Franklin Electric Co., Inc.

Hello and welcome to the Franklin Electric Report's fourth quarter 2023 and full year 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, 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, Andrew, and welcome everyone to Franklin Electric's fourth quarter and full year 2023 earnings call. With me today is Greg Sunstack, our Chairperson and Chief Executive Officer, and Jeff Taylor, our Chief Financial Officer. On today's call, Greg will review our fourth quarter and full year 2023 business results along with guidance for 2024. Jeff will provide additional detail on 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 accept as required by law the company assumes no obligation to update any forward-looking statements. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Franklin Electric's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the company investor presentation, which is available on our website. With that, I will now turn the call over to Greg.

Thank you, Sandy, and thank you all for joining us. We delivered a solid quarter and finished in 2023. From Q3 to Q4, sequentially, we experienced more of the same market conditions with wetter weather and customer destocking continuing in the U.S. and to a lesser degree, Europe. And we experienced continued commodity pricing pressure in our distribution business. Overall reported sales were down $16 million, or 3%, mainly driven by lower volume in fueling systems and a $13 million negative impact from foreign exchange, partially offset by favorable pricing. Even with soft demand, we delivered solid operating margins in water and fueling for the quarter. Our manufacturing margins remained healthy throughout 2023, driven by continued cost controls. For the full year of 2023, we delivered sales growth of 1%, driven by pricing partially offset by negative foreign exchange and lower volumes in fueling systems. Operating income grew 2% due to the strong performance in water systems and cost management across the company. Operating margins expanded to water and fueling with 140 and 230 basis points improvements over 2022, respectively. Sales of our critical asset monitoring products within our fueling business also set a full year record. Our distribution business was negatively impacted by commodity pricing pressure and destocking activity. Our continued focus on the management of working capital translates into strong cash flow generation in both the fourth quarter and the full year. Our operating cash flow improved by approximately $214 million as compared to 2022, resulting in free cash flow conversion of 142%, Free cash flow conversion was well above our five-year average of 106%. We used this cash to reduce our outstanding debt by over $115 million, complete several small acquisitions, and return cash to shareholders through increased dividends and stock repurchases. Our net debt is near zero, and we delivered a nice step up in our return on invested capital to 17.2%, an increase of 70 basis I am incredibly proud of the Franklin team for their commitment to driving operational excellence. We are proud to be named in Newsweek's list of America's most responsible and trustworthy companies for two consecutive years. We were also recognized by USA Today as one of America's climate leaders for 2023. Turning to our segments, for the quarter in water systems, sales declined less than 1%, overcoming a 5% foreign currency headwind. Demand in the US for our large dewatering products was strong, setting a quarterly record with 13% growth and full-year record growth of 63%. In the U.S., demand for groundwater pumping systems was impacted by continued unfavorable weather patterns in the western U.S. and customer destocking. Our water treatment product lines were challenged by soft housing starts and existing home sales. Outside the U.S., water systems had solid demand in Latin America, while EMEA and Asia Pacific were relatively flat. Operating income margin for the quarter was 15.8%, essentially flat with the prior year. For the full year, pricing actions and continued cost management more than offset inflationary challenges, driving an improvement in operating income margin of 16.3%, an increase of 140 basis points compared to last year. Fueling system sales and operating income decreased 23% and 20% respectively in the fourth quarter. lapping a difficult year-over-year comparison of record fourth-quarter revenue and operating income in 2022. While end-market demand remains healthy, fueling systems was negatively impacted by the continuation of customer inventory to stocking, driving lower volumes. Higher interest rates, labor constraints, and permitting delays caused some new station build plans to move into 2024. Favorable price and cost containment contributed to overall fueling systems' fourth-quarter operating margin of 29.5%, an increase of 110 basis points compared to the prior year. We continue to see strong growth in our critical asset monitoring products, which closed out in record use. Overall, the tooling systems team did an excellent job delivering for our customers while managing costs to maintain our operating margins. The U.S. distribution segment was impacted by normal seasonality, the stocking, and continued unfavorable weather that reduced demand. Sales decreased by approximately 1%, while operating income decreased by 66% due to continued commodity pricing pressure. The operating income margin of 0.7% decreased 120 basis points compared to the prior year quarter. These results are a reminder that our distribution segment is more seasonal, with lower volume in Q4, as more earnings volatility in our manufacturing segments. As mentioned last quarter, we continue to make key investments to expand onsite inventory for large contractors, Year over year, we have 33% more on-site inventory or OSI containers deployed across the country, which is an integral part of our strategy to better serve our customers by making products available when and where they are needed. For the year, even with the demand and margin challenges, our distribution segment delivered 5.1% operating income. You may recall that when we established this business in 2017, we stated that the anticipated operating income of this segment would range between 5% and 7%. Over the last four years, it has averaged around the midpoint at 6%. As the business continues to mature and we're able to gain efficiencies with our footprint and technology, we look to raise our expectations for operating income. We completed two small acquisitions in the fourth quarter. In early December, we acquired the assets of Action Manufacturing and Supply Incorporated, now part of our water treatment product line within our water system segment. Action Manufacturing is a producer and wholesale distributor of residential water conditioning, filtration, and indoor-outdoor aeration systems with operations in Florida and North Carolina. Including this acquisition, our water treatment product sales are approaching $200 million a year. With a continued growth focus in our distribution segment, we also acquired a professional groundwater distributor, WaterWorks Pumps, located in Springfield, Missouri, to expand our reach in Midwest markets. We welcome our new colleagues from Action and WaterWorks to the Franklin family. While we continue to invest and acquire businesses to further our strategy and growth, we also continue to maintain a conservative capital structure. With a net leverage ratio near zero, we are well positioned to execute on both organic growth and strategic acquisitions. Turning to our 2024 outlook, we anticipate 2024 to start much like 2023 ended and improve as we move through the year. Our outlook anticipates lower levels of destocking activity, normalizing weather conditions in the U.S., a reduction in large dewatering pump volume from our record 2023 performance, improved housing starts and existing home sales, and continued pricing pressure. We also anticipate continued supply chain improvements, greater confidence in lead times, lower rates of inflation, and productivity improvements. We look for demand of our groundwater pumps to continue to benefit from a large replacement business, a favorable concentration of activity across the agricultural, industrial, and mining markets, and only modest exposure to new construction in the U.S. housing market. We foresee this demand to similarly benefit our distribution segment. We also expect our U.S. residential specialty pumps and water treatment product lines to face fewer headwinds from exposure to new home starts and existing home sales. Outside the U.S., we expect to see Latin America and South America business improve, Europe to stabilize, and Asia-Pacific business to experience a meaningful recovery. In our fueling business, major marketers in the U.S. have signaled they plan to maintain their investment plans in 2024, albeit at normalized levels after several robust years. Labor constraints are expected to ease and permit activity to return to normal. In our distribution segment, we look to gain momentum through the year and build on our recent acquisition. Promoting pricing pressures, especially for pipe products, should stabilize as we enter 2024. With that, we are initiating 2024 guidance with full-year sales expected to be between $2.1 billion and $2.17 billion, and diluted earnings per share, or EPS, to be between $4.22 and $4.40 per share. I'm now going to hand the call over to Jeff to review our financials in more detail. Jeff.