James

James inquired about current dealer sentiment, their backlog levels, and expectations for the 2027 early buy season, referencing a competitor's outlook. He also asked about the current mix of higher-end versus lower-end pools in new construction and potential margin pressure if the lower-end segment rebounds.

Answer

President and CEO Kevin Holleran noted cautious optimism from dealers, without specific backlog figures, and stated that Hayward is not assuming any significant step-level change from 2025 into 2026. He indicated no clear insight into the 2027 early buy season at this point. Regarding pool mix, Kevin Holleran observed that new construction (around 60,000 units) has largely been mid to higher-end for several years. He believes that entry-level pools, if they rebound, would have a similar margin profile to higher-end products, thus not causing margin pressure, with Senior Vice President and CFO Ewan Jones adding that additional volume would leverage fixed costs.

James (Jefferies) asked for an update on dealer sentiment, current backlog levels, and any early indications regarding the 2027 early buy season. He also inquired about the current mix of higher-end versus lower-end pool construction and the potential impact on margins if lower-end pool demand were to rebound.

Answer

President and CEO Kevin Holleran noted cautious optimism among dealers but could not provide specific backlog data, stating no significant changes are expected from 2025 into 2026, and it's too early to comment on 2027. Regarding pool mix, Holleran explained that new construction has primarily been mid-to-higher end. He anticipates that a return of lower-end pools would not pressure margins, as equipment margins are similar, and SVP and CFO Ewan Jones added that increased volume would provide operating leverage.

James Ko asked about the competitive landscape for cooling valves in the data center market, including main competitors, Watts' estimated market share, and risks from new entrants. He also inquired about the Europe segment margin, noting its significant improvement in 2025 but a flattish guide for 2026, asking if restructuring benefits are largely complete or if further opportunities remain.

Answer

President and CEO Bob Pagano stated that there are a handful of competitors in the data center cooling valve market, with Watts being in the top three, emphasizing quality, delivery, and reputation. He noted that Watts' 151-year history provides credibility, and they are working across the entire value chain. CFO Diane McClintock explained that Europe's Q4 2025 margin benefited from an extra shipping day and volume leverage, but 2026 volume is expected to be muted. She added that restructuring savings are primarily in Q1 and Q2, with headwinds from 80/20 efforts and volume deleverage, leading to a cautious flat margin outlook.

James Ko asked about the competitive landscape for cooling valves in the data center market, Watts Water Technologies' estimated market share, and potential risks from new competitors entering the market.

Answer

President and CEO Bob Pagano noted a handful of top competitors, emphasizing Watts' focus on quality, delivery, and reputation. He highlighted the company's 151-year history as a source of credibility and its efforts to penetrate the hyperscaler market by working across the entire value chain.

James (on behalf of A.J. Rice from UBS) inquired about Healthcare Services Group's potential for revenue upside beyond mid-single-digit growth, considering strong nursing home fundamentals, cross-sell opportunities, and campus division growth. He also asked about the expected segment margins for 2026 following nice expansion in Q4 2025.

Answer

President and CEO Ted Wahl explained that growth is execution-based, limited primarily by the ability to hire, develop, and retain management candidates, with a robust and growing sales pipeline. Chief Communications Officer Matthew McKee attributed margin expansion to strong service execution, workers' comp and general liability efficiencies, and lower bad debt expense, targeting cost of services in the 86% range for 2026.

James of UBS inquired about the strategic rationale behind Encompass Health's new small format hospital development, asking about the advantages these facilities offer compared to traditional de novo hospitals.

Answer

EVP and CFO Doug Coltharp explained that improved design and construction methods made the 24-bed prototype economically feasible, addressing needs in markets where existing hospitals cannot expand or where demand is geographically dispersed. President and CEO Mark Tarr highlighted benefits such as market density, brand recognition, staff growth opportunities, and reduced risk. Mr. Coltharp added that these remote locations operate under the same Medicare provider number, streamlining managed care contracts and avoiding new Medicare certifications. EVP and COO Patrick Tuer noted existing successful experience with similar models and significant future expansion potential.

James asked about the rationale behind adding small format hospitals to Encompass Health's capacity expansion strategy, and the advantages these hospitals provide compared to traditional de novos.

Answer

Doug Coltharp (EVP and CFO) explained that the 24-bed prototype, enabled by prefabricated construction, addresses situations where existing hospitals cannot expand or where demand in larger markets necessitates additional beds in different geographies. He highlighted advantages such as leveraging host hospital management and marketing, favorable returns, operating under the same Medicare provider number (extending managed care contracts), and avoiding new Medicare certifications. Mark Tarr (President and CEO) added benefits like market density, brand recognition, growth opportunities for staff, and decreased risk. Patrick Tuer (EVP and COO) noted existing locations operating similarly and dozens of potential sites, including underserved or fringe markets.

James (on behalf of Stephen Baxter) asked about Cardinal Health's modeling of GLP-1s, considering market changes like pricing, channel shifts, and the introduction of oral formulations. He inquired about any differences in revenue or earnings modeling for GLP-1s this year and the long-term outlook.

Answer

CEO Jason Hollar noted that oral GLP-1 contribution is currently slow but expected to grow, though not material for the current fiscal year. He suggested oral GLP-1s might have better cost-to-serve economics. He reiterated that GLP-1s are unlikely to be a significant driver for underlying profitability, despite being a substantial revenue contributor (6% of Q2 sales growth), and expects both injectables and orals to continue growing significantly in the near term.

James Coe asked about tangible signs Zurn Elkay is observing for an inflection point in project conversion within the construction industry, given elevated planning but weak conversion. He also inquired about the progression of filter attachment rates with the new ProFiltration line and how the reported increase in filtered gallons in 2025 translates into filter sales.

Answer

CFO David Pauli stated that the 2026 guidance reflects current market conditions, including institutional growth, weaker commercial, and a tougher residential market, based on incoming order rates and project starts. David Pauli and Chairman and CEO Todd Adams explained that ProFiltration's design ensures a very high attachment rate, which will boost the overall attachment rate as it gains market share, and the increase in filtered gallons directly correlates with filter sales.

James Coe requested an update on the progression of Zurn Elkay Water Solutions' filter attachment rate with the new ProFiltration line and how the increase in filtered gallons in 2025 translates into filter sales.

Answer

David Pauli, CFO, noted good early adoption of ProFiltration, highlighting its proprietary head and required filter changes for proper unit function, which drives a very high attachment rate. Todd Adams, Chairman and CEO, added that as ProFiltration units become a larger portion of shipments and grow the installed base, the overall attachment rate will increase over one to three years, compounding the filtration opportunity.

James Ko asked if the project pacing dynamic extending into H1 2026 was expected or new, and about the confidence in revenue conversion for H2 2026. He also questioned how much of the high single-digit organic growth outlook over the 4-5 year horizon is supported by awarded but not yet executed projects versus broader funnel opportunities.

Answer

Ken Bockhorst, Chairman, President and CEO, acknowledged some variability, noting that some H2 projects were initially expected in H1, but expressed strong confidence in the five-year horizon. Dan Weltzien, CFO, clarified that project delays are typically due to contracting and deployment phases, not funding issues. Ken Bockhorst emphasized that the H2 projects are known, awarded, and not yet started. He explained that the five-year outlook is based on a comprehensive funnel of activities, including consulting, RFPs, in-flight projects, and awarded-not-started projects, underpinned by 85% replacement orders and a 28% CAGR in software growth.

James Ko questioned whether the project pacing dynamic extending into H1 2026 was new or expected, and the level of confidence in project conversion to revenue in H2 2026. He also asked how much of the high single-digit organic growth outlook is supported by awarded but not executed projects versus broader funnel opportunities.

Answer

Ken Bockhorst, Chairman, President, and CEO, acknowledged some variability, with certain H2 projects initially expected in H1, but reiterated confidence in the 5-year horizon. Dan Weltzien, CFO, clarified that project slides are not funding-related but due to contracting and deployment phases. Ken emphasized that H2 projects are "known, awarded, not started." Ken explained the 5-year outlook is based on a comprehensive funnel of activities, underpinned by 85% replacement orders and strong software CAGR.

James, on behalf of Saree Broditsky, inquired about the fire service outlook for 2026, considering pent-up demand and the clearing of near-term headwinds, and asked about the confidence and potential risks associated with the early 2026 NFPA approval timing.

Answer

Steve Blanco, President and CEO, stated that 2026 fire service demand is expected to be consistent with 2025, with anticipated improvements in international markets, and expressed optimism for significant growth in 2027-2029. He also conveyed high confidence in the NFPA approval being issued no later than early 2026, acknowledging it's a government agency decision.

James, on behalf of Saree Boroditsky from Jefferies, inquired about the key factors driving the outperformance of water quality in high-growth markets this quarter, after underperforming in previous quarters, and the expected trajectory for these regions. James also asked about the drivers behind the strong high-single-digit recurring revenue growth and whether it is expected to continue outpacing equipment sales growth.

Answer

Jennifer Honeycutt, President and CEO, attributed strong high-growth market performance to China no longer being a drag, continued growth in Latin America, and double-digit growth from India and the Middle East, driven by a growing middle class, infrastructure development, and water/energy challenges. Regarding recurring revenue, Ms. Honeycutt noted strong growth from both equipment placements (printers, instruments) and their associated consumables, as well as increasing contributions from SaaS and annual revenue in software-based businesses like TraceGains and Esko. Sameer Ralhan, SVP and CFO, added that instrument business's finite life also contributes to recurring revenue.