Call scheduled for Wednesday, October 27, 2021 at 8:00 a.m.
Eastern Time
Zurn Water Solutions Corporation (NYSE:ZWS)
Third Quarter and Recent
Highlights
- On October 4, 2021 Zurn Water Solutions Corporation ("Zurn" or
the "Company"), formerly known as Rexnord Corporation, completed
the spin-off of its Process & Motion Control ("PMC") business
in a Reverse Morris Trust transaction (the "Transaction").
- Zurn Water Solutions is now a stand-alone pure-play water
solutions company.
- Consolidated results presented for the third quarter and year
to date represent the Company's combined legacy businesses (both
the Water Management ("WM") and PMC segments).
- Consolidated net sales were $557 million compared with $494
million in last year’s September quarter (+9% core sales(1), +3%
acquisitions and divestitures, +1% foreign currency
translation).
- Consolidated net income(2) was $64 million (diluted EPS of
$0.51), compared with $45 million (diluted EPS of $0.37) in the
year-ago quarter.
- Consolidated Adjusted EPS(1) was $0.55 compared with $0.47 in
the year-ago quarter.
- Consolidated Adjusted EBITDA(1) was $128 million (23.0% of net
sales) compared with $109 million (22.0% of net sales) in last
year's September quarter.
Todd A. Adams, Chairman and Chief Executive Officer, commented,
“The timely and successful completion of the Transaction represents
a significant milestone for our Company as we transition to
operating Zurn Water Solutions; a stand-alone, pure-play water
business that we believe is well positioned to continue to create
significant shareholder value driven by our distinct competitive
advantages. We provide our customers with the broadest sustainable
product portfolio of solutions to improve health, human safety and
the environment. We are excited for the next chapter and expect to
build upon our track record of superior performance by leveraging
the Zurn Business system to continue to drive above market growth,
best in class margins and superior cash flow."
"In the third quarter, demand trends in our Zurn business
remained strong as core orders increased in the high single digits
year over year. Year over year sales grew 15% and our core sales
grew 5% despite being impacted by some temporary transportation
delays that our team continues to actively manage. With the benefit
of the third quarter behind us and continued strong demand to start
the fourth quarter our second half outlook remains unchanged from
our expectations ninety days ago. Operationally, we continue to
execute well as we delivered EBITDA margins of 26.5% along with
exceptional cash flow. Looking ahead to next year, we believe a
positive market backdrop coupled with the success we are having on
a number of our organic growth initiatives, sets up a clear path to
double digit core growth for Zurn in 2022."
“The PMC business that is now part of Regal Rexnord Corporation
delivered 12% organic growth, a solid EBITDA margin of 23.5% and
demand remained strong across PMC’s end markets which resulted in a
book-to-bill ratio above one."
Fourth Quarter Outlook
Adams continued, “ For the fourth quarter, and taking into
consideration the seasonal nature of our business, we expect Zurn's
fourth quarter total sales to increase year over year by a high
teens percentage and Adjusted EBITDA margin to range between 24%
and 24.5% and for our corporate expenses to approximate $10
million. We remain on track to reduce corporate expenses to
approximately $20 million dollars on an annualized basis during the
first quarter of 2022.”
Third Quarter 2021 Segment
Highlights
Water Management
WM net sales were $229.7 million during the three months ended
September 30, 2021, an increase of 15% year over year. Excluding a
1% increase to net sales associated with foreign currency
transaction and a 9% increase in net sales resulting from our
prior-year acquisition of Hadrian, core sales increased 5% year
over year driven by increased demand across nearly all of our
product categories that was partially offset by temporary
transportation capacity related constraints.
WM income from operations was $48.6 million or 21.2% of net
sales. Income from operations as a percentage of net sales
decreased by 320 basis points year over year as the favorable
impact of year over year sales growth was more than offset by the
mix impact of the Hadrian acquisition, the year-over-year change in
the adjustment to state inventories at last-in-first-out cost,
higher year-over-year non-cash stock based compensation expense and
the benefit of temporary cost reduction actions in the prior year
third quarter in response to the COVID-19 pandemic.
Adjusted EBITDA(1) was $60.9 million, or 26.5% of net sales
during the three months ended September 30, 2021. Adjusted
EBITDA(1) was $55.9 million, or 28.0% of net sales during the three
months ended September 30, 2020.
Process & Motion Control
PMC net sales were $327.5 million during the three months ended
September 30, 2021, an increase of 11% as compared to the prior
year. Excluding a 1% increase to net sales associated with foreign
currency translation and a 2% decrease from a small divestiture,
core sales increased by 12% year over year driven by growth across
nearly all product categories and geographies.
PMC income from operations was $57.3 million, or 17.5% of net
sales. Income from operations as a percentage of net sales
increased by 530 basis points year over year due to benefits from
cost reduction and productivity initiatives, the favorable impact
of year over year sales growth, and the reduction of restructuring
expense year over year, partially offset by the benefit of
temporary cost reduction actions in the prior year third quarter in
response to the COVID-19 pandemic.
Adjusted EBITDA(1) was $76.9 million, or 23.5% of net sales
during the three months ended September 30, 2021. Adjusted
EBITDA(1) was $61.3 million, or 20.9% of net sales during the three
months ended September 30, 2020.
(1)
Refer to "Non-GAAP Measures" for a
definition of this non-GAAP metric, as well as the accompanying
reconciliations to GAAP.
(2)
Reflects net income attributable to
Zurn.
Non-GAAP Financial Measures
The following non-GAAP financial measures are utilized by
management in comparing our operating performance on a consistent
basis. We believe that these financial measures are appropriate to
enhance an overall understanding of our underlying operating
performance trends compared to historical and prospective periods
and our peers. Management also believes that these measures are
useful to investors in their analysis of our results of operations
and provide improved comparability between fiscal periods as well
as insight into the compliance with our debt covenants. Non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for, financial information calculated in accordance
with GAAP. Investors are encouraged to review the reconciliation of
these non-GAAP measures to their most directly comparable GAAP
financial measures. A reconciliation of non-GAAP financial measures
presented above to our GAAP results has been provided in the
financial tables included in this press release.
Core Sales
Core sales excludes the impact of acquisitions (such as
Hadrian), divestitures and foreign currency translation. Management
believes that core sales facilitates easier and more meaningful
comparison of our net sales performance with prior and future
periods and to our peers. We exclude the effect of acquisitions and
divestitures because the nature, size and number of acquisitions
and divestitures can vary dramatically from period to period and
between us and our peers, and can also obscure underlying business
trends and make comparisons of long-term performance difficult. We
exclude the effect of foreign currency translation from this
measure because the volatility of currency translation is not under
management's control.
Adjusted Net Income and Adjusted Earnings Per Share
Adjusted net income and adjusted earnings per share (calculated
on a diluted basis) exclude actuarial gains and losses on pension
and postretirement benefit obligations, restructuring and other
similar charges, gains or losses on divestitures, discontinued
operations, gains or losses on extinguishment of debt, the impact
of acquisition-related fair value adjustments in connection with
purchase accounting, amortization of intangible assets, and other
non-operational, non-cash or non-recurring losses, net of their
income tax impact. The tax rates used to calculate adjusted net
income and adjusted earnings per share are based on a transaction
specific basis. We believe that adjusted net income and adjusted
earnings per share are useful in assessing our financial
performance by excluding items that are not indicative of our core
operating performance or that may obscure trends useful in
evaluating our continuing results of operations. All references to
Net Income and EPS within this earnings release refer to net income
attributable to Zurn Water Solutions common stockholders and net
income per diluted share attributable to Zurn Water Solutions
common stockholders, respectively.
EBITDA
EBITDA represents earnings from continuing operations before
interest and other debt related activities, taxes, depreciation and
amortization. EBITDA is presented because it is an important
supplemental measure of performance and it is frequently used by
analysts, investors and other interested parties in the evaluation
of companies in our industry. EBITDA is also presented and compared
by analysts and investors in evaluating our ability to meet debt
service obligations. Other companies in our industry may calculate
EBITDA differently. EBITDA is not a measurement of financial
performance under GAAP and should not be considered as an
alternative to cash flow from operating activities or as a measure
of liquidity or an alternative to net income as indicators of
operating performance or any other measures of performance derived
in accordance with GAAP. Because EBITDA is calculated before
recurring cash charges, including interest expense and taxes, and
is not adjusted for capital expenditures or other recurring cash
requirements of the business, it should not be considered as a
measure of discretionary cash available to invest in the growth of
the business.
Adjusted EBITDA
“Adjusted EBITDA” is the term we use to describe EBITDA as
defined and adjusted in our credit agreement, which is net income,
adjusted for the items summarized in the Reconciliation of GAAP to
Non-GAAP Financial Measures table below. Adjusted EBITDA is
intended to show our unleveraged, pre-tax operating results and
therefore reflects our financial performance based on operational
factors, excluding non-operational, non-cash or non-recurring
losses or gains. In view of our debt level, it is also provided to
aid investors in understanding our compliance with our debt
covenants. Adjusted EBITDA is not a presentation made in accordance
with GAAP, and our use of the term Adjusted EBITDA varies from
others in our industry. This measure should not be considered as an
alternative to net income, income from operations (as it relates to
our two reportable segments, we adjust from income from operations
because “non-operating” expenses such as interest and income taxes
are not allocated to our segments and therefore net income is not
presented at the segment level) or any other performance measures
derived in accordance with GAAP. Adjusted EBITDA has important
limitations as an analytical tool, and you should not consider it
in isolation, or as a substitute for, analysis of our results as
reported under GAAP. For example, Adjusted EBITDA does not reflect:
(a) our capital expenditures, future requirements for capital
expenditures or contractual commitments; (b) changes in, or cash
requirements for, our working capital needs; (c) the significant
interest expenses, or the cash requirements necessary to service
interest or principal payments, on our debt; (d) tax payments that
represent a reduction in cash available to us; (e) any cash
requirements for the assets being depreciated and amortized that
may have to be replaced in the future; or (f) the impact of
earnings or charges resulting from matters that we and the lenders
under our credit agreement may not consider indicative of our
ongoing operations. In particular, our definition of Adjusted
EBITDA allows us to add back certain non-cash, non-operating or
non-recurring charges that are deducted in calculating net income,
even though these are expenses that may recur, vary greatly and are
difficult to predict and can represent the effect of long-term
strategies as opposed to short-term results.
In addition, certain of these expenses can represent the
reduction of cash that could be used for other corporate purposes.
Further, although not included in the calculation of Adjusted
EBITDA below, the measure may at times allow us to add estimated
cost savings and operating synergies related to operational changes
ranging from acquisitions to dispositions to restructurings and/or
exclude one-time transition expenditures that we anticipate we will
need to incur to realize cost savings before such savings have
occurred. Further, management and various investors use the ratio
of total debt less cash to Adjusted EBITDA (which includes a full
pro-forma last-twelve-month impact of acquisitions), or "net debt
leverage", as a measure of our financial strength and ability to
incur incremental indebtedness when making key investment decisions
and evaluating us against peers. Lastly, management and various
investors use the ratio of the change in Adjusted EBITDA divided by
the change in net sales (referred to as “incremental margin” in the
case of an increase in net sales or “decremental margin” in the
case of a decrease in net sales) as an additional measure of our
financial performance and is utilized when making key investment
decisions and evaluating us against peers.
Free Cash Flow
We define Free Cash Flow as cash flow from operations less
capital expenditures, and we use this metric in analyzing our
ability to service and repay our debt and to forecast future
periods. However, this measure does not represent funds available
for investment or other discretionary uses since it does not deduct
cash used to service our debt. We define Free Cash Flow Conversion
as Free Cash Flow divided by net income.
Return on Invested Capital (“ROIC”)
ROIC is used because we believe it is an important supplemental
measure of financial performance and it is also currently a
performance measure under our long-term incentive plan. ROIC is
frequently used by analysts, investors and other interested parties
in the evaluation of companies in our industry. ROIC is also used
by investors and analysts to evaluate management’s deployment of
capital to create shareholder value. We define ROIC as tax-effected
net operating income for the last 12 months divided by average
total invested capital over a rolling four-quarter period. Total
invested capital is defined as shareholders equity plus debt, less
cash and cash equivalents. Other companies may not define or
calculate ROIC in the same way. We may also periodically refer to
“underlying ROIC” which adjusts total invested capital by reversing
the effects on our current capital structure of the 2006 leveraged
buyout of the then privately-held Company by a separate private
owner.
About Zurn Water Solutions
Headquartered in Milwaukee, Wisconsin, Zurn Water Solutions is a
growth oriented, pure-play water business that designs, procures,
manufactures and markets what we believe is the broadest
sustainable product portfolio of solutions to improve health, human
safety and the environment. The Zurn product portfolio includes
professional grade water control and safety, water distribution and
drainage, finish plumbing, hygienic and environmental and site
works products for public and provide spaces. Additional
information about the Company can be found at
www.zurnwatersolutions.com.
Conference Call Details
Zurn Water Solutions will hold a conference call on Wednesday,
October 27, 2021, at 8:00 a.m. Eastern Time to discuss its third
quarter 2021 results, provide a general business update and respond
to investor questions. Zurn Chairman and CEO, Todd Adams, and
Senior Vice President and CFO, Mark Peterson, will co-host the
call. The conference call can be accessed via telephone as
follows:
Domestic toll-free #: 888-510-2359 International toll #:
646-960-0215 Access Code: 7660247
A live webcast of the call will also be available on the
Company's investor relations website. Please go to the website
(investors.zurnwatersolutions.com) at least 15 minutes prior to the
start of the call to register, download and install any necessary
audio software.
If you are unable to participate during the live teleconference,
a replay of the conference call will be available from 10:00 a.m.
Central Time October 27, 2021 until 10:59 p.m. Central Time,
November 3, 2021. To access the replay, please dial 800-770-2030
(domestic) or 647-362-9199 (international). The Conference ID for
the replay is: 7660247. The replay will also be available as a
webcast on the Company’s investor relations website.
Cautionary Statement on Forward-Looking Statements
This communication contains certain “forward-looking statements”
including statements regarding the anticipated benefits of the
transactions with Regal. The words “anticipate,” “believe,”
“continue,” “could,” “estimate,” “expect,” “intends,” “may,”
“might,” “plan,” “possible,” “potential,” “predict,” “project,”
“should,” “would” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking. Examples of
forward-looking statements include, among others, statements we
make regarding our path to double digit core growth, increase in
fourth quarter sales, and our ability to drive differentiated
growth around distinct competitive advantages and market dynamics.
The forward-looking statements contained herein are based on Zurn
Water Solutions’ current expectations and beliefs concerning future
developments and their potential effects, but there can be no
assurance that these will be as anticipated. These forward-looking
statements involve a number of risks, uncertainties (some of which
are beyond the control of Zurn Water Solutions) or other
assumptions that may cause actual results or performance to be
materially different from those expressed or implied by these
forward-looking statements. These factors include, among others:
the inability to recognize the anticipated benefits of the
Transaction and costs related to the Transaction. Except as
required by law, Zurn Water Solutions does not undertake any
obligation to update or revise any forward-looking statements
whether as a result of new information, future events or
otherwise.
Zurn Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Operations
(in Millions, except share and
per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Net sales
$
557.2
$
493.6
$
1,651.6
$
1,489.7
Cost of sales
338.4
300.5
989.1
903.2
Gross profit
218.8
193.1
662.5
586.5
Selling, general and administrative
expenses
117.8
105.1
359.1
318.1
Restructuring and other similar
charges
2.0
6.6
3.7
14.9
Amortization of intangible assets
9.1
9.0
27.6
27.1
Income from operations
89.9
72.4
272.1
226.4
Non-operating expense:
Interest expense, net
(11.0
)
(11.5
)
(33.7
)
(38.3
)
Actuarial loss on pension and
postretirement benefit obligations
—
—
—
(35.8
)
Other (expense) income, net
(0.7
)
0.6
0.6
(2.6
)
Income before income taxes
78.2
61.5
239.0
149.7
Provision for income taxes
(17.9
)
(16.1
)
(55.6
)
(39.7
)
Equity method investment income (loss)
—
—
0.3
(0.2
)
Net income from continuing operations
60.3
45.4
183.7
109.8
Income from discontinued operations, net
of tax
3.8
—
3.8
—
Net income
64.1
45.4
187.5
109.8
Non-controlling interest income
—
—
0.2
0.3
Net income attributable to Zurn
$
64.1
$
45.4
$
187.3
$
109.5
Basic net income per share attributable to
Zurn common stockholders:
Continuing operations
$
0.50
$
0.38
$
1.52
$
0.91
Discontinued operations
$
0.03
$
—
$
0.03
$
—
Net income attributable to Zurn
$
0.53
$
0.38
$
1.55
$
0.91
Diluted net income per share attributable
to Zurn common stockholders:
Continuing operations
$
0.48
$
0.37
$
1.47
$
0.89
Discontinued operations
$
0.03
$
—
$
0.03
$
—
Net income attributable to Zurn
$
0.51
$
0.37
$
1.50
$
0.89
Weighted-average number of shares
outstanding (in thousands):
Basic
121,385
120,704
120,558
120,909
Effect of dilutive equity securities
3,703
1,803
3,968
2,153
Diluted
125,088
122,507
124,526
123,062
Zurn Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended September
30, 2021
(in Millions)
(Unaudited)
Three Months Ended September
30, 2021
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
557.2
$
—
$
557.2
EBITDA
112.7
15.2
(a)
127.9
Depreciation and amortization
(22.8
)
—
(22.8
)
Income from operations
89.9
15.2
(b)
105.1
Income before income taxes
78.2
10.9
(c)
89.1
Provision for income taxes and indicated
rate
(17.9
)
22.9
%
(2.6
)
23.9
%
(20.5
)
23.0
%
Equity method investment income
—
—
—
Net income from continuing operations
60.3
8.3
68.6
Income from discontinued operations, net
of tax
3.8
(3.8
)
—
Net income
64.1
4.5
68.6
Non-controlling interest income
—
—
—
Net income attributable to Zurn
$
64.1
$
4.5
$
68.6
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
2.0
$
2.0
$
2.0
Other, net (1)
(0.9
)
(0.9
)
(0.9
)
Last-in-first-out inventory
adjustments
2.8
2.8
—
Stock-based compensation expense
11.3
11.3
—
Amortization of intangible assets
—
—
9.1
Other expense, net (2)
—
—
0.7
Total Adjustments
$
15.2
$
15.2
$
10.9
____________________
(1)
Other, net includes the gains and losses
from sale of long-lived assets.
(2)
Other expense, net, for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions, the non-service cost components of net
periodic benefit credits associated with our defined benefit
plans.
Zurn Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Nine Months Ended September
30, 2021
(in Millions)
(Unaudited)
Nine Months Ended September
30, 2021
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
1,651.6
$
—
$
1,651.6
EBITDA
341.5
40.0
(a)
381.5
Depreciation and amortization
(69.4
)
—
(69.4
)
Income from operations
272.1
40.0
(b)
312.1
Income before income taxes
239.0
21.2
(c)
260.2
Provision for income taxes and indicated
rate
(55.6
)
23.3
%
(6.0
)
28.3
%
(61.6
)
23.7
%
Equity method investment income
0.3
(0.3
)
—
Net income from continuing operations
183.7
14.9
198.6
Income from discontinued operations, net
of tax
3.8
(3.8
)
—
Net income
187.5
11.1
198.6
Non-controlling interest income
0.2
(0.2
)
—
Net income attributable to Zurn
$
187.3
$
11.3
$
198.6
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
3.7
$
3.7
$
3.7
Acquisition-related fair value
adjustment
0.6
0.6
0.6
Other, net (1)
(10.1
)
(10.1
)
(10.1
)
Last-in-first-out inventory
adjustments
7.5
7.5
—
Stock-based compensation expense
38.3
38.3
—
Amortization of intangible assets
—
—
27.6
Other income, net (2)
—
—
(0.6
)
Total Adjustments
$
40.0
$
40.0
$
21.2
____________________
(1)
Other, net includes the gains and losses
from sale of long-lived assets.
(2)
Other income, net, for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions, the non-service cost components of net
periodic benefit credits associated with our defined benefit
plans.
Zurn Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended September
30, 2020
(in Millions)
(Unaudited)
Three Months Ended September
30, 2020
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
493.6
$
—
$
493.6
EBITDA
94.7
13.8
(a)
108.5
Depreciation and amortization
(22.3
)
0.2
(d)
(22.1
)
Income from operations
72.4
14.0
(b)
86.4
Income before income taxes
61.5
15.5
(c)
77.0
Provision for income taxes and indicated
rate
(16.1
)
26.2
%
(3.5
)
22.6
%
(19.6
)
25.5
%
Net income
45.4
12.0
57.4
Non-controlling interest income
—
—
—
Net income attributable to Zurn
$
45.4
$
12.0
$
57.4
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
6.6
$
6.6
$
6.6
Other, net (1)
0.3
0.3
0.3
Last-in-first-out inventory
adjustments
(0.5
)
(0.5
)
—
Stock-based compensation expense
7.4
7.4
—
Supply chain optimization and footprint
repositioning initiatives (d)(2)
—
0.2
0.2
Amortization of intangible assets
—
—
9.0
Other income, net (3)
—
—
(0.6
)
Total Adjustments
$
13.8
$
14.0
$
15.5
____________________
(1)
Other, net includes the gains and losses
from sale of long-lived assets.
(2)
Represents accelerated depreciation
associated with our strategic supply chain optimization and
footprint repositioning initiatives.
(3)
Other income, net, for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions and the non-service cost components of net
periodic benefit credits associated with our defined benefit
plans.
Zurn Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Nine Months Ended September
30, 2020
(in Millions)
(Unaudited)
Nine Months Ended September
30, 2020
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
1,489.7
$
—
$
1,489.7
EBITDA
292.7
42.9
(a)
335.6
Depreciation and amortization
(66.3
)
1.2
(d)
(65.1
)
Income from operations
226.4
44.1
(b)
270.5
Income before income taxes
149.7
83.1
(c)
232.8
Provision for income taxes and indicated
rate
(39.7
)
26.5
%
(23.4
)
28.2
%
(63.1
)
27.1
%
Equity method investment income
(0.2
)
0.2
—
Net income
109.8
59.9
169.7
Non-controlling interest income
0.3
(0.3
)
—
Net income attributable to Zurn
$
109.5
$
60.2
$
169.7
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
14.9
$
14.9
$
14.9
Acquisition-related fair value
adjustment
1.9
1.9
1.9
Other, net (1)
(0.4
)
(0.4
)
(0.4
)
Last-in-first-out inventory
adjustments
(2.4
)
(2.4
)
—
Stock-based compensation expense
28.9
28.9
—
Supply chain optimization and footprint
repositioning initiatives (d)(2)
—
1.2
1.2
Amortization of intangible assets
—
—
27.1
Other expense, net (3)
—
—
2.6
Actuarial loss on pension and
postretirement benefit obligations
—
—
35.8
Total Adjustments
$
42.9
$
44.1
$
83.1
____________________
(1)
Other, net includes the gains and losses
from sale of long-lived assets.
(2)
Represents accelerated depreciation
associated with our strategic supply chain optimization and
footprint repositioning initiatives.
(3)
Other expense, net, for the periods
indicated, consists primarily of gains and losses from foreign
currency transactions and the non-service cost components of net
periodic benefit credits associated with our defined benefit
plans.
Zurn Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three and Nine Months Ended
September 30, 2021 and September 30, 2020
(in Millions, except share and
per share amounts) (Unaudited)
Three Months Ended
Nine Months Ended
Adjusted EBITDA
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Net income attributable to Zurn
$
64.1
$
45.4
$
187.3
$
109.5
Non-controlling interest income
—
—
0.2
0.3
Income from discontinued operations, net
of tax
(3.8
)
—
(3.8
)
—
Equity method investment (income) loss
—
—
(0.3
)
0.2
Provision for income taxes
17.9
16.1
55.6
39.7
Actuarial loss on pension and
postretirement benefit obligations
—
—
—
35.8
Other expense (income), net (1)
0.7
(0.6
)
(0.6
)
2.6
Interest expense, net
11.0
11.5
33.7
38.3
Income from operations
$
89.9
$
72.4
$
272.1
226.4
Adjustments
Depreciation and amortization
$
22.8
$
22.3
$
69.4
66.3
Restructuring and other similar
charges
2.0
6.6
3.7
14.9
Acquisition-related fair value
adjustment
—
—
0.6
1.9
Stock-based compensation expense
11.3
7.4
38.3
28.9
Last-in first-out inventory
adjustments
2.8
(0.5
)
7.5
(2.4
)
Other, net (2)
(0.9
)
0.3
(10.1
)
(0.4
)
Subtotal of adjustments
38.0
36.1
109.4
109.2
Adjusted EBITDA
$
127.9
$
108.5
$
381.5
$
335.6
____________________
(1)
Other expense (income), net, for the
periods indicated, consists primarily of gains and losses from
foreign currency transactions and the non-service cost components
of net periodic benefit credits associated with our defined benefit
plans.
(2)
Other, net includes the gains and losses
from the sale of long-lived assets.
Three Months Ended
Nine Months Ended
Adjusted Net Income and Earnings Per
Share
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Net income attributable to Zurn
$
64.1
$
45.4
$
187.3
$
109.5
Non-controlling interest income
—
—
0.2
0.3
Income from discontinued operations, net
of tax
(3.8
)
—
(3.8
)
—
Equity method investment (income) loss
—
—
(0.3
)
0.2
Amortization of intangible assets
9.1
9.0
27.6
27.1
Restructuring and other similar
charges
2.0
6.6
3.7
14.9
Supply chain optimization and footprint
repositioning initiatives (1)
—
0.2
—
1.2
Acquisition-related fair value
adjustment
—
—
0.6
1.9
Actuarial loss on pension and
postretirement benefit obligations
—
—
—
35.8
Other expense (income), net (2)
0.7
(0.6
)
(0.6
)
2.6
Other, net (3)
(0.9
)
0.3
(10.1
)
(0.4
)
Tax effect on above items
(2.6
)
(3.5
)
(6.0
)
(23.4
)
Adjusted net income
$
68.6
$
57.4
$
198.6
$
169.7
GAAP diluted net income per share
$
0.51
$
0.37
$
1.50
$
0.89
Adjusted earnings per share - diluted
$
0.55
$
0.47
$
1.59
$
1.38
Weighted-average number of shares
outstanding (in thousands)
GAAP basic weighted-average shares
121,385
120,704
120,558
120,909
Effect of dilutive equity securities
3,703
1,803
3,968
2,153
Adjusted diluted weighted-average
shares
125,088
122,507
124,526
123,062
____________________
(1)
Represents accelerated depreciation
associated with our strategic supply chain optimization and
footprint repositioning initiatives.
(2)
Other expense (income), net, for the
periods indicated, consists primarily of gains and losses from
foreign currency transactions and the non-service cost components
of net periodic benefit credits associated with our defined benefit
plans.
(3)
Other, net includes the gains and losses
from the sale of long-lived assets.
Three Months Ended
September 30, 2021
September 30, 2020
Adjusted EBITDA by Segment
Process & Motion
Control
Water Management
Corporate
Process & Motion
Control
Water Management
Corporate
Income (loss) from operations
$
57.3
$
48.6
$
(16.0
)
$
35.8
$
48.7
$
(12.1
)
Operating margin
17.5
%
21.2
%
12.2
%
24.4
%
Depreciation and amortization
14.7
8.0
0.1
14.8
7.4
0.1
Restructuring and other similar
charges
1.3
0.1
0.6
6.7
0.1
(0.2
)
Stock-based compensation expense
4.3
1.6
5.4
3.4
0.5
3.5
Last-in first-out inventory
adjustments
0.2
2.6
—
0.5
(1.0
)
—
Other, net
(0.9
)
—
—
0.1
0.2
—
Adjusted EBITDA
$
76.9
$
60.9
$
(9.9
)
$
61.3
$
55.9
$
(8.7
)
Adjusted EBITDA margin
23.5
%
26.5
%
20.9
%
28.0
%
Nine Months Ended
September 30, 2021
September 30, 2020
Adjusted EBITDA by Segment
Process & Motion
Control
Water Management
Corporate
Process & Motion
Control
Water Management
Corporate
Income (loss) from operations
$
179.1
$
142.0
$
(49.0
)
$
136.8
$
130.6
$
(41.0
)
Operating margin
18.4
%
20.9
%
14.7
%
23.4
%
Depreciation and amortization
44.8
24.3
0.3
44.2
21.7
0.4
Restructuring and other similar
charges
2.1
1.0
0.6
13.6
1.2
0.1
Acquisition-related fair value
adjustment
—
0.6
—
—
1.9
—
Stock-based compensation expense
15.1
4.7
18.5
10.6
3.3
15.0
Last-in first-out inventory
adjustments
0.6
6.9
—
2.4
(4.8
)
—
Other, net
(10.1
)
—
—
(0.2
)
(0.2
)
—
Adjusted EBITDA
$
231.6
$
179.5
$
(29.6
)
$
207.4
$
153.7
$
(25.5
)
Adjusted EBITDA margin
23.8
%
26.5
%
22.3
%
27.6
%
Three Months Ended
Nine Months Ended
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Cash provided by operating activities
$
100.8
$
66.2
$
245.8
$
237.7
Expenditures for property, plant and
equipment
(7.6
)
(6.8
)
(21.6
)
(31.2
)
Free cash flow
$
93.2
$
59.4
$
224.2
$
206.5
Zurn Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Comprehensive Income
(in Millions)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30, 2021
September 30, 2020
September 30, 2021
September 30, 2020
Net income attributable to Zurn
$
64.1
$
45.4
$
187.3
$
109.5
Other comprehensive income (loss):
Foreign currency translation
adjustments
(10.3
)
13.0
(6.6
)
3.1
Change in pension and postretirement
defined benefit plans, net of tax
—
(0.1
)
(0.2
)
(3.9
)
Other comprehensive (loss) income, net of
tax
(10.3
)
12.9
(6.8
)
(0.8
)
Non-controlling interest income
—
—
0.2
0.3
Total comprehensive income
$
53.8
$
58.3
$
180.7
$
109.0
Zurn Water Solutions
Corporation and Subsidiaries
Condensed Consolidated Balance
Sheets
(in Millions, except share
amounts)
(Unaudited)
September 30, 2021
December 31, 2020
Assets
Current assets:
Cash and cash equivalents
$
477.6
$
255.6
Receivables, net
333.2
274.8
Inventories
386.4
330.1
Income tax receivable
8.4
9.8
Other current assets
57.1
37.4
Total current assets
1,262.7
907.7
Property, plant and equipment, net
399.5
434.8
Intangible assets, net
498.7
524.6
Goodwill
1,373.0
1,370.1
Other assets
155.2
163.9
Total assets
$
3,689.1
$
3,401.1
Liabilities and stockholders'
equity
Current liabilities:
Current maturities of debt
$
2.5
$
2.4
Trade payables
210.3
129.4
Compensation and benefits
54.5
57.0
Current portion of pension and
postretirement benefit obligations
3.1
3.1
Other current liabilities
150.3
125.6
Total current liabilities
420.7
317.5
Long-term debt
1,189.3
1,189.2
Pension and postretirement benefit
obligations
162.1
171.4
Deferred income taxes
112.6
119.4
Other liabilities
158.7
164.3
Total liabilities
2,043.4
1,961.8
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000
shares authorized; shares issued and outstanding: 121,348,314 at
September 30, 2021 and 119,549,735 at December 31, 2020
1.2
1.2
Additional paid-in capital
1,452.1
1,392.9
Retained earnings
269.8
116.0
Accumulated other comprehensive loss
(80.6
)
(73.8
)
Total Zurn stockholders' equity
1,642.5
1,436.3
Non-controlling interest
3.2
3.0
Total stockholders' equity
1,645.7
1,439.3
Total liabilities and stockholders'
equity
$
3,689.1
$
3,401.1
Zurn Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in Millions)
(Unaudited)
Nine Months Ended
September 30, 2021
September 30, 2020
Operating activities
Net income
$
187.5
$
109.8
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation
41.8
39.2
Amortization of intangible assets
27.6
27.1
Gain on dispositions of long-lived
assets
(10.1
)
(0.4
)
Deferred income taxes
(6.6
)
(9.2
)
Actuarial loss on pension and
postretirement benefit obligations
—
35.8
Other non-cash expenses
1.5
2.2
Stock-based compensation expense
38.3
28.9
Changes in operating assets and
liabilities:
Receivables
(67.5
)
(16.3
)
Inventories
(58.7
)
0.5
Other assets
(7.1
)
22.1
Accounts payable
82.4
(22.7
)
Accruals and other
16.7
20.7
Cash provided by operating activities
245.8
237.7
Investing activities
Expenditures for property, plant and
equipment
(21.6
)
(31.2
)
Acquisitions, net of cash acquired
(3.4
)
(59.4
)
Proceeds from dispositions of long-lived
assets
18.5
9.0
Cash used for investing activities
(6.5
)
(81.6
)
Financing activities
Proceeds from borrowings of debt
—
331.0
Repayments of debt
(1.7
)
(332.1
)
Proceeds from exercise of stock
options
23.5
26.4
Repurchase of common stock
(0.9
)
(95.7
)
Payment of common stock dividends
(32.6
)
(29.0
)
Taxes withheld and paid on employees'
share-based payment awards
(1.4
)
(9.4
)
Cash used for financing activities
(13.1
)
(108.8
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(4.2
)
2.3
Increase in cash, cash equivalents and
restricted cash
222.0
49.6
Cash, cash equivalents and restricted cash
at beginning of period
255.6
277.0
Cash, cash equivalents and restricted cash
at end of period
$
477.6
$
326.6
Zurn Water Solutions
Corporation and Subsidiaries
Segment Financial
Information
(in Millions)
(Unaudited)
Year Ending December 31,
2021
Three Months Ended March 31,
2021
Three Months Ended June 30,
2021
Three Months Ended September
30, 2021
Three Months Ending December
31, 2021
Year to Date Ending December
31, 2021
PMC
Net sales
$
320.9
$
324.6
$
327.5
$
973.0
Income from operations & margin
55.0
17.1
%
66.8
20.6
%
57.3
17.5
%
179.1
18.4
%
Depreciation & amortization
15.2
14.9
14.7
44.8
EBITDA & margin
70.2
21.9
%
81.7
25.2
%
72.0
22.0
%
223.9
23.0
%
Adjustments
6.1
(3.3
)
4.9
7.7
Adjusted EBITDA & margin
$
76.3
23.8
%
$
78.4
24.2
%
$
76.9
23.5
%
$
231.6
23.8
%
Year-over-year sales
Core sales
(13
)%
16
%
12
%
4
%
Acquisition / divestiture
(1
)%
(2
)%
(2
)%
(2
)%
Currency translation
2
%
4
%
1
%
2
%
Total reported
(12
)%
18
%
11
%
4
%
WM
Net sales
$
205.2
$
243.7
$
229.7
$
678.6
Income from operations & margin
40.6
19.8
%
52.8
21.7
%
48.6
21.2
%
142.0
20.9
%
Depreciation & amortization
8.3
8.0
8.0
24.3
EBITDA & margin
48.9
23.8
%
60.8
24.9
%
56.6
24.6
%
166.3
24.5
%
Adjustments
4.4
4.5
4.3
13.2
Adjusted EBITDA & margin
$
53.3
26.0
%
$
65.3
26.8
%
$
60.9
26.5
%
$
179.5
26.5
%
Year-over-year sales
Core sales
4
%
29
%
5
%
12
%
Acquisition / divestiture
8
%
9
%
9
%
9
%
Currency translation
—
%
1
%
1
%
1
%
Total reported
12
%
39
%
15
%
22
%
Corporate
Income from operations
$
(17.0
)
$
(16.0
)
$
(16.0
)
$
(49.0
)
Depreciation & amortization
—
0.2
0.1
0.3
EBITDA
(17.0
)
(15.8
)
(15.9
)
(48.7
)
Adjustments
7.6
5.5
6.0
19.1
Adjusted EBITDA
$
(9.4
)
$
(10.3
)
$
(9.9
)
$
(29.6
)
Total Zurn Water Solutions
Net sales
$
526.1
$
568.3
$
557.2
$
1,651.6
Income from operations & margin
78.6
14.9
%
103.6
18.2
%
89.9
16.1
%
272.1
16.5
%
Depreciation & amortization
23.5
23.1
22.8
69.4
EBITDA & margin
102.1
19.4
%
126.7
22.3
%
112.7
20.2
%
341.5
20.7
%
Adjustments
18.1
6.7
15.2
40.0
Adjusted EBITDA & margin
$
120.2
22.8
%
$
133.4
23.5
%
$
127.9
23.0
%
$
381.5
23.1
%
Year-over-year sales
Core sales
(8
)%
21
%
9
%
7
%
Acquisition / divestiture
2
%
3
%
3
%
2
%
Currency translation
2
%
3
%
1
%
2
%
Total reported
(4
)%
27
%
13
%
11
%
Calendar Year Ended December
31, 2020
Three Months Ended March 31,
2020
Three Months Ended June 30,
2020
Three Months Ended September
30, 2020
Three Months Ended December
31, 2020
Calendar Year Ended December
31, 2020
PMC
Net sales
$
363.6
$
274.4
$
293.9
$
302.1
$
1,234.0
Income from operations & margin
61.4
16.9
%
39.6
14.4
%
35.8
12.2
%
32.9
10.9
%
169.7
13.8
%
Depreciation & amortization
15.1
14.3
14.8
15.4
59.6
EBITDA & margin
76.5
21.0
%
53.9
19.6
%
50.6
17.2
%
48.3
16.0
%
229.3
18.6
%
Adjustments
10.2
5.5
10.7
12.4
38.8
Adjusted EBITDA & margin
$
86.7
23.8
%
$
59.4
21.6
%
$
61.3
20.9
%
$
60.7
20.1
%
$
268.1
21.7
%
Year-over-year sales
Core sales
(1
)%
(15
)%
(13
)%
(8
)%
(9
)%
Acquisition / divestiture
—
%
—
%
—
%
(1
)%
—
%
Currency translation
(1
)%
(2
)%
—
%
1
%
(1
)%
Total reported
(2
)%
(17
)%
(13
)%
(8
)%
(10
)%
WM
Net sales
$
183.4
$
174.7
$
199.7
$
188.3
$
746.1
Income from operations & margin
41.8
22.8
%
40.1
23.0
%
48.7
24.4
%
37.2
19.8
%
167.8
22.5
%
Depreciation & amortization
7.0
7.3
7.4
7.5
29.2
EBITDA & margin
48.8
26.6
%
47.4
27.1
%
56.1
28.1
%
44.7
23.7
%
197.0
26.4
%
Adjustments
(1.9
)
3.5
(0.2
)
1.5
2.9
Adjusted EBITDA & margin
$
46.9
25.6
%
$
50.9
29.1
%
$
55.9
28.0
%
$
46.2
24.5
%
$
199.9
26.8
%
Year-over-year sales
Core sales
7
%
(5
)%
5
%
10
%
4
%
Acquisition / divestiture
4
%
3
%
3
%
5
%
4
%
Currency translation
—
%
—
%
—
%
—
%
—
%
Total reported
11
%
(2
)%
8
%
15
%
8
%
Corporate
Income from operations
$
(15.2
)
$
(13.7
)
$
(12.1
)
$
(20.1
)
$
(61.1
)
Depreciation & amortization
0.2
0.1
0.1
0.1
0.5
EBITDA
(15.0
)
(13.6
)
(12.0
)
(20.0
)
(60.6
)
Adjustments
5.4
6.4
3.3
9.0
24.1
Adjusted EBITDA
$
(9.6
)
$
(7.2
)
$
(8.7
)
$
(11.0
)
$
(36.5
)
Total Zurn Water Solutions
Net sales
$
547.0
$
449.1
$
493.6
$
490.4
$
1,980.1
Income from operations & margin
88.0
16.1
%
66.0
14.7
%
72.4
14.7
%
50.0
10.2
%
276.4
14.0
%
Depreciation & amortization
22.3
21.7
22.3
23.0
89.3
EBITDA & margin
110.3
20.2
%
87.7
19.5
%
94.7
19.2
%
73.0
14.9
%
365.7
18.5
%
Adjustments
13.7
15.4
13.8
22.9
65.8
Adjusted EBITDA & margin
$
124.0
22.7
%
$
103.1
23.0
%
$
108.5
22.0
%
$
95.9
19.6
%
$
431.5
21.8
%
Year-over-year sales
Core sales
1
%
(12
)%
(7
)%
(2
)%
(5
)%
Acquisition / divestiture
1
%
1
%
1
%
1
%
1
%
Currency translation
—
%
(1
)%
1
%
1
%
—
%
Total reported
2
%
(12
)%
(5
)%
—
%
(4
)%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211026006263/en/
Dave Pauli Vice President - Investor Relations 414.223.7770
Zurn Elkay Water Solutions (NYSE:ZWS)
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Zurn Elkay Water Solutions (NYSE:ZWS)
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