Lennox International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Lenox International First Quarter 2021 Earnings Conference Call. At the request of your host, all lines are in a listen-only mode. There will be a question and answer session at the end of the presentation. You may enter the queue to ask a question by pressing 1 and 0 on your phone. Pressing 1 and 0 again exits the queue. As a reminder, this call is being recorded. I would now like to turn the conference over to Steve Harrison. Vice President of Investor Relations. Please go ahead.

Good morning. Thank you for joining us for this review of Linux International's financial performance for the first quarter of 2021. I'm here today with Chairman and CEO Todd Bludorn and CFO Joe Reitmeyer. Todd will review key points for the quarter and Joe will take you through the company's financial performance and outlook for 2021. To give everyone time to ask questions during the Q&A, please limit yourself to a couple of questions or follow-ups. and re-queue for any additional questions. In the earnings release we issued this morning, we have included the necessary reconciliation of the non-GAAP financial measures that will be discussed to GAAP measures. All comparisons mentioned today are against the prior year period. You can find a direct link to the webcast of today's conference call on our website at www.linuxinternational.com. The webcast will be archived on the site for replay. I would like to remind everyone that in the course of this call, to give you a better understanding of our operations, we will be making certain forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Linux International's publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise. Now let me turn the call over to Chairman and CEO Todd Bluedorn.

Thanks a lot, Steve. Good morning, everyone, and thank you for joining us. In the first quarter, we continue to see strong momentum in our residential business, combined with strong improvement in commercial and refrigeration, as the overall company set new first quarter highs for revenue, profit, and earnings per share. Overall for the company, revenue is up 29% to a new first quarter record of $931 million. That constant currency revenue was up 28%. GAAP operating income was a first quarter record $114 million, up 213%. GAAP EPS from continuing operations was a first quarter record $2.20, up 588%. Total segment profit rose 208% to a first quarter record of $116 million. Total segment margin expanded 720 basis points to 12.4%. And adjusted EPS from continuing operations rose 305% to a first quarter record $2.27. Looking at our business segments for the first quarter, we realized double-digit revenue growth and margin expansion in all three businesses. In residential, we set new first quarter highs for revenue and profit. Residential revenue is up 37%. Segment profit rose 197 percent, and segment margin expanded 850 basis points to 15.9 percent. Replacement business was up more than 40 percent, and new construction was up more than 25 percent. Breaking it down between our Lenox business and our Allied business, Lenox revenue was up about 25 percent, and Allied was up about 70 percent. Strong growth rates. Let me take a moment to unpack the strength we saw in residential and the corridor. First, with strong operational execution, our residential team is capitalizing on its ability to deliver to meet contractor and distributor demand and gain share. Post the 2018 tornado and initial 2020 pandemic impact, we are back on offense with production, distribution, and executing our playbook for market share gains. Second, residential benefited from the colder winter weather with heating degree days up 13% from the first quarter last year. You may recall we had a soft first quarter in 2020. Third, I would like to note that we had a 6% benefit to revenue for more days in the quarter this year than last year. That happens every four years as we reset the calendar. Conversely, the fourth quarter will have a 6% headwind from fewer days in the quarter this year. This applies to residential as well as all our other businesses. Adjusting for the days, residential grew 31% with Lenox growing nearly 20% and Allied growing about 65%. In addition for Allied, we had approximately 25 million of pull forward in the first quarter from different distributor loading patterns this year than last year. Adjusted for both days and this pull forward, Allied was up approximately 35% in the quarter. Working through all this math I gave, adjusting for days and the pull forward in our Allied business, which sells to independent distribution, overall residential segment revenue was up about 25%. We believe this compares to mid-teen sell-through for the industry, driven in part by the favorable cold weather that I talked about. Our performance That is above that is due to market share gains. As I mentioned earlier, we are back on the offensive with production, distribution, and executing our playbook for gaining share. The team has had strong operational execution to drive this outperformance, and we are well positioned for the summer season and our largest seasonal quarters. In commercial, revenue, segment profit, and margin were all first quarter records. Revenue is up 12%. At constant currency, revenue was up 11%. Segment profit was up 47%, and segment margin expanded 330 basis points to 13.8%. In the first quarter, we saw broad strength in commercial, as year-over-year growth turned positive across all of our businesses. At constant currency, commercial equipment revenue was up mid-teens in the quarter. Within this, replacement revenue was up mid-teens, with planned replacement up mid-teens and emergency replacement up high-teens. New construction revenue is up high single digits. Breaking out revenue another way, regional and local business revenue is up mid-teens. National account equipment revenue is also up mid-teens. Our team won three new national account equipment customers in the quarter. On the service side, the next national account services revenue is up mid-single digits. VRF revenue is up mid-30s percentage. Some highlights to mention for commercials. Schools continue to be an area of focus for us. We have a dedicated sales force and product line that will drive a multi-year growth opportunity for us in this market. Today, K-12 schools are just a little under 10% of equipment revenue for this segment. This business was up more than 20% for us in the first quarter. And given the recent stimulus package that benefits HVAC indoor air quality spending for schools, we expect K-3 schools to be a growth vertical for us moving forward. Indoor air quality continues to be an important focus for us with our Building Better Air initiatives. Most interest and activity we are seeing are in this K-12 school segment, but conversations are taking place with many customers across many industry verticals. We have launched our new Model L rooftop unit as we continue to lead the field in energy efficiency. The Model L features variable speed technology and an all-new advanced control system. We are seeing high customer interest in this industry-leading product for 2021 and beyond. Overall, for commercial entering the second quarter, momentum continues with backlog of double digits and strong order rates. In refrigeration for the first quarter, revenue is up 21 percent. At constant currency, revenue is up 17 percent. In North America, revenue is up more than 25 percent. Europe refrigeration revenue is up low single digits at constant currency. In Europe, HVAC revenue was up mid-single digits, a constant currency. Refrigeration segment margin expanded 560 basis points to 6.3%. Segment profit rose to $8 million from $1 million in the prior year quarter. Like in commercial, momentum continues for refrigeration entering the second quarter, with backlog up double digits and strong order flow led by North America. The strong performance for the company overall in the first quarter In outlook for the second quarter of the year, we are raising 2021 guidance. We now expect 7% to 11% revenue growth and adjusted EPS from continuing operations of $11.40 to $12. We are also raising free cash flow guidance to $375 million for the full year. We now assume about 55% of earnings in the first half of the year compared to the prior guidance of about 50%. This reflects a strong first quarter performance and second quarter outlook. We repurchased $200 million of stock in the first quarter and plan on another $200 million for a total of $400 million in our guidance for the year. Now I'll turn it over to Joe.