Zurn Water Solutions Corp

NYSE:ZWS

Good morning, and welcome to the Zurn Elkay Water Solutions Corporation First Quarter 2025 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer; David Pauli, Chief Financial Officer; and Bryan Wendlandt, Director of FP&A 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'll turn the call over to Bryan Wendlandt. Please go ahead.

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. [ Press release ] and SEC filings contain additional information about these non-GAAP measures, why we use them and why we believe they're helpful to investors and contain reconciliations to the corresponding GAAP [indiscernible] prior quarters, we will speak to certain non-GAAP metrics as we feel they provide a better understanding of our operating results. These measures are not a substitute for GAAP. We encourage you to review the GAAP information in our earnings release and in our SEC filings.

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

Thanks, Bryan, and good morning, everyone. Hopefully, everyone's had a chance to read through the release and the charts from last night. So I'll get right to it on Page 3. We had a solid Q1, 5% organic growth, 110 basis points of year-over-year improvement in EBITDA margins and cash flow ahead of our expectations. I think it's important to point out that there is little to no impact on the Q1 results from the implementation of tariffs, either in terms of additional costs arising from the tariffs and certainly no realization yet from the new price increases we've announced that will be effective as we get into Q2.

We're going to get into the details regarding the impact of tariffs in just a few minutes and share what it means to us from both a supply chain strategy perspective as well as from a pricing standpoint. But I'll give you the punchline ahead of time. First, we have high confidence, we will be price-cost positive based on the work and actions we've already implemented and will continue to optimize.

Second, which is really important because there's been some confusion by the sell side on this. By the end of 2026, only 2% to 3% of our COGS will be coming from China based on a glide path that Dave will share in a bit. But before I turn it over to Dave, I think perhaps the most important takeaway this morning is that organizationally, our deep expertise and track record going back decades and tested throughout the initial tariff environment in 2017 and '18, and again, during the pandemic has only been enhanced through the breakthrough work we've been at for years now.

That breakthrough work is us spending the last 4 to 5 years to restructure our supply chain towards a scenario where we are sourcing as close to 0 as possible from China in the medium term. And as you'll see and hear this morning, we come very close to that by the end of 2026.

While our supply chain exposure gets smaller by the day, it's also likely that we may end up with some level of new tariffs from non-China sources moving forward. Even with that understanding, we believe we have repositioned our supply chain to be both competitively advantaged relative to our industry and with the lowest total cost supply chain in whatever the new world might look like, along with being dual sourced.

For the time being, we're accelerating everything that can be accelerated and like everyone else, hoping for a little more clarity and certainty on what this ultimately looks like over the coming months.

Now I'll hand it over to Dave to take you through some more color on the quarter.

Thanks, Todd. Please turn to Slide #4. Our first quarter sales totaled $389 million, which represents 5% core growth. Our reported growth was 4% and impacted by 1 point of currency. In the first quarter, we generally saw our end markets perform in line with the guidance we provided 90 days ago. Mid-single-digit core sales growth in our nonresidential end markets were partially offset by softness in residential and pockets of the commercial segment within nonresidential.

Solid execution on our growth initiatives drove our sales performance to the higher end of the outlook we provided 90 days ago, as our first quarter results were volume-driven, and as Todd said, not impacted by the announced tariff-related price increases as those start in the second quarter.

Turning to profitability, our first quarter adjusted EBITDA was $98 million, and our adjusted EBITDA margin expanded 110 basis points year-over-year to 25.2% in the quarter. The strong margin and year-over-year expansion was driven by the benefits of our productivity initiatives, leveraging our Zurn Elkay business system and continuous improvement activities across the organization as well as some carryover benefits of the synergy actions we took last year.

Please turn to Slide 5, and I'll touch on some balance sheet and leverage highlights. Back to our net debt leverage, we ended the quarter with leverage below 1 at 0.9x. Our 0.9x leverage is inclusive of the $77 million we deployed to repurchase shares in the quarter, $55 million of our share repurchases were part of the share offering that we executed in mid-February. Our balance sheet, leverage and cash flow generation are in a good spot as we continue to evaluate our funnel of M&A opportunities.

I'll turn the call back over to Todd.

Thanks, Dave, and I'm back on Page 6. Here's a glimpse at our Q1 sustainability performance. We've certainly not lost any focus on delivering amazing sustainability outcomes for our customers amidst everything that's going on. And in the past few weeks, we've been recognized for those efforts, including winning a Best Sustainability Reporting Award from IR Magazine as well as being recognized as one of America's climate leaders. #1 in Wisconsin, #55 out of the top 5, 100 and #3 in the capital goods industry. I'll highlight just one thing here, and that's the 600 million gallons of filtered water delivered in Q1. That's up 33% over the prior year Q1, driven both by the growth in the installed base of filtered units and improved filtration attachment rates that we've been driving.

Lots of things happening in and around drinking water and filtration with new products and traction in new markets and more to come on that over the course of the year, but I'll get at it on Page 7. The purpose of the next several pages is to give everyone a sense of the current state of our spend, split out to identify the tariff impact by geography, what it looks like throughout the balance of 2025 and directionally into 2026.

Finally, to give you a sense of the price impact necessary to recover the incremental costs as well as other things we're doing to mitigate the impact of tariffs. As I mentioned earlier, we've been driving a multiyear change to our supply chain strategy, which has been guided by 2 fundamental principles: number one, minimize our exposure to China; and two, competitively advantage ourselves from a cost, lead time, quality and dual sourcing perspective while leveraging third parties, both domestically and internationally.

Some of the constraints or, I guess, realities are is, as an industry, there is minimal to no available domestic capacity for significant portions of what we source. That's before taking into consideration the cost based on things like material costs, labor availability as well as capital expenditures required to scale to the levels we and other industry participants would require to meet the market demand. But the thing everyone is gaining a better understanding of in the recent months is that the lead time to make the kind of sophisticated changes we've made to our supply chain is measured in years.

As a result of just basic things like equipment lead times, product quality protocols and processes and not to mention building relationships and trust with our supply chain partners. Given our decades of experience with this type of supply chain model, we've been very intentional and measured in our approach to assure that we can scale all these new or duplicate capabilities without impacting our customers.

And finally, we and virtually every other industry participant and competitor has responded with price increases, above and beyond the normal annual price increases to reflect and offset the cost increases we're all seeing if and when these tariffs get implemented.

On the next page, Dave will take everyone through some of the initial details to ground everyone on the numbers, and I'll come back with a wrap-up. Go ahead, Dave.

Thanks, Todd. I'm on Slide 8 and I want to spend some time on our supply chain-related cost structure. As you can imagine, we've had a number of questions on our supply chain, where direct material is coming from and how tariffs will ultimately impact our business? Starting with the box in the upper left-hand corner of the slide, we provide a breakdown of the $860 million of 2024 actual cost of goods sold. $507 million of our cost of goods sold relates to direct material spend and the remainder, roughly $350 million (sic) [ $353 million ] relates to all other cost of goods sold. So 59% of our COGS relates to direct material spend and the remaining 41% labeled as all other cost of goods sold relates to everything else, items like freight, direct labor and overhead.

At the center of the tariff discussion is where goods are being sourced. And the box on the bottom left of the page helps to clarify what that looks like for Zurn Elkay. Of the total 2024 direct material spend, 44% of that spend or $222 million came from North America. North America represents our largest concentration of both COGS and direct material. Our 2024 direct material spend out of China was $127 million or 25% of our total direct material spend.

And finally, on this box, our 2024 spend coming from countries outside of China and North America is roughly $158 million or 31% of our direct material spend. Shifting to the box in the upper right corner, approximately $285 million or 33% of our cost of goods sold are on the surface subject to some level of tariffs. That $285 million is divided up into 2 buckets: products sourced from China of $127 million and product sourced from all other countries of $158 million.

With the tariffs in place today, most material purchases coming from China are subject to a tariff as high as 145%. However, there are some exclusions like products that is primarily iron steel or aluminum that result in a tariff significantly lower than the 145%. The $158 million of product being sourced in all other countries outside of North America and China, there's generally a 10% reciprocal tariff in place, again, with some exception. When we add up everything for Zurn Elkay with the tariff environment in place today, we expect our tariff cost impact before any price for 2025 to be between $45 million and $55 million. Todd will cover our response to the tariffs and pricing in a bit. But before we get to that, I want to cover the last box on the slide.

As a business, we navigated the initial tariffs that were put in place several years ago very well. While we successfully managed the day-to-day impact of those first tariffs, we also implemented a multiyear strategy to significantly reduce our exposure to China that we are now seeing the benefits of.

China is at the center of the tariff conversation today. And the last box in the lower right-hand side illustrates the work we have done and are currently doing to substantially reduce our exposure to China over the coming quarters. As you can see, our direct material spend from China will be under $30 million by the end of 2026 and significantly reduces each quarter as we move forward. This has been an intentional project over the past several years, and we have an exceptional supply chain team, both here and in Southeast Asia managing the process.

As we continue to gain clarity on the tariff environment, this chart will evolve as we accelerate moves out of China, shift production to dual sources and respond to the latest set of rules around tariffs. In the end, what this all means is that by the end of 2026, we are looking at a combined Zurn Elkay business that has less than 2% to 3% of COGS coming from China.

I'll turn the call back over to Todd to wrap up the tariff discussion.

Thanks, Dave. And just to wrap it up on supply chain and price cost, and I'm sure there'll be some questions. Our response to the tariff situation or other derivatives of it is grounded in finding the best combination of highest quality, most reliable and best cost supply chain we can. It feels like there will be multiple episodes or layers to how tariffs will unfold moving forward. However, it does feel like we're going to be in operating an environment with some level of new tariff or added costs for at least the foreseeable future.

Based on our response to the situation, both through our supply chain actions and selective price increases, we have high confidence in our ability to manage above it and stay in front of it. As Dave said, our China spend gets smaller each and every day. And by the end of '26 will represent only 2 to 3 points of COGS, which means -- as we cover the cost in '25, it actually gets easier to cover those costs into 2026.

In the meantime, we're going to continue to do what we have been doing, which is managing this on a SKU-by-SKU basis, supplier by supplier, country by country, and we've got the experience and track record to make it happen. And just to clarify, what we're outlining this morning is based on the scenario in place as of last night. As things change, we'll adjust and adapt accordingly. But in any event, our hope is that we gave you a better sense of how well positioned we are to manage in this environment. So that's what we know at this point, and I'll turn it to Dave for the Q2 outlook.

Thanks, Todd. Before I jump into guidance, I wanted to take a minute to give an update on our #CI projects. As you recall from our last earnings call, these are projects submitted by our associates and aimed at getting incrementally better each and every day. We challenged our team at the start of the year to have a substantial increase in the #CI submissions. And through the first quarter, our associates have responded. Year-over-year, the submitted #CI projects are up 60%. These are items that save time, eliminate waste and improve day-to-day processes and are then shared across the organization.

Now to the guidance. For the second quarter of 2025, we are projecting core sales growth to increase in the low to mid-single digits over the prior year, and we anticipate our adjusted EBITDA margin to be in the range of 25.5% to 26%, which is 20 to 70 basis point margin expansion over the prior year. [ With ] Slide 10, we've included our second quarter outlook assumptions for interest expense, noncash stock compensation expense, depreciation and amortization, adjusted tax rate and diluted shares outstanding.

Our first quarter actual results and second quarter guidance puts us well on track with the first pace -- with the first half pace needed to deliver the full year guidance we provided 90 days ago, and we are affirming our original full year guidance.

We'll now open the call up for questions.

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

A nice start to the year and it kind of goes without saying that a lot has changed since early February when you initiated the 2025 guidance. But it's encouraging that you've maintained your outlook for core growth margin expansion. But I imagine the bridge looks quite a bit different from the original framework. I apologize if I missed some of this detail, I had some technical difficulty at the outset.

I mean relative to the roughly 3 points of volume, 1 point of price that you had discussed previously. What's your team now contemplating for volume and price contribution for the year? And then beyond pricing, maybe you can offer a little more color on some of the operating adjustments repositioning that it will help your team to navigate the uniqueness of this backdrop?

Yes, Bryan, I think I'll answer it this way, which is, I would say, separate for a moment what our current outlook is versus what we expect to achieve. I think we've got 8 months left in 2025. And as you point out, there's been a lot of moving parts. So there's a premium on being both agile and experienced. And so I think the price increases that we've announced into the market would generate price well above the 1% that we're talking about. But we also have 8 months to go, and I think it wouldn't be prudent to identify what would be the incremental change to our guidance from a price perspective without sort of contemplating what would be the impact to the end markets over the course of the next 8 months, which nobody knows.

So I think what we're saying to tell you this morning is our initial framework contemplated a wide range of scenarios. Our response, both from a supply chain perspective and a price increase gives us great comfort that we can manage to, at a minimum, the guidance that we had in February and are reiterating this morning. And as this thing unfolds over the course of the balance of the second quarter and potentially longer, we'll update accordingly. But I think as Dave shared, we've got, I think, a really solid view on Q2.

We think we're really well positioned from the work we're doing on the supply chain front. And obviously, we've announced some price increases as well as the entire industry, and we're all sort of managing this sort of week by week, but I think the guidance that we put out is very durable regardless of the environment, but that's the way to think about it.

I appreciate the color. And that does make sense. And appreciating that we are early days here. Is there anything that you can speak to in terms of impact to project timing or phasing or any notable change in MRO order trends over the last few weeks since the industry has had, clear understanding that pricing was going to go up materially over the near term.

Yes. So we pointed out that we really had no revenue impact in the first quarter from it. We did see orders accelerate maybe the last 7 to 10 days of March and into the first couple of weeks of April, ahead of our 4/15 price increase. But notably, nothing has been, at least that I know, has been pushed, moved or changed. I think that these are buildings that are likely going to be built on the new construction side and really no notable change in the MRO activity, at least from what we've seen so far.

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

I guess I'll talk a little bit about tariffs and price. I'm sure that's all we're going to talk about today.

That's shocking. That's shocking.

I know. I'm sure you're shocked. About $50 million of overall cost increase here implies that you probably need mid-single-digit pricing to cover that. So first, a clarification, when you say price cost neutral, are you talking on a dollar basis or at the margin line?

I think what we're trying to highlight, Nathan, is at a minimum, at the dollar level based on the scenario that we've laid out.

Fair enough. And I guess, I know it's very difficult to kind of speculate on what the price -- impact the price increases will have on demand. But you guys kind of reaffirm the full year guidance. Obviously, price is going to be a fair bit higher. Do you just assume that there's some demand destruction that goes along with that and you kind of end up at the same place at the end of the year?

I don't think that's the way we've constructed it. I think the perspective I would offer is there could be some demand destruction, but we don't know to the degree what that is at this point. So I think the way to think about it is, it's not going to put across. Old guidance plus price, minus something doesn't equal where we are today. I think we're putting it as a placeholder for the time being. And as things become a little bit more clear over the course of the quarter, we'll update people as we can.

But I think our -- if I had to call it now, I think that we would benefit from the net price increases on our top line guide for the course of the year. And obviously, that would probably have at a minimum some relatively positive EBITDA impact. But I think it's a little bit too early to make any of those calls at this juncture.

Okay. I have one hypothetical question for you. I expect that you guys are raising price to cover what the current tariff environment will be. Over the next 1.5 years, you're going to significantly decrease the amount of product that you're importing from China, which should decrease your costs. And then you have the potential, Trump was out yesterday saying tariffs on China are going to come down a significant amount.

If this price goes through and then you start reducing the cost and then potentially the U.S. administration starts reducing the cost, do prices go down? Or does Zurn hold the line on that pricing?

Well, I think it is very hypothetical. There's only about 6 nested questions in there. The way to think about it is, Nathan, the normal price increases that we put in for decades, we've never retraced price. I think this sort of feels like a little bit of an unusual environment. And I think we'll have to be smart about it to support the industry and support our customers.

I will tell you that we monitor all competitive price increases, and we're all sort of grouped at the same level. And so I think being advantaged from a supply chain perspective, in whatever the environment going forward is, will ultimately benefit our profitability. And -- but I think those are a lot of nested hypotheticals. And I think as things clarify, we'll clarify it for you.

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

I wanted to ask on like your education vertical. Obviously, that's one of your biggest, most important vertical. So have you seen any slowing there or like increased hesitancy from customers on the spend? And I think that spirit of the question is it like DOGE and the Trump administration cut some spending or have any impact there?

We have not.

Great. That is good. And then one more on the full year guide. I think going back to tariffs, just I think it seems like one of the bigger potential risks is that this rest of world tariff right now that's at 10% assumed in the guide? It goes back or goes up to a 40% plus type of number, and this does seem to impact where you have been moving the supply chain to. So if that were to happen, what's your level of confidence that you can quickly react to that? And can you still affirm this full year guide, if that were to happen?

Well, I guess, Andrew, I've tried to answer it, I think, at least a couple of times. I think that we believe we have the best cost supply chain in the industry. We are clearly a market leader. If we look at the competitive responses and basically the competitive manufacturing footprints, we feel very comfortable with how we positioned ourselves.

In terms of affirming a hypothetical guide based on a hypothetical tariff increase, I don't think that, that would be very wise to do in this moment other than to say you, amongst others, thought that we had a big problem heading into this quarter. Here is -- here are the facts as we know them today. Hopefully, the takeaway is that we're managing it really effectively. And I think whatever the change ultimately turns out to be, and it may be multiple twists and turns, I think you can count on us managing it very effectively.

Yes. I think too, Andrew, what I would add is just around the tariffs, there's a number of actions that we can take, right? We can accelerate moves out of a certain country. There's levels of consignment inventory. There's levels of inventory that we've bought ahead. We can manage receipts, timing of receipts. We can shift production. We're not single sourced on any major product category so we can shift to a different source.

So whatever the ultimate tariff ends up being, I think it's going to change here, we feel like we're in a very good position to react to that and put ourselves in a favorable position.

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

First question is just if you look back historically and think about channel, and obviously, this is unique, but how does the government channel and specifically in the drinking water side of things, how do they react on the CapEx side when you get these periods of uncertainty because you're kind of balancing really good seculars, a lot of need for the drinking water fountain replacement cycle in the filtration with limitations potentially on funding or something else. Historically, how does that play out in your mind?

Yes. I mean, again, specifically the drinking water, Mike, I'm not sure that we have a long history. I do think that the government vertical for us is relatively small. And so I think when we think about drinking water and where we're investing, it's a combination of, as we've talked about, education, health care and then a lot of other sub-verticals beyond that, of which government is one. So I don't see it as being particularly -- I don't see it creating a particular headwind, I guess, is the way to say it most simply. But I guess we'll find out.

But again, I think we've got enough other really good things going on in terms of product channel, adjacency, new products, filtration, attachment, those are all things that are -- that we can control or in our favor. I don't know how to handicap the size or the impact of the government piece, but my sense is that we'll be able to outrun it without much of a problem.

Okay. That makes sense. And then just from a timing perspective, you made the point of purchasing inventory from your side to get in front of some of these headwinds. It seems if I'm thinking about the second quarter and then the back half of the year that the inventory side keeps you at a pretty good cost contained position for the second quarter and then the pricing is more of a 3Q impact. And so that's how the balancing works out. Am I thinking about that timing appropriately? Or does that inventory stretch further thus far and just kind of thinking about the cadencing if that makes sense.

I think at a high level, it's a reasonable assumption taken as a whole. And obviously, the devil is in all the details in terms of what we bought ahead, what we've moved, what we're transitioning over the balance of the year. But I think in general, it's not a bad way to think about it.

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

I just wanted to ask on -- you're one of the first couple of companies to report so far. And you guys are doing a great job managing through this tariff environment. And I'm wondering, post-COVID, we saw a ton of inflation, we had to raise prices above average levels. Similarly with tariffs, we're taking more price, I just wonder for -- this is a question maybe for all companies, but are you sort of borrowing pricing in a way from the future? And like does something have to give at some point, right? I understand your commentary on demand destruction, but at some point, what -- how does this end if you just keep taking price to offset these costs?

Well, I don't think anyone knows the answer to that. I would tell you that if you look at our end market, which is primarily North America, there's only a handful of market participants. It's protected through highly specified products through reps and channels and everything else. So I think we're all sort of in the same canoe. And so to the degree there's going to be a school built, a hospital built, a stadium built, I think that it will need the products that we sell. And obviously, I think for a lot of reasons, if these do go through at the levels that they're talking about, it will create inflation.

What that does long term, I don't know. It's probably not great. But I think for the near term, we feel very confident in our ability to navigate front of it. And I also think it's going to be a moving target. I think I read some things last night and this morning around the 145% on China is too high and likely coming down, but not to 0. I think our working assumption is that, that 10% sticks at a minimum and maybe it goes higher. And so I think we've just got to navigate through all of these moving parts for a period of time. But the thing that I think is, again, the most important aspect of this, we've operated this model for decades, and navigated through a lot of different dynamics, and this is just one more.

And I think that we feel very confident with the team we have, the processes we have in place, our connectivity and the way we manage it with our business system is going to keep us in great shape moving forward. And there's a premium on being agile and experienced in this sort of environment, and we think we like our chances.

Yes. And when I first saw press release and you guys grew organic 5% and made the comment, not a lot of price in there. I thought maybe you had some pull forward. But then I see on a slide, you're managing customers ordering ahead. So effectively, you're not really seeing pull forward. So I'm wondering what's that dynamic like? Are you building a backlog effectively trying to control that level of pull forward in order to maintain some normalcy, I guess?

Well, again, I think it comes down to a bunch of things, right? I think just we're sort of minimizing the amount of just pure buy ahead from a price perspective because we've got other customers that need it as opposed to someone buying it and putting it on a shelf. That's for the MRO piece.

I would tell you there's not a lot of people that are buying drains and large backflow forward just based on the size and space constraints and things like that. So we want to maintain a high level of availability. We don't want to get into a position where we're creating waste by expediting things or working over time for something that's not really needed in the moment.

So yes, we are managing that backlog to date it in ways that make sense for our customers, protect what's been bought to a degree and seek more clarity on what the rest of the year looks like. So I think we're managing it literally day-to-day, customer by customer, SKU by SKU. And I think our teams are doing a really good job of that and are very experienced in doing that.

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

Just want to go back to the bottom right chart on Slide 8. As you think about the ramp down, is this kind of as it was always planned? Or is that an acceleration? And then, two, I think the shift has been to Southeast Asia. And I think, Todd, you mentioned there'd be some tariff. But are you continuing to shift where you thought you'd shift? Or are you contemplating other locales?

I think the only thing incremental, Jeff, would be we have done some work to source in the U.S. maybe on an accelerated basis over the course of the last 3 to 6 months. So yes, it's Southeast Asia. Yes, it's parts of Mexico, but I think we've -- I think the only thing that's changed maybe from our plan is to bring some more sourcing to the U.S., and that's reflected, I think, in all the numbers that we're giving you.

Okay. And then the $45 million to $55 million was a little bit lower, just kind of doing the simple math. And I guess, one, I wanted to understand better that the exclusion, what portion of the China is excluded and what kind of the tariff rate on that? And then I guess the other moving pieces would be your downshift in mix and kind of how much inventory you have on there. But it just seems like the pricing looks like you have 2 prices that kind of add up to low 20%. Just seems like a big number relative to a pretty manageable impact.

Yes. So I'll take the first part of your question, Jeff, just on actual expected tariff costs. So the $45 million to $55 million, there's a lot of nuances in there. But essentially, if you look at just the tariffs coming out of China, there's what folks are calling the IEEPA tariffs, the International Emergency Economic Powers Act. There's the reciprocal tariffs that stack on top of IEEPA. There's the Section 232 steel tariffs. There's the existing from years ago Section 301 tariffs. And so all of those different tariffs that I just mentioned carry a different weight, The highest being the 145%, the lowest being 20%.

And so when you start looking at our receipts, you've got to go literally down to the HTS code to understand what HTS code that's being received under and then that impacts what rate you're ultimately paying. And so I think on the surface, folks are thinking it's all 145%. That's actually not the case. And so there's a decent portion of our products that fall under that steel, aluminum type exception that are being tariff much lower than the 145%.

Yes, Jeff, it's all predicated on the HTS code or the harmonized tariff schedule that Dave talked about. And so each thing that people import gets imported under this particular code. And each code has a particular tariff assigned to it based on the properties and principles of it. And so this is not a top-down exercise. This is what our -- based on our receipts and our receipt profile and the HTS codes and quantities that we're importing, this is what it looks like.

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

And just want to say thank you for the transparency on Slide 8. It's very detailed, super helpful. First question, really, as you kind of think about your kind of relative competitive positioning to some of your biggest peers, I know [ Watson ] isn't going to report for another couple of weeks. How do you think you're positioned from a cost structure standpoint relative to your biggest peers?

We think we are extraordinarily well positioned from a cost perspective.

Okay. Is there any other color you can provide just on what you've heard from either your customers or suppliers in terms of like what that actually -- like is there a way to quantify that or what that actually means, more details around that?

Not that we're willing to talk about. I mean, I don't think that -- I think everyone makes capacity and fulfillment decisions based on what their core competencies are. We have some competitors that clearly are more vertically integrated for relatively small portions of what we compete with them on. And so I think if you listen to the original comments, the capacity -- available capacity for the stuff that the products that we have is very limited.

And yes, there is some captive capacity that certain of our competitors have, but I would just highlight that it's relatively small. And so when you look at the competitive response with respect to price increases and other things, we're all sort of lined up at roughly the same prices, some people ahead, some people behind. And then the decision is how do you want to service that demand from a quality, reliability, lead time and cost position. And I think we're really happy with where we sit competitively really across the board.

Okay. Great. And then just my quick follow-up for Dave. I saw you guys accelerated your buyback this quarter. How are you thinking about continuing to maybe more aggressively buy back your shares, just given the current environment?

Sure. So we bought back $77 million in the quarter. I mentioned at the start, the $55 million was part of the offering that we did in mid-February. I think our [ original ] cash flow guidance was $290 million for the year. We're confident in our ability to hit that. And we'll just continue to monitor as we have done, call it, the past 2 years and make smart decision from what the stock price is and how much we buy in a quarter. But I think given where our leverage is, given where our cash position and future cash flow generation is, we've got the ability to continue to buy back.

There are no further questions at this time. With that, I will turn the call back over to Bryan Wendlandt for final closing remarks. Please go ahead.

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 second quarter results in late July. Have a good day.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating and ask that you please disconnect your lines.