Watts Water Technologies, Inc.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Diane Minklintock, Senior Vice President, Investor Relations and Financial Planning and Analysis. You may begin your conference.

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 discuss the current state of the markets in our operations. He will also update you on our recent acquisition of Bradley Corporation. Shashank will discuss the details of our third quarter performance and provide our 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 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 the quarter and our markets. We delivered another quarter with better than expected results, including record Q3 sales, operating margin, earnings per share, and free cash flow. As a result, we're raising our full year 2023 operating margin outlook. Organic sales were flat to prior year, as we expected, due to a tough comparison to a strong third quarter in 2022, where organic sales were up 12%. Strong growth in our America's non-residential core valve products was offset by double-digit declines in our gas connectors, radiant heating applications, and commercial marine instrumentation. Adjusted operating margin of 18% exceeded expectations and was supported by solid price realization, favorable mix, and productivity, which more than offset inflation, lower volume, and incremental investments. Year-to-date free cash flow has been strong. and we expect to generate solid free cash flow through year-end. Our balance sheet remains healthy post-Bradley acquisition with a net leverage ratio of less than 0.1 times, which affords us ongoing flexibility in our disciplined capital allocation strategy. Strategic M&A, high ROI CapEx, and competitive dividends remain our top capital allocation priorities. Moving operations, as previously announced, We closed on our acquisition of Bradley Corporation in October. This acquisition is highly strategic and expands our addressable market. Integration is underway, and the teams are working collaboratively to capture synergies and market opportunities. I'll speak more about the acquisition in a minute. The integration of our NWARE acquisition is going well and continues to be ahead of schedule. With this acquisition, Australia and New Zealand now represent more than half of our APMEA region. Next, I'd like to provide an update on our end markets. GDP continues to be positive in our key markets, and this supports our repair and replacement activity. In Europe, some markets remain solid in the quarter as growth continued in Germany, France, and Benelux. However, we do see softening driven by a slowing residential market and non-residential new construction and the impact of changes to the energy incentive program in Italy. In the Americas, new residential single-family construction appears to have bottomed out. However, multifamily new construction is seeing recent declines in starts and permits, which may signal slowing as we head into 2024. Non-residential new construction indicators are mixed. The ABI fell back below 50 in August and declined further to 45 in September after several months of expansion. The Dodge Momentum Index sequentially improved in September after four months of decline due to an uptick in institutional and industrial activity. The institutional and industrial verticals have remained supportive year-to-date. In the Asia-Pacific region, China data center activity remains solid, but is being offset by declines in residential building activity. The Australian market remains healthy despite continued interest rate increases. We saw strengthening markets in the Middle East due to continued high oil prices. Now, an update on our outlook for the fourth quarter in the full year. Due to challenging comps as a result of a strong fourth quarter in 2022, we expect our fourth quarter organic sales to be lower than prior year. We also anticipate a sequential decline in operating margins due to normal seasonality, incremental investments, volume deleverage, and the dilutive impact of our Enware and Bradley acquisitions as a result of customary transaction-related costs, including amortization. While we expect difficult comps in Q4, we are increasing our full-year operating margin outlook due to strong year-to-date performance and anticipated higher margins in the fourth quarter due to favorable mix. We expect America's non-residential business to remain solid but be offset by continuing softness in certain specialty channel products. We also anticipate Q4 to be softer in Europe due to weakening macros. Higher interest rates and lending tightening may also have an impact on new construction. Please turn to slide four and I'll give you an overview of the recently acquired Bradley Corporation. Bradley is a 100-year-old plus business headquartered in Menominee Falls, Wisconsin, with approximately 500 employees. Annual sales are approximately $200 million split evenly between hand-washing products, which includes sinks and faucets, washroom specialties, which includes accessories and privacy solutions, and safety products, which include eyewash stations and safety showers. The addition of Bradley to the Watts portfolio is highly complementary, enables us to offer a more comprehensive solution to our customers. It expands our total addressable market with front-of-the-wall products for commercial washrooms and industrial emergency safety applications, and broadens our exposure to North America institutional and industrial markets. The acquisition leverages the combined strength of our sales network and channel relationships to accelerate growth and leverage cross-selling opportunities. It is also expected to create significant value through greater scale and the capture of cost synergies. If you turn to slide five, I'll share how the acquisition aligns with our M&A strategy. On the left side of the slide, you'll see our previously communicated M&A strategic criteria. The Bradley acquisition fits nicely with our stated priorities. The portfolio is comprised of code and specification-driven products that align with Watt's key long-term secular growth trends of energy efficiency, water conservation, and safety and regulation. Bradley's product portfolio expands our offerings with innovative water solutions as it adds front of the wall applications to our differentiated back of the wall portfolio and increases our exposure to attractive institutional and industrial markets. Bradley is a market leader known for innovative, high-quality, high-value products and has tremendous brand equity. The acquisition also builds on our recent acquisition of Enware, which is a leading supplier of specialty plumbing and safety equipment used in Australian institutional, commercial, and industrial end markets. With products and solutions that are highly complementary, with Bradley's portfolio. We expect to realize meaningful run rate cost synergies by leveraging our one-watch performance system through commercial and operational initiatives, including global sourcing savings. We expect to reach approximately $12 million of annualized savings by the end of 2026. The acquisition is expected to be modestly accretive to adjusted EPS in 2024 factoring in incremental interest expense and normal purchase accounting adjustments. We expect adjusted EBITDA margins to be accretive by 2027. We funded the transaction with a combination of cash and borrowings on our line of credit. As previously mentioned, on a pro forma basis, including the transaction, our leverage ratio is less than 0.1 times, leaving us ample flexibility to implement our capital allocation strategy. With that, Let me turn the call over to Shashank, who will address our third quarter results and our fourth quarter and revised full year outlook. Shashank?