Lennox International, Inc.

Welcome to the Lenox First Quarter 2023 Earnings Conference Call. All lines are currently in a listen-only mode, and 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 the star and 1 on your phone. To exit the queue, press star and 2. As a reminder, this call is being recorded. I would now like to turn the conference over to Chelsea Pulsion from Lenox Investor Relations Team. Chelsea, please go ahead.

Thank you, Brittany. Good morning, everyone, and thank you for joining us for Lenox's first quarter earnings results. I'm here today with CEO, Alok Miskara, CFO, Joe Reitmeyer, and VP of Finance, Michael Kuenzer. Alok will discuss highlights for the quarter, and Joe will take you through the company's quarterly financial performance and our view on 2023 fiscal guidance. After that, we will have a Q&A session with Alok, Joe, and Michael. Turning to slide two, A reminder that during today's call, we will be making certain forward-looking statements which are subject to numerous risks and uncertainties as outlined on this page. Please refer to our SEC filings available on our website for additional details. All comparisons mentioned today are against the prior year period unless otherwise noted. Speakers may also refer to certain non-GAAP adjusted financial measures that management may consider to be relevant indicators of underlying business performance and trends. A reconciliation of all GAAP to non-GAAP measures is included in today's earnings press release, SEC filings, and in the appendix of this presentation. The earnings release, today's presentation slides, and the webcast archives link for today's call are available on our website at www.lennonsinternational.com. Now let me turn the call over to our CEO, Alok Mascara.

Thank you, Chelsea. Good morning and welcome everyone. Allow me to start by sharing my appreciation for all of our employees whose hard work has enabled us to deliver exceptional performance this quarter, including record quarterly earnings per share. We take great pride in our team's effort to gain share, expand margin, and seamlessly transition our product portfolio to meet the new minimum energy efficiency regulations. This successful quarter reflects our company's product leadership, strong direct customer relationships, and advanced digital platforms. These factors will continue to fuel our share gain and margin expansion for the foreseeable future. I want to also take this opportunity to thank our dealers and customers for their loyalty to Lenox as we improve our service levels while delivering the best HVACR products and solutions in North America. Now, please turn to slide three, where I want to highlight four key messages. First, Lenox is proud to report another quarter with record financial results. First quarter, 2023 core revenues grew 3%. Our margin expanded 210 basis points, resulting in our adjusted EPS increasing 15% to $2.83. Our free cash usage this quarter was $114 million, which is typical given the seasonality of our business. Second, we are pleased with the pace of margin recovery in our commercial business segment. Our profits more than doubled compared to last year as manufacturing operations stabilized and the benefit of price and mix outpaced inflationary cost increases. Third, we continue to help our dealers and customers succeed during the transition to the new minimum efficiency regulations that went into effect on January 1st, 2023. Our superior design and successful track record of executing during regulatory changes in conjunction with improved service inventory levels has put us in a strong position to gain share. Fourth, given the strong quarterly results, we remain comfortable with our previously issued full-year financial guidance. We continue to closely monitor end-market sentiments, track movements in commodity pricing, and execute countermeasures, including additional price increases. We are also optimizing our inventory levels, given improved lead times, and current sales outlook. Now, please turn to slide four for our view on the current end market conditions. In the residential end market, we are experiencing destocking in our two-step distribution channel just as we had expected. We anticipate the destocking to continue through the beginning of second half of this year. Volume in our direct-to-dealer channel was flat in Q1 However, we are expecting softness later in the year, driven by fewer new housing starts in 2022. We are closely monitoring consumer confidence for any changes that may impact the replacement versus repair decisions, but we are also encouraged by the recent improvement in the new housing starts. There is no change in our full-year outlook for mid-single-digit decline in residential unit volumes. In commercial, our backlog is strong and our lead times have improved as the factory situation has stabilized. The industry lead time for commercial equipment remains extended due to the shortage of common components. We still believe that commercial sales will grow by high single digits this year. On the price versus inflation balance, we are price-cost positive. but we are monitoring recent inflation in commodities such as steel and copper. To offset the higher material cost, we have implemented a targeted residential price increase that will become effective on June 18th this year. Overall, we are well positioned to gain share with our success in seamlessly transitioning to the new minimum efficiency standards and given our improved service inventory levels. In addition, We are strengthening our go-to-market organization by adding more field resources and offsetting those investments by driving back office SG&A productivity. Now, please turn to slide five. To accelerate our profitable growth and to expand margins, we are investing in pricing excellence at Lenox. Over the past few years, we have managed to offset inflation with price But there remains a significant opportunity for us to refine our pricing strategy to derive greater benefits from both price and mix. We are strengthening our pricing infrastructure by increasing price analytics, engaging outside experts, and further developing our internal talent. Recently, we have revised our company-wide contract signing authority to ensure appropriate scrutiny over key account pricing, and have redirected new business development on higher margin channels and applications. We also plan to expand our rebate auditing process and take all the necessary steps to increase price netting. Another priority of ours is to work with our larger key accounts to optimize our cost to serve so that we can establish win-win partnerships. In summary, We know that pricing excellence is an important step towards Lenox regaining our competitive margin advantage, and thus, we are increasing our focus to meet or exceed our long-term margin goals. Later in the presentation, I will provide an update on our long-term goals, but for now, I'm going to hand the call over to Joe Reitmeyer, who will go through our first quarter financial performance.