Franklin Electric Co., Inc.

Good day and thank you for standing by. Welcome to the Franklin Electric Reports Third Quarter 2021 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised, today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jeff Taylor, our chief financial officer. Please go ahead.

Thank you, Mary, and welcome everyone to Franklin Electric's third quarter 2021 earnings conference call. With me today is Greg Singstack, our chairperson and CEO. On today's call, Greg will review our third quarter business highlights, and I will review our third quarter financial results in more detail. When we are through, we will have some time for questions and answers. Before we begin, let me remind you that as we conduct this call, we'll be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company's annual report on Form 10-K and in today's earnings release. All forward-looking statements made during this call are based on information currently available, and except as required by law, the company assumes no obligation to update any forward-looking statements. With that, I will now turn the call over to our chairperson and CEO, Greg Singstack.

Thank you, Jeff, and thank you all for joining us. I am pleased to report that we delivered another record quarter, which included the highest consolidated net sales, operating income, and EPS for any quarter in Franklin Electric's history. Demand across our end markets remains robust, fueling our sustained growth and sizable open order balance. This strong performance reinforces that we have the right strategy in place, which is laying the groundwork to grow as a global provider of water and fuel systems through geographic expansion and product line extensions, leveraging our global platform and expertise in system design. Supply chain constraints continue to persist. Our team remains focused on managing these ongoing challenges to meet our customers' needs, as we expect this volatility to stretch into 2022. From a supply chain perspective, it is one of the most challenging environments that I have experienced during my career, and I want to recognize the continued relentless focus of our global team to minimize the level of disruptions for the company and our customers. As we anticipated, during the quarter, inflationary pressures were a more substantial headwind. We experienced high material, component, and logistics cost increases in addition to the continuing impact of tariffs. In response to these cost increases, we continued to implement price increases to maintain an appropriate margin, recognizing the highly competitive nature of our end markets. Turning to our segments, in water systems, we achieved record sales with overall revenue growth of 28%, including organic revenue growth of 11%. Robust demand continues, driven in large part by a strong housing market domestically, drier weather, healthy commodity prices, and strong ongoing demand in developing regions. In the U.S., groundwater pumping systems revenue increased 12% in the quarter, supported by strong housing and agricultural demand. Overall, organic growth in the U.S. for water systems is 10%. Outside the U.S., organic water systems growth was 12% led by our business in Latin America, seeing substantial success with 22% growth, as well as strength in Europe, the Middle East, and Africa, all of which continue to see post-lockdown recovery demand. Notably, our business in Brazil and Turkey continues to be strong. During the quarter, we continued to execute on our inorganic strategy as well. We completed a small acquisition in Australia, MindTough, which is a line of electric submersible pumps principally used in mine and construction site dewatering. We intend to manufacture and distribute these pumps across our global footprint. With MindTough, we have completed three water segment acquisitions this year. The other two are in the U.S. water treatment market. Speaking of water treatment, the integration of our recently announced water treatment acquisitions, Puronix and AquaSystems, is progressing according to plan. Within water treatment, we are making steady progress on our goal of establishing a leading position in the U.S. and Canada as the market continues to consolidate, and we believe the marketplace is recognizing our enhanced capabilities in the space. Our U.S. distribution business, Headwater, delivered record performance for any third quarter in Franklin's history, with overall revenue growth of 43%, operating income growth of 92%, and operating margins of 8.8%, continuing to underscore the segment's role as a catalyst for future growth of our company. This tremendous growth has been anchored by sustained demand over recent quarters, reflecting Headwater's superior product and service offerings. We believe this established leadership position in the marketplace will drive future success and opportunity. Our fueling systems business followed suit in the third quarter, producing overall revenue growth of 18%, operating income growth of 26%, and operating margins of 29.5%. This growth was led by sustained strength in the U.S., continued improvement in Latin America and Asia Pacific outside of China in favorable mix as well. Across the globe, growth in the middle class leads to increased use of motor vehicles, growing demand for energy and energy infrastructure. Recognizing this opportunity, our fueling team is leveraging and extending our success in monitoring the critical assets of fueling station to monitor other critical assets, including electric utility transformers, circuit breakers, and Rail, Telco and Server Farm battery backup systems. During the third quarter, we maintain our strong free cash flow of the generation. Combined with our strong balance sheet, this allows us to proactively reinvest capital back into our business while at the same time returning cash to shareholders. In addition, we are continuously evaluating new M&A opportunities that will enhance our portfolio through product line extensions and geographic expansion building upon our ongoing organic growth across all of our segments. Looking forward, overall demand continues to be strong as evidenced by our record third quarter performance and significant open order balance. Open orders at the end of the third quarter were approximately $145 million, up significantly from a typical $35 million pre-COVID run rate. Turning to our outlook for the fourth quarter, as I mentioned earlier, we expect global supply constraints, logistics issues, and inflation to continue into 2022. However, based on how we have managed through these challenges, we are updating and increasing our current 2021 earnings per share guidance. Our new 2021 full-year earnings per share before restructuring guidance is $2.99 to $3.07 per share, reflecting an increase in the midpoint of our prior range of $2.95 to our current range with a midpoint of $3.03. I will now turn the call back over to Jeff.