Pentair PLC

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Pentair PLC 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jim Lucas. Thank you. Please go ahead.

Thanks, Mariama. And welcome to Pentair's second quarter 2020 earnings conference call. We're glad you could join us today. I'm Jim Lucas, Senior Vice President, Treasurer and Investor Relations. And with me today is John Stauk, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer. On today's call, we will provide details on the second quarter 2020 performance, as well as our full year 2020 outlook as outlined in this morning's press release. Before we begin, Let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in Pintera's most recent Form 10-Q, Form 10-K, and today's press release. Forward-looking statements included herein are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation which can be found in the investor relations section of Pentair's website. We will reference these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation. We will be sure to reserve time for questions and answers after our prepared remarks. I would like to request that you please limit your questions to one and a follow-up in order to ensure that everyone has an opportunity to ask their questions. I will now turn the call over to John.

Thank you, Jim, and good morning, everyone. Please turn to slide number four, titled Executive Summary. First and foremost, we hope that everyone remains healthy and safe. While the impact of the COVID-19 pandemic continues to create uncertainty, our focus on the health and safety of our employees, our customers, and our businesses continue to be our priority. Throughout the quarter, we built strong COVID-19 management capabilities, which are now part of our standard work processes. We recognize that there will continue to be disruptions due to the pandemic, but we believe we are better positioned to help manage any potential impact. While we had withdrawn our guidance entering the second quarter, we were generally pleased with the overall performance of the company. We anticipated that our commercial industrial facing businesses would face challenges as global capital spending came to a halt in April, but the rate of decline did moderate as the quarter progressed. Our residential-facing businesses, including our leading pool franchise, saw healthy improvements during May and June and exited the quarter with continued improvement in trends. As consumers sheltered in place during the quarter, it appears swimming pools were being opened earlier and demand for swimming pools overall grew, resulting in increased demand for our equipment. Consumers also remained focused on their water quality, which led to improved orders for our water solutions business. We are extremely pleased with our free cash flow performance as we generated over $400 million of free cash flow during our important second quarter. We used this cash flow to reduce our outstanding revolver balance, and the result was further strengthening of our liquidity profile. We continue to position ourselves to take advantage of opportunities as business recovers. Residential comprises roughly 60% of our portfolio, and we believe these businesses should continue to benefit from improved demand. While we anticipate that the rest of the portfolio serving commercial industrial will likely remain challenged, we remain focused on aligning the cost structure appropriately while continuing to invest in longer-term opportunities. I'd like to thank all of Pentair's employees for continuing to deliver for our customers despite these unprecedented times. Please turn to slide number five, labeled Segment Focus. We wanted to remind everyone of our focus within our two segments, which remain relatively unchanged. Within Consumer Solutions, our largest segment, our primary focus is advancing our growth in pool, both in gaining content as well as extending our aftermarket reach. As a reminder, there are approximately 80,000 new pools built each year, and there are roughly 5.5 million pools installed in the ground. We believe that automation represents a longer-term opportunity, and we continue to evolve our product offering. We have launched the Pentair Home App and are rolling out a number of new products that can and will be interconnected. We also wanted to comment on an upcoming Department of Energy regulation that goes into effect in July of 2021, which we expect will result in further adoption of variable speed pumps. As a reminder, this is a category that we helped invent over a decade ago. We estimate that roughly 30 to 40% of in ground pools have a variable speed pump today. and we expect this number to only increase after the new DOE regulation takes effect. While we believe we are well-positioned from a product standpoint, we are working closely with our dealers and distributors to better educate them about what the new regulation means, as well as help them manage the transition away from single-speed pumps. Within our water solutions business, we continue to invest in innovative components, such as our FLEC-connected valve for water softeners. while also expanding our residential systems business. Within our commercial systems business, we continue to invest in new areas around commercial office water and total water management. We see this as a long-term opportunity where we believe we are well positioned and we look forward to updating you in the future. Finally, we continue to focus on our M&A funnel, primarily around tuck-in and bolt-ons. During the quarter, we made a small acquisition of an in-floor pool cleaner company that expands our product offerings. We see opportunities for other product line extensions in pool and much broader opportunities within water solutions. While our focus within consumer solutions is principally around growth, industrial and flow technologies, or IFT, has more of a focus on productivity. We have reinforced our PIMS processes as we believe that there are a number of opportunities across the segment to improve the cost structure and also improve quality and delivery within a few select businesses. We continue to invest in productivity-enhancing technology in our manufacturing plants. While the focus in IFT is more on margin improvement, we believe that there are some potential niche growth opportunities, particularly in our food and beverage business focused on CO2 recovery, as well as our beer membrane business. We continue to prioritize our opportunities for both segments to ensure we are allocating our resources most effectively to optimize our shareholder value creation opportunities. We have a balanced focus between growth and productivity, and believe that both segments are well positioned to make contributions to Pentair and all of our stakeholders. Please turn to slide number six, labeled What We Do Really Matters. Doing well by doing good has been a longstanding tradition at Pentair. Our purpose and our mission help to energize our employees to make a difference within and beyond the workplace. Sustainability is not an initiative at Pentair, but instead is core to the products we create and the customers we serve. This slide is a brief snapshot of how some of our products are helping to make the world a safer, more sustainable place. Pentair is a water focused company, and many of our products are energy efficient solutions. Our variable speed pool pump has helped us be named Energy Star's Partner of the Year for six consecutive years, while helping consumers save nearly $2 billion in energy costs. Our residential water solutions business has helped reduce the need for almost 10 billion water bottles annually. We also have a leading CO2 recovery business within industrial filtration that has helped customers capture and reuse over 11 million metric tons of CO2 every year. We remain focused on leveraging our strong product and technology offerings to help our customers deliver smart, sustainable solutions. This is core to Pentair and is central to our purpose and mission in building a leading water treatment company. I would now like to turn the call over to Bob to discuss our financial position and our results in more detail. Bob?