Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2026 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer; David Pauli, Chief Financial Officer; and Bobby Belzer, Vice President and Corporate Controller for Zurn Elkay 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 Bobby Goldner.

Good morning, everyone, 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 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 our SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn Elkay Water Solutions.

Thanks, Bobby, and good morning, everyone. I'll start on Page 3. 2026 is off to a decent start as first quarter sales grew 11% organically. EBITDA grew 18% to $116 million, and our margins expanded 160 basis points to 26.8%. In the quarter, we generated $43 million of free cash flow and repurchased $50 million of Zurn Elkay at roughly $47 a share. We're very comfortable with our full year outlook for free cash flow of approximately $335 million and anticipate revisiting that along with the rest of our outlook after Q2. Just a couple of thoughts from me before I turn it over to Dave. From a market perspective, we generally see the same market conditions we outlined when we provided our outlook in February. The same is very much true for the pricing environment. Next, there's been a lot of announcements and moving parts related to tariffs over the course of the quarter: the Supreme Court ruling on certain tariffs and subsequent refunds, the implementation of Section 122 changes to the Section 232 tariff scheme, and the opening of new studies on future Section 301 tariffs. We've also continued to advance our own supply chain footprint initiatives. What I will say here is that we are very much on track to meet or beat the objectives we set out to achieve at the beginning of the year. As it relates to all these tariff changes and potential changes in our outlook, our view is that assuming some of the known changes to Section 232 tariffs, and projecting some likely net adverse changes stemming from the potential Section 122 and Section 301 changes, we are highly confident that without receiving any refunds or implementing any future price increases, the discrete impact of tariffs within 2026, which we said was to be price/cost positive, remains unchanged. This leads me to my final point on our full year outlook. I think the way to describe the way we think about our outlook is to be both deliberate and conservative. As you can see with our first quarter results and second quarter outlook, we're running ahead of what was likely assumed for the first half of 2026. As I just discussed, we have high confidence that we will continue to manage through the tariff dynamics extraordinarily well. Second, as of now, there isn't anything I can point to that would make the second half worse than what we had anticipated. So I think it's safe to say our first half outperformance flows through to the year. That's where the deliberate methodology enters into our approach. The reality is that there's eight months left in the year. And depending on today, there's simply a lot going on in the world. So rather than try to change a bunch of detailed assumptions day by day that frankly will become more clear as the year goes on, we're simply going to update the second half after Q2. So with that, I'll turn it over to Dave.

Thanks, Todd. Please turn to Slide #4. Our first quarter sales totaled $433 million, which represents 11% core and reported growth year-over-year. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Growth in our nonresidential end markets was partially offset by softness in residential. We've had solid execution on our growth initiatives and those initiatives helped drive our sales performance to the higher end of the outlook we provided 90 days ago. In addition, during the first quarter, portions of the U.S. experienced some unusually cold weather. This resulted in some incremental break/fix activity that we think plays out to about 1 point of growth over the first half. Turning to profitability: our first quarter adjusted EBITDA was $116 million, and our adjusted EBITDA margin expanded 160 basis points year-over-year to 26.8% in the quarter. This continues a trend of year-over-year margin expansion that we have delivered since the Elkay merger. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives, leveraging our Zurn Elkay Business System and continuous improvement activities across the organization, as well as mix as our higher profit margin products are growing the fastest. Please turn to Slide 5, and I'll touch on some balance sheet and leverage highlights. With respect to our net debt leverage, we ended the quarter with leverage at 0.5x. Our 0.5x leverage is inclusive of the $50 million we deployed to repurchase shares in the quarter. During the quarter, we also upsized and extended our revolver. We transitioned from a $200 million revolver to a $550 million revolver that extends five years. This gives us even more liquidity as we move forward. Balance sheet, leverage, liquidity and cash flow generation are in a great spot as we continue to evaluate our funnel of M&A opportunities. I'll turn the call back to Todd.

Thanks, Dave. And I guess I'll move to Page 6. I think the takeaway here could be know your work and work your plant, which when you boil it all the way down is the essence of the Zurn Elkay Business System. When you look at some of these attributes of our business, most of these have been cultivated through focus and intentional actions to build a business with a wide competitive moat that is flexible, repeatable and scalable even when the external environment or circumstances aren't optimal. Stemming from our strategic planning process all the way through our strategy deployment process, being disciplined and intentional on playing the game, we can win consistently at a high level as our ultimate priority, whether it's our geographic focus, the product categories we're in, the end markets we prioritize, the actions we take on product or market exits, or even more importantly, the new product development and adjacencies we're entering. It's all connected. If you follow us, one slight change that you may notice here is the slight change in our mix towards retrofit replace which five years ago was 45%. But as we deployed our strategic plan with an emphasis on growing drinking water and filtration, coupled with growth in our water safety and control products, and portions of our geographic and environmental business are now more evenly split, which over time only makes the business more resilient and in aggregate is margin mix positive for us. We're really excited about the trajectory and future of Zurn Elkay, and it stems from the culture we've established and the people we have. Throughout this year, we're going to expose everyone to more of our team on these calls so investors gain a further appreciation of the management depth and passion that exists here and the appreciation for the people who really make all this happen each and every day. Now I'll turn it back to Dave.

Thanks, Todd. I'm on Slide 7. Todd just talked about the focused and intentional decisions that led to the business we have today in Zurn Elkay. Slide 7 helps to illustrate the results in the form of profit these decisions have produced over the last several years. On a trailing 12-month basis, our adjusted EBITDA margins have improved 630 basis points from Q1 of 2023 to Q1 of 2026 and on a point-to-point basis our adjusted EBITDA margins are up 730 basis points over the last 13 quarters. That starts with 19.5% margins in Q1 of 2023 compared to this quarter's adjusted EBITDA margins of 26.8%. The foundation of our EBITDA margin improvements all center on our Zurn Elkay Business System, the belief in continuous improvement and the focus on getting just a little bit better each and every day. The margin improvement over the past three years is a combination of a number of drivers that I'll walk through. First, part of the Zurn Elkay Business System is sharing ideas and wins across the organization so that we can replicate successes. We've highlighted our #CI or continuous improvement process in the past. But as a reminder, these are associate-led and submitted ideas that save time, eliminate waste and improve day-to-day processes across the organization. While no single #CI on its own is material, they do become material when we have thousands submitted across the organization each year. The second item I'd point out is our unit volume growth in the most profitable areas of our business. Water Safety and Control, Flow Systems and Drinking Water have all seen growth over the last several years, while we've exited via 80/20 the lowest margin products within the portfolio. Third, after delivering on over $50 million of synergies associated with the Zurn Elkay merger, we continue to make positive structural changes beyond those identified in the synergy case: consolidating our footprint to reduce overhead, introducing and sustaining the Zurn Business System lean tools into the Elkay manufacturing facilities and continuing to challenge our strategy around internal manufacturing versus sourcing. And lastly, our supply chain has been a clear competitive advantage that has allowed us to improve profitability while successfully navigating the tariff environment. Now to the guidance on Slide 8. For the second quarter of 2026, we are projecting core sales growth to increase 8% to 9% over the prior year, and we anticipate our adjusted EBITDA margin to be in the range of 27% to 27.5%, which is 50 to 100 basis point expansion year-over-year. Within Slide 8, we've included our second quarter outlook assumptions for interest expense, noncash stock-based compensation expense, depreciation and amortization, adjusted tax rate and diluted shares outstanding. As Todd mentioned earlier, our first quarter actual results and second quarter guidance puts us ahead of our expected first half performance, and our plan is to revisit the second half of 2026 outlook when we announce our Q2 results. One other comment on guidance: our full year outlook does not take into account any potential tariff refund benefits and assumes that the current tariff structure in place as of today remains in place throughout 2026. We will now open the call up for questions.

Our first question comes from Bryan Blair with Oppenheimer.

Great start so far to the year. I was hoping you could offer a little more color on drinking water trends. Pro Filtration has obviously been in the market for another quarter. Any updates on adoption and the impact on overall platform growth or attachment rate would be very helpful. And with consolidated progress at 11%, I assume drinking water growth was quite robust in the quarter. Are you willing to share top line performance in Q1? Or how your team is thinking about it?

Sure, Bryan. It's Dave. Drinking Water in the quarter performed very well, in line with where we thought it would be going into the quarter. The installed base of filtered bottle fillers continues to grow at double digits. The filtration piece of the business continues to grow above double digits. You mentioned Pro Filtration. We've seen really nice adoption of Pro Filtration. That product was developed around feedback that we received from customers, end users and facility managers. We've seen really great adoption of that and the attachment rate associated with that is very high, given the technology changes. So overall, Drinking Water had a really nice first quarter and we see that Pro Filtration continuing to accelerate as we go. As you know, we have a dominant share of specs, and our team is currently working to update those specs from legacy product to Pro Filtration. So we're in a good spot with Drinking Water.

All good to hear. And I guess a level-setting question as a follow-up. You just walked through the drivers of rather impressive EBITDA margin expansion over the last three years. And if we set aside Elkay synergies as kind of a one-time structural lift, the rest of it is #CI in one form or another. Given the level of profitability that you now have and assuming that mix does not meaningfully shift or continues to positively transition, you've spoken to low 30s, maybe a step up to 35% as normalized incremental margins for the business. Are we at a point now where it would be reasonable to speak to a higher figure going forward?

Yes, Bryan. Look, I think Dave mentioned it in his comments: while we had a nice quarter in Drinking Water, I think it's also important to recognize Water Safety and Control and our Drains business are growing just as fast. And so when you think about those three categories, the margin profile in each of those is really good. And I think the combination of continuous improvement, obviously the Elkay synergies, and all the work we're doing on supply chain helps. But another thing to think through is that a lot of the new products that we're introducing come at margins replacing the old products, or the new products are even better. So it's a really nice dynamic where we've got an operational lever that we're continuing to work on. As we introduce and launch new products, those are coming to market at attractive margins. In time, we may modify our long-term view, but for the time being I think it's a good framework to think through as we invest in some of these new products to bring them to market. We'll revisit it when we feel like we're ready to.

Our next question comes from the line of Andrew Krill with Deutsche Bank.

I wanted to dig in more on the change of OE versus retrofit up to a 50-50 split. Is there any way you can quantify a target over time where you think this can go? Many other industrials can be two-thirds, 75% aftermarket. Is there any reason you can't get to that over time?

Yes. Andrew, a good portion of our business is still new construction, which is an important part that ultimately feeds the retrofit replace. So I think it's unlikely that we'll get to a 75% retrofit replace percentage. But I do see in the coming years that there is an opportunity for it to drift higher. Fifty-five percent I think is a reasonable next waypoint to think about for us. And as filtration grows and our installed base for all of our products grows, we see the opportunity to grow a little bit higher.

Great. And then on the weather comments in the Northeast, I believe Dave said it was about 1 point of growth in the first half. Can you just break down what this was in the first quarter? Is there any chance it was flattish or down? Any help on how that impacts Q1 to Q2 would be great.

Yes. Even between the two quarters, Andrew, there was nothing oversized in Q1.

Our next question comes from the line of Nathan Jones with Stifel. Good morning, everyone.

I guess I'll ask some of the tower questions. There's obviously been newly implemented tariffs and you guys are talking about contemplating some additional tariffs after that. Could you offer any color on what you think the incremental impact to the business in terms of increased cost is? I think everybody understands that you're very good at passing that through to customers, but any color you can give on what you think the gross impact is?

Yes, Nathan. There's obviously a lot to be determined as Section 122 likely expires and then the studies from Section 301 come back and potentially get implemented. What I can say is we're not counting on passing any future price increases. Through a combination of product substitution, material changes, and our footprint initiatives, we think we can hold things steady using conservative assumptions. It's important to point out that over the last two to three years as a function of the work we've done, our largest sourcing now comes from the U.S. So out of all the countries that we source from, the U.S. is the largest by a decent margin at this point. In many ways, we've insulated ourselves. Our working view is that net-net, it's about the same as we started the year given assumptions around Section 122 rolling off and Section 301 activity. That's what's embedded in our view.

Okay. Fair enough. I'm going to ask a lot about capital allocation. It's been quite some time since Zurn acquired Elkay. The balance sheet is in great shape and certainly has plenty of available capacity for M&A. Maybe talk about the maturity of the pipeline, the appetite for more M&A and priorities for capital deployment?

Yes. As we routinely point out on these calls, we run a proper funnel. We don't participate in auctions in a meaningful way. We continue to cultivate opportunities. Some of the work we're doing around new products is informing new targets as well. So I would say we're in late stage to mid-stage to early stage on a number of cultivations. We have an appetite to do deals only to the degree that they make sense strategically and meet the return hurdles we set for ourselves. In terms of capital allocation, we've routinely bought back shares, and we'll continue to do that when we feel the intrinsic value relative to market price is understated. We also pay a steady dividend. Those will continue to be priorities. No change there. We're optimistic that over the coming quarters we'll get some of these things over the finish line.

Our next question comes from the line of Michael Halloran with Baird.

First question, just to clarify your comments: it doesn't sound like you're expecting incremental pricing. Can you confirm that one way or another? And then when you talk to your customer base, what's the sense of fatigue on the pricing side of things? What concerns would you have if you had to go back to the market with price? Do you still feel pretty good all else equal? Obviously you have a value proposition you're pitching and people are aware of inflation. Curious on the puts and takes from the customer base at this point.

Mike, when you take a step back, in aggregate this year we're talking about roughly three points of price incremental. So it's not that we've gone out with egregious price increases beyond the competitive set. We've got different competitors across our product lines; some have been more aggressive, some less. Taken as a whole, stability would be a great thing, and that's what we see in our outlook: the actions we're taking put us in a great spot to avoid having to put through big, discrete price increases like we did last year. That being said, we have to stay diligent because commodities and freight inflation and geopolitical conflicts are risks. We're watching category by category and region by region, staying close, and expect to continue to operate the same way. I don't see any meaningful fatigue, but it's something we're monitoring carefully.

That makes sense. And maybe the follow-up is any thoughts on the growth adjacencies you've been talking about and some of the growth initiatives highlighted—do you expect impact late this year and into next year? Any deeper color on what those might be or target areas?

No specifics to share at this point. These are new entrants in categories that competitors have or potentially new categories. We're making great progress and it's exciting. I suspect by Q3 we'll be in a spot to share some of those, and as more roll out over Q4 and into early next year, we'll talk about them when we're ready. We're very much on track with what we thought as we started the year, and the teams have done great work. This should be exciting for us not just in '26 and '27 but as we start to stack these initiatives year over year, which will help our long-term growth rate.

Our next question comes from the line of James Cole with Jefferies.

I wanted to touch on these growth adjacencies a little more. Should we think about these initiatives as additive to your current long-term mid-single-digit growth outlook or more as a way to sustain that level if other end markets slow? In other words, are these initiatives intended to be additive or defensive?

I think it could be both. Clearly, we can't predict what market conditions will be in '27 or later. If markets are weaker, these initiatives could clearly boost growth relative to a softer market. If the market is steady, these initiatives would ultimately be additive. Historically we've done this, and given where we are from a balance sheet and strategic focus perspective, we see a dual-pronged approach: enter new categories, develop new products, open up additional available market and that should aid our cultivation efforts. Long term, it can both support us in weaker markets and enhance growth in normal markets.

Great color. As a follow-up, on the Q1 outperformance—can you talk about the primary drivers of the outperformance since growth came in stronger than expected, even accounting for a favorable impact from weather? Can you break that by core sales growth into price, volume and mix?

Sure. If you look at the 11% growth, it was roughly 5% price and the rest volume. You mentioned the weather—it was about 1 point in the quarter. In terms of outgrowth, our Water Safety and Control business, our Drains business and our Drinking Water business all grew very nicely in the quarter. Some of the initiatives we set out and discussed last year and into this year included resourcing areas of the U.S. where there is a bit more construction activity. We've resourced those and we've seen some nice regional wins as a result. That has helped deliver some of the outperformance we saw in Q1.

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

Just had a couple end market questions. In the quarter it looks like the commercial bucket accelerated. Is there anything to parse out there—does that capture more of the break/fix? And then Waterworks is small at about 8%—some peers have had some short-cycle noise; are you seeing anything like that in that business?

When you look at commercial, it's a lot of different things. For example, in New York there's a range of active projects: Core Weave data center, the West Point football stadium, JFK Airport projects, the U.S. Open stadium and parking garages, Major League Soccer stadium projects, and other commercial builds. There's a lot of hyper-local activity and pockets of growth even within geographies where you might not assume there's a lot of growth. In terms of Waterworks, we have seen nothing abnormal. So nothing unusual to report in Waterworks.

Our next question comes from the line of Brett Linzey with Mizuho.

Congrats on the quarter. Maybe just one more about end markets. Can you talk through your outlook by end markets? You talked about flat to slightly positive market in total with institutional low singles, commercial flat and residential a little bit tougher. Any updates to that given the Q1 outperformance?

No. If you go back to the guidance framework we gave 90 days ago from a pure end market perspective, we called institutional low single digits, Waterworks low single-digit growth, commercial flat and residential down low single digits. We've generally seen those end markets play out. In Q1 the commercial market might have been a little better than flat, but from a long-term view of how we see 2026 play out, there's no change to the guidance framework we gave initially.

Awesome. And could you give us a sense of the margin differential between some of the lower-margin products you're walking away from and the higher-volume areas growing fastest, like Safety and Control, Flow Systems and Drinking Water?

In terms of what we walked away from, those were substantially lower margin. Think back to the Elkay merger when we exited some low-margin noncore residential sinks that were primarily sold through big-box channels; we're largely out of those types of products now. The things that are growing faster and carry incremental margin include filtration within Drinking Water and certain Water Safety and Control and Drains products, which are ahead of the fleet average.

Our next question comes from the line of Jeffrey Reive with RBC.

I appreciate all the color thus far. So if we think about the puts and takes around pausing the full year outlook, what are the key variables you're waiting to see resolved by the time you report Q2? Is it just tariffs? Is it something else?

Jeff, I honestly don't think it's that deep. We had a really nice Q1 and we're projecting a nice Q2. There will be more clarity on some tariff issues as we get through the summer, but quite honestly we're electing, as we have in the past, to wait and see. I can't point to anything at this point that indicates the market is worse or that we should be concerned about tariffs. So it's really about being deliberate in modifying the full year outlook. It probably won't materially move your model; we're trying to dial in a better view for the full year once we get through Q2.

Got it. I only ask because companies often pause guidance for a reason, and obviously you're doing it from a position of a strong Q1 and a better Q2 outlook. Maybe just on visibility into the second half—can you talk to the line of sight you have, the backlog? Any comments there?

When you look at contractor backlogs as they sit today and as we talk to our third-party reps on activity likely to come to fruition in the second half, it's consistent with the market growth Dave described. Some of the outgrowth from regional focus and new product launches also supports that view. I don't see anything that would derail it at this point. You're using the word 'pause'; we're using the word 'deliberate.' I think we'll end up in a good spot for the year and we're focused on the next 90 days to make the second half as good as it can be.

I will now turn the call back over to Bobby Belzer for closing remarks.

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

This concludes today's conference call.