Zurn Elkay Water Solutions Corporation (NYSE:ZWS) Q1 2025 Earnings Call Transcript

Zurn Elkay Water Solutions Corporation (NYSE:ZWS) Q1 2025 Earnings Call Transcript April 23, 2025

Operator: Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2025 Earnings Results conference call with Todd Adams, Chairman and Chief Executive Officer, David Pauli, Chief Financial Officer, and Bryan Wendlandt, Director of FP&A 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, turn the call over to Bryan Wendlandt. Please go ahead. Good morning, everyone, and thanks for joining the call today. Before we begin,

Bryan Wendlandt: 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. These 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. They contain reconciliations to the corresponding GAAP 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 Elkay Water Solutions.

Todd Adams: Thanks, Bryan, and good morning, everyone. Hopefully, everyone’s had a chance to read through the release and the charts from last night, so I’ll get right to it on page three. We had a solid Q1, 5% organic growth, 110 basis points of year-over-year improvement in EBITDA margins, and cash flow ahead of our expectations. I think it’s important to point out that there is little to no impact on the Q1 results from the implementation of tariffs, either in terms of additional costs arising from the tariffs and certainly no realization yet from the new price increases we’ve announced that will be effective as we get into Q2. We are going to get into details regarding the impact of tariffs in just a few minutes, share what it means to us from both a supply chain strategy perspective as well as from a pricing standpoint.

But I’ll give you the punch line ahead of time. First, we have high confidence we will be price-cost positive based on the work and actions we’ve already implemented and will continue to optimize. Second, this is really important because there’s been some confusion by the sell side on this. By the end of 2026, only 2% to 3% of our COGS will be coming from China based on a glide path that Dave will share in a bit. Before I turn it over to Dave, I think perhaps the most important takeaway this morning is that organizationally, our deep expertise and track record going back decades and tested throughout the initial tariff environment in 2017 and 2018, and again, during the pandemic, has only been enhanced through the breakthrough work we’ve been at for years now.

That breakthrough work is us spending the last four to five years to restructure our supply chain towards a scenario where we are sourcing as close to zero as possible from China in the medium term. And as you’ll see and hear this morning, we come very close to that by the end of 2026. While our supply chain exposure gets smaller by the day, it’s also likely that we may end up with some level of new tariffs from non-China sources moving forward. Even with that understanding, we believe we have repositioned our supply chain to be both competitively advantaged relative to our industry and with the lowest total cost supply chain in whatever the new world might look like, along with being dual sourced. For the time being, we’re accelerating everything that can be accelerated and like everyone else, hoping for a little more clarity and certainty on what this ultimately looks like over the coming months.

I’ll hand it over to Dave to take you through some more color on the quarter. Thanks, Todd. Please turn to slide number four.

David Pauli: Our first quarter sales totaled $389 million, which represents 5% core growth. Our reported growth was 4% and impacted by one point of currency. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Mid-single-digit core sales growth in our non-residential end markets were partially offset by softness in residential and pockets of the commercial segment within non-residential. Solid execution on our growth initiatives drove our sales performance to the higher end of the outlook we provided 90 days ago as our first quarter results were volume-driven and as Todd said, not impacted by the announced tariff-related price increases as those start in the second quarter.

Turning to profitability, our first quarter adjusted EBITDA was $98 million and our adjusted EBITDA margin expanded 110 basis points year-over-year to 25.2% in the quarter. 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 some carryover benefits of the synergy actions we took last year. Please turn to slide five and I’ll touch on some balance sheet and leverage highlights. Back to our net debt leverage, we ended the quarter with leverage below one at 0.9 times. Our 0.9 times leverage is inclusive of the $77 million we deployed to repurchase shares in the quarter. $55 million of our share repurchase were part of the share offering that we executed in mid-February.

Our balance sheet, leverage, and cash flow generation are in a good spot. We continue to evaluate our funnel of M&A opportunities. I’ll turn the call back over to Todd.

Todd Adams: David. And I’m back on page six. Here’s a glimpse at our Q1 sustainability performance. We’ve certainly not lost any focus on delivering amazing sustainability outcomes for our customers amidst everything that’s going on. And in the past few weeks, we’ve been recognized for those efforts, including winning a best sustainability reporting award from IR magazine, and as well as being recognized as one of America’s climate leaders. Number one in Wisconsin, number 55 out of the top 500, and number three in the capital goods industry. I’ll highlight just one thing here. That’s the 600 million gallons of filtered water delivered in Q1. That’s up 33% over the prior year Q1, driven both by the growth in the installed base of filtered units and improved filtration attachment rates that we’ve been driving.

Lots of things happening in and around drinking water infiltration with new products and traction in new markets. And more to come on that over the course of the year. But I’ll get at it on page seven. The purpose of the next several pages is to give everyone a sense of the current state of our spend, split out to identify the tariff impact by geography, what it looks like throughout the balance of 2025, and directionally into 2026. Finally, to give you a sense of the price impact necessary to recover the incremental costs as well as other things we’re doing to mitigate the impact of tariffs. As I mentioned earlier, we’ve been driving a multiyear change to our supply chain strategy, which has been guided by two fundamental principles. Number one, minimize our exposure to China.

And two, competitively advantage ourselves from a cost lead time, quality, and dual sourcing perspective while leveraging third parties, both domestically and internationally. Some of the constraints or, I guess, realities are as an industry, there’s minimal to no available domestic capacity for significant portions of what we source. That’s before taking into consideration the cost based on things like material cost, labor availability, as well as capital expenditures required to scale levels we other industry participants would require to meet the market demand. But the thing everyone is gaining a better understanding of in the recent months is that the lead time to make the kind of sophisticated changes we’ve made to our supply chain is measured in years.

As a result of just basic things like equipment lead times, product quality protocols and processes, and not to mention building relationships and trust with our supply chain partners. Given our decades of experience with this type of supply chain model, we’ve been very intentional and measured in our approach to assure that we can scale all these new or duplicate capabilities without impacting our customers. And finally, we and virtually every other industry participant and competitor has responded with price increases above and beyond the normal annual price increases to reflect and offset the cost increases we’re all seeing if and when these tariffs get implemented. On the next page, Dave will take everyone through some of the details to ground everyone on the numbers.

I’ll come back with a wrap-up. Go ahead, Dave.

David Pauli: Thanks, Todd. I’m on slide eight and want to spend some time on our supply chain-related cost structure. As you can imagine, we’ve had a number of questions on our supply chain, where direct material is coming from, and how tariffs will ultimately impact our business. Starting with the box in the upper left-hand corner of the slide, we provide a breakdown of the $60 million of 2024 actual cost of goods sold. $107 million of our cost of goods sold relates to direct material spend and the remainder roughly $350 million relates to all other cost of goods sold. 59% of our COGS relates to direct material spend and the remaining 41% labeled as all other cost of goods sold relates to everything else, items like freight, direct labor, and overhead.

At the center of the tariff discussion is where goods are being sourced. And the box on the bottom left of the page helps to clarify what that looks like for Zurn Elkay. Of the total 2024 direct material spend, 44% of that spend or $222 million came from North America. North America represents our largest concentration of both COGS and direct material. Our 2024 direct material spend out of China was $127 million or 25% of our total direct material spend. And finally on this box, our 2024 spend coming from countries outside of China and North America is roughly $158 million or 31% of our direct material spend. Shifting to the box in the upper right corner, approximately $285 million or 33% of our cost of goods sold are on the surface subject to some level of tariffs.

That $285 million is divided up into two buckets, products sourced from China of $127 million and products sourced from all other countries of $158 million. With the tariffs in place today, most material purchases coming from China are subject to a tariff as high as 145%. However, there are some exclusions like products that are primarily iron, steel, or aluminum, that result in a tariff significantly lower than the 145%. $158 million of product being sourced in all other countries outside of North America and China there’s generally a 10% reciprocal tariff in place, again, with some exceptions. When we add up everything for Zurn Elkay, with the tariff environment in place today, we expect our tariff cost impact before any price for 2025 to be between $45 million and $55 million.

Todd will cover our response to the tariffs and pricing in a bit, but before we get to that, I want to cover the last box on the slide. As a business, we navigated the initial tariffs that were put in place several years ago very well. While we successfully managed the day-to-day impact of those first tariffs, we also implemented a multiyear strategy to significantly reduce our exposure that we are now seeing the benefits of. China is at the center of the tariff conversation today, and the last box in the lower right-hand side illustrates the work we have done and are currently doing to substantially reduce our exposure to China over the coming quarters. As you can see, our direct material spend from China will be under $30 million by the end of 2026 and significantly reduces each quarter as we move forward.

This has been an intentional project over the past several years, and we have an exceptional supply chain team both here and in Southeast Asia managing the process. As we continue to gain clarity on a tariff environment, this chart will evolve as we accelerate moves out of China, shift production to dual sources, and respond to the latest set of rules around tariffs. In the end, this all means is that by the end of 2026, we are looking at a combined Zurn Elkay business that has less than 2% to 3% of COGS coming from China. I’ll turn the call back over to Todd to wrap up the tariff discussion.

Todd Adams: Thanks, Dave. And just to wrap it up on supply chain and price cost, but I’m sure there’ll be some questions. You know, our response to the tariff situation or other derivatives of it is grounded in finding the best combination of highest quality, most reliable, and best cost supply chain we can. It feels like there’ll be multiple episodes or layers to how tariffs will unfold moving forward. However, it does feel like we’re going to be in an operating environment with some level of new tariff or added cost for at least the foreseeable future. Based on our response to the situation, both through our supply chain actions and selective price increases, we have high confidence in our ability to manage above it and stay in front of it.

As Dave said, our China spend gets smaller each and every day. And by the end of 2026, we represent only two to three points of COGS, which means 2026. As we cover the cost in 2025, it actually gets easier to cover those costs into the future. In the meantime, we’re going to continue to do what we have been doing, which is managing this on a SKU by SKU basis, supplier by supplier, country by country, and we’ve got the experience and track record to make it happen. And just to clarify, what we’re outlining this morning is based on the scenario in place as of last night. As things change, we’ll adjust and adapt accordingly. But in any event, our hope is that we gave you a better sense of how well positioned we are to manage in this environment.

So that’s what we know at this point, and I’ll turn it to Dave for the Q2 outlook.

David Pauli: Thanks, Todd. Before I jump into guidance, I wanted to take a minute to give an update on our hashtag CI projects. As you recall from our last earnings call, these are projects submitted by our associates and aimed at getting incrementally better each and every day. We challenged our team at the start of the year to have a substantial increase in the hashtag CI submissions and through the first quarter our associates have responded. Year over year, the submitted hashtag CI projects are up 60%. These are items that save time, eliminate waste, and improve day-to-day processes. They are then shared across the organization. Now to the guidance. For the second quarter of 2025, we are projecting core sales growth to increase in the low to mid-single digits over the prior year, and we anticipate our adjusted EBITDA margin to be in the range of 25.5% to 26%, which is 20 to 70 basis point margin expansion over the prior year.

Within slide ten, we’ve included our second quarter outlook assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, adjusted tax rate, diluted shares outstanding. Our first quarter actual results and second quarter guidance put us well on track with the first half pace needed to deliver the full-year guidance we provided 90 days ago, and we are affirming our original full-year guidance. We’ll now open the call up for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter into the Q&A session, we ask that you please limit your input to one question and one follow-up.

Todd Adams: At this time, I would like to remind everyone to ask a question.

Q&A Session

Operator: Your first question comes from the line of Bryan Blair of Oppenheimer. Please go ahead.

Bryan Blair: Thank you. Good morning, guys.

Todd Adams: Morning, Bryan.

Bryan Blair: Nice start to the year and it kind of goes without saying that, you know, a lot has changed since early February when you initiated the 2025 guidance. But it’s encouraging that you’ve maintained your outlook for core growth, margin expansion. But I imagine the bridge looks quite a bit different from the original framework. I apologize if I missed some of this detail. I had some technical difficulty. But I think relative to the, you know, roughly three points of volume, one point of price that you had discussed previously. What’s your team now contemplating? Volume and price contribution for the year? And then beyond pricing, maybe you can offer a little more color on some of the operating adjustments, repositioning that will help your team to navigate the uniqueness of this backdrop.

Todd Adams: Yeah, Bryan. I think I’ll answer it this way, which is I would say separate for a moment what our current outlook is versus what we expect to achieve. I think, you know, we’ve got eight months left in 2025. And as you point out, there’s been a lot of moving parts. So there’s a premium on being both agile and experienced. And so I think the price increases that we’ve announced into the market would generate price well above the 1% that we’re talking about. But we also have eight months to go and I think it wouldn’t be prudent to identify what would be the incremental change to our guidance from a price perspective without sort of contemplating what would be the impact to the end markets over the course of the next eight months, which nobody knows.

So I think what we’re saying to tell you this morning is our initial framework contemplated a wide range of scenarios. Our response, both from a supply chain perspective and a price increase, gives us great comfort that we can manage to, at a minimum, the guidance that we had in February and are reiterating this morning as this thing unfolds over the course of the balance of the second quarter and potentially longer, we’ll update accordingly. But I think as Dave shared, we’ve got a, I think, a really solid view on Q2. We think we’re really well positioned from the work we’re doing on the supply chain front. And, obviously, we’ve announced some price increases as well as the entire industry, and we’re all sort of managing this sort of week by week.

But I think the guidance that we put out is very durable. And regardless of the environment, but that’s the way to think about it.

Bryan Blair: Yes. I appreciate the color. And that does make sense. And appreciating that we are early days here. Is there anything that you can speak to in terms of, you know, impact to project timing or phasing or any notable change in MRO order trends over the last few weeks since the industry has had, I would say, a clearer understanding that, you know, pricing was going to go up materially over the near term?

Todd Adams: Yeah. So we pointed out that we really had no revenue impact in the first quarter from it. We did see orders accelerate maybe the last seven to ten days of March and into the first couple of weeks of April ahead of our 4/15 price increase. But notably nothing has been, at least that I know of, has been pushed, moved, or changed. You know, I think that, you know, these are buildings that are likely going to be built on the new construction side. And really no notable change in the MRO activity at least from what we’ve seen so far.

Bryan Blair: Okay. That is encouraging. I’ll look at that. Thanks, Todd. Thank you.

Operator: Your next question comes from the line of Nathan Jones of Stifel. Please go ahead.

Nathan Jones: Good morning, everyone. Good morning. Good morning. I guess I’ll talk a little bit about tariffs and price.

Todd Adams: I’m sure that’s all we’re gonna talk about today.

Nathan Jones: That’s shocking. That’s shocking. No. I know. I’m sure you’re shocked. About $50 million of overall cost increase here implies that you probably need, you know, mid-single-digit pricing to cover that. So first, a clarification. When you say price-cost neutral, are you talking on a dollar basis or at the margin line?

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

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

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

Nathan Jones: Okay. I have one hypothetical question for you. I expect that you guys are raising price to cover what the current tariff environment will be. Over the next year and a half, you’re going to significantly decrease the amount of product that you’re importing from China, which should, yeah, decrease your cost. And then you have the potential, you know, Trump was out yesterday saying, tariffs on China are gonna come down a significant amount. If this price goes through, and then you start reducing the cost and then do prices go down or does Zurn hold the line on that pricing? Potentially the US administration starts reducing the cost.

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

Operator: Your next question comes from the line of Andrew Krill of Deutsche Bank. Please go ahead.

Andrew Krill: Hi. Thanks. Good morning, everyone. Wanted to ask on, like, your education vertical. Obviously, that’s, you know, one of your biggest most important verticals. So have you seen any slowing there or, like, increased hesitancy from customers on the spend? And I think that spirit of the question is if, like, you know, the Trump administration, you know, cut some spending or have any impact there fixed.

Todd Adams: We have not.

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

Todd Adams: Well, I guess, Andrew, I’ve tried to answer it, I think, at least a couple of times. I think that we believe we have the best cost supply chain in the industry. We are clearly a market leader. If we look at the competitive responses and, basically, the competitive with how we positioned ourselves. In terms of affirming a hypothetical guide based upon a hypothetical tariff increase, I don’t think that that would be very wise to do in this moment other than to say, you amongst others thought that we had a big problem heading into this quarter. Here are the facts as we know them today. Hopefully, the takeaway is that, you know, we’re managing it really effectively. I think whatever the change ultimately turns out to be and it may be multiple twists and turns, I think you can count on us managing it very effectively.

Andrew Krill: Yeah. I think too, Andrew, what I would add is just around the tariffs, there’s a number of actions that we can take. Right? We can accelerate moves out of a certain country. There’s levels of consignment inventory. There’s levels of inventory that we bought ahead. We can manage receipts, timing of receipts. We can shift production. We’re not single-sourced on any major product categories, so we can shift to a different source. So whatever the ultimate tariff ends up being, and I think it’s gonna change here, we feel like we’re in a very good position to react to that and put ourselves in a favorable position.

Andrew Krill: Got it. Thanks.

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

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

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

Mike Halloran: Okay. That makes sense. Thanks for that. And then just from a timing perspective, you know, made the point of you purchasing inventory from your side to get in front of some of these headwinds. It seems if I’m thinking about the second quarter and then the back half of the year that the inventory side keeps you in a pretty good cost containment position from the second quarter. And then the pricing is more of a 3Q impact. And so that’s how the balancing works out. And I think about that timing appropriately, or does that inventory stretch farther or less far? And just kind of thinking about the cadence, see if that makes sense.

Todd Adams: I think at a high level, it’s a reasonable assumption. You know, taken as a whole. It obviously is the devil is in all the details in terms of, you know, what we bought ahead, what we’ve moved, what we’re transitioning over the balance of the year. But I think in general, it’s not a bad way to think about it.

Mike Halloran: Guys. Appreciate it.

Operator: Thanks, Mike. Your next question comes from the line of Andrew Buscaglia of BNP Paribas. Please go ahead.

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

Todd Adams: Well, I don’t think anyone knows the answer to that. I would tell you that if you look at our end market, which is primarily North America, you know, there’s only a handful of market participants. It’s protected through highly specified products through reps and channels and everything else. So I think we’re all sort of in the same canoe. And so to the degree there’s gonna be a school built, a hospital built, a stadium built, I think that it will need the products that we sell. And, obviously, you know, I think for a lot of reasons, if these do go through at the levels that they’re talking about, it will create inflation. What that does long term, I don’t know. It’s probably not great. But I think for the near term, we feel very confident in our ability to navigate in front of it.

And I also think it’s gonna be a moving target. I think we know, I read some things last night and this morning around, you know, the 145% on China is too high and likely coming down, but not. I think our working assumption is that, you know, that 10% sticks at a minimum and maybe goes higher. And so I think we’ve just gotta navigate through all these moving parts for a period of time. But the thing that I think is, again, the most important aspect of this, we’ve operated this model for decades. And navigated through a lot of different dynamics, and this is just one more. And I think that we feel very confident with the team we have, the processes we have in place, you know, is gonna our connectivity, and the way we manage it with our business system, keep us in great shape moving forward.

And there’s a premium on being agile and experienced in this sort of environment, and we think, you know, we think we like our chances.

Andrew Buscaglia: Yeah. And, you know, when I first saw, you know, the press release hit and you guys grew organic 5% and made the comment not a lot of price in there. I thought maybe you had some pull forward, but then I see on a slide, you’re managing customers ordering ahead of what kind of the tariff rate on that? And then I guess the other moving pieces would be your downshift and mix and kind of how much inventory you have on there. But it just seems like the pricing, you know, looks like you have two prices that kind of add up to low 20%. Just seems like a big number relative to, you know, pretty manageable impact. Thanks. Yeah. So I’ll take the first part of your question, Jeff. Just on the actual expected tariff cost.

So the $45 million to $55 million, there’s a lot of nuances in there, but essentially, if you look at just the tariffs coming out of China, there’s what folks are calling the AIEBA tariffs, the International Emergency Economic Powers Act. There’s the reciprocal tariffs that stack on top of IEPA. There’s the section 232 steel tariffs years ago, section 301 tariffs. And so there’s the existing from, you know, all of those different tariffs that I just mentioned carry a different weight. The highest being the 145%, the lowest being 145%. Yeah, Jeff. It’s all predicated on the HTS code and the harmonized tariff schedule that Dave talked about. And so each thing that people import gets imported under this particular code, and each code has a particular tariff assigned to it.

Based on the properties and principles of it. And so, you know, this is not a tops-down exercise. This is what our bay based on our receipt profile, and the HTS codes and quantities that we’re importing, this is what it looks like.

Andrew Buscaglia: Okay. That’s really helpful color. Thanks, guys.

Operator: Your next question comes from the line of Joe Ritchie of Goldman Sachs. Please go ahead.

Joe Ritchie: Hey, guys. Good morning. And just wanna say, you know, thank you for the transparency on slide eight. That’s very, it’s very detailed. Super helpful. Thanks for that. My first question, really, as you kind of think about your kind of relative competitive positioning to some of your biggest peers, I know Watson isn’t gonna report for another couple of weeks. How do you think you’re positioned from a cost structure standpoint relative to your biggest peers?

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

Joe Ritchie: Okay. Is there any other color you can provide just on, you know, what you’ve heard from either your customers or suppliers in terms of, like, what that actually, like, is there a way to quantify that or what that actually means? More details around that.

Todd Adams: Not that we’re willing to talk about. I mean, I don’t think that I think that, you know, everyone makes capacity and fulfillment decisions based on what their core competencies are. You know, we have some competitors that clearly are more vertically integrated for relatively small portions of what we compete with them on. And so I think if you listen to the original comments, you know, the capacity available capacity for the stuff that the products that we have, you know, is very limited. And, yes, there is some captive capacity that certain of our competitors have. But I would just highlight that it’s relatively small. And so when you look at the competitive response with respect to price increases, and other things, you know, we’re all sort of lined up at roughly the same prices.

Some people ahead, some people behind. And then the decision is how do you wanna service that demand from a quality reliability lead time and cost position. And I think, you know, we’re really happy with where we sit. Competitively. Really across the board.

Joe Ritchie: Okay. Great. And then just my quick follow-up for Dave. I saw you guys accelerated your buyback this quarter. Are you thinking about, you know, continuing to maybe more aggressively buyback your shares just given the current environment?

David Pauli: Sure. So we bought back $77 million in the quarter. I mentioned at the start the $55 million was part of the offering that we did in mid-February. I think our cash flow guidance was $290 million for the year. We’re confident in our ability to hit that. And we’ll just continue to monitor as we have done, called the past two years, and make smart decisions from what the stock price is and how much we buy in a quarter. But I think given where our leverage is, given where our cash position and future cash flow generation is, we’ve got the ability to continue to buyback.

Joe Ritchie: Okay. Thank you.

Operator: Thanks, Joe. There are no further questions at this time. With that, I will turn the call back over to Bryan Wendlandt for final closing remarks. Please go ahead.

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

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