Franklin Electric Co., Inc.

Good day and welcome to the Franklin Electric Report's fourth quarter 2022 sales and earnings conference call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Chief Financial Officer Jeff Taylor.

Thank you, Andrew, and welcome everyone to Franklin Electric's fourth quarter and full year 2022 earnings conference call. On the call with me today is Greg Singstack, our chairperson and chief executive officer. On today's call, Greg will review our fourth quarter and full year business highlights, fiscal 2023 guidance, progress to date on our long-term strategy, and our latest global secular trends. I will provide some additional details on our financial performance. We will then take questions. Before we begin, let me remind you, and as we conduct this call, we will 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 today's earnings release. All forward-looking statements made during the 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 Greg Singstack.

Thank you, Jeff. We delivered a strong finish to 2022. All three reporting segments set fourth-quarter sales records, and both water and fueling systems set records for operating income over the same period. During the quarter, we delivered operating margin expansion in our water and fueling businesses driven by customer demand, pricing sufficient to offset inflation and epic headwinds, and steady operational execution. We experienced solid end market demand throughout 2022, which continued through the fourth quarter, driving top line growth across each business. Our supply chain continued to recover with past due shipments down 50% from last summer's peak. At the same time, Due to continued strong order flow, backlog increased to $260 million or up $10 million sequentially. Turning to our segments, water system sales were robust across all end markets with overall revenue growth of 9% and operating income growth of 23%. Pricing actions and operating leverage more than offset inflation challenges driving operating income margin to 15.9%, an increase of 180 basis points compared to last year. Fueling Systems delivered another record quarter with top line growth of 8%, driven by solid sales in the U.S. and India, and operating income growth of 9%. Favorable price and mix contributed to Fueling Systems' fourth quarter operating margin of 28.4%, an increase of 30 basis points compared to the prior year quarter. While delivering record sales in the quarter, the distribution segment was impacted by normal seasonality and unfavorable weather at quarter end. Revenue increased by 27%, while operating income decreased by about 50% due to a significant decline in the price of certain commodity-based products. Operating income margins decreased 290 basis points compared to the prior year quarter to 1.9%. These results are a reminder that our distribution segment is more seasonal, has more earnings volatility than our manufacturing segments. That said, for the year, our distribution segment delivered both record operating income and operating income percentage. We've done a lot of work over the last five years to drive increased profitability within the distribution business and are confident in our plans for 2023 and beyond. This leads me to our 2023 guidance. I am mindful that a number of economists are forecasting a slowdown or recession in the back half of 2023, leading to a wide range of forecasted potential macroeconomic outcomes. However, I am confident the foundation we build across each of our segments will enable growth in 2023. In fiscal 2023, we expect further supply chain improvements, easing foreign currency exchange headwinds, stabilization of inflation, and productivity improvements within our operations as supply delays and uncertainty declines. We expect demand for our groundwater pumps to benefit from a large installed base driving a large replacement business, as well as a favorable concentration of activity across the strong agricultural, industrial, and mining markets, and only a modest exposure to new construction in U.S. housing. We expect this favorable demand to similarly benefit our distribution segment. Our U.S. residential specialty pumps and water treatment product lines may face headwinds with greater exposure to new home starts, although supply constraints in 2022 will make comparables easier. We expect that our large pump business will benefit from significant demand across all end markets. Outside the U.S., we expect to see growth in all geographic regions as well, based in part on the IMF small but upward revision in its forecast for 2023 growth. In our fueling business, since last quarter, major fueling marketers in the U.S. have signaled that they plan to maintain and in some cases increase their investment plans. Outside the U.S., we expect the business to perform well across all regions with significant growth in India. Included in this segment is our small but rapidly growing product line focused on the monitoring of critical infrastructure assets. These devices monitor and test electric utility grid assets as well as telco, data center, and railway backup battery systems. With all these tailwinds, we are initiating 2023 guidance with full-year revenue expected to be between $2.1 and $2.2 billion, and diluted EPS to be between $4.10 and $4.30. I'd also like to briefly touch on the considerable progress we've made on our strategy over the past few years. Turn the clock back to the summer of 2018 when we set our long-term strategic and 2023 financial objectives. We set a 2023 revenue goal of $2 billion. and operating income goal of $250 million and a pre-tax return on invested capital of 20%. All of those were achieved in 2022, a full year ahead of plan. One leg of that strategy was enter the water treatment business in the U.S., which we did in 2019. Last year, we integrated all the water treatment acquisitions onto the same ERP platform. Based on our experience integrating the distribution businesses we've acquired over the last six years, we expect to see a meaningful improvement in operating leverage within our water treatment product line. Water treatment revenue run rate is approaching $200 million, and operating income growth is now double digits. Over the long term, we expect water treatment revenue to grow at or above the overall water system's growth rate. Another leg of that strategy was to build a profitable national groundwater distribution business. In 2022, the distribution segment again exceeded our goal of 5% to 7% operating income margin that we established in 2017. Being a natural extension from our leading U.S. groundwater market position, Our distribution business now has a total of more than 400 warehouse and remote inventory locations. We've been able to use these locations to better serve our customers how, when, and where they operate. While we continue to invest in acquired businesses to further our strategy and growth, we also continue to maintain a conservative capital structure with a leverage ratio of less than one time EBITDA. We have the dry powder necessary to supplement organic growth with strategic and or transformational M&A. Our strong financial performance, challenge sheet, and earnings growth have enabled us to announce a 15% increase in our dividend earlier this year. We have now increased our dividend in each of the last 31 years, resulting in a compound annual growth rate of 12%. With that, I'm going to hand the call over to Jeff to review our financials in more details. Jeff.