Good morning and welcome to the Zurn Water Solutions Corporation Q3 2021 Earnings Results Conference Call with Todd Adams, Chairman and Chief Executive Officer, Mark Peterson, Senior Vice President and Chief Financial Officer, and Dave Pauli, Vice President of Investor Relations for Zurn Water Solutions. This call is being recorded and will be available on replay for a period of two weeks. The phone numbers for the replay can be found in the earnings release the company filed in an 8-K with the SEC yesterday, October 26. At this time, for opening remarks and introduction, I'll turn the call over to Mark Peterson.
Thank you. Good morning, everyone. Before we get started today, we're pleased to announce that Dave Pauli will be assuming the day-to-day Investor Relations responsibilities as of this earnings call. Many of you have already had a chance to work with Dave over the past six months, as he's been instrumental in assisting us with the investor relations during that time. Dave has been with the company for the past nine years working in several financial roles, and has been our corporate controller for the past four and a half years. Before I turn the call over to Dave for some opening comments, I just wanna touch on the RMT transaction that closed on October 4. Given the timing of the close, our Q3 results include the PMC segment. Starting with the Q4 of 2021, the PMC segment will be reported as discontinued operations.
We will provide high-level comments on PMC's financial results this quarter, but we ask that you hold any questions you may have on the PMC segment for Regal Rexnord earnings call next week on Tuesday, November 2. I'll turn the call over to Dave Pauli.
Thanks, Mark. Good morning, everyone. I'd like to remind you 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 SEC filings. 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 certain reconciliations to the corresponding GAAP data. 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, 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 Water Solutions.
Thanks, Dave. Congratulations, and good morning, everyone. Hopefully, you all had a chance to read through the release last night and see the consolidated Rexnord numbers for the last time. As Mark covered in his comments, we'll use this call to essentially just cover Zurn Water Solutions results and leave the PMC results to the Regal Rexnord team when they report next week. First of all, this is truly a milestone quarter for us. We got the RMT transaction done with the new Regal Rexnord in only about 7.5 months, a testament to the collaboration between the two companies and simply outstanding effort by everyone and our advisors on both sides. I wanna thank our team in particular for everything they've done to facilitate the separation.
When you go through one of these things, it's obviously touches a lot of things that need to get sorted pretty quickly. Any trusts, the SEC, the IRS, contracts, licenses, IT, tax benefits, you name it. From our side, it's really gratifying to go through all of that and not miss a beat. Getting everything done for day one standalone while continuing to execute at a high level is really a testament to the team and talent we've assembled here. What's even more important is that we started October 1 with all of that behind us and focused on the future. The transaction's a terrific outcome for both companies and shareholders, and we're excited about what it means for Zurn Water Solutions to be standalone, and obviously rooting for the new Regal Rexnord team's success, and believe they have a really bright future moving forward.
We'll get on to the ZWS part of the program. From a top-line perspective, we grew 15% in the quarter, 5% on a core basis, and that's on top of the 5% core growth we delivered last year. Frankly, it should have been a little bit more. I'm not gonna pull out a harmonica and sing the supply chain blues because our teams have done an incredible job of managing through the compounding impact of tariffs, supply and labor constraints, and lately, the logistics knot the world's found itself in. The deep expertise and experience we have in managing a complex supply chain has kept us ahead of the price-cost equation for a long time while keeping industry-best lead times. It also has allowed us to disproportionately invest in growth versus investing in capacity and things like maintenance CapEx.
To get a little specific on the logistics topic, we had a plan to import almost 900 containers over the course of the quarter, and about 50 of them were late. A handful of those were delayed by COVID shutdowns at ports leaving China and other parts of Southeast Asia. Another 25 were late because of delays getting picked up at our suppliers due to either a shortage of trailers or drivers, and the rest were a function of using a break bulk transport solution that simply got delayed at various ports in the U.S. That's the bad news. If half of these break our way, we're looking at core growth of 9%-10%. The good news is it's not a labor shortage at Zurn. It's not a product supply-based performance issue. It's not a component availability issue.
It's a lot like what we talked about last quarter. It's the compounding impact of a whole bunch of things colliding, creating the topic that will be the most talked about thing on earnings calls this season, supply chain challenges. In our case, it's really a few discrete transportation delays. To us, it feels like the third quarter was or is close to the inflection point of this transportation and logistics knot the world find itself in. As we start our Q4, it feels like we're in great shape. Essentially, everything that needed to leave a port at this point has left. Everything that's here is winding its way out of the various ports and warehouses. With one month of the Q4 in the bank, we're off to a good start.
As we said in the release, taken as a whole, the second half will end up sort of as we'd expected 90 days ago. As it relates to ZWS profitability, we delivered margins of 26.5% at the high end of our expectations despite the lower shipments. Hopefully, it's pretty clear that we continue to execute well on the price cost equation. But I wanna make a comment or two to give you a better feel on why our margin profile is so strong and sustainable, and it's actually a whole lot more than just pushing price increases into the marketplace. A huge competitive advantage we have relative to the people we compete with is the relative shares we have across the broadest portfolio of products in the industry, which is an extraordinarily difficult thing to replicate.
The reason that's important is that environments that we're in, and frankly, we continue to be in, products that work better together, that are easier to install, faster to install, and fundamentally save labor and cost for the building owner and the mechanical contractor are going to win. It's a big advantage to us, and even more so as we continue to expand our portfolio. Second, while we typically lead the market with respect to price, it's also about continually doing a better job on product design and innovation. I won't get too specific, but there's a particular category where we've designed and developed a patented product that weighs a quarter of the weight of our competitors. Suffice it to say it's a brass valve.
We not only have an advantage because of our portfolio, but imagine in an example, we're selling a product at a market price, but our material cost on the product is 75% less, not to mention our freight costs are lower. When you understand these types of examples, it becomes clear as to why our margins are so superior to our competitors. If we can move to page four. The future for ZWS on a standalone basis is exciting. That's a big part of the reason why we decided to separate PMC when we did. The incubation time for a number of breakthroughs were really beginning to take root. As we take a step back and look at the next three-to-five years, we see incredible runway for growth, both organically and also from an M&A perspective.
The idea of being a standalone pure play water business levered to a number of water and sustainability mega trends is something we've been laser focused on for a while, and we feel like we're very early in the journey of capitalizing opportunities here. That's before we dial in what an infrastructure bill might do for our business. Sitting here today, I would say we've never had the number of organic opportunities in front of us that we see today. The one we've discussed for the last year has been the touchless hygienic opportunity that we branded BrightShield, which continues to have an enormous medium to long-term upside, not just for new construction, but the massive available retrofit market that we've really only entered in the last year. It's not just that.
It's the fact that we've effectively reinvented our drain business the past several years with patented solutions that perform better, reduce costs for installers, and give us opportunities to rewrite specifications around these solutions. We're also leading the industry in developing products that can be used for prefabrication or off-site construction that the industry is leveraging to combat lower levels of skilled labor required to meet the strong demand for new construction. We've leveraged our product portfolio to enter the adjacent fire protection market, site works market, and pretreatment markets. These are all share gain opportunities for us that we weren't even participating in just three years ago. E-commerce has allowed us to reach a whole new subset of customers, and we're excited about the Jan San channel and believe it has incredible growth potential for us in the coming years.
Finally, it's not just only about extracting the cost synergies from acquisitions we've made, but capitalizing on the growth from acquisitions under the Zurn leadership positions around specification, content per square foot, and lean construction set trends. The bottom line is we see a clear path to double-digit growth next year and are also optimistic that we'll see some M&A opportunities convert, setting up strong growth into 2023 and beyond. We're not gonna get ahead of ourselves at this point, but it's clear to me that ZWS can be a much larger company with a consistent financial profile while continuing to build out our business, very much focused on the types of things we do today. If we can get to page five.
Now that we're a pure play water business, our ESG profile and impact is both more visible and heightened. We believe that as we move forward, it won't just be about providing products that save the world billions of gallons of water or keep the potable water supply safe inside buildings or creating safe and hygienic spaces inside public and private spaces. It'll also be about doing it the right way, in an inclusive way, and we're up for the challenges that taking a leadership role demand. I also think it's important for everyone to know that we've been at this for a while, and we're very much looking forward to getting out and meeting with investors on the topic, and we'll be pleased to share our progress as we publish our upcoming 2021 corporate social responsibility report.
Before I turn it over to Mark, if you can just turn to page six. As some of you on this call may remember, a couple of years ago, we laid out a relatively comprehensive capital allocation strategy for Rexnord that was grounded in the reality of a relatively undervalued multi-industry business with strong deleveraging characteristics. It became public from a private equity-led IPO that left us with leverage north of 4x . We had finally, you know, achieved the financial profile to begin to return money to shareholders in the form of a reasonable dividend, a regular share repurchase program, and a priority around water-related acquisitions. In the case of ZWS, while it's a very different dynamic, our capital allocation strategy is something we wanted to clearly communicate to investors as we start standalone.
First, ZWS is a differentiated growth company. With a mid-single-digit core growth rate over a decade, an exceptional margin profile, equally strong deleveraging characteristics as the old Rexnord. You know, one really good example of this is over the past 15 years, CapEx has been about 1% of sales. Next, we're starting life with leverage of only 2x, and would expect to maintain a modest leverage profile between 2x and 3x. Could drift lower at times, but in general, expect that to be our targeted range. You may have also seen that last week our board declared an initial dividend of $0.03 a quarter or $0.12 annually. While it's modest to start, it's something we think we can selectively and comfortably increase over time as we grow.
Finally, with respect to acquisitions, we believe we have a deep funnel of opportunities that fit our return criteria that we can do with our cash flow that only enhance our long-term growth rates and returns, while also leaving the optionality for larger, more transformative opportunities should they become actionable from our proprietary funnel. With that, I'll turn it over to Mark to walk through some additional details on our performance and provide some color on our Q4 outlook.
Thanks, Todd. Please turn to slide number seven. On a year-over-year basis, our Q3 consolidated sales increased 13% to $557 million. The growth was driven by 100 basis points benefit from foreign currency translation, a 400 basis points positive contribution from our Hadrian acquisition and our water management platform, partially offset by a small divestiture in the PMC platform that reduced our total sales by approximately 100 basis points, and finally, core sales growth of 9%. Turning to profitability, our adjusted EBITDA increased 18% from the prior year third quarter to $128 million, and our adjusted EBITDA margin expanded 100 basis points year-over-year to 23%.
The incremental sales volume and the realization of our scope of three and other productivity actions drove the year-over-year improvement in our margin this quarter, despite the headwinds we faced from the temporary cost reduction actions we took last year due to the COVID-19 pandemic. Please turn to slide eight and review our platform results. At the platform level, water management sales were up 15% from the prior year September quarter, as the Hadrian acquisition contributed nine points of growth. Positive foreign currency translation contributed one point, and the core business increased 5%. While sales were adversely impacted by approximately 400-500 basis points due to some temporary transportation delays that Todd touched on earlier, the demand in Zurn remains strong in the quarter as orders increased high single digits over the prior year quarter.
With respect to profitability, our water management platform delivered a 9% increase in adjusted EBITDA over the prior year as margins were in line with our expectations at 26.5% in the quarter, inclusive of our continued investment in growth. Year-over-year margin contribution was impacted by the COVID-19 related temporary cost reduction actions we took in the prior-year third quarter, as well as the temporary mix impact from the Hadrian acquisition. Excluding those two items, margins in the core business expanded year-over-year. Turning to PMC, sales increased 11% and includes a 100 basis point benefit from foreign currency translation, a 200 basis point reduction from the small 2020 Q4 divestiture in China, and a core sales increase of 12%.
The core sales increase was driven by a 14% increase in non-aerospace end markets, coupled with aerospace sales that were flat year-over-year. Demand trends remained solid as core orders in non-aerospace end markets increased nearly 30% from the prior year, and year-over-year orders growth grew over 100% in aerospace end markets. The book-to-bill ratio was above one for the quarter. PMC's adjusted EBITDA margin expanded 250 basis points year-over-year to 23.5% as the benefits from the sales growth, scope for actions, and other structural cost reduction initiatives more than offset the year-over-year margin headwinds from the temporary cost reduction actions we took last year due to the COVID-19 pandemic. Please turn to slide nine, and I'll touch on some of the cash flow and balance sheet highlights.
With a strong free cash flow generation in the quarter and growth in adjusted EBITDA, our net debt leverage was reduced to 1.x at the end of the September quarter from 2.1 x at the start of the calendar year. In conjunction with the close of the RMT transaction, we paid off the $500 million notes, including the make whole fee and the $625 million term loan, both of which were on our balance sheet as of September 30. Our new capital structure that went into place with the close of the transaction includes a $550 million term loan B with a $200 million revolver that is currently undrawn.
Our new 7-year term loan has an interest rate of 2.25% with a 50 basis point LIBOR floor and pushes any debt maturities out to 2028. With respect to our cash balances, we anticipate ending our fiscal year 2021 with approximately $125 million-$130 million of cash on the balance sheet. Please turn to slide 10, and I'll make a few comments on our outlook for the Q4 as well as some items that will help with fiscal year 2022 modeling. For the Q4 of 2021, we are projecting total sales to increase year-over-year by a high-teens percentage. With respect to margins, we expect our adjusted EBITDA margin to be between 24% and 24.5%, which excludes what we've historically referred to as corporate segment costs.
We anticipate corporate costs in terms of adjusted EBITDA to be approximately $10 million in the quarter. We remain on track to reduce our corporate expenses to approximately $20 million on an annualized basis, again, in terms of adjusted EBITDA during the first quarter of 2022. Before we open the call for questions, a few comments on our interest expense, stock comp expense, depreciation and amortization, tax rate, and diluted shares outstanding.
We anticipate our interest expense for the December quarter to be approximately $5 million. Our non-cash stock compensation expense should be about $16 million, inclusive of a non-recurring accounting adjustment for the conversion of Rexnord equity grants to Zurn equity grants as a result of the RMT transaction. We anticipate our depreciation and amortization to come in around $8 million. Our tax rate on adjusted pre-tax earnings in the December quarter will be approximately 30%. Our diluted shares outstanding, again, updated to reflect the conversion of Rexnord equity grants to Zurn equity grants as a result of the RMT transaction, will be approximately 129 million shares in the quarter. Looking ahead to calendar year 2022, we wanted to provide an update on several expenses now that the RMT transaction is complete.
We expect calendar year 2022 annual interest expense to be approximately $20 million. Annual stock comp expense to be about $17 million, and annual depreciation and amortization to come in around $18 million. We anticipate a tax rate on adjusted pre-tax earnings in the 26.5%-27.5% range. Diluted shares outstanding, again updated to reflect the conversion of the Rexnord equity grants to Zurn equity grants as a result of the RMT transaction, will be approximately 130-131 million shares. We will provide any additional guidance for fiscal year 2022 on our next earnings call in February 2022. With that, we'll open the call up for your questions.
Thank you. If you'd like to ask a question, please press star one on your telephone keypad. Our first question is from Bryan Blair with Oppenheimer. Your line is open.
Thanks. Good morning, guys.
Good morning, Bryan.
Just to quickly level set on Q4 core growth expectations, is low to mid-teens the right range if we account for, you know, two months or so incremental Hadrian contribution, then kind of high single-digit range accounting for the delayed shipments from Q3.
Well, yeah, I mean, we talked about, as you said, high teens all in. When you think about the core and, you know, embedded net numbers maybe, yes, as you said, in the low teens, from a core growth standpoint in the Q4, Bryan. There is a bit of a spillover, as we mentioned earlier, from some of the growth that we did miss in the third quarter that we're picking up in the early innings of the Q4 .
Okay. Makes sense. More importantly, something you could offer a little more color on your team's confidence in double-digit core growth in 2022. Any insight on volume versus price contribution? We suspect there will be, you know, quite a bit of carryover with the latter, relative growth rates in your major product categories. Is there any callouts by, you know, key end market can be very helpful.
You know, it's an incredibly balanced view going forward. I mean, the combination of a reasonable market, price actions that we've got in place already, and then the contribution from some breakthroughs that I sort of tried to run through, you know, give us, you know, I think both confidence and some headroom to get to that double-digit core growth rate for 2022. That's, you know, it's been a while since I think we had sort of that sort of confidence in a forward look. We've got, you know, a few months to refine it and get to that point. At this point, I think it's a pretty balanced view between market organic growth initiatives and price that's already sort of behind us that'll just carry over.
The combination of those three get us, you know, north of that 10%.
All good to hear. Maybe provide a little more detail on Hadrian integration. We know there were some constraints earlier this year that were outside your control that efforts have re-accelerated there. What are run-rate margins? We know that there's still a meaningful degree of dilution versus the core, which you said was up year-over-year. Any shift in confidence in terms of getting toward 20% over time.
It's incrementally better, Bryan. I think, you know, the reality is, you know, the COVID shutdown impacted that business probably far more than many others. So the volume ramp is probably nine months behind what we would've anticipated. That is beginning. We're starting to see that happen in the quarter, and I think we're making, you know, good headway on the actions required to get the margins toward that, you know, fleet average or at least something with a two in front of it. I think 2022 is gonna be the big year for margin expansion for Hadrian. I think from a competitive standpoint, we feel really good about, you know, the progress we've made. We're starting to get traction with specifications and conversions.
I would anticipate, you know, along with, you know, a better environment plus, you know, the opportunity to really dig in and get at it. You know, 2022 will be the big year from a margin expansion at Hadrian.
Appreciate the detail. Thanks again, guys.
You bet.
Our next question is from Jeff Hammond with KeyBanc Capital Markets. Your line is open.
Hey, good morning, guys.
Good morning, Jeff.
Just maybe on the business unit Safety Flow and hygienics. Maybe just speak, you know, how those are trending either in the order rates or in the revenues this quarter.
I would tell you that I think water safety and control grew the most. Flow systems grew the next, and hygienic environmental, you know, finished third in the quarter. I think, you know, as my comments alluded, we still believe in the medium to long term growth. I can tell you as a category, it's been slower this year than we would have anticipated. I think we're hearing that both from, you know, the wholesale community as well as some of the competitive intelligence we've picked up, but we are starting to see it pick back up here in September and October. I think you had a rush, if you will, to get ready for some sort of reopening.
Now that people are back in, you know, we're getting back to more of that steady conversion as opposed to this wave. I guess the good news is the opportunity is there, and as I think we've outlined it, is massive. I think the things we've put in place around the JanSan channel, e-commerce and BrightShield, you know, give us a lot of confidence that it's on the come. We're seeing traction with a number of opportunities. In the meantime, you know, water safety and control continues to take market share. I think, you know, my comments on the drain line and being reinvented, you know, are giving us great growth and a nice trajectory. That's how it would sort of shake out in the one, two, three for the quarter.
Okay. Then just on the hygienics, I know, you know, there's this kind of COVID related opportunity with the education channel, where they're getting allocated dollars. What are you seeing on that end in terms of capturing some of that, you know, that federal money?
Well, we think we're going to get it. I think if you follow the bouncing ball, you know, the funds get allocated to schools, and then the school boards prioritize. I think from an opportunity set, we know regionally who's got what, and then it's really about calling on them and helping with the conversion and then the priority towards providing a hygienic space inside of a school. I think the way we contemplated that growth is it probably comes a lot more in 2022, and we're well positioned to capture a bunch of it.
Okay, great. Then just last one. You guys certainly have had a lot of balls up in the air and, you know, maybe been internally focused. Maybe just speak to, you know, M&A pipeline, you know, valuations, you know, your thoughts on getting something done, you know, into 2022.
Well, you know, I think as you know, everything we've done has sort of been on a proprietary basis. You know, we're gonna stick with that for the time being because it's worked. I think we feel good about some things converting, you know, between, you know, now and the first half of 2022. You know, valuations, I think, you know, deliver the kind of returns that we expect and anticipate. You know, without getting overly specific, you know, I think I'm pretty confident that we're gonna have some things convert here. You know, they're right down the middle in terms of, you know, what we've been doing.
If you think about stainless drains, and you think about World Dryer, and you think about Hadrian, and you think about Just, these were all sort of competitive forays into other people's pockets. When we integrate them, take them to market, leverage the spec, leverage the pull through, leverage the go to market, all of a sudden, you know, you begin to get people's attention on, you know, what we've been doing. It's really along those lines that I think we'll continue to do, you know, some M&A that will be impactful. I won't comment on timing, but I think from a valuation standpoint, it seems pretty reasonable and confident we'll get some things done.
Okay. Congrats on the split test. Thanks.
Thanks, Jeff.
Thanks, Jeff. Our next question is from Joe Ritchie with Goldman Sachs. Your line is open.
Thanks. Good morning, everybody, and congrats.
Morning, Joe.
For what it's worth, I mean, I think if these supply chain issues continue into next quarter, opening up the earnings call with a harmonica would be kind of awesome. Just my two cents.
It was contemplated, Joe, but we sided against it, so.
Maybe getting back to the task at hand. You know, you guys mentioned that in the Water Management business, that this quarter margins would have been up, the core business would have been up if not for some of these issues and obviously the dilution associated with Hadrian. I'm just curious, just from like a pricing standpoint, are you guys running ahead of cost at this point? When you contemplate 2022, you know, do you expect to be above, you know, price cost to be a positive contributor to margin in 2022?
Yeah, I think I would tell you at this point with what we've put in place today, we are running ahead. I think the way we've thought about 2022 is we continue to run modestly ahead, which is entirely consistent with, you know, the last 14 years of my experience with Zurn. I don't see a reason why we would fall behind.
Okay. That's great to hear. Todd, can you maybe elaborate a little bit more on this JanSan opportunity? Is this, you know, gaining greater share of wallet with some of the larger kind of like industrial distributors? Or how should we think about the opportunity and exactly, you know, what you're doing from a channel perspective to gain traction?
Yeah, I mean, there's a whole adjacent channel of people that, you know, go into commercial buildings and clean them and do various maintenance activities. We never touched it. You know, what we've done over the course of the last six months is sign up some partnerships to establish, you know, some reps that are out there calling on these and then partnering with local wholesalers to pull that through. It's still early days, but this, you know, the number of, you know, $100 million JanSan companies that are out there servicing all these local, you know, areas is huge.
Our ability to, you know, connect, provide what the opportunity of BrightShield is, get them to go out and begin to call and sell on it with their customers, with our support, and then pulling it through by having, you know, local stocking positions in their local trade area. Frankly, also being able to help them schedule an install if in fact that they want some outside help. You know, we've got a partnership network of mechanical contractors that are doing that work for us. It's early days. I think we started talking about it maybe six months ago. But I think it provides, you know, ballast to new construction. It's untapped because we've really never been in there.
I think the BrightShield offering about creating a completely hygienic, you know, space inside of a commercial building is a powerful value proposition and one that, you know, it's got a long tail.
Yeah, that makes sense. One last one for you guys, and Dave, congrats on removing the interim title. But there's been a lot of discussion from the investor base on when you guys would have potentially an Investor Day. I'm curious to hear any thoughts around timing with the new business.
Yeah, Joe, we're gonna use the fourth quarter to start doing some targeted marketing during this quarter. I think, you know, we're looking to the first half of next year for an investor day where we'd really like to do something like that in person. I know the kind of situation we're all in right now. It doesn't feel like that was gonna happen this calendar year. We're looking at the first half of next year, you know, when we have guidance out for 2022, to have a full-blown investor day. This quarter, we will be doing a lot of targeted marketing with the new business.
Okay, great. Thank you.
Thanks.
The next question is from Mike Halloran with Baird. Your line is open.
Thank you. Good morning, and congrats on completing this RMT transaction, guys.
Well, thank you, Mike.
Thanks, Mike. Good morning.
Good morning. Maybe we can talk a little bit about certain supply chain. I know you have a design and assembly business, but most of your revenues are in North America, the vast majority of it. I'm sort of curious how your supply chain sets up relative to that. How much would you say of your components are imported, and where are they normally imported from? What sort of region?
Well, for a whole bunch of competitive reasons, Mike, I don't think it makes a lot of sense to talk through that. Suffice it to say, a significant portion of our COGS is imported from places outside the United States. I will tell you that it's less than it was five years ago, as we've done some level of onshoring to collapse lead times to deal with the tariff issues. You know, this balanced supply chain that we have today, you know, looks a whole lot different than it did, you know, three or four years ago. Because we made a conscious decision to eliminate, you know, supply chain risk in having too much in places like China and others.
I think it would look a lot different three years ago. It's much more balanced globally than it is today. You know, all in, you know, I would tell you that, and you know this, it is very much a design, procure, assemble, test model, where we leverage third parties to manufacture some of the goods, and we do the late point assembly modification as needed. It's not as overweight in China as you may infer or expect.
Yeah. I mean, I wasn't necessarily thinking China. I was just sort of curious as to how that was set up, because I would presume that you'd have opportunity to acquire suppliers in other places as well, not just China. As we're thinking longer term here, though, given the learnings of the last couple years, is it fair to say that you're gonna continue to work towards localizing the supply chain, presuming that, again, your geographic revenue mix remains as it is today?
I wouldn't say that. I think what we've done is, you know, really set up a global network of finding, you know, the highest quality suppliers at the best cost with the best lead times, and done that with redundant suppliers, usually in different geographies to avoid, you know, some sort of event, whether that be, you know, environmental or geopolitical or whatever the case may be. I think we've got a relatively dispersed supply chain with redundant capabilities. And obviously some of that has included domestic suppliers. Suppliers in Wisconsin, suppliers in Texas, you pick it. I don't think you're gonna see a sea change in that approach. I think we've, you know, steadily tried to, you know, create a redundant capacity for our supply base. I think we'll continue to do that.
I don't think there's anything materially different. I don't think we're gonna start buying suppliers or things like that. I think we're gonna continue to do what we do. You know, if we see an area where we're not pleased with the quality or the performance, or we see an opportunity to improve our competitive position and lead times, you know, we can do that. I think we're really happy with, you know, how our supply chain has performed for a very, very long time. I think this logistics, you know, sort of, I think I call it a knot, is somewhat unfortunate, but I don't think it changes our view on how we're going to invest and grow our business.
Yep. Okay. Appreciate that. You know, on this logistics issue that you talked about, you know, the track record here for you is pretty clear that you've been very successful at pushing through raw material cost increases through pricing and offsetting that. I'm kind of curious as to how these transportation or logistics costs work. Do you have pricing flexibility of any sort to be able to offset that? Or should we look at your margin performance in a quarter, in the fourth quarter as sort of being inclusive of this headwind? Meaning, as things hopefully get better in 2022, that becomes accretive to incremental margin.
Look, I think when we, you know, issue a price increase or take a price increase, we contemplate all sorts of inflation. So I would tell you that it's hard to say that, you know, because containers went from, you know, $5,000-$20,000, we've perfectly dialed in a price increase to cover that. I think we've got some of it made, probably not all of it. You know, a nice way of saying, I think you gotta look at the margins and just say it sort of is what it is. You know, maybe we're a little bit short, maybe we're a little bit ahead. In general, I think our price increases are offsetting our, you know, our cost inflation.
I think the other point is, you know, the things that I tried to talk about, you know, when we're actually designing, developing, and selling a product that weighs 75% less than our competitors, that's a big deal. That's something that we can keep for a long period of time. You know, we're pretty happy with, you know, our overall performance here. Disappointed, you know, that a few didn't show up on time. Nonetheless, it's not just about covering all the cost inflations, it's about finding ways to work around that and control your destiny a little bit, as opposed to just, you know, pass price onto the market.
I appreciate that. Lastly from me, maybe just a reminder in terms of what the normal incremental margins for the water business would look like. Again, you know, you talked about the fact that the margin expansion at Hadrian is really gonna kick in to 2022. Not to continue the guidance, but how that might potentially help boost these incrementals as we look into next year? Thank you.
Yeah. Historically on this platform, we've always targeted incrementals gonna be around that 30% range. In some quarters, it can be a little bit higher, a little bit lower, but you kind of dial in, you know, on average in that 30% range has been what we, you know, historically would look at. That really shouldn't change going forward. You know, Hadrian, as Todd mentioned, next year is the year where we will see margin expansion at Hadrian for sure. We've seen it sequentially over the years progress. Smaller acquisitions, so it'll be a contributor. Not a huge margin needle mover for us, but overall a contributor.
I think, of course, next year we have some growth investments, you know, beef up as well to push the share capture side of the equation. But all in, kind of just to go back and answer your question, thinking about, you know, this platform in that 30% range over an extended period of time is a very reasonable spot to be. That's with the growth investments that we need in the business to continue to take the share in our end markets.
All right. Appreciate it. Thank you, guys.
Thanks, Mike.
We have no further questions at this time. I'll turn the call back over to the presenters.
Thanks for joining us on the call today, everyone. We appreciate your interest in Zurn and look forward to providing our next update when we announce our December quarter results in February of 2022. Have a good day.
Thank you, ladies and gentlemen. This concludes today's conference call, and you may now disconnect.