Good morning, and welcome to the Zern LK Water Solutions Corporation Third Quarter 2025 Earnings Results Conference Call with Todd 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 introduction, I'll turn the call over to Brian Winland.

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 which are subject to the Safe Harbor language outlined in our press release issued yesterday afternoon and 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 this 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 to Todd Adams, Chairman and CEO of Zirin LK Water Solutions.

Thanks, Brian, and good morning, everyone. I'll get right to it on page three. In aggregate, we had a decent third quarter. The sales grew 11% organically year over year, and EBITDA grew 16% to $122 million as margins expanded 120 basis points to 26.8%. We leveraged our free cash flow of $94 million in the quarter to repurchase about 600,000 shares, bringing our year-to-date repurchases to $135 million, or about 3.8% of total shares outstanding, and all this while leverage declined to 0.6 times. As you may have seen in the release, we also raised our dividend 22%, and our board has refreshed our share buyback program to $500 million. Dave will highlight it more in his comments, but we also completed our U.S. pension plan termination in the quarter which is really just a nice thing to have behind us this morning as we've done in prior years we'll take everyone through all the market data we have on the u.s non-residential construction market and dissect it in ways we believe makes the most sense to understand how the macro data flows through to our end markets and ultimately into our business setting the stage for what we think the market grows over the coming years to cut to the chase we think our markets in 2026 look a lot like they did in 2025. Last year this time the data showed an acceleration into 2026 that with some of the uncertainty around tariffs and really the lack of interest rate reductions throughout 25 relative to what was projected a year ago pushes it pushes that acceleration to 2027. The market outlook being relatively stable the past few years we've been much more focused on what we can control which is leveraging our internal growth initiatives, which are amplified by the competitive advantages we've cultivated around our product portfolio breadth, high levels of specification, and our unique go-to-market positioning. As we discussed last quarter, we feel like we continue to demonstrate that our teams have got a really good handle on a tariff, supply chain, and pricing dynamics. And Dave will update you on all the numbers in a bit, but overall, relatively consistent with what we communicated in the second quarter. All year, our approach to Outlook has been to take things a quarter at a time because there's been several scenarios as to how all this change could have played out. But with only one quarter to go and basically only two months left in 2025, we are again raising our full-year estimates for growth, profitability, and cash flow. Now I'll turn it over to Dave, and he'll take you through some more color on the quarter.

Thanks, Todd. Good morning, everyone. Please turn to slide number four. Our third quarter sales totaled $455 million as we continue to have solid execution on our growth initiatives. $455 million of sales represents 11% core growth year over year. In the third quarter, we generally saw our end markets perform in line with our expectations, as the non-residential market remains positive while the residential market continues to experience softness. Core growth reflects both a full quarter of impact and higher realization of the tariff-related price increase that we put into the market in April. We also saw about $8 million of incremental demand shipped in the quarter as a result of customers ordering ahead of a discrete pricing action we put in place in mid-September within our water safety and control products. The discrete pricing action was primarily to reflect incremental tariffs on copper-related goods and the updating of country-specific tariff rates. Turning to profitability, our second quarter adjusted EBITDA was $122 million, and our adjusted EBITDA margin expanded 120 basis points year-over-year to 26.8% in the quarter. The strong margin and year-over-year expansion was driven by volume leverage, productivity initiatives leveraging our XERN LK business system, and continuous improvement activities across the organization. 26.8% consolidated EBITDA margins are the highest quarterly margins we've had since the LK merger. Year-to-date, our sales in EBITDA have increased $93 million and $39 million, respectively, which represents a 42% drop-through on the year-over-year volume increase. Our year-to-date EBITDA margin improved to 120 basis points year-over-year as our core sales grew by 8%. Please turn to slide five, 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 .6 times, the lowest leverage we've had as a public company. We continue to repurchase shares, and in the quarter, we deployed $25 million to repurchases. That puts our year-to-date repurchases at $135 million. Free cash flow, again, finished strong at $94 million in the quarter. We continue to cultivate and evaluate our funnel of M&A opportunities, and our combination of management team capability, low leverage, and cash flow generation all support our ability to execute on the right M&A opportunity, while at the same time entering adjacency through investment and internal development. Todd mentioned it in his opening remarks. We exited the U.S. pension plan in the quarter. That eliminates approximately $200 million liability and the related assets and also eliminates the need for cash payments to support the pension plan on a go-forward basis. So a nice win for the team to remove that and exit the plan in the quarter. I'll turn the call back over to Todd.

Thanks, Dave, and I'm back on page six. We continue to make solid progress this quarter toward our sustainability goals, advancing initiatives that support long-term value creations really for our customers you can see some of the highlights here beyond delivering 1.8 billion gallons of safer cleaner filter drinking water so far this year to our commercial bottle filling stations and eliminating the need for 14.6 billion single-use plastic bottles we're continuing to find new ways to bring our commercial grade filtration to even more people many people assume their water is safe because it tastes fine or comes from a trusted municipal source but the reality is our senses can't detect contaminants like lead forever chemicals or and microplastics and while the refrigerator or pitcher filters are convenient most are only certified to improve taste and odor not remove harmful contaminants at Xerna okay we've been tracked we've been tackling these challenges for years protecting kids in schools travelers and airports and employees and offices with our commercial grade filtered bottle filling stations now we're bringing that same trusted technology into the home with our LK live built-in filtered bottle fillers these sleek modern units complement any home design and delivered filter water to every room from home gyms and mud rooms the primary suites our newest live easy models bring convenience anywhere there's a water line no electricity no drain needed just a wall a water line

and a couple of batteries we're supporting this launch with a robust marketing effort including influencer partnerships focused on families health and diy audiences helping more people experience the benefits of cleaner safer water right at home thanks todd i'm on slide seven and similar to the data we've shared in the past i'll provide an update on the market as we look ahead to 2026 it's helpful to revisit some of the key indicators that shape our view of how the market will perform and what that means for our business on the top of the page are three macro indicators that we track the dodge momentum index architectural billing index and construction backlogs i'll talk through each of these dodge momentum index measures the value in dollars of non-residential building projects in the planning process against a baseline year of 2000 the index is meant to be a leading indicator for all future non-residential construction spending and therefore it's generally used to monitor the future direction of construction spending. Think of the Dodge Momentum Index as a 9-12 month preview of what's likely to start, but also recognize that there's a lot in there. Price, various end markets, and geographies. Next is the ABI, which is a sediment survey that tracks a cohort of partners of AIA member-owned architectural firms, whether their billing activity for the previous month grew, declined, or remained flat. The way to interpret ABI is a score of 50 indicates a balance between positive and negative reports, while a score of 100 indicates all firms reported improvements. A rise in the index above 50 means that more firms reported an increase in demand for design services than reported a decline in demand. It's important to note that a rise in the index above 50 is not a direct measure of the rise in demand because the survey does not ask firms reporting stronger demand to quantify the level of increase in demand, nor does it provide information on the size of those firms. That being said, higher readings in the ABI generally coincide with growing demand. Finally, on the right, construction backlog, which measures the amount of work surveyed contractors have in their current backlog. In some ways, it's their lead time to taking on new business, and as you might expect, it's their estimate, assuming no delays and consistent levels of staffing. All three of these metrics have a level of validity in them on how we think about the future. But as you know, our business is hyper-local, hyper-regional, and it all varies by region, vertical, and other than the backlog reporting, there's limited certainty as to what's really going on on the ground level where the projects are actually happening every day. While the three macro indicators we just walked through on the top of the page where third-party data the bottom section is specific to our business on the bottom left you can see how our portfolio products participates across the full construction cycle from the start of the job all the way through to finishing front of the wall product 18 or so months later non-residential construction is a complex ecosystem coordinating multiple trades supply chains permitting and weather impacts on average projects take about 18 months from start to finish and our portfolio is uniquely positioned across that timeline from flow systems early in the build to water safety and control mid cycle and hygienic and environmental solutions and drinking water at the completion with an understanding of how our products participate across the construction cycle the other item to factor in is the leg effect and this concept is illustrated in the chart on the bottom right the leg effect shows how dodge starts ultimately translate into zern lk sales in a typical year roughly 20 of our new construction revenue is tied to projects that started in that same year while the other 80 reflects work initiated in prior years i'll talk through this more a bit start with q1 of 2026 virtually all of our new construction sales come from starts that happened in 2025 and before and by the time you get to q4 current year 2026 starts will have about a 40 contribution to our sales this leg effect combined with the breadth of our portfolio gives us visibility into demand and confidence in the durability of our growth as we look into 2026. moving to slide eight we have dodge starts on a square foot basis with actual starts data from 2023 and 2024 and then Dodge's projections out to 2028. The Dodge data in this slide and the next slide is the most recent report published by Dodge as of August, 2025. We like to look at square footage because it strips out pricing, renovations, and alterations, providing a clear view of the market-driven growth that underpins the roughly 55% of our business that comes from new construction. Couple things I'll point out with the data. The Dodge data is separated between institutional and commercial end markets, us is the majority of our revenue the pie charts on the right hand side shows the 2026 square footage starts by building type and you can see that within institutional education dominates the square footage at 40 percent of the total and within commercial warehouses are the largest building type at roughly 50 percent of the square feet starts and the last item is just a caution that focusing only on the headline dodge starts growth for these categories can be misleading since the mix of education and healthcare within institutional and warehouse within commercial affects growth differently than how these segments are weighted within our own portfolio. Turn to page nine. This is the same Dodge data in square foot terms now further broken down by our key verticals. As we highlighted last year, when reviewing the Dodge data, the resilience of our business over the past 20 years reflects in part are significant overweighting to the strong, stable segments within non-residential construction. On the top left, the graph shows the education and health care vertical starts information for the same time period as the page before. These two verticals represent 60% of the entire institutional index within Dodge and 80% of our exposure to the institutional non-residential construction market. Simply said, we're materially over-indexed to the strong, stable parts of the institutional non-residential construction market on the bottom left this graph is for office retail and hospitality verticals again same periods as the page before with the conclusion being that these verticals represent only 30% of the overall commercial starts within Dodge yet represent 75% of our exposure when we focus on the building types that are critical to our sales we see that both healthcare and education and retail office and hotel starts are projected to continue to increase in terms of square footage each year, with growth rates generally accelerating in the out years. While the starts data has evolved this year as events like tariffs have come into play and the projections around interest rates have continued to change, the level of construction starts remains strong. Ultimately, the Dodge data supports that our pure end market growth in 2026 should look a lot like what we just experienced in 2025 a low market growth environment as you know though beyond end market we have other factors when we consider our outlook growth within drinking water or other key initiatives as well as price we've shared this stat in the past but as of this quarter we have had year over year quarterly growth 55 out of the last 59 quarters that's a 15-year track record of consistent growth I'll turn the call back over to Todd.

The last one for me is on page 10, and hopefully most of you have seen this page before, but if not, it's been our simple and, we believe, effective way to depict how we think about and manage our business, leverage our operating philosophy, and ultimately how we measure ourselves. And honestly, it's more than just a chart. It's exactly how we operate the company day in, day out, and even more importantly, inside the company everyone can see how and where their impact is expected creating great accountability and alignment throughout the organization beginning on the left it starts with a relentless focus on the game we want to play the choices here require discipline and we've been very intentional and i'll say picky about getting this piece right because it's easy to drift and convince yourself that it's close enough to make sense but having this filter if you will provides perfect clarity and avoids distractions or any strategic drift. It guides how we drive our strategy, beginning with our end markets, what we look for in terms of what geographies, competitive dynamics, and characteristics approach around our portfolio, and most importantly, our relentless focus on bringing a premier pure play water business in North America. In the middle, we highlight that the glue to all of this is the Zern LK business system. It's our common language and deep culture of continuous improvement. It tries the manner in which we operate every day, everywhere, and defines the capabilities we can leverage or, in some cases, need to build while aligning all of our resources to drive organic growth, profitability, and free cash flow. Finally, on the right, measuring our performance across all of our stakeholders, customers, shareholders, associates, and the impact we can have on a much broader scale through sustainability. At the end of the day, if we get all these facets within our business model, I'll say right or close to right, we end up building sustainable competitive advantages, which we feel over time drive superior outcomes for all stakeholders. As we sit here near the end of 2025 and begin thinking about 2026, one thing I would call out or emphasize is that over the coming years, we intend to further sharpen our focus, capabilities, and resource investment on driving even more organic growth into adjacent categories. We feel more confident than ever that we're in a position to exploit our competitive advantages around driving specification, establishing robust supply chains, and leveraging best-in-class go-to-market capabilities into adjacent markets with new, innovative products that we have a long track record of introducing into our core markets, which has led to the kind of organic growth record that Dave just talked about. So more to come on that in the coming quarters and years, but now I'll turn it back to Dave for the outlook.

For the fourth quarter of 2025, we are projecting year-over-year core sales growth to be in the high single digits, and we anticipate our adjusted EBITDA margin for our adjusted EBITDA, 99 and 102. As a result, we are again raising our full-year output for core sales growth, adjusted EBITDA, and free cash flow. We now see core sales growth of approximately 8% for the full year, adjusted EBITDA in the range of 437 to 440 million and free cash flow greater than 300 million we've included our fourth quarter and full year outlook assumptions for interest expense non-cash stock compensation expense depreciation and amortization adjusted tax rate and diluted shares outstanding i also wanted to provide an update on total tariff costs for the year last quarter we expected our tariff costs before any offsetting price for 2025 to be between 35 and 45 million as country specific tariff rates were updated and new tariffs on copper came into play during the third quarter we now believe our tariff cost impact on 2025 will be modestly higher and be approximately 50 million for the year while the environment around tariff tariffs continue to be a bit of a moving target our team is confident that we can remain price cost positive in the short and long term Thanks, everyone. We'll now open the call up for questions.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We kindly ask that you limit your questions to one and one follow-up for today's call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brian Blair with Oppenheimer. Please go ahead.

Good morning, guys. Another very solid quarter. Morning. The Q3 market updates and now the look and framing of ZWS participation across the build cycle is helpful. that in mind, has there been any meaningful divergence in the growth rates across legacies that are in product categories over Q3 or into Q4? And then given run rate market reads and the lag effect detail on the new construction side, do you offer any finer points on, you know, how your team's thinking about momentum into the first half of 2026?

Yeah, Brian, I mean, you know, first of all, I think we'll talk about 26 and 26. but you know when you look at many of our almost all of our core categories are experiencing you know solid unit growth on top of a little bit of market on top of a little bit of price and so I wouldn't say that there's been any significant change from maybe the second quarter and I don't see any reason why you know that momentum changes as we as we head into the fourth quarter.

Okay, understood. I caught a bit of a play on words with the filter afforded by the Zernak LK business system. With that said, maybe offer a little bit of an update on the reception of LK pro filtration, whether there have been any surprises, positive or otherwise, and the early going. And then it would be great to hear more about the market opportunity with the LiveEasy line and how impactful that launch may be to growth going forward.

Sure. You know, I think as we highlighted last quarter, you know, the introduction of the profiltration, you know, was really significant in terms of taking a lot of the market feedback around ease of installation, the incremental filter capacity, along with, you know, the pre-sediment filters and a lot of those things. And so we've seen a really strong uptake right away we expect that to continue you know I mean if you can change it in 30 seconds or less and you can change it essentially once a year I think these are things that were right at the heart of the feedback that we got as we were developing the product and so really good I think a really good solid start but it's only a start with respect to the live unit you know we've had a I would say a more expansive live unit you know with a drain that required I would say higher levels of you know installation capability this this product was developed really to make it easy uh and and do it yourself and you know we're we're excited about it i think it's just good exposure to begin to tap into a market that is not big i mean this is not something that everyone's going to put in their home for a whole bunch of reasons but we do think it's a nice extension of what we're doing and it affords people the opportunity to gain the benefits that they get from using these filters when they're at school when they're in the office when they're at airports etc you know you can get that same kind of quality water at home and so I expect it to grow nicely but I don't know that we're counting on this to be you know sort of a pillar of you know what our what our commercial drinking water offering is something we're excited about and I think the uptake on it will be pretty nice Understood.

It makes sense. Thanks for the color.

Your next question comes from the line of Nathan Jones with Steeple. Please go ahead.

Good morning. This is Adam Farley on for Nathan.

Good morning.

My first question is going to be around growth and specifically volume expectations.

So it sounds like there's a little bit of volume maybe pulled forward into the third quarter but you're guiding you know strong high single digits for the fourth quarter so you know how should i think about volume um in the back half well dave maybe you you can clarify but you know we saw good volume growth uh absent even this this modest pull forward uh in q3 and we expect you know sort of the same as we go into q4 um you know i will tell you that i think that some of the pull forward is essentially offset by, I would say, a little bit of incremental weakness in the residential market. And so when you look at it, you know, all the way through, I think that the growth in Q3 is relatively high quality. And I think the way we're guiding Q4 is, you know, equal to that kind of momentum that we saw in really Q3 and for the second half.

Yeah, the only thing I'd add, Adam, is in the quarter, we had a price increase late September. and so we saw customers order in advance of that and so about eight million dollars was pulled from q4 into q3 but if you look at where we've if you eliminate that from q3 and look at where we've guided q4 to it's about the same yeah so unit volumes continue to grow nicely yeah we don't communicate uh order rates but you know if you go to the first nine months of the year the order rates in aggregate are a touch above one and i think we're sort of guiding to to book the bill of about one in Q4.

So nothing crazy, a little bit of choppiness from Q1 to Q2, Q2 to Q3, but I think when you get to the Q4 numbers, it sort of planes out and we're delivering to- Okay, that's great to hear.

And thanks for that additional detail. My second question is gonna be around capital allocation.

Try to increase the dividend, increase the share repurchase authorization. um so what are the priorities going forward has anything changed we should we maybe expect a little more share repurchase um going forward and any color there as we've done for for a long time you know we obviously generate significant amount of free cash flow um you know if you if you go way back you know the objective initially was to reduce our leverage to a very comfortable zone continue to invest in our core business cultivate proprietary m&a opportunities establish a dividend and then look at the value of our stock relative to what we think the intrinsic value of the company is none of those things have changed and so i think that you know we continue to generate significant amount of free cash flow our dividend yield we've tried to you know leverage that cash flow to keep the dividend yield right around one you know we're we're in the process of looking at the next three years and determining you know what we think we can do and how that translates to where the current stock price is I think we will be sort of steady repurchasers and obviously this gives us just incremental flexibility to the extent there's a larger dislocation for whatever the reason so I don't think we're signaling anything new just that you know, over the last three years, we've generated a ton of cash. We've increased the dividend. We bought back some shares and cultivated M&A, and I think that's what you should expect going on.

Great. Thank you for taking my questions.

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

Hey, good morning, everyone. This is Paz on for Mike. Maybe following up on Adam's question here, Todd, maybe if you could provide a little bit more color on the M&A funnel, how has it changed over the last 12 months in terms of actionability, the pricing expectations, you know, and then maybe if you would comment a little bit on the mix of, you know, hygienic and environmental versus drinking water, you know, if we could just get a little bit more color on what you're seeing in the funnel and how that's evolved over the last 12 months yeah i mean the uh the funnel hasn't changed a bunch uh near the bottom i think near the top of the funnel um some incremental things have come in and we continue

to cultivate those things as far as valuations and actionability you know it it sort of uh it depends right depending on the fit depending on uh where people are thinking so i don't know that you're ever going to get us to talk about valuation because we look at M&A through the lens of what kind of returns on invested capital can we generate at a particular value in the synergies we bring to the party. So I don't think much has changed in aggregate. There's been a handful of things that are in an auction process, some modestly interesting, others not at all. So we continue to do the work, and I wouldn't characterize our funnel as, you know, unique to just drinking water. I think our flow systems funnel, I think our valving funnel, all those are equally important. And so it's broad. Not much has changed in the middle to the bottom. I would only say that the top of the funnel has gotten modestly larger.

Got it. That's super helpful. And then maybe just on a more philosophical question, obviously moving into residential drinking water with the LiveEasy product, you know, maybe could you tell us a little bit about how you think about your aspirations for drinking water on a residential application? You know, is there broader aspirations to get into residential drinking water, you know, and is that something that can be developed internally?

Is there something externally that might be interesting? maybe just a little bit of thoughts on how you think about the opportunity within residential drinking water beyond maybe the live easy product yeah i wouldn't characterize our appetite to go into residential filtration as high i think this is a more of an extension of what we're what we're already doing to a relatively small market that we have access to so the technology it's an opportunity for us to try some design work try some technology with speed and I don't think you're going to see us wade into residential filtration in a

meaningful way I think this is more of a extension from what we're doing on the commercial institutional side to a relatively small market that gives us the opportunity to test some things and and learn thank you I'll pass it on your next question comes from the line of Andrew Buscalia with BMP Pariva please go ahead hey good morning guys this is ed on for andrew morning another morning uh another very strong margin quarter with high incrementals just wondering if you could speak to the consistent strong margin results and having about where we can go from here off of these record levels

yeah i mean i would say we've had consistent margin expansion even if you go back to when we merged with LK and just look at the quarterly progression each year, we've seen nice margin expansion. So, you know, started with delivering on the synergies, leveraging our Zern LK business system, the hashtag CI improvements. So, I think we're confident that, you know, the level that you're seeing is a new baseline in terms of where Zern LK margins can be. I would just think about but a more long-term view as 30% to 35% incrementals on volume.

Yeah, that's helpful. And then just to follow up here, you've managed the tariff environment very well on the top and bottom line. Can you speak to the Zurn LK business system and remind us why you would consider yourselves perhaps in a relatively stronger position and navigate the tariff environment versus competitors? I'll leave it there.

Yeah, I won't really speak to comparisons because I wouldn't want people speaking about us. I think what we did going on five years ago is think through the risks to our business and how we protect our service levels over a long period of time and develop the plan to primarily move our manufacturing supply chain partners out of China to other regions, including the U.S. And so, you know, over 50 percent of our COGS comes from the U.S. today. And by the end of next year, only about two to three percent will come from China. And so I think it speaks to that front end of what are we trying to do, what game are we trying to play, getting in front of it, doing the hard, long work to position ourselves. And as it turns out, you know, no one, including us, would have predicted the kind of tariff environment that we saw beginning in April. But by starting well in advance, doing the long, hard work, I think it's positioned us really well, not only this year, but really, you know, for the long term.

Very helpful. Thanks, guys.

Your next question comes from the line of Jess Hammond with KeyBank Capital Markets. Please go ahead.

Hey, good morning, guys. This is David Tarantino on for Jeff. Maybe could you give us what price versus volume was in the quarter? And then maybe could you give us what you think the carryover pricing into next year will be based on the increases you've already taken to date? I think you highlighted another increase in 3Q. So do you think this supports another year of above average price realization in 2026?

Yeah, so I think, David, to start, price realization in the quarter, we saw about five points of price in the quarter. I think we'll wait to provide, you know, 2026 price until we provide guidance. But I think the way to think about it is, you know, we've been deliberate with the pricing actions and how that has followed our cost. And so as we've seen incremental tariff costs, we put the right amount of price to be price cost positive into the market. And so as we think about price next year, what I will say is think about it in terms of last year or this year, Q1 into Q2 had very little price, and then you start to get to a run rate price here in Q3 and Q4. So more price in the first half than in the second half going into next year, and then we'll evaluate whether or not a 2026 price increase is necessary as we move forward.

Okay, great. And then maybe just to put a finer point on the 2026 commentary around the M Mark, it seems like this points to market growth in the low single-digit range, so any more color there would be helpful.

And then how should we think about the outgrowth levers into next year between the key product lines, both in and outside of drinking water? yeah so our read of the dodge data that we presented is really from a pure market perspective 2025 and 2026 uh looks a lot alike and so that's a low growth environment if you look at you know where we think some of the the levers are going on a forward basis i would think about things like you know we've continued to see out performance in drinking water we've continued to see some of the other sales initiatives, whether that's in product categories like our water safety and control have outperformance, you know, the new products that we've talked about, adjacent markets. And so there's a number of things as we look forward that we feel like we have the opportunity to outgrow the market. And so when we think about growth, it's market, price, and then our initiatives. And if you put those together, that's how we think about.

Thanks, guys.

Your next question comes from the line of Brett Lindsey with Mizuho. Please go ahead.

Hey, good morning all. This is Brett Lindsey on for Brett Lindsey. Good morning, Brett. Just wanted to come back to the filter first and really wondering if you had a post-mortem assessment on year one of that program specific to Michigan.

Are you able to quantify the contribution from those installments thus far and, you know, any color on some of the share capture as part of that program yeah I would say we've done a really nice job in Michigan there's about a 1.5 million students in Michigan and the law requires one bottle filler per hundred occupants and so you can do some math on that Brett just to see how much the opportunity is but I would say our team has done a nice job of capturing what we expected in terms of the Michigan opportunity and it's still ongoing and so this was the first year that schools actually were able to access the money from the state the state set a million dollars to accomplish filter first and it will continue into next year and so while we saw a lot of schools comply with the law this year there's still a series of schools that need to comply next year I'd say also on the on the filter first front while not a filter first bill we did see New Jersey enact some legislation and release some funding that will help accomplish the same thing allow schools to purchase filter bottle fillers to eliminate lead and other harmful contaminants for students so we spent some time in New Jersey over the last 90 days helping schools work through what their drinking water plans are students safe in New Jersey and Michigan okay great and then

And just back to slide number eight and specific to the project cycle that you laid out, you illustrated the flow systems tends to lead. I guess, has there been any discernible increase or inflection in those categories or that product segmentation that maybe informs you some of these areas like commercial are beginning to show some improvement?

Well, you know, taken as a whole, our flow systems business has grown at or above the fleet average the entire year. So I think, you know, that pretends, I think, the kind of market that we're talking about, which is relatively stable to low growth, at least for the near term, with the opportunity to accelerate moving forward. So I think from a leading indicator perspective, our flow system business has done well, really, over the course of the last 24 months. So, you know, I think we're monitoring all these things, but recognizing that, you know, we're sort of in a unique environment, to say the least. But, you know, we do find that, you know, that leading indicator is relatively encouraging for us.

Congrats on the quarter. that concludes our question and answer session i will now turn the call back over to brian winlet for closing remarks thanks everyone for joining us on the call today we appreciate your interest in zern lk water solutions and we look forward to providing our next update when we announce our fourth quarter results in early february have a good day ladies and gentlemen This concludes today's call.

Thank you all for joining. You may now disconnect.