Watts Water Technologies, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Wattswater Technologies Third Quarter 2020 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 this 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, Timothy M. McPhee, Treasurer and Vice President, Investor Relations of Wattswater Technologies, Inc. Thank you. Please go ahead. Timothy M. McPhee, Treasurer and Vice President, Investor Relations of Wattswater Technologies, Inc.

Thank you and good morning, everyone. Welcome to our third quarter 2020 earnings conference call. Joining me today are Bob Pagano, President and CEO, and Jashay Patel, our CFO. Bob will provide a business overview for the quarter and offer his preliminary views of the 2021 markets. Shashank will address the third quarter financial results and discuss our outlook for the fourth quarter. Following the prepared remarks, we will address questions related to the information covered during the call. Today's webcast is accompanied by a slide presentation, which can be found in the investor section of our website. We will refer to these slides throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled to the relevant GAAP measure in the appendix to the presentations. Before we begin, I'd like to remind everyone that during the course of this call, we may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see WAAT's publicly available filings with the SEC. The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, Future Events, or otherwise. Let me now turn the call over to Bob.

Thanks, Tim, and good morning, everyone. Please turn to slide three in the presentation, and I'll provide an overview of the quarter. First, I must again applaud the efforts of all our employees for adjusting to the challenges of the pandemic. Our employees have remained deeply engaged with our customers, whether working onsite or remotely, delivering our products on time and with the quality they've come to expect in a Watt solution. The teams have worked diligently while adhering to safety protocols to ensure we maintain close customer contact through order fulfillment, training, and responding to inquiries. And while travel is restricted, we've expanded virtual plant tours, which allows local leaders a chance to update senior management on their most recent customer and operating initiatives. These virtual tours are also promoting greater employee engagement and helping to drive productivity during these difficult times. Our third quarter operating performance was solid as we again delivered results that exceeded our internal expectations. Our season management team has played a critical role in taking proactive actions that have optimized the performance of the business despite challenging underlying market conditions. The sales decline in the quarter was less pronounced than we had anticipated both in the Americas and Europe. Despite the tough macro environment, we maintained our focus on driving our smart and connected strategy. We also increased adjusted operating profit and expanded adjusted operating margin versus Q3 last year despite the lower sales volume. This was driven primarily by the aggressive cost actions we've undertaken in response to the pandemic. Cash also remains a focal point. In year to date, we've increased free cash flow by 25% as compared to the same period last year. Operationally, we've now instituted all cost-out programs we discussed earlier this year. During the third quarter, we estimate total run rate savings approximated $20 million. Year-to-date savings have totaled $42 million. We continue to review additional cost actions to support operational efficiency. Deschenk will review the financial results in more detail momentarily. Now, I'd like to provide our current views of the market. In the Americas, the construction industry is adjusting to the new normal, while job sites that were already under construction are back online and being driven to completion. Residential repair and replacement demand was encouraging through the third quarter, as we saw continued strength in our DIY channel and September's record existing home sales support continued growth there. Our products that go into hydronic and electric heating applications and residential irrigation should continue to perform well. The new single-family home construction market is performing well amid low interest rates and demand is strengthening as people migrate to the suburbs. Year-over-year housing starts have been positive since June, and permits are also up. We'll continue to focus and capitalize on residential opportunities, especially in the higher-end single-family homes. In Europe, we saw many companies working through the traditional August vacation holiday to catch up on project backlogs and support customer restocking efforts. German OEMs benefited from ongoing government energy efficiency subsidies, and China continue to lead in rebounding from the pandemic. Conversely, there are a number of developments that are concerning. Many of the current COVID-19 trends we are seeing around the world are worrisome and impact all our markets. I realize we are nine months into this pandemic and the markets have stabilized to some degree, but COVID-19 is still driving a lot of end market uncertainty. So with that as a backdrop, our worldwide markets are currently mixed. traditional macro data like ABI and the Construction Industry Competence Index, and other information we've recently assessed are pretending a slowdown in our commercial markets into 2021. As a result, we expect that new construction in the commercial building sub-verticals of hospitality, office, retail, multifamily, and commercial marine will continue to be challenged. However, we do expect that there will be continued growth in the healthcare, data centers, and food and beverage markets. Our teams are leveraging our expansive product breadth and channel reach to focus in on these growth sub-verticals. In non-residential repair and replacement, whose growth traditionally follows GDP, we see repair and replacement being impacted by the deferring of discretionary replacement and renovation given the magnitude of the pandemic. and many more. We're confident that our diversified product portfolio and unmatched distribution capabilities should provide us the flexibility to shift our focus to meet the demand in those products Thank you for joining us. As I've said before, commercial construction activity slows during periods of uncertainty, and we're clearly at that point in the North American, European, and Middle East markets. Our view on 2021 is evolving as the markets remain in flux and as our team continues to formulate their operating plans for next year. We'll provide further growth expectations during our February 2021 earnings call. As for our fourth quarter outlook, We expect sales will be soft compared to last year, and we anticipate operating margins to improve relative to last year, but at levels below the third quarter, as temporary cost reductions are partially phased back into the business. Let me now turn the call over to Shashank, who will discuss our third quarter operating performance and provide more detail on our fourth quarter outlook. Shashank?