Watts Water Technologies, Inc.

Welcome to Watts Water Technologies, Inc., fourth quarter and full year 2025 earnings call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Diane McClintock, Chief Financial Officer. Please go ahead.

Thank you and good morning, everyone. Joining me today is Bob Pagano, President and CEO. 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 undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. 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. With that, I will turn the call over to Bob.

Thank you, Diane, and good morning, everyone. Please turn to slide three, where I'll recap 2025 and outline the key drivers for our 2026 outlook. I want to begin by expressing gratitude to the entire WATS team for their dedication and meaningful contributions, which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the fourth quarter and the full year. Organic sales rose 8% and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5%, and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities. We generated a record $356 million in free cash flow for 2025, up 7%, reaching a conversion rate of 105%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth. Our capital allocation continues to focus on strategic M&A, high return organic investments, competitive dividends, and steady share buybacks. Since our last earnings call, we completed two acquisitions. Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire tube, water tube, and condensing boilers for commercial, institutional, and industrial uses. Superior's mission-critical heating and hot water solutions expands our customer offerings. Superior has about 60 million in annual sales. SaudiCast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for non-residential and industrial markets. This acquisition grows our footprint in the fast-developing Middle East region. SaudiCast's annual sales are around $20 million. Both acquisitions are expected to be accreted to adjusted EPS in 2026 after accounting for added interest expense and normal purchase accounting adjustments. Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80-20 model within the OneWatch performance system. Through this ongoing evaluation, we've identified 10 to 15 million of European sales and 25 to 30 million in the Americas. mainly in lower margin retail and OEM channels that we intend to eliminate during 2026. We anticipate these changes will be neutral or potentially margin accretive in 2026. Here's an overview of what will drive our 2026 outlook. We expect that pricing, along with continued repair and replacement activity, will fuel further growth in 2026. Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets. In the Americas, indicators for non-residential new construction present a mixed picture. The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in non-residential projects. Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses and recreation. We also anticipate a soft single family and multifamily residential construction market through 2026. Lastly, Europe's new residential and non-residential construction is expected to remain sluggish. Uncertainty surrounding inflation, trade policies and interest rates might continue to hamper new construction projects. Overall, we foresee market conditions similar to those experienced in 2025. We expect to benefit over $130 million in incremental revenues from the acquisitions of Easy Water, Haas, Superior, and SaudiCast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the one watts performance system and realize synergies. Now, let me highlight a few strategic growth initiatives, including our data center and M&A strategy. On slide four, you'll see examples of solutions we've developed for both air-cooled and liquid-cooled data centers. Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers. Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling. Other important offerings include strainers, drainage, and our cool vault thermal storage tanks, which serve as emergency backups during chiller restarts. Our data center initiative spans the globe, and we estimate the addressable market exceeds $1 billion. In 2025, sales from this sector represented just over 3% of total company sales and are growing at a double-digit rate. We'll keep investing in new products and technologies to meet evolving customer needs, and believe this market will continue expanding for years. Slide five covers our acquisitions over the past three years. We finalized eight deals, deploying about $660 million in cash and adding around $450 million in annualized revenue. These acquisitions have broadened our product range, expanded channel access, and increased our geographic reach. Just as importantly, They diversified our end market exposure and shifted our mix toward higher growth, higher margin, non-residential, institutional, and industrial segments. By leveraging the One Watts performance system, we're driving value through successful integration, synergy realization, and improving margins. Despite the typical early stage margin dilution from acquisitions, we've expanded adjusted operating margin by 320 basis points in three years. We're proud of our performance and pleased to add such quality brands to our portfolio. With that, I'll hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026. Diane?