WATTS WATER TECHNOLOGIES INC Q3 FY2024 earnings call

• Bob noted third quarter results exceeded expectations with organic sales down 4%, APMEA growth offsetting Americas and Europe declines. Adjusted operating margin 17.1% due to productivity and cost controls. Integrations of Bradley, Josam, and Anware acquisitions ahead of schedule. Closure of French manufacturing plant under consideration with cost reduction actions. Launched Nexa, an intelligent water management solution for commercial buildings. - Shashank discussed consolidated results: sales $544M, up 8% reported, down 4% organic. Adjusted operating profit $93M, up 2%. Year-to-date free cash flow $204M, up. Increasing full year free cash flow conversion to 100% or more. Robust balance sheet with negative net debt to capitalization and net leverage.

Americas: Organic sales down 3%, reported sales up 14% Y/Y. Acquisitions of Bradley and Josam added $59M or 17% to sales. Adjusted operating income up 2%, margin down 260bps. Europe: Organic sales down 12%, reported sales down 11%. Drains business strong but wholesale plumbing and OEM heat pump destocking impacted. Adjusted operating income down 10%, margin up 20bps. APMEA: Organic sales up 8%, reported sales up 10% due to demand and FX. Adjusted operating income up 18%, margin up 130bps.

• Fourth quarter: reported sales range -4% to flat, organic sales down 5-9% (5% due to fewer shipping days). Adjusted EBITDA margin 18.6%-19.2%, adjusted operating margin 16%-16.6%. - Full year 2024: reported sales up 9%-10%, organic sales down 1%-2%. Increasing full year adjusted EBITDA margin to up 10-30bps, adjusted operating margin to down 10-30bps. Free cash flow conversion target increased to 100% or more of net income.

• Geopolitical uncertainty in US, Europe, Middle East. - Heat pump destocking in Europe impacting OEM channel. - Inventory safety stock reductions in Americas wholesale channel due to project timing and normalized lead times.

Q: Update on heat pump destock and North America construction?

A: Heat pump destock mainly in Europe continuing into first quarter of next year. In North America, wholesale channel destocking in Q3 mostly over; multifamily new construction softness seen in Q3.

Q: Europe drains business strength and sustainability?

A: Drain business in Europe (stainless steel drains for marine, military, food processing) strong, offsetting Europe softness; confident in these markets.

Q: European footprint strategy?

A: Always looking to optimize footprint; working with French workers council on plant closure, but no other immediate consolidation plans.

Q: Nexa sales process and customer adoption?

A: Nexa is different from traditional sales, using strategic accounts and SaaS model; test pilots show less than one year payback; sold as original equipment with SaaS on top.

Q: European heat pump market details and recovery?

A: Heat pump market tough, depends on local government incentives; things expected to bottom in first half of 2025; Germany finalizing incentives, Italy's lower rate a year ago helps with weak comps.

Q: APMEA growth and Americas institutional/industrial construction?

A: APMEA growth driven by China data centers and Middle East demand. Americas institutional and industrial new construction steady, expected to continue.