Lennox International, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Linux International Third Quarter Earnings Conference Call. At the request of your host, all lines are currently 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 star and the number 1 on your phone and pressing star and the number 2 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. I'm here today with CEO Alok Mascara and CFO Joe Reitmeyer. Alok will discuss highlights for the quarter, and Joe will take you through the company's quarterly financial performance and guidance for 2022. After that, Alok will discuss our current view on 2023 before Q&A. To give everyone time to ask questions during the Q&A, please limit yourself to two questions or follow-ups and re-queue for any additional questions. The earnings release with GAAP to non-GAAP reconciliations, today's presentation slides, and the webcast link for today's call are available on our website at www.linuxinternational.com. The webcast also will be archived on the site for replay. All comparisons mentioned today are against the prior year period unless otherwise noted. Turning to slide two, I would like to remind everyone that in the course of this call, we will be making certain forward-looking statements which are subject to numerous risks and uncertainties. For information concerning these risks and uncertainties, see Linux International's publicly available filings with the SEC. Before I turn the call over to Loke, let me remind everyone of our upcoming annual investor day on Wednesday, December 14th, when we will discuss specific guidance for 2023 and our three-year outlook, as well as provide an update on our strategy. Now let me turn the call over to CEO, Alok Mascara.

Good morning and welcome everyone. I want to start by thanking all our employees who are working exceptionally hard given the ongoing supply chain disruptions to better serve our customers. As a result of their efforts, Lenox was able to deliver another record quarter while improving our customer service level. On slide three, I want to start by highlighting four key messages. First, our record third quarter financial results included double digit revenue growth in all three of our business segments. Overall, company revenues were up 17% to a third quarter record of $1.24 billion. Adjusted earnings grew 21% to a third quarter record of $4.10. Second, we are prepared for the upcoming minimum efficiency regulation to be effective on January 1st, 2023. As part of the preparation, we are replenishing inventory levels, which will also help us increase supply chain resiliency. Given our inventory build, Cash from operations was $171 million in the quarter, down $51 million from a year ago. Third, the recovery in our commercial business segment is progressing well, and the daily output from our factory in Stuttgart is steadily increasing. Third quarter commercial segment profit was up 72% sequentially and up 31% year over year. We are also announcing investment in a second commercial factory to be built in Mexico. The total capital required for the new commercial factory is expected to be in the range of $125 million to $150 million over the next two years. The new commercial factory will provide us the much needed additional manufacturing capacity while enabling margin expansion. Fourth, Given persistent supply chain inefficiencies and the adverse mix impact driven by shortage of components for high-end residential products, we are revising our full-year EPS guidance range to the lower end of the prior range. Now, please turn to slide four to discuss our preparedness for the minimum efficiency regulatory changes. In our residential and commercial end markets in the US and Canada, the new required minimum cooling efficiency level for air conditioners, heat pumps, and rooftop units is increasing on January 1st, 2023. For air conditioners in the south and southwest regions, the change is based on date of installation. While for air conditioners in the north regions and for all heat pumps and rooftop products, The change is based on date of manufacture. For the new 2023 compliant units, we expect a double-digit benefit of price and mix to more than offset the higher cost of the units. For residential products, our competitive design includes single-stage compression, more efficient aluminum coils, and an optimized external footprint. This design approach achieves higher efficiency standards without having to change indoor units, making our solution better for dealers and end users. Linux historically has done very well competitively during these minimum efficiency transitions, and we believe we are well positioned to do so again. Now, please turn to slide five for an update on our commercial profit recovery efforts. At our existing Arkansas manufacturing facility, we have met our targets for hiring and retaining talent, resulting in staffing levels reaching normalcy, which is up 30% since April. Since achieving normal staffing levels, we are systematically increasing our daily output, which is now up 15% since April. Higher output is improving service for our customers who have been mostly understanding of our challenges given industry-wide supply shortages. We are grateful for our customers' loyalty and patience and want to assure them that we are doing our utmost to increase capacity and reduce lead times. We are deploying additional talent and working closely with our suppliers to satisfy current demand levels and remain committed to delivering additional manufacturing output and productivity from the existing factory. However, in the fourth quarter, we are expecting sequentially lower manufacturing efficiency and output as we transition our product line to build our newly launched Enlite and Zion products that meet or exceed the new minimum efficiency standards. Similar to residential, price positioning of the higher efficiency commercial products will enable us to more than offset the associated higher cost. Looking ahead, we have decided to invest in a second commercial factory in Salteo, Mexico, near our existing residential operations. The new factory will increase our capacity to support our customers' forecasted demand, and it will also position us to regain lost share, especially in the emergency replacement market. We expect and 80% lower hourly labor costs at this new facility, although some of those savings will be offset by higher freight costs. Overall, as commercial production continues to recover, we expect $100 million segment profit improvement within the next three years. With that, I will hold the call over to Joe on slide six to discuss full quarter financials and guidance for the full year. Thank you, Loke, and good morning, everyone.