Investor call scheduled for Wednesday, November 1, 2023 at 8:30
a.m. Eastern Time
Zurn Elkay Water Solutions Corporation (NYSE:ZWS):
Third Quarter Highlights
- Net sales in the quarter decreased 5% to $398 million compared
with $418 million in last year’s September quarter (-5% core
sales(1)) inclusive of the impact from previously announced and
executed product line exits.
- Net income from continuing operations was $35 million (diluted
EPS from continuing operations of $0.20) compared with a net loss
of $19 million (diluted EPS from continuing operations of $(0.11))
in the year-ago quarter.
- Adjusted EPS(1) was $0.29 compared with $0.26 in the year-ago
quarter.
- Adjusted EBITDA(1) was $96 million (24.1% of net sales)
compared with $84 million (20.0% of net sales) in last year's third
quarter.
- Net debt leverage(1) of 1.2x as of September 30, 2023.
- Deployed $13 million to repurchase 0.4 million shares of common
stock in the quarter.
- Increased quarterly dividend per share 14% to $0.08 per
share.
- In October prepaid $60 million of our outstanding Term
Loan.
Todd A. Adams, Chairman and Chief Executive Officer, commented,
“The third quarter represents the one-year anniversary of the Elkay
transaction and we’re delighted with the progress we’ve made on the
integration not only operationally, but also with the strategic
growth opportunities we’ve invested in and see benefiting our
growth moving forward. We delivered an exceptionally strong third
quarter, as our adjusted EBITDA(1) margin of 24.1% improved by 410
basis points over the prior year, demonstrating the execution and
sustainability of the integration work we’ve accomplished over the
past year. Our free cash flow(1) continues to be robust, and we’re
again raising our free cash flow(1) outlook to approximately $230
million for the year, against our original target of $200 million.
We continue to leverage our substantial free cash flow(1) to invest
in our business and return money to shareholders, having
repurchased $13 million of shares in the quarter, bringing our year
to date repurchases to $100 million, while increasing our dividend
by 14% and reducing our net debt leverage(1) to an all-time low of
1.2x.”
Adams continued, “With respect to our end-markets, I think it’s
fair to say the market has more uncertainty in it than any point
over the past year. Despite some of the market uncertainty, we feel
like we can continue to drive superior results in any market
environment based on the inherent resilience of our business as
well as the improvements we’ve made to better position ourselves
strategically over time. That’s not to say we won’t be impacted by
the market, but only to highlight the relative outperformance
opportunity we see based on our true end-market mix exposure,
retro-fit and replacement business, and perhaps most importantly,
the underlying demand growth we see for filtered drinking water. As
we look ahead, we have high confidence in delivering an incremental
$25 million of synergies in 2024 along with robust free cash flow,
which only enhances our ability to generate incremental shareholder
value."
Fourth Quarter Outlook
“Based on demand trends as we exited the third quarter and the
month of October, we believe sales for the fourth quarter will be
around $351 million; which implies ~6% proforma core organic growth
over the prior year fourth quarter and adjusted EBITDA(1) margin
between 23.0% and 23.5%. This brings the full year outlook to
$1.525 billion and adjusted EBITDA(1) to $336 million to $338
million (~22.1% adjusted EBITDA(1) margin at the mid-point).
Additionally, we’re increasing our outlook for free cash flow(1) to
$230 million."
Third Quarter 2023 Overview
Net sales were $398.4 million and $417.7 million during the three
months ended September 30, 2023 and September 30, 2022,
respectively, a decrease of 5% year over year. Core sales decreased
5% year over year as a result of lower year-over-year demand
associated with products sold into our residential end markets, the
planned exit of certain residential sink products as well as timing
of shipments in the prior year as we continued working down an
elevated backlog during the three months ended September 30,
2022.
During the three months ended September 30, 2023, income from
operations was $60.1 million compared to a loss of $10.1 million
during the three months ended September 30, 2022. Income from
operations as a percentage of net sales increased by 1750 basis
points year over year due to the benefits resulting from
productivity synergies and restructuring actions related to the
Elkay merger, lower material and transportation costs, and lower
restructuring charges. Additionally, income from operations for the
three months ended September 30, 2022 included merger costs of
$33.7 million and a purchase accounting fair value adjustment of
$14.6 million related to the Elkay merger.
Adjusted EBITDA(1) was $96.0 million, or 24.1% of net sales,
during the three months ended September 30, 2023 compared to $83.7
million, or 20.0% of net sales, during the three months ended
September 30, 2022.
(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 Elkay),
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.
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. 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) 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. “Adjusted EBITDA Margin” is the term we use to describe
Adjusted EBITDA divided by net sales.
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 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.
About Zurn Elkay Water Solutions
Headquartered in Milwaukee, Wisconsin, Zurn Elkay Water
Solutions is a growth-oriented, pure-play water management business
that designs, procures, manufactures, and markets what we believe
to be the broadest sustainable product portfolio of
specification-driven water management solutions to improve health,
human safety and the environment. Our product portfolio includes
professional grade water safety and control products, flow system
products, hygienic and environmental products, and drinking water
products for public and private spaces that deliver superior value
to building owners, positively impact the environment and human
hygiene and reduce product installation time. Additional
information about Zurn Elkay Water Solutions can be found at
www.zurnelkay.com.
Conference Call Details
Zurn Elkay Water Solutions will hold a conference call and
webcast presentation on Wednesday, November 1, 2023, at 8:30 a.m.
Eastern Time to discuss its third quarter 2023 results, provide a
general business update and respond to investor questions. Zurn
Elkay Water Solutions 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 the
Company's investor relations website. Please go to the website
(investors.zurnelkay.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 two hours after
the call's completion until 10:59 p.m. Central Time, November 8,
2023. 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
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 as of the date
of this release, and Zurn Elkay Water Solutions 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 report on Form
10-K for the period ended December 31, 2022, as well as the
Company’s 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.
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,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Net sales
$
398.4
$
417.7
$
1,173.7
$
941.5
Cost of sales
228.5
277.3
681.5
585.4
Gross profit
169.9
140.4
492.2
356.1
Selling, general and administrative
expenses
92.9
124.3
277.7
236.6
Restructuring and other similar
charges
2.2
11.7
11.9
13.1
Amortization of intangible assets
14.7
14.5
44.0
19.1
Income (loss) from operations
60.1
(10.1
)
158.6
87.3
Non-operating expense:
Interest expense, net
(9.9
)
(8.0
)
(29.8
)
(18.0
)
Other income (expense), net
(2.5
)
0.6
(3.3
)
0.3
Income (loss) before income taxes
47.7
(17.5
)
125.5
69.6
Provision for income taxes
(12.5
)
(1.6
)
(34.8
)
(22.9
)
Net income (loss) from continuing
operations
35.2
(19.1
)
90.7
46.7
Income from discontinued operations, net
of tax
6.2
—
8.1
0.8
Net income (loss)
$
41.4
$
(19.1
)
$
98.8
$
47.5
Basic net income (loss) per share:
Continuing operations
$
0.20
$
(0.11
)
$
0.52
$
0.33
Discontinued operations
$
0.04
$
—
$
0.05
$
0.01
Net income (loss)
$
0.24
$
(0.11
)
$
0.57
$
0.33
Diluted net income (loss) per share:
Continuing operations
$
0.20
$
(0.11
)
$
0.51
$
0.32
Discontinued operations
$
0.04
$
—
$
0.05
$
0.01
Net income (loss)
$
0.24
$
(0.11
)
$
0.56
$
0.33
Weighted-average number of shares
outstanding (in thousands):
Basic
173,276
174,867
174,632
142,699
Effect of dilutive equity awards
2,866
—
2,803
2,004
Diluted
176,142
174,867
177,435
144,703
Zurn Elkay Water Solutions
Corporation and Subsidiaries Reconciliation of GAAP to
Non-GAAP Financial Measures Three Months Ended September 30, 2023
(in Millions) (Unaudited)
Three Months Ended September
30, 2023
Reported
Results
Adjustments
Non-GAAP
Results
Net Sales
$
398.4
$
—
$
398.4
EBITDA
81.8
14.2
(a)
96.0
Depreciation and amortization
(21.7
)
—
(21.7
)
Income from operations
60.1
14.2
(b)
74.3
Income before income taxes
47.7
21.4
(c)
69.1
Provision for income taxes and indicated
rate
(12.5
)
26.2
%
(5.1
)
23.8
%
(17.6
)
25.5
%
Net income from continuing operations
35.2
16.3
51.5
Income from discontinued operations, net
of tax
6.2
(6.2
)
—
Net income
$
41.4
$
10.1
$
51.5
EBITDA
Adjustments (a)
Income from
Operations
Adjustments (b)
Income before
Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
2.2
$
2.2
$
2.2
Last-in-first-out inventory
adjustments
2.0
2.0
2.0
Stock-based compensation expense
10.0
10.0
—
Amortization of intangible assets
—
—
14.7
Other expense, net (1)
—
—
2.5
Total Adjustments
$
14.2
$
14.2
$
21.4
____________________
(1)
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 costs associated with our defined benefit plans
and other non-operational gains and losses.
Zurn Elkay Water Solutions
Corporation and Subsidiaries Reconciliation of GAAP to Non-GAAP
Financial Measures Nine Months Ended September 30, 2023 (in
Millions) (Unaudited)
Nine Months Ended September
30, 2023
Reported
Results
Adjustments
Non-GAAP
Results
Net Sales
$
1,173.7
$
—
$
1,173.7
EBITDA
224.9
30.5
(a)
255.4
Depreciation and amortization
(66.3
)
—
(66.3
)
Income from operations
158.6
30.5
(b)
189.1
Income before income taxes
125.5
47.3
(c)
172.8
Provision for income taxes and indicated
rate
(34.8
)
27.7
%
(11.3
)
23.9
%
(46.1
)
26.7
%
Net income from continuing operations
90.7
36.0
126.7
Income from discontinued operations, net
of tax
8.1
(8.1
)
—
Net income
$
98.8
$
27.9
$
126.7
EBITDA
Adjustments (a)
Income from
Operations
Adjustments (b)
Income before
Income Taxes
Adjustments (c)
Restructuring and other similar
charges
$
11.9
$
11.9
$
11.9
Last-in-first-out inventory
adjustments
(11.9
)
(11.9
)
(11.9
)
Stock-based compensation expense
30.5
30.5
—
Amortization of intangible assets
—
—
44.0
Other expense, net (1)
—
—
3.3
Total Adjustments
$
30.5
$
30.5
$
47.3
____________________
(1)
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 costs associated with our defined benefit plans
and other non-operational gains and losses.
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
$
(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, the non-service cost components of net
periodic benefit costs 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
$
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 the 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 costs associated with our defined benefit plans
and other non-operational gains and losses.
Zurn Elkay Water Solutions
Corporation and Subsidiaries Reconciliation of GAAP to Non-GAAP
Financial Measures Three and Nine Months Ended September 30, 2023
and September 30, 2022 (in Millions, except share and per share
amounts) (Unaudited)
Three Months Ended
Nine Months Ended
Adjusted EBITDA
September 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Net income (loss)
$
41.4
$
(19.1
)
$
98.8
$
47.5
Income from discontinued operations, net
of tax
(6.2
)
—
(8.1
)
(0.8
)
Provision for income taxes
12.5
1.6
34.8
22.9
Other (income) expense, net (1)
2.5
(0.6
)
3.3
(0.3
)
Interest expense, net
9.9
8.0
29.8
18.0
Income (loss) from operations
$
60.1
$
(10.1
)
$
158.6
$
87.3
Adjustments
Depreciation and amortization
$
21.7
$
21.6
$
66.3
$
30.9
Restructuring and other similar
charges
2.2
11.7
11.9
13.1
Stock-based compensation expense
10.0
7.8
30.5
15.5
Merger costs
—
33.7
—
33.7
Last-in first-out inventory
adjustments
2.0
4.4
(11.9
)
4.0
Acquisition-related fair value
adjustment
—
14.6
—
15.2
Other, net (2)
—
—
—
0.3
Subtotal of adjustments
35.9
93.8
96.8
112.7
Adjusted EBITDA
$
96.0
$
83.7
$
255.4
$
200.0
____________________
(1)
Other (income) 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 costs associated with our defined benefit
plans and other non-operational gains and losses.
(2)
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,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Net income (loss)
$
41.4
$
(19.1
)
$
98.8
$
47.5
Income from discontinued operations, net
of tax
(6.2
)
—
(8.1
)
(0.8
)
Amortization of intangible assets
14.7
14.5
44.0
19.1
Restructuring and other similar
charges
2.2
11.7
11.9
13.1
Acquisition-related fair value
adjustment
—
14.6
—
15.2
Merger costs
—
33.7
—
33.7
Last-in first-out inventory adjustment
2.0
4.4
(11.9
)
4.0
Other (income) expense, net (1)
2.5
(0.6
)
3.3
(0.3
)
Other, net (2)
—
—
—
0.3
Tax effect on above items
(5.1
)
(14.0
)
(11.3
)
(15.5
)
Adjusted net income
$
51.5
$
45.2
$
126.7
$
116.3
GAAP diluted net income (loss) per share
from continuing operations
$
0.20
$
(0.11
)
$
0.51
$
0.32
Adjusted earnings per share - diluted
$
0.29
$
0.26
$
0.71
$
0.80
Weighted-average number of shares
outstanding (in thousands)
GAAP basic weighted-average shares
173,276
174,867
174,632
142,699
Effect of dilutive equity securities
2,866
—
2,803
2,004
Adjusted diluted weighted-average
shares
176,142
174,867
177,435
144,703
____________________
(1)
Other (income) 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 costs associated with our defined benefit
plans and other non-operational gains and losses.
(2)
Other, net includes the gains and losses
from the sale of long-lived assets.
Three Months Ended
Nine Months Ended
September 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Cash provided by operating activities
$
103.5
$
24.6
$
195.7
$
12.6
Expenditures for property, plant and
equipment
(4.8
)
(2.3
)
(15.9
)
(4.3
)
Free cash flow
$
98.7
$
22.3
$
179.8
$
8.3
Earnings Guidance
Earnings Outlook Reconciliation
(1)
Year Ending
December 31,
2023
Net income
$110 million to $112 million
Provision for income taxes
45
Interest expense, net
39
Depreciation and amortization
88
Restructuring and other similar
charges
14
Stock-based compensation expense
40
Adjusted EBITDA
$336 million to $338 million
____________________
(1)
Our outlook is based upon the extent of
information available as of the date of this filing regarding
events and conditions that will impact our future operating results
for our fiscal year 2023. Our actual results may be materially
impacted by events for which information is not available, such as
asset impairments, purchase accounting effects related to future
acquisitions, future restructuring actions, last-in first-out
inventory adjustments, gains (losses) recognized on the disposal of
tangible and intangible assets, gains (losses) on extinguishment of
debt, actuarial gains (losses) on our defined benefit plans, and
other gains (losses) related to events or conditions not yet known.
Consequently, we have not included incremental gains or (losses)
for these items in our forward-looking guidance since that
information is not reasonably available.
Zurn Elkay Water Solutions
Corporation and Subsidiaries Condensed Consolidated Statements of
Comprehensive Income (in Millions) (Unaudited)
Three Months Ended
Nine Months Ended
September 30,
2023
September 30,
2022
September 30,
2023
September 30,
2022
Net income (loss)
$
41.4
$
(19.1
)
$
98.8
$
47.5
Other comprehensive income (loss):
Foreign currency translation
adjustments
(2.1
)
(4.1
)
1.4
(4.1
)
Other comprehensive income (loss), net of
tax
(2.1
)
(4.1
)
1.4
(4.1
)
Total comprehensive income (loss)
$
39.3
$
(23.2
)
$
100.2
$
43.4
Zurn Elkay Water Solutions
Corporation and Subsidiaries Condensed Consolidated Balance Sheets
(in Millions, except share amounts)
(Unaudited)
September 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
173.1
$
124.8
Receivables, net
233.9
219.7
Inventories
284.3
366.7
Income taxes receivable
4.0
18.3
Other current assets
26.0
28.0
Total current assets
721.3
757.5
Property, plant and equipment, net
189.1
183.8
Intangible assets, net
966.0
1,009.7
Goodwill
795.3
777.0
Insurance for asbestos claims
72.1
72.1
Other assets
69.1
63.9
Total assets
$
2,812.9
$
2,864.0
Liabilities and stockholders'
equity
Current liabilities:
Current maturities of debt
$
6.3
$
5.7
Trade payables
60.7
116.9
Compensation and benefits
25.1
19.2
Current portion of pension and
postretirement benefit obligations
1.6
1.6
Other current liabilities
136.1
145.9
Total current liabilities
229.8
289.3
Long-term debt
547.9
530.2
Pension and postretirement benefit
obligations
53.2
50.5
Deferred income taxes
205.5
221.4
Operating lease liability
39.6
34.2
Reserve for asbestos claims
78.9
79.0
Other liabilities
46.4
44.4
Total liabilities
1,201.3
1,249.0
Stockholders' equity:
Common stock, $0.01 par value; 200,000,000
shares authorized; shares issued and outstanding: 172,623,478 at
September 30, 2023 and 176,876,406 at December 31, 2022
1.7
1.8
Additional paid-in capital
2,850.4
2,853.1
Retained deficit
(1,166.9
)
(1,164.9
)
Accumulated other comprehensive loss
(73.6
)
(75.0
)
Total stockholders' equity
1,611.6
1,615.0
Total liabilities and stockholders'
equity
$
2,812.9
$
2,864.0
Zurn Elkay Water Solutions
Corporation and Subsidiaries Condensed Consolidated Statements of
Cash Flows (in Millions) (Unaudited)
Nine Months Ended
September 30,
2023
September 30,
2022
Operating activities
Net income
$
98.8
$
47.5
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation
22.3
11.8
Amortization of intangible assets
44.0
19.1
Non-cash asset impairment
2.5
—
Loss on dispositions of long-lived
assets
—
0.3
Deferred income taxes
(7.1
)
4.1
Other non-cash expenses
1.8
5.3
Stock-based compensation expense
30.5
15.5
Changes in operating assets and
liabilities:
Receivables, net
(14.0
)
(34.4
)
Inventories
57.7
(50.9
)
Other assets
17.1
34.8
Accounts payable
(56.4
)
9.7
Accruals and other
(1.5
)
(50.2
)
Cash provided by operating activities
195.7
12.6
Investing activities
Expenditures for property, plant and
equipment
(15.9
)
(4.3
)
Acquisitions, net of cash acquired
—
(44.8
)
Proceeds from dispositions of long-lived
assets
0.3
1.3
Proceeds from insurance claims
9.0
—
Proceeds associated with divestiture of
discontinued operations
—
35.0
Cash used for investing activities
(6.6
)
(12.8
)
Financing activities
Proceeds from borrowings of debt
13.0
85.0
Repayments of debt
(17.7
)
(89.4
)
Proceeds from exercise of stock
options
1.9
1.9
Taxes withheld and paid on employees'
share-based payment awards
(1.9
)
(0.5
)
Repurchase of common stock
(100.2
)
—
Payment of common stock dividends
(36.6
)
(20.1
)
Cash used for financing activities
(141.5
)
(23.1
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
0.7
(1.4
)
Increase (decrease) in cash, cash
equivalents and restricted cash
48.3
(24.7
)
Cash, cash equivalents and restricted cash
at beginning of period
124.8
96.6
Cash, cash equivalents and restricted cash
at end of period
$
173.1
$
71.9
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231031036086/en/
Dave Pauli Vice President - Investor Relations 414.223.7770
Zurn Elkay Water Solutions (NYSE:ZWS)
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