Q3 Zurn Elkay Water Solutions Earnings Conference Call - ZURN ELKAY WATER SOLUTIONS CORP

Good morning, and welcome to the Zern LK Water Solutions Corporation 3rd Quarter 2026 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer, Dan Kloon, Chief Financial Officer, Dave Pauly, Chief Operating Officer, Jeff Schoon, President, and Bobby Beltzner, Vice President and Corporate Controller for ZernLK WaterSolutions. 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 Bobbi Beltzner. Good morning, everyone, and thanks for joining the call today. Before we begin, I'd like to remind everyone that this call contains certain forward-looking statements, which are subject to safe harbor language outlined in our press release issued yesterday afternoon and 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-GAP 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. We encourage you to review the GAAP information in our earnings release and in our SEC filings. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn LK Water Solutions. Thanks, Bobbi, and thanks for joining us this morning. As you may have seen in the materials, we've got a lot to cover this morning, so I'll get right to it. We grew our top line 9% in the quarter, 7% organically, and EBITDA grew 15% year-over-year as margins expanded 150 basis points to 28.3%. In addition to that, we continue to generate significant free cash flow, which we use to invest in Zern LK stock, repurchasing $35 million of stock in the corner. Our board also made the decision to increase our annual dividend 18%, reflecting the confidence we have in our business and desire to continue to reward shareholders with an ever-growing dividend amidst a capital allocation option set that continues to just have tons of flexibility. This morning, aside from the results and outlook, we'll provide some details how our adjacency work is coming along, including an update on the Intel Hot Acquisition. In addition, as we typically do in the third quarter, we're going to be talking about the Intel hot acquisition We'll provide a market overview based on the Dodge information available and provide some perspective as to how that information translates to our business. As we close out another record year in 2026 and begin to look ahead, we're excited with the progress we've made over the last several years to position ourselves to build on the track record we've built over the almost past two decades. In that track record is a financial crisis, a pandemic, and several things over just the past couple of years, which on the surface seems like things that we couldn't overcome. come. Sitting here today, and not surprisingly, the broader economy and parts of our end markets don't feel like they're going to be a tailwind for our business in 2027. So we're going to simply do what we know how to do and what's worked by showing some grit and leveraging our culture and the Zurn LK business system to drive superior results. We're excited to get through all of this this morning and take your questions at the end. And with that, I'll turn it over to our CFO, Dan Klum. Thanks, Todd. Please turn to slide four. Our third quarter sales totaled $495 million, representing 9% reported and 7% core growth year-over-year, which landed at the high end of our guide for the quarter. We saw broad-based growth across the majority of our product categories, with water safety and control and drinking water again leading the fleet. I'll walk through our end market outlook in a couple slides. Unpacking our quarter's growth, the telehopper was performing in line with expectations and contributed two points or $6 million of sales growth in the quarter. Price also added another two points to our year-over-year growth with the remainder coming from unit volume. As we have previously indicated, we have now cycled fully against the carryover benefit of our calendar 25 tariff-related price increases. Turning to profitability, our third quarter adjusted EBITDA was $140 million, up 15% year- over-year, and our adjusted EBIDDA margin was 28.3%, up 150 basis points versus the third quarter of 2025. Drivers of the expansion are consistent with what you've heard us discuss throughout the year. Ongoing mixed improvement as our highest margin products continue to lead our growth, productivity gains from the Zernalk A business system, and continued benefit from our supply chain repositioning work. Before moving on to our year-to-date results, I want to briefly address the tariff refund activity this quarter. During the third quarter, we recognized 1.5 million of IEPA and reciprocal refunds reflected in cost of goods sold in our GAAP financial statements, Consistent with our treatment in the second quarter, this amount is excluded from our non-GAAP measures. On a year-to-date basis, net sales were $1.419 billion, up 10% year-over-year on a reported basis and 9% on a core basis. Year-to date, adjusted EBITDA of $392 million was up 16% with a margin of 27.6% in improvement of 140 basis points versus the prior year period, which translates into an incremental margin of 41%. Please turn to slide 5. With respect to leverage, we ended the third quarter at 24 times after utilizing $107 million of cash to acquire IntelliHot earlier in the year. As you can see in the left-hand chart, our leverage profile remains at historically low levels. Free cash flow in the quarter was $110 million, and on a year-to-date basis, we have generated approximately $264 million of free cash flow, excluding the net impact of tariff refunds and applicable cash taxes, keeping us firmly on track to attain our full-year pre-cash flow guidance of greater than $350 million. Our liquidity, leverage, and cash flow generation continue to give us significant flexibility to reinvest in the business, to pursue attractive adjacencies, as you'll hear from Jeff, and to return capital to shareholders through buybacks and dividends. With that, I'll now turn the call over to Jeff to cover the Wilkins Runpoint announcement on page six. Thanks, Dan. I'm on slide six. Last quarter, I walked through IntelliHot, our entrance into commercial hot water. We entered this space with purpose to disrupt the category and bring more value to our customers. Intellihot's tankless condensing water heaters deliver better efficiency and lower operating costs than traditional boilers and tanked units in a smaller mechanical room footprint and a segment growing faster than the overall category. Today, I'm excited to introduce the next step, the Wilkins RunPoint digital master mixing valve let me start with the market opportunity the hot water system is a critical but historically underserved part of the building plumbing infrastructure mixing valves regulate water temperature and flow to deliver consistent safe hot water throughout a facility and to help manage the risk of legionella growth in stagnant or improperly tempered water The IntelliHOT and Runpoint together, we are establishing our position at the core of the domestic hot water system, both generating the hot water and controlling how it is delivered throughout the building. Mixing valves open a complimentary market of more than $200 million. Expectations in this area are rising. Healthcare facilities are required to maintain water management programs and schools, hotels, and other building owners are increasingly adopting active temperature monitoring that's driving a shift to digital where run point competes this digital segment is growing double digits from a product standpoint run point is differentiated in several ways it is meaningfully easier to install commission and maintain compared to legacy alternatives it provides continuous temperature and flow monitoring with real-time alerts and the digital architecture makes it straightforward for facilities teams to document compliance. The product is completely field adjustable and connects to existing building management systems. And it carries the Wilkins name. Wilkins is the number one brand of technology in backflow prevention with deep relationships with engineers who specify, the reps and wholesalers who sell, and contractors who install. Runpoint goes through those same existing channels. We don't need to build anything new. We are putting a new product in the strongest specification and distribution network in the industry. The combination of our core portfolio, competitive position, and our go-to-market strength are why we believe mixing valves can become a $50 million category for us over the long run. We are focused on developing the highest performing products for our customers, and throughout 2027, we will continue to add products and services to our hot water portfolio. Turning now to slide seven, I want to transition now to our annual market update. As we've done in prior years, I'll walk through the key published market indicators we track. This is third-party, publicly available data. It's one of several inputs we use to evaluate market conditions, But our business is hyperlocal, through reps, and varies meaningfully by region, vertical, and building type. So we read these as directional signals, not forecasts. At the top of the page, you'll see three macro indicators. First, the Dodge Momentum Index, which measures the value of non-residential building projects entering planning against the year 2000 baseline. Think of it as roughly 9 to 12 months preview of what's likely to start. It blends price and markets and geographies, so it's directional rather than precise. On that basis, the DMI has improved meaningfully in recent months and is at the high of its recent range. That is a constructive read as we look into 2027. Second is the Architecture Building Index, a monthly survey of whether architecture firms' billings grew, declined, or remained flat. 50 is neutral. A reading above 50 tells you more firms saw growth, not how much growth, and it's not weighted by firm size. The ABI has been below 50 for an extended period, which points to a continued softness in design activities. So the DMI and ABI are sending different signals right now, which is exactly why we don't anchor to any one indicator. Finally, construction backlog, which measures how many months of work contractors have under contract. As the latest release, commercial and institutional backlog remains stable at high levels, roughly eight-plus months. Taken together, these give us useful direction, but to reinforce that we have, as we've said before, our business is hyper-local, hyper-regional, and these macro indices offer limited insights into what happens on an individual product basis. The bottom of the slide is specific to Zern LK. On the left, you can see that our portfolio participates across the full construction cycle, which averages about 18 months. Flow systems tends to go in early in the build cycle, water safety and control is mid-cycle, and hygienic and environmental solutions and drinking water are installed at or near completion of the project. This breadth across the cycle gives us visibility and durability across different phases of activity. In the center, what we call the lag effect, this is how dodge starts translate to our new construction revenue. In a typical year, roughly three quarters of our new construction revenue comes from prior year starts and about one quarter of revenue from current year starts. Looking ahead, that means 2026 starts will drive most of our 2027 new construction Revenue next year. When you layer on our portfolio mix of roughly 50% new construction and 50% MRO and retrofit, you begin to appreciate the degree in which our business is insulated from new construction volatility. I'll pass it over to Dan, and he'll walk through the starts information. Thanks, Jeff. Moving to slide eight, as we've done for a number of years around Q3 earnings, we aggregate and analyze the Dodge construction market forecast as it relates to our end markets. This data set is based on a semi-annual report released in September 26. It covers the actual starts data from 22 to 25 and Dodge's projections out to 2030. It is important to note that this data set is often subjected to reporting delays and or assumption changes that can introduce a measure of volatility. All of this data is publicly derived and forecasted, and on this call, we're simply organizing and unpacking it through a lens that is most applicable to how it might impact our business. Additionally, as Jeff mentioned when looking at these projections, it is important to recognize the New Starts data in the Dodge report must be appropriately lagged to how ZernLK participates across the construction cycle. On this slide, we have summarized the Dodge institutional and commercial starts on a square foot basis, which represents our largest end market exposures. We focus on square footage because it eliminates the noise of pricing, renovations, and alterations, giving us a clearer picture of new construction activity. On a relative basis, institutional end market has been a stable category over time and is less sensitive to private funding or interest rate swings and short-term discretionary demand. Projects in this category generally have long-term planning pipelines and are funded from bond bond referendums, appropriations, and endowments, not by developer debt or tenant demand. This end market represents approximately 50% of journal case exposure and contains a number of public building types. Education and healthcare together combine the majority of the Dodge institutional starts at 57%. Switching to commercial, this is our second largest end market that comprises approximately 30% of our business. This end mark can be more volatile due the variability in the sub-verticals that comprise it. Interest rate spikes and credit tightening have a more direct impact on this category. While commercial headline starts are relatively flat over the last few years, there's a large mixed shift occurring in its sub- verticals. Inside of these figures is a large mix shift away from warehouse, commercial's largest sub- vertical in terms of square feet, from a high watermark of 64% in 2022 to 43% in 2026, largely in favor of office. This increase in office building type is exclusively driven by data centers. Dodge is forecasting the 2026 mix by building type to remain relatively consistent over the forecast horizon. As a reminder, when digesting the Dodge starch data, it is also important to understand that end market and building type mix at the overall Dodge level must be further tailored to our business as our exposures are weighted differently in our own portfolio. Please turn to slide nine. Here we have the same Dodge data in terms of square foot but now broken down in our key sub verticals. On the top left is an excerpt of education and healthcare. Over the last four years this category has contracted by a CAGR of 4% and over the next four years the combination of these sub vertical is expected to grow at a 3% CAGR. As I mentioned these two building types represent approximately 57% of the all institutional square footage within Dodge but comprise roughly 72% of our exposure to the institutional market. The takeaway, we remain consistently over indexed to the most stable parts of institutional construction. On the bottom left, we highlight the aggregation of retail, office, and hotel, which represents our core sub verticals inside of the commercial end market. This combination represents approximately 38% of the overall commercial starts within Dodge, up from about 30% a year ago due to the growth in data centers, and roughly 77% of our exposure to the commercial market as a side note dodge classifies data centers inside of the office category in the aggregate office retail and hotel have grown a kegger of seven percent over the last four years and are expected to grow four percent over next four years however data centers significantly skew these numbers when you exclude data centers from this grouping growth over the last four years declined at a one percent kegger and is expected to growth at a three percent CAGR on a forward look. As you know, end market is only one input into our growth algorithm. We have other factors driving our outlook, such as continued secular growth within drinking water, share gain from our key initiatives, and price. As Dave will highlight, our growth track record has been remarkably consistent. I'll now turn the call over to Dave to cover slides 10 and 11. Thanks, Dan. Please turn to slide number 10. Dan just walked through a lot of good information, and I'll try and help frame what that means for Zern LK. I think it's important to understand that while Dodge data is an input into how we think about the market, it's certainly not the only input we use. We monitor a host of other data points, including quote volumes, conversations with our reps in local regions, and the backlog of construction jobs in various phases, among other sources. The chart at the top left-hand side of the slide helps to illustrate how resilient our business has been and shows our year-over-year core growth alongside the year-ever-year square foot growth based on dodge data of our end markets what you see is that we have not had a year in the last five years where the institutional commercial and residential markets have all been in our favor or in the case of this chart all shown as green what we have seen is a tough residential market choppiness choppines in the commercial space and a more steady institutional end market the good news is that even with some tougher end markets we have demonstrated the ability to deliver core growth. Historically, you can see we have navigated a mix of red, yellow, and green in our end markets, however, ZERN-LK core growth has remained green or positive each year, ranging from plus 3% to plus 11% core growth. While the starts data has evolved this year, as events like changes to tariffs, war overseas, oil prices, and the projections around interest rates move, the level of construction starts, pure square feet of construction starting remains strong. Ultimately, we like our chances in a variety of end market scenarios. And that's where our long-term growth algorithm comes in. We have strategically built our portfolio over years, being intentional with where we play, the markets we serve, and M&A we transact on. The strategic position is grounded in a couple of items. We are focused on a single geography here in North America. Our retrofit exposure has increased over the years to 50%. Our portfolio has the advantage of some secular growth tailwinds. We know drinking water has been a focus, and we have seen excellent growth in our filtration business as an example. In the last four years, our filtration sales have grown over 40 million alone. We are deploying resources at the local regional levels where we win every day. There's not a single contiguous non-res market here in the U.S. This is a hyper-local, hyper-regional business. There's no one-size-fits-all non-res market, rather distinct local markets that can vary greatly. And lastly, as we've discussed, there's a focus on adjacent markets that we believe can provide some meaningful growth opportunities. Not only have we been intentional with the strategic position of Zern LK, we also have a business model that allows a lot of flexibility in a variety of market conditions. Our margin strength has come from leveraging our variable cost model and relentless continuous improvement through the deployment of discern LK business system we have highlighted our journey with hashtag CI or continuous improvement and we continue to gain valuable insights and improvements from our associates every day with the goal of getting just a little bit better each and every day these factors all add up to very strong if we look back our expectations of incremental margins around the time of LK merger were 25 to 30%. We quickly raised that to 30% incrementals. At the start of this year, we guided to 35% incremental margins, and in the second quarter, we talked about an increase to those expectations up to 40%. We have a high level of confidence in our ability to continue to grow earnings, and 2027 specifically is no different. Sitting here today, 2027 looks like 40% incrementals plus the plus coming from some scope for benefits that we have been executing on behind the scenes and we will provide and will provide a benefit in 2027. we will provided further detail when we give guidance in 20 27 but the impact of the work we have done is meaningful think about it as a benefit to EBITDA of around 5 million or more in 20-27 on top of our year-over-year 40 incremental. All that sits on top of a balance sheet that has never been in a better spot. Dan talked about it earlier. We are hovering around the lowest leverage we have had as a public company with a flexible balance sheet, allowing us to increase our return of capital to shareholders via dividend and share repurchases, while in the background cultivating M&A and investing in adjacencies. I'll wrap up with slide 11, which gives some further detail on on the growth algorithm I just mentioned. The core growth trend section of the slide walks through the more detailed components of our growth. Starting with 2022 to 2026, CERN-LK core growth CAGR was plus 6%. That was made up of a flat to slightly down market, low single digit price and share gain, about a point from secular growth tailwinds offset by about a product line simplification as we executed on a number of 80-20 initiatives. And with the exception of our recently completed acquisition of IntelliHOT, those years from 2022 to 2026 have been all core, as we focused on the successful integration of LK. While we won't provide guidance on 2027 until next February, I did want to share some thoughts based on the market detail we just walked through. Just like the track record for the past 16 years, we see growth in 2027. Share gain initiatives, secular growth areas, our MRO break fix at 50%, price, and adjacencies all help drive growth, despite a market that's sitting here today looks to be likely down a couple points next year. How the market in 2027 actually shakes out, we will see, and in the meantime, we'll continue to monitor as we look to provide further clarification on our outlook next February when we guide 2027. While the market has had its ups and downs over a long period of time, we have demonstrated an ability to deliver core growth through a number of different market dynamics. Over the last 63 quarters, we've had positive core growth 59 times and our long-term core sales CAGR back 10 years is 6%. The bar chart at the bottom of the page does a nice job of illustrating our continued growth over the last 16 years when we have seen a number different market dynamic play through. All in all, the punchline is that we have a lot of confidence in our ability to grow profitably, and our long-term growth algorithm that has delivered positive core growth year in and year out remains intact. I'll turn the call back to Dan to cover guidance. Please turn to slide 12 for Outlook. For the fourth quarter, we expect sales in a range of $430 to $437 million. We anticipate adjusted EBITDA to be between $120 and $123 million. our adjusted ebitda guidance reflects the continued strength of our operating model for the full year 2026 we are raising our adjusted EBITDA outlook to a range of 512 to 515 million and we maintain the expectation of full year free cash flow of greater than 350 million excluding the net impact of tariff refunds and taxes within our presentation we have also included the fourth quarter and full year outlook assumptions for interest expense non-cash stock comp depreciation and amortization adjusted tax rate and diluted shares outstanding We look forward to updating everyone on our Q4 and calendar year 2026 results in early February. With that, please open the line up for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Brian Blair with Oppenheimer. Your line is open. Please go ahead. Thank you. Good morning, everyone. another solid quarter and appreciate all the the color on the market backdrop and zws framing uh to level the level set on on Trends um the decel to seven percent core growth in the third quarter which was still obviously above your your guidance framework was that simply uh price differential Q2 to Q3 obviously you're laughing tariff driven pricing from the year prior just if there was any any area of you know underlying volume deceleration in the corner at a high level brian i think price says clearly the biggest the biggest mover underneath you know and i think as the guys pointed out we walked into the year knowing that um the market would soften throughout the year so when we say you know it's been consistent with what we expected if you look at that dodge starts data from 25 and how that rolls through we were anticipating you know the market to slow a little bit uh and but the biggest difference q3 to q4 is clearly the change in the price realization here okay i understood and it's great to see 40 plus incremental margins officially cited as part of the zws growth algo we know a lot has gone into that and there seems to be the overlay of incremental scofer benefits some other other actions that'll come through in 27. i'm curious if in addition to that um you know the entrance into the hot water adjacency for your team you know anticipated growth and profit trajectory there you know also influenced the call to make that you know the the official uh incremental target looking forward i'm not sure that it specifically did i think you know it clearly there is a category that will punch at or above our fleet average and so as that grows it'll clearly be beneficial to you know our underlying margins but I would say that the 40% and the adoption of that if that's what you want to call it you know really comes from our core business as it sits today so we're not projecting you know the impact of it other than to say that it's not going to be a headwind as that part of our business continues to grow. Understood. Thank you again. Your next question comes from the line of James Coe with Jefferies. Your line is open. Please go ahead. Good morning. Thanks for taking questions here. I just wanted to think about the kind of longer term growth here. I mean you kind of talked about 2027 and market being potentially down a bit but I think your kind of dodge data kind of shows that education and healthcare like starts turning from like negative four percent CAGR to positive growth over the next few years and you're obviously kind of over indexed there so does the market finally become a contributor rather than a dragon for the next years and with kind of adjacencies revenue on top can you now do do better than the historical five years in terms of the growth rate here? Well, it's all assumption-based, James. So, you know, if that market projection that Dodge has for education and healthcare comes through, you now, it would be the first tailwind, I think, that we've obviously seen in a really long time. So that would clearly help, you kno, our underlying growth rates. And then, obviously, on top of that, you k, as we enter adjacencies and things like that that go into those same sub-verticals. We think that we probably get, you know, a double benefit there as the market recovers and we enter the category. So it's too early for us to make that call, but if you sit back and look beyond 27, you know, I would suggest that we're probably due for some market improvement relative to where it's been, and if that comes to fruition, I think you will see an increase in our underlying organic growth rate. Awesome. Thanks for the caller. And as a follow-up on the adjacencies, I think in July, you kind of mentioned several new product in adjacency categories in 2nd half and 2027. How many are still to come and roughly what time over the next wave? And I think Rampoint was developed in-house and IntelliHub was acquired. So how do you decide which route to take and what does M&A pipeline for adjacencies kind of look like now? Yeah, to think about 27, you know, I would think about it again in categories in the $100 to $200 million range, and there will be more of those as we head into 27. And as it relates to, you Know, the choice to develop it versus acquire it, we always look at both, right? So we're obviously cultivating things, and if for some reason we come to the conclusion that it's not going to happen, then as you see with Runpoint, we go out and do it on our own. And I think, you know, the do-it-on-our-own is a little bit of a longer road, for sure, but we think we've developed just a dynamite, far superior product at far less cost, and, you know, but it's a little Bit of a long game. And so we're going to continue to look at and do both, and it's really on a situation-by-situation basis. Awesome. Thank you. your next question comes from the line of nathan jones with stiefel your line is open please go ahead yeah good morning this is adam farley on for nathan good morning morning first on uh hey good morning let me first on on pricing again um inflation has picked up again this quarter um you know how should we think about maybe incremental pricing actions for the rest of this year and then going into 2027 well we're not we're not guiding yet for 27 but i think you should think about price a sort of uh you know regular way so a couple points of price in 27 and obviously it's something we're monitoring uh both from an input perspective and competitively and so should the need arise uh you You know, we obviously, I think, have proven the ability to sort of price accordingly. But at this point, you know, I would think about it as regular way. We don't have any incremental price assumed in our fourth quarter other than what's already been implemented. And we've got, you Know, a teed up price increase for next year that you should think about as sort of regular way at this point and, you Now, obviously subject to change depending on what happens with input costs and really our competitive set. Fair enough. You know, I appreciate the commentary on non-residential construction being hyperlocal. So maybe to that point, you know, are there any regions within the U.S. that are showing maybe more relative strength or weakness? Yeah, like you said, it is hyperlocals. I think as you look at this year, we've seen strength in the Northeast, in the Gulf region, and in the West. And again, I think as you look at it year over year, it kind of ebbs and flows. The West had challenges a few years ago and then bounced back, and we see that remaining strong for us. But again, since the LK merger, we've been able to really strengthen our regional rep networks, our resources that we have in these regions, and we feel that kind of across the board, we've able to take market share and outperform most of these regions. Okay, thank you for taking my questions. Your next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open. Please go ahead. Hey, good morning, guys. Hey, Jeff. Thanks for all the colors. So I'm intrigued on the hot water loop and the new product and IntelliHot. just you know i think todd you said internally developing it uh maybe takes a little longer i'm just wondering how you know how far along or how rich the pipeline is in terms of you know intro and and developing new products in that hot water loop or you know other adjacencies yeah i mean amidst you know the last couple years we've been identifying it talking about it cultivating growing our own internal resources to do some some more of this heavy lifting and you know they're all in various stages of fruition so you know we wouldn't be able to commit to adding you know surf market in 27 if not for some of that being underway already so i think it's always going to be a combination jeff of you know stuff that is under development and stuff that's being worked and then stuff that ideally is coming to market so getting that flywheel to turn you know on a more consistent basis i think is what we highlighted uh probably about a year ago and i think we're well underway with that and you know excited about what that can mean both for organic growth but also what it can mean for cultivating m a opportunities along the way Because, obviously, if we find a good fit, but for whatever reason, you know, the counterparty is unwilling to sell, we do have the ability to do it on our own. And so I think it's a great push-pull to sort of help our M&A activities. But I also think that, you Know, we're coming into these markets, you Now, one way or another. And so, I think, it's A little bit of both and expect more to come out the pipe in 27. Okay, and then I think you said most of your sub verticals or markets were up. I'm just wondering if anything is weakened and just with some of the rate spike and nervousness there if you've seen any defers delays, you know, noise near term around that. Yeah, we really haven't, Jeff. I think if you look at this quarter, Dan mentioned it, our water safety and control and drinking water businesses both had nice quarters and then obviously resi is down and resi's been in a tough spot so that would be the one to maybe call out is a little bit weaker okay thanks so much yeah your next question comes from the line of jeff reeve with rbc capital markets your line is open please go ahead thank you good morning everyone so just question on construction backlogs they remain pretty stable i was curious if you're seeing any changes in the pace at which projects are progressing through construction or in other words are projects taking longer to complete and could that affect some timing of your shipment i wouldn't necessarily view it from standpoint at timing of shipments i think as as todd talked about we you know we came into the year knowing the back half would soften a little bit that's kind of how we approached the year from a planning standpoint and i think it's played out similar to that so some of it has had delays but i wouldn't say it's above and beyond what we assumed coming into the year and and what we've seen kind of over the last 90 days or so got it appreciate that and maybe just to follow up on the hot water loop you talked about adding products and services i guess i'm just on the services side specifically like what type of services are you contemplating adding yeah i think so we talked a little bit about it uh last quarter so with intelli hot there's also an IntelliPro network, which is a certified network that supports IntelliHot. And so we'll continue to bolster that and leverage the rep networks that we have in regions. And then as we continue to add products into that portfolio, we'll be able to better size, specify with the engineers, but then also support the contractor from the standpoint of commissioning and troubleshooting of the overall hot water network. So really building off of an asset that we acquired with IntelliHot and then applying kind of our breadth and capability that'll play over the long term. Thank you. There are no further questions at this time. I will now turn the call back to Bobby Beltsner for closing remarks. Thanks everyone for joining us on the call today. We appreciate your interest in Zurn LK Water Solutions and we look forward to providing our next update when we announce our fourth quarter results in February. Have a great day. This concludes today's call. Thank you for attending. You may now disconnect.