Pentair PLC

Good day, and welcome to the Pantera Third Quarter 2026 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 a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. Jeff Thompson, Vice President of Investor Relations. Mr. Thompson, the floor is yours, sir.

Thank you, operator, and welcome to Pentair's third quarter 2026 earnings conference call. On the call with me are John Stauch, our President and Chief Executive Officer, Bob Fishman, our outgoing Interim Chief Financial Officer, and Bob Howe, our incoming Chief Financial Officer, effective November 1st. On today's call, we will provide details on our third quarter performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our earnings release and slide deck, which provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. Any statements made during our presentation today about Pentair's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in today's earnings release and Pentair's filings with the Securities and Exchange Commission. Actual results could differ materially from anticipated results. Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and re-enter the queue to allow everyone an opportunity to participate. I will now turn the call over to John.

Thank you, Jeff, and good morning, everyone. We appreciate you joining us today. First, let's begin with an executive summary on slide four. We delivered a solid third quarter with sales inside of our guidance range and adjusted operating income and adjusted EPS exceeding our expectations. Each of our three segments contributed to the quarter. Flow and water solutions continued to deliver sales and segment income growth along with meaningful margin expansion. In pool, We completed the previously communicated channel inventory D-Stock, an important milestone that positions the business on a healthier foundation as we enter 2027. We also completed the acquisition of Tayco Group Holdings on October 1st. Tayco adds a high growth platform to Pentair and expands our presence in attractive commercial infrastructure and multi-family residential end markets. Finally, Bob Hau has been announced as Pentair's Chief Financial Officer. Bob brings significant public company finance leadership experience, and we are excited to welcome him to Pentair. I also want to thank Bob Fishman for coming back to serve as the interim CFO this past quarter. His steady leadership provided important continuity during the CFO transition, and we greatly appreciate his continued support and commitment to Pentair. Bob Hau has been working closely with Bob Fishman over the past six weeks to ensure a smooth transition and will officially assume the CFO role effective November 1st. Overall, our third quarter results demonstrate the underlying strength of our portfolio and the continued execution of our strategy. Please turn to the Q3 overview on slide five. Turning to our third quarter results, sales were $976 million, adjusted operating income was $242 million, and adjusted EPS was $1.18 above our guidance range of approximately $1.05 to $1.08. The year-over-year comparisons primarily reflect the previously communicated pool channel inventory D-stock. This was a temporary impact and aligns channel inventory with current demand. Beyond that dynamic, we saw strong execution across the portfolio. Flow and water solutions both delivered sales and segment income growth as well as return on sales expansion. Poole exceeded our expectations for both top line and income. Adjusted operating income in the quarter included approximately 8 million in tariff refunds, significantly below the 35 million received in Q2. These refunds benefited the quarter, but they do not change our view of the underlying operating performance or the progress we are making across the businesses. Cash generation also remains strong. We generated 153 million of free cash flow in the third quarter, and 620 million through the first nine months of the year. Our Q3 performance was ahead of our expectations and gives us increased confidence in our execution as we close out the year. We are reaffirming the midpoint of our previous full year guidance of $4.70. Please turn to slide six for an update on the TACO acquisition. We completed the acquisition on October 1st and we are excited to welcome the TACO team to Pentair. TACO is a high growth platform with a strong brand, differentiated technology, attractive customer relationships, and meaningful opportunities for continued growth and margin improvement. The business is performing ahead of our previous expectations and is entering 2027 with significant momentum. TACO's estimated 2026 sales are approximately 560 million, representing growth of roughly 23% from 2025. For 2027, we currently expect sales of greater than 620 million or growth of more than 10%. EBITDA is estimated at approximately 90 million in 2026 and greater than 105 million in 2027, which would represent mid-teens growth. Beyond the near-term financial contribution, we see compelling opportunities to accelerate TACO's growth. Its commercial and residential capabilities, established channels, and expertise in water circulation and hydronic flow control are highly complimentary to Pentair. The combination expands our customer reach and creates opportunities to bring broader, more complete solutions to the market. Importantly, TACO fits squarely within our disciplined approach to capital allocation. We expect the acquisition to be accretive to adjusted EPS in 2027 and to accelerate Pentair sales and EBITDA growth. And we expect to de-lever rapidly due to our strong operating cash flow generation. Now let's turn to the strategic rationale and benefits of the TACO acquisition on slide seven. As we introduced last quarter, TACO strengthens Pentair strategically in several important ways. First, it creates a broader water management platform by extending our capabilities into water circulation and hydronic flow control. TACO adds another leading brand to our water solutions portfolio, It complements our existing residential and commercial pump businesses. Second, TACO provides Pentair with an additional growth engine. It increases our exposure to attractive end markets, including HVAC, data centers, and related infrastructure development. TACO's portfolio is well aligned with these secular trends and with Pentair's broader focus on smart, sustainable water solutions. Third, the acquisition significantly strengthens our presence in commercial and institutional applications. TACO has established positions in data centers, schools, hospitals, universities, commercial buildings, and other mission critical water and HVAC systems. Fourth, TACO expands our access to specification driven aftermarket revenue. Its large installed base of pumps, valves, and controls generates ongoing replacement, maintenance, and upgrade demand, creating an attractive source of recurring revenue. Finally, the combination creates meaningful cross-selling opportunities Pentair and Tayco have complementary products and channels, giving us the opportunity to broaden customer access, deepen channel relationships, and bring combined solutions to customers. For all of these reasons, we believe Tayco is an excellent strategic fit and is aligned with both our long-term strategy and our disciplined financial return criteria. Let me now provide an update on Poole on slide eight. First, we're pleased to announce Josh Cowley as Executive Vice President and Chief Executive Officer of Pentair Pool reporting to Demon Wiggins. Josh brings 25 years of leadership experience, deep industry expertise and a proven track record of driving growth, strengthening organizations and improving business performance. We believe his experience and leadership will be a great fit as we continue to build on the strong foundation of our pool business and position it for long-term growth. Shifting to the business performance, With the channel inventory D-Stock complete, our focus is firmly on execution and returning the business to higher growth. We have a clear strategy built around four pillars with one overarching goal, putting dealers at the center and delivering elite customer experience. The first pillar is to outsell. We are strengthening coverage and local execution to outgrow the industry, improve customer acquisition and retention, and reinforce Pentair Pool as the industry's most trusted partner. We've added resources to our inside sales team as well as started to build out our regional structure, including enhanced regional reporting and targeted marketing programs designed to enable higher levels of dealer engagement. The second pillar is to out-support. We intend to differentiate Pentair through an elevated customer experience by providing education support across the entire customer journey. In Q3, we added capacity in critical areas to reduce call hold times and provide expertise to pool professionals. The third pillar is to deliver quality. We are working to make quality an even stronger competitive differentiator by enhancing our end-to-end quality management system and consistently delivering the performance our customers expect for Pentair. And when we don't meet that level of expectation, we will make it right. During the quarter, we made investments in the quality organization, including capital expenditures within our testing processes. The fourth pillar is product excellence. We are focused on competing effectively across our core product categories, delivering differentiated value, and creating a more visible pipeline of customer-led innovation. We've added resources to seek input from pool dealers to simplify their work and deliver a better experience for our pool owners. These four pillars are designed to work together. Better coverage, stronger support, consistent quality, and differentiated products should deepen our customer relationships and strengthen Pentair Pool's competitive position. While it's still too early to provide formal guidance for 2027, I want to provide some context around the pool business because we believe the underlying dynamics are important to understand. We estimate full year sell-through in 2026 will be approximately $1.45 billion, up 2% to 3% versus 2025. At the same time, channel inventory has been reduced significantly particularly following the inventory actions in the second and third quarters. This distinction is important. The decline in our 2026 reported pool sales was driven primarily by the channel inventory reset, not by a corresponding decline in sell-through. With the inventory adjustment now behind us, we entered 2027 from a healthier starting point. And importantly, our growth expectations for next year do not anticipate market recovery. We expect sell-through next year to remain about flat to this year at about $1.45 billion, with more modest price increases offsetting anticipated continued soft market conditions. This would mean approximately $180 million of year-over-year sales growth, or about 14% versus our forecasted sales number for 2026, as 2027 Pentair sales mirror sell-through sales, reflecting steady channel inventory. We also expect to maintain our strong profitability with Poole delivering approximately 30% return on sales for full year 2027 while continuing to invest in innovation, our brand, and our industry-leading position. We are going to continue to compete for growth and with the strength of our brand, the efforts we are investing in, Josh's leadership, and new product innovations that we expect to be able to return to volume growth in 2027 and beyond. We will provide a more definitive 2027 outlook during our Q4 earnings and 2027 guidance call early next year. With that, I'll turn the call over to Bob Fishman to discuss our third quarter financial performance in greater detail. Bob?