Pentair PLC

Welcome to the Pentair first quarter 2023 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 your question, 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. Shelly, please go ahead.

Thank you, MJ, and welcome to Pentair's first quarter 2023 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 first quarter's 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 Pentair. 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, Form 10-K, and today's release. Following our prepared remarks, we will open up the call for questions. Please limit your questions to one plus a follow-up, then re-enter the queue in order to allow everyone an opportunity to ask questions. Before I hand it over to John, I wanted to highlight slides four through six in our earnings slide deck that illustrate our strategic framework, PENTAIR at a glance, and a PENTAIR overview. We believe this information is helpful to understanding who Pentair is, especially for those new to Pentair. Our strategic framework states our purpose, mission, vision, and values that drive our performance as a smart, sustainable water solutions company. Pentair, at a glance on slide five, provides a great snapshot of our company, our performance, our installed base, and our 47-year track record of annual dividend increases, which places us in a small group of companies. Lastly, the Pentair overview on slide six provides our historical sales and Roth performance on a consolidated level and by segment. This information was first disclosed last quarter in the supplemental data section and is now illustrated on one slide. As you can see, over the last three years, we have grown sales by a compound annual growth rate of nearly 12% and Roth has expanded by 110 basis points on a consolidated basis. I will now turn the call over to John.

Thank you, Shelley. Good morning, everyone. Let's begin with our strong Q1 results in the executive summary on slide 7. We were very pleased with our first quarter performance, which reflected a strong start to our fiscal year as we helped the world sustainably move, improve, and enjoy water, life's most essential resource. In Q1, sales rose 3% to over $1 billion, segment income increased 23% to $211 million, and ROS expanded by 330 basis points to 20.5%. Adjusted EPS rose over 7% to $0.91. Segment income and ROS each achieved record levels post the invent separation in 2018. I'd like to thank our talented Pentair employees for once again delivering for customers while creating value for shareholders. Strong results reflect the strength of our diversified water portfolio and progress on our transformation initiatives, which drove greater efficiencies across each segment. For example, growth in our industrial and flow technologies, or IFT, and water solution segments more than offset the expected volume declines in pool year over year. We improved ROS expansion across the enterprise and realized operational efficiencies as our transformation initiatives accelerated. We are driving these actions at the revenue stream or category level which not only provides the go-to-market and customer insights, but also the ownership and accountability to realize savings and other opportunities that we have identified. Let's move on to slide 8, titled Q1 Highlights. Within our IFT segment, growth was driven primarily across our commercial, industrial, and even residential and irrigation verticals. We are excited about the near and long-term growth and margin profile of this segment as our transformation is taking hold. We are focused on capturing the right projects with improved offerings to drive margin expansion. We realize benefits in pricing, sourcing, and operational excellence, and we expect more opportunities ahead. We also had customer wins for our sustainability-related technology that reduces water usage and recaptures CO2. Additionally, we drove aftermarket and replacement revenue in our membranes and pump portfolio. In our water solutions segment, we are very pleased with our Manitowoc ice acquisition, which complements our commercial water solutions businesses, enabling us to provide end-to-end water solutions for customers from filtration to ice to services. The integration remains on track, has progressed well, and was accretive to segment margins. As I mentioned last quarter, we expect 2023 to be a softer year for our pool segment. During the first quarter, Unusual U.S. weather in the West, expected higher channel inventory, and strong demand in the prior year contributed to declining volume. Despite the decline in year-over-year volume, the installed base has continued to grow over the last three years, and we believe the pool segment is an attractive market. As we look forward, we continue to invest in leading innovation, specifically automation, which helps save energy, time, and water, and enables pool owners control of their pools directly from their smart device. Today, roughly 50% of installed pools have automated systems. This is an area where we see the greatest opportunity as consumers look to maintain control of their pool function at the tip of their fingers. Good examples of our latest pool innovations are the IntelliFlow 3 variable speed and flow pool pump, also known as the IF3, and the IntelliCenter pool automation system. Our IF3 is the first pump with Wi-Fi and Bluetooth connectivity for remote control, monitoring, and over-the-air, or OTA, updates. It also features built-in IoT connectivity, which simplifies installation setup and operation for our dealers. Market reactions and dealer feedback to the launch of our new flagship IF3 pool pump has been extremely positive, and we're pleased overall with the demand we have seen, despite a slower start to the pool season. We believe our IntelliCenter pool automation system is the most feature-rich an expandable pool automation system on the market to easily control even the most complex and advanced pools. The system is powered by AWS cloud technology for improved stability, connectivity, scheduling, and reliability. Our digital automation technology centralizes control for multiple pool devices, from water features to lights and pumps. In pool, lead times have continued to improve, enabling us to better serve our customers and deliver our products more quickly. Moving on to slide 9, titled Making Better Essential. We recently released our 2022 Corporate Responsibility Report on April 18th, and we are excited that we have made progress on our strategic social responsibility targets. We are focused on advancing a sustainable future through innovation in our products and solutions to create a better world for people on the planet through smart, sustainable water solutions. Turning to slide 10, In 2022, we reduced scope one and two greenhouse gas emissions by 29% as compared to our 2019 baseline. And we decreased our water withdrawal, which represents a 9.3% reduction compared to 2021. We also implemented a sustainability scorecard process for all new Pentair product development to help us better understand the sustainability impact and opportunity of each new product. Moving to slide 11, titled positive impacts from our products and solutions. We are proud of the continued progress we have made in our operations and towards sustainable products and solutions. A few examples include 37% of our total electricity usage came from renewable sources and 83% of Pentair's solutions support energy efficiency and 71% support water efficiency. The 11th consecutive year, Pentair has received the Energy Star Partner of the Year Award from the EPA. This award recognizes Pentair pool pumps and Manitowoc ice excellence in energy efficiency. In fact, Pentair was the first manufacturer of pool equipment to receive this certification for our pool pumps. Since 2005, our Energy Star pool pumps have saved a cumulative 38.9 billion kilowatt hours of energy savings, reduced greenhouse gas emissions by nearly 16 million tons of CO2, and saved over $5 billion in operating costs for US consumers. Before I turn it over to Bob, let's turn to slide 12, titled CEO Summary. We delivered quality earnings across our diversified portfolio and positioned the company for sustained value creation. Our Q1 performance was a strong start to our fiscal year, which reflected sales growth and ROS expansion, driven by our diverse water portfolio, as well as efficiencies from transformation. Mantua ice has assimilated well and contributed ahead of expectations. Bob will discuss our second quarter 2023 guidance in more detail. However, I wanted to share with you some of my thoughts on our current outlook. As we look to the remainder of 2023, we continue to closely monitor macroeconomic developments and remain mindful of an uncertain operating environment. We are implementing risk mitigation strategies, and accelerating transformation funnels is necessary, while focusing on investing in the long-term growth of our company. We've reduced our pool revenue expectations, reflecting both a lower sell-through due to economic uncertainty and the previously expected inventory headwinds, while increasing our expected margin expansion, reflecting Q1 performance and confidence in our transformation progress. We also expect water solutions and IFT performance to continue throughout 2023, is informed by orders, backlog, and transformation efficiencies. As a result, we are raising the midpoint of our adjusted EPS guidance to $3.65, reflecting our strong Q1 performance while maintaining the high end of our adjusted EPS guidance range at $3.70. We are confident in our diversified water business model, long-term strategy, and our transformation initiatives, which we anticipate will continue to drive shareholder return. We have a long, successful track record of generating strong cash flow and being disciplined with capital allocation. This year marks our 47th consecutive year of dividend increases. In the longer term, we are targeting getting back to high-teens ROIC. We have the right purpose, the right team, the right portfolio, and the right strategy to win in this market. We believe we have a very solid foundation and the competitive advantages to continue to succeed. I will now pass the call over to Bob. We'll discuss our performance and financial results in more detail. Bob?