Zurn Elkay Water Solutions Q4 2025 Zurn Elkay Water Solutions Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Zurn Elkay Water Solutions Corp Earnings Call
Operator: Good morning, and welcome to the Zurn Elkay Water Solutions Corporation Q4 2025 earnings results conference call with Todd Adams, Chairman and Chief Executive Officer, and Dave Pauli, Chief Financial Officer for Zurn Elkay Water Solutions. A replay of the conference call will be made available as a webcast on the company's investor relations website. As a reminder, this call contains certain forward-looking statements, which are subject to the safe harbor language outlined in Zurn Elkay's press release issued yesterday afternoon and in the company's filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. The company's earnings release and SEC filings contain additional information about these non-GAAP measures, why they are used, and why the company believes they are helpful to investors and contain reconciliations to the corresponding GAAP information.
Speaker #1: Good morning and welcome now. to the Zurn Elkay Water Solutions Corporation Fourth Quarter 2025 Earnings Results Conference Call with Todd Adams, Officer and David Pauli, Chief Financial Officer for Zurn Elkay Water Solutions.
Speaker #1: Chairman and Chief Executive will be made available as A replay of the conference call a webcast on the company's Investor Relations website. As a reminder, this call contains, certain forward-looking statements which are subject to the safe harbor language outlined in Zurn Elkay's press release issued yesterday afternoon and in the SEC.
Speaker #1: In addition, some comparisons will refer to non-GAAP measures. The company's earnings release and SEC filings contain additional information about these used, and why the company believes they non-GAAP measures, why they are are helpful to investors and contain reconciliations to the corresponding GAAP information.
Operator: Consistent with prior quarters, the company will speak to certain non-GAAP metrics as they feel they provide a better understanding of the company's operating results. These measures are not a substitute for GAAP. Zurn Elkay encourages you to review the GAAP information in its earnings release and SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions.
Operator: Consistent with prior quarters, the company will speak to certain non-GAAP metrics as they feel they provide a better understanding of the company's operating results. These measures are not a substitute for GAAP. Zurn Elkay encourages you to review the GAAP information in its earnings release and SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions.
Speaker #1: Consistent with prior quarters, the company will speak to certain non-GAAP metrics as they feel they provide a better understanding of the company's operating results.
Q4 2025 Zurn Elkay Water Solutions Corp Earnings Call
Speaker #1: are not a substitute for These measures you to review the GAAP. Zurn Elkay encourages GAAP information in its with that. I'll turn the call earnings release and SEC filings over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions.
Speaker #2: Thanks, Rebecca, and good morning, everyone. I'll start on page three. We wrapped up calendar year 2025 with a pretty decent fourth quarter. As sales grew 10% organically over the prior year Q4, and EBITDA grew 14% to $104 million with margins expanding 100 basis points to 25.6%.
Todd Adams: ... Thanks, Rebecca, and good morning, everyone. I'll start on page 3. We wrapped up calendar year 2025 with a pretty decent fourth quarter, as sales grew 10% organically over the prior year Q4, and EBITDA grew 14% to $104 million, with margins expanding 100 basis points to 25.6%. In the quarter, we generated $83 million of free cash flow, bringing the full year to $317 million, which was up 17% over 2024. Over the course of the year, we repurchased about 3% of our outstanding shares for $160 million and paid $64 million in dividends. All this while leverage declined to 0.4 times.
Todd Adams: ... Thanks, Rebecca, and good morning, everyone. I'll start on page 3. We wrapped up calendar year 2025 with a pretty decent fourth quarter, as sales grew 10% organically over the prior year Q4, and EBITDA grew 14% to $104 million, with margins expanding 100 basis points to 25.6%. In the quarter, we generated $83 million of free cash flow, bringing the full year to $317 million, which was up 17% over 2024. Over the course of the year, we repurchased about 3% of our outstanding shares for $160 million and paid $64 million in dividends. All this while leverage declined to 0.4 times.
Speaker #2: In the quarter, we generated $83 million of free cash flow, bringing the full year to $317 million which was up 17% over 2024. Over the course of the year, we repurchased about 3% of our outstanding shares, for $160 million and paid dividends.
Speaker #2: All this while, leverage declined to 0.4 times. Taken as a whole, we accomplished a lot over the course of 2025, the most important of which are the additional sustainable competitive advantages we built in our business that will help us grow faster and be more profitable in the future.
Todd Adams: Taken as a whole, we accomplished a lot over the course of 2025, the most important of which are the additional sustainable competitive advantages we built in our business that will help us grow faster and be more profitable in the future, and I'll touch on those in just a bit. Along the way, 2025 afforded us the opportunity to live test the supply chain optimization plan that we had been deploying and talking about for several years, and for the most part, it's worked flawlessly. After we quickly celebrated 2025 here, our attention has turned to the next three years, and even more specifically, delivering another record year in 2026. For us, leveraging the Zurn Elkay Business System in everything we do and how we operate, keeps us relentlessly focused on getting just a little bit better every day.
Todd Adams: Taken as a whole, we accomplished a lot over the course of 2025, the most important of which are the additional sustainable competitive advantages we built in our business that will help us grow faster and be more profitable in the future, and I'll touch on those in just a bit. Along the way, 2025 afforded us the opportunity to live test the supply chain optimization plan that we had been deploying and talking about for several years, and for the most part, it's worked flawlessly. After we quickly celebrated 2025 here, our attention has turned to the next three years, and even more specifically, delivering another record year in 2026. For us, leveraging the Zurn Elkay Business System in everything we do and how we operate, keeps us relentlessly focused on getting just a little bit better every day.
Speaker #2: And I'll touch on those in just a bit. Along the way, 2025 afforded us the opportunity to live test the supply chain optimization plan that we had been deploying and talking about for several years.
Speaker #2: And for the most part, it's worked flawlessly. After we quickly celebrated 2025 here, our attention has turned to the next three years and even more specifically, delivering another record year in 2026.
Speaker #2: system and everything we do and how we focused on getting just a little bit better every For us, leveraging the Zurn Elkay business day.
Todd Adams: To that end, one of the core pillars of ZEBS is our strategic planning and strategy deployment process. We wrapped up our annual three-year strategic planning process in Q4, and are now actively deploying year one of that plan. It's a process we've used and done annually for, about the last 18 years or so, and we think we've made continual improvements in that process. But this process isn't a desk exercise. It's a full contact sport where we evaluate every aspect of our business, from our markets, competition, and our industry, to products, customers, channels, and adjacency, as well as larger, more disruptive ideas. We ask, "What's changed? What did we get wrong last year, and what are our risks?
Todd Adams: To that end, one of the core pillars of ZEBS is our strategic planning and strategy deployment process. We wrapped up our annual three-year strategic planning process in Q4, and are now actively deploying year one of that plan. It's a process we've used and done annually for, about the last 18 years or so, and we think we've made continual improvements in that process. But this process isn't a desk exercise. It's a full contact sport where we evaluate every aspect of our business, from our markets, competition, and our industry, to products, customers, channels, and adjacency, as well as larger, more disruptive ideas. We ask, "What's changed? What did we get wrong last year, and what are our risks?
Speaker #2: of the core pillars of ZEBS To that end, one is our strategic planning and strategy deployment process. We wrapped up our annual three-year strategic planning process in Q4 and are now actively deploying year one of that plan.
Speaker #2: It's a process we've used and done annually for about the last 18 years or so, and we think we've made continual improvements in that process.
Speaker #2: This process isn't a desk exercise. It's a full-context sport where we evaluate every aspect of our business, from our markets, competition, and our industry, to products, customers, channels, and adjacency, as well as larger, more disruptive ideas.
Speaker #2: We ask what's changed, what did we get wrong last year, and what are our risks. And importantly, where can we further exploit the competitive advantages we've organized around, what our priorities are going to be over the next coming one, two, or three years, the resources and investments required, as well as the tools, processes, and capabilities we need to leverage or develop to get there.
Todd Adams: And importantly, where can we further exploit the competitive advantages we've built?" This defines and aligns the organization around what our priorities are going to be over the next coming 1, 2, or 3 years, the resources and investments required, as well as the tools, processes, and capabilities we need to leverage or develop to get there. While we're not gonna be super specific this morning about the exact things we're up to, at least at this juncture, I can say this: We see more new organic growth opportunities, largely in adjacency, adjacencies, and underserved verticals, than I can remember. We have a plan to attack these opportunities, and assuming we execute, which we have a reasonable track record of doing, I'm confident this only enhances our organic growth, growth trajectory over the coming 2 to 3 years.
Todd Adams: And importantly, where can we further exploit the competitive advantages we've built?" This defines and aligns the organization around what our priorities are going to be over the next coming 1, 2, or 3 years, the resources and investments required, as well as the tools, processes, and capabilities we need to leverage or develop to get there. While we're not gonna be super specific this morning about the exact things we're up to, at least at this juncture, I can say this: We see more new organic growth opportunities, largely in adjacency, adjacencies, and underserved verticals, than I can remember. We have a plan to attack these opportunities, and assuming we execute, which we have a reasonable track record of doing, I'm confident this only enhances our organic growth, growth trajectory over the coming 2 to 3 years.
Speaker #2: While built—we're not going to be super specific this morning—this defines and aligns our about the exact things we're up to, at least at this juncture, I can say this: we see more new organic growth opportunities, largely in adjacency and underserved verticals, than I can remember.
Speaker #2: We have a plan to attack these opportunities and, assuming we execute, which we have a reasonable track record of doing, I'm confident this only enhances our organic growth trajectory over the coming two to three years.
Speaker #2: And I also believe that in time, our approach and attacking these adjacencies and verticals will have an incrementally positive impact on our M&A cultivations.
Todd Adams: And I also believe that in time, our approach in attacking these adjacencies and verticals will have an incrementally positive impact on our M&A cultivations. Before I turn it over to Dave, I'll touch just briefly on our initial outlook and framework for 2026. The approach we're taking to our outlook this year is exactly the same approach we've taken in the past. We start with a range of outcomes that are reasonable, not back-half weighted, and in line with our demonstrated performance. We then go about retiring risks quarter by quarter while we work on our strategic breakthroughs. We gave everyone our view on the market last quarter, and that hasn't changed. We also have some carryover price from last year, and most importantly, we're executing well.
Todd Adams: And I also believe that in time, our approach in attacking these adjacencies and verticals will have an incrementally positive impact on our M&A cultivations. Before I turn it over to Dave, I'll touch just briefly on our initial outlook and framework for 2026. The approach we're taking to our outlook this year is exactly the same approach we've taken in the past. We start with a range of outcomes that are reasonable, not back-half weighted, and in line with our demonstrated performance. We then go about retiring risks quarter by quarter while we work on our strategic breakthroughs. We gave everyone our view on the market last quarter, and that hasn't changed. We also have some carryover price from last year, and most importantly, we're executing well.
Speaker #2: Before I turn it over to Dave, I'll touch just briefly on 2026. The approach we're taking to our outlook this year—on our initial outlook and framework for 2026—is exactly the same approach we've taken in the past.
Speaker #2: We start with a range of outcomes that are reasonable, not back half-weighted, and in line with our demonstrated performance. We then go about retiring strategic breakthroughs.
Speaker #2: risks quarter by quarter while we work on our We gave everyone our view on the market last quarter, and that hasn't changed. We also have some carryover price from last year.
Speaker #2: And most importantly, we're executing well. All things equal, we're off to a really good start in January, but still 11 months to go in 2026.
Todd Adams: All things equal, we're off to a really good start in January, but still 11 months to go in 2026. So now I'll hand it over to Dave to take you through some more color on the quarter.
Todd Adams: All things equal, we're off to a really good start in January, but still 11 months to go in 2026. So now I'll hand it over to Dave to take you through some more color on the quarter.
Speaker #2: So now I'll hand it over to Dave to take you through some more color on the—
Speaker #2: quarter.
Speaker #3: Thanks, Todd.
David Pauli: Thanks, Todd. Good morning, everyone. Please turn to slide number 4. Our fourth quarter sales totaled $407 million, which represents 10% core and reported growth year-over-year. Continuing what we saw throughout 2025 and in line with our expectations going into the quarter, core sales growth in our non-residential end markets outpaced the softness we experienced within residential and pockets of the commercial segment within non-residential. In the fourth quarter, we continued to deliver positive price-cost position with respect to tariffs and saw the benefit of roughly 5 points of price in the quarter from our previously announced tariff-related pricing actions. Overall, we continue to have solid execution on our growth initiatives, and they help to drive our sales performance above the outlook we provided 90 days ago.
David Pauli: Thanks, Todd. Good morning, everyone. Please turn to slide number 4. Our fourth quarter sales totaled $407 million, which represents 10% core and reported growth year-over-year. Continuing what we saw throughout 2025 and in line with our expectations going into the quarter, core sales growth in our non-residential end markets outpaced the softness we experienced within residential and pockets of the commercial segment within non-residential. In the fourth quarter, we continued to deliver positive price-cost position with respect to tariffs and saw the benefit of roughly 5 points of price in the quarter from our previously announced tariff-related pricing actions. Overall, we continue to have solid execution on our growth initiatives, and they help to drive our sales performance above the outlook we provided 90 days ago.
Speaker #3: Please turn to slide number four. Our fourth quarter sales totaled $407 million, which represents 10% core and reported growth year over year. Continuing what we saw throughout 2025 and in line with our expectations going into the quarter, core sales growth and our non-residential end markets outpaced the softness we experienced within residential and pockets of the commercial segment within non-residential.
Speaker #3: In the position with respect to tariffs and saw the deliver positive price-cost fourth quarter, we continued to benefit of roughly five points of price in the quarter from our previously announced tariff-related pricing actions.
Speaker #3: execution on our growth initiatives, and they help to drive our sales performance Overall, we continue to have solid ago. Turning to profitability, our fourth quarter adjusted EBITDA was $104 million, and our adjusted EBITDA margin expanded 100 basis points year over year to 25.6% in the quarter.
David Pauli: Turning to profitability, our Q4 adjusted EBITDA was $104 million, and our adjusted EBITDA margin expanded 100 basis points year-over-year to 25.6% in the quarter. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives, leveraging our Zurn Elkay business system and continuous improvement activities across the organization that Todd will touch on in a few slides. For Q4, profit performance continued on a trend we saw all year of strong year-over-year margin expansion. 2025, our sales and adjusted EBITDA have increased to $129 million and $52 million, respectively, which represents a 40% drop through on the year-over-year volume increase. Our full-year adjusted EBITDA margin improved 120 basis points year-over-year, as core sales grew by 8% in 2025.
David Pauli: Turning to profitability, our Q4 adjusted EBITDA was $104 million, and our adjusted EBITDA margin expanded 100 basis points year-over-year to 25.6% in the quarter. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives, leveraging our Zurn Elkay business system and continuous improvement activities across the organization that Todd will touch on in a few slides. For Q4, profit performance continued on a trend we saw all year of strong year-over-year margin expansion. 2025, our sales and adjusted EBITDA have increased to $129 million and $52 million, respectively, which represents a 40% drop through on the year-over-year volume increase. Our full-year adjusted EBITDA margin improved 120 basis points year-over-year, as core sales grew by 8% in 2025.
Speaker #3: This strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives leveraging our Zurn Elkay business system and continuous improvement activities across the organization that Todd will touch on in a few slides.
Speaker #3: For the fourth quarter, profit performance continued on a trend we saw all year of strong year-over-year margin expansion. 2025, our sales and adjusted EBITDA have increased 129 million and 52 million respectively, which represents a 40% drop through on the year-over-year volume increase.
Speaker #3: Our full-year adjusted EBITDA margin improved 120 basis points year over year as core sales grew by 8% in 2025. Please turn to slide five, and I'll touch on some balance sheet and leverage highlights.
David Pauli: Please turn to slide 5, and I'll touch on some balance sheet and leverage highlights. With respect to our net debt leverage, we ended the year with leverage at 0.4 times, the lowest leverage we've had as a public company. We continued to repurchase shares; in the quarter, we deployed $25 million to repurchases. That puts our 2025 full-year repurchases at $160 million, with an average repurchase price of $36.74. Free cash flow finished strong at $83 million in the quarter, bringing our full-year total to $317 million, or a 17% improvement year-over-year.
David Pauli: Please turn to slide 5, and I'll touch on some balance sheet and leverage highlights. With respect to our net debt leverage, we ended the year with leverage at 0.4 times, the lowest leverage we've had as a public company. We continued to repurchase shares; in the quarter, we deployed $25 million to repurchases. That puts our 2025 full-year repurchases at $160 million, with an average repurchase price of $36.74. Free cash flow finished strong at $83 million in the quarter, bringing our full-year total to $317 million, or a 17% improvement year-over-year.
Speaker #3: With respect to our net debt leverage, we ended the year with leverage at 0.4 times, the lowest leverage we've had as a public company.
Speaker #3: We continue to repurchase shares, and in the quarter, we deployed 25 million to repurchases. 160 million dollars, with an average That puts our 2025 full-year repurchases at repurchase price of $36.74.
Speaker #3: Free cash flow finished strong at $83 million in the quarter, bringing our full-year total to $317 million, or a 17% improvement year over year.
Speaker #3: We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage, and cash flow generation all support our ability to execute on the right M&A opportunity.
David Pauli: We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage, and cash flow generation all support our ability to execute on the right M&A opportunity. At the same time, we're actively working on entering organic adjacencies through investment and internal development. I'll turn the call back to Todd.
David Pauli: We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage, and cash flow generation all support our ability to execute on the right M&A opportunity. At the same time, we're actively working on entering organic adjacencies through investment and internal development. I'll turn the call back to Todd.
Speaker #3: At the entering organic adjacencies through the investment and internal development. I'll turn the call back to Todd.
Speaker #2: Thanks, Dave. And I'm back on page six here. Where I want to briefly 2025 sustainability
Todd Adams: Thanks, Dave, and I'm back on page six here, where I want to briefly highlight a few of the things you'll see in our 2025 sustainability report that we'll be issuing later this month. So last year alone, our drinking water products provided 2.4 billion gallons of cleaner, safer filtered water, while preventing 20 billion single-use plastic bottles from entering waterways. We launched Pro Filtration, our latest evolution of our trusted bottle filling station line, advancing both water quality and sustainability for customers worldwide. Pro Filtration features include a top-mount filter access for faster 30-second filter changes and reduced downtime, new 10,000-gallon filtration capacity for longer filter life, filter life gauges, UVC LED lights. We also introduced a filter that expanded filtration beyond PFOA and PFOS to capture the full family of PFAS or forever chemicals.
David Pauli: Thanks, Dave, and I'm back on page six here, where I want to briefly highlight a few of the things you'll see in our 2025 sustainability report that we'll be issuing later this month. So last year alone, our drinking water products provided 2.4 billion gallons of cleaner, safer filtered water, while preventing 20 billion single-use plastic bottles from entering waterways. We launched Pro Filtration, our latest evolution of our trusted bottle filling station line, advancing both water quality and sustainability for customers worldwide. Pro Filtration features include a top-mount filter access for faster 30-second filter changes and reduced downtime, new 10,000-gallon filtration capacity for longer filter life, filter life gauges, UVC LED lights. We also introduced a filter that expanded filtration beyond PFOA and PFOS to capture the full family of PFAS or forever chemicals.
Speaker #2: highlight a few of the things you'll see in our report that will be issuing later this month. So last year alone, our drinking water products provided same time, we're actively working on 2.4 billion gallons of cleaner, safer filtered water while preventing 20 billion single-use plastic bottles from entering waterways.
Speaker #2: We launched ProFiltration, our latest filling station line, advancing both water quality and sustainability for customers worldwide. ProFiltration features include a top-mount filter access for faster 30-second filter changes and reduced downtime, new 10,000-gallon filtration capacity for longer filter life, filter life gauges, UVC LED lights, we also introduced a filter that expanded filtration beyond PFOA and PFOS to capture the full family of chemicals.
Speaker #2: Filters are now certified to reduce PFAS, or forever microplastics, lead, total PFOS, and much more. And we expanded our filtration portfolio with Live Easy, bringing commercial-grade water filtration into residences, lice commercial, and hospital applications, helping people enjoy the same high-quality water trusted in schools, stadiums.
Todd Adams: Filters are now certified to reduce microplastics, lead, total PFOS, and much more. We expanded our filtration portfolio with Liv EZ, bringing commercial-grade water filtration into residences, light commercial and hospital applications, helping people enjoy the same high-quality water trusted in schools, airports, hospitals, and stadiums. We're especially excited to share that we have recently partnered with TerraCycle to launch a recycling program for used water filters. Customers can now return filters through TerraCycle's zero-waste boxes, where plastic casings are repurposed into durable industrial materials and carbon media is responsibly managed. Activated carbon filters like ours retain more than 99.5% of PFOS, ensuring contaminants remain securely contained during disposal. It's not just advancements in drinking water. The sustainability benefits of our products permeate into our other product categories.
Todd Adams: Filters are now certified to reduce microplastics, lead, total PFOS, and much more. We expanded our filtration portfolio with Liv EZ, bringing commercial-grade water filtration into residences, light commercial and hospital applications, helping people enjoy the same high-quality water trusted in schools, airports, hospitals, and stadiums. We're especially excited to share that we have recently partnered with TerraCycle to launch a recycling program for used water filters. Customers can now return filters through TerraCycle's zero-waste boxes, where plastic casings are repurposed into durable industrial materials and carbon media is responsibly managed. Activated carbon filters like ours retain more than 99.5% of PFOS, ensuring contaminants remain securely contained during disposal. It's not just advancements in drinking water. The sustainability benefits of our products permeate into our other product categories.
Speaker #2: We're especially excited airports, hospitals, and to share that we have recently partnered with TerraCycle to launch a recycling program for used water filters. Customers can now return filters through TerraCycle's zero waste boxes, where plastic casings are repurposed into durable industrial materials and carbon media is responsibly managed.
Speaker #2: Activated carbon filters like 99.5% of PFOS, ensuring ours retain more than contaminants remain securely contained during disposal. And it's not just advancements in drinking water.
Speaker #2: The sustainability benefits of our products permeate into our other product categories. Our World Dryer Hand Dryers eliminated the need for 3.5 billion paper towels in 2025.
Todd Adams: Our World Dryer hand dryers eliminated the need for 3.5 billion paper towels in 2025. We launched the Sanitize + Dry sanitizing dryer, a breakthrough in hygienic, sustainable hand drying. Its cold plasma technology neutralizes 99.99% of common bacteria and viruses, including SARS, COVID, E. coli, norovirus, Influenza A, and the common cold, all without chemicals. It's not why we do it, but our work continues to earn recognition. Zurn Elkay again maintained top-tier ratings from Sustainalytics, MSCI, and S&P Global, and we were named to six leading sustainability lists, including Newsweek, Time, Barron's, and USA Today.
Todd Adams: Our World Dryer hand dryers eliminated the need for 3.5 billion paper towels in 2025. We launched the Sanitize + Dry sanitizing dryer, a breakthrough in hygienic, sustainable hand drying. Its cold plasma technology neutralizes 99.99% of common bacteria and viruses, including SARS, COVID, E. coli, norovirus, Influenza A, and the common cold, all without chemicals. It's not why we do it, but our work continues to earn recognition. Zurn Elkay again maintained top-tier ratings from Sustainalytics, MSCI, and S&P Global, and we were named to six leading sustainability lists, including Newsweek, Time, Barron's, and USA Today.
Speaker #2: We launched the Sanitize and Dry Sanitizing Dryer, a breakthrough in hygienic sustainable hand drying. Its cold plasma technology neutralizes 99.99% of common bacteria and viruses, including SARS, COVID, E.
Speaker #2: coli, norovirus, influenza A, and the common cold, all without chemicals. It's not why we do it, but our work continues to earn recognition. Zurn Elkay, again, maintained top-tier ratings from Sustainalytics, MSCI, and S&P Global, and we were named to six leading sustainability lists, including Newsweek, Time, Barron's, and USA Today.
Todd Adams: Part of our efforts to expand access to clean water, our Fountains for Youth program continued delivering filtered bottle filling stations to under-resourced schools, helping ensure students have reliable access to clean, safe drinking water, and in total, we reached $1.9 million in philanthropic giving in 2025. All in another really solid year of walking the talk with respect to sustainability, and watch for the report in the coming weeks. So the last one for me is on slide 7, and last quarter, I shared our one-page slide on ZEBS that depicted how we think about and manage our business, leverage our operating philosophy, and ultimately, how we measure ourselves. In the middle of all of it, we highlighted that the glue to this was the Zurn Elkay Business System, our common language, which is rooted in a deep culture of continuous improvement.
Todd Adams: Part of our efforts to expand access to clean water, our Fountains for Youth program continued delivering filtered bottle filling stations to under-resourced schools, helping ensure students have reliable access to clean, safe drinking water, and in total, we reached $1.9 million in philanthropic giving in 2025. All in another really solid year of walking the talk with respect to sustainability, and watch for the report in the coming weeks. So the last one for me is on slide 7, and last quarter, I shared our one-page slide on ZEBS that depicted how we think about and manage our business, leverage our operating philosophy, and ultimately, how we measure ourselves. In the middle of all of it, we highlighted that the glue to this was the Zurn Elkay Business System, our common language, which is rooted in a deep culture of continuous improvement.
Speaker #2: One of our efforts to expand access to clean water. Our fountains of youth program continued delivering filtered bottle filling stations to under-resourced schools, helping ensure students have and, in total, we reached reliable access to clean, safe drinking water 1.9 million in philanthropic giving in 2025.
Speaker #2: All in, another really solid year of walking the talk with respect to sustainability. Watch for the report in the coming weeks. So, the last one for me is on slide seven.
Speaker #2: And last quarter, I shared our one-page slide on ZEBS that depicted how we think about and manage our business, leverage our operating philosophy, and ultimately how we measure ourselves.
Speaker #2: In the middle of all of it, we highlighted that the glue to this was the Zurn Elkay business system. Our common language, which is rooted in a deep culture of continuous improvement.
Speaker #2: We found that continuous improvement can connect and engage everyone, in every location, function, and role, around the simple idea of making things 1% better every day.
Todd Adams: We found that continuous improvement can connect and engage everyone in every location, function, and role around the simple idea of making things 1% better every day. The best part of it is, it compounds every day into improved quality, better customer satisfaction, more engaged associates, lower cost, and career development. The list goes on and on. We have an internal portal, creatively named #CI, where we ask our associates to communicate and share in real time some of the things they're doing or have done to get better. This creates a way to celebrate successes, share ideas, and radiate these across the company, regardless of position or location. Back in 2024, our team of roughly 2,500 managed to log 3,741 #CI submissions.
Todd Adams: We found that continuous improvement can connect and engage everyone in every location, function, and role around the simple idea of making things 1% better every day. The best part of it is, it compounds every day into improved quality, better customer satisfaction, more engaged associates, lower cost, and career development. The list goes on and on. We have an internal portal, creatively named #CI, where we ask our associates to communicate and share in real time some of the things they're doing or have done to get better. This creates a way to celebrate successes, share ideas, and radiate these across the company, regardless of position or location. Back in 2024, our team of roughly 2,500 managed to log 3,741 #CI submissions.
Speaker #2: And the best part of it is, it compounds every day. And to improve quality, better customer satisfaction, more engaged associates, lower cost, career development—the list goes on and on.
Speaker #2: We have an internal portal creatively named #CI. Where we ask our associates to communicate and share in real time some of the things they're doing or have done to get better.
Speaker #2: This creates a way to celebrate successes, share ideas, and radiate these across the company regardless of position or location. Back in 2024, our team of roughly 2,500 managed to log 3,741 #CI submissions.
Speaker #2: In 2025, that same group of roughly 2,500 people submitted 5,568. It increased to almost 49%. And if I was a betting man, which for the record, I'm not, I'd take the over on what our team will do in 2026.
Todd Adams: In 2025, that same group of roughly 2,500 people submitted 5,568, an increase of almost 49%. If I was a betting man, which for the record, I'm not, I'd take the over on what our team will do in 2026. Now I'll turn it back to Dave for the outlook.
Todd Adams: In 2025, that same group of roughly 2,500 people submitted 5,568, an increase of almost 49%. If I was a betting man, which for the record, I'm not, I'd take the over on what our team will do in 2026. Now I'll turn it back to Dave for the outlook.
Speaker #2: And now I'll turn it back to Dave for the outlook.
David Pauli: Thanks, Todd. I'm on slide eight with our 2026 guidance framework. As Todd mentioned earlier, our approach to the guidance is the same as we've taken in the past: provide a framework that we have confidence in our ability to deliver, taking into account the fact that we are 1 month into the year and a range of outcomes are possible. Back to the full year, and based on the assumptions I'll touch on shortly, we expect core sales to be up plus mid-single digits, incremental adjusted EBITDA margins of approximately 35% on the increased sales, and generate approximately $335 million of free cash flow in 2026. On the upper left-hand side of the slide are a few assumptions embedded in our outlook.
David Pauli: Thanks, Todd. I'm on slide eight with our 2026 guidance framework. As Todd mentioned earlier, our approach to the guidance is the same as we've taken in the past: provide a framework that we have confidence in our ability to deliver, taking into account the fact that we are 1 month into the year and a range of outcomes are possible. Back to the full year, and based on the assumptions I'll touch on shortly, we expect core sales to be up plus mid-single digits, incremental adjusted EBITDA margins of approximately 35% on the increased sales, and generate approximately $335 million of free cash flow in 2026. On the upper left-hand side of the slide are a few assumptions embedded in our outlook.
Speaker #3: 2026 guidance framework. Thanks, Todd. I'm on slide eight with our As Todd mentioned earlier, our approach to the guidance is the same as we've taken in the past: provide a framework that we have confidence in our ability to deliver month into the year and a range of taking into account the fact that we are one outcomes are possible.
Speaker #3: Back to the full year, and based on the assumptions I'll touch on shortly, we expect core sales to be up plus mid-single digits, incremental adjusted EBITDA margins of approximately 35% on the increased sales, and to generate approximately $335 million of free cash flow in 2026.
Speaker #3: On the upper left-hand side of the slide are a few assumptions embedded in our outlook. From an end market perspective, our outlook assumes our markets in total look a lot like what we just saw in 2025.
David Pauli: From an end market perspective, our outlook assumes our markets in total look a lot like what we just saw in 2025. Institutional and waterworks end markets continue to grow at low single digits, commercial end markets to be flattish, and a continued tougher residential end market. The result of these individual end market expectations combines to an overall assumption that the market is generally flat to slightly positive. In terms of price, we will have higher price impact in H1, as by the second half, we cycle against quarters that already have the tariff-related price realized. One of the uncertainties that will impact 2026-
David Pauli: From an end market perspective, our outlook assumes our markets in total look a lot like what we just saw in 2025. Institutional and waterworks end markets continue to grow at low single digits, commercial end markets to be flattish, and a continued tougher residential end market. The result of these individual end market expectations combines to an overall assumption that the market is generally flat to slightly positive. In terms of price, we will have higher price impact in H1, as by the second half, we cycle against quarters that already have the tariff-related price realized. One of the uncertainties that will impact 2026-
Speaker #3: Institutional and water works and markets continue to grow at low single digits. Commercial end markets to be flattish and a continued tougher residential end market.
Speaker #3: market expectations combines to an overall assumption that the market is The result of these individual end generally flat to slightly positive. In terms of price, we will have higher price impact in H1 as by the second half, we cycle against quarters that already have the tariff-related price realized.
Speaker #3: One of the uncertainties that will impact 2026 that we are actively monitoring is the evolving guidance assumes that the tariffed countries and their respective rates remain consistent throughout the year and are consistent with today's levels.
Todd Adams: ... that we are actively monitoring is the evolving tariff environment. Our guidance assumes that the tariff countries and their respective rates remain consistent throughout the year and are consistent with today's levels. As a business, we navigated through the 2025 tariffs very well and continued to action our strategy to exit direct material purchases from China. We are on track, and with some products ahead of schedule, to our goal of having only a few points of COGS spend coming out of China by the end of 2026. As we did in 2025, we again remain confident in our ability to execute to positive dollar price cost impact from tariffs in 2026.
David Pauli: ... that we are actively monitoring is the evolving tariff environment. Our guidance assumes that the tariff countries and their respective rates remain consistent throughout the year and are consistent with today's levels. As a business, we navigated through the 2025 tariffs very well and continued to action our strategy to exit direct material purchases from China. We are on track, and with some products ahead of schedule, to our goal of having only a few points of COGS spend coming out of China by the end of 2026. As we did in 2025, we again remain confident in our ability to execute to positive dollar price cost impact from tariffs in 2026.
Speaker #3: As a business, we navigated through the 2025 tariffs very well and continue to action our strategy to exit direct material purchases from China. We are on track and with some products ahead of schedule to our goal of having only a few points of cog spend coming out of China by the end of 2026.
Speaker #3: As we did in 2025, we again remain confident in our ability to execute to positive dollar price-cost impact from tariffs in 2026. For the first quarter of 2026, we are projecting core sales growth to increase 7% to 8% over the prior year, with incremental adjusted EBITDA margins of approximately 35% on the year-over-year growth.
Todd Adams: For Q1 2026, we are projecting core sales growth to increase 7% to 8% over the prior year, with incremental adjusted EBITDA margins of approximately 35% on the year-over-year growth. At 35% incremental margins, the EBITDA margin for Q1 will be approximately 25.5% to 26%. It's roughly 60 basis points margin expansion over the prior year at the midpoint of the range. Since slide 8, we've included our Q1 and full-year outlook assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, adjusted tax rate, and diluted shares outstanding. We'll now open the call up for questions.
David Pauli: For Q1 2026, we are projecting core sales growth to increase 7% to 8% over the prior year, with incremental adjusted EBITDA margins of approximately 35% on the year-over-year growth. At 35% incremental margins, the EBITDA margin for Q1 will be approximately 25.5% to 26%. It's roughly 60 basis points margin expansion over the prior year at the midpoint of the range. Since slide 8, we've included our Q1 and full-year outlook assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, adjusted tax rate, and diluted shares outstanding. We'll now open the call up for questions.
Speaker #3: At 35% incremental margins, the EBITDA margin for Q1 will be approximately $25.5 to $26%. That's roughly 60 basis points of margin expansion over the prior year at the midpoint of the range.
Speaker #3: Since slide eight, we've included our first quarter and full year outlook assumptions for interest expense, non-cash stock compensation expense depreciation and amortization adjusted tax rate, and diluted shares outstanding.
Speaker #3: We'll now open the call up for
Speaker #3: questions. This time, I would like to
Operator: This time, I would like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And at this time, your first question comes from the line of Bryan Blair with Oppenheimer. My apologies. One moment. And your line is open.
Operator: This time, I would like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And at this time, your first question comes from the line of Bryan Blair with Oppenheimer. My apologies. One moment. And your line is open.
Speaker #4: remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker #4: And at this time, your first question comes from the line of Brian Blair with Oppenheimer. My apologies, one moment. And your line is...
Speaker #4: open. Thank you.
Bryan Blair: Thank you. Good morning, guys. Very solid close to the year.
Bryan Blair: Thank you. Good morning, guys. Very solid close to the year.
Speaker #5: Good morning, guys. Very solid close to the year.
Speaker #6: Thanks, Brian. Good
Todd Adams: Thanks, Bryan. Good morning.
Todd Adams: Thanks, Bryan. Good morning.
Speaker #7: Morning. I guess starting with your
Bryan Blair: I guess starting with your core sales outlook, maybe speak to what your team's seeing to, you know, kick off 2026, and then how we should think about the build to mid-single digits in terms of market outgrowths and, you know, price carryover or perhaps incremental price being baked in.
Bryan Blair: I guess starting with your core sales outlook, maybe speak to what your team's seeing to, you know, kick off 2026, and then how we should think about the build to mid-single digits in terms of market outgrowths and, you know, price carryover or perhaps incremental price being baked in.
Speaker #5: core sales outlook, maybe speak to what your team's seeing to kick off 2026 and then how we should think about the build to mid-single digits in terms of market outgrowth and price carryover or perhaps incremental price being
Speaker #5: taken. Yeah.
Todd Adams: Yeah, I mean, I would sort of decouple those two for a moment and say, you know, if you look at what we're saying for Q1, you know, we're looking at 7 to 8. I think we're off to a really good start. I think, as I also mentioned in my intro comments, you know, there's 11 months to go, and so I don't know that there's a discrete framework that marches you from 7 to 8 to mid-single digits, other than, you know, there's probably a little bit more price in the first half than second. But all things equal, you know, I think we endeavor to beat what we're saying for the year, and we're off to a really good start, Bryan. I think is the only way to characterize it.
Todd Adams: Yeah, I mean, I would sort of decouple those two for a moment and say, you know, if you look at what we're saying for Q1, you know, we're looking at 7 to 8. I think we're off to a really good start. I think, as I also mentioned in my intro comments, you know, there's 11 months to go, and so I don't know that there's a discrete framework that marches you from 7 to 8 to mid-single digits, other than, you know, there's probably a little bit more price in the first half than second. But all things equal, you know, I think we endeavor to beat what we're saying for the year, and we're off to a really good start, Bryan. I think is the only way to characterize it.
Speaker #7: I mean, I would sort of decouple those two for a moment, and say if you look at what we're saying for Q1, we're looking at 7 to 8.
Speaker #7: I think we're off to a really good start. I think as I also mentioned in my intro comments, there's 11 months to go. And so I don't know that there's a discrete framework that marches you from 7 to 8 to mid-single digits, other than there's probably a little bit more price in the first half than second.
Speaker #7: But all things equal, I think we endeavor to beat what we're saying for the year. And we're off to a really good start, Brian.
Speaker #7: I think it's the only way to characterize.
Speaker #7: it. Understood.
Bryan Blair: Yeah, understood. That makes sense. And as a follow-up, you know, balance sheet's in pretty fantastic position. You're obviously generating a lot of cash flow. Maybe touch on, you know, the deal environment now. It's been a while since your team has executed a transaction. I know that's not based on inactivity, you know, behind the scenes. Just curious how, you know, your funnel has developed, how we should think about actionability this year, whether there's, I guess, any excitement on that front.
Bryan Blair: Yeah, understood. That makes sense. And as a follow-up, you know, balance sheet's in pretty fantastic position. You're obviously generating a lot of cash flow. Maybe touch on, you know, the deal environment now. It's been a while since your team has executed a transaction. I know that's not based on inactivity, you know, behind the scenes. Just curious how, you know, your funnel has developed, how we should think about actionability this year, whether there's, I guess, any excitement on that front.
Speaker #5: That makes sense. And as a follow-up, you're balance sheets and pretty fantastic position. You're obviously generating a lot of cash flow. Maybe touch on the deal environment now.
Speaker #5: It's been a while since your team has executed a transaction. I know that's not based on inactivity. Behind the scenes, just curious how your funnel has developed or how we should think about actionability this year, whether there's I guess any excitement on that
Speaker #5: front. Yeah.
Todd Adams: Yeah, I mean, as we talked about, you know, we went through our strategic planning process. I think we've, you know, been even more exhaustive in how we've looked at adjacencies. And so, you know, there's a fresh, you know, sort of view on the funnel and some of the cultivations that are happening, that have been in the works for a while, continue to progress. We have not seen anything transact that we feel like we've missed. And so, you know, I'm optimistic that a combination of continuing to do the cultivation work, I would say, you know, maybe a new fresh look at adjacencies and what that can do, both organically and inorganically, I think will be incrementally helpful.
Todd Adams: Yeah, I mean, as we talked about, you know, we went through our strategic planning process. I think we've, you know, been even more exhaustive in how we've looked at adjacencies. And so, you know, there's a fresh, you know, sort of view on the funnel and some of the cultivations that are happening, that have been in the works for a while, continue to progress. We have not seen anything transact that we feel like we've missed. And so, you know, I'm optimistic that a combination of continuing to do the cultivation work, I would say, you know, maybe a new fresh look at adjacencies and what that can do, both organically and inorganically, I think will be incrementally helpful.
Speaker #7: I mean, as we talked about, we went through our strategic planning process. I think we've been even more exhaustive in how we've looked at adjacencies.
Speaker #7: And so there's a fresh sort of view on the funnel and some of the cultivations that are happening. That have been in the works for a while, continue to progress.
Speaker #7: We have not seen anything transact that we feel like we've missed. And so I'm optimistic that a combination of continuing to do the cultivation work—I would say maybe a new fresh look at adjacencies and what that can do both organically and inorganically, I think, will be incrementally helpful.
Speaker #7: And as you point out, we've got tons of flexibility over the course of the year to repurchase shares, look at the dividend again, and ideally get something done from an M&A perspective that fits meets our criteria and we can do a lot with.
Todd Adams: And as you point out, you know, we've got tons of flexibility over the course of the year to, you know, repurchase shares, look at the dividend again, and ideally get something done from an M&A perspective that fits, meets our criteria, and we can, you know, do a lot with. So, I think we're optimistic, but, you know, I'm not gonna predict or project either.
Todd Adams: And as you point out, you know, we've got tons of flexibility over the course of the year to, you know, repurchase shares, look at the dividend again, and ideally get something done from an M&A perspective that fits, meets our criteria, and we can, you know, do a lot with. So, I think we're optimistic, but, you know, I'm not gonna predict or project either.
Speaker #7: So I think we're optimistic. But I'm not going to predict or project
Speaker #7: either. Got
Bryan Blair: Got it. Thanks again, guys.
Bryan Blair: Got it. Thanks again, guys.
Speaker #5: it. Thanks again,
Operator: Your next question comes in the line of Nathan Jones with Stifel, and your line is now open.
Operator: Your next question comes in the line of Nathan Jones with Stifel, and your line is now open.
Speaker #4: Your next
Speaker #4: Next question comes from the line of Nathan Jones with Stifel. Nathan, your line is now open.
Speaker #4: open. Yeah.
Adam Farley: Yeah, good morning. This is Adam Farley on for Nathan. Following up on that last M&A question, you know, could you provide any more color or detail on maybe some of the adjacencies or verticals that you've identified through your planning cycle?
Adam Farley: Yeah, good morning. This is Adam Farley on for Nathan. Following up on that last M&A question, you know, could you provide any more color or detail on maybe some of the adjacencies or verticals that you've identified through your planning cycle?
Speaker #8: Good morning. This is Adam Farley on for Nathan. Following up on that last following up on that last M&A question, could you provide any more color or detail on maybe some of the adjacencies or verticals that you've identified through that planning cycle?
Speaker #7: Adam, you're a little bit muffled. I can't quite hear what you're
Todd Adams: Adam, you're a little bit muffled. I can't quite hear what you're saying.
Todd Adams: Adam, you're a little bit muffled. I can't quite hear what you're saying.
Speaker #7: saying. Yeah.
Adam Farley: Yeah. So following up on that last M&A question, could you provide any more detail or color on maybe the new adjacencies or verticals that you've identified in your-- through your planning cycle?
Adam Farley: Yeah. So following up on that last M&A question, could you provide any more detail or color on maybe the new adjacencies or verticals that you've identified in your-- through your planning cycle?
Speaker #8: So following up on that last M&A question, could you provide any more detail or color on maybe the new adjacencies or verticals that you've identified in your three-year planning
Speaker #8: cycle? Yeah.
Todd Adams: Yeah, I guess I will give you a little color. I mean, I think it looks and feels a lot like things we do today. So it's North American-based. It's in and around water, professional-grade plumbing. It could have flavors of, you know, leveraging certain lead products into different verticals. And I'll take you back to, you know, what we did in fire protection, you know, five to seven years ago, where we identified, you know, we had some niche products, and then we built out a portfolio around that, and then, you know, grew our fire protection business into something that's substantial.
Todd Adams: Yeah, I guess I will give you a little color. I mean, I think it looks and feels a lot like things we do today. So it's North American-based. It's in and around water, professional-grade plumbing. It could have flavors of, you know, leveraging certain lead products into different verticals. And I'll take you back to, you know, what we did in fire protection, you know, five to seven years ago, where we identified, you know, we had some niche products, and then we built out a portfolio around that, and then, you know, grew our fire protection business into something that's substantial.
Speaker #7: I guess, I guess I will give you a little color. I mean, I think it looks and feels a lot like things we do today.
Speaker #7: So, it's North American-based. It's in and around water, professional-grade plumbing. It could have flavors of leveraging certain lead products into different verticals. And I'll take you back to what we did in fire protection five, seven years ago.
Speaker #7: Where we identified we had some niche products, and then we built out a portfolio around that, and then grew our fire protection business into something that's substantial.
Speaker #7: And so it's got a lot of that flavor where we start with maybe a larger application where we have some products that are involved and then what else can we add to that bundle, either organically or inorganically, to all of a sudden be a formidable supplier into that vertical or into a discrete market adjacency.
Todd Adams: So it's got a lot of that flavor, where we start with, you know, maybe a larger application, where we have some products that are involved, and then what else can we add to that bundle, either organically or inorganically, to all of a sudden be a formidable, you know, supplier into that vertical or into a discrete market adjacency? And so I think you'll, you know, you'll see some of these things roll out over the course of the year. And when we do that, I think it'll become obvious as to, you know, why it makes sense for us to get into these and the kind of, you know, incumbency that we have right next door, that we can leverage that kind of expertise, that go-to-market, that supply chain, you know, into these adjacencies and be a formidable competitor right away.
Todd Adams: So it's got a lot of that flavor, where we start with, you know, maybe a larger application, where we have some products that are involved, and then what else can we add to that bundle, either organically or inorganically, to all of a sudden be a formidable, you know, supplier into that vertical or into a discrete market adjacency? And so I think you'll, you know, you'll see some of these things roll out over the course of the year. And when we do that, I think it'll become obvious as to, you know, why it makes sense for us to get into these and the kind of, you know, incumbency that we have right next door, that we can leverage that kind of expertise, that go-to-market, that supply chain, you know, into these adjacencies and be a formidable competitor right away.
Speaker #7: And so I think you'll see some of these things roll out over the course of the year. And when we do that, I think it'll become obvious as to why it makes sense for us to get into these and the kind of incumbency that we have right next door that we can leverage that kind of expertise that go-to-market, that supply chain, into these adjacencies and be a formidable competitor right
Speaker #7: away.
Speaker #8: Okay.
Adam Farley: Okay, that's helpful. And then looking at the 2026 guide, you know, given some of the more recent increases in metal prices and continued general inflation, I mean, do you think you need to, or maybe already have, been out to the market with additional price increases?
Adam Farley: Okay, that's helpful. And then looking at the 2026 guide, you know, given some of the more recent increases in metal prices and continued general inflation, I mean, do you think you need to, or maybe already have, been out to the market with additional price increases?
Speaker #8: That's helpful. And then looking at the 2026 guide, given some of the more recent increases in metal prices and continued general inflation, I mean, do you think you need to or maybe already have been out to the market with additional price
Speaker #8: increases? Yeah.
Todd Adams: Yeah, I mean, you know, it's certainly something we're watching. You know, we're not oblivious to it, but in the same breath, I think, you know, when you look at what we're doing with our supply chain, you know, our costs are coming down, you know, month by month as we continue to move and leverage the new supply chain base that we've created. That being said, yeah, we've seen and watched metals, and I think it's one of those things where, you know, we'll be as judicious and smart about, you know, any incremental price as we can for our customers and the industry itself.
Todd Adams: Yeah, I mean, you know, it's certainly something we're watching. You know, we're not oblivious to it, but in the same breath, I think, you know, when you look at what we're doing with our supply chain, you know, our costs are coming down, you know, month by month as we continue to move and leverage the new supply chain base that we've created. That being said, yeah, we've seen and watched metals, and I think it's one of those things where, you know, we'll be as judicious and smart about, you know, any incremental price as we can for our customers and the industry itself.
Speaker #7: I mean, it's certainly something we're watching. We're not oblivious to it. But at the same in the same breath, I think when you look at what we're doing with our supply chain, our costs are coming down month by month as we continue to move and leverage the new supply chain base that we've created.
Speaker #7: That being said, yeah, we’ve seen and watched metals. And I think it’s one of those things where we’ll be as judicious and smart about any incremental price as we can for our customers and the industry itself.
Speaker #7: But it is something we're watching. But for the time being, we feel like we're relatively...
Todd Adams: But it is something we're watching, but for the time being, you know, we feel like we're relatively well positioned.
Todd Adams: But it is something we're watching, but for the time being, you know, we feel like we're relatively well positioned.
Adam Farley: Great. Thank you for taking my questions.
Adam Farley: Great. Thank you for taking my questions.
Speaker #8: All right. Thank you for taking my—
Speaker #8: questions. You
Speaker #4: Your next bet. question comes in a line of Mike Hallero, with Bard.
Todd Adams: You bet.
Todd Adams: You bet.
Operator: Your next question comes from the line of Mike Halloran with Baird.
Operator: Your next question comes from the line of Mike Halloran with Baird.
[Analyst] (Baird): Hey, good morning, everybody. This is Pez on for Mike. I wanted to ask about the drinking water business. I know in October the lead and copper rules came out from the EPA, and I know that they did some presentation and educational awareness in November and some tweaks to that plan in December. I'm wondering, is that, do you view that as an accelerant to the drinking water within the institutional, specifically school market? Or do you see that more as helping sustain the healthy trajectory of attachment and acceptance that you've been seeing since the merger?
Pez Saini: Hey, good morning, everybody. This is Pez on for Mike. I wanted to ask about the drinking water business. I know in October the lead and copper rules came out from the EPA, and I know that they did some presentation and educational awareness in November and some tweaks to that plan in December. I'm wondering, is that, do you view that as an accelerant to the drinking water within the institutional, specifically school market? Or do you see that more as helping sustain the healthy trajectory of attachment and acceptance that you've been seeing since the merger?
Speaker #9: Hey, good morning, everybody. This is Pezan for Mike. I wanted to ask about the drinking water business. I know in October, the lead and copper rules came out from the EPA.
Speaker #9: And I know that they did some presentation and educational awareness in November and some tweaks to that plan in December. I'm wondering is that do you view that as an accelerant to the drinking water within the institutional specifically school market?
Speaker #9: Or do you see that more as helping sustain the healthy trajectory of attachment and acceptance that you've been seeing since the merger?
David Pauli: Morning, Pez. I think we view it as helping to sustain. I think things like what the EPA came out with only help to continue to raise the awareness around drinking water and some of the drinking water quality issues that we have here in the US. So whether it's, whether it's lead, whether it's Lead and Copper Rule, whether it's PFAS, microplastics, I think any of the, you know, legislation or pending things that you see around that is only helpful for us. I think it continues the trajectory that we saw and don't see it as an accelerant to what's already out there, but it doesn't hurt the overall drinking water story.
David Pauli: Morning, Pez. I think we view it as helping to sustain. I think things like what the EPA came out with only help to continue to raise the awareness around drinking water and some of the drinking water quality issues that we have here in the US. So whether it's, whether it's lead, whether it's Lead and Copper Rule, whether it's PFAS, microplastics, I think any of the, you know, legislation or pending things that you see around that is only helpful for us. I think it continues the trajectory that we saw and don't see it as an accelerant to what's already out there, but it doesn't hurt the overall drinking water story.
Speaker #1: Morning, Pez. I think we view it as helping to sustain. I think things like what the EPA came out with only help to continue to raise the awareness around drinking water and some of the drinking water quality issues that we have.
Speaker #1: Here in the US, so whether it's lead, whether it's lead and copper rules, whether it's PFAS, microplastics, I think any of the legislation or pending things that you see around that is only helpful for us.
Speaker #1: I think it continues the trajectory that we saw, and I don't see it as an accelerant to what's already out there. But it doesn't hurt the overall drinking water story.
Speaker #9: Yeah, Pez. I mean, the way to think about it is there's it's a relatively new category, bottle filling. And there's 6 million of these drinking fountains installed.
Todd Adams: Yeah, Pez, I mean, the way to think about it is, you know, there's... You know, it's a relatively new category, bottle filling, and, you know, there's 6 million of these drinking fountains installed. And so to the degree, you know, people are more aware and, and, you know, it's gonna, it's gonna help, you know, with that. And, you know, it's got such a long tail on it. I'm not sure that we actually need the acceleration. I think it's just a steady drumbeat of, you know, better products, more awareness, funding at the right times, and, and then, you know, once that installed base continues to grow, the filtration opportunity, you know, compounds from there.
Todd Adams: Yeah, Pez, I mean, the way to think about it is, you know, there's... You know, it's a relatively new category, bottle filling, and, you know, there's 6 million of these drinking fountains installed. And so to the degree, you know, people are more aware and, and, you know, it's gonna, it's gonna help, you know, with that. And, you know, it's got such a long tail on it. I'm not sure that we actually need the acceleration. I think it's just a steady drumbeat of, you know, better products, more awareness, funding at the right times, and, and then, you know, once that installed base continues to grow, the filtration opportunity, you know, compounds from there.
Speaker #9: And so to the degree people are more aware and it's going to help with that. And it's got such a long tail on it.
Speaker #9: I'm not sure that we actually need the acceleration. I think it's just a steady drumbeat of better products, more awareness, funding at the right times, and then once that installed base continues to grow, the filtration opportunity compounds from there.
Todd Adams: And so I, I agree with Dave's comments that I don't know that it accelerates it as much as it just, it's a, it's another down payment on, you know, converting this massive installed base out there.
Todd Adams: And so I, I agree with Dave's comments that I don't know that it accelerates it as much as it just, it's a, it's another down payment on, you know, converting this massive installed base out there.
Speaker #9: And so I agree with Dave's comments that I don't know that it accelerates it as much as it just—it's another down payment on converting this massive installed base out there.
[Analyst] (Baird): Understood. That makes a lot of sense, particularly given the traction that you've already been seeing. You know, when maybe switching gears a little bit, when we take a look at the incremental margin guidance, obviously, execution has been exceptional. You know, the 42% pull-through last year, the supply chain optimization, you know, it feels like that 35% is probably a prudent approach to 2026, and I know that you said that you're taking a similar approach to guidance as you have in the past, trying to remain prudent in mitigating potential risks through the year.
Pez Saini: Understood. That makes a lot of sense, particularly given the traction that you've already been seeing. You know, when maybe switching gears a little bit, when we take a look at the incremental margin guidance, obviously, execution has been exceptional. You know, the 42% pull-through last year, the supply chain optimization, you know, it feels like that 35% is probably a prudent approach to 2026, and I know that you said that you're taking a similar approach to guidance as you have in the past, trying to remain prudent in mitigating potential risks through the year.
Speaker #9: Understood. That makes a lot of sense, particularly given the traction that you've already been seeing. Maybe switching gears a little bit, when we take a look at the incremental margin guidance, obviously, execution has been exceptional.
Speaker #9: The 42% pull-through last year, the supply chain optimization—it feels like that 35% is probably a prudent approach to 2026. And I know that you said that you're taking a similar approach to guidance as you have in the past.
Speaker #9: Trying to remain prudent and mitigating potential risks through the year. As we move forward, do you see an opportunity for that baseline incremental margin to move higher over time?
[Analyst] (Baird): You know, as we move forward, do you see an opportunity for that baseline incremental margin to move higher over time, just given some of the work that you've done on supply chain optimization, the new product innovation, and just the mix of overall business evolution?
Pez Saini: You know, as we move forward, do you see an opportunity for that baseline incremental margin to move higher over time, just given some of the work that you've done on supply chain optimization, the new product innovation, and just the mix of overall business evolution?
Speaker #9: Just given some of the work that you've done on supply chain optimization, the new product innovation, and just the mix of overall business,
Speaker #9: evolution? We
Speaker #7: do. I think we're trying to continue as we've talked about, maybe in the remarks, invest back into the business in organic growth. And so I think when you think about our business today, our fastest-growing categories and products are above the fleet average.
Todd Adams: We do. You know, I think we're trying to continue, as we've talked about, you know, maybe in the remarks, invest back into the business in organic growth. And so, you know, I think when you think about our business today, you know, our fastest-growing categories and products are above the fleet average. So I think there's a mixed weighting that's gonna naturally, you know, raise the overall incremental margin over time, along with, you know, putting some resources and investment back in to grow more. So we feel like 35 is, you know, a baseline that we're very comfortable with, and, you know, all things equal, if we execute like I think we will over the next 2 to 3 years, you know, I think that, yes, the number can move higher for sure.
Todd Adams: We do. You know, I think we're trying to continue, as we've talked about, you know, maybe in the remarks, invest back into the business in organic growth. And so, you know, I think when you think about our business today, you know, our fastest-growing categories and products are above the fleet average. So I think there's a mixed weighting that's gonna naturally, you know, raise the overall incremental margin over time, along with, you know, putting some resources and investment back in to grow more. So we feel like 35 is, you know, a baseline that we're very comfortable with, and, you know, all things equal, if we execute like I think we will over the next 2 to 3 years, you know, I think that, yes, the number can move higher for sure.
Speaker #7: So I think there's a mix waiting that's going to naturally raise the overall incremental margin over time, along with putting some resources and investment back in to grow more.
Speaker #7: So we feel like the 35 is a baseline that we're very comfortable with. And all things equal, if we execute like I think we will over the next two to three years, I think that, yes, the number can move higher for
Speaker #7: sure. Great.
Operator: Great, thanks. I'll pass it on.
Pez Saini: Great, thanks. I'll pass it on.
Speaker #9: Thanks. I'll pass it
Speaker #9: on. Your
Operator: Your next question comes from the line of James Ko with Jefferies.
Operator: Your next question comes from the line of James Ko with Jefferies.
Speaker #4: next question comes in a line of James Coe with
Speaker #4: Jefferies. Good morning.
James Ko: Good morning. Thanks for taking questions here. So I wanted to ask on kind of just, construction industry kind of overall. I mean, you obviously track many different indicators, but data continues to kind of suggest elevated timing pipeline, but the conversion remains weak given kind of declining billing. So what are some tangible signs that you're watching that would suggest inflection point in project conversion here?
James Ko: Good morning. Thanks for taking questions here. So I wanted to ask on kind of just, construction industry kind of overall. I mean, you obviously track many different indicators, but data continues to kind of suggest elevated timing pipeline, but the conversion remains weak given kind of declining billing. So what are some tangible signs that you're watching that would suggest inflection point in project conversion here?
Speaker #10: Thanks for taking questions here. So I wanted to ask on kind of just construction industry, kind of overall. I mean, you obviously track many different indicators, but data continues to kind of suggest elevated planting pipeline.
Speaker #10: But the conversion remains weak given kind of declining billing. So what are some tangible signs that you're watching that would suggest inflection point in project conversion
Speaker #10: here?
Speaker #9: Yeah, I think when we look at
David Pauli: Yeah, I think when we look at it, James, if you go back and some of the information that we shared on our last earnings call, you know, we look at a number of different indices. We specifically highlighted some of the Dodge square foot data. But I think when you look at, you know, the guidance that we gave, the guidance that we gave for 2026 is essentially what we're seeing today. So we're seeing an institutional market that continues to grow, a weaker commercial market, and then a residential market that at the start of 2025, I think we called flat, but ended up being a little bit tougher of an end market.
David Pauli: Yeah, I think when we look at it, James, if you go back and some of the information that we shared on our last earnings call, you know, we look at a number of different indices. We specifically highlighted some of the Dodge square foot data. But I think when you look at, you know, the guidance that we gave, the guidance that we gave for 2026 is essentially what we're seeing today. So we're seeing an institutional market that continues to grow, a weaker commercial market, and then a residential market that at the start of 2025, I think we called flat, but ended up being a little bit tougher of an end market.
Speaker #9: it, James, if you go back and some of the information that we shared on our last earnings call, we look at a number of different indices.
Speaker #9: We specifically highlighted some of the Dodge Square Foot data. But I think, when you look at the guidance that we gave, the guidance that we gave for 2026 is essentially what we're seeing in today.
Speaker #9: So we're seeing an institutional market that continues to grow, a weaker commercial market, and then a residential market that, at the start of 2025—I think we called flat.
Speaker #9: But ended up being a little bit tougher of an end market. And so when you look through what we're seeing in terms of our incoming order rates, what we're seeing in terms of project starts, through our reps across the country, we have a pretty good insight into the level of construction activity that's happening in our comfortable with the guidance that we gave in 2026, looking a lot like what we just saw in
David Pauli: And so when you look through what we're seeing in terms of our incoming order rates, what we're seeing in terms of project starts, through our reps across the country, you know, we have a pretty good insight into the level of construction activity that's happening and are comfortable with, you know, the guidance that we gave in 2026, looking a lot like what we just saw in 2025.
David Pauli: And so when you look through what we're seeing in terms of our incoming order rates, what we're seeing in terms of project starts, through our reps across the country, you know, we have a pretty good insight into the level of construction activity that's happening and are comfortable with, you know, the guidance that we gave in 2026, looking a lot like what we just saw in 2025.
Speaker #9: 2025. Great.
James Ko: Great. Thanks for the color. And I wanted to touch on the drinking water business here again. Can you kind of update us on how filter attachment rate is kind of progressing with the Pro Filtration? And it seems like gallons of filtered water kind of increased, like, mid-single digit in 2025. So how should we think about that in terms of filter sales?
James Ko: Great. Thanks for the color. And I wanted to touch on the drinking water business here again. Can you kind of update us on how filter attachment rate is kind of progressing with the Pro Filtration? And it seems like gallons of filtered water kind of increased, like, mid-single digit in 2025. So how should we think about that in terms of filter sales?
Speaker #10: Thanks for the caller. And I wanted to touch on the drinking water business here again. Can you kind of update us on how filter attachment rate is kind of progressing with the pro-filtration?
Speaker #10: And it seems like gallons of filtered water kind of increase like missing digit in 2025. So how should we think about that in terms of filter?
Speaker #10: sales? Yeah, I think we've
David Pauli: Yeah, I think we've seen good early adoption of Pro Filtration, so that's the product that Todd talked about, the different feature set, and that launched this summer. I think, you know, when you look at that product, the features and benefits that Todd walked through were a direct ask of the consumer, and the maintenance folks that interact with that product every day. And so one of the, one of the nice things about that product is, as we sell it, the attachment rate becomes very high. So we've done some things with a proprietary head that only our filters work in, and also to make the unit work properly, you have to continue to change the filter on a regular interval. And so I think Pro Filtration is only gonna help us in that effort to get the attachment rate as high as possible.
David Pauli: Yeah, I think we've seen good early adoption of Pro Filtration, so that's the product that Todd talked about, the different feature set, and that launched this summer. I think, you know, when you look at that product, the features and benefits that Todd walked through were a direct ask of the consumer, and the maintenance folks that interact with that product every day. And so one of the, one of the nice things about that product is, as we sell it, the attachment rate becomes very high. So we've done some things with a proprietary head that only our filters work in, and also to make the unit work properly, you have to continue to change the filter on a regular interval. And so I think Pro Filtration is only gonna help us in that effort to get the attachment rate as high as possible.
Speaker #9: seen good early adoption of pro-filtration. So that's the product that Todd talked about, the different feature set and that launched this summer. I think when you look at that product, the features and benefits that Todd walked through were a direct ask of the consumer and the maintenance folks that interact with that product every day.
Speaker #9: And so one of the nice things about that product is, as we sell it, the attachment rate becomes very high. So we've done some things with a proprietary head that only our filters work in.
Speaker #9: And also to make the unit work properly, you have to continue to change the filter on a regular interval. And so I think pro-filtration is only going to help us in that effort to get the attachment rate as high as possible.
Speaker #9: And then just from a filtered gallons perspective, yeah, there's some nice growth in terms of actual filtered gallons. And so that stat of us is really how much we know how many filters we've sold.
David Pauli: And then just from a filtered gallons perspective, yeah, there's some nice growth in terms of actual filtered gallons. And so that stat of ours is really how much we know how many filters we've sold, we know the gallons of the associated filter, and what you're seeing is the result of that. And so that's the work that our team's doing every day in terms of getting the latest Pro Filtration spec'd in, and then making sure that we pull through the related filtration along with it.
David Pauli: And then just from a filtered gallons perspective, yeah, there's some nice growth in terms of actual filtered gallons. And so that stat of ours is really how much we know how many filters we've sold, we know the gallons of the associated filter, and what you're seeing is the result of that. And so that's the work that our team's doing every day in terms of getting the latest Pro Filtration spec'd in, and then making sure that we pull through the related filtration along with it.
Speaker #9: We know the gallons of the associated filter. And what you're seeing is the result of that. And so that's the work that our team's doing every day in terms of getting the latest pro-filtration specced in and then making sure that we pull through the related filtration along with
Speaker #9: it. I Great. think it's not a we're not going to measure attachment rate every 30 or 90 days. I think with the recent launch of pro-filtration, and the very, very high attachment rate associated with that, as that becomes a bigger portion of our overall shipments, and as that grows into the installed base, there's without question it's going to pull the overall attachment rate up.
Todd Adams: Great. I think it's, you know, it's not a- we're not gonna measure attachment rate every, you know, 30 or 90 days. I think, you know, with the recent launch of Pro Filtration and the very, very high attachment rate associated with that, as that becomes a bigger portion of our overall shipments, and as that grows into the installed base, there's without question, it's gonna pull the overall attachment rate up. And so I think it's a good question. I think it's something that we're, you know, measuring and, but I don't know that it's a 30 or 90 day sort of thing. Let's get Pro Filtration units into the field over the course of the year.
Todd Adams: Great. I think it's, you know, it's not a- we're not gonna measure attachment rate every, you know, 30 or 90 days. I think, you know, with the recent launch of Pro Filtration and the very, very high attachment rate associated with that, as that becomes a bigger portion of our overall shipments, and as that grows into the installed base, there's without question, it's gonna pull the overall attachment rate up. And so I think it's a good question. I think it's something that we're, you know, measuring and, but I don't know that it's a 30 or 90 day sort of thing. Let's get Pro Filtration units into the field over the course of the year.
Speaker #9: And so I think it's a good question. I think it's something that we're measuring and but I don't know that it's a 30 or 90-day sort of thing.
Speaker #9: Let's get pro-filtration units into the field over the course of the year. We know the attachment rate that is exceptionally high. And as that happens over one, two, and three years, and that compounds I think we see a really good path for
Todd Adams: We know the attachment rate on it is exceptionally high, and as that happens over 1, 2, and 3 years, and that compounds, I think, you know, we see a really good path for filtration.
Todd Adams: We know the attachment rate on it is exceptionally high, and as that happens over 1, 2, and 3 years, and that compounds, I think, you know, we see a really good path for filtration.
Speaker #9: filtration. Your
Operator: Your next question comes from the line of Jeff Hammond with KeyBanc.
Operator: Your next question comes from the line of Jeff Hammond with KeyBanc.
Speaker #4: Next question comes from the line of Jeff Hammond with Key.
Speaker #4: Bank. Hey, good morning, guys.
Jeff Hammond: Hey, good morning, guys.
Jeff Hammond: Hey, good morning, guys.
Operator: Go ahead.
Operator: Go ahead.
Jeff Hammond: Hi, how are you?
Jeff Hammond: Hi, how are you?
Speaker #10: Hi, how are you?
David Pauli: Morning, Jeff.
David Pauli: Morning, Jeff.
Speaker #9: Good Jeff, go ahead. morning, Jeff.
Jeff Hammond: Hey, can you give us price in the fourth quarter and what's embedded in Q1? And then just on your announced pricing for this year, is that kinda in line with back to normal course, or does it contemplate, you know, a higher annual price increase because of, you know, tariffs, you know, new, newer tariffs or, or some of this copper inflation? Thanks.
Jeff Hammond: Hey, can you give us price in the fourth quarter and what's embedded in Q1? And then just on your announced pricing for this year, is that kinda in line with back to normal course, or does it contemplate, you know, a higher annual price increase because of, you know, tariffs, you know, new, newer tariffs or, or some of this copper inflation? Thanks.
Speaker #10: Hey, can you give us price in the fourth quarter and what’s embedded in Q1? And then just on your announced pricing for this year, is that kind of in line with back to normal course, or does it contemplate a higher annual price increase because of tariffs—newer tariffs or some of this copper inflation?
Speaker #9: Yeah, I think any price
Todd Adams: Yeah, I think any price increases that we've put in place this year, Jeff, are sort of back to normal course. Then in terms of, you know, what's in Q4 and what's in the guide, I think Dave will-
Todd Adams: Yeah, I think any price increases that we've put in place this year, Jeff, are sort of back to normal course. Then in terms of, you know, what's in Q4 and what's in the guide, I think Dave will-
Speaker #9: increases that we've put in place this Thanks. year Jeff are sort of back to normal course. And then in terms of what's in Q4 and what's in the guide, I think Dave will.
David Pauli: Yeah, Jeff, I would-
David Pauli: Yeah, Jeff, I would-
Todd Adams: Do that.
Todd Adams: Do that.
David Pauli: Yeah, so Q4 was about 5 points of price, and I think the way to think about price in 2026 is, I'll just walk you through what we experienced in 2025, and 2026 looks like the inverse. So Q1 was light price, Q2, a point or two of price, and then in the back half of 2025, we had 4 to 5 points. And so as it rolls, you know, into 2026, it's almost the exact opposite. You've got 4 to 5 points of price in the beginning, and then starts to lap some of the price increases that we put to the back half of the year.
David Pauli: Yeah, so Q4 was about 5 points of price, and I think the way to think about price in 2026 is, I'll just walk you through what we experienced in 2025, and 2026 looks like the inverse. So Q1 was light price, Q2, a point or two of price, and then in the back half of 2025, we had 4 to 5 points. And so as it rolls, you know, into 2026, it's almost the exact opposite. You've got 4 to 5 points of price in the beginning, and then starts to lap some of the price increases that we put to the back half of the year.
Speaker #9: Yeah, so
Speaker #9: Q4 was about 5 points of price. Yeah, Jeff, I would. I think the way to think about price in 2026 is I'll just walk you through what we experienced in 2025 and 2026 looks like the inverse.
Speaker #9: was light price. Q2, a So Q1 point or two of price. And then in the back half of 2025, we had 4 to 5 points.
Speaker #9: And so as it rolls into 2026, it's almost the exact opposite. You've got 4 to 5 points of price in the beginning. And then starts to lap some of the price increases that we put to the back half of the year.
Speaker #9: And so as it rolls into 2026, it's almost the exact opposite. You've got 4 to 5 points of price in the beginning. And then starts to lap some of the price increases that we put to the back half of the year.
Jeff Hammond: ... Okay, great. And then, as you look at, you know, kind of this, you know, these adjacencies and new products, I remember, you know, back with LK, you were maybe considering, you know, entering that market, and then you bought LK. Like, do you see, and I think, Todd, you mentioned kind of, you know, these organic opportunities lead to inorganic opportunities. Maybe just talk about how you see those, you know, going together and as you look at some of these adjacencies things.
Jeff Hammond: ... Okay, great. And then, as you look at, you know, kind of this, you know, these adjacencies and new products, I remember, you know, back with LK, you were maybe considering, you know, entering that market, and then you bought LK. Like, do you see, and I think, Todd, you mentioned kind of, you know, these organic opportunities lead to inorganic opportunities. Maybe just talk about how you see those, you know, going together and as you look at some of these adjacencies things.
Speaker #10: Okay, great. And then as you look at kind of this these adjacencies and new products, I remember back with LK, you were maybe considering entering that market.
Speaker #10: And then you bought LK. Do you see and I think, Todd, you mentioned kind of these organic opportunities lead to inorganic opportunities. Maybe just talk about how you see those going together as you look at some of these adjacencies.
Speaker #10: Thanks.
Speaker #9: Yeah, it's a good question, Jeff. And it's really grounded in the way we look at our strategic plan. And so as we're going through our work and looking at competitors and markets, and doing the MECOs and evaluating who's there and what would it take to compete and all those things, it launches sort of a dual path, right, of what do we want to prioritize and do internally that may lead to a cultivation and ultimately an M&A opportunity.
Todd Adams: Yeah, it's a good question, Jeff, and it's really grounded in, you know, the way we look at our strategic plan. And so, you know, as we're going through our work and, you know, looking at competitors and markets and doing the Mekko and evaluating, you know, who's there and, you know, what would it take to compete and all those things, it launches sort of a dual path, right? Of, you know, what do we want to prioritize and do internally that may lead to cultivation and ultimately an M&A opportunity. And, you know, we sort of volley those two things, you know, for a while. And then, you know, when there's a decision to go one path or the other, we make it, and we live with it.
Todd Adams: Yeah, it's a good question, Jeff, and it's really grounded in, you know, the way we look at our strategic plan. And so, you know, as we're going through our work and, you know, looking at competitors and markets and doing the Mekko and evaluating, you know, who's there and, you know, what would it take to compete and all those things, it launches sort of a dual path, right? Of, you know, what do we want to prioritize and do internally that may lead to cultivation and ultimately an M&A opportunity. And, you know, we sort of volley those two things, you know, for a while. And then, you know, when there's a decision to go one path or the other, we make it, and we live with it.
Speaker #9: And we sort of volley those two things for a while. And then when there's a decision to go one path or the other, we make it and we live with it.
Speaker #9: And so that's the process that we've used really for a long period of time. And I think as we've I would say expanded our view on what could our SERP market look like, that only creates I would say more optionality for M&A that perhaps maybe we weren't cultivating before.
Todd Adams: So that's the process that we've used really for a long period of time. You know, I think as we've, I would say, expanded, you know, our view on what could our served market look like, that only creates, I would say, more optionality for M&A that perhaps maybe we weren't cultivating before. But we can do it organically as well. So it's a little bit of the same, you know, path that would... that led us to LK, Jeff, as you point out. And so, I think we're excited about it. You know, I think it's, you know, if we can think about our markets being $1 billion or $1.5 billion or $2 billion bigger, that's a big opportunity for us.
Todd Adams: So that's the process that we've used really for a long period of time. You know, I think as we've, I would say, expanded, you know, our view on what could our served market look like, that only creates, I would say, more optionality for M&A that perhaps maybe we weren't cultivating before. But we can do it organically as well. So it's a little bit of the same, you know, path that would... that led us to LK, Jeff, as you point out. And so, I think we're excited about it. You know, I think it's, you know, if we can think about our markets being $1 billion or $1.5 billion or $2 billion bigger, that's a big opportunity for us.
Speaker #9: But we can do it organically as well. So it's a little bit of the same path that led us to LK, Jeff, as you point out.
Speaker #9: And so I think we're excited about it. I think it's if we can think about our markets being a billion or a billion and a half or two billion bigger, that's a big opportunity for us.
Todd Adams: You know, when you think about, can we grow one... You know, 1% is $17 million, 2% is $34 million. So that's a great opportunity for us over the coming years to enhance our underlying organic growth rate, either organically or through an M&A transaction or some sort of transaction that makes a ton of sense because we've already vetted the category, we know the business, we've cultivated it, and so, you know, we're excited about it and optimistic that, you know, that good things will happen as a result.
Speaker #9: And when you think about can we grow 1% is $17 million. 2% is $34 million. So that's a great opportunity for us over the coming years to enhance our underlying organic growth rate.
Todd Adams: You know, when you think about, can we grow one... You know, 1% is $17 million, 2% is $34 million. So that's a great opportunity for us over the coming years to enhance our underlying organic growth rate, either organically or through an M&A transaction or some sort of transaction that makes a ton of sense because we've already vetted the category, we know the business, we've cultivated it, and so, you know, we're excited about it and optimistic that, you know, that good things will happen as a result.
Speaker #9: Either organically or through an M&A transaction or some sort of transaction that makes a ton of sense because we've already vetted the category. We know the business.
Speaker #9: We've cultivated it. And so we're excited about it. And optimistic that good things will happen as a
Jeff Hammond: I look forward to hearing about it.
Jeff Hammond: I look forward to hearing about it.
Speaker #3: Yeah, look forward to hearing from Jeff.
Operator: Your last and final question comes from the line of Brett Linzey with Mizuho. Your line is open.
Operator: Your last and final question comes from the line of Brett Linzey with Mizuho. Your line is open.
Speaker #4: Your last and final question comes from the line of Brett Lindsay with Mizuho. Your line is open.
Brett Linzey: Hey, good, good morning. Just to follow up on the adjacent market strategy. So I understand you don't want to expand too much on the product categories, but maybe just a finer point on the expense or the product development spending you think is required this year as you ramp up and get set for any type of commercialization there.
Brett Linzey: Hey, good, good morning. Just to follow up on the adjacent market strategy. So I understand you don't want to expand too much on the product categories, but maybe just a finer point on the expense or the product development spending you think is required this year as you ramp up and get set for any type of commercialization there.
Speaker #11: Hey, good morning. Just a follow-up on the adjacent market strategy. So I understand you want to expand too much on the product categories. But maybe just a finer point on the expense or the product development spending you think is required this year as you ramp up and get set for any type of commercialization there.
Speaker #9: Yeah, I mean, there was clearly some throughout 2025. There will be more in 2026. It's measured in the millions of dollars for sure. But it's all sort of embedded in sort of that 35 for the year, maybe better.
Todd Adams: Yeah, I mean, there was clearly some throughout 2025. There will be more in 2026. You know, it's measured in the $ millions for sure. But it's all sort of embedded in, you know, sort of that 35 for the year, maybe better. But yeah, it's gonna be one of those things where, you know, we're not gonna specifically call it out, but just know that it's, you know, it's $ millions in 2025, and it'll be $ millions in 2026 as well.
Todd Adams: Yeah, I mean, there was clearly some throughout 2025. There will be more in 2026. You know, it's measured in the $ millions for sure. But it's all sort of embedded in, you know, sort of that 35 for the year, maybe better. But yeah, it's gonna be one of those things where, you know, we're not gonna specifically call it out, but just know that it's, you know, it's $ millions in 2025, and it'll be $ millions in 2026 as well.
Speaker #9: But yeah, it's going to be one of those things where we're not going to specifically call it out, but just know that it's millions of dollars.
Speaker #9: In '25, and it'll be millions of dollars in '26 as well.
Brett Linzey: Got it. Thanks. And then, just to follow up on data centers. So currently not a big market for Zurn. We're seeing orders accelerate as we exit 2025. Is this a growing focus for the company internally? And I guess, what is your right to play and win in that vertical, whether it's drainage or filtration and, you know, other addressable opportunities? Any color would be great.
Brett Linzey: Got it. Thanks. And then, just to follow up on data centers. So currently not a big market for Zurn. We're seeing orders accelerate as we exit 2025. Is this a growing focus for the company internally? And I guess, what is your right to play and win in that vertical, whether it's drainage or filtration and, you know, other addressable opportunities? Any color would be great.
Speaker #11: Got it. Thanks. And then just a follow-up on data centers. So currently not a big market for Zurn. We're seeing orders accelerate as we exit '25.
Speaker #11: Is this a growing focus for the company internally? And I guess what is your right to play and win in that vertical, whether it's drainage or filtration and other addressable opportunities, any color would be great.
Speaker #9: Yeah, it's funny because we have I would say the commencer amount of content in a data center as we do in anything else. So.
Todd Adams: Yeah, you know, it's funny because, you know, we have a, I would say, the commensurate amount of content in a data center as we do in anything else. So when you think about a commercial building that requires lots of water, plumbing, drainage, to either heat or cool or provide fire protection, you know, we do participate. And I know, I know some people have, you know, questioned whether or not we're in it at all. We absolutely are. It's absolutely growing quickly for us. Do I ever see it being, you know, a wedge in our pie? Perhaps not. But nonetheless, it's clearly, it's clearly a growth category for us. We have a great suite of products that, you know, we compete with others that are in the space.
Todd Adams: Yeah, you know, it's funny because, you know, we have a, I would say, the commensurate amount of content in a data center as we do in anything else. So when you think about a commercial building that requires lots of water, plumbing, drainage, to either heat or cool or provide fire protection, you know, we do participate. And I know, I know some people have, you know, questioned whether or not we're in it at all. We absolutely are. It's absolutely growing quickly for us. Do I ever see it being, you know, a wedge in our pie? Perhaps not. But nonetheless, it's clearly, it's clearly a growth category for us. We have a great suite of products that, you know, we compete with others that are in the space.
Speaker #9: commercial building that requires lots of water, So when you think about a plumbing, drainage, to either heat or cool, or provide fire protection, we do participate.
Speaker #9: And I know some people have questioned whether or not we're in it at all. We absolutely are. It's absolutely growing quickly for us. Do I ever see it being a wedge in our pie?
Speaker #9: Perhaps not. But nonetheless, it's clearly a growth category for us. We have a great suite of products that we compete with others that are in the space.
Todd Adams: We don't have the heating or the cooling, but we've got everything else that touches water, and so, I think we're doing quite well there. And, you know, it certainly is helping us, as we've, you know, exit 2025 and grow into 2026.
Speaker #9: We don't have the heating or the cooling, but we've got everything else that touches water. And so I think we're doing quite well there.
Todd Adams: We don't have the heating or the cooling, but we've got everything else that touches water, and so, I think we're doing quite well there. And, you know, it certainly is helping us, as we've, you know, exit 2025 and grow into 2026.
Speaker #9: And it certainly is helping us as we've exited '25 and grow into '26.
Speaker #11: Got it. Thanks for the detail.
Brett Linzey: Got it. Thanks for the detail.
Brett Linzey: Got it. Thanks for the detail.
Speaker #9: Yep.
Todd Adams: Yep.
Todd Adams: Yep.
Speaker #4: I will now turn the call back over to David Pauly for closing remarks.
Operator: I will now turn the call back over to David Pauli for closing remarks.
Operator: I will now turn the call back over to David Pauli for closing remarks.
Speaker #9: Thanks, everyone, for joining us today. We appreciate your interest in Zurn LK Water Solutions, and we look forward to providing our next update when we announced our March quarter results in late April.
Jeff Hammond: Thanks, everyone, for joining us today. We appreciate your interest in Zurn Elkay Water Solutions, and we look forward to providing our next update when we announce our March quarter results in late April. Have a good day, everyone.
David Pauli: Thanks, everyone, for joining us today. We appreciate your interest in Zurn Elkay Water Solutions, and we look forward to providing our next update when we announce our March quarter results in late April. Have a good day, everyone.
Speaker #9: Have a good day, everyone.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
