A.O. Smith Corporation

Good day, and thank you for standing by. Welcome to the second quarter 2025 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 is raised. To withdraw your question, please press star 11 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 Gerholtz, please begin.

Good morning, and welcome to the A.O. Smith second quarter conference call. I'm Helen Gerholtz, Vice President, Investor Relations and Financial Planning and Analysis. Today, I'm joined by Steve Schaefer, Chief Executive Officer, and Chuck Lauber, Chief Financial Officer. Within today's presentation, we have provided non-GAAP measures. Free cash flow is defined as cash from operations plus capital expenditures. 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 matters that we 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 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 Steve to begin our prepared remarks.

Thank you, Helen, and good morning, everyone. We believe A.O. Smith has an outstanding foundation for profitable growth as a global water technology leader. I am both honored and excited to build on this foundation as the company's new CEO and am confident in our company's future. This future will be powered by the many dedicated and capable A.O. Smith colleagues I have started to get to know over the past year and a half, and I look forward to the journey we have in front of us together. Later in our prepared remarks, I will share some of my early thoughts on priorities going forward that I believe will be most impactful in delivering that bright future for us. But first, I would like to go through our second quarter performance, our updated guidance for the year, and the announcement regarding our China business. Now, turning to slide four and our financial performance in the quarter. North American water heater sales decreased 2% in the second quarter, driven by lower volume. Shipments in the first half of 2024 benefited from pre-buy related volumes ahead of an announced price increase. This year, we believe the industry once again bought ahead of price increases and tariff risks. We decided to take a more proactive approach by working closely with our customers to better align order rates to our strategy of smoothing production schedules in order to achieve greater operational efficiency. Like the overall industry, we still benefited in the quarter from a demand pull forward. However, our 2025 pull forward impact was less pronounced compared to the demand pull forward we experienced in 2024. And we expect to gain operational efficiencies through the year because of these actions. Our North America boiler sales increased by 6% compared to the second quarter of 2024, led by higher volumes of our high efficiency commercial boilers. North America water treatment sales increased slightly in the second quarter as growth in our priority channels, e-commerce, dealer, and direct-to-consumer, continued to offset expected retail declines. In addition to the growth in these priority channels, we are pleased with the improved profitability it provided, which helps contribute to North America segment operating margin expansion in the quarter. In China, second quarter sales decreased 11% in local currency as the ongoing economic challenges and limited availability of government subsidy programs outside of Tier 1 and 2 cities resulted in lower volumes. We maintained our operating margin year-over-year despite lower sales due to our 2024 restructuring initiatives and other cost control measures. In addition to announcing our Q2 performance in China, we are also announcing today that we are initiating a process to further assess our China business in an effort to ensure that it's best positioned to compete and succeed in the future. We intend to evaluate a broad range of options in addition to further business improvement, including strategic partnerships and other alternatives. As we announced in Q4 of last year, given the market conditions, we have been working to optimize the operating structure in China and reduce costs to better position the business for the future. These initiatives are already delivering positive results. We are on track to achieve $15 million in annual benefits, which have resulted in sequential margin improvement quarter over quarter. Despite the current macroeconomic challenges, we believe the China market has substantial long-term potential. Our China business also has many competitive strengths, including a premium brand position, differentiated innovation capabilities, a well-established distribution network, and a talented local team. We are committed to realizing the full potential inherent in our China business for our company and our shareholders while benefiting our employees, valuable partners, and customers. We believe that the assessment announced today will allow us to properly understand the potential options available to realize the full potential of the business. As the review progresses, we will continue to deliver best in class products and service just as we always have. Please turn to slide five. I would now like to take a moment to discuss innovation at A.O. Smith. As a water technology leader, we continue to invest in and launch new to the world differentiated products. And I would like to highlight a few of those offerings today. We recently introduced the second product in our ADAPT gas tankless line, the ADAPT SD, which is our standard condensing product featuring industry-first integrated scale prevention technology. This product is positioned in the high volume segment of the tankless market and is the latest proof point in our commitment to become the North American leader in tankless technology. We have also just launched our HomeShield Whole House Water Filter, which is certified to reduce PFAS to less than four parts per trillion for 500,000 gallons of water. In addition to taking whole house PFAS reduction performance to a new level, it is also easier to install and provides both economic and ecological benefits for the homeowner. Next month, we will introduce the Cyclone Flex. the next generation of our industry-leading commercial water heater that is smarter, more efficient, and more flexible than ever. Staying the industry leader means never standing still, and this product is a continuation of our long history of cyclone enhancement and will help ensure we are best positioned for the 2026 regulatory change in the commercial market and remain the industry's number one specified yet commercial gas water heater. These are just a few examples of the exciting pipeline of new products we are bringing to market that has us confident in our future. I'll now turn the call over to Chuck, who will provide more details on our second quarter performance.