Q1 2024 Zurn Elkay Water Solutions Corp Earnings Call

Participants

Dave Pauli; Vice President - Investor Relations; Zurn Elkay Water Solutions Corp

Todd Adams; Chairman of the Board, Chief Executive Officer; Zurn Elkay Water Solutions Corp

Mark Peterson; Chief Financial Officer, Senior Vice President; Zurn Elkay Water Solutions Corp

Bryan Blair; Analyst; Oppenheimer & Co. Inc.

Joe Ritchie; Analyst; Goldman Sachs

Nathan Jones; Analyst; Stifel

Brett Linzey; Analyst; Mizuho Securities USA LLC

Jeff Hammond; Analyst; KeyBanc Capital Markets Inc.

Presentation

Operator

Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2020 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer, Mark Peterson, Senior Vice President and Chief Financial Officer, and Dave Holly, Vice President of Investor Relations for Zurn LK. water solutions. A replay of the conference call will be available as a webcast on the company's Investor Relations website.
At this time, for opening remarks and introduction, I'll turn the call over to Dave Palmer.

Dave Pauli

Good morning, everyone. Thanks for joining us on the call today. Before we begin, I would like to remind everyone that this call contains certain forward-looking statements that are subject to the Safe Harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures why we use them and why we believe they are helpful to investors and contain reconciliations to the corresponding GAAP information.
Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP, and we encourage you to review the GAAP information in our earnings release and in our SEC filings.
And with that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn LK. water solutions.

Todd Adams

Thanks, Dave, and good morning, everyone, and thanks for taking the time to listen this morning. And hopefully everyone had a chance to go through the release last night.
I'll start on page 3 to cut right to the chase. We had a solid start to 2024 with Q1 sales, earnings and cash flow all ahead of our expectations heading into the quarter. From our perspective, the end market view that we've had for 2024 for the last six months or so, continues to look the same with steady strength in institutional, some pockets of weakness in commercial and residential, roughly flattish with share gains, initiative growth and a little bit of price driving what we expect to be growth over the course of the coming year.
Our margins and cash flow to continue to expand the compounding benefits of the early integration. We did to bring Zoran LK together read through the results with more room to go as we deliver the yield on the synergies throughout the balance of 2024. The reality is we've totally integrated the businesses and truly operate as a single business. So all the productivity supply chain benefits. Pricing are all rolling in across the overall business as are the compounding benefits of all of our continuous improvement activities that happen day in day out as part of the deployment of the Zurn LK. business system. As you'll hear a little later, when Mark goes to the outlook, we have high confidence in the margin profile we've established and will continue to drive. And as a result, we're raising our outlook for the full year margin expansion from 150 basis points to 150 basis points to 200 basis points with Q2 margins in the range of 24.5% to 25%. Our strong margins, coupled with our flexible business model, drive consistently high free cash flow. And with the $50 million we generated in the first quarter, we used $19 million of that to repurchase about 600,000 of our shares with a plan to continue to do that over the course of the year.
Now I'll turn it over to Mark.

Mark Peterson

Thanks, Todd. As we turn to slide number four, our first quarter sales totaled $374 million and increased 400 basis points year over year. On a pro forma core basis, mid-single-digit core sales growth in our nonresidential end markets was partially offset by flattish year over year sales to residential end markets.
With respect to demand in the quarter, year-over-year order growth was in line with our sales growth as our book-to-bill ratio was one in the first quarter, as Todd mentioned earlier, and market trends in the quarter were consistent with our expectations. We did a bit better with our growth initiatives, which drove the sales performance slightly above our outlook 90 days ago.
Turning to profitability, our first quarter adjusted EBITDA increased 24% from the prior year first quarter to $90 million, and our adjusted EBITDA margin expanded 460 basis points year over year to 24.1% in the quarter. The strong margin expansion was driven by the benefits of our productivity initiatives, inclusive of cost synergies, plus lower material and transportation costs compared to one year ago. For calendar year 2024, we believe our year-over-year margin expansion will be a bit better than we discussed 90 days ago, and I'll cover the more details of that later in the call.
Please turn to slide 5, and I'll touch on some high-level balance sheet and leverage highlights with respect to our net debt leverage, we further reduced our leverage from 1.1 times at December 31st, 2023 to 0.9 times at the end of the first quarter, inclusive of the additional $19 million deployed to repurchase shares in the quarter. We continue to have excellent capital allocation optionality. And as we have discussed, we will remain focused on a balanced capital allocation strategy going forward, and I'll turn the call back to Todd.

Todd Adams

Thanks, Mark, and I'm back on page 6 over the course of the last year, we've tried to communicate the significant opportunity and competitive advantage we have in the clean safe drinking water category as a quick Q1 update were very much on track to grow the overall drinking water portion of our business at double digits from a top line perspective and continue to grow the number of filtered units installed while capturing recurring revenue from filters. Some of the questions we've got over the course of the year have been. So what else is happening besides drinking water here is just one great example amongst the dozens and dozens of things that are moving the needle for us from a growth market share and profitability perspective.
Here's the hydraulic sensor flush valve. We've just recently launched within our hygienic and environmental category, we'd estimate that it's a $450 million market category, including the retrofit replace market where we have a decent number two share position. We're the only one in the market with a unit that is hydro powered with no solenoid because the two biggest pain points in the field are replacing batteries and solenoid failure. We've solved both with the hydraulics. The diaphragm gaskets and seals are made of an elastomer that last 8 times to 10 times longer than traditional rubber components and taken as a whole, we're talking about approximately 10 years of maintenance. Reoperation as a unit is how is powered by hydrogen technology eliminates constant bettering changes, which saves building owners, both labor and battery costs. The other key is that it was designed with architects in mind. They want to spec something that looks stylish as well as functional and it's available with Bluetooth Bluetooth as a full connected solution, which helps in remote monitoring, troubleshooting line flushing and predictive maintenance. We're winning with this in large national accounts where reliability and sustainability are critical, and it's just one more thing we have in our unrivaled portfolio and ability to deliver content to both new builds and the retrofit replace market.
On page 7, you can see our Q1 sustainability impact and progress toward our targets. We continue to elevate our sustainability efforts and are proud of the positive environmental impact our products deliver each day to building owners throughout the U.S. The vast majority of sales in the quarter came from products that deliver a sustainable attribute to our customers' products that reduce water consumption, protect the potable water supply and buildings, reduce energy or GHT. consumption or made with high levels of recycled content, whether it's reducing water usage, filtering out contaminants from water or eliminating single-use plastic bottles. We continue to innovate to address both water-related challenges to public health and conservation. Water is so important, and we continue to see growing and new challenges around this vital natural resource that we will continue to address as a sustainability as sustainability is central to how we operate and drive our business.
Last one for me is on page 8, and it's really just more of a reminder, over the past several years, we've been really intentional about defining our strategy and then going out and executing on it here. It is on a single page starting on the left as a pure-play North American Water business. We've been laser focused on the end markets, product categories, customers and geographies that we want to be in and then cultivated layers and layers of competitive advantages within our current business with room to expand upon that both organically and inorganically over the coming years.
In the middle, the relentless deployment of the Zurn LK. business system provides us not only superior execution capabilities, but a common language and approach to running our business that drives above market growth above market organic growth, exceptional incremental margins and substantial free cash flow. Since we've deployed ZBS. two LK., we've seen over 1,000 point margin expansion in the first 18 months with faster growth, better customer satisfaction in a highly engaged team that really has embraced ZEBS. And finally, on the right are measuring outcomes and course correcting where necessary. This is something we talk about a lot internally to drive both simplicity and focus and to be able to communicate what's truly a priority or in some cases why we aren't doing things. Hopefully, this helps frame what to expect from us over the coming years. I'll turn it back to Mark to hit the Q2 outlook next up.

Mark Peterson

Please turn to Slide 9. I'll cover our outlook for the second quarter of 2024 and an update on our high-level guideposts for calendar 2024.
For the second quarter of 2024, we are projecting year-over-year pro forma core sales growth to be in the low single digits. And we anticipate our adjusted EBITDA margin to be in the range of 24.5%, 25% for the quarter, which is a 290 to 340 basis point expansion over the prior year and below for the full year. At this point, we see no changes to the sales assumptions we outlined 90 days ago. We still believe we will generate positive pro forma core sales growth year over year with respect to adjusted EBITDA margin. We now believe we will expand our margin between 150 and approximately 200 basis points year over year.
Our fleet, our free cash flow expectation for the year remains unchanged at approximately $250 million.
Before we open the call for questions, just a reminder that we have also included on Page 9. During our second quarter assumptions for interest expense, non-cash stock compensation expense, depreciation and amortization, our adjusted tax rate diluted shares outstanding. In addition, we've included the prior year second quarter sales adjusted for the executed 80, 20 product line exits to calculate pro forma core sales growth in 2024.
We'll now open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions) Bryan Blair with Oppenheimer. Please go ahead.

Bryan Blair

Thank you for joining us today. Brian, why Brian, tiny noted continued double digit growth in drinking water and further rollout of filtration? And do you want to offer any finer points on the growth rate you're seeing both with the platform overall and infiltration and as there's intensifying focus and for the public and now there are some government action federally and at a state level on lead T thoughts, other issues, how your team is thinking about the and a multiyear opportunity Yes.

Todd Adams

I mean, it's very much the same, Brian, that we've we've communicated in the past. I would say that when you look at the filtered units, growth on that is going to move around a little bit quarter to quarter. But over the course of the year, that should absolutely be in the double digit range. I think the algorithm really requires it would be in sort of the high single-digit growth in terms of filter units growth over a long period of time. And then obviously, filtration is growing significantly faster than that. And that's sort of what happened in the first quarter and what we see, it's sort of the right with the right algorithm for us. So as you point out, I think that's the drumbeat around legislation and filtration and everything else continues to ramp. I'm not sure that we're seeing much of any benefit of that at this point. But really, it's just the core strategy that we've had. And I think over the coming over the balance of the year and into next year and probably the year after some, that's when we'll start to see the benefit. I think that while it was some of these things have passed the implementation path, it's awfully awfully challenging. I mean, I think not to say that we're all concerned that it's going to happen. It's just the rollout takes time. And so what we're seeing today is really just the the core business and the core strategy. We've had continuing to have success. And we expect that to, I think, get amplified a little bit as this thing ultimately gets implemented.

Bryan Blair

It makes sense. Appreciate that. thank you for that color. Had a very strong margin performance in Q1, pretty robust guide for Q2. So on an LTM basis through Q2 implied a little over 24% and your margin, nothing to push back on that. It doesn't play when your current guide for full year '24, there's some moderation in back half margin. Can you walk us through what your team is contemplating on a progression for Q3, Q4 what may drive that moderation or it's more of just conservatism baked into it and the guide one quarter?

Todd Adams

Yes, I think it's certainly the latter. I think the approach that we've taken for the second quarter guidance is really just to tell you what we're seeing over the next 90 days. I don't think that there's anything that I can communicate that would sort of give you less comfort about the back half?
I think that we're just trying to be a little bit conservative on the start to the year obviously, with where the sales come in in the second half will be important. But I think from a cost structure and a gross margin, which is what you're seeing flow through this year, it's all gross margin improvement and that that kind of improvement is going to sustain through the balance of the year and some. And so I don't think there's anything that we're going to point to from a inflation or things that we see on the horizon are going to. It gives us less confident about that.
The sustainability of the margin in the second half. I think it's more just a function of really 90 days. And I think we're really happy with what we're seeing on. It's all permanent sort of stuff we're giving you a look at what what Q2 looks like and then we'll resume the second half, but nothing discrete from that perspective.

Bryan Blair

Understood. Against a solid start to the year Thanks.
Andrew Buscaglia with BNP Paribas. Please go ahead.

Morning, everyone. This is Maggie on for Andrew. I wanted to ask so the outlook for interest rates has begun to change in recent weeks. And I was wondering if you could help us square some of the tone of recent Federal Reserve commentary with the outlook in resi, nonresi construction, not changing patient?

Mark Peterson

Yes, I think you know, I think it helps to understand that when you look at our overall mix, roughly half is institutional and then beyond that, roughly half of the total is retro-fit replace. And so while I think on the margin on a lower interest rate environment helps the commercial aspect of our business as part of the residential.
I think that, Tom, I don't think that the catalyst, but we thought in the second half of having an interest a couple of cut was going to ignite any sort of significant growth. And so the fact that it's not likely to happen or happen to the same level, I don't think really changes our view on on that I think the thing to think about is it's a very hyper local market. And so what's happening in one part of the country and the commercial or residential space is it could be the exact opposite in another part of the country. And I think as you go through the year, we've been absorbing some of this commercial bad news for the better part of 18 months, quarter by quarter by quarter. I don't think there's a cliff in commercial coming. I think we're just absorbing that bad news.
Obviously, you've seen continued strength in institutional. And then as we talked about share gains and some initiative growth, particularly around drinking water and things like the hydrovacs are what we see and what we're doing to combat what I think everyone thinks is sort of a lousy commercial market, but I think come that's how we see the interest rate environment. It's obviously somewhat sensitive. And if it was lower, it would probably be better, but I don't think we're talking about material changes to them so that in our second half outlook.

Very helpful. The leverage is ticking below one, the cash flow engine is revving. I was just wondering if you could update us on what you're looking at with the pipeline and the outlook for M&A as it goes in the second half or the rest of 2024?
Thanks.

Mark Peterson

Yes, I mean, we've always maintained that proprietary funnel and process that is continuing. I think whether or not something converts over the course of the year is still to be seen. But from a cash flow perspective, I think that we're off to a really good start with $50 million. I think last year in the first quarter, we were roughly flat and ended up at two 30. So I think that from a cash flow perspective, we obviously are in a great position on. But I think we're going to continue to cultivate things on a proprietary basis. And so you see when when things convert, but I do think that we are we are going to continue to generate a significant amount of cash. And so I think that all forms of uses of that cash are on the table. We're obviously going to invest in our core business and continue to cultivate M&A. But as we've talked about, we've got a buyback perspective that we're going to continue to execute against. And then we can review the dividend like we do every year. So I think all in all, I think we're in a really good spot on, but really today to work the funnel and then tried to get some high priorities to convert in the right at the right time.

Very helpful.
Thanks to my questions, guys.

Operator

Your next question comes from the line of Michael Halloran with Baird. Please go ahead.

Hey, good morning, everybody. You've got pads on for Mike. Maybe taking a different perspective on the performance in the quarter. I mean you called out the healthy drinking water. But if we look at the other three product categories, flow, safety and hygienic, is there any notable variance between the three to kind of get to the net number we're getting to and maybe if we can exclude the calling of revenue and from that discussion, that would be helpful.

Mark Peterson

Yes, Lucas, Mark, I think when you look at those other categories. There's not a meaningful difference in the quarter and the growth rates. So there's really two inflows systems for the control environment.
Jack, when you when you back out what we did as far as 80 20 exercise for us on a pro forma basis, there is not a material difference in the growth rates in those categories in the quarter, and we didn't. We don't expect that over the course of year to be very tough, indeed, very much either.

I'll give you an upfront. And then a quick clarification, Todd, when when when you're speaking to filtration, are we speaking specifically the aftermarket tail in terms of the specific filter sale? Or does that are we including the filter units in that discussion? When we're talking about the filtration growth rate?

Todd Adams

Well, the filtration growth rate would be the discrete aftermarket replacement event. That's the that's the growth rate that's well above double digits on the filter units would be in that high single digit, too, in low double digit range on an annual basis on a filtered unit basis and said, yes, we've got a few questions on that appreciate the clarification, and I'll pass it on and get back in queue.

Operator

Your next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead.

Joe Ritchie

Hey, guys, good morning falling water. And can you maybe just talk about your from the differences in your regional growth right now? I recognize that the the SKU rationalization is impacting the US but it also looks like outside of the US, you guys are growing faster. So maybe just talk about what you're doing to spur your E, whether it's your distribution strategy outside of the US for ECtel to achieve what you're achieving today?

Todd Adams

Well, I mean, when you say outside the U.S., it's really talking about Canada and probably a little bit of Mexico from LK. perspective. And again, I think it's just a function of them. We've gone through creative written, a new rep network. We've got some terrific reps in those geographies that we're supporting really well on. They're winning in the marketplace. So I don't think that there's any magic to it. It's just it's a small number, but we're pleased with the performance and progress, and we expect it to continue.

Joe Ritchie

Okay. Now that's fair. That's good to hear. And then I guess maybe I'm just talking about the on the margin expansion and you took up the guidance for the full year. And can you maybe just give us a little bit more color on what drove the increase in the guidance? Is that is that you know, more pricing, is it productivity? Like what specifically is making you feel better about Tom, getting a little bit more margin expansion for the full year?

Todd Adams

Well, I think again, we when we came into the year, I think we tried to provide an outlook that we felt was going to be pretty durable on. We had a list of things that we were we were working on both from a synergy perspective and then some other things around supply chain that are going to be really important for us, maybe a little bit this year, but more so next year. And we're just accelerated some of the progress into 2024.
On the data side, read through really through gross profit numbers more, we see the same thing in Q2. We've done a terrific job with our sourcing teams to come to put ourselves in a great spot from a cost perspective over the balance of the year. And then the biggest thing is really just we've got 2,500 people that have bought into continuous improvement. And I think that you can't underestimate on that compounding benefit your day in day out, and that's reading through in the first quarter. We'll absolutely retool the course of the year. And so we're taking it up just a touch on as from what we see today. And then you know, we'll revisit where we are in the second half. So I don't think there's any any on any big news here other than sort of what we what we thought we could do for the year. I think we're just sort of pacing ourselves in terms of what we communicate externally.

Joe Ritchie

Got it.
Thank you.

Operator

Your next question comes from the line of Nathan Jones with Stifel. Please go ahead.

Nathan Jones

Good morning. This is Adam Farley on for Nathan. My first question relates to the morning. My first question relates to your free cash flow guidance. I appreciate the unchanged $250 million guidance from a year. You had really strong cash flow conversion in the quarter driven by significant improvement in working capital. So my question is what are there no further opportunities to optimize working capital through the year?

Todd Adams

Well, Adam, I think that there always are going to be some. And obviously, we saw a solid first quarter come. We've not changed the full year at this point, but I think, yes, it would be difficult to convince you that there's not there's not a bias to maybe do a little bit better than that. And obviously some of it comes from working capital with stuff that we just work at day in and day out and so on. We're off to a good start on and I don't know that there's I don't know that we could I could sit here and say that there's a $100 million opportunity in trade working capital. But I think on the margins we're going to we're going to work to optimize it and get it to a level that we think makes sense for our business.

Nathan Jones

We'll get back to that later in the quarter. There was a non-cash restructuring charge on what was that related to? And are there any expected savings related to that?

Todd Adams

Yes, the restructuring charge in the quarter was related to the synergy actions that we're working through some facility things that we're doing this year complex. It's all it's all five excuse me, and it's all tied to the $25 million synergies that we're generating in fiscal '24.

Nathan Jones

Yes, great.
Thank you for taking my questions.
Yes.

Operator

Your next question comes from the line of Brett Linzey with Mesirow. Please go ahead by.

Brett Linzey

Good morning, all Good morning, but I just wanted to follow-up on the on the resi part of the portfolio. I know you guys have been 80, 20 that down, I think about 12% of the total pie. How would you characterize the channel inventories in the tone in that part of the business? And then as you look on the other end of all the moves you've made, how does that. How is the margin profile relative to the rest of the portfolio? Are we running at corporate average, so a little bit lower? Just anything any context would be great.

Todd Adams

Yes, I mean, I think the red Rosie slice of the overall pie is yes, I think roughly 12% growth on from a channel inventory perspective, I would say that is super low. I mean, there's nothing there's nothing in there anywhere. So it's sort of nothing but upside if we see some recovery. But in terms of margins, it is not at the corporate average, it is below the fleet average. So when you when you look at that piece, but it's not miles apart, but it's a good five points or so below the corporate average, but it's come up nicely because we're sort of sticking to parts of residential that we think we can build a competitive advantage and want to be in. And so that wasn't the case 12 to 18 months ago. So the margins came up nicely of low channel inventory and a pretty stable end market taken as a whole.

Brett Linzey

Okay, great. And then maybe just a more strategic question on the election and tariffs. Obviously, we don't know what the outcome's going to be, but dealers are and does have a heavier outsource manufacturing model. Maybe you could just talk about how nimble that supply chain configuration is, if you can flex it up and down different regions and so on.

Todd Adams

If we do enter another tariff regime. We I think we certainly feel like that. I think that some of the conversations around newer tariffs related to steel and aluminum, we don't impact us. We don't import any steel or aluminum on.
I think from a supply chain perspective, one of the things that we've been working at really for the course of the last 12 or 18 months is to incrementally reposition some of our supply chain to capture the benefit of avoiding tariffs. So I think that when you dial back to 2016, when when all of that happened. I think we showed incredible flexibility in moving volumes around to minimize the impact of those tariffs. We still are impacted by some of those were further taking action to position our supply chain to avoid those. And so I think we've got high confidence that, Tom, you know, based on past experience, what we're working on and maybe some of the things that are being talked about that we will have a really, really good amount of success navigating forward. And so it's really a testament to I think our supply chain team finding the right suppliers in the right geographies and really skating ahead of the puck from which we've been doing for the last 12 to 18 months. And that is some of the benefit that we expect to see maybe maybe a touch at the end of the year and then certainly into 2025 and 2026.

Brett Linzey

All right.
Appreciate the insight and congrats on the quarter.

Todd Adams

Thanks.

Operator

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeff Hammond

Hey, good morning, guys. Wondering just -- I think Brian brought up kind of legislation you're earlier in the call, but there's this specific EPA funding for safe drinking water around PFAS. As I think the Biden administration put out a couple of weeks ago, seems a little more focused at cleanup at the water utility, but I'm just wondering if there's anything in there for in a 0.0 point of use of drinking water, something that would affect you or any kind of knock-on from that specific legislation?

Todd Adams

I think that the legislation and awareness, Jeff, is certainly help helping us. We've had a number of school districts come in and inquire about the new P. fossil filtration and several have have onboarded us. So I think that that is all net positive. But I think like anything else, Tom, there's a way to solve the problem today, right? I mean, if you put one of these filters in, it solves the vast majority of the profits down to 20 parts per trillion. That's what our filter takes out as well as most recently Micro Plastics. And so when you think about being able to solve the problem for a very low initial cost decision. You can eliminate the vast majority of the problem immediately. And I think that is sort of the thing for us. I think waiting on funding from the government to solve this at the municipal level. Municipality by municipality is a slow vote. So I think we're doing is really communicating the features and benefits and value of being able to solve the problem today for a couple hundred bucks. And so the but the awareness certainly certainly helps drive that adoption for us.
In terms of discrete funding around that piece of it. This particular bill, there's not a ton of it, but I think it is as you think about solving the problem for a couple hundred bucks versus waiting on billions and billions of dollars, that flow to municipalities and that can implement it is that's a tough. It's a long path where I think we have a more immediate, high-quality solution.

Jeff Hammond

That's helpful. A just know your multifamily exposure, maybe just remind us what that is and if that's within residential and just what you've been seeing there, it seems like that was a market that was quite robust, but we're seeing some slowing there. I'm just trying to you have to frame your size there.

Todd Adams

Yes, Jeff, worth if you look at our revenue piece, it's call it 50, 50, 60 40 multifamily versus single-family. I think it's just when you break it down. That was a small piece of the puzzle we're not seeing anything that's moving the needle for us one way or the other that's kind of embedded in that flattish outlook for us. So at the end of the day, it's not a we don't do the needle mover one way or the other materially for the year.

Mark Peterson

And so basically roughly half of the residential pie would be multi-family. I think is the way to think about it.

Jeff Hammond

Okay.
And then last one, we've seen a little insider selling, I think from from member in the catch some of the kids family and the Okay constituents. Just wondering, one, if they did have more to sell, could you guys do kind of a buyback with that? And any kind of feedback on if this is fine tuning or something leading to a bigger diversification?

Todd Adams

Yes. I mean, obviously, the lockup ended at the end of the year. Obviously, there's some personal financial matters that I think the family is managing. And we've got no indication that there's a significantly larger amount of this coming imminently on. This was more a function of, I would say just some of that initial a reorganization work. But yes, over time, they've been communicated to us an intention to hold a significant portion of this for a very, very long time. But I do suspect that there will be some selling over the course of the next several years. But we can do a couple of things with time. We can certainly leverage our own buyback, but I think there's there may be a place in time and if they wanted to sell a larger piece to do some form of marketed offering. But I think it will all be sort of really, really well telegraphed on and communicated because I think we're all we're mutually aligned on making sure that the stock price goes up. And so I think that but I don't think there's anything to read into it beyond just some initial initial financial planning so that the family is doing.

Jeff Hammond

Okay. Great.
Appreciate it.

Operator

There are no further questions at this time. I will now turn the call back to Dave Pauli for closing remarks.

Dave Pauli

Thanks, everyone, for joining us on the call today. We appreciate your interest in Zurn Okay, water solutions, and we look forward to providing our next update when we announce our June quarter results in late July and have a good day.

Operator

This concludes today's call.
You may now disconnect my mic.