Good morning and welcome to the Zern LK Water Solutions Corporation first quarter 2025 earnings results conference call with Todd Adams, Chairman and Chief Executive Officer, David Pauly, Chief Financial Officer, and Brian Wendland, Director of FP&A for Zern LK Water Solutions. A replay of the conference call will be available as a webcast on the company's investor relations website. At this time, for opening remarks and introduction, I'll turn the call over to Brian Wendland. Please go ahead.

Good morning, everyone, and thanks for joining the call today. Before we begin, I'd 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. This release and SEC filings contain additional information about these non-GAAP measures, why we use them, and why we believe they are helpful to investors, and contain reconciliations to the corresponding GAAP information. 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. 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 LK Water Solutions.

Thanks, Brian, and good morning, everyone. Hopefully everyone's had a chance to read through the release and the charts from last night, so I'll get right to it on page three. We had a solid Q1, 5% organic growth, 110 basis points of year-over-year improvement in EBITDA margins, and cash flow ahead of our expectations. I think it's important to point out that there is little to no impact on the Q1 results from the implementation of tariffs, either in terms of additional costs arising from the tariffs, and certainly no realization yet from the new price increases we've announced that will be effective as we get into Q2. We're going to get into the details regarding the impact of tariffs in just a few minutes and share what it means to us from both a supply chain strategy perspective as well as from a pricing standpoint, but I'll give you the plunge sign ahead of time. First, we have high confidence we will be price cost positive based on the work and actions we've already implemented and will continue to optimize. Second, which is really important because there's been some confusion by the sell side on this by the end of 2026 only two to three percent of our cogs will be coming from china based on a glide path that dave will share in a bit before i turn it over to dave i think perhaps the most important takeaway this morning is that organizationally our deep expertise and track record going back decades and tested throughout the initial tariff environment in 2017 and 18 and again during the pandemic has only been enhanced through the breakthrough work we've been at for years now that breakthrough work is us spending the last four to five years to restructure our supply chain towards a scenario we are so where we are sourcing as close to zero as possible from China in the medium term and as you'll see in here this morning we come very close to that by the end of 2026 while our supply chain exposure gets smaller by the day it's also likely that we may end up with some level of new tariffs from non China sources moving forward even with that understanding we believe we have repositioned our supply chain to be both competitively advantaged relative to our industry and with the lowest total cost supply chain in whatever the new world might look like along with being dual sourced the time being we're accelerating everything that can be accelerated and like everyone else hoping for a little more clarity and certainty on what this ultimately looks like over the coming months now I'll hand it over to Dave to take you through some more color on the quarter. Thanks, Todd.

Please turn to slide number four. Our first quarter sales totaled $389 million, which represents 5% core growth. Our reported growth was 4% and impacted by one point of currency. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Mid-single-digit core sales growth in our non-residential end markets were partially offset by softness and residential and pockets of the commercial segment within non-residential. Solid execution on our growth initiatives drove our sales performance to the higher end of the outlook we provided 90 days ago, as our first quarter results were volume driven and, as Todd said, not impacted by the announced tariff-related price increases as those start in the second quarter. Turning to profitability, our first quarter adjusted EBITDA was 98 million and our adjusted EBITDA margin expanded 110 basis points year over year to 25.2 percent in the quarter. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives leveraging our Czern-LK business system and continuous improvement activities across the organization, as well as some carryover benefits of the synergy actions we took last year. Please turn to slide five and I'll touch on some balance sheet and leverage highlights. Back to our net debt leverage, we ended the quarter with leverage below one at 0.9 times. Our 0.9 times leverage is inclusive of the $77 million we deployed to repurchase shares in the quarter. $55 million of our share repurchases were part of the share offering that we executed in mid-February. Our balance sheet, leverage, and cash flow generation are in a good spot as we continue to evaluate our funnel of M&A opportunities. I'll turn the call back over to Todd.

Thanks, Dave. And I'm back on page six. Here's a glimpse at our Q1 sustainability performance. We've certainly not lost any focus on delivering amazing sustainability outcomes for our customers amidst everything that's going on. And in the past few weeks, we've been recognized for those efforts, including winning a Best Sustainability Reporting Award from IR Magazine, as well as being recognized as one of America's climate leaders. Number one in Wisconsin, number 55 out of the top five 100 and number three in the capital goods industry I'll highlight just one thing here and that's the 600 million gallons of filtered water delivered in Q1 that's up 33% over the prior year Q1 driven both by the growth in the installed base of filtered units and improved filtration attachment rates that we've been driving lots of things happening in and around drinking water and filtration with new products and traction in new markets and more to come on that over the course of the year but I'll get at it on page seven the purpose of the next several pages is to give everyone a sense of the current state of our spend split out to identify the tariff impact by geography what it looks like throughout the balance of 2025 and directionally into 2026 finally to give you a sense of the price impact necessary to recover the incremental costs as well as other things we're doing to mitigate the impact of tariffs As I mentioned earlier, we've been driving a multi-year change to our supply chain strategy, which has been guided by two fundamental principles. Number one, minimize our exposure to China. And two, competitively advantage ourselves from a cost, lead time, quality, and dual sourcing perspective while leveraging third parties, both domestically and internationally. Some of the constraints, or I guess realities are, is as an industry, there is minimal to no available domestic capacity for significant portions of what we source. That's before taking into consideration the cost based on things like material cost, labor availability, as well as capital expenditures required to scale to the levels we and other industry participants would require to meet the market demand. But the thing everyone is gaining a better understanding of in the recent months is that the lead time to make the kind of sophisticated changes we've made to our supply chain is measured in years as a result of just basic things like equipment lead times product quality protocols and processes and not to mention building relationships and trust with our supply chain partners given our decades of experience with this type of supply chain model we've been very intentional and measured in our approach to assure that we can scale all these new or duplicate capabilities without impacting our customers and finally we and virtually every other industry participant and competitor has responded with price increases above and beyond the normal annual price increases to reflect and offset the cost increases we're all seeing if and when these tariffs get implemented on the next page Dave will take everyone through some of the initial details to ground everyone on the numbers and I'll come back with a wrap-up go ahead Dave thanks Todd I'm on slide 8 and want to spend some time on our supply chain related cost structure.

As you can imagine, we've had a number of questions on our supply chain where direct material is coming from and how tariffs will ultimately impact our business. Starting with the box in the upper left-hand corner of the slide, we provide a breakdown of the $860 million of 2024 actual cost of goods sold. $507 million of our cost of goods sold relates to direct material spend and the remainder, roughly $350 million, relates to all other cost of goods sold. So 59% of our COGS relates to direct material spend and the remaining 41% labeled as all other cost of goods sold relates to everything else, items like freight, direct labor, and overhead. The center of the tariff discussion is where goods are being sourced and the box on the bottom left of the page helps to clarify what that looks like for Czern-LK. Of the total 2024 direct material spend, 44% of that spend, or $222 million, came from North America. North America represents our largest concentration of both COGS and direct material. Our 2024 direct material spend out of China was $127 million, or 25% of our total direct material spend. And finally on this box, our 2024 spend coming from countries outside of China and North America is roughly $158 million, or 31% of our direct material spend. Shifting to the box in the upper right corner, approximately $285 million, or 33% of our cost of goods sold, are on the surface subject to some level of tariffs. tariffs. That $285 million is divided up into two buckets, product sourced from China of $127 million and product sourced from all other countries of $158 million. With the tariffs in place today, most material purchases coming from China are subject to a tariff as high as $145 million. However, there are some exclusions, like products that is primarily iron, steel, or aluminum, that result in a tariff significantly lower than the $145 million. With $158 million of product being sourced in all other countries outside of North America and China, there's generally a 10% reciprocal tariff in place, again with some exception. When we add up everything for Czern-LK with the tariff environment in place today, we expect our tariff cost impact before any price for 2025 to be between $45 and $55 million. Todd will cover our response to the tariffs and pricing in a bit, but before we get to that, I want to cover the last box on the slide. As a business, we navigated the initial tariffs that were put in place several years ago very well. While we successfully managed the day-to-day impact of those first tariffs, we also implemented a multi-year strategy to significantly reduce our exposure to China that we are now seeing the benefits of. China is at the center of the tariff conversation today, and the last box in the lower right-hand side illustrates the work we have done and are currently doing to substantially reduce our exposure to China over the coming quarters. As you can see, our direct material spend from China will be under $30 million by the end of 2026 and significantly reduces each quarter as we move forward. This has been an intentional project over the past several years, and we have an exceptional supply chain team, both here and in Southeast Asia, for managing the process. As we continue to gain clarity on a tariff environment, this chart will evolve as we accelerate moves out of China, shift production to dual sources, and respond to the latest set of rules around tariffs. In the end, what this all means is that by the end of 2026, we are looking at a combined Zern-LK business that has less than 2% to 3% of COGS coming from China. I'll turn the call back over to Todd to wrap up the tariff discussion.

And just to wrap it up on supply chain and price cost, and I'm sure there'll be some questions. You know, our response to the tariff situation or other derivatives of it is grounded in finding the best combination of highest quality, most reliable, and best cost supply chain we can. It feels like there'll be multiple episodes or layers to how tariffs will unfold moving forward. However, it does feel like we're going to be in an operating environment with some level of new tariff or added cost for at least the foreseeable future. Based on our response to the situation both through our supply chain actions and selective price increases we have high confidence in our ability to manage above it and stay in front of it. As Dave said our China spend gets smaller each and every day and by the end of 26 will represent only two to three points of COGS which means as we cover the costs in 25 it actually gets easier to cover those costs into 2026. In the meantime, we're going to continue to do what we have been doing, which is managing this on a skew-by-skew basis, supplier-by-supplier, country-by-country, and we've got the experience and track record to make it happen. And just to clarify, what we're outlining this morning is based on the scenario in place as of last night. As things change, we'll adjust and adapt accordingly. But in any event, our hope is that we give you a better sense of how well positioned we are to manage in this environment. So that's what we know at this point, and I'll turn it to Dave for the Q2 Outlook.

Before I jump into guidance, I wanted to take a minute to give an update on our Hashtag CI projects. As you recall from our last earnings call, these are projects submitted by our associates and aimed at getting incrementally better each and every day. We challenged our team at the start of the year to have a substantial increase in the Hashtag CI submissions, and through the first quarter, our associates have responded. Year-over-year, the submitted hashtag CI projects are up 60%. These are items that save time, eliminate waste, and improve day-to-day processes and are then shared across the organization. Now to the guidance. For the second quarter of 2025, we are projecting core sales growth to increase in the low to mid single digits over the prior year, and we anticipate our adjusted EBITDA margin to be in the range of 25.5% to 26%. which is 20 to 70 basis point margin expansion over the prior year. Within slide 10, we've included our second quarter outlook assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, adjusted tax rate, and diluted shares outstanding. Our first quarter actual results and second quarter guidance puts us well on track with the first half pace needed to deliver the full year guidance we provided 90 days ago, and we are affirming our original full-year guidance. We'll now open the call up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter into the Q&A session, we ask that you please limit your input to one question and one follow-up. At this time, I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of Brian Blair of Oppenheimer. Please go ahead.

Thank you. Good morning, guys. Nice start to the year. And it kind of goes without saying that a lot has changed since early February when you initiated the 2025 guidance. But it's encouraging that you've It maintains your outlook for core growth, margin expansions. I imagine the bridge looks quite a bit different from the original framework. I apologize if I missed some of this detail. I had some technical difficulty at the outset. Relative to the roughly three points of volume, one point of price that you had discussed previously, what's your team now contemplating for volume and price contribution for the year? and then beyond pricing maybe you can offer a little more color on some of the operating adjustments repositioning that it will help your team to navigate the uniqueness of this backdrop yeah Brian I think you know I'll answer it this way which is I would say separate for a moment what our current outlook is versus what we expect to achieve I think you know we've got eight months left in 2025.

And as you point out, there's been a lot of moving parts. So there's a premium on being both agile and experienced. And so I think the price increases that we've announced into the market would generate price well above the 1% that we're talking about. But we also have eight months to go. And I think it wouldn't be prudent to identify what would be the incremental change to our guidance from a price perspective without sort of contemplating what would be the impact to the end markets over the course of the next eight months which nobody knows so I think what we're saying to tell you this morning is our initial framework contemplated a wide range of scenarios our response both from a supply chain perspective and a price increase gives us great comfort that we can manage to at a minimum the guidance that we had in February and are reiterating this morning and as this thing unfolds over the course of the balance of the second quarter and and potentially longer we'll update accordingly but I think as Dave shared we've got I think a really solid view on Q2 we think we're really well positioned from the work we're doing on the supply chain front and obviously we've we've announced some price increases as well as the entire industry and we're all sort of managing this sort of week by week but I think The guidance that we put out is very durable, regardless of the environment, but that's the way to think about it.

I appreciate the color, and that does make sense. Appreciating that we are early days here. Is there anything that you can speak to in terms of impact to project timing or phasing or any notable change in MRO order trends over the last few weeks since the industry has had?

I would say from our understanding that that you know pricing was going to go up materially over the near term yes so we pointed out that we really had no revenue impact in the first quarter from it we did see orders accelerate maybe the last seven to ten days of March and into the first couple of weeks of April ahead of our 415 price increase but notably you know nothing has been at least that I know has been pushed moved or changed you know I think that you know these are these are buildings that are likely going to be built on the new construction side and really no notable change in the MRO

activity at least at least from what we've seen so far that isn't great I'll get there thanks again thank you your next question comes from the line of nathan jones of stifle please go ahead good morning everyone morning um i guess i'll talk a little bit about tiresome price uh i'm sure i'm sure that's all we're going to talk about today um that's shocking that's shocking no i know i'm sure you're shocked uh about 50 million dollars of overall cost increase here implies that you probably need mid-single-digit pricing to cover that. So first, a clarification. When you say price-cost neutral, are you talking on a dollar basis or at the margin line?

I think what we're trying to highlight, Nathan, is at a minimum at the dollar level based on the scenario that we've laid out.

Fair enough. And I guess I know it's very difficult to kind of speculate on what these impact the price increases will have. on demand. But you guys kind of reaffirmed the full-year guidance. Obviously, price is going to be a fair bit higher. Do you just assume that there's some demand destruction that goes along with that and you kind of end up at the same place at the end of the year?

I don't think that's the way we've constructed it. I think the perspective I would offer is there could be some demand destruction, but we don't know to the degree what that is at this point. So I think the way to think about it is uh it's not going to foot across um old guidance plus price minus something doesn't equal where we are today i think we're putting it in as a placeholder for the time being and as things become a little bit more clear over the course of the quarter you know we'll we'll we'll update people as we can but i think our uh if i had to call it now i think that you know we would we would benefit from the net price increases on our top line guide for the course of the year And obviously, that would probably have at a minimum, you know, some some relatively positive EBITDA impact. But, you know, I think it's a little bit too early to make any of those calls at this juncture.

OK, I have one hypothetical question for you. I expect that you guys are raising price to cover what the current tariff environment will be. Over the next year and a half, you're going to significantly decrease the amount of product that you're importing from China. China, which shouldn't decrease your costs. And then you have the potential, you know, Trump was out yesterday saying tariffs on China are going to come down a significant amount. If this price goes through and then you start reducing the cost and then potentially the US administration starts reducing the cost, do prices go down or does Zern hold the line on that pricing?

Well, I think it's, it is very hypothetical there's only about six nested questions in there the way to think about is Nathan the normal price increases that we put in for decades we've never retraced price I think this sort of feels like a little bit of an unusual environment and I think we'll have to be smart about it to support the industry and support our customers I will tell you that you know we monitor all competitive price increases and we're all sort of grouped at the same level. And so I think being advantaged from a supply chain perspective in whatever the environment going forward is will ultimately benefit our profitability. But I think those are a lot of nested hypotheticals. And I think as things clarify, we'll clarify it for you. I think that answers the question.

Thanks very much.

Our next question comes from the line of Andrew Creel of Deutsche Bank. Please go ahead.

Hi, thanks. Good morning, everyone. I wanted to ask on your education vertical. Obviously, that's one of your biggest, most important verticals. So have you seen any slowing there or increased hesitancy from customers on the spend? And I think the spirit of the question is if Doge and the Trump administration cut some spending or have any impact there. Thanks.

We have not. Great.

That is good. And then one more on the Foyer guide and going back to tariffs, just I think it seems like one of the bigger potential risks is that this rest of world tariff right now, that's at 10 percent assumed in the guide, you know, goes back or goes up to a, you know, 40 percent plus type of number. and, you know, this does seem to impact where you have been moving, you know, the supply chain to. So, like, if that were to happen, you know, what's your level of confidence that you can quickly react to that? And, you know, can you still affirm this full-year guide if that were to happen?

Well, I guess, Andrew, I've tried to answer it, I think, at least a couple times. I think that we believe we have the best cost supply chain in the industry we are clearly a market leader if we look at the competitive responses and basically the competitive manufacturing footprints we feel very comfortable with how we positioned ourselves in terms of affirming a hypothetical guide based upon a hypothetical tariff increase I don't think that that would be very wise to do in this moment other than to say you amongst others thought that we had a big problem heading into this quarter here is here are the facts as we know them today hopefully the takeaway is that you know we're managing it really effectively and I think whatever the change ultimately turns out to be and it may be multiple twists and turns I think you can count on us managing it very effectively yeah I think too Andrew what I would add is just around the tariffs there's a number of actions that we can take, right?

We can accelerate moves out of a certain country. There's levels of consignment inventory. There's levels of inventory that we've bought ahead. We can manage receipts, timing of receipts. We can shift production. We're not single sourced on any major product category, so we can shift to a different source. So whatever the ultimate tariff ends up being, I think it's going to change here. We feel like we're in a very good position to react to that and put ourselves in a favorable position.

Your next question comes from the line of Mike Halloran of Barrett. Please go ahead.

Hey, good morning everyone. So first question is just if you look back historically and think about channel and obviously this is unique, but how does the government channel and specifically on the drinking water side of things, how do they react on the capex side when you get these periods of uncertainty because you're kind of balancing really good seculars, a lot of need for the drinking water fountain replacement cycle and the filtration with, you know, limitations potentially on funding or something else. You know, historically, how does that play out in your mind?

I mean, again, specifically the drinking water, Mike, I'm not sure that we have, a long history. I do think that the government vertical for us is relatively small. And so I think when we think about drinking water and where we're investing, it's a combination of, as we've talked about, education, health care, and then a lot of other sub-verticals beyond that, of which government is one. So I don't see it as being particularly, I don't see it creating a particular headwind I guess is the way to say it most most simply but I guess we'll find out but again I think we've got enough other really good things going on in terms of product channel adjacency new products filtration attachment you know that those are all things that are that we can't control or in our favor I don't know how to handicap the size or the impact of the government piece but my sense is that we'll be able to outrun it without much of a problem okay that makes sense uh thanks for that and then and then just from a timing perspective

um you know you made the point of purchasing inventory from your side to get in front of some of these headwinds um it seems if i'm thinking about the second quarter and then the back half of the year that the inventory side keeps you in a pretty good cost contained position for the second quarter and then the pricing is more of a 3q impact and so that's how the balancing works out and i think about that timing appropriately or does that inventory stretch farther less far and just kind of thinking about the cadence and if that makes sense i think at a high level it's a reasonable assumption you know taking it as a whole it obviously is uh the devil is in all the details in terms of you know what we bought ahead what

we've moved, what we're transitioning over the balance of the year. But I think in general, it's not a bad, it's not a bad way to think about it.

Thanks, guys. Appreciate it.

Thanks, Mike.

Your next question comes from the line of Andrew Buscalia of BNP Paribas. Please go ahead.

Hey, good morning, guys.

Morning.

I just wanted to ask on, you know, you're one of the first a couple of companies to report so far. And, you know, you guys are doing a great job managing through this tariff environment. And I'm wondering, you know, post-COVID, we saw a ton of inflation. We had to raise prices above average levels. Similarly, with tariffs, you know, we're taking more price. And I just wonder for, you know, this is a question maybe for all companies, but are you sort of borrowing pricing in a way from the future? And like, does something have to give at some point, right? Or like, I understand, you know, your commentary on demand destruction, but at some point, you know, what, how does this end if you just keep taking price to offset these costs?

Well, I don't think there, anyone knows the answer to that. I would tell you that if you look at our end market which is primarily north america you know the there's a only a handful of market participants it's protected through uh highly highly specified products through uh reps and channels and everything else so i think we're all sort of in the same canoe and so to the degree there's going to be a school built a hospital built a stadium built, I think that it will need the products that we sell. And obviously, I think for a lot of reasons, if these do go through at the levels that they're talking about, it will create inflation. What that does long term, I don't know. It's probably not great. But I think for the near term, we feel very confident in our ability to navigate in front of it. And I also think it's going to be a moving target. I read some things last night this morning around you know the 145 on china is too high and likely coming down but not to zero i think our working assumption is that you know that 10 sticks at a minimum and maybe goes higher and so i think we've just got to navigate through all these moving parts for a period of time but the thing that i think is again the most important aspect of this we've operated this model for decades and navigated through a lot of different uh dynamics and this is just one more and i think that we feel very confident with the team we have the processes we have in place our connectivity and the way we manage it with our business system you know is going to keep us in

in great shape moving forward and you know there's a premium on being agile and experienced in this sort of environment and we think we think we like our chances yeah yeah and you know when i first saw you know press release hit and you guys grew organic five percent um and made the comment not not a lot of price in there i thought maybe you had some pull forward but then i see on a slide you're managing customers ordering ahead so so effectively you're not really seeing um pull forward so i'm wondering what's that dynamic like are you building a backlog effectively or, you know, trying to control, you know, that level of pull forward in order to maintain some normalcy, I guess?

Well, again, I think it comes down to a bunch of things, right? I think, you know, just we're sort of minimizing the amount of just pure buy ahead from a price perspective because we've got other customers that need it as opposed to someone buying it and putting it on a shelf. That's for the MRO piece. I would tell you there's not a lot of people that are buying, you know, drains and large backflow forward just based on the size and space constraints and things like that. So we want to maintain a high level of availability. We don't want to get into a position where, you know, we're creating waste by expediting things or working overtime for something that's not really needed in the moment. So, yes, we are managing that backlog to date it in ways that make sense for our customers, protect what's been bought to a degree, and seek more clarity on what the rest of the year looks like.

So I think we're managing it, you know, literally day-to-day, customer by customer, skew by skew, and I think our teams are doing a really good job of that and are very experienced in doing that. got it thanks todd yep your next question comes from the line of jeff hammond of key bank capital markets please go ahead hey good morning guys morning morning jeff thanks for the color and and a lot of good detail here just want to go um back to to that bottom right chart on slide eight um as you think about the ramp down you know is this kind of as it was always planned or is that an acceleration. And then two, I think the shift has been to Southeast Asia. And I think, Todd, you mentioned, you know, there'd be some tariff, but are you, are you continuing to shift where you thought you'd shift or are you contemplating, you know, other, other locales?

I think the only thing incremental, Jeff, would be, you know, we have done some work to source in the U.S., maybe on an accelerated basis over the course of the last three to six months so yes it's southeast aza yes it's parts of Mexico but I think we've I think the only thing that's changed maybe from our plan is to you know bring some more sourcing to the US and that's reflected you know I think in all the numbers that we're we're giving you okay and then um the 45 to 55 million was a

little bit lower just kind of doing the simple math and and i guess one i want to understand better the the exclusion you know what portion of the china is excluded and what kind of the tariff rate on that and then you know i guess the other moving pieces would be your your downshift and mix and and kind of how much inventory you have on there but it just seems like the pricing it looks like you have two prices that kind of add up to low 20 percent just seems like a big number relative to you know pretty manageable impact thanks yeah so i'll take the first part of your question jeff just on the actual expected tariff costs so the 45 to 55 million there's a lot of

nuances in there but essentially if you look at just the tariffs coming out of china there's what what folks are calling the IEPA tariffs, the International Emergency Economic Powers Act. There's the reciprocal tariffs that stack on top of IEPA. There's the Section 232 steel tariffs. There's the existing from, you know, years ago, Section 301 tariffs. And so all of those different tariffs that I just mentioned carry a different weight, the highest being the 145, the lowest being 20. And so when you start looking at our receipts, you've got to go literally down to the HTS code to understand what HTS code that's being received under, and then that impacts what rate you're ultimately paying. And so I think on the surface, folks are thinking it's all 145%. That's actually not the case. And so there's a decent portion of our products that fall under that steel, aluminum type exception that are being tariffed much lower than the 145.

Yeah, Jeff, it's all predicated on the HTS code and the harmonized tariff schedule that Dave talked about. And so each thing that people import gets imported under this particular code. And each code has a particular tariff assigned to it based on the properties and principles of it. And so, you know, this is not a tops-down exercise. This is what our, based on our receipts and our receipt profile and the HTS codes and quantities that we're importing, this is what it looks like. Okay.

That's a really helpful color. Thanks, guys.

Your next question comes from the line of Joe Ritchie of Goldman Sachs.

Please go ahead. hey guys good morning and um just want to say you know thank you for the transparency on slide eight that's uh it's very it's very detailed super helpful thanks for that um i first question really as you kind of think about your kind of relative competitive positioning to some of your biggest peers you know i know watts isn't going to report for another couple weeks how how do you think you're positioned from a cost structure standpoint relative to your biggest peers?

We think we are extraordinarily well positioned from a cost perspective.

Okay.

Is there any other color you can provide just on what you've heard from either your customers or suppliers in terms of what that actually, is there a way to quantify that or what that actually means more details around that not that we're willing to talk about i mean i don't think that i think you know everyone makes capacity and fulfillment decisions based on what their core competencies are you know we have some competitors that clearly are more vertically integrated for relatively small portions of what we compete with them on and so i think if you listen to the original comments you know the capacity available capacity for the stuff that the products that we have you know is very limited and yes there is some captive capacity that certain of our competitors have but I would I would just highlight that it's relatively small and so when you look at the competitive response with respect to price increases and other things you know we're all sort of lined up at roughly the same prices some people ahead some people behind and then the decision is how do you want to service that demand from a quality reliability lead time and cost position and I think you know we're really happy with where we sit competitively really across the board okay great and then just my quick follow-up for for Dave I saw you guys

accelerated your buyback uh this this quarter how are you thinking about you know continuing to to maybe more aggressively buy back your shares just given the current environment sure so we bought back 77 million in the quarter i mentioned uh at the start the 55 million was part of the offering that we did in mid-february i think uh our cash flow guidance was 290 million for the year. We're confident in our ability to hit that. And we'll just continue to monitor as we have done called the past two years and make smart decisions from what the stock price is and how much we buy in a quarter. But I think given where our leverage is, given where our cash position and future cash flow generation is, we've got the ability to continue to buy back.

Okay. Thank you. Thanks, Joe.

There are no further questions at this time. With that, I will turn the call back over to Brian Wendland for final closing remarks. Please go ahead.

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

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask to please disconnect your lines.