Zurn Elkay Water Solutions Stock

Zurn Elkay Water Solutions Corporation (Zurn Elkay) designs, procures, manufactures, and markets the broadest sustainable product portfolio of specification-driven water management solutions to improve health, human safety and the environment.

The company’s product portfolio includes professional grade water safety and control products, flow system products, hygienic and environmental products, and filtered drinking water products for public and private spaces that deliver superior value to building owners, positively impact the environment and human hygiene and reduce product installation time.

The company is a leading provider of specification-driven water management solutions to the multi-billion dollar construction market of primarily institutional and commercial buildings and to a lesser extent to the waterworks and residential construction markets.

The company’s strategy is to build Zurn Elkay around a strategic platform that participates in end markets with sustainable growth characteristics where the company is, or has the opportunity to become, the industry leader. The company has a track record of acquiring and integrating companies and expects to continue to pursue strategic acquisitions that will broaden its product lines, allow the company to move into adjacent markets and expand its geographic presence.

The demand for the company’s products is primarily driven by new institutional and commercial building construction, the retrofit of existing structures (to make them more energy and water efficient), and to a lesser extent, new infrastructure and residential construction. With the company’s broad portfolio of products, the company has become a market leader in the industry by developing innovative products that meet stringent third-party regulatory, building, and plumbing code requirements and by subsequently achieving specification of the company’s products into projects and applications.

ZEBS

ZEBS creates a process-based framework that focuses on driving superior customer satisfaction and financial results by targeting world-class operating performance throughout all aspects of the company’s business.

Business

The company’s products are marketed and sold under widely recognized brand names, including Zurn, Elkay, Wilkins, Green Turtle, World Dryer, StainlessDrains.com, JUST, Hadrian, Wade, and Halsey Taylor.

The company is a designer, manufacturer and distributor of highly engineered products and solutions that control the flow, delivery, treatment and conservation of water, as well as human hygiene to and within institutional and commercial buildings and, to a lesser extent, for waterworks and residential applications. The institutional construction end users include education, healthcare, and government segments. The commercial construction end users include retail, office, lodging, dining, warehouse, and sports arenas segments. The waterworks end users include municipal water and wastewater and transportation segments. The demand for the company’s products is primarily driven by new institutional and commercial building construction, the retrofit of existing structures (to make them more energy and water efficient), and to a lesser extent, new waterworks and residential construction.

The company’s products are principally specification-driven given their technical design and ability to meet certain performance characteristics. They deliver superior value to building owners, positively impact the environment and human health and hygiene and reduce product installation time while meeting the stringent county-specific regulatory, building, and plumbing code requirements. These stringent testing and regulatory approval processes are completed principally through the Foundation for Cross-Connection Control and Hydraulic Research at the University of Southern California, the International Association of Plumbing and Mechanical Officials (‘IAPMO’), the National Sanitation Foundation (‘NSF’), the American National Standards Institute (‘ANSI’), ASTM International (‘ASTM’), the Plumbing and Drainage Institute (‘PDI’), Underwriters Laboratories (‘UL’), Factory Mutual (‘FM’) and the American Waterworks Association (‘AWWA’) typically prior to the commercialization of the company’s products.

The company utilizes an extensive sales and marketing network spanning approximately 30 countries, which consists of approximately 1,055 independent sales representatives across 173 sales agencies. Specifically, it has been the company’s experience that, once an architect, engineer, contractor, or owner has specified the company’s product with satisfactory results, that person will generally continue to use the company’s products in future projects. The inclusion of the company’s products in project specifications, combined with the company’s ability to innovate, engineer, and deliver products and systems that save time and money in both installation and over the life of the product for engineers, architects, contractors and builders has resulted in growing demand for the company’s products. The company’s distribution model is predicated upon maintaining high product availability near the company’s customers.

Markets

The company serves a broad and diverse array of institutional and commercial end markets, and to a lesser extent waterworks and residential end markets, with solid fundamental long-term growth characteristics.

The areas in which the company competes are primarily tied to growth in institutional and commercial construction, as well as, to a lesser extent, waterworks and residential. In addition, water management manufacturers with innovative products, like the company, are able to grow at a faster pace than the broader waterworks, institutional, and commercial construction markets, as well as mitigate cyclical downturns in market growth.

Products

Many of the company’s products must meet stringent county, state or municipal-specific regulatory, building, and plumbing code requirements prior to the commercialization of the company’s products (such as IAPMO, NSF, ANSI, UL, FM, PDI, ASTM, and AWWA). In addition, many of these products must meet detailed specifications set by water management engineers, architects, contractors and builders. Among the company’s leading brands are Zurn, Elkay, and Wilkins.

Drinking Water Products

With the Elkay Merger, the company added a leading drinking water product line that includes an extensive collection of filtered drinking water delivery products oriented around providing the cleanest, superior tasting water while improving overall water hygiene, accessibility and sustainability. The company’s drinking water products are sold under the Elkay and Halsey Taylor brand names and filtered units include water filters certified by NSF and ANSI to reduce the level of contaminants in water, including lead and certain per- and polyfluoroalkyl substances (‘PFAS’) chemicals. Elkay’s water dispensing and filtration products, predominantly consisted of filtered bottle filling stations, water fountains and water dispensers, are often plumbed directly into building water systems and required to comply with strict applicable codes and standards. Elkay's drinking water solutions are designed to meet or exceed facility needs and specifications of education, healthcare, hospitality, multifamily, municipal, office, retail and commercial facilities.

Water Safety and Control Products

The company’s water safety and control products are sold under the Zurn and Wilkins brand names and encompass a wide range of valve and water distribution control products. Key valve products include backflow preventers, fire system valves, pressure reducing valves and thermostatic mixing valves. These highly specified and engineered flow control devices protect and control the potable water supply and emergency water supply within a building or site. Designed to meet the stringent requirements of independent test labs, such as the IAPMO, NSF, UL and FM, they are sold into institutional, commercial, and residential new construction and retrofit applications, as well as the fire protection, municipal water and wastewater and irrigation end markets.

Water control solutions that protect human health and gravity drainage products that protect the environment are sold under the Zurn brand and are typically required in the early stages of a construction or retrofit project, when potable water and non-potable water control and drainage systems are installed. Water control products include PEX piping, valves, fittings and installation tools. PEX tubing is manufactured from cross-linked polyethylene and is designed for high temperature and pressure fluid distribution piping applications for both potable water and radiant heating systems in the residential and nonresidential construction industries. These systems are engineered to meet stringent NSF and ASTM standards helping water professionals provide safe and efficient building and site water management solutions.

Flow Systems Products

Flow systems products are commonly installed within a building or on a site to manage storm water and wastewater. Specification drainage products within flow systems include point drains (such as roof drains and floor drains), hydrants, fixture carrier systems, and chemical drainage systems that are used to control storm water, and process water and potable water in various institutional, commercial, industrial, civil and irrigation applications. Linear drainage systems are used to capture and direct storm water in a wide variety of institutional, commercial, industrial and transportation infrastructure applications. The company’s wastewater pre-treatment products include oil and grease interceptors and separators, acid neutralization systems and remote monitoring systems and are marketed under the Zurn and Green Turtle brands. Interceptors are used to separate and capture fats, oils, and greases from wastewater before it is discharged into the municipal wastewater collection system. The company’s proprietary designs are primarily fabricated from fiberglass reinforced polyester, which is gaining market share from traditional concrete products due to its reliability, service life, ease of service, and lowest cost of ownership. Applications include restaurants and institutional foodservice operations, office buildings, hotels, entertainment venues, schools, grocery and convenience stores, airports, vehicle service garages, and fleet operations and maintenance facilities. Acid neutralization systems are primarily used in schools, hospitals, and laboratories.

In 2021, the company acquired substantially all of the assets of Advance Technology Solutions, LLC (d/b/a ATS GREASEwatch) (‘ATS GREASEwatch’). ATS GREASEwatch, develops, manufactures and markets remote tank monitoring devices, alarms, software and services for various applications and provides technology to enhance and expand the company’s product offerings.

In addition, the company expanded its high-quality flow systems portfolio during 2021 with the acquisition of the Wade Drains (‘Wade’) product line from McWane, Inc. The acquisition of the Wade product line leverages Zurn Elkay’s existing expertise in flow systems to expand the company’s market coverage and offer an additional brand of drainage and environmental products.

Hygienic and Environmental Products

Hygienic and environmental products are typically required in the latter stages of a construction or retrofit project, when interior spaces are being outfitted with fixtures, valves and faucets. Zurn Elkay's hygienic and environmental products include primarily sensor-operated flush valves marketed under the Aquaflush, AquaSense and AquaVantage brand names and heavy-duty commercial faucets marketed under the AquaSpec brand name. Innovative water conserving fixtures are marketed under the EcoVantage and Zurn One brand names. These products are commonly used in schools, hospitals, office buildings, airports, sports facilities, convention centers, shopping malls, restaurants, and industrial production buildings. The Zurn One Systems integrate valve and/or faucet products with fixtures into complete, easily customizable plumbing systems, and thus provide a valuable time and cost-saving means of delivering institutional and commercial bathroom fixtures. The EcoVantage fixture systems promote water-efficiency, health and hygiene and assist in achieving compliance with certain water conservation requirements, and generate savings for building owners in new construction and retrofit bathroom fixture installations.

In 2020, the company acquired Just Manufacturing Company (‘Just Manufacturing’), a leading manufacturer of stainless steel sinks and plumbing fixtures primarily used in institutional and commercial end markets. In addition, the company acquired substantially all of the assets of Hadrian Manufacturing Inc. and 100% of the stock of Hadrian, Inc. (collectively ‘Hadrian’), a leading manufacturer of restroom partition systems and lockers primarily used in institutional and commercial end markets. The combination of World Dryer’s eco-friendly hand dryers, Just Manufacturing's stainless steel product portfolio, Hadrian’s partition systems and Zurn Elkay's water-efficient hygienic and environmental products allows the company to deliver a bundle of products known as ‘BrightShield by Zurn’ to the company’s customers, the most comprehensive hygienic and environmental content to new and existing buildings.

In 2022, the company completed the merger with Elkay, a leading manufacturer and distributor of drinking water solutions and commercial and residential sinks. Elkay offers a wide array of sinks recognized for their design, durability and aesthetics. These products are commonly used in education, healthcare, hotel and lodging, office, retail, transportation, recreation and leisure, public, industrial, and residential applications. Elkay's sinks are sold in various forms, with stainless steel representing the most popular, followed by quartz, fireclay-ceramic, cast iron, and other materials.

Strategy

The company’s strategy is to grow strategically by acquiring leading companies in attractive markets with businesses that will benefit from ZEBS to increase customer satisfaction.

Customers

The company’s water safety and control, flow systems, hygienic and environmental, and drinking water products are sold for new construction, remodeling and retrofit applications to customers in institutional, commercial, waterworks and residential end markets and are distributed through independent sales representatives, plumbing wholesalers and industry-specific distributors in the waterworks, foodservice, industrial, janitorial, sanitation and siteworks industries. The company’s independent sales representatives work with building owners, engineers, architects, and operators, contractors, and builders, to specify the company’s products for their use and with wholesalers to assess and meet the needs of building contractors in construction projects. They also combine knowledge of the company’s products’ installation methods and delivery availability with local market expertise to provide contractors with value-added service. The company uses approximately 1,055 independent sales representatives, along with a network of regional distribution centers and third-party warehouses, to provide the company’s customers with same-day service and quick response times. Zurn, Elkay, JUST, Hadrian, and Wilkins benefit from strong brand recognition, which is enhanced by a strong propensity to replace ‘like-for-like’ products.

Product Development

Zurn Elkay has approximately 230 active patents in the United States and approximately 90 foreign active patents as of December 31, 2023.

The company’s digital strategy for a customer productivity platform is based on the integration of innovative Industrial Internet of Things (IIoT) and e-commerce technologies with Zurn Elkay's leading portfolio of products. The company’s secure online portal, plumbSMART, allows for real-time insights from the company’s Connected Products, including wireless monitoring of usage trends, water consumption, possible issues and alerts through digitally-connected product solutions that can be retrofitted to the installed base of the company’s products.

Seasonality

Demand for the company’s products is primarily driven by institutional and commercial building activity, remodeling and retrofit opportunities, and to a lesser extent, new home starts, as well as waterworks expansion. Accordingly, weather has an impact on the seasonality of certain end markets. With the exception of the company’s remodeling and retrofit opportunities, weather is an important variable as it significantly impacts construction. Spring and summer months in the United States and Canada represent the main construction season with increased construction in the institutional, commercial, and waterworks markets, as well as new housing starts. As a result, sales generally decrease slightly in the first and fourth quarters as compared to the second and third quarters of the calendar year (year ended December 2023).

The company’s business also depends upon general economic conditions and other market factors beyond the company’s control, and the company serves customers in cyclical industries. As a result, the company’s operating results have been negatively affected during economic downturns.

Research, Development and Engineering Costs

The company’s research, development and engineering costs amounted to $23.7 million for the year ended December 31, 2023.

History

The company was incorporated in 1892. It was formerly known as Rexnord Corporation and changed its name to Zurn Water Solutions Corporation in 2021 and then to Zurn Elkay Water Solutions Corporation in 2022.