Good morning, everyone. Thanks for joining us on the call today. Before we begin, I would like to remind everyone that this call contains certain forward-looking statements that are subject to the safe harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they're helpful to investors and contain reconciliations to the corresponding GAAP information. Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP, and we encourage you to review the GAAP information in our earnings release and in our SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions.

Thanks, Dave, and good morning, everyone, and thanks for taking the time to listen this morning. Hopefully, everyone had a chance to go through the release last night. I'll start on Page 3. To cut right to the chase, we had a solid start to 2024 with Q1 sales, earnings and cash flow, all ahead of our expectations heading into the quarter. From our perspective, the end market view that we've had for 2024 for the last 6 months or so continues to look the same, with steady strength in institutional, some pockets of weakness in commercial and residential roughly flat with share gains, initiative growth, and a little bit of price driving what we expect to be growth over the course of the coming year. Our margins and cash flow continue to expand as the compounding benefits of the early integration we did to bring Zurn Elkay together read through the results with more room to go as we delivered the yield on the synergies throughout the balance of 2024. The reality is we've totally integrated the businesses and truly operate as a single business. All the productivity, supply chain benefits, and pricing are all rolling in across the overall business, as are the compounding benefits of all our continuous improvement activities that happen day in and day out as part of the deployment of the Zurn Elkay business system. As you'll hear a little later when Mark goes through the outlook, we have high confidence in the margin profile we've established and will continue to drive - and as a result, we're raising our outlook for the full year margin expansion from 150 basis points to 150 to 200 basis points with Q2 margins in the range of 24.5% to 25%. Our strong margins, coupled with our flexible business model, drive consistently high free cash flow, and with the $50 million we generated in the first quarter, we used $19 million of that to repurchase about 600,000 of our shares with a plan to continue to do that over the course of the year.

Thanks, Todd. Please turn to Slide #4. Our first quarter sales totaled $374 million and increased 400 basis points year-over-year on a pro forma core basis. Mid-single-digit core sales growth in our nonresidential end markets was partially offset by flat year-over-year sales to our residential end markets. With respect to demand in the quarter, year-over-year order growth was in line with our sales growth as our book-to-bill ratio was 1 in the first quarter. As Todd mentioned earlier, end market trends in the quarter were consistent with our expectations. We did a bit better with our growth initiatives, which drove the sales performance slightly above our outlook 90 days ago. Turning to profitability, our first quarter adjusted EBITDA increased 24% from the prior year first quarter to $90 million and our adjusted EBITDA margin expanded 460 basis points year-over-year to 24.1% in the quarter. The strong margin expansion was driven by the benefits of our productivity initiatives, inclusive of cost synergies plus lower material and transportation costs compared to 1 year ago. For calendar year 2024, we believe our year-over-year margin expansion will be a bit better than we discussed 90 days ago, and I'll cover more details of that later in the call. Please turn to Slide 5, and I'll touch on some high-level balance sheet and leverage highlights. With respect to our net debt leverage, we further reduced our leverage from 1.1x at December 31, 2023, to 0.9x at the end of the first quarter inclusive of the additional $19 million deployed to repurchase shares in the quarter. We continue to have excellent capital allocation optionality. And as we have discussed, we will remain focused on a balanced capital allocation strategy going forward.

Thanks, Mark, and I'm back on Page 6. Over the course of the last year, we've tried to communicate the significant opportunity and competitive advantage we have in the clean, safe drinking water category. As a quick Q1 update, we're very much on track to grow the overall drinking water portion of our business at double digits from a top line perspective and continue to grow the number of filtered units installed while capturing recurring revenue from filters. Some of the questions we've got over the course of the year have been so what else is happening besides drinking water? Well, here's just one great example amongst the dozens and dozens of things that are moving the needle for us from a growth, market share and profitability perspective. Here's the Hydro X sensor flush valve, we've just recently launched within our Hygienic and environmental category. We'd estimate that it's a $450 million market category, including the retrofit replacement market, where we have a decent #2 share position. We're the only one in the market with a unit that is hydro-powered with no solenoid because the 2 biggest pain points in the field are replacing batteries and solenoid failure. We've solved both with the Hydro X. The diaphragm, gaskets and seals are made of an elastomer that lasts 8 to 10 times longer than traditional rubber components and taken as a whole, we're talking about approximately 10 years of maintenance-free operation as the unit is powered by Hydro X technology, eliminating constant battery changes, which saves building owners both labor and battery costs. The other key is that it was designed with architects in mind. They want to specify something that looks stylish as well as functional and it's available with Bluetooth as a full connected solution, which helps in remote monitoring, troubleshooting line flushing and predictive maintenance. We're winning with this in large national accounts where reliability and sustainability are critical and it's just one more thing we have in our unrivaled portfolio and ability to deliver content to both new builds and the retrofit replace market. On Page 7, you can see our Q1 sustainability impact and progress toward our targets. We continue to elevate our sustainability efforts and are proud of the positive environmental impact our products deliver each day to building owners throughout the U.S. The vast majority of sales in the quarter came from products that deliver a sustainable attribute to our customers, products that reduce water consumption, protect the potable water supply in buildings, reduce energy or GHG consumption or made with high levels of recycled content. Whether it's reducing water usage, filtering out contaminants from water or eliminating single-use plastic bottles, we continue to innovate to address both water-related challenges to public health and conservation. Water is so important, and we continue to see growing and new challenges around this vital natural resource that we will continue to address as sustainability is central to how we operate and drive our business. Last one for me is on Page 8, and it's really just more of a reminder. Over the past several years, we've been really intentional about defining our strategy and then going out and executing on it. Here it is on a single page. Starting on the left. As a pure-play North American water business, we've been laser-focused on the end markets, product categories, customers and geographies that we want to be in and then cultivated layers and layers of competitive advantages within our current business with room to expand upon that both organically and inorganically over the coming years. In the middle, the relentless deployment of the Zurn Elkay business system provides us not only superior execution capabilities but a common language and approach to running our business that drives above-market growth - above-market organic growth, exceptional incremental margins and substantial free cash flow. Since we've deployed ZEBS to Elkay, we've seen over a 1,000-point margin expansion in the first 18 months with faster growth, better customer satisfaction and a highly engaged team that really has embraced the ZEBS. And finally, on the right, we're measuring outcomes and course correcting where necessary. This is something we talk about a lot internally to drive both simplicity and focus and to be able to communicate what's truly a priority or, in some cases, why we aren't doing things. Hopefully, this helps frame what to expect from us over the coming years.

Thanks, Todd. Please turn to Slide 9, and I'll cover our outlook for the second quarter of 2024 and an update on our high-level guideposts for calendar 2024. For the second quarter of 2024, we are projecting year-over-year pro forma core sales growth to be in the low single digits and we anticipate our adjusted EBITDA margin to be in the range of 24.5% to 25% for the quarter, which is a 290 to 340 basis point expansion over the prior year. For the full year, at this point, we see no changes to the sales assumptions we outlined 90 days ago and still believe we will generate positive pro forma core sales growth year-over-year. With respect to our adjusted EBITDA margin, we now believe we will expand our margin between 150 and approximately 200 basis points year-over-year. Our free cash flow expectation for the year remains unchanged at approximately $250 million. Before we open the call for questions, just to remind you that we have included on Page 9, our second quarter assumptions for interest expense, noncash stock compensation expense, depreciation and amortization, our adjusted tax rate, diluted shares outstanding. In addition, we've included the prior year second quarter sales adjusted for the executed 80-20 product line exits to calculate pro forma core sales growth in 2024.

You noted continued double-digit growth in drinking water and further rollout of filtration. Are you going to offer any finer points on the growth rates you're seeing, both at the platform overall and infiltration? And as there's intense focus for the public and now with some government action federally and state level on Lead, PFOS, other issues, how your team is thinking about the multiyear opportunity?

Yes, it's very much the same as we've communicated before. When you examine the growth of filtered units, it will fluctuate from quarter to quarter, but for the year, it should definitely be in the double-digit range. The algorithm requires a sustained high single-digit growth for filtered units over the long term. Filtration is growing at a much faster rate. This was evident in the first quarter, aligning with the right strategy for us. As you mentioned, the focus on legislation and filtration is increasing, but we are not seeing much immediate benefit from that. Our core strategy remains the same, and we anticipate seeing benefits as we progress through this year and into the next couple of years. Although some legislation has passed, the implementation process is quite challenging and time-consuming. What we are currently seeing is primarily our core business and strategy continuing to succeed, and we expect that success to increase as implementation moves forward.

Makes sense. I appreciate the color there. A very strong margin performance in Q1, a pretty robust guide for Q2. So on an LTM basis through Q2, implied a little over 24% margin, nothing to push back on there. It does imply when your current guide for full year '24, there some moderation in back half margin? Can you walk us through what your team is contemplating on the progression for Q3 and Q4? What may drive that moderation? Or it's more so just conservatism baked into guide 1 quarter?

Yes, I believe it's definitely the latter. Our approach for the second quarter guidance is simply to share what we expect to see in the next 90 days. I don’t think there’s anything I can convey that would create doubt about the latter half of the year. We are just aiming to be a bit conservative at the beginning of the year. The sales performance in the second half will obviously be crucial. However, in terms of our cost structure and gross margin, which are improving this year, we expect that improvement to continue throughout the year. I don't foresee any factors from inflation or other concerns on the horizon that would diminish our confidence in maintaining margins in the second half. It’s primarily a matter of being just 90 days in. We're pleased with our observations, and everything we’re seeing is a permanent trend. This is our outlook for Q2, and we will adjust for the second half, but there’s nothing significant to highlight regarding that.

This is Ed Magi on for Andrew. I wanted to ask, so the outlook for interest rates has begun to change in recent weeks. So I was wondering if you could help us spare some detail on recent reserve commentary with the outlook in residential and non-residential construction not changing?

Yes. It’s important to note that our overall mix is approximately half institutional, and of that, about half is retrofit replacement. While a lower interest rate environment may assist the commercial facet of our business in relation to residential, I don’t believe the anticipated interest rate cuts in the second half will trigger significant growth. The likelihood of such cuts occurring is diminishing, but I don’t think this alters our perspective. It’s essential to recognize that the market is highly localized, meaning conditions in one region can drastically differ from another. Throughout the year, we have been processing negative news related to commercial sectors gradually over the past 18 months. I don’t foresee an impending crisis in commercial; rather, we are just processing the bad news. We have seen consistent strength in institutional areas, and our initiatives, especially in drinking water and Hydro X, are strategies we are implementing to navigate the perceived struggles of the commercial market. Regarding the interest rate environment, while lower rates would likely be beneficial, I don’t anticipate significant shifts in our outlook for the second half.

Very helpful. And then leverage is ticking below 1, the cash flow engine is driving. I was just wondering if you can update us on what you're looking at with the pipeline and the outlook for M&A as it goes through the second half or full year across 2024?

Yes. I mean we've always maintained the proprietary funnel and process. That is continuing. I think whether or not something converts over the course of the year is still to be seen. But from a cash flow perspective, I think that we're off to a really good start with $50 million. I think last year in the first quarter, we were roughly flat and ended up at 230. So I think that from a cash flow perspective, we're obviously in a great position. But I think we're going to continue to cultivate things on a proprietary basis and see when things convert. But I do think that we are going to continue to generate a significant amount of cash. And so I think that all forms of uses of that cash are on the table. We're obviously going to invest in our core business, continue to cultivate M&A. But as we've talked about, we've got a buyback perspective that we're going to continue to execute against. And then we can review the dividend like we do every year. So I think, all in all, I think we're in a really good spot, but we're going to continue to work the funnel and then try to get some high priorities to convert at the right time.

You've got Pese on for Mike. Maybe taking a different perspective on the performance in the quarter, obviously called out the helping drinking water. But if we look at the other 3 product categories, flow, safety and hygienic, is there any notable variance between the 3 to kind of get to the net number we're getting to? And maybe if we can exclude the calling of revenue from that discussion, that would be helpful.

Yes, this is Mark. I think when you look at those other categories, there's not a meaningful difference in the quarter in the growth rates. So there's really between flow systems, looking to control, and if I'm not wrong, when you back out what we did as far as 80-20 exits last year on a pro forma basis, there is not a material difference in the growth rates in those categories in the quarter. And we don't expect that over the course of the year to deviate very much either.

Got it. Easy enough. And then a quick clarification, Todd, when you're speaking to filtration, are we speaking specifically the aftermarket tail in terms of the specific filter sale? Or does that — are we including the filtered units in that discussion when we're talking about the filtration growth rate?

Well, the filtration growth rate would be the discrete aftermarket replacement event. That's the growth rate that's well above double digits. The filtered unit would be in that high single-digit to low double-digit range on an annual basis on a filtered unit basis.

Can we talk about the differences in your regional growth right now? I know that the SKU rationalization is affecting the U.S., but it appears that you are experiencing faster growth outside of the U.S. Could you discuss what strategies you are implementing, particularly regarding distribution outside of the U.S., to achieve your current results?

When you mention outside of the U.S., we are primarily referring to Canada and probably a bit of Mexico from an Elkay perspective. We've established a new representative network and have some excellent representatives in those areas that we are supporting effectively. They are performing well in the market. There is no particular secret to it. It's a small market, but we are satisfied with the performance and progress, and we anticipate it will continue.

Okay. No, that's good to hear. And then, I guess, maybe just talking about the margin expansion, and you took up the guidance for the full year. Can you maybe just give us a little bit more color on what drove the increase in the guidance? Is that more pricing? Is it productivity? Like what specifically is making you feel better about getting a little bit more margin expansion for the full year?

Well, I think, again, we came into the year. I think we tried to provide an outlook that we felt was going to be pretty durable. We had a list of things that we were working on, both from a synergy perspective and then some other things around supply chain that are going to be really important for us, maybe a little bit this year, but more so next year. And we've just accelerated some of the progress into 2024. You saw the read through, really through gross profit in the first quarter. We see the same thing in Q2. We've done a terrific job with our sourcing teams to put ourselves in a great spot from a cost perspective over the balance of the year. And then the biggest thing is really just we've got 2,500 people that have bought into continuous improvement. And I think that you can't underestimate that compounding benefit day in, day out, and that's reading through in the first quarter. It will absolutely read through the course of the year. And so we're taking it up just a touch as from what we see today. And then we'll revisit where we are in the second half. So I don't think there's any big news here other than it's sort of what we thought we could do for the year. I think we're just sort of pacing ourselves in terms of what we communicate externally.

This is Adam Farley on for Nathan. My first question relates to your free cash flow guidance. I appreciate the unchanged $250 million guidance on a year. You had really strong cash flow conversion in the quarter driven by significant improvement in working capital. So my question is, are there any further opportunities to optimize working capital through the year?

I believe there will always be opportunities. We had a solid first quarter, and while we haven't changed our full-year outlook, it might be hard to argue against the possibility of doing slightly better. Some of this is related to working capital, which we continuously focus on. We’ve had a good start, and while I can't definitively say there's a $100 million opportunity in trade working capital, we will certainly work to optimize it and achieve a level that aligns with our business needs.

Yes, the restructuring charge in the quarter was related to the synergy actions that we're working through. There are some facility things that we're doing this year. So it's all tied to the $25 million synergies that we're generating in fiscal '24, Adam.

Just wanted to follow up on the residential part of the portfolio. I know you guys have been 80-20 net down, I think, about 12% of the total pie. How would you characterize the channel inventories and the tone in that part of the business? And then as you look on the other end of all the moves you've made, how is the margin profile relative to the rest of the portfolio? Are we running at corporate average a little bit lower? Just any context would be great.

Yes. I mean I think the residential slice of the overall pie is, yes, I think, roughly 12% growth. From a channel inventory perspective, I would say that it is super low. I mean there's nothing in there anywhere. So it's sort of nothing but upside if we see some recovery. But in terms of margins, it is not at the corporate average. It is below the fleet average. So when you look at that piece. But it's not miles apart, but it's a good 5 points or so below the corporate average. But it's come up nicely because we're sort of sticking to parts of residential that we think we can build a competitive advantage and want to be in. And so that wasn't the case 12 to 18 months ago. So the margins come up nicely. No channel inventory and a pretty stable end market taken as a whole.

Okay. Great. And then maybe just a more strategic question on the election and tariffs. Obviously, we don't know what the outcome is going to be, but Zurn does have a heavier outsourced manufacturing model. Maybe you could just talk about how nimble that supply chain configuration is. If you can flex it up and down in different regions and so on. if we do enter another tariff regime.

Yes, we definitely feel that way. The recent discussions about new tariffs on steel and aluminum do not affect us since we do not import any of those materials. Over the last 12 to 18 months, we have been actively working to adjust our supply chain to take advantage of avoiding tariffs. Back in 2016, we demonstrated great flexibility by shifting volumes around to lessen the effects of those tariffs. Although we are still affected by some of them, we are taking further steps to position our supply chain accordingly. Based on our past experiences and our ongoing efforts, I am confident that we will successfully navigate any challenges ahead. This is a testament to our supply chain team’s ability to find the right suppliers in the right locations and to anticipate market changes, which we have been doing for the last year and a half. We expect to start seeing some of the benefits soon, potentially towards the end of this year and certainly into 2025 and 2026.

All right. Appreciate the insight. Congrats on the quarter.

Just I think Bryan brought up kind of legislation earlier in the call, but there's the specific EPA funding for safe drinking water around PFAS. I think the Biden administration put out a couple of weeks ago seems a little more focused at cleanup at the water utility, but I'm just wondering if there's anything in there for point of use drinking water or something that would affect you or any kind of knock on from that specific legislation?

Yes. I think the legislation and awareness, Jeff, is certainly helping us. We've had a number of school districts come and inquire about the new PFAS filtration and several have onboarded us. So I think that is all net positive. But I think like anything else, there's a way to solve the problem today, right? I mean if you put one of these filters in, it solves the vast majority of the problems down to 20 parts per trillion. That's what our filter takes out as well as most recently, microplastics. And so when you think about being able to solve the problem for a very low initial cost and decision, you can eliminate the vast majority of the problem immediately. And I think that is sort of the thing for us. I think waiting on funding from the government to solve this at the municipal level, municipality by municipality is a slow boat. So I think what we're doing is really communicating the features and benefits and value of being able to solve the problem today for a couple of hundred dollars. And so - but the awareness certainly helps drive that adoption for us. But in terms of discrete funding around that piece of it, this particular bill, there's not a ton of it, but I think as you think about solving the problem for a couple of hundred bucks versus waiting on billions and billions of dollars to flow municipalities and that got implemented because that's a tough - it's a long path where I think we have a more immediate high-quality solution.

That's helpful. Just on your multifamily exposure, maybe just remind us what that is and if that's within residential and just what you've been seeing there? It seems like that was a market that was quite robust, but we're seeing some slow in there. I'm just trying to frame your size there.

Yes, Jeff, we're - if you look at our residential piece, it's call it 50-50, 60-40 multifamily versus single-family. I think it's - when you break it out, it's a small piece of the puzzle. We're not seeing anything that's moving the needle for us 1 way or the other. That's kind of embedded in that flattish outlook for us. So at the end of the day, it's not - we don't see it as a needle mover one way or the other material for the year.

Yes. So basically, roughly half of the residential pie would be multifamily, I think is the way to think about it, Jeff.

Okay. And then last one. We've seen a little insider selling, I think, from member - the CAT, some of the CAT family and the Elkay constituents. Just wondering, one, if they did have more to sell, could you guys do kind of a buyback with that? And any kind of feedback on if this is fine-tuning or something leading to a bigger diversification?

Yes. I mean, obviously, the lockup ended at the end of the year. Obviously, there's some personal financial matters that I think the family is managing. We've got no indication that there is a significantly larger amount of this coming imminently. This was more a function of, I would say, just some of that initial reorganization work. But yes, over time, they've communicated to us an intention to hold a significant portion of this for a very, very long time. But I do suspect that there will be some selling over the course of the next several years that we can do a couple of things with. We can certainly leverage our own buyback. But I think there's - there may be a place and time if they wanted to sell a larger piece to do some point of marketed offering. But I think it will all be really well telegraphed and communicated because I think we're all - we're mutually aligned on making sure that the stock price goes up. And so I think that - but I don't think there's anything to read into it beyond just some initial financial planning that the family is doing.

Thanks, everyone, for joining us on the call today. We appreciate your interest in Zurn Elkay Water Solutions, and we look forward to providing our next update when we announce our June quarter results in late July. Have a good day.

This concludes today's call. You may now disconnect.