Tetra Tech, Inc.

Good day and thank you for standing by. Welcome to the AO Smith Corporation fourth quarter 2024 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 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Helen Gerholt. Please go ahead.

Good morning, and welcome to the A.O. Smith Full Year and Fourth Quarter Conference Call. I'm Helen Gerholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer of Steve Schaefer, President and Chief Operating Officer, and Chuck Lauber, Chief Financial Officer. In order to provide improved transparency into the operating results of our business, we provided non-GAAP measures. Free cash flow is defined as cash from operations, less capital expenditures. Adjusted earnings, adjusted earnings per share, adjusted segment earnings, and adjusted corporate expenses exclude the impact of restructuring and impairment expenses and pension settlement income and expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include this, matters that we described in this morning's press release, amongst others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will be using slides as we move through today's call. You can access them on our website at investor.aosmith.com. I will now turn the call over to Kevin to begin our prepared remarks. Please turn to the next slide.

Thank you, Helen, and good morning. First, I'd like to start off by saying that I'm pleased to have Steve Schaffer joining us on the call today. Steve joined A.O. Smith in March of last year and has spent the last 10 months getting to know our business, people, customers, and operations. His global leadership experience and strategic acumen have brought a valuable perspective to our business as we continue to create value for our key stakeholders. I'm pleased to have Steve as a member of our leadership team. Turning to slide four and our financial performance. After a record 2023, our sales and earnings decreased in 2024. In North America, sales increased slightly as higher boiler and water treatment sales as well as water heater pricing benefits were offset by lower heater volumes. We experienced lower sales in China as a weak economy continued to negatively impact consumer demand which led to a 4% price decrease in our rest of world segment local currency third-party sales. Our legacy Indian business sales grew 13% in local currency in 2024, which is approximately two times the market. We closed the PURIT acquisition in the fourth quarter, which had a minimal impact on sales and earnings. With the strong business climate and the addition of PURIT, we continue to be excited about the long term prospects of our India business. We returned $496 million of capital to shareholders with our dividend and share repurchases. And also in the fourth quarter, we completed construction of our tankless manufacturing facility. We put into action a strategy to improve the margin profile of our North America water treatment business. We began the process of reorganizing our China business to reduce costs and position us for profitable growth as the economy returns, and we announced our new sustainability goal of a reduction in water usage of 40 million gallons of water by 2030. This goal follows our previously announced and already achieved 10% greenhouse gas emission reduction goal. Please turn to slide five. North America water heater sales decreased 1% in 2024 as pricing benefits were more than offset by lower volumes. We saw strong shipments in the first half of the year, which were then balanced out by lower second half as volumes were below our expectations. We project full year residential industry unit volumes were roughly flat to 2023. We are confident in our stable retail and wholesale customer base, strong partnerships, and competitive products. Based on customer conversations and certain stocking programs that we track, We believe our customers entered 2025 with water heater inventories in a normal to lean position. During 2024, residential new construction and replacement demand were resilient compared to 2023. We believe commercial industry unit shipments increased marginally year over year, driven by growth in commercial electric water heaters greater than 55 gallons. We project industry commercial gas units were down three to four percent in 2024. As a reminder, commercial gas has an average selling price of approximately three times that of commercial electric units, and therefore impacting our results more meaningful than the commercial electric growth. Our North America boiler business performed as expected, and sales increased eight percent compared to 2023, led by a Crest commercial boiler with Hellcat technology as well as our Knight FTXL, one of our commercial boilers that was impacted by the 2023 channel inventory destocking. We are pleased with our 2024 boiler performance and with our market share growth in that category. North America water treatment sales grew 10% in 2024, largely driven by acquisition-related geographic expansion. We saw growth in our dealer, direct-to-consumer, and e-commerce channel, that were partially offset by lower sales in the retail channel. We have taken action to rebalance our product portfolio and improve profitability. In the fourth quarter, we took a restructuring and impairment charge of $6 million to allow us to focus on the more competitive and financially attractive channels of the business. In China, four-year third-party sales decreased 6% in local currency as a result of a weaker economy and soft consumer demand, particularly in the second half of the year. Higher sales of kitchen products were more than offset by lower volumes of our core water heater and water treatment products. In the fourth quarter, we took a restructuring charge of $11 million. The actions taken will reduce costs by optimizing our business structure to better position us for profitable growth when the economy improves. In the fourth quarter, the appliance-trained stimulus program generated increased demand for our products relative to the third quarter. This increased sales demand helped our customers reduce their inventory levels and improve working capital. I'll now turn the call over to Chuck, who will provide more details on our full year and fourth quarter performance.