Q4 2021 Watts Water Technologies Inc Earnings Call

Speaker 1: Good morning, and my name is Savannah, and I will be your conference call operator today. At this time, I'd like to welcome everyone to the Watts Water Technologies fourth quarter 2021 earnings call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star one on your telephone keypad. And if you would like to withdraw your question, please press star one again. Thank you. Until next time, you may begin your conference.

Good morning, and my name is Savannah, and I will be your conference call. Operator today at this time I'd like to welcome everyone to the Watts water technologies fourth quarter 2021 earnings call.

Both of them placed on mute to prevent any background noise and after the Speakers' remarks, there'll be a question and answer session. He would like to ask a question. During this time. Please press star one on your telephone keypad and if he would like to withdraw your question. Please press star one again.

Thank you Tim Macphee, you may begin your conference.

Please standby for some technical difficulties.

Speaker 2: Music

[laughter] yeah.

[music].

Speaker 3: And please go ahead. Morning, everyone. Welcome to our fourth quarter and full year 2021 earnings conference call. Joining me today are Bob Pagano, president and CEO , our CFO , Sheshank Patel, and Diane McClintock, VP of Financial Planning and Analysis.

I'm. Please go ahead good morning, everyone welcome to our fourth quarter and full year 2021 earnings Conference call. Joining me today are Bob Pagano, President and CEO .

CFO , Shashank Patel, and Diane Mcclintock VP of financial planning and analysis.

Speaker 3: Bob will provide an overview of this past year, review our 2022 priorities, as well as update you on our market expectations for this year. Shashank will provide a detailed analysis of our fourth quarter and full year financial results and discuss our outlook for Q1 in the full year 2022.

Bob will provide an overview of this past year review of 2022 priorities as well as update you on our market expectations for this year.

<unk> will provide a detailed analysis of our fourth quarter and full year financial results and discuss our outlook for Q1 and the full year 2022.

Speaker 3: Following our prepared remarks, we will address questions related to the information covered during the call.

Following our prepared remarks, we will address questions related to the information covered during the call.

Speaker 3: Today's webcast is accompanied by a slide presentation, which can be found in the investor sections of our website. We will refer to the...

Today's webcast is accompanied by a slide presentation, which can be found in the investor sections of our website.

We will refer to these slides throughout our prepared remarks.

Speaker 3: Any reference to non-GAAP financial information is reconciled in the relevant GAAP measures in the appendix to the presentation.

Any reference to non-GAAP financial information is reconciled in the relevant GAAP measures in the appendix to the presentation.

Speaker 3: I'd like to remind everyone that during this call, you may be making certain comments that constitute forward-looking statements.

I'd like to remind everyone that during this call we may be making certain comments that constitute forward looking statements.

Speaker 3: statements are subject to numerous risks and uncertainties that could cause actual results of different material.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially.

Speaker 3: For information concerning these risks, see our publicly available filings at the SEC.

Information concerning these risks <unk> publicly available filings with the SEC.

Speaker 3: the company disclaims any intention or obligation to update or revise any forward-looking statements, whether because of new information, future events, or otherwise.

The company disclaims any intention or obligation to update or revise any forward looking statements, whether because of new information future events or otherwise.

Speaker 3: On a personal note, this will be my last earnings call. I have decided to retire effective March 31st.

On a personal note this will be my last earnings call I.

I have decided to retire effective March 31.

Speaker 3: While I have worked with so many great people at Watts over the last 18 years, I'm excited and looking forward to the next chapter.

While I have worked with so many great people at what's over the last 18 years I'm excited and looking forward to the next chapter.

Speaker 3: I am also excited to inform you that Diane McClintock, our VP of Financial Planning and Analysis, will be assuming my investor relations duties.

I'm also excited to inform you that Diane Mcclintock, our VP of financial planning and analysis will be assuming my investor relations duties.

Speaker 3: Diane has over 10 years of increasing financial responsibilities within WOCs, as well as experience in financial roles.

Diane has over 10 years of increasing financial responsibilities within watch as.

As well as experience in financial roles with other companies.

Speaker 3: You will find Diane to be very knowledgeable, energetic, and personable. I fully expect you will enjoy working with Diane as much as I have.

You will find Diane to be very knowledgeable energetic and personable I fully expect you will enjoy working with Diane as much as I have.

Speaker 3: I've also enjoyed working with you, the investor and analyst community, over the last nine years.

I've also enjoyed working with you the investor and analyst community over the last nine years.

Speaker 3: I've appreciated your continued interest in our company, and I wish you all the best, both personally and professionally. With that, I will turn the call over to Bob.

I've appreciated your continued interest in our company.

Wish you all the best both personally and professionally.

With that I will turn the call over to Bob.

Thank you, Tim and good morning, everyone.

Speaker 4: Before beginning the presentation, I'd like to comment on Tim's personal announcement.

Before beginning the presentation I would like to comment on Tims personal announcement Tim.

Speaker 4: Tim has been a respected member of the Watts team for 18 years. As corporate controller, chief accounting officer, treasurer, and our investor relations lead, he has been involved in all aspects of finance.

Tim has been a respected member of Milwaukee team for 18 years, as corporate controller, and Chief Accounting Officer, Treasurer, and our Investor relation fleet. He has been involved in all aspects of finance Tim has worked closely with several Ceos and cfos. During his tenure at <unk> and all of US. Appreciate this is working council I want to thanks.

Speaker 4: Tim has worked closely with several CEOs and CFOs during his tenure at Watts and all have appreciated his work and counsel. I want to thank Tim for all his services to Watts and wish him all the best in his retirement.

For all these services to work and wish him all the best in his retirement.

Thank you Bob.

Speaker 4: Now, please turn to slide three in the earnings presentation, and I'll provide a recap of our 2021 efforts and some initial thoughts regarding 2022.

Now please turn to slide three in the earnings presentation, and I'll provide a recap of our 2021 efforts and some initial thoughts regarding 2022.

Speaker 4: Entering 2021, general expectations were that the pandemic's negative global impact would wane as the year progressed.

Entering 2021 general expectations were that the Pandemics negative global impact would wane as the year progressed.

Speaker 4: Instead, new virus variants emerged, supply chain disruptions became more frequent, across the board inflation became more prevalent, and our personal lives continued to be affected. As the economy recovered, we saw an increase in the number of cases in the world.

Instead, new virus variants emerge supply chain disruptions became more frequent across the board inflation became more prevalent and our personal lives continued to be affected.

The economy recovered we saw strong market demand also earlier in the year severe winter weather in the southeastern United States drove additional on this expected demand.

Speaker 4: Also, earlier in the year, severe winter weather in the southeastern United States drove additional unexpected

Speaker 4: Throughout another challenging year, the entire Watts global team worked tirelessly to meet customer demands despite all the adversities. I must thank everyone for their outs-

Brown another challenging year, the entire watts global team worked tirelessly to meet customer demands despite all the adversity.

I must thank everyone for their outstanding performance.

Speaker 4: The team remained close to our customers, dealt with many complex supply chain disruptions, enhanced our digital platforms to promote remote work collaboration, and continued to drive a safety-first mindset.

The team remain close to our customers dealt with many complex supply chain disruptions enhanced our digital platforms to promote remote work collaboration and continued to drive a safety first mindset.

Speaker 4: We diligently addressed inflationary pressures through market-leading pricing programs and with productivity.

We diligently addressed inflationary pressures through market, leading pricing programs and with productivity initiatives. In addition, we expanded our product offering and leak detection systems and solutions with the purchase of Sentinel Hydro solutions.

Speaker 4: In addition, we expanded our product offering in leak detection systems and solutions with the purchase of Sentinel Hydro Solution.

Speaker 4: We have advanced our efforts to further embed environmental, social, and government, or ESG, tenants into our culture.

We have advanced our efforts to further embed environmental social and governance or ESG tenants into our culture and.

Speaker 4: 2021. Our general counsel also became the chief sustainability officer and is providing quarterly updates on our efforts to the board.

In 2021, our general Counsel also became the Chief sustainability officer and is providing quarterly updates on our ESG efforts to the board.

Speaker 4: We performed a materiality assessment to help guide us in determining the ESG touch points most critical to our future success in our ESG journey.

We performed a materiality assessment to help guide us in determining the ESC touch points, most critical to our future success and our ESG journey.

Speaker 4: We participated in the Water Council's Water Stewardship Accelerator Program, which allowed us to better understand how we affect water resources, both upstream and downstream, at eight of our worldwide facilities.

We participated in the water council's water stewardship accelerator program, which allowed us to better understand how we affect water resources, both upstream and downstream at eight of our worldwide facilities with <unk>.

Speaker 4: We've continued to encourage the expansion of our employee resource groups and now have six groups focusing on various constituencies within our company.

Continued to encourage the expansion of our employee resource groups and now have six groups focusing on various constituencies within our company.

Speaker 4: Our partnership with Planet Water continues to be successful. This past year, we sponsored six additional water towers, providing clean drinking water to almost 11,000 people in five countries.

Our partnership with planet water continues to be successful. This past year, we sponsored six additional water towers, providing clean drinking water to almost 11000 people in five countries.

Speaker 4: Our three key macro themes are safety and regulation, energy efficiency, and water conservation.

Our three key macro themes are safety and regulation energy efficiency and water conservation.

Speaker 4: These product themes embody the handprint of our ESG framework.

These product teams embody the handprint of our ESG framework.

Speaker 4: We have many products that touch upon one or more of these themes, like the Powers and Telestation, the OneFlow anti-scale system, our full line of condensing boilers and water heaters, and our commercial rainwater harvesting system.

We have many products that touch upon one or more of these themes like the powers and teller station. The one flow anti scale system, our full line of condensing boilers, and water heaters and our commercial rainwater harvesting systems.

Speaker 4: These products either keep people in the environment safe, promote energy efficiency, conserve natural resources, or reduce greenhouse gas emissions.

These products, either keep people and the environment safe.

Energy efficiency, conserve natural resources or reduce greenhouse gas emissions.

Speaker 4: Several leading rating agencies have validated our efforts with improved 2021 ESG.

Several leading rating agencies have validated our efforts with improved 2021, ESG scores and we've been recognized by Newsweek as one of the most responsible companies in America concerning our ESG initiatives for the third consecutive year.

Speaker 4: and we've been recognized by Newsweek as one of the most responsible companies in America concerning our ESG initiatives for the third consecutive year.

Speaker 4: ESG is ingrained into our culture and product development more than ever. We'll continue to make strides as we move forward on this important journey. Now, regarding

ESG is ingrained into our culture and product development more than ever we will continue to make strides as we move forward on this important journey.

Now regarding our 2021 performance.

Speaker 4: The team's collective efforts delivered record full-year sales, operating margin, and earnings per share. Organically, sales increased by 17 percent, adjusted operating margin increased by 140 basis points, and adjusted EPS increased by 42 percent.

The team's collective efforts delivered record full year sales operating margin and earnings per share organically sales increased by 17% adjusted operating margin increased by 140 basis points and adjusted EPS increased by 42%.

Speaker 4: delivered record operating margin while still investing 19 million for the future including incremental spending on our smart and connected product portfolio and while dealing with rapid cost

We delivered record operating margin, while still investing $19 million for the future, including incremental spending on our smart and connected product portfolio and while dealing with rapid cost inflation.

Speaker 4: Full year free cash flow came in slightly below our targeted goal of 100% of net income, mainly due to a proactive decision to maintain additional inventory levels to meet higher demand from our customers and to provide a partial buffer from logistics and supply chain disruption.

Full year free cash flow came in slightly below our targeted goal of a 100% of net income mainly due to a proactive decision to maintain additional inventory levels to meet higher demand from our customers and to provide a partial buffer from logistics and supply chain disruption.

Speaker 4: we announced the closure of one of our French facilities to optimize our manufacturing footprint and provide incremental productivity.

We announced the closure of one of our French facilities to optimize our manufacturing footprint and provide incremental productivity.

Speaker 4: Finally, we strengthened our balance sheet by paying down debt during the year through operating cash flow, and renegotiated our financing agreement, extending the debt through early 2026 at more favorable markets.

Finally, we strengthened our balance sheet by paying down debt during the year through operating cash flow and renegotiated our financing agreement extending the debt through early 2026 at more favorable market rates.

Speaker 4: 2021 was a record year, driven by exceptional collaboration and teamwork across WOTS, an intense level of customer focus, and a consistently high level of execution. Next, let's review our 2022 priorities.

21 was a record year driven by exceptional collaboration and teamwork across what's an intense level of customer focus and a consistently high level of execution.

Next let's review our 2022 priorities.

In many respects our key priorities remain consistent employee safety is our number one priority will continue to monitor and adhere to CDC guidelines and other governmental mandates as we hopefully shift to a post pandemic world This year.

Speaker 4: safety is our number one priority. We'll continue to monitor and adhere to CDC guidelines and other governmental mandates as we hopefully shift to a post-pandemic world this year. Customer focus remains a

<unk> focus remains a crucial cornerstone our commitment to new product development, especially in smart and connected products will continue to be a focal point.

Speaker 4: our commitment to new product development, especially in smart and connected products, will continue to be a focal point.

Speaker 4: Voice of customer feedback, as always, will be the cornerstone of our development process.

The customer feedback as always will be the cornerstone of our development process.

Speaker 4: we've received a lot of feedback, even with COVID restrictions, through our virtual Lunch and Learn program.

We've received a lot of feedback even with COVID-19 restrictions through our virtual lunch and learn programs.

Speaker 4: We increased those virtual sessions by 70% in 2021 to over 18,000 and plan to continue double-digit growth in 2022.

We increased those virtual sessions by 70% in 2021 go over 18000 and plan to continue double digit growth in 2022.

Speaker 4: As a market leader, we expect to continue to drive revenue growth and expand our operating margins through price and productivity, employing our one-watch performance system while still funding long-term investment.

As the market leader, we expect to continue to drive revenue growth and to expand our operating margins through price and productivity employing our one watts performance system, while still funding long term investments.

Speaker 4: Let's talk briefly about how we see the market shaping up for 2022.

Let's talk briefly about how we see the market shaping up for 2022.

Speaker 4: From a macro perspective, GDP forecasts in all our major regions are expected to grow, albeit at levels below those seen in 2020.

From a macro perspective GDP forecasts in all our major regions are expected to grow, albeit at levels below those seen in 2021.

Speaker 4: In the Americas, our market expectations for new construction in both the residential and commercial markets are mixed.

In the Americas, our market expectations for new construction in both the residential and commercial markets are mixed.

Speaker 4: After a banner 2021, new residential housing starts and permits are forecasted to be in the low signal digits for 2022.

After a banner 2021, new residential housing starts and permits are forecasted to be in the low single digits for 2022.

Speaker 4: new non-residential construction, we anticipate mid-single-digit growth in 2022. The latest industry indicators, including the ABI and Dodge Momentum Index, are pretending growth.

And new nonresidential construction, we anticipate mid single digit growth in 2022.

The latest industry indicators, including the Abi and Dodge momentum index or pretending growth.

Speaker 4: AIA recently released its semi-annual consensus construction outlook, which predicts overall non-residential construction spend in the U.S. will increase low to mid-single-digit.

The AI a recently released its semiannual consensus construction outlook, which predicts overall nonresidential construction spending in the U S will increase low to mid single digits.

Speaker 4: Repair and replacement activity was extremely strong in 2021, partly as a result of pent-up demand due to the impacts of the lockdowns in 2020.

Repair and replacement activity was extremely strong in 2021, partly as a result of pent up demand due to the impacts of the Lockdowns in 2020.

Speaker 4: Overall, we expect repair and replacement will grow in the mid-single digits for the year, with the first half slightly stronger than the second half as we anticipate tougher compares.

Overall, we expect repair and replacement will grow in the mid single digits for the year with a first half slightly stronger than the second half as we anticipate tougher compares.

Speaker 4: In Europe , we are cautiously optimistic about the markets. In general, there are various government subsidies and economic packages that could help local economies.

In Europe , we are cautiously optimistic about the markets in general there are various government subsidies and economic packages that could help local economies. We expect government sponsored energy subsidies to continues to provide support in Germany, and Italy in the marine market is starting to show signs of coming back but certainly.

Speaker 4: We expect government-sponsored energy subsidies to continue to provide support in Germany and Italy, and the marine market is starting to show signs of coming back. But certainly, growth will not be as robust as 2021, and like the Americas, we expect headwinds with labor constraints, material shortages, and inflation.

Growth will not be as robust as 2021 and like the Americas, we expect headwinds with labor constraints material shortages and inflation.

Speaker 4: In Asia-Pacific, regional GDP growth is expecting to be more subdued.

In Asia Pacific Regional GDP growth is expected to be more subdued.

Speaker 4: China's economy is forecast to grow at about 5% in 2022, a slowdown from 8% in 2021.

China's economy is forecast to grow at about 5% in 2022, a slowdown from 8% in 2021.

Speaker 4: The country will continue to be subject to potential COVID lockdowns and housing pressures from the Evergrande fallout.

Our country will continue to be subject to potential COVID-19 lockdowns in housing pressures from the Evergrande fallout.

Speaker 4: New Zealand and Australia should see economic growth but again at lower levels in 2021.

New Zealand, and Australia should see economic growth, but again at lower levels in 2021.

Speaker 4: Australia is expected to grow with continued help from government subsidies for new home buyers.

Australia is expected to grow with continued help from government subsidies for new homebuyers easy.

Speaker 4: These areas are more susceptible to COVID lockdowns as we've seen this past year and something we'll need to monitor in 2022. On a positive note, the economy in the Middle East region is expected to grow incrementally in 2022.

These areas are more susceptible to COVID-19 lockdowns as we've seen this past year and something we will need to monitor in 2022 on.

On a positive note the economy in the Middle East region is expected to grow incrementally in 2022.

Speaker 4: With respect to the impact of our outlook from COVID variants, we have assumed that the Omicron variant subsides in the first quarter of 2022, and that there are no significant impacts from any future variants to either our productivity or end market demands in 2022.

With respect to the impact of our outlook from Covid variance, we have assumed that the omicron variance subsides in the first quarter of 2022, and there are no significant impacts from any future variance to either our productivity or end market demands in 2022.

Speaker 4: Now, I'd like to provide an update on our Smart and Connected product initiative.

Now I'd like to provide an update on our smart and connected product initiatives. Please turn to slide four.

We want to continue to lead the industry and digitally connected product offerings, we invested $9 million incrementally in support of our smart and connected initiatives in 2021 with more than half of our total R&D spend linked to smart and connected products. We ended 2021 at roughly 16% of total sales essentially flat.

Speaker 4: We want to continue to lead the industry in digitally connected product offering.

Speaker 4: We invested $9 million incrementally in support of our Smart and Connected initiatives in 2021 with more than half of our total R&D spend linked to Smart and Connected products.

Speaker 4: We ended 2021 at roughly 16% of total sales, essentially flat from the prior year. This is partially explained by the mix of valve sales resulting from the winter freeze last year in the southwest U.S.

From the prior year. This is partially explained by the mix of valve sales, resulting from the winter freeze last year in the southwest U S.

Speaker 4: There was an immediate need for product replacement with most of that demand skewed toward traditional unconnected value.

There was an immediate need for product replacement with most of that demand skewed towards traditional unconnected valves.

Speaker 4: In addition to the freeze, the entire global electronics market has been impacted by extreme levels of component shortage.

In addition to the freeze the entire global electronics market has been impacted by extreme levels of component shortages.

Speaker 4: With this, we have seen volatility in component pricing, extended lead times, and earlier than planned component obsolescence.

With this we have seen volatility in component pricing extended lead times and earlier than planned component obsolescence.

Speaker 4: In response to these issues, we have had to divert approximately 30% of our global electronics development team's efforts in the second half of 2021 to respond to these shortages by approving alternative components and reengineering and validating products for production to meet customer delivery needs.

In response to these issues, we have had to divert approximately 30% of our global electronics development team's efforts in the second half of 2021 to respond to these shortages by approving alternative components and reengineering and validating products for production to meet customer delivery needs.

Speaker 4: Without these embedded capabilities, our ability to respond immediately to customers would have been complicated.

Without these embedded capabilities, our ability to respond immediately to customers would've been compromised however that effort hampered our ability to advance the smart and connected portfolio further in 2021.

Speaker 4: However that effort hampered our ability to advance the smart and connected portfolio further in 2021.

Speaker 4: Our stated goal is to have 25% of our worldwide sales be smart and connected by 2023.

Our stated goal is to have 25% of our worldwide sales be smart and connected by 2023.

Speaker 4: still driving the team towards that 25% goal. However, given the softness created by supply chain chip shortages and COVID issues, we may achieve smart and connected sales by 25% by 2024. Let me now highlight two

Still driving the team towards that 25% coal however, given the softness created by supply chain chip shortages and Covid issues, we may achieve smart and connected sales by 25% by 2024.

Let me now highlight two smart and connected product solutions.

Speaker 4: The recently launched Tecmar Smart Boiler Control System consolidates several pre-existing Tecmar solutions into a new connected system for boilers.

The recently launched <unk> smart boiler control system consolidate several pre existing <unk> solutions into a new connected system for boilers.

Speaker 4: Retrofitable to existing boiler installations, the system helps reduce operating costs by improving boiler-to-boiler sequencing, outdoor temperature resets, and indoor feedback.

Retrofit Abel to existing boiler installations, the system helps reduce operating costs by improving boiler tube boilers sequencing outdoor temperature resets and indoor feedback.

Speaker 4: The remote experience is simple and intuitive, providing the building owner or operator with actionable insights to make their job easier.

<unk> experience is simple and intuitive, providing the building owner or operator with actionable insights to make their jobs easier.

Speaker 4: The IntelliFlow is our proven system for prevention of home flooding due to washing machine leaks.

You can tell a flow is our proven system for prevention of home flooding due to washing machine leaks.

Speaker 4: This system not only shuts off water when a leak is detected, it also shuts water off when not in use to prevent over-pressurization of the washer.

System, not only shuts off water when a leak is detected it also shuts water off when not in use to prevent over pressurization of the washing machine.

Speaker 4: We've updated the IntelliFlow to provide text and email alerts to the homeowner when a leak is detected.

Outdated the impella flow to provide text and email alerts to the Homer when a leak is detected.

Speaker 4: At the bottom of slide four, you'll notice some of the key metrics regarding our programs and the resources we've invested to date around smart and connected products.

At the bottom of slide four you will notice some of the key metrics regarding our programs and the resources, we've invested to date around smart and connected products.

Speaker 4: The team remains fully focused and aligned toward the continued execution of our strategy. We remain excited about the future of smart and connected systems and we want to continue to lead the industry in connecting our products to the world. Before turning the call over to Shashank, I want to comment on the news that Manish Nanda, our President of Americas in Europe , has decided that it is time for him to retire.

The team remains fully focused and aligned toward the continued execution of our strategy. We remain excited about the future of smart and connected systems and we want to continue to lead the industry and connecting our products to the world before turning the call over to Shashank I want to comment on the news that munition onto our president of Americas and Europe .

Decided that it is time for him to retire.

Speaker 4: Manish informed me that he made this decision in order to have more time to focus on his family and other personal pursuits.

Initiative for me that he made this decision in order to have more time to focus on his family and other personal pursuits.

Speaker 4: Unish has been very generous in keeping the best interests of the company in mind and has agreed to continue in his current role until his successor is in place and then to remain employed by the company until May 2023 to assist with the transition and be a resource for his successor. I want to personally thank Unish for all his valuable contributions and for his willingness to make this transition as smooth and as seamless as possible.

And it's just been very generous in keeping the best interest of the company in mind and has agreed to continue in his current role into until his successor is in place and then to remain employed by the company until May 2023 to assist with the transition and be a resource for his successor.

Want to personally thank the niche for all his valuable contributions and for his willingness to make this transition as smooth and as seamless as possible.

Speaker 4: Now, Shashank will review our results for the fourth quarter in full year and offer our outlook for Q1 in the full year 2022. Shashank? Thank you, Bob.

Now Schenck will review our results for the fourth quarter and full year and offer our outlook for Q1 and the full year 2022 Shashank.

Thank you Bob and good morning, everyone.

Speaker 3: Before beginning, I also want to thank Tim for his meaningful contributions to the company. He has been very helpful to me in understanding what's long history, what is top of mind with our investor base, and how we address those concerns in a concise, timely, and transparent manner.

Before beginning I also want to thank Tim for his meaningful contributions to the company.

He has been very helpful to me and understanding what's long history.

Couple of money with our Investor base, and how we address those concerns in a concise timely and transparent manner.

Speaker 5: Tim has been a great sounding board for me and I've always appreciated his thoughtful input on a variety of subjects.

Tim has been a great sounding board for me and I've always appreciated his thoughtful input on a variety of subjects. Thank you Tim for your efforts and wish him a long and healthy retirement.

Speaker 5: Thank you, Tim, for your efforts and wish you a long and healthy retirement.

I look forward to working with dine in in Euro and introducing her to our shareholders and analysts.

Speaker 5: Please now turn to slide five, which highlights our fourth quarter results.

Please now turn to slide five which highlights our fourth quarter results.

Speaker 5: Reported sales of $474 million were up 18% year-over-year. Organic sales were up 18% as well, with the impacts of acquisitions and foreign exchange movements mostly upsetting one another.

Reported sales of $474 million were up 18% year over year.

<unk> sales were up 18% as well with the impacts of acquisitions and foreign exchange movements, most mostly offsetting one another.

Speaker 5: Sales were stronger than we had anticipated, with double-digit growth in all regions. I will review regional performance.

Sales were stronger than we had anticipated with double digit growth in all regions I will review our regional performance momentarily.

Speaker 5: adjusted operating profit of $64 million, a 16% increase, translated into an adjusted operating margin of 13.4%, down 20 basis points versus last year.

Adjusted operating profit of $64 million, a 16% increase translated into an adjusted operating margin of 15, 4% down 20 basis points versus last year.

Speaker 5: Benefits from volume, price, and productivity savings were more than offset by inflation, incentives, cost normalization, and incremental investments of $7 million. Adjusted earnings per share of $1.42 increased 23% versus last year. Earnings per share growth was driven primarily from operations up 22 cents and to a lesser extent by 5 cents from a combination of lower interest expense and a lower adjusted effective tax rate, partially offset by unfavorable foreign exchange boom.

Benefits from volume price and productivity savings were more.

Offset by inflation incentive cost normalization and incremental investments of $7 million adjusted earnings per share of $1 42.

Increased 23% versus last year.

Earnings per share growth was driven primarily from operations of 22.

And to a lesser extent by <unk> from a combination of lower interest expense and a lower adjusted effective tax rate, partially offset by unfavorable foreign exchange movements.

Speaker 5: The adjusted effective tax rate in the quarter was 22.8 percent.

The adjusted effective tax rate in the quarter was 22, 8%.

Speaker 5: The rate declined as compared to last year due to the benefits from higher R&D credits.

The rate declined as compared to last year due to the benefits from higher R&D credits.

Speaker 5: For gap purposes we took a one point one million dollar charge for restructuring in the quarter mostly related to Europe for the continuing right sizing of the Mary France facility that we initiated earlier in 2021 and the initial cost of an asset decommissioning in the America.

For GAAP purposes, we took a $1 $1 million charge for restructuring in the quarter, mostly related to Europe for the continuing right sizing of the Marriott France facility.

<unk> earlier in 2021, and the initial cost of an asset decommissioning in the Americas.

Speaker 5: We also took a $7 million tax charge for gap purposes related to our restructured Mexican supply chain operation.

We also took a $7 million tax charge for GAAP purposes related to our restructuring Mexican supply chain operations.

Speaker 5: In summary, better-than-expected global top-line growth drove operating profit and earnings per share higher, with margins moderating primarily due to cost normalization, incentives, investments and continued inflationary pressures. Moving to the regional results.

Better than expected global top line growth drove operating profit and earnings per share higher with margins moderating primarily due to cost normalization incentives investments and continued inflationary pressures.

Moving to the regional results, please turn to slide six.

Speaker 5: We saw strong growth in reported and organic sales in all regions during the quarter, prompting from the continued economic recovery in price.

We saw strong growth in reported and organic sales in all regions during the quarter comedy from the continued economic recovery in price.

Speaker 5: Foreign exchange was a headwind of 4% in Europe and a 2% tailwind in Africa.

Foreign exchange was a headwind of 4% in Europe , and a 2% tailwind in apnea.

Speaker 5: Acquired sales in the Americas approximated $2 million during the quarter.

<unk> sales in the Americas approximated $2 million during the quarter.

Speaker 5: In the Americas, sales of $318 million increased organically by approximately 19%.

In the Americas sales of $318 million increased organically by approximately 19%.

Speaker 5: We saw growth in all major product categories, driven by strong repair and replacement market, new residential construction, and price.

We saw growth in all major product categories, driven by strong repair and replacement market, new residential construction and price.

Speaker 5: Together, the TDG and Sentinel acquisitions and positive foreign exchange movements in the Canadian dollar added 1% to sales year-over-year. Price was also a tailwind.

Together, the DDG incentives acquisitions and positive foreign exchange movements in the Canadian dollar added 1% of sales year over year.

It was also a tailwind.

Speaker 5: America's adjusted operating profit for the quarter increased 13 percent to $52 million.

Americas adjusted operating profit for the quarter increased 13% to $52 million.

Speaker 5: Adjusted operating margin declined 110 basis points to 16.3 percent as expansion from volume, price, and productivity was more than offset by inflation incentives, incremental investments, and business normalization costs.

Adjusted operating margin declined 110 basis points to 16, 3% expansion from volume price and productivity was more than offset by inflation incentives incremental investments and does this normalization costs.

Speaker 5: we made approximately six million dollars of incremental investment in the previous year in the america

We made approximately $6 million of incremental investments in the previous year in the Americas.

Speaker 5: Europe's sales of $134 million were up 15 percent organically, with continued growth in both the food solutions and drinks platforms.

Europe sales of $134 million were up 15% organically with continued growth in both the fluid solutions and drains platforms.

Speaker 5: Revenues were up in all major regions with Germany and Italy continuing to benefit from government subsidies for energy efficient heating products. France was up mainly due to a large electronic demand. And Scandinavia was also up from high distributed demand for end of year safety stocks of drains solution products.

Revenues were up in all major regions, with Germany, and Italy, continuing to benefit from government subsidies, while energy efficient heating products Frank's was up mainly due to a large electronic demand and Scandinavia was also up from high distributor demand for end of year safety stocks obtains solution products.

Speaker 5: Like the Americas, price was also positive for Europe during the quarter.

Like the Americas price was also positive for Europe during the quarter.

Speaker 5: Adjusted operating profit in Europe was approximately $21 million, a 25% improvement over last year.

Adjusted operating profit in Europe was approximately $21 million, a 25% improvement over last year.

Speaker 5: Adjusted operating margin of 15.7 percent, increased to 170 basis points, probably due to price, volume, and productivity, including restructuring savings, which more than offset inflation incentives, business normalization costs, and investment.

Adjusted operating margin of 15, 7% increased 170 basis points.

I need you to price volume and productivity, including restructuring savings, which more than offset inflation incentives business normalization constant investments.

Speaker 5: Apnea delivered sales of approximately $22 million, up 13% organically.

<unk> delivered sales of approximately $22 million up 13% organically.

Speaker 5: We saw double-digit organic growth in most locations during the quarter.

We saw double digit organic growth in most locations during the quarter.

Speaker 5: Adjusted operating profit of approximately $4 million was up 9% versus last year, with adjusted operating margin down 70 basis points, and the increased third-party volume, price, productivity, and higher intercompany volume were more than offset by inflation incentives, normalized costs, and investments. On slide seven.

Adjusted operating profit of approximately $4 million was up 9% versus last year with adjusted operating margin down 70 basis points as increased third party volume price productivity and higher intercompany volume will more than offset by inflation incentives normalized cost and investments.

On slide seven let me speak to the full year results.

Speaker 5: As Bob mentioned, we delivered record operating results for 2021.

As Bob mentioned, we delivered record operating results for 2021.

Speaker 5: Reported sales were $1.8 billion, up 20 percent, primarily driven by a 17 percent organic increase attributable to the economic recovery and price.

Reported sales were $1 8 billion up 20%, primarily driven by a 17% organic increase.

Debatable to the economic recovery in price.

Speaker 5: foreign exchange and acquisitions at a positive effect on year-over-year sales of 2 percent and 1 percent respectively.

Foreign exchange and acquisitions had a positive effect on year over year sales of 2% and 1% respectively.

Speaker 5: Adjusted operating margin increased 140 basis points to 14.3 percent in 2021.

Adjusted operating margin increased 140 basis points to 14, 3% in 2021.

Speaker 5: The margin expansion was driven by price, volume, and productivity, which more than offset inflation normalized costs, incentives, and incremental investment.

The margin expansion was driven by price volume and productivity, which more than offset inflation normalized cost incentives and incremental investments.

Speaker 5: We funded approximately $19 million of incremental investments versus last year.

We funded approximately $19 million of incremental investments versus last year.

Speaker 5: Adjusted full year earnings per share of $5.52 increased $1.64 or 42% versus a prior year.

Adjusted full year earnings per share of $5 52 increased $1 64.

42% versus the prior year.

Speaker 5: Operating results show approximately $1.28 of the increase.

Operating results drove approximately $1 28 of the increase.

Speaker 5: lower interest costs and a lower adjusted effective tax rate accounted for 23 cents and favorable foreign currency translation and acquisitions approximated 13 cents for the year.

Lower interest costs and a lower adjusted effective tax rate accounted for 23.

And favorable foreign currency translation and acquisitions approximated 13 for the year.

Speaker 5: Free cash flow for the full year was $159 million, a 15% reduction compared to last year given by a proactive decision to carry additional inventory to meet customer demand and to mitigate potential supply chain disruption. Free cash flow conversion was

Free cash flow for the full year was $159 million, a 15% reduction compared to last year, driven by a proactive decision to carry additional inventory to meet customer demand and to mitigate potential supply chain disruption.

Free cash flow conversion was 96%.

Speaker 5: We invested approximately $27 million in capital spending including investments in new product development, capacity expansion, and factory productivity.

We invested approximately $27 million in capital spending including investments in new product development capacity expansion and factory productivity.

Speaker 5: Our 2021 reinvestment ratio was 85%.

Our 2021 reinvestment ratio was 85%.

Speaker 5: In 2021, we returned $50 million to shareholders in the form of dividends and share repurchases. We increased our annual dividend return.

In 2021, and we returned $50 million to shareholders in the form of dividends and share repurchases.

We increased our annual dividend returned by 13%.

Speaker 5: During 2021, we also paid down debt by $55 million using cash from operations.

During 2021, we also paid down debt by $55 million.

Using cash from operations.

Speaker 5: Our net debt-to-capitalization ratio at year-end is negative 9% as compared to negative 2% in the prior year.

Our net debt to capitalization ratio at year end is negative 9% as compared to negative 2% in the prior year.

Speaker 5: Our balance sheet continues to be in excellent shape and provides substantial flexibility to address our capital allocation priorities.

Our balance sheet continues to be in excellent shape and provides substantial flexibility to address our capital allocation priorities.

Speaker 5: So despite the many operating challenges logistics and supply chain disruption as well as significant inflationary pressures we faced in 2021 our team's ability to proactively drive growth price expand our margins and strengthen our balance sheet was notable. I commend the team for delivering these.

So despite the many operating challenges logistics and supply chain disruption as well as significant inflationary pressures we faced in 2021, our teams ability to proactively drive growth price expand our margins and strengthen our balance sheet was notable.

Commend the team for delivering these outstanding results.

Speaker 5: Now on slide 8, let's discuss the general framework we considered in preparing our 2022 outlook. Firstly, let's look at expected headwinds.

Now on slide eight let's discuss the general framework, we considered in preparing our 2022 outlook.

Firstly, let's look at expected headwinds.

We continue to deal with supply chain disruptions.

Speaker 5: Presently, we believe the issue will persist throughout the year, but should incrementally improve as the year progresses.

Presently we believe the issue will persist throughout the year, but should incrementally improve as the year progresses.

Speaker 5: We think the second half will be less problematic than the first half of the year.

We think the second half will be less problematic than the first half of the year.

Speaker 5: labor shortages will continue to be a major growth impediment. With the current Omicron variant, we do see more acute labor issues in the first quarter driving inefficiencies in our operations.

Labor shortages will continue to be a major growth impediment with it on the call and variant we do see more acute labor issues in the first quarter driving inefficiencies in our operations.

Speaker 5: We expect incremental investments and higher normalized costs, as well as inflation, to be a headwind in 2022.

We expect incremental investments and higher normalized costs as well as inflation to be a headwind in 2022.

Speaker 5: Also, in the first half, we'll have a tough comp due to U.S. weather freeze last year.

Also in the first half will have a tough comp due to U S weather fees last year.

Speaker 5: As Bob mentioned, we do anticipate a tough comp due to the strength of repair replacement activity in 2021, coupled with ongoing material and labor shortages.

As Bob mentioned, we do anticipate a tough comp given the strength of repair and replacement activity in 2021, coupled with ongoing material and labor shortages.

Speaker 5: Interest rates are expected to rise during the year as the Fed reacts to inflation. This could also reduce and or delay funding for construction projects.

Interest rates are expected to rise during the year as the fed reacts to inflation fiscal.

This could also reduce <unk> delay funding for construction projects.

Speaker 5: foreign exchange rates may fluctuate this year given the dynamic interest rate environment.

Foreign exchange rates may fluctuate this year, given the dynamic interest rate environment.

Speaker 5: We currently anticipate FX Translation to be a headwind in 2022. In the middle column are themes that

Currently anticipate FX translation to be a headwind in 2022.

In the middle column, our teams that will continue to monitor.

Speaker 5: we've been able to maintain a positive price productivity over cost dynamic for most of 2021. However, across the board, inflationary pressures in commodities, logistics, labor, and services continue to persist and impact overall customer project costs.

We've been able to maintain a positive price productivity over cost dynamic for most of 2021. However.

However across the board inflationary pressures in commodities logistics labor and services continue to persist and impact overall customer project costs.

Speaker 5: We'll also be monitoring the evolution of the pandemic as new variants, if any, could impact the economy, our customers, the supply chain, and our operations.

Well also be monitoring the evolution of the pandemic as new variance if any could impact the economy, our customers the supply chain and our operations.

Speaker 5: As Bob mentioned, we currently assume Omicron's impact should subside during the first quarter, with minimal impact from it or other variants as the year progresses.

As Bob mentioned, we currently assume on the Cogs impact should subside during the first quarter with minimal impact from it or other variance as the year.

Progresses.

Now looking at anticipated tailwind.

Speaker 5: Global and regional GDP are expected to grow but at levels below 2021. We see new home construction up marginally in 2022 with moderate growth foreseen in new non-residential spending and repair and replacement activity.

Global and regional GDP are expected to grow but at levels below 2021, we see new home construction up marginally in 2022 with moderate growth foreseeing in new nonresidential spending and repair and replacement activity.

Speaker 5: We should have a positive carryover effect into 2022 of last year's price increase, and this year's pricing.

We should have a positive carryover effect into 2022 of last year's price increase and this year's price increase.

Speaker 5: We expect to continue to expand revenue through our Smart and Connected product offering and other new product introductions.

We expect to continue to expand revenues through our smart and connected product offering and other new product introductions.

Speaker 5: Europe will have incremental cost savings from the restructuring exercise begun in 2021.

Europe will have incremental cost savings from the restructuring exercise began in 2021.

Speaker 5: As discussed, our balance sheet is exceptionally strong coming into 2022.

As discussed our balance sheet is exceptionally strong coming into 2022.

Speaker 5: We have the flexibility to pursue inorganic growth opportunities to augment the business, assuming a transaction meets our strategic and financial criteria.

We have the flexibility to pursue inorganic growth opportunities to augment the business, assuming that transaction meets our strategic and financial criteria.

Speaker 5: With that backdrop, let's review our outlook for the full year 2022 and our expectations for the first quarter of 2022. On slide nine, we have provided our major assumptions.

So with that backdrop, let's review our outlook for the full year 2022, and our expectations for the first quarter of 2022.

On slide nine we have provided our major assumptions.

Starting with our full year assumptions.

Speaker 5: Consolidated organic revenue growth is estimated to range from 3 to 8 percent, with regional growth as follows.

Consolidated organic revenue growth is that dividend to range from 3% to 8%.

With regional growth as follows.

Speaker 5: Americans from 48% Europe from 2 to 6% and apnea from 48%

<unk> from 48% Europe from 2% to 6% and apnea from 48%.

Speaker 5: Acquisitions at another $5 million of growth for the Americas and what's consolidated.

Acquisitions added another $5 million of growth for the Americas and what's consolidated.

Speaker 5: We expect consolidated adjusted operating margin for the full year to range from between 14.3 and 14.7 percent with both the Americans in Europe flat to up 50 basis points compared to 2021 as price and productivity initiatives offset increased normalized costs inflation and incremental investment.

We expect consolidated adjusted operating margin for the full year to range from between $14, three and 14, 7%.

With both the Americas, and Europe flat to up 50 basis points compared to 2021 as price and productivity initiatives offset increased normalized cost inflation and incremental investments.

Speaker 5: We anticipate apnea's adjusted operating margin may decrease due to a reduction in affiliate sales volume.

We anticipate adjusted operating margin May decrease due to a reduction in affiliate sales volume.

Speaker 5: Consolidated margin expansion may range from 0 to 40 basis.

Consolidated margin expansion they range from zero to 40 basis points.

Speaker 5: Important to note is that the range includes approximately $20 million in incremental investments.

Important to note is that range includes approximately $20 million incremental investments.

As for the other 2022 key inputs.

Speaker 5: We expect corporate costs to be about 46 million dollars for the year. Interest expense should approximately.

We expect corporate cost to be about $46 million for the year.

Interest expense should approximate $6 million.

Speaker 5: Our adjusted effective tax rate for 2022 should approximate 25%.

Our adjusted effective tax rate for 2022 should approximate 25%.

Speaker 5: Capital spending is expected to be in the $45 million range. Depreciation and amortization should also be approximately $45 million for the year.

Capital spending is expected to be in the $45 million range.

Depreciation and amortization should also be approximately $45 million for the year.

Speaker 5: We expect to deliver a free cash flow conversion of 90% of net income in 2022 due to incremental capex and restructuring payments.

We expect to deliver free cash flow conversion of 90% of net income in 2022, due to incremental capex and restructuring payments.

Speaker 5: We are assuming a 1.13 euro U.S. dollar foreign exchange rate for the full year 2022 versus the average rate of 1.18 in 2021.

We are assuming a 1.1 fee Euro U S dollar foreign exchange rate for the full year 2022 versus the average rate of 1.18 in 2021.

Speaker 5: This would imply a 4% reduction year-over-year and equates to an impact of $23 million in sales and $0.08 a share in earnings per share.

This would imply a 4% reduction year over year and equates to an impact of $23 million in sales and eight cents a share in earnings per share.

Speaker 5: We expect our share counts should approximate $34 million for the year. Finally, a few items.

We expect our share count should approximate $34 million for the year.

Finally, a few items to consider for Q1.

Speaker 5: Organically we see sales up 5 to 10 percent with growth anticipated in all regions.

Organically, we see sales up 5% to 10%.

With growth anticipated in all regions.

Speaker 5: Acquired sales in America should approximate $2 million in the first quarter.

<unk> sales in America should approximate $2 million in the first quarter.

Speaker 5: We expect first quarter operating margin to be in the range of 14 to 14.5 percent or flat to down 50 basis points versus the first quarter of 2021.

We expect first quarter operating margin to be in the range of 14% to 14, 5% or flat to down 50 basis points versus the first quarter of 2021.

Speaker 5: This is due to the impact of a tougher comp, as well as higher investments, normalize costs, and labor inefficiencies in the first quarter of 2022, due to the impact of the Omicron variant.

This is due to the impact of a tougher comp as well as high investments normalized costs and labor inefficiencies in the first quarter of 2022 due to the impact of the <unk> variant.

Speaker 5: We expect incremental investments of approximately $5 million in Q1. We also expect incremental cost normalization of $5 million in the first quarter.

We expect incremental investments of approximately $5 million in Q1, we.

We also expect incremental cost normalization of $5 million in the first quarter.

Speaker 5: Incorrano restructuring savings of half a million dollars should be realized in Europe .

Incremental restructuring savings of $5 million should be realized in Europe .

Speaker 5: the adjusted effective patch rate to the approximate 21%.

The adjusted effective tax rate should approximate 21%.

Speaker 5: We anticipate foreign exchange to be a headwind in the first quarter.

We anticipate foreign exchange to be a headwind in the first quarter.

Speaker 5: We are estimating a 1.13 euro dollar exchange rate for Q1, which would be a 6% reduction versus the first quarter of 2020 average.

Estimating a one once a euro dollar exchange rate for Q1, which would be a 6% reduction versus the first quarter of 2020 average.

Speaker 5: This equates to an impact of $8 million in sales and three cents a share in earnings per share.

This equates to an impact of $8 million in sales at <unk> <unk> a share in earnings per share.

Speaker 5: With that, I'll turn the call back over to Bob to summarize our discussion before moving to Q&A.

With that I'll turn the call back over to Bob to summarize our discussion before moving to Q&A Bob.

Speaker 4: Thanks, Shashank. Please turn to slide 10 and let me summarize our discussion.

Thanks to shrink please turn to slide 10, and let me summarize our discussion.

Speaker 4: The team delivered record results in 2021 while navigating many challenges throughout the year. We continued our ESG journey, embracing more of its concepts, and educating our workforce to make it part of how we do this.

The team delivered record results in 2021, while navigating many challenges throughout the year. We continued our ESG journey embracing more of its concepts and educating our workforce to make it part of how we do business.

Speaker 4: Our smart and connected product portfolio and pipeline continue to grow. The original 2023 target remains our goal, but COVID and supply chain issues may delay those ambitions.

Our smart and connected product portfolio and pipeline continue to grow the original 2023 target remains our goal, but COVID-19 and supply chain issues may delay those ambitions.

Speaker 4: Markets are expected to grow with growth moderating when compared to 2021 levels.

Markets are expected to grow with growth moderating when compared to 2021 levels.

Speaker 4: 2022 we expect moderate revenue and margin expansion and will continue investing for the future.

In 2022, we expect moderate revenue and margin expansion and we will continue investing for the future as always we remain disciplined in our capital deployment prioritizing reinvestment in acquisitions that strengthen our core further expand our geographic reach and add technology to build scale.

Speaker 4: As always, we remain disciplined in our capital deployment, prioritizing reinvestment in acquisitions that strengthen our core, further expand our geographic reach, and add technology to build scale.

Speaker 4: We'll be closely monitoring how future virus variants materialize and how they may impact customer sentiment in the construction market.

We will be closely monitoring how future virus variance materialize and how they may impact customer sentiment and the construction markets.

Speaker 4: I want to again thank the entire team for delivering an exceptionally strong year in 2021. A very confident park experience team will continue to work through the many virus-related supply chain and labor issues and execute again in 2022 while still focusing on our long-term growth strategy. With that operator, we....

I want to again, thank the entire team for delivering an exceptionally strong year in 2021, I'm very confident our experienced team will continue to work through the many virus related supply chain and labor issues and execute again in 2022, while still focusing on our long term growth strategy.

Operator, please open the lines for questions.

Speaker 1: Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star one on your telephone keypad. We will take our first question from Nathan Jensen Spiegel. Please go ahead. Yeah, good morning.

Thank you Pablo I would like to remind everyone in order to ask a question. Please press star one telephone keypad.

We will take our first question from me and Jonathan Stifel. Please go ahead.

Yes. Good morning, this is Adam Farley on for Nathan.

Speaker 6: Good morning. In your presentation, you called out price as being a favorable tailwind in your 2022 planning framework. Could you give a little more granular detail on what you expect price cost to be in 2022? Do you expect it to be price cost neutral to positive?

Hi, Adam good morning.

Hey, good morning, and the presentation you called out.

Prices being a favorable tailwind into 2022 planning framework.

Could you give us.

A little more granular detail on what you expect price cost to be in 2020 to be price cost neutral to positive.

Speaker 5: Yeah, so just to, you know, going back to 2021, overall price was on average about 5% price realization and price and productivity more than offset cost inflation. And in 2022, we see the same dynamic where price and productivity will more than offset cost inflation. Clearly, there's a carryover from the price increases we did in 21. And then we have price increases in the first quarter of 2022. So with that dynamic, we will, again, with price and productivity, it'll exceed inflation.

Yes, so just to.

Going back to 2021 overall price was on average about 5% price realization in price and productivity more than offset cost inflation.

And in 2022, we see the same dynamic where price and productivity more than offset cost inflation. Clearly there is a carryover from the price increases we did in 'twenty. One and then we have price increases in the first quarter of 2022, so would that dynamic we will again with pricing productivity it'll exceed inflation.

Yeah.

Speaker 6: Okay, thanks for that. And then, should be noted, the supply chain more broadly, is having your own boundaries, reducing the impact to watts versus your competitors.

Okay. Thanks for that.

And then shifting over to the supply chain more broadly.

As having their own boundaries, reducing the impact to watts versus your competitors.

Speaker 6: Do you think this is resulting in any share games and do you think these share games will like a permanent or Translatory?

Do you think this is resulting in share gains do you think the share gains will likely be permanent or transitory.

Well the way we look at it look at our foundry and our you know our overall strategy of manufacturing, where we sell our products as I believe a strong strategy and that has benefited us.

Speaker 4: Well the way we look at it look at our foundry and our you know our overall strategy of manufacturing where we sell our products is is I believe a strong strategy and that has benefited us greatly in 2021 because we've been able to control our own.

Greatly in 2021, because we've been able to control our own destiny. So we believe it's a competitive advantage and our goal is to keep all the share. We gained this year end and then getting some more so that's our focus and that's our team's efforts on that.

Speaker 4: We believe it's a competitive advantage and our goal is to keep all the share we've gained this year and then gain some more. So that's our focus and that's our team's effort on that.

Thanks for taking my questions.

Thank you. Thank you.

Speaker 1: Our next question will come from Jeffrey Hammond with KeyBank Capital. Please go ahead. Hey, good morning. This is David Tern.

Our next question will come from Jeffrey Hammond with Keybanc capital.

Please go ahead.

Hey, Good morning. This is David Tarantino on for Jeff.

Hi, David Good morning.

Speaker 7: Just starting out, given all the puts and takes we've seen with supply chain broadly. Could you give us some color on what you've seen get better or worse in terms of input availability and pricing and fork you?

Just starting out given all the puts and takes we've seen with our supply chain broadly could you give us some color on what you're seeing that better or worse in terms of input availability and pricing and <unk>.

Speaker 4: Well listen I would say in general we saw some of our supply chain get better but it's like whack-a-mole right. Some things get better and some things get worse. So I think the Omicron which happened late in the fourth quarter and carried over into the first quarter really impacted not only us but our suppliers labor.

Well listen I would say in general we saw some of our supply chain get better, but it's like whack a mole right some things get better and fund some things get worse. So I think the omicron, which happened late in the fourth quarter and carried over into the first quarter really impacted not only us, but our suppliers' labor force.

Speaker 4: and in some of the shutdowns in China, obviously impacted our China facility. So in general, I think things are...

And and some of the shutdowns in China, obviously impacted.

Our China facility. So in general I think things are starting to get better versus omicron was.

Speaker 4: starting to get better, but this Omicron was an issue that caused more problems, but our teams are working hard, and as we said in our prepared remarks, we believe it's going to continuously get better, but like I said, one step forward, two steps back, and we keep on going. So the team is holding their own, but we still think it's going to be difficult, especially in the first quarter, and as we go into the latter part of the year, we believe it will

And issue that caused more problems and but our teams are working hard and because we said in our prepared remarks, we believe its going to continuously get better but like I said the.

One step forward two steps back you know when we keep ongoing so the team is holding their own but we still think it's going to be difficult, especially in the first quarter and as we go into the latter part of the year, we believe it will get better.

Speaker 7: And then, just as a follow-up to clear up on price, was the 5% what was realized in 4Q? And also, what do you expect price contribution to the 2022 sales guidance to be?

And then just as a follow up to clear up on price was two 5% what was realized in <unk> and also what do you expect price contribution to the 2022.

Sales guidance.

Speaker 5: Yeah, that 5% number was for the full year 2021. Obviously, we announced almost three increases globally. So the price realization ramped up as we went through the year. And some of that is a tailwind into 2022, along with the first quarter of 2022 price increases. At this point, it's hard to estimate what the price realization will be for 2022. Obviously, we'll be reporting on it when we do the next earnings call, as we get to the realization of Q1 price increases.

Yes that 5% number was for the full year 2021, obviously.

Almost three increases globally, so the price realization ramped up as we went through the year and some of that some of that as a tailwind into 2022, along with the first quarter of 2022 price increases at this point, it's hard to estimate what the price realization will be for 2022, obviously, we'll be reporting on it when we do the next earnings call.

As we get to the realization of the Q1 price increases.

Great. Thank you.

Speaker 1: Our next question will come from Ryan Connors with Bunning and Scattergood. Please go ahead.

Our next question will come from Ryan Connors with Boenning and Scattergood.

Please go ahead.

Speaker 3: Great, thanks for taking my question and congratulations to Tim and Manish, both have been very helpful to us over the years. I wanted to talk about price from a different angle, you know, it's amazing how the things have evolved in the last year and now we're obviously at a hinge point where the Fed's going to be raising rates.

Great. Thanks for taking my question and congratulations to Tim and manage both been very helpful to us over the years.

I wanted to touch.

Talk about price.

From a different angle it's.

It's amazing how the things have evolved in the last year and now we're obviously the hinge point, where the fed is going to be raising rates.

Speaker 3: their goal, I guess, is to tamp down inflation. So theoretically, by the end of the year, some of the raw material cost challenges will start to cool off. What are your thoughts on the ability and strategy around trying to hold price, looking past the next quarter or two out into the tail end of 2022 and 2023? Any thoughts on that side of things?

Their goal I guess is to tamp down inflation, so theoretically by the end of the year.

Some of the raw material cost challenges, we will start to cool off.

What are your thoughts on the ability of the strategy around trying to hold price.

Looking past the next quarter or two out into the tail end of 'twenty two 'twenty three any thoughts on that.

That side of things.

Speaker 4: Ryan, I think when you look at the inflationary economy right now, I don't think it's going to abate anytime soon, right? So I think we'll have to watch that. And then when you look at any portfolio, the more commoditized you are, the more susceptible you're going to be towards, you know, those type of potential drops into the future. So as you know, we pruned a lot of our commoditized products early, you know, several years ago.

Yeah, Ryan I think when you look at.

The inflationary economy right now I don't think its going to abate anytime soon right. So I think we'll have to watch that and then when you look at any portfolio. The more commoditized you are the more susceptible you are going to be towards those.

Those type of potential drops into the future. So as you know we pruned a lot of our commoditize products early.

Several years ago, and we're spending a lot of time and effort to focus on value provided to our customers.

Speaker 4: And we are spending a lot of time and effort to focus on value provided to our.

Speaker 4: with our smart and connected products. So look, inflation's different. Wage inflation is not gonna go away. Once you provide that, it's gonna stay.

And with our smart and connected product. So look at inflation different wage inflation is not going to go away. Once you provide that it's going to stay in.

Speaker 4: cost like insurance that's going to stay. So you know whether raw materials move you know that'll be you know an area we'll focus on. But we're going to continue to build products that differentiate and add value. And we're going to keep as much price as we can. So that's our focus. But I think the more commoditized you are the more difficult it's going to

Costs like insurance, that's going to stay so whether raw materials move but that will be.

An area, we'll focus on but we're going to continue to build products that differentiate and add value and we're going to keep as much price as we can so that's our focus but I think the more commoditized you are the more difficult it is gonna be to keep price.

Speaker 3: Got it, okay, that's clear and helpful. Yeah, the other one I wanted to chat about was sort of the channel inventory type situation and where you think that spans. Obviously, when you've got.

Got it okay. That's it.

It's clear and helpful.

One I wanted to chat about was.

Sort of the channel.

Inventory type situation and where do you think that stands obviously when you've got.

Speaker 3: so many different pricing actions going out, you know, presumably your channel partners are trying to navigate and around that to their own benefit. I mean, where does that stand? And, and, um, you know, is there any volatility we can expect related to that the next, uh, few quarters?

So many different pricing actions going out.

Presumably your channel partners are trying to navigate around that to their own benefit I mean, where does that stand.

Is there any volatility we can expect related to that in the next.

Some quarters.

Speaker 4: Yeah, so we watch that very closely. We don't have full visibility. The interesting thing we're seeing now is that, you know, the channels, whether it be a contractor, are starting to store inventory where they haven't in the past.

Yeah. So we watch that very closely we don't have full visibility the interesting thing we're seeing now is that.

The channels, whether it be a contractor are starting to store inventory, where they happened in the past.

Speaker 4: So it's interesting to see that we're seeing general increases. People are trying to get in front of price increases. But volume, you know, repair and replacement has been robust. So that's been, you know, driving some of the demand for that inventory.

So it's interesting to see we're seeing general increases people are trying to get in front of price increases, but volume repair and replacement has been robust. So that's been.

Driving some of the demand for that inventory. So we're watching that very closely we're a book and ship business and that's why we're very careful.

Speaker 4: You know, we're watching that very closely. We're a book and ship business, and that's why we're very careful as we watch, and especially in the second half of this year, because the supply chain gets better.

As we watch and especially in the second half of this year because of supply chain.

Gets better lead times come down and people can rely on manufacturing in general I think the tendency will be for them to look at potentially reducing their inventories. So we watch that very closely.

Speaker 4: come down and people can rely on manufacturing in general, I think the tendency will be for them to look at potentially reducing their inventory. So we watch that very closely.

Okay, great. Thanks for your time this morning.

Thank you. Thank you.

Speaker 1: And our next question will come from Walt Lipsack from Seaport Research. Research, please go ahead.

And our next question will come from.

<unk> from <unk> Research. Please go ahead.

Speaker 6: Hi, thanks for joining everyone. And yeah, Jim, it's been great working with you too. So good luck with everything in the future. Thank you.

Hi, Thanks, good morning, everyone.

Yes, Jim it's been great working with you too so good luck with everything in the future.

Thanks will.

Speaker 6: I wanted to ask about maybe a follow-on to that last question about the channel. I wonder if you could talk about the timing of the 2022 price increases and if you think there's maybe a fourth quarter pre-buy at all ahead of that price increase.

I wanted to ask about.

Maybe a follow on to that last question about the channel and I Wonder if you could talk about the timing of the 2022 price increases.

Maybe a fourth quarter pre buy at all ahead of the price increase.

Speaker 4: Yeah, I would say, you know, look, our price increases vary through the first quarter based on our notice and timing. So do I believe a bunch of orders came in to beat the price increase? Yes, it will be shifting. Some of them will shift in the fourth quarter. It's very difficult to gauge that. I probably saw more of it in Europe where we could see some stocking happening. In particular, Shashank called out in our drains business. We saw some stocking at the wholesale level in Europe .

Yeah, I would say look at our price increases varied through the first quarter based on our notice in timing. So do I believe a bunch of orders came in to beat the price increase yes, there will be shifting some of them we shipped in the fourth quarter, it's very difficult to get.

Age that I, probably saw more of it in Europe , where we could see some stocking.

Happening in particular Shashank called out in our drains business, we saw some stocking at the wholesale level in Europe , but difficult to figure, but you know, maybe one or two points, but again, it's very difficult to figure out.

Speaker 4: Difficult to figure but you know, you know, maybe one or two points, but again, it's very difficult to figure out

Okay, Great and then.

Speaker 6: You commented that the first quarter is going to be impacted by, I guess, some Omicron-related absenteeism in the supply chain, more so than the rest of the year. I wonder if you could talk about it. That seems to be having peaked and coming back. I wonder if you can give us any insight into are things getting better now, or do we have to wait until the second quarter for some of those?

You commented that the first quarter can be impacted by.

Okay.

Crime related.

Yes.

The supply chain.

More so than the rest of Europe .

Yes, I wonder if you could talk about it seems to be having peaked.

And coming back I Wonder if you could give us any insight into things getting better.

Now or do we have to wait until the second quarter for <unk>.

Some of those.

Speaker 6: you know, pandemic related issues to start participating.

No pandemic related issues to start.

Speaker 4: Yeah, we saw a peak in January with absenteeism being the highest. We've actually, in the last one, I'm knocking on wood.

Yeah, we saw a peak in January .

With absenteeism being the highest we've actually in the last one I'm knocking on wood a couple of weeks, we've seen that get much better and time down.

Speaker 4: couple weeks we've seen that get much better and trend down you know still higher than our normal absenteeism but like half the rate it was in January which is much better so teams are working hard we're working you know again all the safety protocols are in there we take it very serious and you know we're working overtime to make up for what we missed in the first you know in the first month

Still higher than our normal absenteeism, but like half the rate. It was in January which is much better. So teams are working hard work again, all the safety protocols are in there we take it very serious and we're working overtime to make up for what we missed in the first and the.

First month of the year.

Speaker 6: Okay, and maybe a last one for me. I'm just wondering about the EU government programs. You seem to have gotten a nice benefit from that last year. Are some of those government programs still in place? And similarly, you mentioned that there's going to be more restructuring savings. Does it accelerate from last year or is it about the same?

Okay, Okay, and then maybe a last one for me.

Just wondering about the government programs you've.

Got it thanks benefited from that last year or some of those government programs still in place. Similarly, you mentioned that theres going to be more restructuring savings does it accelerate from last year or is it about the same.

Speaker 4: Yeah, so when you look at, I'll let Shashank answer the.

Yes, so when you look at.

I'll, let you think answer the productivity.

Speaker 5: Do you want to answer the productivity? Yes, on the productivity side. So that's the facility in Mary France that we completed restructuring this year, so there's incremental savings, roughly an incremental $2 million that we'll get in 2022. Okay, great. Thanks, Shashank.

So if you want to answer the productivity, yes, so on the productivity side. So that's the of the facility and Marie France that we complete the restructuring. This year. So there is incremental savings roughly an incremental $2 million that we will get in 2022.

Okay, great. Thanks for your time.

Oh, I'm, sorry, you asked it.

Oh gosh.

Speaker 5: Yeah, Walt, I think you also asked the question on the government incentive programs in Germany and in Italy that we benefited from in 2021. Those programs will continue into 2022, but the subsidies are at a lower rate, but those subsidies will continue. Okay, great. Thank you.

Yes, Walter I think you also asked a question on the government incentive programs in Germany, and in Italy that we benefited from in 2021.

Those programs will continue into 2022.

The subsidies are at a lower rate, but those subsidies will continue.

Okay.

Okay, great. Thank you.

Okay.

And our next question will come from Brian Lee with Goldman Sachs.

Please go ahead.

Speaker 7: Hi, everyone. This is Miguel for Brian Lee. I think most of my questions have been answered, but I just wanted to touch back on the supply chain real quick. We're hearing more and more about electronic shortages, especially on chips. Could you just level set us on your supply of electronic components? Is there a certain kind of chip or component that

Hi, everyone. This is <unk> on for Brian Lee.

Most of my questions have been answered, but I just wanted to touch back on.

Fly chain real quick.

We're hearing more and more about electronic shortages, especially on chips could you just level set us on your supply of electronic components is there certain kind of chip or component that's become more constrained recently or in general are you seeing any kind of.

Speaker 7: become more constrained recently, or in general, are you seeing incrementally more constraints on those specific components? And then also, is there a region that might be most impacted by those shortages, either because of a higher mix of smart and connected sales? Thanks. Yeah, so in general, I would say...

Incrementally more constraints on on a specific.

Bonus.

And then also is there a region that might be most impacted by those by.

The shortages either because of.

Higher mix of smart connected sales thanks.

Yes, so in general I would say, we are seeing chip shortages go out, but as I said in my prepared remarks, it's nice to have your own electronics team inside your organization who looks at.

Speaker 4: chip shortages go out, but as I said in my prepared remarks, it's nice to have your own electronics team.

Speaker 4: inside your organization who looks at, when products become obsolete or have difficulty, we look at what we can do, what we can re-engineer, what we can require from a customer point of view, and we shift to different shifts and stuff. So I would say it's general across the board.

When products become obsolete or have difficulty we look at what we can do what we can reengineer, what we can re qualify.

From a customer point of view and we shift to different chips and stuff. So I would say, it's general across the board primarily from our smart and connected America's most impacted by that that's where we have the most smart and connected products and then Europe would be second.

Speaker 4: And primarily from a, you know, smart and connected, America's is most impacted by that. That's where we have the most smart and connected products. And then Europe would be second.

Speaker 4: But again, I think it's global. It's great to have a team of engineers and your own internal capabilities to help you mitigate all these issues. So watching it very closely, we get daily and weekly reports on where the shortages are and what we're doing to correct it. So the team's doing a great job with that.

Again, I assume it gets global it's great to have a team of engineers and your own internal capabilities to help you mitigate all of these issues. So watching it very closely we get a daily and weekly reports on where the shortages are and what we're doing to correct. It. So the team's doing a great job with that.

Great. Thank you very much I'll pass it on.

Thanks.

Speaker 1: Our next question will come from Michael Anastagio with Cohen.

Our next question will come from Michael <unk> with Cowen.

Please go ahead.

Speaker 3: Hey, good morning guys. How you doing? Good morning. Great. I'm sorry, I joined right here. Previously you mentioned there was a 25% target for the connected products for 20, 23 and looks up, you might be pushing out for 20, 24. Can you provide any colleague here if there's more due to chip shortages or other COVID headwinds?

Hey, good morning, guys how are you doing.

Good morning.

Great I'm, sorry, I joined late here.

Previously you mentioned there was a 25% target for the connected products for 'twenty.

23.

Looks like we might be pushed out to 2024 can you provide any color here. This is more due to chip shortages or other COVID-19 headwinds.

Speaker 4: Yes. So in my prepared remarks we talked about that. Look at our goal is still the team's goal is to get 25 percent by 2023. But given the ship chip shortages and what I just discussed with Walt we've been shifting our internal resources to you know just upgrade our current chips for our current product.

Yes. So in my prepared remarks, we talked about that look at our goal is still the team's goal is to get to 25% by 2023, but given the ship chip shortages and what I just discussed with Walt we've been shifting our internal resources to just upgrade our current chips for.

Our current products and we've been able to shift that which allowed us to really take advantage of our existing products and continue to get them out the door. So again, we're not letting off there is chip shortages, but.

Speaker 4: We've been able to shift that which allowed us to really take advantage of our existing products and continue to get them out the door. So again we're not letting off. There is chip shortages. But when you had we diverted about 30 percent.

We diverted about 30% of our key engineers in the second half of this year to work on existing products and to look at chip shortages. So.

Speaker 4: of our key engineers in the second half of this year to work on existing products and to look at ship shortages.

Speaker 4: You know, this might may delay. I'm only saying may because internally we're still shooting for 25%. It all depends on how fast the chip shortages go away and how quickly the supply chain.

This may delay I'm, only saying made because internally, we're still shooting for 25%. It all depends on how fast the chip shortage just go away and how quickly the supply chain issues.

Speaker 4: all around the industry start going. So again, still the focus is on 25.

All around the industry start going so again still the focus is on 25%.

Speaker 3: Great. Thanks for the color. Just to follow up to that, and apologies if this was answered prior, but can you just provide a little bit more of a framework towards your procurement strategy and for these types of inputs and such?

Great. Thanks, Thanks for the color and then just a follow up to that and then I apologize. If this was answered acquire but can you just provide a little more of a framework towards their procurement strategy.

Types of inputs and stuff.

Speaker 4: Well, we have two electronics companies, one in Canada, one in France, and a low-cost manufacturing in Tunisia.

Well, we have two electronics companies, one in Canada, one in France, and our low cost manufacturing in Tunisia.

Speaker 4: We have a lot more scale than most traditional.

We have a lot more scale than most traditional.

Speaker 4: companies in our space. So we have the ability to get supply chain capabilities around the world. So we look at this, we monitor it, we have long-term agreements in place.

Companies in our space. So we have the ability.

To.

Get supply chain capabilities around the world. So we look at this we monitor it we have long term agreements in place. So the team continues to watch that and then also look for potential obsolescence from some of our older products and then look at upgrading those chips to more current chips that are becoming more available so again.

Speaker 4: So the team continues to watch that and then also look for potential obsolescence from some of our older products and then look at upgrading those chips to more current chips that are becoming more available. So, again, the team's all over it. Great, thank you for the call.

The teams all over it.

Great. Thank you for the color.

Our next question will come from Mike Halloran with Baird.

Speaker 6: Please go ahead. Hey again, good morning everyone and a special congratulations, I guess. Congrats to Kim on the retirement mission as well and congrats Bob with the new responsibilities.

Please go ahead.

Good morning, everyone.

Congratulations I guess, congrats Tim on the retirement and this is well and congrats.

Congrats Bob with the new responsibilities.

Thanks, Mike.

Speaker 6: So, two questions here first. Just from a competitive landscape environment, obviously it's challenging from supply chain shortages, et cetera, perspective. How do you think you're faring relative to peers competitively? What do you think shares shifting qualitatively?

So two questions here first just from a competitive landscape environment, obviously, it's challenging from a supply chain shortages et cetera perspective.

How do you think you're faring relative to peers competitively what do you think shares shares shifting quantitatively.

Speaker 3: um across some of the product lines and how much of a benefit do you think having having your scale and broader manufacturing base is helping right now?

Across some of the product lines and how much of a benefit do you think Kevin given your scale and broader manufacturing base is helping right now.

Speaker 4: Yeah, well, our product lines are massive and there's multiple.

Yes, well.

Our product lines are massive and there's multiple.

Speaker 4: you know, competitors here. But again, I think our results speak for themselves up, you know, 17 to 18% in the quarter. And, you know, I think we've been doing a good job getting our customers product. And as a result, certainly that I believe we've gained some share here.

Competitors here, but again I think our results speak for themselves.

2017% to 18% in the quarter.

I think we've been doing a good job getting our customers product and as a result, certainly that I believe we have gained some share here. So we'll continue to look at that and.

Speaker 4: So we'll continue to look at that and, you know, and I think that's on a global basis. So we'll continue to focus on that and I think product availability is key right.

And I think that's on a global basis. So we will continue to focus on that and I think our product availability is key right now and I think as we talked earlier.

Speaker 4: And I think as we talked earlier, that having our current manufacturing strategy where we have products in the local region where we manufacture to serve our local customer is an advantage.

Having our are our current manufacturing strategy.

We have products in the local region, where we manufacturer to serve our local customer is an advantage for us.

Speaker 3: Thanks for that. And I know you guys touched on this in a few spots, but I just want to hear kind of a cohesive message around it. Just when you have the guidance and the cadence and you've assumed through the year, could you just touch on the seasonal cadence and you're expecting for the revenue line as well as the margin line and maybe how that compares to what a typical seasonal curve might look like for you?

Thanks, and then I know you guys touched on this in a few spots.

I kind.

Kind of a cohesive message around it just screaming about the guidance and the cadence and we've assumed through the year.

Could you just touch on the seasonal cadence are you expecting.

For the revenue lines of the margin line and maybe how that compares with a typical seasonal curve might look like for you.

Yeah.

Speaker 4: Well, Mike, I'll start off and Shashank can do it. If you look at our comparisons, I mean, we grew 20% over the last nine months of 2021. We had an easier compare in Q1 of last year, we only had about 4% growth. So I think as you look at it from a cadence point of view, it's easier comparison Q1 and certainly Q1 of last year didn't have all the price increases we had in the second half.

Mike I'll start off and Shashank can do it if you look at our comparisons I mean, we grew 20% over the last nine months of 2021, we had an easier compare in Q1 of last year, we only had about 4% growth. So I think as you look at it from a cadence point of view.

It's easier comparison in Q1.

And certainly Q1 of last year's didn't have all the price increases we had in the second half.

Speaker 4: 2021. So I think just the pricing impact has changed some of the seasonality. First quarter will be stronger just because of that year over year comparison. And again don't forget that there was pent up demand.

2021 so.

Just the pricing impact has changed some of the seasonality first quarter.

We will be stronger.

Just because of that year over year comparison, and again don't forget that.

There was pent up demand.

Speaker 4: um inside of you know when you look up at the global supply chain related to everything being locked down in 2020 and now things open back up in early 2021 especially after you know the the shots started hitting everybody and people got vaccinated so i think uh things started opening up in the second third and fourth quarter so i think we're gonna have tougher comms

Inside of when you look up at the global supply chain related to everything being locked down in 2020, and now things open back up in early 2021, especially after the.

The shops started hitting everybody and people got vaccinated. So I think things started opening up in the second third and fourth quarter. So I think we're going to have tougher comps.

Speaker 4: uh... in those you know the back half in including the second quarter and don't forget we had two points of overall growth

Those you know the back half and including the second quarter and don't forget we had two points of overall growth freeze last year. So we're comping against that.

Speaker 4: last year, so we're comping against that. The biggest impact was in the second quarter, but we also had an impact in the first quarter.

The biggest impact was in the second quarter, but we also had an impact in the first quarter.

Yes.

Speaker 3: Yeah, no, I certainly appreciate all that. I'm more thinking on a sequential basis, Bob. So if I'm thinking about how you're expecting the revenue to continue through the year, as you work through the year, is it a more normal year or given some of the supply chain challenges, shortage challenges, maybe a little bit more of a ramp through the year? Maybe you could address that.

Yes, no I certainly appreciate all of that I'm more thinking on a sequential basis Bob.

So if I'm thinking about how youre expecting the revenue to continue to use it once a year or is it more normal.

More normal year or given some of the supply chain challenges shortage challenges, maybe a little bit more of a ramp through the year.

Maybe you can address that.

Speaker 5: It's a look. I mean, historically, if you go pre pandemic, um, our seasonality, our second quarter in the third quarter used to be a little bit higher than Q1 and Q4 just because of new construction in the summer and springtime. And, um, and with obviously post pandemic, it all depends on

Yeah. So look I mean, historically, if you go pre pandemic.

Our seasonality second quarter in the third quarter used to be a little bit higher than Q1, and Q4, just because of new construction in the summer and spring time.

And with obviously post pandemic it all depends on the activity by quarter, which does change in the prior year comps. So if you think about this year point Bob made on Q1 is very relevant and then as we go into the out quarters, it's more of a seasonal pattern assuming that we don't have.

Speaker 5: the activity by quarter, which does change in the prior year of comps.

Speaker 5: So if you think about this year, you know, a point Bob made on Q1 is very relevant. And then as we go into the out-quarters, it's more of a seasonal pattern, assuming that, you know, we don't have greater supply chain disruptions or assuming there's no new variants of the variant. So those are the risks that are out there that would disrupt a more normal pattern. Thank you. That makes a lot of sense. Appreciate it. Thank you.

Greater supply chain disruptions or assuming there is no new variance of the guy and so those are the risks that are out there that would disturb disrupt the more normal pattern.

Thank you that makes a lot of sense I appreciate it.

Thank you.

And we do have a follow up from Nathan Jones with Stifel.

Speaker 5: please go ahead. Good morning everyone.

Please go ahead.

Good morning, everyone.

Good morning, Bonnie.

Speaker 8: Just following up on that, on some commentary there, Bob, you talked about reopening and I understand, you know, if things got reopened, there was some repair and replace work that you would have to do. Do you think that has passed through now or do you think there's some continuing benefit from that in 2022?

Just following up on that.

On some commentary that Bob you talked that reopening and I'll just add I think there is repair and replace was that you would have to do do you think that has passed through now or do you think there's some continuing benefit from that in 2022.

Speaker 4: I think given projects have been delayed Nathan in general because of labor shortages. And then it continued in the latter half of 2021 with the Omicron and then into the first quarter. I don't think all of that has come through. I think it'll be most of that will come through in the first and second quarters and its supply chain stabilized.

I think that given projects have been delayed Nathan.

In general because of labor shortages and then it continued.

In the latter half of 2021 with the Omicron and then into the first quarter I don't think all of that has come through I think it'll be most of that will come through in the first and second quarters and its supply chain stabilize and job sites stabilize I think.

Speaker 4: job sites stabilize, I think, you know, that's going to, you know, be past us and we'll look at normal growth. But I think, you know, the first half is where you're going to see that, you know, finally come to fruition.

That's going to be past us and we will look at normal growth.

I think first half is where youre going to see that.

Finally come through.

Speaker 8: And then a question on interest rates, the new construction side of your business could potentially slow down if the Fed actually does follow through with raising interest rates. It's been a long time since we've had a rising interest rate environment. Just any comments you could make on the expectation of how that might impact your business? I wouldn't imagine you think it has any impact in 2022, but maybe 2023 and beyond.

And then a question on interest rates.

The new construction side of your business could potentially slowdown the fed actually does.

Hello, sorry, with raising interest rates.

It's been a long time since we've had a rising interest rate environment. Just any comments you could make on the expectation of how that might impact your business.

Imagine you think it has any impact in 2022 23 and beyond.

Speaker 4: Yeah, it also depends on what inflation is also.

Yes.

It also depends on what inflation is also so if they raised interest rates and again interest rates. If you really look at it are still historically low that could go up significantly, but youre only talking a point or two but if inflation starts coming back down, especially on the commodity side I think that's somewhat balances off so again.

Speaker 4: So if they raise interest rates, and again, interest rates, if you really look at it, are still historically low.

Speaker 4: that could go up significantly. But you're only talking a point or two. But if inflation starts coming back down.

Speaker 4: especially in the commodity side, I think that somewhat balances off. So, again, we're cautiously optimistic and, you know, we've not seen the commercial market fully open up. I think the interest rates you're talking about really impact single-family homes.

We're cautiously optimistic and.

We've not seen the commercial market fully open up I think the interest rates you are talking about really impacts of single family homes and more so and versus some of the longer term on the commercial side, but again, something we're watching very carefully.

Speaker 4: and more so, and versus some of the longer term on the commercial side. But again, something we're watching very carefully, but let's

But if you.

Speaker 4: If you think about it, interest rates are still very low, even if they do increase.

Think about it interest rates are still very low even if they do increase.

Speaker 8: Still very low, I agree. I did just want to ask a follow-up on the increased growth investments going up by $20 million in 2022, which I think is the highest level of incremental growth in investments that you've had over the last few years.

Okay.

Hey.

Just wanted to.

I'll ask a follow up on the increased growth investments going up by $20 million in 2022, which I think is the highest level of incremental growth in investments that you've thought about the last few years.

Speaker 8: What kind of ROI are you seeing on those investments currently? What do you think the long-term ROI is likely to be on these growth investments?

Yeah.

What kind of ROI are you seeing on those investments currently what do you think the long term ROI is likely to be on the growth investments.

Speaker 4: Well, Nathan, the way I look at it is, you know, our whole portfolio is going to move towards smart and connected. So I think it's

Well based on the way I look at it as you know our whole portfolio is going to move towards smart and connected so I think it's.

Speaker 4: You know we'll have no sales because we're driving the future to smart and connected. So the majority of our portfolio long term is going to get smart and connected. But we've been continuing to improve our R.O.I.C.

We will have no sales because we are driving the future smart and connected for the majority of our portfolio of long term is going to get smart and connected but we think continuing to improve our ROIC.

Speaker 4: every single year, and it's bounced up significantly last year to this year. And so, in general, I would say every project we look at from a return point of view, but we also know if our products add value and differentiate and allows us to increase our price and margins on it from a standard margin point of view. So, we'll continue to focus on that and, you know, you can watch our overall ROIC, which I think, you know, really answers your question.

Every single year, and it's bounced up significantly last year to this year and so in general I would say every project we look at.

A return point of view, but we also know it our products add value and differentiate and allows us to increase our price and our margins on them from a standard margin point of view. So we will continue to focus on that and.

You can watch our overall ROIC, which I think.

Really answers your question.

Speaker 8: Great. Thanks for taking my questions and congratulations to Keith.

Great. Thanks for taking my questions and congratulations again.

Thank you.

Speaker 1: And that will conclude our question and answer session for today. I would like to turn the call back to Bob Pecano for any closing remarks.

Okay. A question answer session for today I would like to turn the call back to Bob Macdonald for any closing remarks.

Speaker 4: In closing, thank you again for taking the time to join us today for our fourth quarter.

In closing thank you again for taking the time to join US today for our fourth quarter earnings call. We appreciate your continued interest in watts and look forward to speaking with you during our first quarter earnings call in May have a great day and stay safe.

Speaker 4: We appreciate your continued interest in Watts and look forward to speaking with you during our first quarter earnings call in May. Have a great day and stay safe.

Speaker 2: And this will conclude today's conference. Thank you for your participation and you may now disconnect.

And that will conclude today's conference. Thank you for your participation and you may now disconnect.

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Yes.

Okay.

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Okay.