Zurn Elkay Water Solutions Corp (ZWS) Q2 2025 Earnings Call Transcript

Good morning and welcome to the ZERN LK Water Solutions Corporation's Second Quarter 2025 Earnings Results Conference Call with Ted Adams, Chairman and Chief Executive Officer, David Pauley, 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 introductions, I'll turn the call over to Brian Wintland.

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. Our earnings 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. 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. 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. Hopefully everyone's had a chance to read through the release and the charts so I'll just get right to it on page 3. The underlying momentum in our business continued in the second quarter as we posted 8% organic growth EBITDA grew 13% year-over-year and margins expanded 120 basis points. As we discussed last quarter we continue to have high confidence in the resilience of our end markets the benefits we're seeing in our targeted growth initiatives and finally our proven ability to navigate the current global tariff environment with the robust supply chain capabilities and experience we've built underpinning all of that is our culture of continuous improvement driven from our deployment of the zern lk business system last quarter we reiterated our four-year outlook and provided a framework for what the impact of tariffs and our resulting actions could look like. As things have evolved and changed over the last 90 days, that framework has only improved despite the inclusion of some new items like the 232 copper tariff as well as various trade deals that have been announced as finalized. As a result of our core business trajectory and inclusion of the now more known tariff situation, we're raising our outlook for the year as it relates to top-line growth, EBITDA, and free cash flow. Like we said last quarter, and we'll probably say several more times this morning, our approach to our outlook this year will be to take things a quarter at a time because there's been several scenarios as to how all of this change could have played out, and yet we find ourselves raising guidance here midway through the year. The thing that's unchanged from the first quarter is our confidence to navigate through all this in a way that will drive not only great results over the balance of this year, but into to 2026 and beyond. Now I'll hand it over to Dave to take you through some more color on the quarter.

Please turn to slide number four. Our second quarter sales totaled 445 million as we continue to have solid execution on our growth initiatives. The 445 million of sales represents 8% core growth year over year. In the second quarter, we generally saw our end markets perform in line with our expectations as the non-residential market remains positive while the residential markets are experiencing some softness. Within the 8% core growth, there's approximately 8 to 10 million coming from customers ordering ahead of price increases and a point coming from realization on our tariff-related price increase that happened in the quarter. As we mentioned last quarter, we did see some customers ordering at higher volumes late in the first quarter and into the second quarter in advance of our announced price increase. Our team did a good job of working to appropriately manage the incoming orders so as to not create unnecessary inefficiencies within our operations and supply chain. We believe these orders will primarily ship in the third quarter. Turning to profitability, our second quarter adjusted EBITDA was $118 million, and our adjusted EBITDA margin expanded 120 basis points year over year to 26.5% in the quarter. At 26.5%, our margins are the highest we've delivered in a quarter since the Zern-LK merger occurred a little more than three years ago. The strong margin and year-over-year expansion was driven by volume leverage, productivity initiatives, leveraging our Zern-LK business system, and continuous improvement activities across the org. With respect to the first half, our sales and EBITDA have increased 47 million and 22 million respectively, which represents 47% drop-through on a year-over-year volume increase. Our first half EBITDA margin improved 120 basis points year-over-year as core sales grew by 7%. Please turn to slide 5, and I'll touch on some leverage and free cash flow highlights. With respect to our net debt leverage, we ended the quarter with leverage at 0.7 times, the lowest leverage we've had as a public company. Our 0.7 times leverage is inclusive of the $33 million we deployed to repurchase shares in the quarter. Free cash flow exceeded $100 million in the quarter for the first time and ended at $102 million. Our balance sheet, leverage, and cash flow generation are in a good spot as we continue to cultivate our funnel of M&A opportunities. Turn the call back to Todd.

Thanks, Dave, and I'm back on page six. We continue to make solid progress during the quarter on our sustainability initiatives and goals. For our customers, we have delivered 1.2 billion gallons of safer, cleaner filter drinking water so far this year through our installed base, which is up 21% compared to the prior year. I also want to mention the recent introduction of our total PFOS filter. This is a significant enhancement to our previous PFOA and PFOS filter, and so important as municipalities across the country are dealing with the effects of both lead and PFAS in their drinking water supplies. We've also prevented 9.6 billion single-use plastic water bottles from entering water streams. These benefits will continue to grow as our installed base grows, and filtration attachment rates will improve. Through the end of the quarter, we've done $1.4 million in total philanthropic giving so far this year, which already exceeds our year-end total in 2024. This is part of our Fountains of Youth Filtered Bottle Filler product donations that we're making across the country where lead levels and now PFAS levels are high and resources are low. The donations reach from California to New York and from Jackson, Mississippi to Erie, Pennsylvania. I also want to point out that we've made another improvement to our quarterly reporting. On the right-hand side, you'll now see the methodology behind the sustainability metrics we're sharing. It's unchanged from how we've been reporting it, just more transparency for everyone to see quarter to quarter. This information is always available in our annual sustainability report, but we wanted to make it even easier for you to access. The last one for me is on slide seven last quarter we got the question so what's happening with drinking water and we told everyone quite a bit and there's more to come over the course of the year so here's that update and what i'd call the first ever major refresh since the inception of the bottle filler category this past week we shipped our very first units of lk pro filtration which meaningfully extends upon the competitive advantage we have and marks another significant milestone in our commitment to immediate and cost-effective solutions to address the country's aging infrastructure by providing cleaner and safer water through point-of-use filtration. Our new LK Pro filtration was developed from enormous amounts of customer feedback and from a variety of constituents and both verticals and all verticals where people ask for faster filter changes, longer filter life, and enhanced aesthetics. And our new units deliver all that and even more. The best part of all of this is that the new units are a drop-in replacement for the prior generation of bottle fillers to allow seamless upgrades for units that have become ready for replacement or customers who want all the latest enhancements. To build on my little infomercial here, here's some of the critical features in the new bottle filler. We've moved the filter to eye level to make the filters in our units the easiest and fastest filters to change. Filters can now be changed in less than 30 seconds and any teacher facilities person or even a student can change the filter very very easily in addition to having by far the most efficient filter change the unit supports multiple filters including an optional sediment filter for areas where the water quality needs even more filtration in short order we'll have the ability to filter up to 20,000 gallons in a single filter change there's more to come on that later in the year the filters associated with the new unit were also upgraded our highest capacity lead filter certification is increased from 6 000 gallons to 10 000 gallons of filtered water and all the filters also contain a proprietary head that allows for only lk filters to be installed for the unit to operate properly which over time will drive an enhanced attachment rate and bring real value to our building customer building owner customers. In addition to increased filter capacity and to follow on my earlier comments, we also improved the PFAS filter. Moving from a filter that was certified for only POFOA and PFOS to a total PFAS filter that is certified for substantially more contaminants within the PFAS family. All the units will be shipped as connected units and facilities managers can remotely monitor filter life and also the status of the bottle filters we packaged all the items i mentioned in a new high-end aesthetic that we believe will resonate with architects and specifiers so longer filter lives less maintenance quicker filter changes improved aesthetics and connected capabilities all provide customers with just another reason to choose lk now i'll turn it over to dave for an update on tariffs and our outlook thanks ted i'm on slide eight and we'll provide an update on supply chain.

There have been a number of moving pieces with respect to tariffs over the last 90 days, but when we aggregate all of the changes and focus on the tariff environment in place as of today, we expect our tariff cost impact before any price for 2025 to be between $35 and $45 million. This is a reduction of $10 million from what we thought 90 days ago. The reduction reflects China's rollback of reciprocal tariffs from their peak of 145%, partially offset by several increases, including country-specific reciprocal tariff trade agreements at rates higher than the initial 10%, implementation of Section 232 steel tariffs at 50%, and the proposed copper tariffs. Our team will continue to monitor and respond to tariff changes to ensure the best possible outcome. As we talked about last quarter, we are committed to significantly reducing our direct material supply chain exposure coming from China. This has been an intentional project over the past several years, and our supply chain team, both here and in Southeast Asia, continue managing the process. We're firmly on track and in some areas ahead of schedule to deliver on our commitment that by the end of 2026, less than 2% to 3% of CERN LK's cost of goods sold will come from China. While the environment around tariffs seems to be a moving target, our team is confident that we can remain price cost positive in the short and long term. Now to the guidance on slide number nine. For the third quarter of 2025, we are projecting core sales growth and adjusted EBITDA margin to be similar to what we just delivered in the second quarter. Oftentimes, our second and third quarters look very similar given the construction cycle throughout the U.S. As a result of the strong performance in the first half, we are raising our full year sales, EBITDA, and free cash flow guidance. For the full year, we anticipate core sales growth to be at least 5% year-over-year, adjusted EBITDA of $420 to $430 million, and expect full-year free cash flow to be approximately $300 million. We've included our third quarter and full-year outlook assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, adjusted tax rate, and deluded shares outstanding. Thanks, everyone.

We'll now open the call up for questions at this time i would like to remind everyone in order to ask the question press star then the number one on your telephone keypad we encourage everyone to limit yourselves to one question and one follow-up we will pause for just a moment to compile the q a roster your first question comes from the line of brian lair with oppenheimer your line is open Thank you.

Good morning, guys. Solid quarter. Thanks, Brian. Good morning. I was hoping you could offer a bit of color on Q2 growth by product category. Notice in the queue that all categories grew. Just appears we can offer some detail there and then what you're contemplating by category in the Q3 guide as well.

Yeah, I know that we're going to get into that from an outlet perspective, but you saw the growth rates by category. I would say that, you know, a lot of the innovation that we've been talking about over the last couple of years in obviously drinking water, but also flow systems and water safety and control is absolutely reading through. You know, we're looking at, you know, unit volume growths that are significant and share gains that we think are, you know, clearly sustainable. And so I think what you're seeing is the momentum around some of the new product development that's been going on the last several years really sort of begin to hit the market. And I think that that sort of feels very sustainable to us as we go into, obviously, Q3 and beyond.

And perhaps speak to your M&A pipeline. you know you're obviously not in any way capacity constrained and it sounds like your team has been quite active just haven't uh you know had a meeting of the minds to you know get get a deal through um any detail you can offer on composition of the the pipeline uh perhaps actionability would be helpful thank you yeah i mean obviously brian there's uh you know it's it's part of what what we do you know we've just spent the last two days going through our product lifecycle management process where we not only sort of think through what the next generation of our products look like we we do deep dives on the

competitive competitors in each of our segments and and look for opportunities and then those opportunities are things that we generally end up cultivating for a number of years and we also augment that with getting into new categories organically and so I'm not sure I'm gonna ring the bell on giving you every detail about our funnel and where we're at other than to say that I think we've got a very good process around identifying targets where we want to go and cultivation and you know as something moves to a closer stage we obviously will be in a position to get it done but at the present I think we're just going to continue to do the work, do the cultivation, build the relationships and work on, you know, potentially plan B if we can't get there fast enough, which is to do it on our own. And so nothing changed from that regard. And, you know, we'd certainly like to get something done because we clearly have, I think, both the management capacity to do it, the optionality with our balance sheet and increasing levels of free cash flow. and then obviously, you know, bringing the business system to bear, you know, on a potential acquisition. So, we're just going to keep doing the work and we know that it'll come through at the right time.

Your next question comes from the line of Andrew Quill with Deutsche Bank. Your line is open.

Hi, thanks. Good morning, everyone. I was hoping to get, you know, if you don't want to pine on the product line specifically, maybe you could give us an update on the end market outlook. I think as of last quarter, it was about a 1% market growth rate, you know, as we blended institutional, commercial, Resi, and Waterworks. Maybe, like, what are you thinking about those different verticals now? And Resi seems a bit weaker, so maybe what's offsetting that?

Hey, Andrew. I think when you look at the guidance that we gave initially back in February, if you look at that stoplight chart, what we said for each of the end markets, I think, is largely playing through. i think the only thing that i would point out that has changed from our initial guidance is the resi market does seem to be a touch softer but otherwise i'd say our outlook for institutional commercial and waterworks is is unchanged from that initial guidance and we we think that'll continue to play through the rest of 2025. that's helpful and then i'd like to see the new filtration offering at LK.

In the past, you know, I think there has been a target out there of getting to around $100 million or so in the annual sale. So, can you level set us, you know, where you are on that now? You know, is that $100 million still the target? Like, you know, or could that be revised higher? And any sense of growth rates in this product line would be helpful. Thanks.

Yeah. I mean, obviously, as we, as the year goes by, as the years go by, our installed base grows, you know, the target towards 100 is going to continue to be raised, I think, over the next several years. The target will be, you know, higher than that. And I think the important thing to note about the profiltration is if we can drive enhanced attachment rates with the combination of features and benefits that I talked about, and we think we've really hit the mark on that and there's more that'll be coming along that vein, I don't think there's any question of is it a hundred million dollars it's just a matter of when the growth rate is is clearly double digits has been continues to be and you know I think we're we're hitting our stride with the filtration piece of the bottle filler category and and so great work by our teams you know you can you can see how much easier it looks to change I can tell you the higher capacity filters resonate with building owners you know because you're having to do it fewer times a year and so i think the combination of everything we've done there hits the mark and i think we're going to see um you know just terrific growth continued growth in the filtration category for for years to come your next question comes from the line of nathan jones with sniffle your line consultant good morning everyone good morning um i guess i guess i'll do a follow-up on the the uh new filtration product there is there a materially higher asp for this kind of product

is this more of a you know market share play or just what's the value uh to to okay into the customer from this yeah i think you know todd went through some of the features and benefits to the customer, which I think are a nice improvement over the historical unit.

In terms of just selling price, Nathan, I think we'll probably see probably a 10% increase in average selling price or list price to what the historical units or equivalent unit had been in the past.

That's helpful. My other question is, I guess, on some of the dynamics that you saw in the quarter, you talked about 10 million of demand pulled forward into 2Q, but said that would ship in three Q, is that right?

No, I think what Dave was saying is it was in the second quarter, there was probably eight to 10 million of true pull ahead from a sales perspective. The order pull ahead was probably a little bit bigger than that and that piece will be extinguished over the course of Q3. So I think that when you think about how the year has evolved sort of beginning mid to late March, there was the noise around tariffs and then there was liberation day and then there was announced price increases and then there was uh you know the the secondary reaction to even higher than expected tariffs and now that's pulled back and so from like sort of march through maybe you know early june mid-june we saw extended you know sort of order rates some of that wound its way into the quarter but based on, you know, managing customer demand, we were able to push it into the Q3 period and, you know, avoid sort of spending a ton of money on expedites and overtime and buying, you know, even more inventory for what was not real live demand. I think there was a little bit of a surge to beat some of the price increases, but I think that sort of leveled out. We certainly saw that over the course of July. And again, you know, sort of study as she goes Q3, and we'll see what happens throughout Q4.

Your next question comes from the line of Mike Halloran with Baird. Your line is open.

Hey, good morning, everyone. Well, just following up on that last one there, I mean, the dollar numbers you're talking about from a pre-buy perspective aren't particularly large.

So I'm guessing you would say that the inventory levels from a channel perspective are relatively balanced LL SQL adjusting for some modest pre-buy here and there I absolutely think that that's the case Mike it sort of always is with us I mean I don't think you know we've ever really talked about any sort of channel situation because these are all products that are going to sort of live opportunities as construction happens or an MRO event right so it's not like you're going to put a lot of these at a job site just because you could buy it for a little bit less, but you could buy it six months early. And so I don't think we have much of any channel dynamic on the come.

Yeah, makes sense. And then just a guidance question. If I take the third quarter comments on relatively similar margin levels to 2Q, it implies a step down in the fourth quarter on the margin level, which I think is at odds with the commentary and the confidence you have. So is that just related to Todd, your early comments of, you know, you're taking this quarter to quarter and probably haven't fine-tuned the full Q margin all that much, you know, relatively normal seasonality expected going into the fourth quarter. Maybe just help me triangulate to that a little bit.

Yeah, I think maybe what it implies is maybe not what we're thinking. I think 100% correct. We're just sort of taking it quarter by quarter and we don't have any event-driven things that we're sort of signaling with that fourth quarter margin. I think when we get to October and we're back together, we'll obviously sort of let you know exactly what it's going to look like. But at the present, I don't think there's anything to read into what the, I guess, implied margin number looks like in Q4.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas. Your line is open.

Hey, guys. Thanks for taking my questions. This is the add-on for Andrew. Some industrial companies have cited some concerns on budgetary spending for healthcare and education, which might already be starting to show up in their results, but it doesn't look like you guys are seeing this based on this quarter and last. Can you draw a line as to why you may not see any weakness in these areas yet? And if this may be something you see delayed and just an update on those end markets.

Yeah, we really haven't seen the impact of some of the cuts that you're talking about. If we look, health care and education are a big piece, our two largest end markets. And so we still continue to see that end market being strong. I think if you look specifically within education, a lot of the cuts were to specific programs versus, you know, kind of the spend that would be in and around building upgrades and things like that. So we just haven't seen it impact. We haven't seen it come through in terms of orders or how those end markets are performing.

I guess, Andrew, the only other thing I'd, you know, Dave commented on some of the start information. You know, as we get to the third quarter, like we've done for the past several years, we'll give you sort of our best view of the market based on the Dodge data and maybe an overlay of what we're seeing as well. But just to reiterate what he said, no, we're not really seeing any of that slowdown happen. And, you know, if you think about the lag effect of all of this, you know, very little of our revenue in the first half was derived from things that were started this year. And so I think when you when you look at it sort of tends to smooth out over time and and over the course of a construction cycle for us and maybe ways that could be a little bit different than some of the people that you're referencing.

Yeah, great. Very, very helpful. And then I guess somewhat related, can you comment on perhaps any or the current state of water funding and regulations at both the federal and state level? If there's any key pieces of legislation or rulings that may be coming in the near term to look out for?

Yeah, so at a state level, we still continue to see states be active in proposing what's known as filter first legislation. So requiring all K through 12 schools to have filtered bottle fillers available to their students. So the state of Michigan passed that into law last Q4. They actually awarded the money to schools. We've seen schools in Michigan actively upgrade to filtered bottle fillers this summer. The schools have until next year to comply with the law. There's active legislation in Wisconsin, Pennsylvania, New Jersey, Massachusetts, New York. New Jersey actually just released some funding within the last month to help schools within the state upgrade their infrastructure specific to water.

So there's a number of states that are looking at their own water quality issues, primarily lead, some PFAS, and taking the steps and proposing legislation in and around that space and we see that as uh as continuing your next question comes from the line of joe richie with goldman sachs your line is open uh hey guys good morning good morning so uh yeah so i wanted to ask a question i want to make sure i understand the um the core sales growth assumption the five plus percent for the year When I go back and I take a look at your end market assumptions from that, you know, February release, it doesn't look like there's a lot of volume baked in. And then you're talking about resi maybe getting a little bit lower. And so is the core sales, the five plus, is that mostly price or is there a volume assumption baked in there as well?

Well, I think, you know, as we've tried to highlight and point out, I wouldn't view the 5% as anything other than a placeholder for the time being. And it sort of gives us a bunch of room if the fourth quarter turns out to be, you know, weaker than what we expect or see or the trajectory we're on. And so, you know, we started the year with a, you know, sort of flattish, maybe up a little bit market, a couple points of share gain and market outgrowth, and then maybe a point of price. As we find ourselves here today, there's probably just a touch more price than we thought going into the year. And so, you know, you go from four to five and obviously the unit volumes and the organic growth that we're seeing and traction we're seeing is showing up in the second quarter. We're obviously guiding to that. Maybe we're protecting a little bit for some unknowns in the fourth quarter, but there are no knowns in the fourth quarter at this point. So I'm guessing it doesn't quite work in your spreadsheet, but, you know, I think more to come as we get done with Q3 and give you our best cut at what Q4 looks like.

Got it. Okay, that's helpful. And look, the margin surprise to the upside, I think you made some comments around saying price cost positive, you know, throughout in the near term and then longer term.

You know, clearly, at least today, the tariff impact, the gross tariff impact has come down. do we think about then kind of like that the list pricing that you were expecting to put through when we last spoke versus what actually went through i'm just trying to get a sense for how much cushion you guys have given the current tariff environment yeah i mean we obviously had a april 15th price increase that's been the only one that we've announced and implemented And, you know, as we've gone through the last 90 days with all the various puts and takes and pauses and things of that nature, you know, we're finding that, you know, as a whole, you know, we don't need to do anything else in the moment. But, and then as Dave said, you know, we're getting much more traction as we migrate our supply chain and those come online faster. So it's obviously the price piece is, I'd say, in great shape for what we need, but it's the other things, right? It's going faster, getting better benefit on some of the supply chain moves, and something that we get to keep forever, which is all of our continuous improvement activities. So last year in the second quarter, we did 835 of these across the company. The second quarter this year, we did 2,575. That's up 210%. So in many ways, clearly in a dynamic environment where you've got to get price, you've got to do big things on the supply chain side, those are important in digital. But the 2,575 things that happened over the course of the quarter also have a big impact on the margin and are sustainable. And so I think it speaks to a combination of, yes, we're getting price. Yes, we're moving the supply chain, but the culture around continuous improvement and what we can do to make our own weather, despite everything else going on, I think is an important fact to understand the margin progression over the course of the year and really over the course of many years.

Your next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open.

Hey, good morning, guys. Morning. Hey, just back on price, can you give us price in the quarter?

Well, the total price year over year is probably two points. So we had a point coming into the year, and as Dave mentioned in his comments, probably a point of price yield from the announced price increases, you know, sort of midstream here.

Okay, great. And then, Todd, you laid out, I think, third quarter last year, some Dodge information and kind of how you think about, you know, your end markets. And, you know, the idea that with Dodge Starts kind of moving, you know, in 25, that would give you kind of visibility for better growth in 26. Just wondering, as you see the Dodge Start data come in, how that's progressing versus maybe how you would have thought, you know, six months ago.

You know, I would say that it doesn't change. It hasn't changed meaningfully, I would say, as a whole. You know, it changes month to month, and it usually gets revised upwards historically at the same time. And so, you know, I think from our vantage point, let's start with which side of the equator is it on. It's clearly still positive. um and so you know i think that as we go through the course of the third quarter we'll do the same sort of uh analysis for everyone with the data that's really sort of very publicly available and we'll run it through the lead lag you know sort of scenarios that we've presented and give you a look but um you know i don't think it's meaningfully different i think it's still positive you know, whether that it was, you know, whether it was six and now it's five, I'm not sure makes much difference to us. Because as we've talked over the course of the call, I mean, we've got a lot of real share gain, a lot of real unit volume growth that is been in the mix for a while, but is starting to read through. And so, you know, if the market's positive and we can get some price and do the unit volume growth share gain that we've been doing relatively well, I think growth in 26 should be fine.

Your next question comes from the line of Brett Lindsay with Mizzou. Your line is open.

Hey, good morning. Thanks for all the detail. I want to come back to Section 232, so the steel tariffs and then the incremental copper considerations. Are there any hedging mechanics that we should be aware of that you might be taking and then thinking about any lagged impact as you sort of roll those through on the higher prices later in 25 or maybe in early 26?

Yeah, we do not do any hedging. You know, we do a rolling sort of demand view and then locking in purchases and levels of purchases at different intervals. And yes, we've done the analysis and don't see any, you know, sort of lagging effect either this year or really into next year.

Okay, thanks for that. And then just back on the Q3 core sales guide, the similar to 2Q, just want to be clear here. So, you know, 8% organic in 2Q, are you adjusting out the, you know, the few points of pre-buy as the starting point for Q3, or are you saying the year-over-year in Q3 is going to be, you know, 8% or so?

The latter. Yeah, we're saying we're not adjusting Q2 in any way. We tried to be clear as to what the benefit was, but the 8% in Q3 is 8% year over year against the same, you know, comparable quarter a year ago.

I will now turn the call back to Brian Vemplin for closing remarks.

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 third quarter results in October. Have a good day.

Ladies and gentlemen, that concludes today's call. You may now disconnect.