Pentair PLC

Welcome to the Pentair fourth quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Shelly Hubbard, Vice President, Investor Relations. Please go ahead.

Thank you, Kate, and welcome to Pentair's fourth quarter 2022 earnings conference call. On the call with me are John Stouck, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer. On today's call, we will provide details on our fourth quarter and full year performance as outlined in this morning's press release. On the Pantera Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance, in addition to the impact these items and events have on the financial results. Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections, or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties. many of which are difficult to predict and generally beyond the control of Pinter. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K and today's release. We will also reference certain non-GAAP measures. Following our prepared remarks, we will open the call up for questions. Please limit your questions to one plus a follow-up. then reenter the queue in order to allow everyone an opportunity to ask questions. I will now turn the call over to John.

Thank you, Shelly, and good morning, everyone. Let's begin with slide four, titled Executive Summary. We closed out 2022 with strong sales, segment income, and adjusted EPS, which is a direct result of the hard work and dedication of our focused employees across the world. Sales increased 9% to $4.1 billion, Segment income rose 12% to $768 million. ROS expanded by 40 basis points to 18.6%. And adjusted EPS increased 8% to $3.68. A few of our key wins during the year include strategic progress on our transformation initiatives, which we expect to drive significant margin expansion over the next several years. The acquisition of Manitowoc ice, a complimentary and accretive acquisition which further enhances our commercial water solutions business, and recognition for our leadership and social responsibility and sustainability. All in, we are focused on building the Pentair of the future by investing in sustainable growth and expanding profitability through strengthening our operational and financial foundation, which we expect to create long-term value for our stakeholders. Bob will discuss our first quarter and full year 2023 guidance in more detail. But I wanted to share some thoughts. We are confident in our business model, diversified portfolio, and our transformation initiatives, which we expect to drive long-term shareholder value and contribute significantly to 2023. As we look specifically at 2023, we are working through near-term macroeconomic driven challenges, which is driving lower than expected volumes in our residential businesses. However, We expect to see more normalized demand in 2024 and view 2023 as a catch-up year for excess demand that was realized in 2020 through the first half of 2022. Please turn to slide five, titled Five-Year Pentair Performance. Reflecting on the last five years as a focused, smart, sustainable water solutions company, we drove strong financial performance by increasing revenue, at an 8% compounded annual growth rate, increasing EPS at a 14% compounded annual growth rate, and we have also generated over $2 billion of free cash flow and ended 2022 with nearly a 16% ROIC. These are metrics that we are very proud of and share with our incredible team here at Pentair. This is a testament to our relentless efforts to deliver premium quality, innovative products and services to our consumers. We believe the largest opportunity is improving ROS, which did not improve materially over the last five years. The strong demand we realized later in 2020 through the first half of 2022 came with disrupted supply chains and unprecedented inflation that was hard to outpace. We believe our second half of 2022 demonstrates that we have finally made progress on price versus cost. However, we still have significant opportunities to improve our operating and cost efficiencies across all of Pentair through transformation and recovery of the inefficiencies that we realized. Please turn to slide six labeled Pentair at a glance. For those of you listening today who may be new to our story, I wanted to reiterate a few important key metrics that I discussed last quarter. In 2022, we generated $4.1 billion in sales, with approximately a 50% mix from residential channels and 50% from commercial, industrial, and infrastructure channels. We have decent profitability at 18.6%, but as I mentioned previously, we have a lot of opportunity to improve this. We believe our large installed base is an advantage and an opportunity for us. For example, 75% of our products are replacement inside a large installed base that benefits from over 75,000 focused trade partners. We believe these relationships with our trade channel partners drive resiliency of revenue and create a great opportunity for continued growth as we introduce new products and technologies. We have a long successful track record of generating cash flow and being disciplined with our capital allocation. In fact, we have increased our dividend for the 47th consecutive year, putting us in a very small group inside of the S&P 500. And we are especially proud of our high-teens ROIC, demonstrating that we continue to be good stewards with your invested money. We believe we have a very solid foundation and we know there's still more we can do. Please turn to slide seven labeled Our Impact, Making Better Essential for People and the Planet. Our work on ESG and social responsibility continues to be at the forefront of how we operate and how we work to make the planet better. At Pentair, we take great pride in the products we develop that are providing solutions to some of the world's largest challenges, including safe and healthy drinking water, climate change, and water shortages, to name just a few. We also seek to make better essential for people and the planet. For example, our products and solutions improve water efficiency, reduce and capture carbon emissions, and avoid the need for single-use water bottles. Here are a few highlights. 71% of Pentair solutions support water efficiency. 15.9 million tons of CO2 emissions have been avoided by U.S. consumers using Pentair's energy efficient pool pumps since 2005, and nearly 8 billion single-use plastic water bottles have been avoided in 2022 due to Pentair's water filtration products. Furthermore, our leadership and social responsibility is being recognized by third-party organizations, including Forbes and others. We look forward to continued progress plan to share additional details in our 2022 corporate responsibility report which we expect to publish this spring please turn to slide 8 label strategic framework our purpose mission vision values and impact are critical components of our strategic framework our purpose matters it is to create a better world for people on the planet through smart sustainable water solutions our mission as a company is to help the world sustainably move, improve, and enjoy water, life's most essential resource. And we do this in residential, commercial, agriculture, and industrial applications. As of January 1st of this year, we have split our consumer solutions segment into pool and water solutions. This creates three focus segments as IFT remains unchanged. We expect this to not only improve transparency, but further improve customer service, differentiate our products, measure our success externally, and drive greater profitability for our shareholders. Our three segments are now industrial and flow technologies, water solutions, and pool. We continue to see great opportunity in all three of these segments and the businesses that each of them lead. Our industrial flow technology segment helps move water where you need it, when you need it, more efficiently in our pump businesses. The segment also focuses on transforming waste into value through our sustainable gas and membrane businesses. Our water solutions segment, which includes our most recent acquisition, Mantua Ice, is a leading platform to provide water and ice to our food service and residential customers. These businesses improve water by providing great tasting, higher quality water and ice, while helping our customers use more water more productively. Our pool business helps enjoy water by using less energy and chemicals. In North America, it also has a large installed base of approximately 5.4 million pools with an average age of 20 to 25 years. The industry is approximately 60% break and fix, 20% major remodeling, and 20% new pools. Only about 50% of all in-ground pools have some form of automation, which we believe is a long-term opportunity for Pentair. I will now pass the call over to Bob. We'll discuss our performance and financial results in more detail.