Chris: For clarity our guidance reflects the anticipated costs from the recently enacted tariffs as of May 5th we continue to expect benefits to the second half margins from the closure of our legacy brass foundry at the midpoint of our guidance range. This adjusted EBITDA range achieved a 22.4%.

Melissa Rasmussen: We continue to expect benefits to the second half margins from the closure of our legacy brass foundry. At the midpoint of our guidance range, the suggested EBITDA range achieved a 22.4% margin for the year, reflecting a 70 basis point year over year improvement. We are maintaining our free cash flow expectations to be more than 80% of adjusted net income in 2025.

Chris: Margin for the year, reflecting a 70 basis point year over year improvement.

Chris: We are maintaining our free cash flow expectations to be more than 80% of adjusted net income in 2025. This outlook continues to assume our capital expenditures are between 45 and $50 million for the year as we continue investing in our future growth operational efficiency.

Melissa Rasmussen: This outlook continues to assume our capital expenditures are between $45 and $50 million for the year as we continue investing in our future growth, operational efficiencies, and domestic facilities.

Marty: Fees and domestic facilities with that I'll turn it back to Marty for closing comments.

Marty Zakas: With that, I'll turn it back to Marty for closing comments. Thanks Melissa.

Marty Zakas: I want to provide a few closing comments before opening it up for Q&A. We and others continue to believe municipalities will prioritize upgrading and expanding the aging North American water infrastructure to be more resilient and efficient for future generations. The American Society of Civil Engineers' most recent assessment of America's infrastructure maintained a C- minus grade for drinking water in the U.S. and a D-plus grade for wastewater in the U.S. With a broad range of products and solutions, Mueller is uniquely positioned to capture the benefits from the investments needed to address the aging North American water infrastructure.

Marty: Thanks, Melissa I want to provide a few closing comments before opening it up for Q&A.

Marty: We and others continue to believe municipalities will prioritize upgrading and expanding the aging north American water infrastructure to be more resilient and efficient for future generations. The American society of Civil Engineers. Most recent assessment of America's infrastructure maintained a C minus grade for drinking water in the U S.

Marty: And a D plus grade for wastewater in the U S with a broad range of products and solutions Mueller is uniquely positioned to capture the benefits from the investments needed to address the aging North American water infrastructure.

Marty Zakas: The external environment is rapidly changing and leading to increased uncertainty for our customers, channel partners, and vendors. Over the past few years, we have made significant personnel and capital investments to strengthen our supply chain and operational capabilities and enhance our domestic manufacturing presence. I am confident in our team's ability to adapt and maintain our focus on delivering the critical products and solutions valued by our customers. Our teams will continue to focus on executing our key strategic priorities and serving our customers to drive continued net sales growth and future margin improvements, which are supported by our purpose-driven organization.

Marty: The external environment is rapidly changing and leading to increased uncertainty for our customers channel partners and vendors over the past few years, we've made significant personnel and capital investments to strengthen our supply chain and operational capabilities and enhance our domestic manufacturing presence.

Marty: I am confident in our team's ability to adapt and maintain our focus on delivering the critical products and solutions valued by our customers.

Marty: Our teams will continue to focus on executing our key strategic priorities and serving our customers to drive continued net sales growth and future margin improvements, which are supported by a purpose driven organization.

Marty Zakas: We have a strong financial foundation with very low net debt leverage and a flexible balance sheet which continues to provide ample capacity to support our strategic priorities, including capital investments and acquisitions, as well as returning cash to shareholders.

Marty: We have a strong financial foundation with very low net debt leverage and a flexible balance sheet, which continues to provide ample capacity to support our strategic priorities, including capital investments and acquisitions as well as returning cash to shareholders.

Marty Zakas: That concludes our comments.

Marty: That concludes our comments.

Operator: Operator, please open the line for questions. Thank you. At this time, if you would like to ask a question, you may press star 1. To withdraw your question, please press star 2. One moment, please.

Marty: Operator, please open the line for questions.

Speaker Change: Thank you at this time, if you would like to ask a question you May Press Star one to withdraw your question. Please press star two one moment please.

Deane Dray: Deane Dray with RBC Capital Markets, you may go ahead. Thank you, good morning, and welcome to Melissa. Good morning, Deane. Morning.

Dray: Dray with RBC capital markets you May go ahead Sir.

Speaker Change: Thank you good morning, and welcome to Melissa.

Speaker Change: Good morning, Dan.

Deane Dray: Hey, just a couple of clarifications, please. And first of all, Slide five is really helpful. Lots of detail there. And I appreciate how you broke it out for China and Israel. So that squares a lot of the perspectives that we were looking or specifics that we were looking for. So thank you for that.

Dray: Just a couple of clarifications, ladies and first of all.

Speaker Change: Slide five is really helpful lots of detail there and I appreciate how you broke it out.

Dray: For China, and Israel, so that.

Speaker Change: That squares.

Speaker Change: Lot of the perspective that we were looking or specifics that we were looking for so thank you for that.

Deane Dray: And can you clarify, was there any pre-buy? I mean, you talked about in the slides some channel destocking. I was thinking you might have had it flip where distributors were adding some product to avoid some of the tariff commotion. But just clarify if you did see any pre-buy.

Speaker Change: And could you clarify was there any pre buy I mean, you talked about in the slides some channel destocking.

Speaker Change: I was thinking you might have had it flip where distributors were adding some product.

Speaker Change: To avoid some of the tariff promotion, but if you just clarify if you did see any pre buying.

Paul Mcandrew: Good morning, Dean. This is Paul. You know, that's something we analyze closely. And we know there's a number of drivers in the second quarter, typically one of our strongest orders quarter as we move into the construction season, alongside our price increase. So nothing has stood out to us yet from any kind of pre-buy perspective. but it's something we're analyzing closely. Great. I appreciate that.

Paul Mueller: Hey, good morning, Deane this is Paul.

Speaker Change: Something we analyze closely.

Speaker Change: There's a number of drivers in the second quarter typically one of our strongest.

Speaker Change: As quarter as we move into the construction season.

Speaker Change: Alongside our price increase.

Speaker Change: So nothing stood out to us yet from any kind of pre buy perspective.

Speaker Change: But it's something we are analyzing closely.

Speaker Change: Great I appreciate that and then can you just.

Paul Mcandrew: And then, can you just give us a sense of the new foundry? Is it fully operational? Are all the products certified? Any other, you know, kind of milestones? And just the impairment that was taken, was that related to the old foundry? Can you resize that, please?

Speaker Change: Give us a sense of the new foundry is it fully operational or all the products certified any other kind of milestones.

Speaker Change: And.

Speaker Change: And just the impairment that was taken was that related to the old foundry and size that please.

Paul Mcandrew: Yeah, I'll take the first half of that and I'll pass the impairment over to Melissa. So in terms of the new foundry, it's fully operational. The old south foundry is no longer producing any product. We have all products transferred to the new foundry that we want to transfer at this point. We'll obviously continue to evaluate that as new products become online.

Speaker Change: Yes, I'll take the first half of that and I'll pass the impairment over to Melissa.

Speaker Change: In terms of the new foundry, it's fully operational the old South foundry is no longer producing any product.

Speaker Change: We have all products transferred to the new foundry. So we want to transfer at this point.

Speaker Change: We will obviously continue to evaluate that as new products become online.

Melissa Rasmussen: In terms of the impairment, Melissa... Yes, in terms of the impairment, we took an impairment charge during the quarter of $800,000 and that was related to the legacy foundry. As we continue to decommission the foundry, we'll incur other costs and write downs.

Melissa: In terms of the impairments Melissa.

Melissa: Yes in terms of the impairment, we took an impairment charge during the quarter as $800000 and that was related to the legacy foundry as we continue to decommission the foundry will incur other costs and write downs. However, we don't have an estimate of what that overall amount will be at this point.

Deane Dray: However, we don't have an estimate of what that overall amount will be at this point and we'll continue to update you all as that information unfolds. Appreciate it. Thank you.

Melissa: And we will continue to update you all as as that information unfolds.

Melissa: I appreciate it thank you.

Brian Lee: Thank you our next caller is Brian Lee with Goldman Sachs.

Nick Vaughn: Our next caller is Brian Lee with Goldman Sachs.

Nick Vaughn: Hi everyone, this is actually Nick Vaughn from Brian Lee. How's everybody doing today? Hey, good morning, NAC. Good morning.

Brian Lee: Hi, everyone. This is actually Nick on for Brian Lee has everybody doing today.

Brian Lee: Hey, good morning, good morning.

Paul Mcandrew: I just had a quick question on, I guess, you know, your CapEx, you know, given that now the new foundry is up and running, I think, you know, CapEx guide is, you know, relatively similar to what it was last year, but we kind of saw a decrease or a step down in 2Q. I guess, you know, what, you know, is going to be requiring, you know, further CapEx commitments for the remainder of the year now that the new foundry is online, and I guess, you know, why should or shouldn't we be expecting a step down in the back half of the year?

Brian Lee: A quick question on I guess your Capex.

Brian Lee: And given that now the new foundries up and running I think in the Capex guide is relatively similar to what it was last year, but we kind of saw a decrease or a step down into Q.

Brian Lee: You know what.

Brian Lee: We're going to be requiring further capex commitments for the remainder of the year now that the new foundries online and I guess why should or Shouldnt, we be expecting a step down in the back half of the year.

Paul Mcandrew: Good morning, this is Paul. You know, most of the capital for the new foundry had already been spent in the prior years. We are a vertically integrated company with foundries, so the anticipated capex spend is the main driver there in terms of ensuring that we are keeping those coal-iron foundries running efficiently. Obviously, we have operational improvement projects as well. So, we anticipate our capital remaining at that 3 to 4 percent of sales range. Awesome. No, that's helpful.

Brian Lee: Hey, Good morning. This is Paul you know most most of the capital for the New foundry had already been spent in the prior years.

Brian Lee: We are a vertically integrated company with foundries, so the anticipated capex spend.

Brian Lee: Is the main driver there in terms of ensuring that we are keeping those coal iron foundries.

Brian Lee: Efficiently, obviously, we have operational improvement projects as well so.

Brian Lee: We anticipate our capital remaining at that 3% to 4% of sales range.

Speaker Change: Awesome. That's helpful. If I can just follow up with one more on end market demand I mean as you know there are all these puts and takes within our new tariffs, which seem to be changing day by day.

Paul Mcandrew: If I could just, you know, follow up with one more on end market demand. I mean, as you know, there are all these puts and takes with, you know, new tariffs, and what seem to be changing day by day. Have you heard anything from customers either, you know, not looking or looking to put projects on hold or push them out as they try to get a better understanding of what total costs could be for a project? Or just any other commentary that you guys have heard from the customer level would be great.

Speaker Change: Heard anything from customers either not looking are looking to put projects on hold or pushed them out as they try to get a better understanding of what total cost could be for a project or just any other commentary that you guys have heard from the customer level would be great. Thank you.

Paul Mcandrew: Thank you.

Paul Mcandrew: So as we, you know, take our views and looking out really to the second half of our year, I think, as we said, we've seen a strong start to the year, and I think that's reflected not only in the net sales performance, but as well with what we described with our order activity and certainly the order activity looking through April. So, we are moving now into the... portion of our fiscal year, where as the construction season commences, we typically see greater activity and I think certainly as we look out to our third quarter, we do expect to continue to see resiliency with the municipal market, which we think will continue through the year.

Speaker Change: Yeah, no certainly thanks, so as we take our view.

Speaker Change: Views and looking out really to the second half of our year I think as we said we've seen a strong start to the year and I think that's reflected not only in the net sales performance, but as well with what we described with our order activity and certainly the order activity looking through.

Speaker Change: Through April.

Speaker Change: We are moving now into the.

Speaker Change: A portion of our fiscal year, whereas the construction season commences, we typically see.

Speaker Change: See greater activity and I think certainly as we look out to our third quarter, we do expect it.

Speaker Change: To continue to see.

Speaker Change: Our resiliency with the municipal market, which we think will continue through the year I think where we probably see more ahead of baked in some uncertainty level is really in and around the residential construction market specifically.

Paul Mcandrew: I think where we probably see more ahead of baked in some uncertainty level is really in and around the residential construction market, specifically as we look out to our fourth quarter, I would say that's where we There could be some greater uncertainty with respect to the end markets, largely due to some of the overall uncertainty and inflation concerns in the marketplace.

Speaker Change: Specifically as we look out to our fourth quarter I would say, that's where we are.

Speaker Change: See there could be some greater uncertainty with respect to the end markets.

Speaker Change: Largely due to some of the overall uncertainty and inflation concerns in the marketplace.

Nick Vaughn: Awesome, thank you, I'll pass it on.

Speaker Change: Awesome. Thank you I'll pass it on.

Operator: Thank you.

Speaker Change: Thank you and once again, if he would like to ask a question you May press Star one.

Mike Halloran: And once again, if you would like to ask a question, you may press star 1.

Mike Halloran: Mike Halloran with Baird, you may go ahead. Hey, good morning, everybody. This is Pezan for Mike. Good morning. So I believe previously we were thinking about pricing in the range of low single to mid single digits. Kind of given the updated tariff discussion and given the raised sales guide and held EBITDA, are we implying the expectation to offset tariffs one for one on a dollar basis? Is that a fair way to think about it?

Speaker Change: Mike Halloran with Baird you May go ahead Sir.

Speaker Change: Hey, good morning, everybody. This is Pat on for Mike.

Speaker Change: Good morning.

Speaker Change: So I believe previously we were thinking about pricing in the range of low single to mid single digits.

Speaker Change: Kind of given the updated tariff discussion and given the raise sales guide and held EBITDA are we implying the expectation to offset tariffs one for one on a dollar basis on a dollar basis is that is that a fair way to think about it.

Marty Zakas: So let me jump in on price, and I'm going to sort of break it into two different buckets. I think, first of all, as we referenced on our first quarter call, we did announce price increases across most of our products, and that was sort of the typical timing that we expect in and around that. And at that time, those price increases did not reflect any expectation in and around tariffs. With what we have most recently announced, it is focused largely on our specialty valve and repair products that are most impacted by the recent tariff announcements.

Speaker Change: So let me, let me jump in on <unk>, and I'm going to sort of break it into two different buckets I think first of all as we referenced on our first quarter call. We did announce price increases are.

Speaker Change: Across most of our products.

Speaker Change: And that was sort of the typical timing that we expect in and around that.

Speaker Change: And at that time, those price increases did not reflect any expectation in and around tariffs with what we have most recently announced it is focused largely on our specialty valve and repair products that are most impacted by the.

Speaker Change: The recent tariff announcements and with that we have announced double digit targeted price increases for those product lines.

Marty Zakas: And with that, we have announced double-digit targeted price increases for those product lines. With the price increases that have been implemented, we expect it just to mitigate some of our higher costs with the tariff, not to fully cover the expected impact of the tariff. I think, as Paul has outlined in our prepared remarks, we have a number of other mitigation actions that are underway to help offset the expected impact of the most recently announced tariffs.

Speaker Change: With the.

Speaker Change: Price increases that have been implemented we expect it just to mitigate some of our expected higher costs.

Speaker Change: With the tariffs not to fully cover the expected impact of the tariffs I think as Paul has outlined in his in our prepared remarks, we have a number of other Mitch.

Speaker Change: Mitigation actions that are under way to help offset the expected impact of the most recently announced tariffs I think the other.

Marty Zakas: I think the other area that I want to highlight for you as we... expect the tariff impact to hit our results. That is most likely to hit later in our third quarter. We do not expect to get any of the benefit of the most recently announced price increases until our fourth quarter, and that's just due to the expected lag. Got it, Marty, that color is... Sure.

Speaker Change: Area that want to highlight for you as as we.

Speaker Change: Expect the tariff impact to hit our results that is most likely to hit later in our third quarter, we do not expect to get any of the benefit at the most recently announced price increases.

Speaker Change: Until our fourth quarter and that's just due to the expected lag.

Speaker Change: Got it Marty that color is.

Paul Mcandrew: Sorry, Paul. Go ahead. Yeah, so just to add on to that, obviously, the supply chain activities had started well before TARIFS, the team that we put in place and the resources. So we're already on that journey of becoming less exposed to products coming out of China, which will help mitigate these TARIFS going forward.

Paul: Sure Sorry, Paul go ahead.

Speaker Change: Yes, just to add onto that obviously.

Speaker Change: The supply chain activities that started well before Todd is the team that we put in place the resources. So we're already on that journey of becoming less exposed to products coming out of China.

Speaker Change: Youll help mitigate these tariffs going forward.

Speaker Change: Yeah.

Mike Halloran: Thank you, that's super helpful. You know, obviously, balance sheet's in a great shape, and, you know, Mueller's starting to position itself more on offense.

Speaker Change: Thank you that's super helpful.

Speaker Change: Obviously balance sheets in great shape, and Mueller starting to position itself more on offense, maybe you could talk a little bit about how the pipeline for formation is coming I know that we are more focused on product expansion.

Marty Zakas: Maybe you could talk a little bit about how the pipeline formation is coming. I know that we were more focused on product expansion. Maybe talk a little bit about how some of those early pipeline formations are going and what the state of the funnel looks like today, actionability, and whether those conversations have changed in light of all the tariffs.

Speaker Change: Maybe talk a little bit about how some of those early pipeline formations are going and what the state of the funnel looks like today action ability and whether those conversations have changed in light of all the tariffs.

Marty Zakas: Yeah, so I think overall just addressing capital deployment and certainly as we've expressed, we look to have a very balanced approach, which is the investment from a capital expenditure perspective as well as returning cash to stockholders both through dividends and share repurchase. But I think importantly, acquisitions, as we've said, do remain an important priority for us to enhance our growth. I would say overall, with our large capital investments behind us, that we are more active today and we are looking to find the acquisitions that we think will best allow us to expand our product portfolio, leverage the distribution, leverage our customer relationships, and or enhance our manufacturing capabilities.

Speaker Change: Yeah. So I think overall, just addressing capital deployment and certainly as we've expressed we love to have a very balanced approach.

Speaker Change: Which is the investment.

Speaker Change: From a capital expenditure perspective, as well as returning cash to stockholders through dividends and share repurchase, but I think importantly acquisitions as we said do remain an important priority for us to enhance our growth I would say overall with our large capital investments.

Speaker Change: Behind us that we are more active today and we are looking to.

Speaker Change: Find the acquisitions that we think will best allow us to expand our product portfolio leverage the distribution leverage our customer relationships and our enhanced our manufacturing capabilities.

Marty Zakas: I think certainly the challenge that we have certainly does focus in and around the actionability of items and we are also always intent on where the valuation is to ensure that we get an appropriate return for our shareholders. So I would say yes, overall, with where we are, we do remain more active in terms of what we are looking for in the marketplace.

Speaker Change: Certainly the challenge that we have certainly does focus on or around the action ability of our items and we are also always.

Speaker Change: Went on where the valuation is to ensure that we get a appropriate return for our shareholders. So I would say, yes overall with where we are we do remain more active in terms of what we're looking for in the in the marketplace.

Mike Halloran: Great.

Mike Halloran: Thanks.

Operator: I'll pass it on. Thank you.

Speaker Change: Great. Thanks, I'll pass it on.

Walt Liptak: Our next caller is Walt Liptak with Seaport Research. You may go ahead. Hi. Thanks. Good morning, everyone.

Speaker Change: Thank you. Our next caller is Walter Liptak with Seaport Research you May go ahead Sir.

Walter Liptak: Hi, Thanks, good morning, everyone.

Walt Liptak: I wanted to ask sort of a I guess a follow-up or you know more detail about just the pricing going up and it you know it sounds you know like double digit price increases that sound like they're happening now. Does that cause any of the municipal customers or other kind of infrastructure projects to have to go through a redo on pricing and you know potentially causing delays like how do they You know, how do they absorb that without any sorts of delays?

Walter Liptak: Hey, I wanted to ask sort of a I guess a follow up more detail about.

Walter Liptak: Just the pricing.

Walter Liptak: Going up.

Walter Liptak: Like double digit price increases it sounds like they're happening now.

Walter Liptak: Does that cause.

Walter Liptak: Any of the municipal customers or other kind of interest larger projects to have to go through a redo.

Walter Liptak: On pricing.

Walter Liptak: And potentially causing delays like how do they.

Walter Liptak: How do they absorbed that without any sorts of delays.

Walter Liptak: Yes.

Paul Mcandrew: Hi Walt, this is Paul. I think as we spoke about we've been targeted on our price increases for specialty valve and repair products. Repair products are typically very fast turn products. So that's not really going to be baked into a project. And most of the specialty vial products that we are talking about here would not be impacted the municipality from a project perspective, so we don't anticipate any concerns there. Okay, thanks for pointing that out. I appreciate that.

Walter Liptak: Good morning, Walt this is Paul I think as we spoke about we've been targeted on our price increases for specialty valves and repair products.

Walter Liptak: Repair products are typically very fast turn products. So that's not really going to be baked into our project.

Walter Liptak: And most of the specialty valve projects products already that we are talking about here.

Walter Liptak: Would not be impacted the municipality from a project perspective, so we don't anticipate any concerns there.

Walter Liptak: Okay. Thanks for pointing that out I appreciate it.

Marty Zakas: You talked about the lag too, or it sounds like there might be a lag effect from the third quarter price increases and then the catch up into the fourth. Is that right? I wonder if you could just help me understand that a little bit better. Yeah, just to help you understand, so the reason that we have an expectation that the most recently enacted targeted price increases in and around specialty and repair will have a lag is largely due to the backlog levels. Specialty valve, just as Paul just talked through, tends to be more customized projects and or valves, and therefore, given the backlog levels, we don't expect to see any benefit from those most recent price increases until later in our fiscal year.

Walter Liptak: You talked about the lag to or it sounds like there might be a lag effect from the third quarter.

Walter Liptak: Price increases and then the catch up into the fourth is that right I Wonder if you could just help me understand that a little bit better.

Walter Liptak: Yeah just.

Walter Liptak: Help you understand so the reason that we have an expectation that the most recently enacted targeted price.

Paul Mueller: Increases in and around specialty and repair will have a lag is largely due to the backlog levels. Our specialty valve just as Paul just talked through tends to be more customized.

Paul Mueller: Projects or <unk> valves, and therefore, given the backlog levels. We were not we don't expect to see any benefit from those most recent price increases.

Paul Mueller: Until later in our fiscal year. Additionally, just as a reminder, with respect to repair products given.

Marty Zakas: Additionally, just as a reminder with respect to repair products, given the challenges associated with the Israel-Hamas war, we do have higher backlog levels for the repair products than we typically see. As Paul said, that's generally a short cycle product. We have been working to lower the backlog levels, but given the backlog levels where we currently are, that's why we don't anticipate seeing the benefits of the most recently announced price increase until our fourth quarter.

Given the challenges associated with the Israel Hamas War.

Paul Mueller: We do have.

Paul Mueller: Higher backlog levels for the repair products than we typically see as Paul said, that's generally a short cycle product.

Paul Mueller: We have been working to lower the backlog levels, but given the backlog levels, where we currently are that's why we don't anticipate seeing the benefits of the most recently announced price increase until our fourth quarter.

Walt Liptak: Okay, great.

Speaker Change: Okay great.

Melissa Rasmussen: And maybe just the last one, I wonder if you could help us with gross margin in the coming quarter, like what kind of assumption do you have in for the next quarter gross margin? Sure, as we think about gross margin in the coming quarter and actually for the back half of the year, we're expecting that we'll see improvements in gross margin as the year progresses. We had anticipated that we would have challenged gross margin in the second quarter as we were running the two foundries and the new foundry continues to ramp. We'll expect to see those improvements throughout the back half of the year as well as the improvements in the repair side of our business now that we're lapping the Israel-Hamas headwind that we encountered last year in second quarter.

Speaker Change: And maybe just the last one I wonder if you could help us with.

Speaker Change: Gross margin.

Speaker Change: In the coming quarter like what kind of assumption do you have.

Speaker Change: The next quarter gross margin.

Speaker Change: Sure as we think about gross margin in the coming quarter and actually for the back half of the year, we're expecting that we'll see improvement in gross margin as the year progresses, we had anticipated that we would have.

Speaker Change: <unk> gross margin in the second quarter as we were running the two foundries and the the new foundry continues to ramp we'll expect to see those improvements throughout the back half of the year as well as the improvement in the repair side of our business now that we're lapping.

Speaker Change: <unk>, Israel Hamas headwind that we encountered last year in second quarter, we're expecting in the back half of the year about it.

Walt Liptak: We're expecting in the back half of the year about an implied 37% gross margin range for the back half of the year at the midpoint of our updated guidance and we'll continue to expect, as Marty said, to have a lag related to the benefits of the pricing. That'll show in fourth quarter and the tariffs will start to impact third quarter. So, third quarter will look a little more challenged than fourth quarter will. Okay, thanks very much. Appreciate it. Thank you.

Speaker Change: Implied 37% gross margin range for the back half of the year at the midpoint of our updated guidance.

Speaker Change: And we will continue to.

Speaker Change: Expect as Marty said to have a lag related to the benefit of the pricing that will show in fourth quarter and the tariffs will start to impact third quarter to the third quarter will look a little more challenged in the fourth quarter well.

Speaker Change: Okay. Thanks, very much I appreciate it.

Michael Halloran: Joe Giordano with TD Cowen. You may go ahead. Good morning, this is Michael on for Joe. Good morning. So, you mentioned... Good morning. So, segment margins in the quarter, you know, were somewhat positive progression year over year, though, you know, probably came in a little bit lighter than most were modeling. But then, like, consolidated performance came out ahead due to the lower corporate costs. So, can you just elaborate any puts and takes when it comes to margin in the segments? And then, you know, how should we be thinking about corporate expense on the go forward?

Speaker Change: Thank you Joe Giordano with Cowen you May go ahead Sir.

Speaker Change: Good morning, this is Michael on for Joe.

Speaker Change: Good morning, So you mentioned.

Speaker Change: Just sticking on margins in the quarter.

Speaker Change: Positive progression year over year, though probably came in a little bit lighter than most of our modeling.

Speaker Change: But then the consolidated performance came out ahead due to the lower corporate costs. So can you just elaborate any puts and takes when it comes to margin in the segments and then how should we be thinking about corporate expense on a go forward. Thank you.

Melissa Rasmussen: Thank you. Sure, for a growth margin in the second quarter, we had expected to see a little bit of a dip in the second quarter, and while we did have some favorable volumes and price-cost benefits, we did, however, have manufacturing inefficiencies, as we had talked about with the running of the two foundries. Now that we have moved past the legacy foundry, we should be past the one-time manufacturing inefficiencies that we experienced in the prior quarter related to that foundry. We'll expect to see the improvements in the back half of the year that we had talked about previously as that new foundry continues to ramp.

Speaker Change: Sure for gross margin in the second quarter, we had expected to see a little bit of a dip in the second quarter and while we did have some favorable volumes and price cost benefits. We did however have and manufacturing inefficiencies as we.

Speaker Change: We had talked about with the running of the two foundries now that we have.

Speaker Change: <unk> moved past the legacy foundry, we should be past the onetime manufacturing inefficiencies that we experienced in the prior quarter related to that foundry will expect to see that the and the improvement in the back half of the year that we had talked about previously as that new fab.

Melissa Rasmussen: And again, we expect that we'll see an implied guidance range of 37% in the back half of the year versus the 34 and a half that we saw in the beginning of the year. And as far as overall SG&A, we had expected that we would see a benefit related to the prior year as the amortization from the customer relationship intangible had fully been amortized. With that, we did continue to see, in addition to that benefit, we saw some favorable foreign currency exchange in addition to some diligent expense management. So overall, we had reduced our SG&A expense expectation for the year by $4 million at the midpoint.

Speaker Change: <unk> continues to ramp and again, we expect that we'll see our implied guidance range of 37% in the back half of the year versus the 34 and a half that we saw in the in the beginning of the year.

Speaker Change: And as far as our overall SG&A, we had expected that we would see a benefit related to the prior year as the amortization from the customer relationship intangible had fully been amortized with that we did continue to see in addition to that benefit.

Speaker Change: We saw some favorable foreign currency exchange. In addition to some diligent expense management. So overall, we had reduced our SG&A expense expectation for the year by $4 million at the midpoint, we do expect to see a step up in the back half of the year, which is typical per our seasonality.

Melissa Rasmussen: We do expect to see a step up in the back half of the year, which is typical per our seasonality. And we're also investing in some decisions that we had made as far as IT investments and commercial investments, as well as some personnel investments in the back half of the year. So you'll see a step up versus the first half of the year. Great, thanks.

Speaker Change: And we're also investing in <unk>.

Speaker Change: Decisions that we had made as far as our investments in commercial investments as well as some personnel investments in the back half of the year. So youll see a step up versus the first half of the year.

Michael Halloran: And just one more, if I may, you know, earlier you mentioned about two-thirds of the business is tied to muni, you know, water infrastructure. Can you just elaborate how much of that is actually tied to new lot development versus just repair and replacement business?

Speaker Change: Great. Thanks.

Speaker Change: And then just one more if I may I know earlier, you mentioned about two thirds of the business.

Speaker Change: It's tied to Muni water infrastructure can you just elaborate how much of that is actually tied to new lot development versus just repair and replacement business and then are there any like mixed considerations.

Michael Halloran: And then are there any like mixed considerations, you know, that you would like to highlight to expect over time?

Speaker Change: That you would like to highlight to expect over time. Thank you.

Michael Halloran: Thank you. And let me just clarify, when we give the end market estimates for our business, the roughly we'll call it two-thirds that we call repair and replace, that is all looking at existing municipalities where there already is the built-out infrastructure, and generally that's where you would be seeing any of the maintenance or the upgrades over time. When we look at what we call the residential construction piece, that is where the new lot development and or new construction comes into play. So think of that as when you've got the raw land, you historically have not had the water distribution systems, and due to the development of the new communities, they are putting in the underground infrastructure associated with it.

Speaker Change: And let me just clarify when we give the end market estimates.

For our business the roughly we'll call. It two thirds that we call repair and replace that is all looking at existing municipalities, where there already is the built out.

Speaker Change: Infrastructure, and generally Thats, where you would be seeing any of the maintenance or the upgrades every time when we look at what we call the residential construction piece that.

Speaker Change: That is where the new lot development and to a new construction comes into play so think of that as when you've got the raw land you historically have not had the water distribution systems and due to the development of the new communities.

Speaker Change: They are putting in the underground infrastructure associated with it.

Marty Zakas: Does that address your question?

Speaker Change: Does that address your question.

Michael Halloran: Yeah, I'm sorry if I might have missed this earlier in the call, you might just maybe breaking out a percentage basis or just generalize, you know, you know, percentage wise, the exposures of those two things you just mentioned, I don't think it was necessarily clear.

Speaker Change: I'm, sorry, if I might've missed this earlier in the call that you might just maybe breaking out on a percentage basis or just generalize.

Speaker Change: Percentage wise the exposure of those two things you just mentioned Africa. It was necessarily clear. Thank you.

Marty Zakas: Thank you. Certainly, so as we, when we estimate for 2024 overall where we stood, we estimate that roughly about 60 to 65 percent of our revenue was associated with what we call repair and replacement, which really is in and around the municipal business. And when we think about the residential construction component of our business, that probably falls right around, we'll call it sort of 20, 25 percent. And then we also have an end market exposure, which is in and around the natural gas distribution products, which runs a little less than 10 percent.

Speaker Change: Certainly so as we when we estimate for 2024.

Speaker Change: Overall, where we stood we estimate that roughly about 60% to 65%.

Speaker Change: <unk> of our revenue was associated with what we call repair and replacement, which really is in and around the municipal business and when we think about the residential construction component of our business that probably falls right around we'll call it sort of 2025% and then we also have an end.

Speaker Change: <unk> exposure, which is in and around the natural gas distribution products, which runs a little less than 10%.

Michael Halloran: Great, thank you.

Speaker Change: Great. Thank you.

Operator: Thank you.

Marty Zakas: At this time, I am showing no further questions. Very good. Well, look, thank you, Operator.

Speaker Change: Thank you at this time I am showing no further questions.

Speaker Change: Very good. Thank you operator, we thank everyone for taking the time to join our call today, we certainly welcome Melissa to the team and are delighted to have her here overall, we think we delivered a very solid performance with some new records in our second quarter.

Marty Zakas: We thank everyone for taking the time to join our call today. We certainly welcome Melissa to the team and are delighted to have her here. Overall, we think we delivered a very solid performance with some new records in our second quarter.

Marty Zakas: The healthy order levels and resilient end market demand, I think specifically in and around municipal, support the guidance that we gave where we did increase our expectations for our 2025 net sales, maintaining our adjusted EBITDA guidance range, and that really is largely due to the higher cost from the recently enacted tariffs. I think with respect to the tariff environment that we are all addressing and certainly the uncertainty that that brings, I think with the enhanced investments and enhanced operational and supply chain talent that we have, actions we're taking with respect to pricing, supply chain mitigation, operational initiatives, and cost discipline, we are putting ourselves in the best position that we can to address that.

Speaker Change: Healthy order levels and resilient end market demand I think specifically in and around municipal support the guidance that we gave where we did increase.

Speaker Change: Our expectations for our 2025 net sales.

Speaker Change: Maintaining our adjusted EBITDA guidance range and that really is largely due to the higher cost from the recently enacted tariffs.

Speaker Change: With respect to the tariff environment that we are all addressing and certainly the uncertainty that that brings.

Speaker Change: With the enhanced investments and enhanced operational and supply chain team talent that we have and actions, we're taking with respect to pricing supply chain mitigation operational initiatives and cost discipline.

Speaker Change: We are putting ourselves in the best position that we can to address that so thank you very much and we look forward to speaking with you again, when our third quarter results are announced in in August.

Marty Zakas: So thank you very much, and we look forward to speaking with you again when our third quarter results are announced in August.

Operator: And with that, please conclude the call.

Speaker Change: And with that please conclude the call. Thank you operator.

Operator: Thank you, operator. Thank you.

Operator: This concludes today's conference call. Have a nice day. You may now disconnect.

Speaker Change: Thank you. This concludes today's conference call have a nice day you may now disconnect.