Watts Water Technologies, Inc.

Thank you for standing by. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Watts Water Technologies Inc. third quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. It is now my pleasure to turn today's call over to Diane McClintock, Senior Vice President of Investor Relations. Ma'am, please go ahead.

Thank you and good morning, everyone. Welcome to our third quarter earnings conference call. Joining me today are Bob Pagano, President and CEO, and Shashank Patel, our CFO. During today's call, Bob will provide an overview of the third quarter and update you on our end markets and our operations. Shashank will discuss the details of our third quarter performance and provide our initial outlook for the fourth quarter and for the full year. 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 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 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. With that, I will now turn the call over to Bob.

Thank you, Diane, and good morning, everyone. Please turn to slide three, and I'll provide an overview of our Q3 performance. I would like to start by thanking the entire Watts Water team who have continued to execute and provide outstanding service to our customers despite escalating inflation, supply chain challenges, and labor shortages. I would also like to express my sympathy and support to our colleagues in southern Florida who have suffered significant losses in the wake of Hurricane Ian. Although our site in Fort Myers did not sustain significant damage, many of our employees were impacted, and we are providing them with support. In terms of the third quarter, we were able to deliver results that were significantly better than we expected, with record third-quarter sales, adjusted operating margin, and adjusted earnings per share. We continued to benefit from pricing tailwinds and inventory availability, which allowed us to meet the higher-than-anticipated demand. Our Americas team delivered another quarter of double-digit growth, driven by price and inventory availability. And we were able to deliver mid-single-digit organic growth in Europe despite the impact of the Ukraine war the exit from Russia, and the energy crisis. We also saw a nice bounce back in apnea as business resumed in China after lockdowns impacted several of our key markets in the second quarter. Year-to-date free cash flow was softer than expected due to additional working capital needed to meet demand and our investment in inventory. We expect a strong fourth quarter due to normal seasonality, but think we will see our free cash flow conversion closer to 75% versus the 90% previously guided. Our balance sheet remains strong and provides us with the flexibility to continue to invest for the future through our strategic investments in R&D, smart and connected projects, factory automation, and M&A. From an operations perspective, we continue to see significant labor overhead in energy inflation, despite some easing in commodity costs. Our teams are working diligently to secure supply and drive cost optimization. In addition, we are managing labor shortages by adding automation where possible. We are seeing some improvement in our supply chain. However, as we spoke about last quarter, electronic component availability is still challenging. Now, I'd like to provide an update on our end markets. Global GDP continues to trend downward. However, GDP remains positive in our key markets. The North America repair and replacement market is currently holding up well despite reduced GDP. Rising interest rates have slowed new residential single-family construction. However, the reduced affordability of single-family homes should continue to support multifamily demand. In the Americas, non-residential new construction indicators remain supportive. The ABI and Dodge Momentum Index continue to be in expansion territory, suggesting growth in non-residential projects will continue into 2023. Certain industrial sectors have been more resilient, including data center projects in food and beverage. In Europe, the war, rising energy costs, and inflation are negatively impacting economic activity. Eurozone GDP is on a downward trend as recession concerns grow. As a reminder, we have stopped our direct shipments to Russia, The impact of this is estimated to be approximately $12 million annualized and was approximately $3 million in the third quarter. In the Asia-Pacific region, our China markets rebounded nicely in the third quarter, but the rolling lockdowns from the zero COVID policy continue to pose a risk to economic growth. In addition, both Australia and New Zealand are seeing the impact of interest rate increases on residential markets. Now, an update on our outlook for the fourth quarter and the full year. We expect a solid fourth quarter with high single-digit organic sales growth and margin improvement versus the prior year. Due to our strong year-to-date results and our outlook for the fourth quarter, we are increasing our full-year outlook. In addition, we're accelerating $3 million of investments into 2022 and increasing our full-year investments to $23 million from the $20 million previously communicated. The incremental increase is primarily related to smart and connected projects. With that, let me turn the call over to Shashank, who will address our third quarter results and our fourth quarter and revise full year outlooks. Shashank?