A.O. Smith Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the A.O. Smith First Quarter Results 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 that 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, Ms. Ackerman, Senior Vice President, Investor Relations. Corporate Responsibility and Sustainability and Treasurer. Thank you. Please go ahead.

Thank you, Rache. Good morning, ladies and gentlemen, and welcome to the A.O. Smith First Quarter 2020 Results Conference Call. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauer, Chief Financial Officer. Before we begin with Kevin's remarks, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release. As a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have more than two questions, please rejoin the queue. I will now turn the call over to Kevin, who will begin our prepared remarks on slide three.

Thank you, Pat. Undoubtedly, these are unprecedented times. With safety and well-being of our employees as the highest priority, I am extremely proud of our entire team supporting our customers with essential water heating and water treatment products to combat this virus. As a result of the COVID-19 pandemic and in support of continuing our manufacturing efforts during this time, we have undertaken numerous meaningful, in some cases extraordinary steps in our manufacturing plans to protect our employees. These steps include plant accommodations and reconfigurations, to maintain social distancing, mask availability to all employees, deep cleaning, quarantine individuals with positive tests or potential exposure to the virus for 14 days, and restricting access to facilities, among others. While these steps result in lower manufacturing efficiencies in some cases, our focus is on safety first. The majority of our office personnel have been working from home and have done a great job and maintaining productivity and support of the business. As offices have reopened in China and will soon in other countries and in the U.S., we have implemented return-to-office protocols, which include bringing back office staff in waves over a two-month period, making masks available, more frequent cleaning of common areas, sanitizing stations throughout the office areas, and limited use of conference rooms for small group meetings to maintain social distancing. Our long-term relationships, in many cases decades long, and strength of our partners within various channels, including wholesale distributors, DIY retail, hardware stores, plumbing supply, and independent reps are particularly important as we provide the essential water heating and water treatment products critical to uninterrupted operations of hospitals, clinics, grocery stores, food service companies, and many more, including the households that many are now using to conduct business and education. Our global supply chain management team proactively monitors and manages the ability to operate effectively and identify bottlenecks. To date, we have not seen any meaningful disruption in our supply chain. We engaged in ongoing communication with our supply chain partners to identify and mitigate risk, including multi-sourcing and managing inventory at higher levels. Our recent implementation of SAP has provided improved management tools and visibility into our supply chain. Additionally, we have improved our manufacturing flexibility as a result of water heater tank standardization projects over the last five years. Standardization greatly improves our ability to shift manufacturing work from one plant to another should the need arise. The stability afforded by the replacement component in residential and commercial water heater and boiler demand, which we estimate at 85% of the U.S. unit volume, puts us in a position of strength as we navigate through this pandemic. We estimate replacement demand is 40% to 50% in China. While we are in a position of strength, similar to 2008 and 2009 timeframes, We expect to see lower demand for the majority of our products and have a proactive in managing costs. We have increased our cost reduction programs in China. We continue to monitor the North American environment and customer demand to potentially take further actions such as furlough programs and other restructuring. A.F. Smith is in a solid financial position with positive cash flow and a strong balance sheet. I will turn the call over to Chuck. who will elaborate on our cash and liquidity on slide four.