Investor call scheduled for Wednesday, October 26, 2022 at 8:30
a.m. Eastern Time
Zurn Elkay Water Solutions Corporation (NYSE:ZWS), a leader in
sustainable water solutions, reported today third-quarter 2022
financial results.
Third Quarter Highlights
- On July 1, 2022 completed the combination with Elkay
Manufacturing Company (“Elkay”), a market leader of commercial
drinking water solutions.
- Net sales in the quarter increased 82% to $418 million compared
with $230 million in last year’s September quarter (+16% core
sales(1), +67% acquisitions, -1% foreign currency
translation).
- Net loss from continuing operations was $(19) million (diluted
EPS from continuing operations of $(0.11)) compared with net income
from continuing operations of $16 million (diluted EPS from
continuing operations of $0.13) in the year-ago quarter.
- Adjusted EPS(1) was $0.26 compared with $0.19 in the year-ago
quarter.
- Adjusted EBITDA(1) was $84 million (20.0% of net sales)
compared with $51 million (22.2% of net sales) in last year's third
quarter. Corporate costs were $7 million compared to $10 million in
last year's third quarter.
- Net debt leverage of 1.6x as of September 30, 2022.
Todd A. Adams, Chairman and Chief Executive Officer of Zurn
Elkay, commented, “Our third quarter results for sales, EBITDA and
free cash flow were very much in-line with our expectations heading
into the quarter, for both the legacy Zurn business as well as the
newly combined Zurn Elkay, despite some end-market softening within
our served residential market. We’ve made an enormous amount of
progress on the integration over the first 90 days and we are
quickly becoming a single integrated business moving with speed,
focus and confidence. We have rigorously deployed ZEBS to begin to
significantly simplify portions of the legacy Elkay business; some
of these actions will be completed by the end of this year with the
majority in 2023. These initiatives will have a dramatic impact on
future growth, profitability, cash flow and the return profile of
our business. We continue to see the overall $50 million synergy
opportunity as highly realizable, with at least $25 million
benefiting 2023."
Fourth Quarter Outlook
Adams continued, “As we think about our outlook, we believe we
have a unique set of competitive advantages that help position us
to perform well amidst a difficult macro-environment. Our business
is 98% plus exposed to the North American market and within that
North American market we serve a hyper-local, non-residential
construction market where we are highly levered to the
institutional markets that are experiencing strong backlogs and
resilient leading indicators. Our variable business model will
quickly benefit from an improving supply chain and a lower-cost
commodity and improving freight environment, while also benefiting
from a strong US dollar. While we certainly have work left to do to
integrate Elkay, we're ahead of schedule on the work we needed to
do to capture the synergies and now it’s about leveraging ZEBS to
drive the execution.
Notwithstanding our confidence in performing across market
environments, we believe customer sentiment and market behavior
will be more volatile, particularly heading into a year-end and
what appears to be a deteriorating macro-environment. To this end,
we've introduced incremental conservatism into our fourth-quarter
guidance. In particular, given early signs of residential softness,
we are reducing our sales expectations for the residential portion
of our business compared to our view 90 days ago and executing on
an incremental $10 million of Elkay residential commodity, private
label, and OEM product line exits compared to our fourth quarter
expectations 90 days ago.
For the fourth quarter, we expect sales to be in a range of $350
million to $365 million and consolidated EBITDA margins to range
between 20.0% and 21.0%, inclusive of the actions and assumptions
detailed above, as well as the fewer shipping days and traditional
seasonality we experience in the fourth quarter. This range of
sales implies low-single digit core growth for legacy Zurn. The
sales range assumes our served residential market will be down ~20%
year-over-year and the remainder of legacy Zurn to be up
high-single digits despite last year's fourth quarter being
positively impacted by $10 million in sales from delayed shipments
from the third quarter 2021 due to freight container delays. The
mid-point of our sales guidance would imply 12% core growth for
calendar year 2022. We will provide more color and detail on our
call tomorrow morning of the impact from our planned product line
exits."
Third Quarter 2022
Overview
Net sales were $417.7 million and $229.7 million during the
three months ended September 30, 2022 and September 30, 2021,
respectively, an increase of 82% year over year. Excluding a 67%
increase in sales associated with our combination with Elkay and
prior year acquisition of Wade Drains and a 1% decrease in sales
associated with foreign currency translation, core sales increased
16% year over year as nearly all of our product categories, with
the exception of products sold into the residential end market,
contributed to the sales growth.
During the three months ended September 30, 2022, we generated a
loss from operations of $(10.1) million compared to income from
operations of $32.5 million during the three months ended September
30, 2021. The year over year change is primarily the result of
transaction costs related to the Elkay merger and higher intangible
asset and other acquisition related amortization and restructuring
costs following our combination with Elkay. These costs were
partially offset by the favorable impact of year-over-year sales
growth (inclusive of price realization) and productivity
savings.
Adjusted EBITDA(1), excluding corporate costs of $7 million, was
$91 million, or 21.7% of net sales during the three months ended
September 30, 2022 compared to $61 million, excluding corporate
costs of $10 million, or 26.5% of net sales during the three months
ended September 30, 2021.
(1)
Refer to "Non-GAAP Financial Measures" for
a definition of this non-GAAP metric, as well as the accompanying
reconciliations to GAAP.
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 the
Elkay and Wade Drains acquisitions), 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, the
adjustment to state inventories at last-in first-out costs, 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 Elkay Water Solutions common stockholders and
net income per diluted share attributable to Zurn Elkay 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 an indicator 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. 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.
In addition to Adjusted EBITDA we also use the term "Adjusted
EBITDA excluding corporate costs" which is used to described our
total Adjusted EBITDA at the operating level without being burdened
by the EBITDA costs associated with our corporate functions.
Adjusted EBITDA should not be considered as an alternative to net
income, income from operations 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) 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 adds 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 excluded 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), which we refer to as "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 this ratio is utilized by management 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 stockholders' equity plus debt, less
cash and cash equivalents. Other companies may not define or
calculate ROIC in the same way.
About Zurn Elkay Water Solutions
Headquartered in Milwaukee, Wisconsin, Zurn Elkay 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 Elkay product
portfolio includes professional grade water control and safety,
water distribution and drainage, drinking water, finish plumbing,
hygienic, environmental and site works products for public and
private spaces. Visit www.zurn-elkay.com for additional information
about Zurn Elkay Water Solutions.
Conference Call Details
Zurn Elkay Water Solutions will hold a conference call on
Wednesday, October 26, 2022, at 8:30 a.m. Eastern Time to discuss
its third quarter 2022 results, provide a general business update
and respond to investor questions. Zurn Elkay Chairman and CEO,
Todd Adams, and Senior Vice President and CFO, Mark Peterson, will
co-host the call and webcast. 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 our
investor relations website. Please go to the website
(investors.zurn-elkay.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 9:30 a.m.
Central Time October 26, 2022 until 10:59 p.m. Central Time,
November 2, 2022. 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 our investor relations website.
Cautionary Statement on Forward-Looking Statements
Information in this release may involve outlook, expectations,
beliefs, plans, intentions, strategies or other statements
regarding the future, which are forward-looking statements. These
forward-looking statements involve risks and uncertainties. All
forward-looking statements included in this release are based on
information available to Zurn Elkay Water Solutions Corporation as
of the date of the release, and Zurn Elkay assumes no obligation to
update any such forward-looking statements. The statements in this
release are not guarantees of future performance, and actual
results could differ materially from current expectations. Numerous
factors could cause or contribute to such differences. Please refer
to “Risk Factors” and “Cautionary Notice Regarding Forward-Looking
Statements” in our Annual Report on Form 10-K for the year ended
December 31, 2021, as well as our subsequent annual, quarterly and
current reports filed on Forms 10-K, 10-Q and 8-K from time to time
with the Securities and Exchange Commission for a further
discussion of the factors and risks associated with the business.
In addition, our merger with Elkay Manufacturing Company involves
various risks, uncertainties, and factors including those described
in Part II, Item 1A, "Risk Factors" in our Quarterly Reporting on
Form 10-Q for the quarterly period ended September 30, 2022.
Zurn Elkay 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, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net sales
$
417.7
$
229.7
$
941.5
$
678.6
Cost of sales
277.3
133.9
585.4
390.6
Gross profit
140.4
95.8
356.1
288.0
Selling, general and administrative
expenses
124.3
56.8
236.6
174.9
Restructuring and other similar
charges
11.7
0.7
13.1
1.6
Amortization of intangible assets
14.5
5.8
19.1
17.7
(Loss) income from operations
(10.1
)
32.5
87.3
93.8
Non-operating expense:
Interest expense, net
(8.0
)
(9.9
)
(18.0
)
(29.6
)
Other income (expense), net
0.6
(0.8
)
0.3
(0.9
)
(Loss) income before income taxes
(17.5
)
21.8
69.6
63.3
Provision for income taxes
(1.6
)
(5.7
)
(22.9
)
(16.6
)
Net (loss) income from continuing
operations
(19.1
)
16.1
46.7
46.7
Income from discontinued operations, net
of tax
—
48.0
0.8
140.6
Net (loss) income attributable to Zurn
Elkay common stockholders
$
(19.1
)
$
64.1
$
47.5
$
187.3
Basic net (loss) income per share:
Continuing operations
$
(0.11
)
$
0.13
$
0.33
$
0.39
Discontinued operations
$
—
$
0.40
$
0.01
$
1.17
Net (loss) income
$
(0.11
)
$
0.53
$
0.33
$
1.55
Diluted net (loss) income per share:
Continuing operations
$
(0.11
)
$
0.13
$
0.32
$
0.38
Discontinued operations
$
—
$
0.38
$
0.01
$
1.13
Net (loss) income
$
(0.11
)
$
0.51
$
0.33
$
1.50
Weighted-average number of shares
outstanding (in thousands):
Basic
174,867
121,385
142,699
120,558
Effect of dilutive equity awards
—
3,703
2,004
3,968
Diluted
174,867
125,088
144,703
124,526
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three Months Ended September
30, 2022
(in Millions)
(Unaudited)
Three Months Ended September
30, 2022
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
417.7
$
—
$
417.7
EBITDA
11.5
72.2
(a)
83.7
Depreciation and amortization
(21.6
)
—
(21.6
)
(Loss) income from operations
(10.1
)
72.2
(b)
62.1
(Loss) income before income taxes
(17.5
)
78.3
(c)
60.8
Provision for income taxes and indicated
rate
(1.6
)
(9.1
) %
(14.0
)
17.9
%
(15.6
)
25.7
%
Net (loss) income from continuing
operations
(19.1
)
64.3
45.2
Income from discontinued operations, net
of tax
—
—
—
Net (loss) income attributable to Zurn
Elkay common stockholders
$
(19.1
)
$
64.3
$
45.2
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
11.7
$
11.7
$
11.7
Acquisition-related fair value
adjustment
14.6
14.6
14.6
Merger costs
33.7
33.7
33.7
Last-in-first-out inventory
adjustments
4.4
4.4
4.4
Stock-based compensation expense
7.8
7.8
—
Amortization of intangible assets
—
—
14.5
Other income, net (1)
—
—
(0.6
)
Total Adjustments
$
72.2
$
72.2
$
78.3
____________________
(1)
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 Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Nine Months Ended September
30, 2022
(in Millions)
(Unaudited)
Nine Months Ended September
30, 2022
Reported Results
Adjustments
Non-GAAP Results
Net Sales
$
941.5
$
—
$
941.5
EBITDA
118.2
81.8
(a)
200.0
Depreciation and amortization
(30.9
)
—
(30.9
)
Income from operations
87.3
81.8
(b)
169.1
Income before income taxes
69.6
85.1
(c)
154.7
Provision for income taxes and indicated
rate
(22.9
)
32.9
%
(15.5
)
18.2
%
(38.4
)
24.8
%
Net income from continuing operations
46.7
69.6
116.3
Income from discontinued operations, net
of tax
0.8
(0.8
)
—
Net income attributable to Zurn Elkay
common stockholders
$
47.5
$
68.8
$
116.3
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
13.1
$
13.1
$
13.1
Acquisition-related fair value
adjustment
15.2
15.2
15.2
Other, net (1)
0.3
0.3
0.3
Merger costs
33.7
33.7
33.7
Last-in-first-out inventory
adjustments
4.0
4.0
4.0
Stock-based compensation expense
15.5
15.5
—
Amortization of intangible assets
—
—
19.1
Other income, net (2)
—
—
(0.3
)
Total Adjustments
$
81.8
$
81.8
$
85.1
____________________
(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 and the non-service cost components of net
periodic benefit credits associated with our defined benefit
plans.
Zurn Elkay 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
$
229.7
$
—
$
229.7
EBITDA
40.6
10.3
(a)
50.9
Depreciation and amortization
(8.1
)
—
(8.1
)
Income from operations
32.5
10.3
(b)
42.8
Income before income taxes
21.8
9.9
(c)
31.7
Provision for income taxes and indicated
rate
(5.7
)
26.1
%
(2.0
)
20.2
%
(7.7
)
24.3
%
Net income from continuing operations
16.1
7.9
24.0
Income from discontinued operations, net
of tax
48.0
(48.0
)
—
Net income attributable to Zurn Elkay
common stockholders
$
64.1
$
(40.1
)
$
24.0
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
0.7
$
0.7
$
0.7
Last-in-first-out inventory
adjustments
2.6
2.6
2.6
Stock-based compensation expense
7.0
7.0
—
Amortization of intangible assets
—
—
5.8
Other expense, net (1)
—
—
0.8
Total Adjustments
$
10.3
$
10.3
$
9.9
____________________
(1)
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 Elkay 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
$
678.6
$
—
$
678.6
EBITDA
118.4
32.3
(a)
150.7
Depreciation and amortization
(24.6
)
—
(24.6
)
Income from operations
93.8
32.3
(b)
126.1
Income before income taxes
63.3
27.7
(c)
91.0
Provision for income taxes and indicated
rate
(16.6
)
26.2
%
(6.4
)
23.1
%
(23.0
)
25.3
%
Net income from continuing operations
46.7
21.3
68.0
Income from discontinued operations, net
of tax
140.6
(140.6
)
—
Net income attributable to Zurn Elkay
common stockholders
$
187.3
$
(119.3
)
$
68.0
EBITDA Adjustments (a)
Income from Operations
Adjustments (b)
Income before Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
1.6
$
1.6
$
1.6
Acquisition-related fair value
adjustment
0.6
0.6
0.6
Last-in-first-out inventory
adjustments
6.9
6.9
6.9
Stock-based compensation expense
23.2
23.2
—
Amortization of intangible assets
—
—
17.7
Other expense, net (1)
—
—
0.9
Total Adjustments
$
32.3
$
32.3
$
27.7
____________________
(1)
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 Elkay Water Solutions
Corporation and Subsidiaries
Reconciliation of GAAP to
Non-GAAP Financial Measures
Three and Nine Months Ended
September 30, 2022 and September 30, 2021
(in Millions, except share and
per share amounts) (Unaudited)
Three Months Ended
Nine Months Ended
Adjusted EBITDA
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net (loss) income attributable to Zurn
Elkay common stockholders
$
(19.1
)
$
64.1
$
47.5
$
187.3
Income from discontinued operations, net
of tax (1)
—
(48.0
)
(0.8
)
(140.6
)
Provision for income taxes
1.6
5.7
22.9
16.6
Other (income) expense, net (2)
(0.6
)
0.8
(0.3
)
0.9
Interest expense
8.0
9.9
18.0
29.6
(Loss) income from operations
$
(10.1
)
$
32.5
$
87.3
$
93.8
Adjustments
Depreciation and amortization
$
21.6
$
8.1
$
30.9
$
24.6
Restructuring and other similar
charges
11.7
0.7
13.1
1.6
Stock-based compensation expense
7.8
7.0
15.5
23.2
Merger costs
33.7
—
33.7
—
Last-in first-out inventory adjustment
4.4
2.6
4.0
6.9
Acquisition-related fair value
adjustment
14.6
—
15.2
0.6
Other, net (3)
—
—
0.3
—
Subtotal of adjustments
93.8
18.4
112.7
56.9
Adjusted EBITDA
$
83.7
$
50.9
$
200.0
$
150.7
Corporate costs
$
(6.8
)
$
(10.0
)
$
(20.5
)
$
(28.8
)
Adjusted EBITDA before corporate
costs
$
90.5
$
60.9
$
220.5
$
179.5
____________________
(1)
Income from discontinued operations, net
of tax is not included in Adjusted EBITDA in accordance with the
terms of our credit agreement.
(2)
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.
(3)
Other, net includes the gains and losses
from sale of long-lived assets.
Three Months Ended
Nine Months Ended
Adjusted Net Income and Earnings Per
Share
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net (loss) income attributable to Zurn
Elkay common stockholders
$
(19.1
)
$
64.1
$
47.5
$
187.3
Income from discontinued operations, net
of tax
—
(48.0
)
(0.8
)
(140.6
)
Amortization of intangible assets
14.5
5.8
19.1
17.7
Restructuring and other similar
charges
11.7
0.7
13.1
1.6
Acquisition-related fair value
adjustment
14.6
—
15.2
0.6
Merger costs
33.7
—
33.7
—
Last-in first-out inventory adjustment
4.4
2.6
4.0
6.9
Other (income) expense, net (1)
(0.6
)
0.8
(0.3
)
0.9
Other, net (2)
—
—
0.3
—
Tax effect on above items
(14.0
)
(2.0
)
(15.5
)
(6.4
)
Adjusted net income
$
45.2
$
24.0
$
116.3
$
68.0
GAAP diluted net (loss) income per share
from continuing operations
$
(0.11
)
$
0.13
$
0.32
$
0.38
Adjusted earnings per share - diluted
$
0.26
$
0.19
$
0.80
$
0.55
Weighted-average number of shares
outstanding (in thousands)
GAAP basic weighted-average shares
174,867
121,385
142,699
120,558
Effect of dilutive equity securities
2,035
3,703
2,004
3,968
Adjusted diluted weighted-average
shares
174,867
125,088
144,703
124,526
____________________
(1)
Other (income) 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.
(2)
Other, net includes the gains and losses
from the sale of long-lived assets.
Three Months Ended(1)
Nine Months Ended(1)
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Cash provided by operating activities
$
24.6
$
100.8
$
12.6
$
245.8
Expenditures for property, plant and
equipment
(2.3
)
(7.6
)
(4.3
)
(21.6
)
Free cash flow
$
22.3
$
93.2
$
8.3
$
224.2
(1)
The condensed consolidated statements of
cash flows for the periods ended September 30, 2021 have not been
adjusted to separately disclose cash flows related to the
discontinued operations.
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Comprehensive Income
(in Millions)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30, 2022
September 30, 2021
September 30, 2022
September 30, 2021
Net (loss) income
$
(19.1
)
$
64.1
$
47.5
$
187.3
Other comprehensive income (loss):
Foreign currency translation
adjustments
(4.1
)
(10.3
)
(4.1
)
(6.6
)
Change in pension and postretirement
defined benefit plans, net of tax
—
—
—
(0.2
)
Other comprehensive loss, net of tax
(4.1
)
(10.3
)
(4.1
)
(6.8
)
Total comprehensive (loss) income
$
(23.2
)
$
53.8
$
43.4
$
180.5
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated Balance
Sheets
(in Millions, except share
amounts)
(Unaudited)
September 30, 2022
December 31, 2021
Assets
Current assets:
Cash and cash equivalents
$
71.9
$
96.6
Receivables, net
269.1
144.1
Inventories, net
400.2
184.5
Income taxes receivable
24.5
33.1
Other current assets
34.8
16.5
Total current assets
800.5
474.8
Property, plant and equipment, net
203.0
64.4
Intangible assets, net
1,019.1
179.1
Goodwill
754.8
254.1
Insurance for asbestos claims
66.0
66.0
Other assets
83.6
39.3
Total assets
$
2,927.0
$
1,077.7
Liabilities and stockholders' equity
Current liabilities:
Current maturities of debt
$
5.7
$
5.6
Trade payables
144.5
105.1
Compensation and benefits
27.4
22.0
Current portion of pension and
postretirement benefit obligations
1.3
1.3
Other current liabilities
149.8
106.4
Total current liabilities
328.7
240.4
Long-term debt
531.3
533.9
Pension and postretirement benefit
obligations
58.7
57.3
Deferred income taxes
229.8
3.1
Operating lease liability
51.2
8.9
Reserve for asbestos claims
66.0
66.0
Other liabilities
42.7
41.7
Total liabilities
1,308.4
951.3
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000
shares authorized; shares issued and outstanding: 177,759,553 at
September 30, 2022 and 125,720,068 at December 31, 2021
1.8
1.3
Additional paid-in capital
2,850.2
1,436.9
Retained deficit
(1,154.4
)
(1,236.9
)
Accumulated other comprehensive loss
(79.0
)
(74.9
)
Total stockholders' equity
1,618.6
126.4
Total liabilities and stockholders'
equity
$
2,927.0
$
1,077.7
Zurn Elkay Water Solutions
Corporation and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(in Millions)
(Unaudited)
Nine Months Ended
September 30, 2022
September 30, 2021
Operating activities
Net income
$
47.5
$
187.3
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation
11.8
41.8
Amortization of intangible assets
19.1
27.6
Loss (gain) on dispositions of long-lived
assets
0.3
(10.1
)
Deferred income taxes
4.1
(6.6
)
Other non-cash expenses
5.3
1.7
Stock-based compensation expense
15.5
38.3
Changes in operating assets and
liabilities:
Receivables
(34.4
)
(67.5
)
Inventories
(50.9
)
(58.7
)
Other assets
34.8
(7.1
)
Accounts payable
9.7
82.4
Accruals and other
(50.2
)
16.7
Cash provided by operating activities
12.6
245.8
Investing activities
Expenditures for property, plant and
equipment
(4.3
)
(21.6
)
Acquisitions, net of cash acquired
(44.8
)
(3.4
)
Proceeds from dispositions of long-lived
assets
1.3
14.3
Proceeds associated with divestiture of
discontinued operations
35.0
4.2
Cash used for investing activities
(12.8
)
(6.5
)
Financing activities
Proceeds from borrowings of debt
85.0
—
Repayments of debt
(89.4
)
(1.7
)
Proceeds from exercise of stock
options
1.9
23.5
Taxes withheld and paid on employees'
share-based payment awards
(0.5
)
(1.4
)
Repurchase of common stock
—
(0.9
)
Payment of common stock dividends
(20.1
)
(32.6
)
Cash used for financing activities
(23.1
)
(13.1
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(1.4
)
(4.2
)
(Decrease) increase in cash, cash
equivalents and restricted cash
(24.7
)
222.0
Cash, cash equivalents and restricted cash
at beginning of period
96.6
255.6
Cash, cash equivalents and restricted cash
at end of period
$
71.9
$
477.6
(1)
The condensed consolidated statements of
cash flows for the period ended September 30, 2021 have not been
adjusted to separately disclose cash flows related to the
discontinued operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221025006034/en/
Dave Pauli Vice President - Investor Relations 414.223.7770
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