Pentair PLC

Welcome to the Pentair third quarter 2024 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 limit yourself to two questions and then you can re-enter the queue. 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, Operator, and welcome to Pantera's third quarter 2024 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 third quarter 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 and Form 10-K. Following our prepared remarks, we will open up the call for questions. Please limit your questions to two and re-enter the queue if needed to allow everyone an opportunity to ask questions. As a reminder, you can reference our Pentair Investor Overview and Investor Day presentations on our IR website. Please visit our Pentair Investor Relations website and click on Events and Presentations to find these materials. I will now turn the call over to John.

Thank you, Shelly, and good morning, everyone. Let's begin with the executive summary on slide four. We are very pleased with the strong performance of our balanced water portfolio, the success of our transformation initiatives, and solid execution in a dynamic global macroeconomic and geopolitical environment. Our resilience strategy across our move, improve, and enjoy water segments was evident in our ability to diversify and mitigate risk as we drive long-term shareholder value. For example, in the third quarter, we delivered double-digit adjusted operating income and adjusted EPS growth year-over-year and triple-digit margin expansion, despite slightly lower sales. Adjusted operating income was up 13%, and adjusted EPS was up 16%, while ROS expanded 310 basis points to 24.1%. Both Flow and Pool delivered triple-digit margin expansion, and Pool grew sales by 7% in Q3. We achieved record-free cash flows so far this year, totaling $629 million. This sets a record post-invent spinoff from Pentair in 2018. We continue to follow a disciplined and balanced approach to capital allocation and are very proud of our dividend aristocrat status, marking a 48-year streak of rising dividends. For our over 10,000 Pentair employees, I want to thank you for your dedication to deliver for our customers and create value for our shareholders. Your tireless hard work led to another quarter of impressive results. Thank you. I also want to extend my heartfelt sympathies for those affected by the recent hurricanes. I can only imagine how scary and devastating that can be. Moving to guidance, we are raising our full year adjusted EPS guidance to around $4.27, representing an approximate 14% increase year over year. This is due to our strong performance year to date and confidence in our ongoing ability to operate effectively in a changing environment. Bob will provide more details later in the call. Let's turn to slide five. It's noted last quarter when we look at each of our three segments and the verticals within each, we have seen areas of great opportunity and some that have remained slightly pressured. For example, in flow, our commercial vertical reached another new sales record. Higher interest rates and a slow housing market continue to impact our residential vertical. our industrial vertical has experienced the effects of delayed capex spend from customers within water solutions our commercial filtration business remains strong and our man's walk ice business performed well amidst a normalizing environment in a difficult year-over-year comparison higher interest rates continue to impact our residential business and global economic pressures have affected our international business our first commercial pfas certified filtration product that was launched in Q2 had a solid start. We now have 10 products that meet the new NSF certification standard of 20 parts per trillion. Given the increasing focus on water quality and the rising interest in point of use filtration systems, we are enthusiastic about the long-term growth potential of these products. Lastly, in Poole, while sales grew year over year for the second consecutive quarter, sustained higher interest rates and a slower housing market continue to impact pool demand, predominantly in new and remodeled pools. As mentioned last quarter, new in-ground pool builds in 2024 are expected to be near the 60,000 range, compared to roughly 17,000 in 2023 and 78,000 in 2019 for industry data. That said, our aftermarket business continues to perform well in Q3. We believe the pool industry is highly appealing with favorable megatrends and unique competitive advantages for Pentair. For instance, with climate change being an important issue, we believe Pentair is in a strong position to meet the growing demand for smart, sustainable products. We have led the way by pioneering variable speed pumps that conserve energy and reduce costs, and we are continuing to innovate with smart, sustainable products. And we expect to continue to benefit from a favorable housing migration to the Sunbelt states which represents a large mix of our pool sales. Despite the near-term economic challenges that we expect for new and remodeled pools, we remain confident in Pentair's ability to drive long-term growth and margin expansion. In general, we are very pleased with the success and diversification across our move, improve, and enjoy water segments, as we believe it enables us to manage risks effectively. Let's turn to slide six. We have made steady progress with our transformation initiatives. As mentioned during our March 2024 Investor Day, we anticipate that the most substantial productivity savings for us will come from sourcing and operational excellence. To date, we have successfully completed and integrated a majority of wave one and two in sourcing. We are also optimizing our global footprint to better align with our focused and balanced water portfolio. We have implemented strategic, value-based pricing across our portfolio, and we have taken actions to drive efficiencies across the organization to meet our strategic objectives. We've also made progress on 8020, even though it is still early in the stages. During Q3, we completed the 8020 analysis across most of our revenue streams, and we trained additional employees, bringing the total to over 1,200. We are executing action plans to achieve quick wins such as exiting unprofitable and less profitable revenue in Quad 4, while focusing on driving profitable core sales growth in Quads 1 and 2. We are greatly motivated by the early insights of 80-20 and the proactive measures our teams are implementing to drive sustainable, profitable growth. Before I turn it over to Bob, let's turn to slide 7, which highlights our third quarter key takeaways. Importantly, transformation continued to drive strong margin expansion, adjusted operating income and earnings growth, despite little benefit from volume growth. Early insights into 80-20 are driving further confidence that it can accelerate our transformation initiatives to drive more focused and profitable growth. We increased our full-year 2024 adjusted EPS guidance to approximately $4.27, reflecting an approximate 14% increase year-over-year, driven by solid execution and strong year-to-date free cash flow. Lastly, we believe we are well-positioned to address opportunities from favorable secular trends, which include concerns about access to clean, safe, and reliable water, increased awareness of human-made contaminants impacting water composition, taste, and quality, growing environmental concerns driving consumers' desire to reduce their carbon footprint, aging commercial, public, and municipal infrastructure, interest in outdoor healthy living with people gathering at pools for exercise and fun, and favorable housing migration to the Sunbelt States, which represents a large mix of our pool sales. I will now pass the call over to Bob, who will discuss our performance and financial results in more detail. Bob?