A.O. Smith Corporation

Good day, and thank you for standing by. Welcome to the A.O. Smith Corporation fourth quarter 2021 earnings 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 one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Patricia Ackerman. Please go ahead.

Thank you, Shannon. Good morning and welcome to the A.O. Smith fourth quarter and full year 2021 conference call. I'm Pat Ackerman, Senior Vice President, Investor Relations and Corporate Responsibility and Sustainability. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, Chuck Lauber, Chief Financial Officer, and Helen Gerholt, Vice President, Financial Planning and Analysis. 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 matters that we have described in this morning's press release, among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up question 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 slide four.

Thank you, Pat, and good morning, everyone. Thank you for joining us today. I'm on slide four in our full year results. Our team delivered record-setting sales and EPS performance despite a turbulent macro environment. Demand for our products in North America was strong, and unprecedented inflation-related pricing actions drove sales 19% higher over 2020. The rest of the world segment performed well in 2021. China improved its operating margins to over 9%. We successfully navigated supply chain and transportation challenges and improved our delivery performance since the first quarter. We acquired Giant, a water heater manufacturer in Canada, expanding our market share in North America, and welcoming a talented group of employees to the A.O. Smith family. With our dividend and share repurchases, we returned $537 million of capital to our shareholders. Please turn to slide five. Our global A.O. Smith team delivered record 2021 EPS of $3.02, a 42% increase that was driven in part by a record 22% increase in sales compared with 2020. Demand for our products was robust across geographies. We achieved a strong performance as a result of continued outstanding operational and sales execution from our team, despite the challenging environment of component shortages, logistical bottlenecks, and material and transportation cost inflation. I want to take the opportunity to thank my fellow A.O. Smith employees for their ongoing dedication and creativity as we work to overcome these challenges to meet strong market demand and deliver for our valued customers. North America water heater sales grew 21% in 2021 due to pricing actions implemented in response to rising material and logistic costs and strong demand for our products. Commercial and industry demand increased approximately 11%, due to the resumption of new construction and replacements in the hospitality market segment. Residential unit industry demand increased by approximately 8% in 2021, due to strength in new construction and strong replacement demand. Our North America boiler sales grew 13%, driven by new construction and replacement demand, as well as the launch of new products. We ended 2021 with a record backlog, largely composed of commercial condensing boilers, And January continues to generate strong water rates for these market-leading, energy-efficient boilers, providing confidence in our outlook for the coming year. Our strategy to focus on innovation and decarbonization contribute to strong demand for our high-efficiency condensing boilers. North America water treatment sales grew 14% in 2021 as we continue to pursue additional market share in this attractive, fragmented market. with a total addressable market value that we estimate to be $2.6 billion. Our strategy to pursue this market with an omnichannel approach has worked to grow our share through innovation, product development, and acquisition opportunities. We believe our independent water quality dealers have been outperforming the market and gaining market share. In China, four-year sales increased 24% in local currency compared to 2020. which was significantly impacted by the pandemic. Each of our major product categories grew year over year, including electric, gas tankless water heaters, and residential and commercial water treatment products, along with replacement filters. Our water treatment business, comprised of residential, commercial, and filter replacement consumables, now represents approximately 30% of our overall business, with repeatable consumable filter sales representing over 20% of overall water treatment sales. I'm now on slide six. We know the efficient operation of water heaters and boilers can make a significant impact on mitigating climate change. We are committed to doing our part. Reduction in energy use and greenhouse gas emissions are often top priorities for both consumers and contractors. As a result, adoption of sustainable building guidelines such as LEED and well building certifications continue to increase. I'd like to highlight some of our products that contribute to sustainable building practices and decarbonization efforts. Heat pump technology is a key consideration for many customers looking for a smart solution in both commercial and residential projects. A heat pump water heater harnesses the heat in the ambient air and transfers it to the water in the tank. We believe we are one of the technology and market share heat pump water heater leaders in North America. and are well-positioned to help our customers reduce their carbon footprints through innovative products. Adopting commercial and residential ENERGY STAR certified products can contribute to lowering greenhouse gas emissions and reducing negative environmental impact. A.O. Smith is proud to manufacture more than 1,000 models of ENERGY STAR certified products, many of which are eligible for incentives via national eco-rebates programs. The launch of our newest Crest commercial boiler with Hellcat combustion smart technology is a significant achievement for us, as it enhances the energy efficiency of our existing highly efficient Crest condensing boiler. Crest boilers with Hellcat technology reduce startup, maintenance, and operating costs for our customers. I'll now turn the call over to Chuck, who will provide more details on the full year and fourth quarter performance.