Investor call scheduled for Wednesday, April 24, 2024 at 8:30
a.m. Eastern Time
Zurn Elkay Water Solutions Corporation (NYSE:ZWS):
First Quarter Highlights
- Net sales in the quarter were $374 million compared with $372
million in last year’s March quarter (core sales(1) were flat
inclusive of a 400 basis point impact from executed product line
exits).
- Net income from continuing operations was $34 million (diluted
EPS from continuing operations of $0.19) compared with net income
from continuing operations of $23 million (diluted EPS from
continuing operations of $0.13) in the year-ago quarter.
- Adjusted EPS(1) was $0.29 compared with $0.18 in the year-ago
quarter.
- Adjusted EBITDA(1) was $90 million (24.1% of net sales)
compared with $72 million (19.5% of net sales) in last year's first
quarter.
- Net debt leverage(1) of 0.9x as of March 31, 2024.
- Deployed $19 million to repurchase 0.6 million shares of common
stock in the quarter.
Todd A. Adams, Chairman and Chief Executive Officer, commented,
“We had a solid start to the year as our first quarter growth,
profitability, and free cash flow(1) each exceeded our expectations
heading into the quarter. Our first quarter pro forma core(1)
growth of 4% tracked modestly ahead of what we thought, with the
benefits of some of our strategic growth initiatives positively
impacting our growth with underlying market conditions performing
very much in line with our expectations. From a profitability
perspective, our adjusted EBITDA(1) grew 24% year over year and our
margin of 24.1% improved by 460 basis points over the prior year.
These first quarter margins are reflective of the new, higher
baseline we expect to deliver from moving forward as a result of
the synergies realized from the Elkay combination and the
compounding benefits we capture through the deployment of the Zurn
Elkay Business System day in and day out. With a strong start to
the year of $50 million in free cash flow(1), we repurchased $19
million of shares in the quarter while leaving ourselves
significant balance sheet optionality as our net debt leverage(1)
ended at an all-time low of 0.9x.”
"In February we published our 2023 Sustainability Report.
Sustainability is inherently linked to our business and at the core
of it is our role as a water steward and helping our customers
advance and achieve their sustainability goals. The 2023 report
highlights our progress against nearly two dozen existing targets
and establishes new targets for air emissions, employee training,
and waste reduction. We are committed and excited to build on the
momentum we have around sustainability as a company.”
Second Quarter Outlook
“Based on demand trends as we exited the first quarter and the
month of April, we believe net sales for the second quarter will be
up low single digits on a pro forma core(1) basis and adjusted
EBITDA(1) margin will be between 24.5% and 25.0%. For the full year
outlook we continue to have confidence in our ability to drive
growth in 2024 and deliver $250 million of free cash flow(1). We
are increasing our full year adjusted EBITDA(1) margin expectation
to now deliver approximately 150 bps to 200 bps of year over year
adjusted EBITDA(1) margin expansion."
First Quarter 2024
Overview
Net sales were $373.8 million and $372.1 million during the
three months ended March 31, 2024 and March 31, 2023, respectively,
an increase of 0.5% year over year. Core sales(1) were flat year
over year as core sales(1) growth across nearly all product
categories was offset by the 400 basis point impact from the
planned exit of certain residential sink products.
During the three months ended March 31, 2024, income from
operations was $53.2 million compared to $43.7 million during the
three months ended March 31, 2023. Income from operations as a
percentage of net sales increased by 250 basis points year over
year due to the benefits resulting from productivity synergies and
restructuring actions related to the Elkay Merger, as well as lower
material and transportation costs, partially offset by higher
restructuring expense year over year.
Adjusted EBITDA(1) was $90.0 million, or 24.1% of net sales,
during the three months ended March 31, 2024 compared to $72.4
million, or 19.5% of net sales, during the three months ended March
31, 2023.
(1) Refer to "Non-GAAP Financial Measures"
for a definition of this non-GAAP metric, as well as the
accompanying reconciliations to GAAP.
Non-GAAP Financial Measures
The following non-GAAP financial measures are utilized by
management in comparing our operating performance on a consistent
basis. We believe that these financial measures are appropriate to
enhance an overall understanding of our underlying operating
performance trends compared to historical and prospective periods
and our peers. Management also believes that these measures are
useful to investors in their analysis of our results of operations
and provide improved comparability between fiscal periods as well
as insight into the compliance with our debt covenants. Non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for, financial information calculated in accordance
with GAAP. Investors are encouraged to review the reconciliation of
these non-GAAP measures to their most directly comparable GAAP
financial measures. A reconciliation of non-GAAP financial measures
presented above to our GAAP results has been provided in the
financial tables included in this press release.
Core Sales
Core sales excludes the impact of acquisitions, divestitures and
foreign currency translation. Management believes that core sales
facilitates easier and more meaningful comparison of our net sales
performance with prior and future periods and to our peers. We
exclude the effect of acquisitions and divestitures because the
nature, size and number of acquisitions and divestitures can vary
dramatically from period to period and between us and our peers,
and can also obscure underlying business trends and make
comparisons of long-term performance difficult. We exclude the
effect of foreign currency translation from this measure because
the volatility of currency translation is not under management's
control. Further, management uses "pro forma core sales", defined
as reported sales less the impact of acquisitions, divestitures,
foreign currency translation, and product line exits, as a measure
of our financial performance that is more relevant when evaluating
us against peers.
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted net income and adjusted earnings per share (calculated
on a diluted basis) exclude actuarial gains and losses on pension
and postretirement benefit obligations, restructuring and other
similar charges, gains or losses on divestitures, discontinued
operations, gains or losses on extinguishment of debt, the impact
of acquisition-related fair value adjustments in connection with
purchase accounting, amortization of intangible assets, the
adjustment to state inventories at last-in first-out costs, and
other non-operational, non-cash or non-recurring losses, net of
their income tax impact. The tax rates used to calculate adjusted
net income and adjusted earnings per share are based on a
transaction specific basis. We believe that adjusted net income and
adjusted earnings per share are useful in assessing our financial
performance by excluding items that are not indicative of our core
operating performance or that may obscure trends useful in
evaluating our continuing results of operations.
EBITDA
EBITDA represents earnings from continuing operations before
interest and other debt related activities, taxes, depreciation and
amortization. EBITDA is presented because it is an important
supplemental measure of performance and it is frequently used by
analysts, investors and other interested parties in the evaluation
of companies in our industry. EBITDA is also presented and compared
by analysts and investors in evaluating our ability to meet debt
service obligations. Other companies in our industry may calculate
EBITDA differently. EBITDA is not a measurement of financial
performance under GAAP and should not be considered as an
alternative to cash flow from operating activities or as a measure
of liquidity or an alternative to net income as indicators of
operating performance or any other measures of performance derived
in accordance with GAAP. Because EBITDA is calculated before
recurring cash charges, including interest expense and taxes, and
is not adjusted for capital expenditures or other recurring cash
requirements of the business, it should not be considered as a
measure of discretionary cash available to invest in the growth of
the business.
Adjusted EBITDA
“Adjusted EBITDA” is the term we use to describe EBITDA as
defined and adjusted in our credit agreement, which is net income,
adjusted for the items summarized in the Reconciliation of GAAP to
Non-GAAP Financial Measures table below. Adjusted EBITDA is
intended to show our unleveraged, pre-tax operating results and
therefore reflects our financial performance based on operational
factors, excluding non-operational, non-cash or non-recurring
losses or gains. In view of our debt level, it is also provided to
aid investors in understanding our compliance with our debt
covenants. Adjusted EBITDA is not a presentation made in accordance
with GAAP, and our use of the term Adjusted EBITDA varies from
others in our industry. Adjusted EBITDA should not be considered as
an alternative to net income, income from operations or any other
performance measures derived in accordance with GAAP. Adjusted
EBITDA has important limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for,
analysis of our results as reported under GAAP. For example,
Adjusted EBITDA does not reflect: (a) our capital expenditures,
future requirements for capital expenditures or contractual
commitments; (b) changes in, or cash requirements for, our working
capital needs; (c) the significant interest expenses, or the cash
requirements necessary to service interest or principal payments,
on our debt; (d) tax payments that represent a reduction in cash
available to us; (e) any cash requirements for the assets being
depreciated and amortized that may have to be replaced in the
future; or (f) the impact of earnings or charges resulting from
matters that we and the lenders under our credit agreement may not
consider indicative of our ongoing operations. In particular, our
definition of Adjusted EBITDA allows us to add back certain
non-cash, non-operating or non-recurring charges that are deducted
in calculating net income, even though these are expenses that may
recur, vary greatly and are difficult to predict and can represent
the effect of long-term strategies as opposed to short-term
results. “Adjusted EBITDA Margin” is the term we use to describe
Adjusted EBITDA divided by net sales.
In addition, certain of these expenses can represent the
reduction of cash that could be used for other corporate purposes.
Further, although not included in the calculation of Adjusted
EBITDA below, the measure may at times allow us to add estimated
cost savings and operating synergies related to operational changes
ranging from acquisitions to dispositions to restructurings and/or
exclude one-time transition expenditures that we anticipate we will
need to incur to realize cost savings before such savings have
occurred. Further, management and various investors use the ratio
of total debt less cash to Adjusted EBITDA (which includes a full
pro forma last-twelve-month impact of acquisitions), or "net debt
leverage", as a measure of our financial strength and ability to
incur incremental indebtedness when making key investment decisions
and evaluating us against peers. Lastly, management and various
investors use the ratio of the change in Adjusted EBITDA divided by
the change in net sales (referred to as “incremental margin” in the
case of an increase in net sales or “decremental margin” in the
case of a decrease in net sales) as an additional measure of our
financial performance and when making key investment decisions and
evaluating us against peers.
Free Cash Flow
We define Free Cash Flow as cash flow from operations less
capital expenditures, and we use this metric in analyzing our
ability to service and repay our debt and to forecast future
periods. However, this measure does not represent funds available
for investment or other discretionary uses since it does not deduct
cash used to service our debt. We define Free Cash Flow Conversion
as Free Cash Flow divided by net income.
Return on Invested Capital (“ROIC”)
ROIC is used because we believe it is an important supplemental
measure of financial performance and it is also currently a
performance measure under our long-term incentive plan. ROIC is
frequently used by analysts, investors and other interested parties
in the evaluation of companies in our industry. ROIC is also used
by investors and analysts to evaluate management’s deployment of
capital to create shareholder value. We define ROIC as tax-effected
net operating income for the last 12 months divided by average
total invested capital over a rolling four-quarter period. Total
invested capital is defined as shareholders equity plus debt, less
cash and cash equivalents. Other companies may not define or
calculate ROIC in the same way.
About Zurn Elkay Water Solutions
Headquartered in Milwaukee, Wisconsin, Zurn Elkay Water
Solutions is a growth-oriented, pure-play water management business
that designs, procures, manufactures, and markets what we believe
to be the broadest sustainable product portfolio of
specification-driven water management solutions to improve health,
hydration, human safety and the environment. The Zurn Elkay product
portfolio includes professional grade water safety and control
products, flow systems products, hygienic and environmental
products, and filtered drinking water products for public and
private spaces. Additional information about Zurn Elkay Water
Solutions can be found at www.zurnelkay.com.
Conference Call Details
Zurn Elkay Water Solutions will hold a conference call and
webcast presentation on Wednesday, April 24, 2024, at 8:30 a.m.
Eastern Time to discuss its first quarter 2024 results, provide a
general business update and respond to investor questions. Zurn
Elkay Water Solutions Chairman and CEO, Todd Adams, and Senior Vice
President and CFO, Mark Peterson, will co-host the call and
webcast. The conference call can be accessed via telephone as
follows:
Domestic toll-free: 800-715-9871
International toll: 646-307-1963 Access Code: 6071902
A live webcast of the call will also be available on the
Company's investor relations website. Please go to the website
(investors.zurnelkay.com) at least 15 minutes prior to the start of
the call to register, download and install any necessary audio
software.
If you are unable to participate during the live teleconference,
a replay of the conference call will be available as a webcast on
the Company's investor relations website.
Cautionary Statement on Forward-Looking Statements
Information in this release may involve outlook, expectations,
beliefs, plans, intentions, strategies or other statements
regarding the future, which are forward-looking statements. These
forward-looking statements involve risks and uncertainties. All
forward-looking statements included in this release are based on
information available to Zurn Elkay Water Solutions as of the date
of this release, and Zurn Elkay Water Solutions assumes no
obligation to update any such forward-looking statements. The
statements in this release are not guarantees of future
performance, and actual results could differ materially from
current expectations. Numerous factors could cause or contribute to
such differences. Please refer to “Risk Factors” and “Cautionary
Notice Regarding Forward-Looking Statements” in our report on Form
10-K for the period ended December 31, 2023, as well as the
Company’s subsequent annual, quarterly and current reports filed on
Forms 10-K, 10-Q and 8-K from time to time with the Securities and
Exchange Commission for a further discussion of the factors and
risks associated with the business.
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Operations
(in Millions, except share and
per share amounts)
(Unaudited)
Three Months Ended
March 31, 2024
March 31, 2023
Net sales
$
373.8
$
372.1
Cost of sales
203.7
223.3
Gross profit
170.1
148.8
Selling, general and administrative
expenses
95.9
88.5
Restructuring and other similar
charges
6.3
1.9
Amortization of intangible assets
14.7
14.7
Income from operations
53.2
43.7
Non-operating expense:
Interest expense, net
(8.8
)
(9.6
)
Other expense, net
(1.4
)
(2.4
)
Income before income taxes
43.0
31.7
Provision for income taxes
(9.0
)
(9.1
)
Net income from continuing operations
34.0
22.6
Income from discontinued operations, net
of tax
0.3
0.2
Net income
$
34.3
$
22.8
Basic net income per share:
Continuing operations
$
0.20
$
0.13
Net income
$
0.20
$
0.13
Diluted net income per share:
Continuing operations
$
0.19
$
0.13
Net income
$
0.19
$
0.13
Weighted-average number of shares
outstanding (in thousands):
Basic
173,009
176,416
Effect of dilutive equity awards
2,670
1,969
Diluted
175,679
178,385
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended March 31,
2024
(in Millions)
(Unaudited)
Three Months Ended March 31,
2024
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
373.8
$
—
$
373.8
EBITDA
74.8
15.2
(a)
90.0
Depreciation and amortization
(21.6
)
—
(21.6
)
Income from operations
53.2
15.2
(b)
68.4
Income before income taxes
43.0
21.3
(c)
64.3
Provision for income taxes and indicated
rate
(9.0
)
20.9
%
(5.1
)
23.9
%
(14.1
)
21.9
%
Net income from continuing operations
34.0
16.2
50.2
Income from discontinued operations, net
of tax
0.3
(0.3
)
—
Net income
$
34.3
$
15.9
$
50.2
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
6.3
$
6.3
$
6.3
Other, net (1)
0.2
0.2
0.2
Last-in-first-out inventory
adjustments
(1.3
)
(1.3
)
(1.3
)
Stock-based compensation expense
10.0
10.0
—
Amortization of intangible assets
—
—
14.7
Other expense, net (2)
—
—
1.4
Total Adjustments
$
15.2
$
15.2
$
21.3
____________________
(1) Other, net includes the gains and losses from the disposition
of long-lived assets. (2) Other expense, net for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions, the non-service cost components of net
periodic benefit costs associated with our defined benefit plans
and other non-operational gains and losses.
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended March 31,
2023
(in Millions)
(Unaudited)
Three Months Ended March 31,
2023
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
372.1
$
—
$
372.1
EBITDA
66.5
5.9
(a)
72.4
Depreciation and amortization
(22.8
)
—
(22.8
)
Income from operations
43.7
5.9
(b)
49.6
Income before income taxes
31.7
12.7
(c)
44.4
Provision for income taxes and indicated
rate
(9.1
)
28.7
%
(3.1
)
24.4
%
(12.2
)
27.5
%
Net income from continuing operations
22.6
9.6
32.2
Income from discontinued operations, net
of tax
0.2
(0.2
)
—
Net income
$
22.8
$
9.4
$
32.2
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
1.9
$
1.9
$
1.9
Last-in-first-out inventory
adjustments
(6.3
)
(6.3
)
(6.3
)
Stock-based compensation expense
10.3
10.3
—
Amortization of intangible assets
—
—
14.7
Other expense, net (1)
—
—
2.4
Total Adjustments
$
5.9
$
5.9
$
12.7
____________________
(1) Other expense, net for the periods indicated, consists
primarily of gains and losses from foreign currency transactions,
the non-service cost components of net periodic benefit costs
associated with our defined benefit plans and other non-operational
gains and losses.
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended March 31,
2024 and March 31, 2023
(in Millions, except share and
per share amounts) (Unaudited)
Three Months Ended
Adjusted EBITDA
March 31, 2024
March 31, 2023
Net income
$
34.3
$
22.8
Income from discontinued operations, net
of tax
(0.3
)
(0.2
)
Provision for income taxes
9.0
9.1
Other expense, net (1)
1.4
2.4
Interest expense, net
8.8
9.6
Income from operations
$
53.2
$
43.7
Adjustments
Depreciation and amortization
$
21.6
$
22.8
Restructuring and other similar
charges
6.3
1.9
Stock-based compensation expense
10.0
10.3
Last-in first-out inventory
adjustments
(1.3
)
(6.3
)
Other, net (2)
0.2
—
Subtotal of adjustments
36.8
28.7
Adjusted EBITDA
$
90.0
$
72.4
____________________
(1) Other expense, net for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions, the non-service cost components of net
periodic benefit costs associated with our defined benefit plans
and other non-operational gains and losses.
(2) Other, net includes the gains and
losses from disposition of long-lived assets.
Three Months Ended
Adjusted Net Income and Earnings Per
Share
March 31, 2024
March 31, 2023
Net income attributable to Zurn Elkay
common stockholders
$
34.3
$
22.8
Income from discontinued operations, net
of tax
(0.3
)
(0.2
)
Amortization of intangible assets
14.7
14.7
Restructuring and other similar
charges
6.3
1.9
Last-in first-out inventory adjustment
(1.3
)
(6.3
)
Other expense, net (1)
1.4
2.4
Other, net (2)
0.2
—
Tax effect on above items
(5.1
)
(3.1
)
Adjusted net income
$
50.2
$
32.2
GAAP diluted net income per share from
continuing operations
$
0.19
$
0.13
Adjusted earnings per share - diluted
$
0.29
$
0.18
Weighted-average number of shares
outstanding (in thousands)
GAAP basic weighted-average shares
173,009
176,416
Effect of dilutive equity securities
2,670
1,969
Adjusted diluted weighted-average
shares
175,679
178,385
____________________
(1) Other expense, net for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions, the non-service cost components of net
periodic benefit costs associated with our defined benefit plans
and other non-operational gains and losses.
(2) Other, net includes the gains and
losses from the disposition of long-lived assets.
Three Months Ended
March 31, 2024
March 31, 2023
Cash provided by operating activities
$
53.9
$
5.0
Expenditures for property, plant and
equipment
(3.7
)
(5.2
)
Free cash flow
$
50.2
$
(0.2
)
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Comprehensive Income
(in Millions)
(Unaudited)
Three Months Ended
March 31, 2024
March 31, 2023
Net income
$
34.3
$
22.8
Other comprehensive loss:
Foreign currency translation
adjustments
(2.5
)
(0.1
)
Other comprehensive loss, net of tax
(2.5
)
(0.1
)
Total comprehensive income
$
31.8
$
22.7
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated Balance
Sheets
(in Millions, except share
amounts)
(Unaudited)
March 31, 2024
December 31, 2023
Assets
Current assets:
Cash and cash equivalents
$
157.1
$
136.7
Receivables, net
222.9
210.2
Inventories, net
286.6
277.6
Income taxes receivable
7.6
17.0
Other current assets
22.3
26.3
Total current assets
696.5
667.8
Property, plant and equipment, net
171.5
180.3
Intangible assets, net
937.2
952.4
Goodwill
794.3
796.0
Other assets
64.7
70.5
Total assets
$
2,664.2
$
2,667.0
Liabilities and stockholders'
equity
Current liabilities:
Current maturities of debt
$
0.9
$
0.9
Trade payables
70.2
56.4
Compensation and benefits
15.2
30.5
Current portion of pension and
postretirement benefit obligations
1.3
1.3
Other current liabilities
123.0
131.8
Total current liabilities
210.6
220.9
Long-term debt
494.5
494.4
Pension and postretirement benefit
obligations
37.4
36.6
Deferred income taxes
209.2
210.0
Operating lease liability
34.7
37.3
Other liabilities
63.9
65.0
Total liabilities
1,050.3
1,064.2
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000
shares authorized; shares issued and outstanding: 172,868,217 at
March 31, 2024 and 172,262,163 at December 31, 2023
1.7
1.7
Additional paid-in capital
2,845.2
2,847.0
Retained deficit
(1,162.8
)
(1,178.2
)
Accumulated other comprehensive loss
(70.2
)
(67.7
)
Total stockholders' equity
1,613.9
1,602.8
Total liabilities and stockholders'
equity
$
2,664.2
$
2,667.0
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in Millions)
(Unaudited)
Three Months Ended
March 31, 2024
March 31, 2023
Operating activities
Net income
$
34.3
$
22.8
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation
6.9
8.1
Amortization of intangible assets
14.7
14.7
Non-cash restructuring charges
5.2
—
Loss on dispositions of long-lived
assets
0.2
—
Deferred income taxes
(0.8
)
0.9
Other non-cash expenses
1.3
0.3
Stock-based compensation expense
10.0
10.3
Changes in operating assets and
liabilities:
Receivables, net
(13.1
)
(3.2
)
Inventories
(9.3
)
(4.2
)
Other assets
16.8
12.4
Accounts payable
13.9
(33.0
)
Accruals and other
(26.2
)
(24.1
)
Cash provided by operating activities
53.9
5.0
Investing activities
Expenditures for property, plant and
equipment
(3.7
)
(5.2
)
Proceeds from dispositions of long-lived
assets
1.6
—
Cash used for investing activities
(2.1
)
(5.2
)
Financing activities
Proceeds from borrowings of debt
—
13.0
Repayments of debt
(0.2
)
(14.6
)
Proceeds from exercise of stock
options
2.1
0.6
Repurchase of common stock
(18.9
)
(37.0
)
Payment of common stock dividends
(13.9
)
(12.3
)
Cash used for financing activities
(30.9
)
(50.3
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(0.5
)
0.5
Increase (decrease) in cash, cash
equivalents and restricted cash
20.4
(50.0
)
Cash, cash equivalents and restricted cash
at beginning of period
136.7
124.8
Cash, cash equivalents and restricted cash
at end of period
$
157.1
$
74.8
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240423566496/en/
Dave Pauli Vice President - Investor Relations 414.223.7770
Zurn Elkay Water Solutions (NYSE:ZWS)
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From May 2024 to Jun 2024
Zurn Elkay Water Solutions (NYSE:ZWS)
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From Jun 2023 to Jun 2024