Ed

Ed asked about the consistent strong margin results and how to think about future margin expansion from these record levels. He also inquired about the Zurn Elkay business system's role in navigating the tariff environment and why the company is in a relatively stronger position compared to competitors.

Answer

CFO David Polley highlighted consistent margin expansion since the Elkay merger, driven by synergies, the Zurn Elkay business system, and continuous improvement. He stated that the current margin level is a new baseline, with a long-term view of 30% to 35% incrementals on volume. CEO Todd Adams explained that the company's strong position in tariffs stems from a five-year strategic plan to move manufacturing supply chain partners out of China to other regions, including the U.S., with over 50% of COGS from the U.S. today and only 2-3% expected from China by the end of next year.

Ed inquired about the consistent strong margin results and high incrementals, asking how to think about future margin potential from these record levels. He also asked for clarification on how the Zurn Elkay business system positions the company to navigate the tariff environment more effectively than competitors.

Answer

David Polley, CFO, stated that the current margin level is a new baseline, driven by synergy delivery, Zurn Elkay business system leverage, and continuous improvement. He suggested thinking about 30% to 35% incrementals on volume for the long term. Todd Adams, Chairman and CEO, explained that the company proactively moved manufacturing supply chain partners out of China to other regions, including the U.S., years ago, with over 50% of COGS now from the U.S. and only 2-3% expected from China by end of next year. This long-term strategic planning positioned them well for the tariff environment.

Asked for clarification on well productivity figures, the timeline for filling existing facility capacity, and details about the short-term debt on the balance sheet and prepayment restrictions.

Answer

The company clarified that the 1,000 bbl/d figure is an average across all wells, not the rate for new refills. They do not expect to fill facility capacity in 2025, targeting late 2026 instead. They confirmed the short-term debt represents the expected payments over the next 12 months and that voluntary prepayments are restricted until October 2025.