Watts Water Technologies, Inc.

Thank you for standing by and welcome to the Watts Water Technologies second quarter 2021 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 the session, you will need to press star 1 on your telephone. 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 Watts Water Technologies, Inc. Thank you. Please go ahead, sir.

Mr. Thank you. Good morning, everyone. Welcome to our second quarter earnings conference call. We're glad that you could join us. With me today are Bob Pagano, CEO and President, and Shashank Patel, our CFO. During today's call, Bob will provide an overview of the second quarter and discuss the current state of our operations and markets. He will also update you on our smart and connected and sustainability efforts. Shashank will discuss the details of our second quarter performance, provide an initial outlook for the third quarter, and offer a revised outlook for the full year, 2021. Following our remarks, we will address questions related to the information covered during the call. Today's webcast is accompanied by a presentation, which can be found in the investor relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. Before we begin, I'd like to remind everyone that during the call, we will 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 Watt'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. I will now turn the call over to Bob.

Thanks, Tim, and good morning, everyone. I want to start the call by thanking our 4,500 global employees for their continued dedication and hard work during these challenging times. They've been navigating a robust demand environment and at the same time managing through persistent supply chain constraints and the emergence of COVID-19 variants. I'm proud of our team's efforts to support our customers while remaining safe in the workplace. With that, please turn to slide three in the presentation, and I'll provide an overview of our Q2 performance. We anticipated a strong second quarter performance as the economy improved. However, demand was even better than we expected, and our team delivered record results. As we guided last call, the February U.S. weather freeze provided a revenue tailwind in Q2, and we also benefited from our announced price increases. Adjusted operating margin exceeded our estimate, driven by incremental volume and our focus on productivity and cost management. Year-to-date free cash flow is strong, despite additional working capital needed to meet the current demand. In late June, we successfully completed negotiations to exit our manufacturing facility in Marais, France. This action will help to simplify our manufacturing structure and provide incremental productivity We've taken a charge for GAAP reporting in the second quarter. We expect to realize the full savings by 2023. Shashank will provide more financial details in a few minutes. Now, let me provide a view on the markets. In general, the markets continue to move in a positive direction during the second quarter. GDP expectations for 2021 have trended up in many of our key global regions since the first quarter, so we expect that should continue to drive repair and replacement activity. In the Americas, single-family residential new construction remained strong in the second quarter, and both residential and non-residential repair and replacement activity was buoyant. These markets have more than offset weakness in multifamily new construction and certain non-residential new construction, especially in verticals like lodging and office buildings. Forward-looking data offer some hope that non-residential new construction may gain momentum in 2022. Europe markets were solid again in the second quarter, driven by repair and replacement activity. The wholesale market remained strong in France and Italy, while the OEM market held its own, especially in the electronics business. Here we saw high demand from channel anxiety caused by component shortages in the market. We also saw heating OEMs continue to benefit from green initiatives driven by government stimulus. We're introducing our third quarter outlook with sales and margin improvements expected versus the prior year. And we have increased our full year adjusted outlook to account for the stronger second quarter and expected third quarter results. We are more encouraged about the markets in general, but still have concerns about non-residential new construction, supply chain issues, continued inflationary pressures, and virus variants. On slide four, I'd like to update you on our smart and connected journey. We continue to introduce new connected products in the marketplace based on customer feedback. The Techmar snow melt controller has a snow ice sensor interface designed specifically to integrate into building management systems. It was developed to eliminate the need to write custom code, which is a time and cost saver for the contractor. In addition, the challenge of commissioning, testing, and then maintaining the code is made easier. The Tecmar snow-ice interface provides proven snowmelt functionality in a simple-to-integrate device. HF Scientific's Copper Silver Monitor, or CSM, is designed to monitor the level of copper and silver ions in a plumbing system down to the parts-per-billion range. copper-silver ionization has emerged as one of the leading technology used in mitigation of waterborne pathogen growth, specifically Legionella, in the plumbing systems of healthcare and hospitality facilities. By monitoring ion concentrations daily, the CFM allows copper-silver ionization systems to more accurately regulate their disinfection levels. Underdosing reduces the efficacy of the system, while overdosing increases operating costs and risks patient guest health. During the second quarter, the percentage of smart and connected product sales to total sales increased sequentially as compared to the first quarter, as well as to the full year 2020. We continue to make progress towards our goal of 25% smart and connected product sales by 2023. Now on slide five, I'd like to update you on our sustainability efforts. We're focused on and committed to having a positive impact in the world. This commitment is leading us to deploy ongoing initiatives to reduce energy, water, and waste usage within our own organization, as well as developing solutions to support our customers' sustainability goals. We also view our role as an employer as an opportunity to affect positive change and are addressing diversity, equity, and inclusion in our everyday actions. In June, we issued our most comprehensive sustainability report to date, highlighting 2020 accomplishments and establishing some longer-term goals to reduce our environmental impact. In 2020, we reduced our water usage by 33% and our greenhouse gas emissions by 13%. Our product portfolio shift to eco-friendly products and solutions continues. This past year, sales of our condensing boilers and water heaters reduced more than 110,000 metric tons of CO2 for our customers, more than four times what Watts generated as a company. We have maintained our partnership with Planet Water, providing funding and resources to install water purification systems for disadvantaged areas of the world. Today, we have positively impacted over 30,000 people in eight different countries, providing safe drinking water and education on the importance of proper hand sanitization. And later this year, we'll be sponsoring additional sites as part of a global hand-washing day initiative. Concerning diversity, equity, and inclusion, we commenced our first internal DE&I survey to employees. We've revised our recruiting guidelines and training manuals to include new diversity-based standards. We've begun partnerships with several historically Black colleges and universities, supporting programs that we hope will garner future Watts employees, and we've initiated multiple diversity employee resource groups to promote education, awareness, and inclusivity. Let me turn the call over to Shashank, who will discuss our second quarter operating performance and provide more detail on our third quarter and revised full-year outlooks. Shashank?