Welcome, and thank you for joining us. Today's conference is being recorded. If you have any objections, you may disconnect now. I will now hand the call over to Whit Kincaid. Please proceed.

Good morning, everyone. Thank you for joining us for Mueller Water Products Third Quarter Conference Call. Yesterday afternoon, we issued our press release reporting results of operations for the quarter ended June 30, 2025. A copy of the press release is available on our website, muellerwaterproducts.com. I'm joined this morning by Martie Zakas, our Chief Executive Officer; Paul McAndrew, our President and Chief Operating Officer; and Melissa Rasmussen, our Chief Financial Officer. Following our prepared remarks, we will address questions related to the information covered on the call. As a reminder, please keep to one question and a follow-up and then return to the queue. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website to accompany today's discussion. They also address forward-looking statements and our non-GAAP disclosure requirements. At this time, please refer to Slide 2. This slide identifies non-GAAP financial measures referenced in our press release, on our slides and on this call. It discloses the reasons we believe that these measures provide useful information to investors. Reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide 3 addresses forward-looking statements made on this call. This slide includes cautionary information identifying important factors that could cause actual results to differ materially from those included in forward-looking statements. Please review Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter, unless specified otherwise, refer to our fiscal year, which ends the 30th of September. A replay of this morning's call will be available for 30 days at 1 (866) 470-4775. The archived webcast and corresponding slides will be available for at least 90 days on the Investor Relations section of our website. I'll now turn the call over to Martie.

Thanks, Whit. Good morning, everyone. Thank you for joining our third quarter earnings call. I'll start with a brief overview of our performance and then turn it over to Paul. We achieved an impressive third quarter, setting new records for consolidated net sales, gross margin and adjusted EBITDA even amidst heightened macroeconomic and geopolitical uncertainty. Net sales increased 6.6% in the quarter, supported by resilient end markets and strong performance for repair products. Our gross margin exceeded 38% this quarter, reflecting a significant sequential improvement of 320 basis points. Our teams executed well, capitalizing on higher-than-expected order levels and driving manufacturing efficiencies despite the challenges posed by the recently enacted tariffs. We are pleased with the expected positive impact of closing our legacy brass foundry, which has contributed to our overall success. Adjusted EBITDA and net income per diluted share both achieved third quarter records. During the quarter, we generated $56 million of free cash flow after investing approximately $12 million in capital expenditures. We continued our balanced approach to cash allocation, returning approximately $20 million to shareholders through our quarterly dividend and share repurchases. We are on track for record annual results for the second consecutive year and are pleased to be raising our annual guidance for 2025 net sales and adjusted EBITDA. Our teams are skillfully navigating the challenging external operating environment while maintaining an unwavering commitment to exceptional customer service. Their successful execution of commercial, supply chain and operational initiatives is effectively mitigating the impact of the enacted tariffs and enhancing our manufacturing efficiencies. Our updated annual guidance points to a strong finish for the year, supported by net sales growth and margin improvement. We recently published our annual ESG report, sharing our ongoing progress to becoming a more sustainable, innovative and impactful organization. The report provides a lens into many aspects of our business, including our products, operations, culture and employees. Throughout our history, we have been working to support and enhance our sustainability efforts while creating innovative solutions that help solve real-world problems for our customers, communities and industries. What started as a small machine shop in Decatur, Illinois in 1857 has turned into a trusted name, iconic brand and leader in water distribution. Some of the notable achievements from 2024 include ushering in a new era of production with the opening of our brass foundry using a new silicon-based lead-free brass alloy for valves and fittings. We achieved our leak detection target early, successfully identifying an estimated 7.7 billion gallons of water loss savings for clients through our EchoShore leak detection technology since 2020. We have increased the target to help clients identify a total of 18 billion gallons of water loss by 2029 using 2020 as the baseline. These two accomplishments represent only a small selection of the significant milestones achieved throughout Mueller's extensive and impressive history. Our vision is to be the leader in water infrastructure solutions, solving challenges, enriching lives and safeguarding the future. Looking ahead, we aim to drive continuing progress through our innovative solutions that help solve real-world problems for our customers, communities and industries alike. We recognize the significant challenges ahead, but with our rich history, spirit of innovation and dedicated employees, we have shown that we are more than capable of addressing them. The hard work and dedication of our employees have been and will continue to be the driving force behind our success. I couldn't be more grateful for their tireless energy and passion in serving our stakeholders. With that, I'll turn it over to Paul.

Thanks, Martie. Good morning, everyone. As Martie mentioned, our teams delivered an outstanding performance this quarter while managing through an increased level of uncertainty, like the recently implemented tariffs. We achieved a record quarterly gross margin with more than 300 basis points of improvement versus the second quarter. We are seeing benefits from our ongoing investments in our business with improved performance and enhanced customer experience, which contributed to healthy order levels across most product lines compared with the prior year. As expected, we saw a sequential benefit from improved efficiencies associated with our brass foundry transition. We remain confident in the gains that we will see from the closure of the legacy brass foundry in the fourth quarter and next year. The external environment remains highly uncertain, especially as it relates to tariffs and the potential impact on broader inflation and end market demand. While the newly enacted tariffs that phased in during the third quarter contributed to unfavorable price/cost, the impact was lower than our initial expectations. Last quarter, we provided an overview of our manufacturing and supply chain footprint, along with our current view of the announced tariffs. I am pleased to share that our updated estimates for the annualized tariff impact decreased to approximately 3% to 4% of our cost of sales, mainly due to reduced China-related tariffs and supply chain initiatives. This estimate does not include any potential copper-related tariff impacts. As discussed last quarter, we have implemented targeted pricing actions for specialty valve and repair products, and we continue to expect to see these benefits starting in the fourth quarter. In addition to implementing targeted pricing actions, our teams continue to execute supply chain and operational initiatives to help mitigate the tariffs. We are working closely with our suppliers, channel partners and end customers to monitor the situation. We remain prepared to take additional pricing actions to offset higher input costs as needed. As Martie mentioned, our updated annual guidance positions us to deliver record results for a second consecutive year. I am extremely excited about the progress our teams have made so far and what they can achieve going forward. We see opportunities to further strengthen and grow the business by delivering outstanding customer service, improving operational excellence, increasing supply chain efficiencies and developing advanced manufacturing capabilities to drive productivity across all of our facilities. With that, I'll turn it over to Melissa, so she can take you through the financials.

Thanks, Paul, and good morning, everyone. We are pleased to report another strong quarter. Consolidated net sales increased 6.6% to $380.3 million, surpassing the strong third quarter net sales delivered last year. The growth was primarily due to higher volumes and pricing across most product lines, resulting in a new quarterly record for net sales with both segments contributing meaningfully. In the quarter, gross profit of $145.7 million increased 10.9% year-over-year, and gross margin expanded 150 basis points to 38.3%. These improvements were driven by manufacturing efficiencies and increased volumes, which more than offset the impact of higher tariffs. Excluding the tariffs mainly associated with specialty valves and repair products, our price/cost was favorable. We are pleased with the 320-basis point sequential improvement in gross margin in the third quarter. This increase reflects volume growth, price actions taken prior to tariff announcements and ongoing manufacturing efficiencies, including those stemming from the closure of our legacy brass foundry. As Paul mentioned earlier, these benefits are expected to continue in the fourth quarter and carry over in the first half of next year. For the quarter, total SG&A expenses of $71 million were $9.5 million higher than the prior year, which includes an unfavorable foreign currency impact of $9.1 million and ongoing inflationary pressures, partially offset by lower amortization expense. Substantially all of the $7.7 million unfavorable foreign currency impact recognized in the third quarter was due to the depreciation of the U.S. dollar versus the Israeli shekel associated with our U.S. dollar-denominated bank accounts within our Krausz entity. Operating income increased 10% in the quarter to $73.7 million compared with the prior year. Operating income includes $1 million of strategic reorganization and other charges primarily related to the leadership transition, which has been excluded from adjusted results. Turning now to our consolidated non-GAAP results for the quarter. Adjusted operating income increased 6.9% in the third quarter to $74.7 million, driven by manufacturing efficiencies, volume growth and lower amortization expense, partially offset by unfavorable foreign currency and higher tariffs. Adjusted operating margin of 19.6% was flat year-over-year. Excluding the $7.7 million unfavorable foreign currency impact reflected in the third quarter, adjusted operating margin would have been 21.7% and an increase of 210 basis points versus the prior-year quarter. Adjusted EBITDA reached a record $86.4 million, an increase of 1.4% versus the prior-year quarter. Adjusted EBITDA margin of 22.7% was down 120 basis points versus the prior year quarter. However, excluding the unfavorable foreign currency impact, the adjusted EBITDA margin was 24.7%, 80 basis points higher than the prior year. Over the past 12 months, adjusted EBITDA was $306.9 million or 22% of net sales, a 90-basis point improvement compared with the prior 12-month period. Net interest expense declined $1.1 million to $1.7 million, reflecting higher interest income. Adjusted net income per diluted share increased 6.3% year-over-year to $0.34, setting a new third quarter record. Moving on to quarterly segment performance, starting with WFS. Net sales increased 4.1% to $216.6 million, driven by volume growth in iron gate and specialty valves and higher pricing across most product lines. Similar to the previous quarter, service brass volumes were lower than the prior year quarter, mainly due to backlog normalization and channel and customer destocking. As a reminder, prior year shipments benefited from serving an elevated backlog, which was down more than 50% compared with the prior year. Adjusted operating income increased 4.7% to $60.5 million, reflecting benefits from volume growth, manufacturing efficiencies and lower amortization expense, more than offsetting higher tariffs and lower service brass volumes. Excluding the impacts of higher tariffs mainly associated with specialty valves, price/cost was favorable for the quarter. Adjusted EBITDA increased 0.3% to $67.1 million and adjusted EBITDA margin was 31% compared with 32.1% in the prior year. I'll now move to the quarterly results for WMS. Net sales increased 10.2% to $163.7 million, led by strong volume growth of repair products and hydrants as well as higher pricing. Like the previous quarter, we experienced lower volumes of natural gas distribution products due to similar factors as service brass products at WFS. Adjusted operating income increased 12.6% to $30.3 million, reflecting benefits from manufacturing efficiencies, volume growth of repair products and hydrants and lower amortization expense, which more than offset unfavorable foreign currency, higher tariffs and lower gas distribution volume. Price/cost was favorable for the quarter, absent higher tariffs, mainly associated with repair products. Excluding the $7.1 million unfavorable foreign currency impact in the quarter, adjusted operating income would have been $37.4 million for the quarter. Adjusted EBITDA in the quarter increased 3.8% to $35.3 million, with adjusted EBITDA margin decreasing 130 basis points to 21.6%. However, excluding the unfavorable foreign currency impact, the adjusted EBITDA margin was 25.9%, 300 basis points higher than the prior year. Moving on to cash flow. Net cash provided by operating activities for the 9-month period was $135.8 million, a decrease of $13.7 million compared with the prior year period. The decrease was primarily driven by changes in working capital, including decreases in other current liabilities, partially offset by higher net income compared with the prior-year period. Capital expenditures through the first 9 months of the year totaled $32.8 million compared with $28 million in the prior year, primarily driven by investments in our iron foundries. Free cash flow for the first 9 months of the year was $103 million and 71% of adjusted net income, which is in line with our expectations. We ended the quarter with $451 million in total debt and $372 million of cash and cash equivalents. Our balance sheet remains strong and flexible with a net debt leverage ratio below 1, no debt maturities until June 2029 and $450 million in senior notes at a 4% fixed interest rate. We had no borrowings under our ABL and ended the quarter with $535 million of total liquidity, including $163 million of availability under the ABL. I will now review our updated outlook for 2025. We updated our fiscal 2025 outlook and are increasing our guidance for consolidated net sales by $15 million at the midpoint of the range, which is between $1.405 billion and $1.415 billion. This increase reflects our third quarter performance as well as current expectations for end market demand, orders and price realization. We are increasing our annual guidance for adjusted EBITDA by $7.5 million at the midpoint, which is between $318 million and $322 million. At the midpoint of our guidance range, our adjusted EBITDA range achieves a 22.7% margin for the year, reflecting a 100-basis point improvement year-over-year. Our updated adjusted EBITDA guidance range reflects our third quarter performance, lower expected tariffs, targeted price actions associated with tariffs and continued manufacturing efficiencies. We updated our expectations for total SG&A expenses primarily to reflect the impact of unfavorable foreign currency recognized in the third quarter. We are assuming no impact from foreign currency fluctuations in our fourth quarter guidance. We are maintaining our free cash flow expectations to be more than 80% of adjusted net income in 2025. We are increasing our outlook for our capital expenditures to be between $50 million and $52 million for the year as we continue investing in our future growth and operational efficiencies, including investments in our iron foundries. With that, I'll turn it back to Martie for closing comments.

Thanks, Melissa. I want to provide a few closing comments before opening it up for Q&A. We are excited about building upon our momentum beyond this year. We have leading brands, improving manufacturing operations, a large installed base and strong channel and customer relationships. We have positioned ourselves to accelerate sales growth and capture the benefits from favorable long-term end market growth trends through product innovation and service. With the transition to our new brass foundry completed, we are refining plans and priorities for 2026 and beyond. We will continue to focus on investing in our facilities and employees to drive operational improvements, delivering benefits from past and future capital investments while expanding our capabilities. Fueled by our improving commercial and operational execution, we are confident that we can build on our momentum to continue to drive further net sales and margin growth. Despite the dynamic external landscape, I have complete confidence in our teams and their ability to deliver results, which reflect the significant progress we've made in executing the key strategies of our transformation. I want to thank all our employees worldwide for their tireless efforts and passion in supporting our customers and communities. They are the reason for our success and why Mueller has been a trusted partner for water utilities for over a century. That concludes our comments. Operator, please open the line for questions.

Our first question comes from Mike Halloran with Baird.

So can we just start with the end markets, what you're seeing out there, level of stability, any signs of improvement, deterioration? And maybe just talk about the utility and residential markets in particular.

Yes. So I think overall, just kicking off on what we're seeing on the end markets, I'll start off looking at the residential end market. As we look at it, as we had expressed in our second quarter call, we had expected that we would start seeing some slowing activity in and around the residential construction market as we moved into our fourth quarter. Certainly looking at where housing starts are, and we have seen some decline in housing starts. But I think even looking further into that, we have seen a greater decline in and around the single-family housing starts, which is certainly where we see more of the impact on our business with respect to the new residential construction and specifically with new communities being built. I think generally, as we had thought that there would just be more caution coming from builders. We see certainly the macro uncertainty, interest rates have remained high from a mortgage perspective. Buyers have been somewhat hesitant in the market. So pretty much consistent with the guidance that we gave in May, we did expect a slowdown in our fourth quarter. That's something that could extend into next year. I think certainly, wherever interest rates play out, could influence that particular view. Paul, do you want to comment on municipal?

Mike, on the municipal repair and replacement market, we still see that as very strong. As a reminder, that's the largest portion of our end markets. The need to repair and replace the aging pipe and infrastructure allows us to really think that's going to be a solid market going forward. The ability despite the higher interest rates to find the funding for these projects continues to be coming through in our business, and we think the muni market remains strong and resilient right now.

And then follow-up is on the margin side of things. Melissa's prepared remarks, it sounds like the FX headwind was a one-time nature thing for the third quarter in the WMS segment. If I think about the implied margins for the fourth quarter, is that the right jumping off point into next year? I mean you've had a lot of moving pieces in the last couple of years in the margins for both segments. And acknowledging that you're going to have seasonal margin levels as you work forward. But is that the right jumping off point? Or are there more moving pieces that we need to consider in the fourth quarter margin run rate?

So let me sort of kick off. As we think about our 2026, I'll say, first of all, that our full guidance with respect to 2026 will come with our fourth quarter call, which will be in the November timeframe. I think certainly, looking at where our results are through the first nine months of the year, we are on track for another record year. And I think with the anticipated sales growth and demonstrated improvement in our gross margin, we certainly are going to look to build on that with our continued focus in and around both our commercial and our operational execution. With looking at gross margin for 2025, if you want to look at where the implied gross margin would be on a full year basis based on the guidance that we've just given you at the midpoint, it would be approaching 37%. I think certainly, as we look into 2026, as we said, we do expect that we'll get the benefits from the elimination of the duplicative costs by closing our brass foundry. We did begin to see some of those benefits in this quarter, expect to continue those into next year and into the fourth quarter as well. I think additionally, in and around our repair business, as we have moved through the year and certainly did recognize year-over-year improvements in our repair business as we have increased our production and are normalizing the backlogs as well as we have implemented price increases there, and those will also help mitigate the tariffs. I think with respect to some of the other considerations, Paul talked about what the current view is in and around tariffs. So as we stand today, certainly would do expect that we will have higher tariffs as we move into our 2026 as well. But we have implemented targeted price increases as well as supply chain initiatives to offset the projected higher tariffs.

Our next question comes from Brian Lee with Goldman Sachs.

This is Nick Cash on for Brian. Congrats on the quarter. Honestly, just kind of wondering about the legacy brass foundry. So gross margins, at least in the segment were down about 70 bps year-over-year. I think you mentioned on lower volumes and tariff impact as well despite the step-up. Would you, one, be able to give any color on, I guess, how large of a margin headwind both these were separately?

Yes. So on the legacy brass foundry, we had talked about expecting to see benefits starting in the second half of the year, and we had anticipated that we would see between 80 and 100 basis points of improvement as the back half of the year progressed due to the closure of the legacy brass foundry. And what was the second part of your question?

I was wondering how significant the margin headwind was from the tariff impact compared to the decrease in service brass volumes.

Yes. For WFS, that is where our specialty valve business resides, which took the large portion of the tariff impact in the quarter.

Got you. Got you. No, that's helpful. And then real quick on FX. I guess as currency normalizes, can we expect a meaningful FX tailwind next year in 3Q? And I guess could that contribute again to be a tailwind to margins into '26?

With FX, the reason we called it out this quarter was because this is the first time it has meaningfully changed to this degree. There was a roughly a 10% decrease of the USD versus the Israeli shekel. And with that, we saw that substantial large impact. As far as seeing a benefit next year, that would largely just depend on what the rates move at that time. However, to contextualize how insignificant the movement typically is, the full year impact of FX is $7.6 million, and the third quarter impact was $7.7 million. So there was a roughly $1.1 million impact for the first six months of the year and then the 10% degradation of the USD versus the Israeli shekel drove that $7.7 million impact in the third quarter.

Our next question comes from Bryan Blair with Oppenheimer.

To level set a bit more on your near-term outlook and the realistic jumping-off point for fiscal '26. We obviously have your updated guide, so we can back into Q4 sales rate. If we were to round up slightly to 4% at midpoint for Q4, how are you thinking about segment contribution? What should we contemplate for volume versus price? And then how much carryover price would that imply for fiscal '26, irrespective of your typical pricing actions next year?

Right. So as Martie said previously, we'll give some incremental color on our '26 guidance when we release our year-end results. That being said, I'll go ahead and share some information related to our segments for fourth quarter. Based on the growth we've seen so far year-to-date, with WFS, we would expect to see slower growth in fourth quarter, and that's as we encounter the year-over-year service brass headwind, and that will be offset by iron gate valves and specialty valves. We would expect to see a little bit of a lower margin in the fourth quarter than we have seen, and that's primarily due to the tariffs. We would expect to see roughly around 29% for WFS in fourth quarter. And SG&A will be slightly lower based on the amortization benefit that we'll be experiencing from the customer amortization intangible. As we move on to WMS, we'll continue to see the performance that we saw in the third quarter and fourth quarter as the repair and installation business has lapped that headwind that we saw last year related to the war. We'll also have lower air freight costs associated with that period of time as well. We would expect to see margin improvements based upon that. And we'll see lower FX in the fourth quarter. We have not assumed any FX in our fourth quarter for currency fluctuations.

I’ll provide a brief update regarding pricing. As a reminder, we implemented price increases back in February, which is typically when we make such announcements. These increases took effect around February 2025, before any tariffs were announced. We have shared that we are taking targeted pricing actions to respond to our expectations about tariffs. These actions, along with various initiatives from our supply chain teams, are helping to mitigate the anticipated tariff costs based on our current knowledge. Entering 2026, we will carry forward the impact of the February price increases. Additionally, provided there are no changes to tariffs, we anticipate benefits from these targeted pricing actions, particularly in our specialty and repair products. We expect these advantages to materialize in the fourth quarter, largely as a reaction to the elevated tariff climate.

Okay. Appreciate the color there. And out of curiosity, if we look forward, how is your team thinking about segment gross profitability? If we look back over the last 5 years or so, you've had WMS a little over 100 basis points above WFS, but that's obviously inclusive of the foundry transition period. So with the WFS-centric benefits going forward, I'm just curious if you're thinking that segment gross margin will shake out roughly even, implied still be going up on both sides. Or if your team perceives the dynamic differently in some way?

As we think about segment profitability, we do expect that the WMS segment will see improved margins related to the repair and installation. While we're not going to get back to historical margins on repair and installation in '25, we do expect in '26, we will get closer to where we were pre-war. And as far as the exiting of the legacy foundry, we continue to make improvements as the foundry gets more and more efficient and expect that we would continue to see the benefits related to that exit.

Our next question comes from Deane Dray with RBC Capital Markets.

Can we wrap up the pricing question and the actions taken in February? Have you evaluated those? And how much of that pricing has been achieved?

Just as a reminder, the price in February was part of our annual price increase. The further price increases that we went out with when we did the — when the announced tariffs took place, obviously, we had to pivot in some respect from what was associated with the China tariffs, working with our customers closely to adjust some of those prices with our reduction from the 145%, where we stood a few months ago. So in terms of where we are right now then, we have targeted pricing, as Martie talked about, across our specialty valve product line associated with the tariffs that's now enacted right now.

Got it. Did you see any impact of prebuy, any kind of pull forward in demand, trying either yourself positioning inventory, but customers trying also to get ahead of these price increases?

No, we monitor that closely. It's challenging to get a definitive answer. However, as of now, we have not observed any significant prebuy from an order perspective.

Good. And you made a reference about backlog normalized. So has that all run its course? And can you give us a sense of where backlog stands today with regard to visibility?

Yes. If we think about our short-cycle business, we've seen a kind of small change of reduction in Q3, mainly related to the repair business as the team in Israel and Krausz continue to do a fantastic job of maintaining the ramped-up production that we put in place to address the backlog that became elevated. With regards then to the longer-term project business, we have a healthy backlog moving forward.

We generally size it on an annual basis more, but I think we've really sort of worked through, as Paul said, most of that short-cycle backlog. I think we called out still a little bit of the year-over-year impact coming from service brass and coming from natural gas products. But I think we're back to what we deem normalized with respect to the short cycle. And then where we typically do have a longer backlog is with the specialty valve business and that product line. And I would say when we look at where that backlog is today, that's fairly normal in terms of the overall size.

Our next question comes from Joe Giordano with TD Cowen.

You mentioned working with customers after China went down. Like yes, I was just curious like what the impact of some of these tariffs had on demand levels at all on volume side and like how aggressively people are pushing back on price that was installed before like the tariffs were deescalated.

Joe, in terms of pushback on price, it was only really around what I discussed earlier when the China tariffs was reduced from the 145% to 30% right now. So we work closely with our customers and adjusted our price accordingly around those particular product lines that were impacted. Again, as I said earlier, from a demand perspective, we are not seeing any meaningful pull-ahead from an order perspective. So I would say no real change from that perspective right now.

Any updated commentary on some of the federal kind of infrastructure funding and impact to underlying market conditions and whether you see that coming sooner or later than you thought, maybe earlier this year?

Yes. No. So as we look out on the infrastructure bill, just as a quick reminder, when we have given our guidance, I would really say throughout our fiscal 2025, we had always said that we really didn't anticipate that we would see any benefits in our '25 coming from the infrastructure bill. I think it has been very slow overall, in terms of the allocations coming out. I think I have seen some further reports that actually particularly talked about how some of the award volumes declined further during the first half of this calendar year 2025. I think that's just largely reflective of a lot of the other activity that we saw with respect to executive orders, certainly staff reductions and then some uncertainty in and around where the regulatory environment may settle out with respect to some of the contaminants. So I think overall, I think it has even slowed down a little bit through the first six months of the year. Additionally, one of the other areas that we had talked about is with the Build America, Buy America provisions that are built in, and this is an area where we have continued to work with our customers and in and around compliance. But those compliance regulations are stricter than what we saw with respect to the American Iron and Steel Act. So I think that's also probably influenced things a little bit. So what I would say is that it has been probably a little bit slower, could be even a few years out still before all those allocations come in. All of that said, we still believe that as we look at the infrastructure bill, it was a bipartisan bill. It certainly calls out the awareness and the need for investment in water infrastructure due to the accelerating aging of water infrastructure that we're seeing. I think additionally, we do see a number of communities that are starting and looking at the lead service line replacements, which was one of the specific allocations under the infrastructure bill. So I would say, overall, even though we do see the slowdown, we still are very excited about the awareness that it brings, the potential impact for increased funding levels. And I think it's also worth calling out that there are a number of states that do have some ballot issues that they're putting on for votes to include additional water-related projects, looking at city states such as California, Texas, Colorado and Minnesota.

Maybe if I could just sneak in a follow-up on that. Like I think that was a totally fair answer. And I know you're not guiding to like this stuff driving your business, right, in the near-term future. But like I guess at what point do we have to start haircutting stuff? And maybe if it's taken years, this stuff doesn't happen, and does it impact like your spending decisions as you think to kind of gear up for this big influx of spending that doesn't come? Like do you have to alter your CapEx outlook for the next couple of years like to adapt to something that looks like it's going to be there but might not?

Let me start off on that and then may turn it over to Paul to talk specifically about capital expenditures. As we have mentioned, with the infrastructure bill, it is increasingly important to consider the macro environment and the growing awareness of the need to address aging water infrastructure. The key question is where this funding will originate. Typically, funding has primarily come from local sources, including user rates and fees. We continue to see an overall increase in water rates paid by consumers and businesses, supplemented by some state and local funding. This raises the question of whether funds from expanded state revolving funds will replace dollars that would have been spent locally or if they will be additional. It's difficult to fully analyze that, but the need for investment is clear. Importantly, the ongoing discussions and awareness in this area support local municipalities in making necessary investments. Paul, would you like to elaborate on how this influences our capital investment plans?

Yes. Thanks, Martie. And just to follow on from Martie's point, even though the infrastructure bill may be slower than we anticipate, we still know that from a macro perspective, our aging water infrastructure is work that needs to take place. Now when we think about our capital, we had the large capital projects, which are behind us. But we do have two mature iron foundries, which are going to need some capital over the next few years to increase efficiencies and be ready from a growth perspective and capacity expansion. So that's what you'll be hearing more about on the next call is really how we plan to have a higher capital in '26 and '27 to address the aging mature foundries, capital work required there.

At this time, I'm showing no further questions. I'll turn the call back over to Martie for closing comments.

Very good. Thank you, operator. I want to thank everyone who joined us on our call today. As we said, we're very pleased with our results for the third quarter, even with all the uncertainty that we have seen in the external environment and the challenges that we are addressing with the recently enacted tariffs. With the updated annual guidance that we have just given, we are on track for another year of record results and are certainly excited about the momentum we have as we move into our 2026. We will continue to focus on successfully executing with our commercial, supply chain and operational teams and believe that we are well positioned to continue to mitigate the impact of the tariffs as well as continue focusing on enhancing our manufacturing efficiencies. Again, I want to call out the hard work and dedication of our employees. They have been and will remain the driving force behind our success. So I thank you all, and we look forward to speaking with you again with our fourth quarter results when they are announced in November. And with that, we'll conclude our call, operator.

Thank you. This concludes today's conference. You may disconnect your lines at this time.