Franklin Electric Co., Inc.

Hello, and thank you for standing by. Welcome to the Franklin Electric Report second quarter 2023 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 11 on your telephone. You will then hear an automated message advising that your hand has been raised. If you wish to lower your hand, Press star 1-1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Finance and Investor Relations, Sandy Statzer.

Thank you. Thank you, Andrew. And welcome everyone to Franklin Electric's second quarter 2023 earnings conference call. With me today is Greg Stenstack, our chairperson and executive or chief executive officer and Jeff Taylor, our Vice President and Chief Financial Officer. On today's call, Greg will review our second quarter business highlights, then Jeff will provide an overview of our financial performance. We will then take questions. Before we begin, let me remind you that 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 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 Greg Synstack.

Thank you, Sandy. The Franklin team delivered another strong quarter of performance, which included record sales and earnings per share results for any quarter in Franklin's history. These record top line results were driven by our water systems and distribution segments. Throughout the quarter, we saw solid demand continue across our core end markets and geographic regions, even as each business continued to face weather-related headwinds. Strong execution and disciplined expense management by our global teams enabled us to deliver solid margins in all of our businesses. This was especially notable in our fueling system segment, which reported second quarter record operating income and year-over-year operating income growth on lower year-over-year sales. The second fiscal quarter is the start of the busy season for our core northern hemisphere markets and when we typically build inventories to meet demand. However, as the performance of our supply base continues to improve, during the quarter we focused on reducing inventories to more normalized levels. This operational focus and agility allowed us to accelerate shipments and convert backlog, sequentially decreasing inventory by $26 million and reducing our backlog to $186 million. As a result, our year-to-date cash flow improved by $105 million over the prior year. We still have some work ahead of us, but we continue to make progress on our commitments to improve our cash flow generation. Turning to our segments, Water Systems delivered record sales and operating income for any quarter in its history, with revenues and operating income each increasing approximately 4%, driven by robust sales of our large key watering pumps, and year-over-year growth in other surface pump products. Our groundwater business was solid despite being negatively impacted by weather weather in the U.S. and other regions in previous few years and our intentional reduction of inter-segment sales. As our lead times are improving, we are reducing transfers to our headwater distribution segment to right-size their inventory of our products. We expect that other customers are right-sizing their inventories as well. We believe these weather and destocking headwinds to be transitory, and we continue to see healthy end market demand across our business. For example, in our water treatment business, our direct sales to consumers this quarter were up about 10% sequentially as we were lapping the housing market slowdown that started last summer. Overall, water systems reported an operating margin of 16% flat year over year, as leverage from sales growth was offset by the mixed impact from large water and pump volumes. Fueling Systems reported a revenue decrease of 7% compared to the prior year period, while delivering strong operating margins and record second quarter operating income. Half of the sales decrease was due to us exiting our tank manufacturing business located in the United Kingdom. Fueling Systems' record second quarter operating margin of 33.2%, an increase of 290 basis points compared to the prior year period, was driven by robust demand for our higher margin critical asset monitoring fuel management systems, and grid solution products. During the quarter, we experienced further supply chain improvements, though chip and certain component availability continues to be a challenge. While we understand that major convenience store marketer customers are not reducing their planned build programs, solar programs have slowed such that it appears that several planned 2023 new industry builds are now likely to be completed in early 2024. We expect that higher interest rates, weather, and the availability of construction labor have all had an impact on the timing of these new builds. We believe we are gaining market share in fuel management systems and continue to build momentum with convenience store marketers. Further, the well-documented stress in the electrical grid is driving investment in our grid solution critical asset monitoring products. This investment appears to be accelerating. Distribution revenue increased 1% in the prior year period, despite unfavorable weather impacting the start of contractor installations. Commodity pricing continued to decline, and customer inventory is trending to more normalized levels. Operating income decreased about 24%, primarily driven by lower commodity prices. The segment delivered an operating margin of 9.2%, a historically strong margin, though 300 basis points below last year's record operating margin, which was aided by last year's strong inflationary environment. More importantly, the operating margin increased sequentially by 590 basis points, reflecting a normal seasonal pickup in the second quarter. The team remains focused on executing our strategy to grow and leverage the foundation we built in the distribution business for the last several years. Our balanced capital allocation strategy remains unchanged. We evaluate each opportunity on its economic and strategic merits and continue to return capital to shareholders through dividends and share repurchases invest in our business, and explore M&A opportunities. While we are mindful of the macroeconomic pressures that continue to persist and the transitory issues of weather and the impact of channel inventory rightsizing across all three of our reporting segments, we're optimistic about the underlying demand in our core markets. Our second quarter results keeps us on track with a full-year 2023 guidance, which was raised last quarter. As a result, we are reaffirming our 2023 full-year sales and EPS guidance range $2.15 billion to $2.25 billion in revenue, and $4.25 to $4.45 in earnings per share respectively. Before turning the call over to Jeff, I'd like to mention our 2023 sustainability report, which was just published in June and has expanded from previous years. This year's sustainability report provides an update on the progress we have made on several ESG initiatives, as well as areas of focus for the next few years. I'm proud of the progress we have made in our ESG performance, as reflected in this year's sustainability report. But as I said earlier, we have more work to do. With that, I will now turn the call over to Jeff for the financial highlights.