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Good morning, and welcome to the

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 that are subject to the safe harbor language contained in the press release that we issued yesterday afternoon as well as in our filings with the SEC. In addition, some comparisons will refer to non-GAAP measures. Our earnings release and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they are helpful to investors and contain reconciliations to the corresponding GAAP information. Consistent with prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP. 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

Thanks, Bryan, and good morning. Hopefully, everyone's had a chance to read through the release and the charts, so I'll just get right to it on Page 3. The underlying momentum in our business continued in the second quarter as we posted 8% organic growth, EBITDA grew 13% year-over-year and margins expanded 120 basis points. As we discussed last quarter, we continue to have high confidence in the resilience of our end markets, the benefits we're seeing in our targeted growth initiatives and finally, our proven ability to navigate the current global tariff environment with the robust supply chain capabilities and experience we've built. Underpinning all of that is our culture of continuous improvement driven from our deployment of the

Thanks, Todd. Please turn to Slide #4. Our second quarter sales totaled $445 million as we continue to have solid execution on our growth initiatives. The $445 million of sales represents 8% core growth year-over-year. In the second quarter, we generally saw our end markets perform in line with our expectations as the nonresidential market remains positive, while the residential markets are experiencing some softness. Within the 8% core growth, there's approximately $8 million to $10 million coming from customers ordering ahead of price increases and 1 point coming from realization on our tariff-related price increase that happened in the quarter. As we mentioned last quarter, we did see some customers ordering at higher volumes late in the first quarter and into the second quarter in advance of our announced price increase. Our team did a good job of working to appropriately manage the incoming orders so as to not create unnecessary inefficiencies within our operations and supply chain. We believe these orders will primarily ship in the third quarter. Turning to profitability. Our second quarter adjusted EBITDA was $118 million, and our adjusted EBITDA margin expanded 120 basis points year-over-year to 26.5% in the quarter. At 26.5%, our margins are the highest we've delivered in a quarter since the

Thanks, Dave, and I'm back on Page 6. We continue to make solid progress during the quarter on our sustainability initiatives and goals. For our customers, we have delivered 1.2 billion gallons of safer, cleaner filter drinking water so far this year through our installed base, which is up 21% compared to the prior year. I also want to mention the recent introduction of our total PFAS filter. This is a significant enhancement to our previous PFOA and PFOS filter and so important as municipalities across the country are dealing with the effects of both lead and PFAS in their drinking water supplies. We've also prevented 9.6 billion single-use plastic water bottles from entering water streams. These benefits will continue to grow as our installed base grows and filtration attachment rates will improve. Through the end of the quarter, we've done $1.4 million in total philanthropic giving so far this year, which already exceeds our year-end total in 2024. This is part of our Fountains of Youth filtered bottle filler product donations that we're making across the country where lead levels and now PFAS levels are high and resources are low. The donations reach from California to New York and from Jackson, Mississippi to Erie, Pennsylvania. I also want to point out that we've made another improvement to our quarterly reporting. On the right-hand side, you'll now see the methodology behind the sustainability metrics we're sharing. It's unchanged from how we've been reporting it, just more transparency for everyone to see quarter-to-quarter. This information is always available in our annual sustainability report, but we wanted to make it even easier for you to access. The last one for me is on Slide 7. Last quarter, we got the question, so what's happening with drinking water? And we told everyone quite a bit, and there's more to come over the course of the year. So here's that update. And what I'd call the first ever major refresh since the inception of the bottle filler category, this past week, we shipped our very first units of Elkay Pro Filtration, which meaningfully extends upon the competitive advantage we have and marks another significant milestone in our commitment to immediate and cost-effective solutions to address the country's aging infrastructure by providing cleaner and safer water through point-of-use filtration. Our new Elkay Pro Filtration was developed from enormous amounts of customer feedback and from a variety of constituents in both verticals--in all verticals. Where people ask for faster filter changes, longer filter life and enhanced aesthetics. And our new units deliver all that and even more. The best part of all of this is that the new units are a drop-in replacement for the prior generation of bottle fillers to allow seamless upgrades for units that have become ready for replacement or customers who want all the latest enhancements. To build on my little infomercial here, here are some of the critical features in the new bottle filler. We've moved the filter to eye level to make the filters in our units the easiest and fastest filters to change. Filters can now be changed in less than 30 seconds and any teacher, facilities person or even a student can change the filter very, very easily. In addition to having by far the most efficient filter change, the unit supports multiple filters, including an optional sediment filter for areas where the water quality needs even more filtration. In short order, we'll have the ability to filter up to 20,000 gallons in a single filter change. There's more to come on that later in the year. The filters associated with the new unit were also upgraded. Our highest capacity lead filter certification has increased from 6,000 gallons to 10,000 gallons of filtered water. And all the filters also contain a proprietary head that allows for only Elkay filters to be installed for the unit to operate properly, which over time will drive an enhanced attachment rate and bring real value to our building customer -- building owner customers. In addition to increased filter capacity and to follow on my earlier comments, we also improved the PFAS filter, moving from a filter that was certified for only PFOA and PFOS to a total PFAS filter that is certified for substantially more contaminants within the PFAS family. All of the units will be shipped as connected units and facilities managers can remotely monitor filter life and also the status of the bottle filters. We packaged all of the items I mentioned in a new high-end aesthetic that we believe will resonate with architects and specifiers. So longer filter lives, less maintenance, quicker filter changes, improved aesthetics and connected capabilities all provide customers with just another reason to choose Elkay. Now I'll turn it over to Dave for an update on tariffs and our outlook.

Thanks, Todd. I'm on Slide 8, and we'll provide an update on supply chain. There have been a number of moving pieces with respect to tariffs over the last 90 days. But when we aggregate all of the changes and focus on the tariff environment in place as of today, we expect our tariff cost impact before any price for 2025 to be between $35 million and $45 million. This is a reduction of $10 million from what we thought 90 days ago. The reduction reflects China's rollback of reciprocal tariffs from their peak of 145% partially offset by several increases, including country-specific reciprocal tariff trade agreements at rates higher than the initial 10%, implementation of Section 232 steel tariffs at 50% and the proposed copper tariffs. Our team will continue to monitor and respond to tariff changes to ensure the best possible outcome. As we talked about last quarter, we are committed to significantly reducing our direct material supply chain exposure coming from China. This has been an intentional project over the past several years, and our supply chain team, both here and in Southeast Asia continue managing the process. We're firmly on track and in some areas, ahead of schedule to deliver on our commitment that by the end of 2026, less than 2% to 3% of

[Operator Instructions] Your first question comes from the line of Bryan Blair with Oppenheimer.

Hoping you could offer a bit of color on Q2 growth by product category. I noticed in the Q that all categories grew. Just curious if you can offer some detail there and then what you're contemplating by category in the Q3 guide as well.

Yes. I don't know that we're going to get into that from an outlook perspective, but you saw the growth rates by category. I would say that a lot of the innovation that we've been talking about over the last couple of years in obviously drinking water, but also flow systems and water safety and control is absolutely reading through. We're looking at unit volume growth that are significant and share gains that we think are clearly sustainable. And so I think what you're seeing is the momentum around some of the new product development that's been going on in the last several years really sort of begin to hit the market. And I think that, that sort of feels very sustainable to us as we go into, obviously, Q3 and beyond.

And perhaps speak to your M&A pipeline. You're obviously not in any way capacity constrained, and it sounds like your team has been quite active, just haven't had meeting of the minds to get a deal through. Any detail you can offer on composition of the pipeline, perhaps actionability would be helpful.

Yes. I mean, obviously, Bryan, there's -- it's part of what we do. We've just spent the last two days going through our product life cycle management process where we not only sort of think through what the next generation of our products look like, we do deep dives on the competitive competitors in each of our segments. And look for opportunities. And then those opportunities are things that we generally end up cultivating for a number of years. And we also augment that with getting into new categories organically. And so I'm not sure I'm going to ring the bell on giving you every detail about our funnel and where we're at other than to say that I think we've got a very good process around identifying targets where we want to go and cultivation. And as something moves to a closer stage, we obviously will be in a position to get it done. But at the present, I think we're just going to continue to do the work, do the cultivation, build the relationships and work on potentially plan B if we can't get there fast enough, which is to do it on our own. And so nothing changed from that regard. And we'd certainly like to get something done because we clearly have, I think, both the management capacity to do it the optionality with our balance sheet and increasing levels of free cash flow. And then obviously, bringing the business system to bear on a potential acquisition. So we're just going to keep doing the work, and we know that it will come through at the right time.

Your next question comes from the line of Andrew Krill with Deutsche Bank.

I was hoping to get -- if you don't want to opine on the product line specifically, maybe you could give us an update on the end market outlook. I think as of last quarter, it was about a 1% market growth rate as we blended institutional, commercial, resi and waterworks. Maybe like what are you thinking about those different verticals now? And resi seems a bit weaker. So maybe what's offsetting that?

Andrew, it's Dave. I think when you look at the guidance that we gave initially back in February, if you look at that stoplight chart, what we said for each of the end markets, I think, is largely playing through. I think the only thing that I would point out that has changed from our initial guidance is the resi market does seem to be a touch softer. But otherwise, I'd say our outlook for institutional, commercial and waterworks is unchanged from that initial guidance. And we think that will continue to play through the rest of 2025.

Okay. Great. That's helpful. And then I'd like to see the new filtration offering at Elkay. In the past, I think there had been a target out there of getting to around $100 million or so in annual sales. So can you level set us where you are on that now? Is that $100 million still the target? Or could that be revised higher? And any sense of growth rates in this product line would be helpful.

Yes. I mean, obviously, as we -- as the years go by, our installed base grows, the target towards 100 is going to continue to be raised. I think over the next several years, the target will be higher than that. And I think the important thing to note about the Pro Filtration is if we can drive enhanced attachment rates with the combination of features and benefits that I talked about. And we think we've really hit the mark on that, and there's more that will be coming along that vein. I don't think there's any question of is it $100 million? It's just a matter of when. The growth rate is clearly double digits, has been and continues to be -- and I think we're hitting our stride with the filtration piece of the bottle filler category. And so great work by our teams. You can see how much easier it looks to change. I can tell you the higher capacity filters resonate with building owners because you're having to do it fewer times a year. And so I think the combination of everything we've done there hits the mark, and I think we're going to see just terrific growth -- continued growth in the filtration category for years to come.

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

I guess I'll do a follow-up on the new filtration product there. Is there a materially higher ASP for this kind of product? Is this more of a market share play? Or just what's the value to Elkay and to the customer from this?

Yes. I think Todd went through some of the features and benefits to the customer, which I think are a nice improvement over the historical unit. In terms of just selling price, Nathan, I think we'll probably see probably a 10% increase in average selling price or list price to what the historical units or equivalent unit had been in the past.

That's helpful. My other question is, I guess, on some of the dynamics that you saw in the quarter. I think you talked about $10 million of demand pulled forward into 2Q, but said that would ship in 3Q. Is that right?

No. I think what Dave was saying is in the second quarter, there was probably $8 million to $10 million of true pull ahead from a sales perspective. The order pull ahead was probably a little bit bigger than that. And that piece will be extinguished over the course of Q3. So I think that when you think about how the year has evolved sort of beginning mid- to late March, there was the noise around tariffs and then there was Liberation Day and then there was announced price increases and then there was the secondary reaction to even higher-than-expected tariffs and now that's pulled back. And so from like sort of March through maybe early June, mid-June, we saw extended sort of order rates -- some of that wound its way into the quarter, but based on managing customer demand, we were able to push it into the Q3 period and avoid sort of spending a ton of money on expedites and overtime and buying even more inventory for what was not real live demand. I think there was a little bit of a surge to beat some of the price increases, but I think that sort of leveled out. We certainly saw that over the course of July. And again, sort of steady as she goes Q3, and we'll see what happens throughout Q4.

Your next question comes from the line of Mike Halloran with Baird.

Just following up on that last one there. I mean the dollar numbers you're talking about from a prebuy perspective aren't particularly large. So I'm guessing you would say that the inventory levels from a channel perspective are relatively balanced, [indiscernible], adjusting for some modest prebuy here and there?

I absolutely think that's the case, Mike. It sort of always is with us. I mean I don't think we've ever really talked about any sort of channel situation because these are all products that are going to sort of live opportunities as construction happens or an MRO event, right? So it's not like you're going to put a lot of these at a job site just because you could buy it for a little bit less, but you could buy it six months early. And so I don't think we have much of any channel dynamic on the come.

Yes. Makes sense. And then just a guidance question. If I take the third quarter comments on relatively similar margin levels to 2Q, it implies a step down in the fourth quarter on the margin level, which I think is that odds with the commentary and the confidence you have. So is that just related to Todd, your early comments of you're taking this quarter-to-quarter and probably haven't fine-tuned the 4Q margin all that much, relatively normal seasonality expected going into the fourth quarter? Maybe just help me triangulate to that a little bit.

Yes. I think maybe what it implies is maybe not what we're thinking. I think 100% correct. We're just sort of taking it quarter-by- quarter. And we don't have any event-driven things that we're sort of signaling with that fourth quarter margin. I think when we get to October and we're back together, we'll obviously sort of let you know exactly what it's going to look like. But at the present, I don't think there's anything to read into what the, I guess, implied margin number looks like in Q4.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas.

This is Ed on for Andrew. Some industrial companies have cited some concerns on budgetary spending for healthcare and education, which might already be starting to show up in their results, but it doesn't look like you guys are seeing this based on this quarter and last. Can you draw a line as to why you may not see any weakness in these areas yet? And if this may be something you see delayed? And just an update on those end markets.

Yes. We really haven't seen the impact of some of the cuts that you're talking about. If we look, health care and education are a big piece, our two largest end markets. And so we still continue to see that end market being strong. I think if you look specifically within education, a lot of the cuts were to specific programs versus kind of the spend that would be in and around building upgrades and things like that. So we just haven't seen it impact. We haven't seen it come through in terms of orders or how those end markets are performing.

I guess, Andrew (sic) [ ED ] , the only other thing I'd -- Dave commented on some of the start information. As we get to the third quarter, like we've done for the past several years, we'll give you sort of our best view of the market based on the Dodge data and maybe an overlay of what we're seeing as well. But just to reiterate what he said, no, we're not really seeing any of that slowdown happen. And if you think about the lag effect of all of this, very little of our revenue in the first half was derived from things that were started this year. And so I think when you look at it, it sort of tends to smooth out over time and over the course of a construction cycle for us in maybe ways that could be a little bit different than some of the people that you're referencing.

Yes. Great. Very, very helpful. And then I guess somewhat related, -- can you comment on perhaps any -- or the current state of water funding and regulations at both the federal and state level? And if there's any key pieces of legislation or rulings that may be coming in the near term to look out for?

Yes. So at a state level, we still continue to see states be active in proposing what's known as filter first legislation. So requiring all K-12 schools to have filtered bottle fillers available to their students. So -- the state of Michigan passed that into law last Q4. They actually awarded the money to schools. We've seen schools in Michigan actively upgrade two filtered bottle fillers this summer. The schools have until next year to comply with the law. There's active legislation in Wisconsin, Pennsylvania, New Jersey, Massachusetts, New York. New Jersey actually just released some funding within the last month to help schools within the state upgrade their infrastructure specific to water. So there's a number of states that are looking at their own water quality issues, primarily lead, some PFAS and taking the steps and proposing legislation in and around that space, and we see that as continuing.

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

Yes. So I wanted to ask a question. I want to make sure I understand the core sales growth assumption, the 5-plus percent for the year. When I go back and I take a look at your end market assumptions from that February release, it doesn't look like there's a lot of volume baked in and then you're talking about resi maybe getting a little bit lower. And so is the core sales, the 5-plus, is that mostly price? Or is there a volume assumption baked in there as well?

Well, I think as we've tried to highlight and point out, I wouldn't view the 5% as anything other than a placeholder for the time being. It sort of gives us a bunch of room if the fourth quarter turns out to be weaker than what we expect or see or the trajectory we're on. And so we started the year with sort of flattish, maybe up a little bit market, a couple of points of share gain and market outgrowth and then maybe a point of price. As we find ourselves here today, there's probably just a touch more price than we thought going into the year. And so you go from 4% to 5%. And obviously, the unit volumes and the organic growth that we're seeing and traction we're seeing is showing up in the second quarter. We're obviously guiding to that. Maybe we're protecting a little bit for some unknowns in the fourth quarter, but there are no knowns in the fourth quarter at this point. So I'm guessing it doesn't quite work in your spreadsheet, but I think more to come as we get done with Q3 and give you our best cut at what Q4 looks like.

Got it. Okay. That's helpful. And then look, the margin is surprisingly upside. I think you made some comments around staying price/ cost positive throughout -- in the near term and then longer term. Clearly, at least today, the tariff impact, the gross tariff impact has come down. How do we think about then kind of like the list pricing that you were expecting to put through when we last spoke versus what actually went through? I'm just trying to get a sense for how much cushion you guys have given the current tariff environment.

Yes. I mean we obviously had an April 15 price increase. That's been the only one that we've announced and implemented. And as we've gone through the last 90 days with all the various puts and takes and pauses and things of that nature, we're finding that as a whole, -- we don't need to do anything else in the moment. But -- and then as Dave said, we're getting much more traction as we migrate our supply chain and those come online faster. So it's -- obviously, the price piece is, I'd say, in great shape for what we need. But it's the other things, right? It's going faster, getting better benefit on some of the supply chain moves and something that we get to keep forever, which is all of our continuous improvement activities. So last year in the second quarter, we did 835 of these across the company. The second quarter of this year, we did 2,575. That's up 210%. So in many ways, clearly, in a dynamic environment where you've got to get price, you've got to do big things on the supply chain side. Those are important in digital. But the 2,575 things that happened over the course of the quarter also have a big impact on the margin and are sustainable. And so I think it speaks to a combination of, yes, we're getting price. Yes, we're moving the supply chain, but the culture around continuous improvement and what we can do to make our own weather despite everything else going on, I think, is an important fact to understand the margin progression over the course of the year and really over the course of many years.

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

Just back on price. Can you give us price in the quarter?

Well, the total price year-over-year is probably 2 points. So we had a point coming into the year. And as Dave mentioned in his comments, probably 1 point of price yield from the announced price increases sort of midstream here.

Okay. Great. And then, Todd, you laid out, I think, third quarter last year, some Dodge information and kind of how you think about your end markets. And the idea that with Dodge starts kind of moving in '25, that would give you kind of visibility for better growth in '26. Just wondering, as you see the Dodge start data come in, how that's progressing versus maybe how you would have thought six months ago?

I would say that it doesn't change -- it hasn't changed meaningfully, I would say, as a whole. It changes month-to-month, and it usually gets revised upwards historically at the same time. And so I think from our vantage point, let's start with which side of the equator is it on. It's clearly still positive. And so I think that as we go through the course of the third quarter, we'll do the same sort of analysis for everyone with the data that's really sort of very publicly available, and we'll run it through the lead lag sort of scenarios that we've presented and give you a look. But I don't think it's meaningfully different. I think it's still positive, whether that it was -- whether it was 6% and now it's 5%, I'm not sure makes much difference to us because as we've talked over the course of the call, I mean, we've got a lot of real share gain, a lot of real unit volume growth that has been in the mix for a while, but is starting to read through. And so if the market is positive and we can get some price and do the unit volume growth, share gain that we've been doing relatively well, I think growth in '26 should be fine.

Your next question comes from the line of Brett Linzey with Mizuho Securities.

I want to come back to Section 232, so the steel tariffs and then the incremental copper considerations. Are there any hedging mechanics that we should be aware of or that you might be taking and then thinking about any lagged impact as you sort of roll those through on the higher prices later in '25 or maybe in early '26?

Yes. We do not do any hedging. We do a rolling sort of demand view and then locking in purchases and levels of purchases at different intervals. And yes, we've done the analysis and don't see any sort of lagging effect either this year or really into next year.

Okay. And then just back on the Q3 core sales guide, they are similar to 2Q. Just want to be clear here. So 8% organic in 2Q, are you adjusting out the few points of prebuy as the starting point for Q3? Or are you saying the year-over-year in Q3 is going to be 8% or so?

The latter. Yes. We're saying -- we're not adjusting Q2 in any way. We tried to be clear as to what the benefit was, but the 8% in Q3 is 8% year-over-year against the same comparable quarter a year ago.

I will now turn the call back to Bryan Wendlandt for closing remarks.

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