Watts Water Technologies, Inc.

President and CEO and Shashank Patel, our CFO. During today's call, Bob will provide an overview of 2023 as well as an update on our expectations for the markets in 2024. Shashank will discuss the details of our fourth quarter and full year financial results and provide our outlook for the first quarter and the full year 2024. 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. 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 what's publicly available filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that, I'll turn the call over to Bob.

Thank you, Diane, and good morning, everyone. Please turn to slide three in the earnings presentation and I'll provide a recap of 2023 and an overview of our outlook for 2024. I'd like to start by thanking the entire Watts Water Team for their tremendous contributions that resulted in another record year. We closed out the year with a strong quarter, resulting in an adjusted operating margin expansion of 150 basis points. The strength of our fourth quarter drove record full year sales, operating margin, earnings per share, and free cash flow. Organically, full year 2023 sales increased by 1%, adjusted operating margin increased by 140 basis points, and adjusted EPS increased by 16% compared to the prior year. We delivered record operating margin while continuing to invest an incremental 24 million on strategic projects, including spending on our Smart and Connected initiatives. We generated record free cash flow of 281 million, which represents 107% conversion rate. Our balance sheet remains strong and provides us with the flexibility to continue to invest for the future. High ROI capex, competitive dividends, and strategic M&A remain our top capital allocation priorities. Moving to operations. As previously announced, we closed on our acquisition of Josam Company effective January 1st, 2024. Josam is a leading provider of commercial drainage and plumbing products. This complimentary acquisition broadens our existing portfolio and expands our exposure to profitable commercial, institutional, and light industrial end markets. Integration is underway and the teams are working collaboratively to capture synergies and drive growth through cross-selling opportunities. The integration of our Bradley acquisition is also going very well as our cross-functional teams work together to capture cost synergies and additional growth opportunities. We expect both acquisitions to be modestly accretive to adjusted EPS in 2024 after factoring in incremental interest expense and normal purchase accounting adjustments. I'd like to provide an update on our Smart and Connected initiative. In early 2019, we committed to an aggressive goal of having 25% of our revenues generated from Smart and Connected enabled products by year end 2023, compared to a baseline of low single digits in 2018. I'm proud to announce that we met this goal as we exited 2023. This translated to a 600 basis point improvement over 2022, which was driven by new product introductions and expanded adoption rates. We are excited about the progress we have made and the future of our Smart and Connected systems and digital solutions. We are well on our way to achieving our goal of being an industry leader and connecting our products to provide superior benefits to our customers. As part of our goal to solve complex water challenges around the world, we focus daily on improving sustainability outcomes for ourselves, our customers and our communities. We continue our work to reduce the water, carbon and waste footprints across our operations and create innovative products and solutions for our customers to help them protect, control and conserve critical resources. We continue to be recognized for our efforts. Watts was selected by Newsweek as one of America's most responsible companies for the fifth consecutive year and as one of America's greenest companies for our work on environmental sustainability. And for the first time in 2023, Watts was named one of the top places to work in Massachusetts, a recognition based on employee surveys that validates the work we are doing to foster and engage people first organization. Last but not least, we are proud to share that 2024 is the 150th year anniversary for Watts. We wanna thank all of our customers, employees, suppliers investors and other stakeholders who have been by our side along this journey. It is only through your unwavering trust, support and partnership that we have reached this remarkable milestone in Watts history. Now, I'd like to talk about our market expectations in 2024. From a macro perspective, global GDP has slowed but remains positive in our key end market. In Europe, we do see softening driven by slowing residential and non-residential new construction market as well as the impact of changes to the energy and center programs in Germany and Italy. The Scandinavian countries remain in a recessionary environment. As a reminder, Europe represents approximately 22% of our business on a pro forma basis. After a challenging year in 2023, single family new construction in the Americas is expected to return to very modest growth. While multifamily new construction has been resilient, leading indicators including starts and permits portend a decline in multifamily new construction in 2024. In the Americas, non-residential new construction indicators are mixed. The ABI has been below 50 for several months suggesting a slowing as the year progresses. The Dodge Momentum Index is slightly more positive suggesting growth in non-residential projects will continue into 2024 primarily supported by institutional and data center projects. Institutional and light industrial verticals including mega projects have remained resilient in 2023 and are expected to be supportive in 2024 but will be tempered by challenging sub verticals including retail, office and recreation. In the Asia Pacific region, China's economy is forecasted to grow in the low single digits in 2024. Markets in China have been significantly impacted by the real estate crisis. We expect Australia, New Zealand and the Middle East to show modest growth in 2024. We continue to monitor the geopolitical uncertainty in Europe and the Middle East and expect to proactively address any direct or indirect impacts to our customers in supply chain. Now a preview of the drivers for our outlook for 2024. Price, institutional and light industrial, America's single family new construction and repair and replacement activity are expected to be supportive at least through the first half of the year. We expect elevated interest rates in supply to unfavorably impact multifamily new construction. As a reminder, multifamily new construction accounts for less than 10% of our total business. With the exception of the institutional light industrial, we are also anticipating slowing in non-residential new construction. We expect weakening in Europe as new construction slows in addition, the reduction in energy efficiency incentives in Germany and Italy may unfavorably impact our OEM partners. The slowing volume will have a more significant impact on earnings due to our higher fixed cost base in Europe. We took additional restructuring actions at the end of the fourth quarter that will help reduce the impact of volume deleveraging. We do anticipate a decline in operating margins due to incremental investments, volume deleverage and the dilutive impact of our Bradley and Josam acquisitions as a result of customary transaction related costs, including amortization. Despite the expected 2024 macro backdrop, we believe we are well positioned to manage these headwinds due to our resilient business model and end market diversification. We continue to invest in strategic initiatives, including our digital strategy and new product development to fuel our growth and expand our leading market positions. We are also investing in a multi-year new SAP ERP system for our America's region to consolidate our business systems, drive productivity and support our smart and connected journey. We expect full year incremental investments of approximately $20 million. With that, let me turn the call over to Shashank who will address our results for the fourth quarter in full year 2023 and offer our outlook for Q1 in the full year 2024. Shashank.

Thank you, Bob, and good morning, everyone. Please now turn to slide four, which highlights our fourth quarter results. Sales of $548 million are up 9% on a reported basis and down 1% organically. Organic growth of 1% in America's and 4% in apnea were offset by a 5% organic decline in Europe. Foreign exchange, primarily driven by a stronger euro, increased year over year sales by roughly $6 million or 1%. Sales from our Enver and Bradley acquisitions added $42 million or nine points and are reported within the apnea and America's regions respectively. I will review the regional performance momentarily. Compared to last year, adjusted operating profit of $86 million increased 21% and adjusted operating margin of .8% was up 150 basis points. Benefits from price, productivity, and mix, more than offset inflation, reduced volume, and incremental investments of $9 million. The acquisitions were dilutive to operating margins by approximately 100 basis points. Adjusted earnings per share of $1.97 increased 23% versus last year. Earnings per share growth was driven primarily by strong operational performance and reduced interest expense, which is partially offset by the net impact of acquisitions and foreign exchange movements. The adjusted effective tax rate in the quarter was 22.3%, up 10 basis points compared to the fourth quarter of 2022. For gap purposes, we took a $3.8 million restructuring charge in the quarter related to the continued right sizing of our European cost structure, along with additional America's cost actions and facility exit costs. We also incurred $6.3 million of non-recurring acquisition charges. These charges are partially offset by the reversal of an earn-out accrual from a prior acquisition. We also recorded a tax charge of $5.3 million primarily related to foreign withholding taxes associated with the repatriation of cash in 2023. Moving to regional results, please turn to slide five. America's organic sales are up 1% and reported sales were up 10%. This was slightly better than we expected, especially against a tough prior year comparison. As a reminder, America's grew 11% organically in the fourth quarter of 2022. Solid growth in our non-residential core valve products was largely offset by declines in gas connectors and commercial marine instrumentation. America's reported sales were favorably impacted by 9% from the acquisition of Bradley, which added $33 million of sales in the quarter. Adjusted operating profit increased by 19% and adjusted operating margins increased by 150 basis points. The margin expansion was driven by price, favorable mix in productivity, which more than offset volume declines, inflation, incremental investments, and dilution from the Bradley acquisition. Europe organic sales were down 5% as we expected. Reported sales were flat as they are positively impacted by 5% from favorable foreign exchange movements. Growth in our wholesale business in France was more than offset by declines in Germany and Italy, with a reduction of government subsidies had an unfavorable impact. Operating margin increased by 220 basis points as price, favorable mix, and productivity more than offset inflation, investments, and volume delaverage. APMEA delivered 4% organic growth. Reported sales growth of 40% was negatively impacted by 1% from unfavorable foreign exchange movements and favorably impacted by 37% or $9 million of acquired and wear sales. Strong growth in Australia and New Zealand were tempered by flat sales in China due to weak residential underfloor heating sales and project timing in data centers. Adjusted operating margin decreased 180 basis points due to affiliate charges, inflation, investments, and the dilutive effect of the inward acquisition, which more than offset price, volume, and productivity. On slide six, I will speak to the full year results. As Bob mentioned, we delivered record operating results for 2023. Reported sales were $2.1 billion up 4%, primarily driven by price. Again, this was against a tough prior comparison when we grew 13% organically in 2022 on a consolidated basis. Acquisitions accounted for 3% or $59 million of incremental sales year over year. Foreign exchange globally had an immaterial impact across the year. Compared to last year, adjusted operating profit of $365 million increased 13% and adjusted operating margins of .8% was up 140 basis points. Benefits from price, productivity, and mix, more than offset inflation, reduced volume, and incremental investments of $24 million. The dilutive impact of acquisitions was approximately 40 basis points. Adjusted full year earnings per share of $8.27, increased by $1.14 or 16% versus the prior year. Operating results drove approximately 91 cents of the increase while acquisitions lower interest expense and a lower adjusted effective tax rate combined for an additional 23 cents. Free cashflow for the full year was $281 million, a 40% increase compared to last year and is a company record. The increase was driven by higher net income and reduced working capital investment. We invested approximately $30 million in capital spending, including investments in new product development, lean initiatives, and automation. Our 2023 free cashflow conversion was 107% and our reinvestment ratio was 99%. We repatriated approximately $64 million in cash during the fourth quarter of 2023 and approximately $118 million for the full year of 2023. The proceeds were used to pay down revolving debt and to fund acquisitions. We returned $63 million to shareholders in the form of dividends and share repurchases in 2023 and increased our annual dividend return by 20%. We repurchased approximately 92,000 shares of our Class A common stock at a cost of $16 million during the year. There is approximately $12 million remaining under the current stock repurchase program that was authorized in 2019 with another $150 million remaining available under the stock repurchase program authorized in July 2023. Our net debt to capitalization ratio at year end was negative .5% compared to negative .3% at year end 2022. Our net leverage ratio at year end is negative 0.1. Our balance sheet continues to be in excellent shape and provides substantial flexibility to fund our capital allocation priorities. Our team did an excellent job proactively managing the price cost dynamic, expanding margins, further strengthening our balance sheet while continuing to invest for future growth and delivering record financial results in 2023. Now on slide seven, let's discuss the general framework we considered in preparing our 2024 outlook. First, let's look at the expected unfavorable conditions. Elevated interest rates could further impact multifamily and non-residential construction projects. The Europe economy continues to slow. Higher interest rates and general uncertainty may negatively impact purchasing decisions, especially in new construction and energy incentive projects in Germany and Italy. We expect America's multifamily new construction to weaken over the course of 2024. Available data suggests a continued decline in new permits for multifamily projects and an excess of capacity currently on the market. As Bob discussed, America's non-residential new construction indicators are mixed. Some subverticals will be more challenged, including office, retail, and recreation. Some leading indicators, including the ABI index, have dipped in recent quarters, pretending a slowdown in 2024. We expect incremental investments to be a headwind in 2024. As Bob previously mentioned, we have commenced a multi-year implementation of a new SAP cloud-based ERP system in the Americas. This is the continuation of our efforts to reduce our global ERP instances, which grew through our many acquisitions. Over the last 10 years, we have reduced from 30 ERP systems down to 12. We'll be continuing this effort in the Americas by migrating to one SAP system, which will further reduce our ERP instances. We have established a roadmap for the next several years to enable us to make a smooth transition to the new platform, and we expect this investment to lead to significant efficiencies for our team and customers. In the middle column are themes that we'll continue to monitor. Geopolitical uncertainty, both in Europe and in the Middle East, may impact global markets during 2024. We have been able to maintain a positive price-cost dynamic during 2023. We'll continue to monitor the cost environment and respond appropriately. Global GDP has slowed, but is currently expected to be positive in the US and Europe. As a reminder, GDP acts as a proxy for our repair and replacement business. America's single-family new construction bottomed in 2023 and is expected to see slight growth in 2024. Now looking at potential favorable conditions. Our recent acquisitions of Bradley, Josson, and Enware are expected to contribute over 10 points of revenue growth and increase our exposure to attractive, institutional, and markets. America's institutional and light industrial new construction are expected to remain favorable. We believe that the healthcare, education, data centers, megaprojects, and food and beverage subverticals should continue to grow. We expect incremental revenue driven by our digital product offerings and other new product introductions. Productivity and automation investments are expected to provide cost savings in 2024. In addition, our Europe and America segments are expected to have incremental cost savings from the restructuring activities we initiated in late 2023.

As discussed,

our balance sheet remains strong as we head into 2024.

With

that as background, let's review our outlook for the full year 2024 and our expectations for the first quarter of 2024. On slide eight, we have provided our major assumptions. Starting with the full year assumptions, on a reported basis, we expect sales to increase between six and 12%. Consolidated organic revenue is estimated to range from negative five to positive 1%, with regional expectations as follows. America's from negative three to positive 2%, Europe from negative nine to negative 4%, and apnea from flat to positive 6%. In addition, we expect approximately $210 million of incremental sales in the Americas and $9 million in apnea for acquisitions. Compared to 2023, we expect the following. EBITDA margin to be in the range of .4% to 20%, or down 50 basis points to up 10 basis points. Operating margin should be in the range of .9% to 17.5%, or down 90 basis points to down 30 basis points. This is largely due to the expected acquisition dilution of approximately 80 basis points, mostly driven by Bradley. From a regional perspective, the Americas operating margin is expected to be down 90 basis points to 140 basis points, primarily driven by the dilutive impact of acquisitions. We anticipate Europe's adjusted operating margin will decrease 100 basis points to 160 basis points due to the impact from volume deleverage. Apnea's adjusted operating margin is expected to increase 40 basis points to 100 basis points. It is important to note that the margin guidance includes approximately $20 million in incremental investments. As for the other 2024 key inputs, we expect corporate costs to be about $55 million for the year. Net interest expense should be approximately $12 million. Our estimated adjusted effective tax rate for 2024 should be approximately 25%. CapEx spending is expected to be approximately $50 million. Depreciation and amortization should be approximately $55 million for the year. We expect to deliver free cashflow conversion of greater than or equal to 90% of net income in 2024. We expect free cashflow to be below 100% due to the previously mentioned incremental investments related to our new ERP system. For the full year, we are assuming a 1.09 average Euro-US dollar effects rate versus the average rate of 1.08 in 2023. This would imply an increase of 1% year over year and would equate to an increase of $5 million in sales and two cents a share in EPS for the full year versus the prior year. We expect our share count to be approximately 33.5 million for the year. Finally, a few items to consider for Q1. On a reported basis, we expect sales to increase between 15 and 19%. Organically, we expect sales to increase one to 5% with mid single digit growth in the Americas and in the Americas in Apnea, offset by a mid single digit decline in Europe. Based on the calendarization in 2024, we will benefit from four extra shipping days in the first quarter, which will be offset in the fourth quarter. In addition, we expect approximately $57 million of incremental sales in the Americas and $9 million in Apnea from acquisitions. Compared to the first quarter of 2023, we expect the following. First quarter EBITDA margin to be in the range of 19.5 to .1% or down 50 basis points to up 10 basis points. First quarter operating margin should be in the range of 17 to .6% or down 80 basis points to down 20 basis points. This is due to the impact of acquisition dilution as well as higher investments. We expect incremental investments of approximately $6 million in Q1. Corporate costs should be approximately $13 million. Net interest expense should be approximately $3 million. The adjusted effective tax rate should be between 23 and 24%. We are estimating a 1.07 euro dollar exchange rate, which is flat to the first quarter of 2023. With that, I'll turn the call back over to Bob to summarize our discussion before moving to Q&A.

Bob. Thanks Shashank. On slide nine, I'd like to summarize our discussion before we address your questions. 2023 closed out on a strong note with record Q4 sales, operating margin and adjusted EPS. Our teams overcame many challenges and did an outstanding job addressing our customers' needs. We are excited about the addition of Bradley and Josem to our family of brands and solutions. We are focused on integration and ensuring a seamless transition and are pleased with the progress to date. We expect a more challenging 2024 with softer market conditions. As we've said, our portfolio is agnostic to end markets and our teams will pivot to the growing subverticals as needed. We are focused on controlling what we can and will take advantage of profitable market opportunities enabled by our robust balance sheet. Our business model, which includes a large repair and replacement component, provides a durable base that drives a steady revenue and cashflow stream. We remain focused on executing on our long-term strategy, continuing to invest incrementally for the future and driving our digital strategy. Our balance sheet remains strong after our acquisitions of Bradley and Josem and provides ample flexibility to support our capital allocation priorities to create value for our customers and shareholders. Our acquisition pipeline remains strong and we'll continue to monitor attractive opportunities that expand our solutions, geographic presence and growth. We continuously monitor economic conditions and our markets. Our highly experienced team is well positioned and has proven themselves more than capable of executing through the economic cycle and adapting to meet our customers' needs in any environment. With that operator, please open the line for questions.

Thank you. If you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply press star one again. Your first question comes from the line of Jeff Hammond with KeyBank Capital Markets. Your line is open.

Hey, good morning, everyone. Thanks for all the great detail here. Just wanna jump in, I guess a couple of areas where you cited some, you know, maybe weakening one, just multifamily, is this more of a concern or are you starting to see that yet? And then, you know, separately, just give us a sense of, you know, I know the heat pump, Europe heat pump business has grown for you guys. What you think, you know, how much pressure you see from that market, thanks.

Yeah, good morning, Jeff. Yeah, so we're not seeing multifamily decreasing yet, but given the housing, the starts, the permits, et cetera, that's where we're concerned, right? So it's, we believe it's just a matter of time and more concern in the second half of the year. Regarding heat pumps, we're seeing softness in our OEM business, which sells heat pumps and other ancillary equipment around there. And we saw that in Q3 and it, you know, held up in Q4, and we also saw that in January. So it's in line, there's overstock of the heat pumps, for sure, and then the ancillary products. A lot of that's being driven by the incentives that we talked about earlier that have, you know, they've slowed down those incentives. So a lot of people are waiting for those, but the OEMs are drawing down their inventories.

Okay, very helpful. Maybe just give us a sense of, you know, what you announced on pricing, if you think pricing is back to a more normal level, and then just how to think about incremental margins, I guess, particularly for North America, X, some of the acquisition dilution.

From a, good morning, Justice, except from a pricing standpoint, we, you're right, we are back to pre-pandemic levels. So we're assuming a one to one and a half percent price realization for this year. And that's obviously on the back of much lower inflation than we've experienced over the last three years.

And back to

the pre-pandemic days, right? We used to focus on driving a lot of productivity. So it's price and productivity more than offsetting inflation incremental investments to drive the margin expansion. And I think we're back to that in 2024. Productivity, we're driving a lot on the global sourcing initiatives. We took some restructuring actions and then productivity in the plant and outside the plant as well.

And then incremental margins, X, the acquisitions.

Excluding acquisitions, we're looking at 20 basis points of off margin expansion if you take the acquisitions out.

Oh yeah. Okay, thanks guys. Thank you.

Your next question comes from the line of Mike Halloran with Robert W. Baird. Your line is open.

Hey, good morning, everyone. Good morning. So it certainly makes a lot of sense in the preparatory marks when you think about the leading indicators you referenced and how you have some concern in specific pockets as you work through the year. What's the channel saying and how far out does that visibility stretch as you sit here today? The leading indicators have a lot of moving pieces, a lot of different end markets below the hood. So I guess I'm just a little bit more curious what the feet on the ground are specifically saying right now.

Yeah, so Jeff, look at, we're a book and ship business as you know, so we have very short lead time. So we're having a lot of discussion with contractors. The larger contractors are busier. They tend to move around. So we're watching that very closely. There is concern in general on the second half of this year and we're watching that. But as we said earlier, we'll pivot to the areas that are growing and our products and teams will move to those areas as appropriate.

And then you mentioned that multiple times, balancing capacity, perfectly comfortable to pursue deals. What's that pipeline look like? And do you think that the opportunity exists to have a little bit more consistent cadence of M&A as we look forward?

Yeah, so the pipeline remains full and we continue to monitor that. You never ever can predict the timing of acquisitions. You work on these for years and then they all of a sudden pop up. So we're watching that closely. We're continuing to develop those relationships and we'll wait and see. But I would say in general, the pipeline's healthy and it's just none of us can determine exactly the timing of any of these things at this point in time.

And then thank you for that. And one last quick one here. Shashank, what's the percent impact of the four shipping dates that you guys are assuming in the first and the fourth quarter and are those created equal given how December can sometimes track late in the quarter?

Yeah, so Q1 is about 5% to 6% of incremental revenue based on those four shipping days.

This is a

leap year so you actually have about three of those days back in Q4. When we look at the splits by quarter, it's about the same impact but instead of 5% to 6%, you're probably going to see a 3% to 4% in Q4.

Appreciate it. Thanks, everyone. Thank you. Thank you.

Your next question comes from the line of Joe Allersmeyer with Deutsche Bank. Your line is open.

Hey, good morning, everybody. Thanks for taking my questions.

Good morning.

Yeah, great progress on the margin. Continued here in the year. I think slide six says it all, your ability to offset some of the headwinds here. Maybe if you could just talk about what you're assuming at this point for raw material, inflation or deflation in 2024 and then just talk also about how some of the early pricing is going, the pricing that you put in in the first quarter of 2024.

From a raw material standpoint, Joe, we've assumed about a 2% to 3% inflation on raw material. The biggest components for us are brass and copper. And we do lock in as we talked about three, four months ahead. So we got good visibility into the kind of April time period. And so far, that's good for the first quarter. As far as pricing, we don't talk about price until the quarter is done. And we've announced the price increases. And then we'll report on what the price realization was in Q1 when we do our call in early May. For Q4, the price realization was approximately 2%.

Okay, thanks, Shashank. And the CAPEX guide, the step up, maybe you just give some building blocks to what that reflects. And congrats on bringing the ERPs down. As somebody that used to work in those 30, kind of makes me sweat. But is any amount of that capitalized over the coming years or is this gonna be, you know, expensed?

No, there's a good portion that you said, there's a good portion that will be capitalized in 2024. You see the step up in CAPEX, part of that is M&A related, but part of that is the ERP. So there'll be a good portion of the ERP that will be capitalized in 2024.

Understood, all right, thanks a lot, guys. Good luck. Thank you. Thank you.

Your next question comes from the line of Joel from Giorgianno with TD Cowan. Your line is open.

Hi, this is Zain on for Jill. I just wanted to ask about the sequentials you're seeing in inflation. Are you seeing the normalization sort of slow down a little bit and has inflation stayed relatively high in recent months?

So on the material side, you know, materials started coming, I mean, copper, they have a different cycle, but they started coming down early last year. Quite frankly, over the last couple, three months, they've gone up a little bit, but they do bounce around a little bit. On the compensation side, which is obviously the second biggest element of cost, we have seen compensation side a little bit softer, but there's still inflation out there on the compensation side across Europe and the Americas.

Thank you for that. And are you guys, are the Red Sea issues impacting you guys at all?

Yes, they are. So from a trade stand, yeah, go ahead, Bob.

No, go ahead, Shashank, you got it.

Yeah, so we do get goods in Europe from China that used to go through Red Sea, and obviously now they're going through the ports in South Africa. So there's extra time as well as the cost for container cargo, you've read about it. They've gone up, certainly not at the levels you experienced during the supply chain disruptions, but they have gone up significantly over the last six, eight weeks.

Great, thank you so much for that.

Thank

you. Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. Your next question comes from the line of Adam Farley with Stiefel, your line is open.

Yeah, good morning, everyone. My first questions are around European margins. Could you provide some color on what drove the positive mix in the quarter? And should we expect any positive mix impacts going forward? So the

positive mix in Q4, as Bob talked about, our OEM driven business was down primarily because of heat pumps and hence, through the equipment that tends to be low margin. Whereas our France business, which has higher margin and more on the plumbing side, that held up pretty well. So we had favorable mix there.

As well

as from an off margin perspective, we did benefit from lower cost of raw materials in Q4. And that was, as I said, the bias we had made early on in the beginning, in the June, July time period.

So

the combination of those two factors that drove the off margin in Europe.

Okay, thank you for that, Shashank. And then on America's growth, maybe just provide a little more detail on, what markets are driving the continued growth in valve products? And then on the flip side, what markets drove the declines in gas connectors? Thank you.

Yeah, so look at institutional, light industrial has been positive. Single family is basically flattish. Multi-family is slight growth. We're expecting it to temper off in the second half of 2024. And then, in general, the gas connectors are in, primarily in specialty type applications. Some of it is de-stocking and some of it is in residential niches, right? We're talking generators, we're talking gas appliances, things like that, that are moving up and down. And if you recall, we had available capacity and took a lot of share in prior years related to having our products, our gas connectors in North America produced. And a lot of our competitors get them overseas. So we knew we'd give a little bit back in market share in that area, but we capitalized it in 2023.

Very great, thank you.

Thank

you.

There are no further questions at this time. I will turn the call back to Bob Pagano for closing remarks.

All right, thank you for taking the time to join us today. We appreciate your continued interest in Watts and look forward to speaking with you again in May to discuss our first quarter results. Have a good day and stay safe.

This concludes today's conference call. We thank you for joining. You may now disconnect your line.