Zurn Elkay Water Solutions Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 7, 2024

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Zurne LK Mark Peterson, Senior Vice President and Chief Financial Officer and Dave Polly, Vice President of Investor Relations for Zurne L. K. Water Solutions. This call is being recorded and will be available for 1 week. The phone numbers for the replay can be found in the earnings release the company filed in an 8 ks with the SEC yesterday, February 6.

Operator

At this time, for opening remarks and introduction, I'll turn the call over to Dave Powley.

Speaker 1

Good morning, everyone, and thanks for joining us 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.

Speaker 1

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. With that, I'll turn the call over to Todd Adams, Chairman and CEO of Zurn LK Water Solutions.

Speaker 2

Thanks, Dave, and good morning. Thanks for joining Again this morning for our Q4 call. The 4th quarter ended on a strong note with sales EBITDA and free cash flow above the outlook we provided at the end of Q3. Mark will go through the specific numbers for the quarter and the year with everyone in just a minute. Perhaps the most important thing to highlight right away this morning is that the end market view we laid out last quarter as it relates to 2024 is unchanged.

Speaker 2

Steady strength in institutional, some pockets of weakness in commercial, residential flattish, essentially with share gains, initiative growth and a little piece of price driving what we expect to be our growth over the course of the coming year. Specifically, we see the opportunity to deliver positive organic sales growth, robust profitability and significant free cash flow for 2024. And as you'll see in a few minutes, our outlook for the Q1 puts us off to a good start in accomplishing those objectives. And while there's still a lot of road to go, I think it's entirely reasonable to to think about an improving end market outlook into 20252026 coupled with accelerated momentum around our strategic breakthroughs, Things like drinking water and filtration growth, the profit realization for some supply chain actions we've been working on over the past year, Both of those should enable us to drive solid growth profit and cash flow improvements from 2024 levels. As it relates to 2023 performance, we grew the top line 3% on a pro form a core basis amidst a market that we would say is flat to down to touch.

Speaker 2

We leveraged that growth into a 3 20 basis point EBITDA margin expansion, driven by synergy benefits and normalizing supply chain and the continuous improvement benefits we get from the Zurn LK Business System year in year out. We turned that profitability into a record free cash flow of $233,000,000 and throughout the year we leveraged that to repurchase 5,300,000 shares or about 3 raise the dividend 14% and delever the balance sheet to only 1.1 times at the end of the year. As you may have also seen, we completed a transaction in the 4th where we essentially divested the entirety of our legacy asbestos liability to a third party, along with the related insurance assets and $12,000,000 of cash to effectively remove any future risk related to asbestos. It was something that we had managed very effectively for the past 17 years, We also feel it's a really good use of some cash and the overall benefit to shareholders having that behind us, I think is an important milestone. So with that, I'll turn it over to Mark.

Speaker 3

Thanks, Todd. Please turn to Slide number 4. Our 4th quarter sales totaled $357,000,000 and on a pro form a core basis increased 900 basis year over year. Low double digit core sales growth in our non residential end markets was partially offset by a low single digit sales decline in our residential end markets. The growth in the quarter was also impacted by the benefit from the prior year comparable as our channel partners' order patterns were impacted by our improving lead times in the prior year Q4.

Speaker 3

With respect to demand in the quarter, pro form a orders expanded double digits on a year over year basis, with nonresidential growth above the fleet average With solid growth across all of our sectors led by drinking water, partially offset by softer demand in our residential end markets that was in line with our expectations for the quarter. The order growth also benefited from the prior year comparable I just discussed. Turning to profitability, our 4th quarter adjusted EBITDA increased 30% from the prior year Q4 to $84,000,000 and our adjusted EBITDA margin expanded 4 60 basis points year over year to 23.6% in the quarter. The strong margin expansion was driven by the benefits of our productivity initiatives, inclusive of cost synergies plus the lower material and transportation costs fully read through our financials in the second half of the year. Please turn to Slide 5, and I'll touch on some balance sheet and leverage highlights.

Speaker 3

With respect to our net debt leverage, we ended the year with leverage at 1.1 times, inclusive of deploying $125,000,000 of cash to repurchase approximately 2% of our outstanding common stock during the year and $50,000,000 to common stock dividends. In early October, we paid down $60,000,000 of our term loan, eliminating all future principal payments and generating approximately $4,500,000 of annual interest expense savings going forward. Given the balance sheet position and our strong free cash flow generation, have a lot of capital allocation optionality going forward. I'll turn the call back to Todd.

Speaker 2

Thanks, Mark. And I'm on Page 6. Here you'll see a preview of our 2023 And we continue to believe it's a critical pillar in how we create shareholder value. Not just because we're checking boxes because it's ultimately exactly what we do for our customers. As the global climate crisis has exasperated significant water challenges from excessive rainfall and severe flooding to droughts and water scarcity, We understand our unique position as the industry leader to help our customers access, conserve and manage clean water, while also focusing on improving our own sustainability efforts.

Speaker 2

As part of our efforts to continuously improve our sustainability reporting, we included more data in this report than last year's, including a detailed performance index that presents 3 years of environmental data, a separate GRI index with separate additional KPIs, an extended TCFD disclosure index, more robust data on our associate demographics, a new section on water scarcity and resilience, The introduction of an enhanced supplier excellence manual and we established products as a distinct sustainability pillar with an expanded report section demonstrating how our solutions help our customers meet their sustainability goals. Because of our efforts, we saw marked improvement in our scores and sustainability rating from the various agencies, MSCI, S and P and Sustainalytics. Now all rank us in the top 10% of industry and earning the 2024 region and industry top rated designation from Sustainalytics. We were also named America's Most Responsible Company 1 of America's Most Responsible Companies by Newsweek for the 4th consecutive year. And we aren't done there.

Speaker 2

We're setting 3 new time bound and actionable targets beginning in 2024 designed to reduce waste to landfill, Smartly increase our use of renewables and this is these are all in addition to the nearly 2 dozen targets we already have in place. I'll talk about our 2023 progress towards those goals in just a minute. If we could just move to Page 7, I think customers and consumers often associate our LK filtered bottle filling stations with sustainability benefits around delivering clean filtered water and eliminating single use plastics. What we don't usually talk about are the broader environmental benefits of our products. Single use plastic bottles have negative environmental impacts in their production and through the waste they generate.

Speaker 2

And the statistics are staggering. It takes 9 times the amount of water to make a plastic water bottle compared to the water actually in the bottle. Bottled water is 2,000 times more energy intensive than tap water. Americans alone purchase 50,000,000,000 single use plastics annually. With 85% of those ending up in landfills or waterways and it takes about 450 years for plastics to degrade with 8,000,000 metric tons of plastic ending up in the ocean every year.

Speaker 2

And so I guess what we're trying to tell you is the punch line is our bottle filling stations break what we think is sort of an unsustainable cycle. Since 2012, our bottle fillers have eliminated more than 84,000,000,000 single use plastics, 18,000,000,000 in 2023 alone. Our installed base of filtered enabled drinking water dispensers continues to grow and at the same time customers are shifting more and more to filtered solutions. And the reason for the shift is an important one. At the heart of it, everyone deserves cleaner and safer drinking water, whether at school, at the gym, in an airport or at home.

Speaker 2

We know that our point of use filtration offers a unique, immediate and cost effective solutions to the nation's infrastructure issues. For just $1 per student per year, Students can have access to filter drinking water in schools, which is where they spend the majority of their day. That is why we're so supportive of filter first legislation across the country and in states where we continue to innovate around affordable and easily accessible solutions. And you may recall that in the Q4, we introduced our first to market Combined lead and PFOAPFOS filter for bottle fillers. PFOA and PFOS are 2 of the most prevalent PFAS chemicals have been linked to a number of serious health concerns.

Speaker 2

Last one for me is on Page 8. And our ability to deliver tangible results that have an impact on our environment only continues to compound as we execute our fundamental business strategy, which happens to be the amazing symmetry of what our customers goals are Do the right things for the environment. In our communities, we identify focus areas, including volunteer water cleanup efforts That aid in the protection, preservation and restoration of major rivers in their watersheds. And through our Fountains for Youth product donation program, We're donating filtered bottle filling stations to schools where resources are low and lead and PFAS levels are high. Clean water, we believe is the most important natural resource in the world.

Speaker 2

Addressing the water crisis is central to sustainability and essential to how we drive our business sustainability strategy going forward. I'll

Speaker 3

turn it

Speaker 2

back to Mark to hit the Q1 outlook.

Speaker 3

Thanks, Todd. Please turn to Slide 9 and I'll cover high level guideposts for calendar 2024 and our outlook for the Q1 of 2024. With respect to the full year Based on the assumptions I'll touch on shortly, we believe we can generate positive pro form a core sales growth year over year, expand our adjusted EBITDA margin by approximately 150 basis points and generate approximately $250,000,000 of free cash flow in 2024. On the upper right hand side of the slide are a few assumptions embedded in our outlook. From an end market perspective, our outlook assumes our market in total will modestly decline year over year as a mid single digit decline in our commercial end markets will be partially offset by low single digit growth in our institutional and waterworks end markets and flattish conditions in our residential end markets.

Speaker 3

We anticipate capturing approximately a point of price realization during the year and our strategic growth initiatives to generate positive core growth over the prior year led by double digit growth in our drinking water. Turning to profitability, we anticipate delivering another $25,000,000 in synergies related to the Eloctane merger and those synergies will be realized relatively ratable over the year. We're planning for stable material and transportation costs in the first half of the year and have assumed some modest inflation in the second half of twenty twenty four. In addition, we have built an incremental investments for our growth initiatives into our 2024 plan. For the Q1 of 2024, we are projecting pro form a core sales growth to be in the low single digits over the prior year, so we anticipate our adjusted EBITDA margin to be in the range of 23.5 percent to 24 percent for the quarter, which is a 400 basis point to 4 50 basis point expansion over the prior year.

Speaker 3

Before we open the call for questions, just a reminder that we have included on Page 9 our Q1 and full year outlook assumptions for interest expense, non cash stock compensation expense, depreciation and amortization, our adjusted tax rate and diluted shares outstanding. In addition, we've included the prior year Q1 and full year sales adjusted for the executed eightytwenty product line exit actions to calculate pro form a core sales growth in 2024. Note that the prior year Q1 and full year was impacted by approximately $8,000,000 of last time buys products we had exited going into 2024 into 2023. The balance of the adjustment comes from the actions that we communicated last quarter.

Operator

Our first question comes from Brian Blair from Oppenheimer. Please go ahead. Your line is open.

Speaker 4

Good morning, guys. Nice close to the year.

Speaker 2

Good morning, Brian. Good morning, Brian.

Speaker 4

To start with drinking water, I was hoping you could offer a bit more color, preferably some more metrics On the platform to help us think about momentum and positioning there, what was the growth rate for 2023? What's The scale of drinking water revenue now, if you could offer finer points on margin relative to fleet average, That would be helpful. And then, double digits is, is of course, you know, attractive regardless of the, you know, specific range. But if you could offer some more detail on exactly how much growth you're anticipating for 2024 that would be great.

Speaker 3

Yes, Brian. So that platform grew this last quarter, high teens from a sales standpoint, low 20s from a order standpoint. So very good strong exit rates in drinking water. As we mentioned going into next year, we're anticipating that growth Double digits, I wouldn't say we're going to give an exact number, but we feel really good about everything we accomplished this year And exited the year with some really strong momentum. When you think about from a margin standpoint, Ryan, it's that platform is basically overall a little bit above the fleet average with the filtration piece being a very strong margin component of it.

Speaker 3

And the filtration piece, Starting with a lower base, we'll grow at a faster clip than that type of rate given where we're starting the year. But I think overall, We feel next year and going forward, the growth in that platform is going to contribute obviously to the question that you're getting at is the positive mix impact of what that can do for our margins going forward. So, it's like we're in a really good spot from a growth perspective where the margin profile system will that contribute to next year and beyond.

Speaker 4

I appreciate the detail. It's all very encouraging. Shifting to the area of concern and for some investors, major concern, the commercial exposure that you have, I think the down mid single digits, there's A degree of surprise to the upside for some, albeit consistent with what you laid out last quarter. It would be helpful, I think, if you spoke to of the sub verticals there, because it's pretty diversified exposure you have retail, office, warehouse, hospitality, other. Any nuance you can offer on where there's potentially significant weakness versus relative stability within that mix?

Speaker 2

Brian, it's Todd. I'll take a cut at it. I think the thing we've tried to highlight over the last Several years is really the diversity of commercial structure taken as a whole. It's not a contiguous market across the United States. It's a series of independent markets based migration, industrial activity and things like that.

Speaker 2

And so rather than try to parse it into, well, this is what we're assuming for Restaurants or warehousing, I think you have to think about this as a massive market where there's always something happening somewhere in the country. And there's a fair amount of retrofit replaced that is also sort of embedded in there. And the reality is, If it's if we say it's down mid single digits and it's a little bit worse, nobody dies. So I think, I don't think that we're going to sort of have anything to reconcile or combat What others think versus what we see, I can just tell you that there is enough commercial construction activity in this country For us to deliver the kind of growth that we said we were going to deliver over the course of the year, which is Far from heroic, but I also think it's not the kind of scenario where the world is ending, which we pointed out last time. So That's the way to think about it.

Speaker 2

And I think as time goes by, I think everyone will sort of gain a little bit of comfort around The fact that it's a large diverse end market and there's always some level of opportunity, obviously a little bit less this year, but going forward, a big broad diverse end market to grow in.

Speaker 4

All fair points there. Last one for me, if I can, Mark, you specifically referenced a lot of capital deployment optionality, and I think that That's clear given your balance sheet position and cash generation. You've been active with buybacks, you've signaled that will continue. Should we anticipate that your team returns to bolt on M and A during the year? If you can speak to Just readiness to return to that growth lever going forward and Anything you can offer on the composition of your deal pipeline and potential actionability this year?

Speaker 3

Yes. Like we said, right, last year was the year we were going to put our heads down and really focus on given the LTE integration complete, we feel that is in a good spot for us, a lot of success with that over the past 12 months. So yes, we feel we're When the spot where we are ready to turn back to that, as we've always talked about the funnel proprietary funnel, You don't know when things are going to hit, but I'd say the funnel remains active. Although we were we didn't getting we didn't do anything this year, we obviously stayed very close That funnel worked on that funnel as we were working on the integration at the same time. So yes, it's fair to say we're back ready to do Acquisitions, again, that bolt on tuck in nature, nothing imminent that we talk about today.

Speaker 3

But when those opportunities present themselves, we're ready to execute on that again. So again, like we said, in remaining balance with share repurchase going forward. So I think you'll see next year and beyond utilizing that full balance sheet capacity and ability to allocate that where we see fit from an allocation standpoint.

Speaker 2

Yes, Brian, maybe one thing to add was, Mark mentioned that we will be back, but we never left. I mean, we continue to cultivate things that are important to us. Obviously, if something of high strategic value would have decided or wanted to do a transaction over the course of last year, We would have done it. We've got the capability, the resources to do that and integrate it extraordinarily well. I think as we're proving with the LK transaction.

Speaker 2

So everything else he said is clear. I just want to make sure that the distinction is We never left.

Speaker 3

We had missed anything.

Speaker 4

All right. Definitely understood. Thanks again, guys.

Operator

Our next question comes from Mike Halloran from Baird. Please go ahead. Your line is open.

Speaker 5

Hey, good morning, everyone. You have Pez on for Mike. If we can maybe revisit the new filter that got released

Speaker 2

that we talked about a little bit last quarter.

Speaker 5

Can you maybe talk about some of the adoption and the reception? And then I want to go back to a comment I believe Mark made, Filtration being a bit of a smaller base. When you speak to the filtration piece, is that specifically the Typically the aftermarket filter replacement piece or is there also a little bit of an element of attachment to the

Speaker 4

OE bottle filler as well.

Speaker 2

Yes. I mean, I guess in terms of the PFOA, PFAS filter, it's brand new. I think we're selling thousands of them to date. But I don't think that's something that I think it's something we're counting on as being a massive catalyst immediately, but I think the slow steady build of that amidst a large and growing installed base of units is sort of the way to think about it. And in terms of the size or the scale of it, obviously, the way to think about it is there are units installed in the field and then there is a normal sort of replacement pattern.

Speaker 2

And so the mix of filtered versus non filtered units and then the rate of attachment or replacement value against those installed base is sort of the algorithm. And so if you think about more units going into the field, more of those units being filtered And then the attachment rate moving from less than one time a year to maybe just a little bit above that, The compounding benefit of that is huge. So I think the way to think about it is, if the installed base grows at 10% a year, the attach rate can grow materially higher than that. And as Mark talked about, the profitability for drinking water and filtration are each very attractive.

Speaker 5

Great. That's super helpful color. And then just one clarification, we've gotten a couple of questions on it this morning. On the 2024 assumptions on the slide here, drinking water is separate from institutional, Correct. We are thinking about institutional completely separate from drinking water.

Speaker 5

We're not saying that institutional with drinking water is up low single digits, correct?

Speaker 3

What we're highlighting on the institutional market is going to grow low single digits. But we think if you look at our drinking water franchise in the context of all of our end markets grows in a double digit pace. A lot of that obviously coming from Our actions, our initiatives versus what the market may do next year.

Speaker 2

Yes. I mean, it's just maybe just a touch differently. I believe that we're highlighting that inside of institutional, the drinking water business for us will grow at a double digit rate. So it's inclusive of the low single digit institutional is inclusive of double digit drinking water. Understood.

Speaker 2

Thank you. I'll pass it on.

Operator

Our next question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead. Your line is open.

Speaker 6

Yes. Good morning, guys.

Speaker 3

Good morning, Jeff.

Speaker 6

Hey, just So just following up on that because a little confusion on the kind of the end market assumptions. I think you said, Mark, all in, you think your end markets are kind of flat to slightly down, is that correct? And then institutional ex drinking water you think is maybe if you pull out that drinking water, It's more like slightly down versus up low single digits.

Speaker 2

No, I don't think he said that. I think I don't think there's a lot of confusion. I think We're trying to highlight the fact that agnostic from maybe how we would call the end markets, Drinking water is growing at that double digit rate. I think in aggregate, we still believe institutional is up

Speaker 4

As an end

Speaker 2

market, commercial is down as we highlighted. I think that's the way to think about it, Jeff.

Speaker 6

Okay. So if I did the math on kind of the growth, it seems like your end markets are maybe Growing 2, 2.5 and then you get maybe a point of price and a point outgrowth. Is that the way to think about the growth algorithm in 2024?

Speaker 2

Yes. I mean, there's a range of outcomes in terms of your assumptions. I think that the weighted end market growth next you can end up at minus 1, minus 2 or you can do your math and end up plus 1, plus 2. It's somewhere in that zip code for sure. And so I think that our low single digit growth had some assumption around end market growth, some modest assumption around price and then obviously some assumption around share gains and initiative growth that we've talked about.

Speaker 6

Okay, great. And then Just on the margin, I think you said 150 basis points of margin that kind of lines up to $20,000,000 to $25,000,000 of kind of incremental improvement. And I think you've called out the $25,000,000 incremental synergies, The lapping of the high cost inventory $10,000,000 to $15,000,000 Just wondering what maybe some of the headwinds are that would eat into some of those good guys?

Speaker 2

Yes. I mean, again, I think it's more of a function of We're sitting here on February 7, and we sort of only know what we know at this point. And so I think that I don't have a long list of headwind reconciliations for you. I just think we're trying to Describe a scenario that we see with an enormous amount of confidence and if you do your math and You just take the L Cased Energies, you can get to that 150 basis points. And so I think we'll sort of stay close to it and update people along the way, but I don't have a long list of Headwinds to rattle off for you.

Speaker 6

Okay. Thanks guys.

Operator

Our next question comes from Joe Ritchie from Goldman Sachs. Please go ahead. Your line is open. Hi.

Speaker 7

This is Vivek Srivastava On for Joe and thanks for the question. My first question is just trying to understand what's the expectation for the portfolio apart from drinking water. So you said drinking water will grow double digit. It means the rest of the portfolio probably declined slightly. Maybe just give us some color on what is the expectation with water safety, hygienic, flow system side of the portfolio and what's more pressure to lease?

Speaker 2

Yes. Again, I think we're going to go back to when you look at the end market mix, You can wind yourself to in aggregate flat to up 1 or 2 or flat to up 1 or 2. Nothing significantly different than I think what we've been answering this morning regardless of product category. And so, I don't think I have anything To give you that is sort of different than that as it relates to a product group because at the end of the day, all of our products go into those particular end markets. I think what we're highlighting is the sort of secular opportunity we see in a category that's being built perhaps to a degree outside of those core end markets.

Speaker 2

And so that's why we're, I think, highlighting drinking water more than we are any of the other categories.

Speaker 7

Got it. That's helpful. And then maybe just on the margin cadence, looks like You ended the year pretty strong and you are starting the Q1 strong with about 400 basis points of margin expansion. Is there some conservatism baked into second half of the guide right now because full year is around 150 bps? So just any color on the cadence would be Yes,

Speaker 2

I mean, again, I think we're guiding to Q1 based on A detailed forecasted process of what we see. We're giving you the full year outlook here on February 7, acknowledging that there's a lot of road to go in the year, but also the progression on a comparable basis changes. So obviously, having just done 23.6%, we're not going to have a 3 20 basis point or 400 basis point margin expansion over that in next year's Q4. So I don't know that it's conservatism or anything else, but it's sort of our best view what we think we can achieve over the course of the year.

Speaker 7

Great. Thanks.

Operator

Our next question comes from Brett Linzey from Mizuho. Please go ahead. Your line is open.

Speaker 2

Hi, good morning all. Hey,

Speaker 8

just I want to come back to just destocking. I was hoping you could put a finer point on where you think we are From a destocking dynamic in non res and residential, I know you saw some in late 2022 in resi and throughout 2023, but Are you contemplating any additional destock here early in the year or do you think we're pretty well matched sell in, sell out?

Speaker 2

Yes. Our view, Brett, is We haven't really faced that phenomenon for the last 3 or 4 quarters. So I think our sellout is very balanced. Book to bill was above 1. Inventory levels really across The wholesale channel, e com channel and everything else are in really good shape.

Speaker 2

So I don't think we're I don't think we're having any sort of conversations about inventory build or burn.

Speaker 8

Okay. Yes, good to hear. Just maybe shifting to Water Works, you're thinking about That market up low singles, I guess given some of the public works funding in the Infrastructure Act and some of the fiscal support there, I would have thought maybe it would have been a little stronger. What are you seeing in that area? How do you participate there?

Speaker 8

And any insight on expectations as the year rolls out?

Speaker 2

Yes. Again, I think we're trying to give you a perspective of Our expectation of what the end market grows based on the funnel of opportunities that we're looking at. I guess, as a principle, The federal funding to how it ultimately gets spent that never really translates particularly well, at least In my experience and the length of time from when that's talked about to actually being spent is quite a lag. So I think, Look, we're seeing good activity in areas where there is population growth. And so our products really sort of attached from the primary water supply to the developments and things like that.

Speaker 2

And so that's where we're seeing Growth and opportunity and hopefully, it's a little bit better with maybe some of the stimulus that you mentioned. But I think for now, that's what we're seeing as we've talked about 2024. All right. Appreciate the insight. Best of luck.

Operator

Our next question comes from Mason Jones from Stifel. Please go ahead. Your line is open.

Speaker 9

Good morning. This is Adam Farley on for Nathan Jones. As it relates to the margin guidance, What is the level of incremental growth investments in 2024?

Speaker 3

We're not giving details around the numbers. Like I said, the 2 things that we that I called out in the back half of the year, one is going

Speaker 9

to be we think there could

Speaker 3

be some inflation The back half of the year and the growth investments over the course of

Speaker 9

the year, we're not going to

Speaker 3

get an exact amount. But we are it's like we did last year, whenever you We invest in growth in the business. So that's a minor headwind. It could be, but we're not going to give you exact numbers at this point in time.

Speaker 9

Yes, fair enough. No, go ahead, Todd.

Speaker 2

No, I mean, again, I think if the question is, if you just get the LK synergies, you get to 150 basis points of margin expansion with the kind of growth we're talking about. So there's got to be some other things. And I think the point is, yes, there are lots of puts it takes. I think you got to separate what we're sort of guiding to versus what we think we can do, particularly on February 7 here. And so, as Mark pointed out, there are certainly growth investments, But it's not as if there's a list of things to reconcile for you that I would say are outsized or unexpected.

Speaker 2

I mean, obviously, We give people raises, but we have productivity. We have material savings and obviously there are certain areas where we see material cost inflation. So nothing out of the norm one way or the other. I think we're just trying to give you a view with high degree of confidence and we'll update that as we go through.

Speaker 9

No, that makes sense. And then turning to capital allocation Again, do you have any planned buyback activity in 2024?

Speaker 2

Yes. We're going to do A buyback on a sort of regular cadence, but nothing that We think it's outsized or maybe different in scope than last year. There's a range that we'll go through and evaluate What we think fair value is and our outlook and everything else, we'll clearly do some ratably over the course of the year. Yes, we do have a plan for that.

Speaker 9

All right. Thank you for taking my questions.

Operator

We have no further questions in queue. I'd like to turn the call back over to Dave Polly for closing remarks.

Speaker 1

Thanks everyone for joining us today. We appreciate your interest in Zurn Elk Water Solutions and we look forward to providing our next update when we announce

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