Zurn Elkay Water Solutions Corporation (ZWS) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Zurn Elkay Water Solutions Corporation Third quarter 2026 earnings results conference call with Todd A. Adams, chairman and chief executive officer Daniel J. Klun, Chief Financial Officer; David Pauli,, Chief Operating Officer; Jeffrey A. Schoon,, President; and Bobbi Beltsner, Vice President and corporate controller for Zurn Elkay 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 will turn the call over to Bobbi Belstner.

Good morning, everyone, and thanks for joining the call today. Before we begin, I would 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 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. We encourage you to review the GAAP information in our earnings release and in our SEC filings. With that, I will turn the call over to Todd A. Adams, Chairman and CEO of Zurn Elkay Water Solutions.

Thanks, Bobbi, and thanks for joining us this morning. As you may have seen in the materials, we have got a lot to cover this morning, so I will get right to it. We grew our top line 9% in the quarter 7% organically. 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 Zurn Elkay stock, repurchasing $35 million of stock in the quarter. 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, a mix of capital allocation option set that continues to just have tons of flexibility. This morning, aside from the results and outlook, provide some details on how our adjacency work is coming along including an update on the Intellihot acquisition. In addition, as we typically do in the third quarter, we will 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 are excited with the progress we have made over the last several years to position ourselves to build on the track record we have built over the past almost 2 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 could not overcome. Sitting here today, and not surprisingly, broader economy and parts of our end markets do not feel like they are going to be a tailwind for our business in 2027. So we are going to simply do what we know how to do and what is worked. But showing some grit and leveraging our-- culture, the Zurn Elkay Business System, to drive superior results. We are excited to get through all of this morning and take your questions at the end. And with that, I will turn it over to our CFO, Daniel J. Klun.

Thanks, Todd. Please turn to slide 4. Our third quarter sales totaled $95 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 will walk through our end market outlook in a couple slides. Unpacking our quarter's growth, Intellihot was performing in line with expectations and contributed 2 points or $6 million of sales growth in the quarter. Price also added another 2 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 2025 tariff related price increases. Turning to profitability, our third quarter adjusted EBITDA was $140 million up 15% year over year, and our adjusted EBITDA margin was 28.3%. Up 150 basis points versus the third quarter of 2025. Drivers of the expansion are consistent with what you have heard us discuss throughout the year. Ongoing mix improvement as our highest margin products continue to lead our growth, productivity gains from the Zurn Elkay Business System 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 IEEPA 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%, an 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 0.4x, 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. 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 free 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 will hear from Jeffrey, and to return capital to shareholders through buybacks and dividends. With that, I will now turn the call over to Jeffrey to cover the Wilkins Runpoint announcement on Slide 6.

Thanks, Daniel. I am on slide 6. 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 tank units. In a smaller mechanical room footprint and in a segment growing faster than the overall category. Todd, I am 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 complementary 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 is driving a shift to digital, where Runpoint competes. This digital segment is growing double digits. From a product standpoint, Runpoint 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 1 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 do not 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 7. Want to transition now to our annual market update. As we have done in prior years, I will walk through the key published market indicators we track. This is third-party publicly available data. it is 1 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 will see 3 macro indicators. First, the Dodge Momentum Index. Which measures the value of nonresidential building projects entering planning against the year 2000 baseline. Think of it as roughly 9 to 12 months preview of what is likely to start. It blends price, end markets, and geographies, so it is 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 Billings Index, A monthly survey of whether architecture firms' billings grew, declined, or remained flat. A reading of 50 is neutral. A reading above 50 tells you more firms saw growth, not how much growth. And it is 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 AVI are sending different signals right now, which is exactly why we do not anchor to any 1 indicator. Finally, construction Backlog, which measures how many months of work contractors have under contract. At the latest release, commercial and institutional backlog remains stable at high levels, roughly 8+ months. Taken together, these give us useful direction but to reinforce what we have, as we have said before, our business is hyperlocal, 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 Zurn Elkay. 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, we call the lag effect. This is how Dodge starts translate to our new construction revenue. In a typical year, roughly 3-quarters of our new construction revenue comes from prior-year starts and about 1-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 to which our business is insulated from new construction volatility. I will pass it over to Daniel, and he will walk through the starts information.

Thanks, Jeff. Moving to slide 8. As we have 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 dataset is based on a semiannual report released on September 26, covers the actual starts data from 2022 through 2025 and Dodge's projections out to 2030. It is important to note that this dataset is often subjected to reporting delays and or assumptions changes that can introduce a measure of volatility. All of this data is publicly derived and forecasted. On this call, we are simply organizing and unpacking it through a lens that is most applicable to how it might impact our business. Additionally, as Jeffrey 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 Zurn Elkay 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. 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 in short term discretionary demand. Projects in this category generally have long term planning pipelines and are funded from bond referendums, appropriations, and endowments. Not by developer debt or tenant demand. This end market represents approximately 50% of Zurn Elkay's exposure and contains a number of public building types, education, health care, together combining the majority of the Dodge institutional starts at 57%. Moving to commercial, this is our second largest end market, which comprises approximately 30% of our business. This end market can be more volatile due to 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 is a large mix shift occurring in its sub verticals. Inside of these figures is a large mix shift away from warehouse, its largest subvertical, 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 starts data, it is also important to understand 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 9. Here we have the same Dodge data in terms of square foot. But now broken down into our key subverticals. On the top left is an excerpt of education and health care. Over the last 4 years, this category has contracted by a CAGR of 4%. And over the next 4 years, the combination of these sub verticals is expected to grow at a 3% CAGR. As I mentioned these 2 building types represent approximately 57% of all institutional square footage. Within Dodge but comprise roughly 72% of our exposure to the institutional market. The takeaway is 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 represent our core subverticals 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 at a CAGR of 7% over the last 4 years and are expected to grow 4% over the next 4 years. However, data centers significantly skew these numbers. When you exclude data centers from this grouping, growth over the last 4 years declined at a 1% CAGR and is expected to grow at a 3% CAGR. on a forward look. As you know, end market is only 1 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 will now turn the call over to David to cover slides 10 and 11.

Thanks, Daniel. Please turn to slide 10. Daniel just walked through a lot of good information, and I will try and help frame what that means for Zurn Elkay. I think it is important to understand that while Dodge data is an input into how we think about the market, 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, 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-over-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 5 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 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 Zurn Elkay core growth has remained green or positive each year. Ranging from +3% to +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, remain strong. Ultimately, we like our chances in a variety of end market scenarios. And that is 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 4 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 is not a single contiguous non-res market here in the US. This is a hyperlocal, hyperregional business. there is no 1-size-fits-all non-res market, rather distinct local markets that can vary greatly. And lastly, as we have discussed, there is 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 Zurn Elkay, 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 the Zurn Elkay Business System. We have highlighted our journey with #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 the Elkay merger were 25% to 30%. 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 SKU simplification benefits that we have been executing on behind the scenes, and we will provide and will provide a benefit in 2027. We will provide further detail when we give guidance in 2027, 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 2027, on top of our year-over-year 40% incrementals. All that sits on top of balance sheet that has never been in a better spot. Daniel 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 a dividend and share repurchases, while in the background cultivating M&A and investing in adjacencies. I will wrap up with Slide 11, which gives some further detail 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, Zurn Elkay core growth CAGR was +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 point of product line simplification as we executed on a number of 80/20 initiatives. And with the exception of our recently completed acquisition of IntelliHut, those years from 2022 to 2026 have been all core as we focused on the successful integration of Elkay. While we will not provide guidance, on 2027 until next February, I did want to share some thoughts based on the market detail through which 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, sitting here today looks to be likely down a couple points next year. How the market and 2027 actually shakes out, we will see. In the meantime, we will continue to monitor as we look to provide further clarification on our outlook next February when we guide for 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 have had positive core growth 59x, our long term core sales CAGR over the 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 of different market dynamics play through. All in all, the punch line is 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 will turn the call back to Daniel to cover guidance.

Please turn to slide 12 for our outlook. For the fourth quarter, we expect sales in a range of $430 million to $437 million We anticipate adjusted EBITDA to be between $120 million 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 million 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 for questions.

We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 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 Bryan Blair with Oppenheimer. Your line is open. Please go ahead.

Thank you. Good morning, everyone. Another solid quarter, and I appreciate all the color on the market backdrop and ZWS's framing. To level-set on trends, the decel to 7% core growth in the third quarter, which was still obviously above your guidance framework, Was that simply price differential from Q2 to Q3? Obviously, you are lapping tariff driven pricing from the year prior. Just curious if there was any area of underlying volume deceleration in the quarter?

At a high level, Bryan, I think price was clearly the biggest mover underneath and I think as the guys pointed out, we walked into the year knowing that the market would soften throughout the year. So when we say, you know, it is been consistent with what we expected, if you look at that Dodge starts data, 2025 and how that rolls through, we were anticipating the market to slow a little bit. And the biggest difference Q3 to Q4 is clearly the change in the price realization year over year.

Okay. Understood. And it is great to see 40%-plus incremental margins officially cited as part of the ZWS growth algorithm. We know a lot is going into that, and there seems to be the overlay of incremental SKU simplification benefits and some other actions that will come through in 2027. I am curious if in addition to that, the entrance into the hot water adjacency for your team, and anticipated growth and profit trajectory there. also influenced the call to make that the official incremental target looking for.

I am not sure that it is specifically did. I think it clearly is a category that will punch at or above our fleet average. And so as that grows, it will clearly be beneficial to, you know, our underlying margins. But I would say that the 40% and the adoption of that, if that is what you want to call it, really comes from our core business as it sits today. So we are not projecting really the impact of it other than to say that it is not going to be a headwind As that part of our business continues to grow. Understood. Thank you.

Your next question comes from the line of Jae Hyun Ko 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 end market being potentially down a bit. But I think the Dodge data kind of shows that education and health care, like, starts turning from a -4% CAGR to positive growth over the next few years. And you are obviously kind of over-indexed there. So does the market finally become a contributor rather than a drag over the next years and with kind of adjacencies revenue on top, can you now do better than the historical 5 years in terms of the growth rate here?

Well, it is all assumption-based, James. So if that market projection that Dodge has for education and health care comes through, it would be the first tailwind, I think, that we have obviously seen in a really long time. So that would clearly help our underlying growth rates. And then obviously, on top of that, as we enter adjacencies and things like that, that go into those same subverticals, we think that we probably get a double benefit there as the market recovers and we enter the category. So it is too early for us to make that call. But if you sit back and look beyond 2027, I would suggest that we are probably due for some market improvement relative to where it is been. And if that comes to fruition, I think you will see an increase in our underlying organic growth rate.

Awesome. Thanks for the color. And as a follow-up on the adjacencies, I think in July, you kind of mentioned several new product and addition categories coming in 2027. How many are still to come and roughly what? tenure over the next wave? And I think Runpoint was developed in house and Intellihot was acquired. So how do you decide which route to take and what does m and a pipeline for adjacencies look like now?

Yeah. To think about 2027, you would think about it again. In categories in the $100 million to $200 million range, and there will be more of those as we head into 2027. And as it relates to the choice to develop it versus acquire it, we always look at both. So we are obviously cultivating things, and if for some reason we come to the conclusion that it is not gonna happen, then as you see with Runpoint, we go out and do it on our own. And I think to do it on our own is a little bit of a longer road for sure. We think we have developed just a dynamite far superior product at far less cost. And, you know, it is a little bit of a long game. And so we are gonna continue to look at and do both. And it is really on a situation by situation basis. Awesome. Thank you.

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

Yeah. Good morning. This is Adam Farley on for Nathan. Hey. Good morning. Maybe first on pricing again. Inflation has picked up again this quarter. How should we think about maybe incremental pricing actions for the rest of this year and then going into 2027?

Well, we are not we are not guiding yet for 2027, but I think you should think about price as sort of regular way. So a couple points of price in 2027. Obviously, it is something we are monitoring both from an input perspective and competitively. And so should the need arise, we, obviously, I think, have proven the ability to sort of price accordingly. But at this point, I would think about it as regular way. We do not have any incremental price assumed in our fourth quarter. Other than what is already been implemented. And we have got a, you know, a teed up price increase for next year you should think about it as sort of regular way at this point. And, obviously, subject to change depending on what happens. With input costs and really our competitive set.

Yeah. Fair enough. You know, I appreciate the commentary on nonresidential construction being hyperlocal. So maybe to that point, are there any regions within the U.S. That are showing maybe more relative strength or weakness?

No. Like you said, it is hyperlocal. I think as you look at this year, we have 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, I think since the LK merger, we have 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 have been 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 Jeffrey Hammond with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hey. Good morning, guys. Jeffrey. Thanks for all the color. So I am intrigued by the hot water loop. And the new product and Intellihot. Just you know, I think, Todd, you said internally developing it, maybe takes a little longer. I am just wondering how far along or how rich the pipeline is in terms of the intro and developing new products in that hot water loop or, you know, other adjacencies.

Yeah. I mean, amidst the last couple of years, we have been identifying it, talking about it, cultivating and growing our own internal resources to do some more of this heavy lifting. And they are all in various stages of fruition. So we would not be able to commit to adding a served market in 2027 if not for some of that being underway already. So I think it is always gonna be a combination, Jeffrey, of stuff that is under development and stuff that is being worked, and 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 probably about a year ago. And I think we are well underway with that. And excited about what that could mean both for organic growth, but also what it can mean for cultivating m and a opportunities along the way. Because, obviously, if we find a good fit but the. 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 is a it is a great push pull to sort of help our m and a activities. But I also think that we are coming into these markets 1 way or another. And so I think it is a little bit of both. And expect more to come out of the pipe in 2027.

Okay. And then I think you said most of your sub verticals or markets were up. I am just wondering if anything is weakened and just with some of the rates spike and nervousness there, if you have seen any deferrals, delays, you know, noise near term around that.

Yeah. We really have not, Jeffrey. I think if you look at this quarter, Daniel 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. That would be the 1 to maybe call out as a little bit weaker. Okay. Thanks so much.

Your next question comes from the line of Jeffrey Reive with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. Good morning, everyone. So just a question on the construction backlog. They remain pretty stable. I was curious if you are 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 shipments?

I would not necessarily view it from the standpoint of timing of shipments. I think, as Todd talked about, we came into the year knowing the back half would soften a little bit. that is kind of how we approach the year from a planning standpoint. And I think it is played out, similar to that. So some of it has had delays, but I would not say it is above and beyond what we assumed coming into the year and what we have seen over the last 90 days or so. Got it.

Appreciate that. And then maybe just to follow-up on the hot water loop. You talked about adding products and services. I guess I am just on the services side specifically, what type of services are you contemplating adding?

Yeah. I think so we talked a little bit about it last quarter. So with Intellihot, there is also a Intelli-Pro network, which is a certified network that supports Intellihot. And so we will continue to build that and leverage the rep networks that we have in regions, and then as we continue to add products into that portfolio, we will 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 will play over the long term. Thank you.

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

Thanks, everyone, for joining us on the call today. We appreciate your interest in Zurn Elkay 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.