Q3 2023 Pentair PLC Earnings Call

Speaker 1: Good morning and welcome to the Pentair 3rd Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal Conference Specialist by pressing the star key followed by zero.

Good morning, and welcome to the Pentair third quarter 2022 earnings conference call all participants will be in listen only mode should you need.

Need assistance, please signal conference specialist by Christmas Starkey, followed by zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then when you're touched on the phone. To withdraw from the question queue, please press star then two. We ask that you ask one question and one follow up.

After today's presentation there'll be opportunity to ask questions. So that's a question you May Press Star then one you touched on phone to withdraw from the question queue. Please press Star then two we ask that you ask one question and one follow up please.

Speaker 1: Please note, this event is being recorded. I would now like to turn the conference over to Shelley Hubbard, Vice President of Investor Relations. Please go ahead.

Please note. This event is being recorded I would now like to turn the conference with Shelley Hubbard Vice President of Investor Relations. Please go ahead.

Speaker 2: Thank you, Anthony, and welcome to Pentair's third quarter 2023 earnings conference call. On the call with me are John Stouck, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer.

Thank you Anthony and welcome to Pentair third quarter 2023 earnings conference call on the call with me are John <unk>, Our President and Chief Executive Officer, and Bob Fishman Chief Financial Officer on today's call. We will provide details on our third quarter performance as outlined in this morning's press release.

Speaker 2: On today's call, we will provide details on our third quarter performance as outlined in this morning's press.

Speaker 2: On the Pentair Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will recommend.

On the Pentair Investor Relations website.

You can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference.

Speaker 2: The non-GAAP financial measures provided should not be considered as a substitute for, or superior to the measures that financial performance prepared in a call.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP.

Speaker 2: They are included as additional clarifying items to aid investors in further understanding the company's performance, in addition to the impact these items and events have on the financial world.

They are included as additional clarifying items to aid investors in further understanding the company's performance. In addition to the impact these items and events have on the financial results.

Before we begin let me remind you that during our presentation today, we will make forward looking statements, which are predictions projections or other statements about future events.

Speaker 2: Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections, or other statements about future events.

Speaker 2: Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of penalties.

Listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond the control of pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K.

Speaker 2: These risks and uncertainties can cause actual results to differ materially from our current expectations.

Speaker 2: We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K . Following our prepared remarks, we will

Following our prepared remarks, we will open up the call for questions. Please note that we will limit your questions to two after which we ask you to then reenter the queue in order to allow everyone an opportunity to ask questions.

Speaker 2: Please note that we will limit your questions to two, after which we ask you to then re-enter the queue in order to allow everyone an opportunity to ask.

Speaker 2: A quick reminder before I hand the call over to John . Similar to last quarter, we have included slides four through seven in our earning slide deck which provide a brief overview of sentences.

Quick reminder, before I hand, the call over to John similar to last quarter, we haven't.

Included slides four through seven in our earnings slide deck, which provide a brief overview of center.

Speaker 2: Please see these slides titled Strategic Framework, Pantera at a Glance, Pantera Overview, and Making Better Essential for More.

Please see the slide titled Strategic framework, Penn theoretical and Pentair overview, and making better essential for more information in reference to slide seven making better essential we are proud to share. Two recent recognition that pentair has received for its work in social responsibility and ESG, we've been recognized as a constituent of the <unk>.

Speaker 2: In reference to slide 7, makings that are essential, we are proud to share two recent recognitions.

Speaker 2: that Pentair has received for its work in social responsibility and ESG. We have been recognized as a constituent of the FTSE for Good Index Series, and we have been named one of America's

FTSE for good Index series, and we have been named one of America's Greenest companies 2024 by Newsweek. This recognition from Newsweek evaluated Pinterest environmental performance in relation to our industry assessing our progress against key and benchmark environmental factors.

Speaker 2: This recognition from Newsweek evaluated Pantera's environmental performance in relation to our impact on the environment.

Speaker 2: Assessing our progress against key environmental factors.

Including greenhouse gas emissions water usage waste profile and commitment to disclosing sustainability data.

Speaker 2: water usage, waste profile, and commitment to disclosing sustainability data.

Speaker 2: Pantera's achievement supports our purpose to create a better world for people and the planet through smart, sustainable water.

Terrace achievement supports our purpose to create a better world for people and the planet through smart sustainable water solutions.

Speaker 2: We look forward to continuing to reduce the environmental impact of our operations and further integrate sustainability into our product innovation as guided by our.

We look forward to continuing to reduce the environmental impact of our operations and further integrate sustainability into our product innovation is guided by our social responsibility strategic targets. Please refer to our published 2022 corporate responsibility report for more information on our sustainability strategy I will now turn the call over to John .

Speaker 3: Please refer to our published 2022 Corporate Responsibility Report for more information on our sustainability strategy. I will now turn the call over to John . Thank you, Shelley. Good morning, everyone.

Thank you Shelly and good morning, everyone.

Let's begin with the executive summary on slide eight.

Speaker 4: We are very pleased with our third quarter results, which surpassed the guidance that we provided on our last earnings call.

We are very pleased with our third quarter results, which surpassed the guidance that we provided on our last earnings call Q.

Speaker 4: Q3 marked the 6th consecutive quarter of sales over $1 billion and the 6th consecutive quarter of adjusted margins.

Q3 marked the sixth consecutive quarter of sales over $1 billion.

And the sixth consecutive quarter of adjusted margin expansion.

Speaker 4: Segment income increased 3% and ROS expanded by 140%.

Net income increased 3% and our west expanded by 140 basis points.

Speaker 4: Adjusted EPS was $0.94 versus our previous guidance of $0.84 to $0.89.

Adjusted EPS was <unk> 94 cents versus our previous guidance of 84 to 89 cents and year to date free cash flow was $453 million up a 115% over the prior year.

Speaker 4: And year-to-date free cash flow was $453 million, up 115% over the prior year.

Speaker 4: As we look to the full year, we are updating our 2023 adjusted EPS guidance.

As we look to the full year, we are updating our 2023 adjusted EPS guidance range to $3 70 to $3 75.

Speaker 4: to $3.70 to $3.75, which reflects the high end of our previous guide.

Which reflects the high end of our previous guidance.

Speaker 4: I want to celebrate these strong results with all our employees. Your resilience and dedication to serving our customers and delivering value for our shareholders during a year of global macroeconomic uncertainty is making a difference. Thank you for your leadership.

I wanted to celebrate these strong results with all of our employees, you resilience and dedication to serving our customers and delivering value for our shareholders. During a year of global macro economic uncertainty is making a difference. Thank you for your leadership.

Let's move to slide nine titled Strategic focus.

Speaker 4: Through our mission to help the world sustainably move, improve, and enjoy water, we're enabling the right investments to both deliver the core and build our future, to drive long-term growth.

Our mission to help the world sustainably move improve and enjoy water, we're enabling the right investments to both deliver the core and build our future to drive long term value for shareholders.

Speaker 4: and deliver the core, we have driven profitability and productivity across all three sectors.

Deliver the core we have driven profitably profitability and productivity across all three segments industrial flow technologies water solutions and pool in 2023, we've also been making better essential through our products and solutions for people and the planet with a focus on sustainability and we have been investing in our people.

Speaker 4: industrial flow technologies, water solutions, and pool in 2000.

Speaker 4: We have also been making better essential through our products and solutions for people in the planet, with a focus on sustainability, and we have been investing in our people to develop talent and build a higher performing company.

<unk> to develop talent and build a higher performing culture.

Another strategic focus of ours is to build our future to accelerate performance.

Speaker 4: Another strategic focus of ours is to build our future, to accelerate performance.

Speaker 4: In 2023, we have further invested in the transformation, innovation and M&A.

In 2023, we have further invested in the transformation innovation and M&A.

Speaker 4: In fact, we have seen great results across all three of these areas with our transformation having begun to read out and new innovation launched this year with exciting new products coming in all three segments.

We've seen great results across all three of these areas with our transformation, having begun to read out and new innovation launch this year with exciting new products coming in all three segments.

Our Manitowoc ice acquisition is exceeding expectations.

Speaker 4: Regarding innovation, in 2023, our businesses have launched 25 new products.

Regarding innovation in 2023, our businesses have launched 25, new products. Examples include a new high efficiency icemaker for convenience stores and fast casual restaurants designed in advance to meet the future EPA regulation for refrigerants and expansion of our Energy Star Award, winning and start and tell a flow through.

Speaker 4: Examples include a new high-efficiency ice maker for convenience stores and fast, casual restaurants designed in advance to meet the future EPA regulations.

Speaker 4: We're expansion of our Energy Star award winning and Spartan Teleflow 3 pump.

<unk> series and the advancement of our beer membrane filtration solutions to operate continuously with higher levels of smart automation.

Speaker 4: and the advancement of our beer membrane filtration solutions to operate continuously with higher levels of smart automation.

In addition to these new product launches our innovation teams continue to make great progress advancing our strategy to build our future.

Speaker 4: In addition to these new product launches, our innovation teams continue to make great progress advancing our strategy to build our future, as they focus on our longer-term growth themes centered on the pool of the future, reimagining residential commercial water treatment, and industrial waste to value systems.

Our longer term growth theme centered on the pool of the future re imagining residential commercial water treatment and industrial waste to value solutions over.

Speaker 4: Over the last three years, we have launched over 100 new products. Let's turn to slide 10.

Over the last three years, we've launched over 100 new products.

Let's turn to slide 10 titled transformation update.

Speaker 4: We embarked on this transformation journey nearly two years ago with the intent to transform our business for the pentarium.

We embarked on this transformation journey nearly two years ago with the intent to transform our business for the pet care of the future.

Speaker 4: Our company has evolved substantially with the separation of InVent and then evolving to a leading diversified water company.

Our company has evolved substantially with the separation of invent and then evolving to a leading diversified water company.

Speaker 4: Through our four key transformation themes, including pricing, sourcing, operational excellence, and organizational effectiveness, we're streamlining our processes and building additional capabilities, which add more tools in our toolbox to drive growth and productivity.

Through our four key transformation themes, including pricing sourcing operational excellence and organizational effectiveness, we are streamlining our processes and building additional capabilities, which add more tools in our toolbox to drive growth and productivity.

Speaker 4: In Q3, transformation gained momentum and drove a substantial increase in productivity sequentially for

In Q3 transformation gained momentum and drove a substantial increase in productivity sequentially from Q2.

Speaker 4: After implementing Wave 1 in both pricing and sourcing, we expected transformation to begin to scale in the second half of this year. And we are pleased to note that our Transformation Initiative remained on track. Let's turn to slide.

After implementing wave one in both pricing and sourcing we expected transformation to begin to scale in the second half of this year and we are pleased to note that our transportation initiatives remain on track.

Let's turn to slide 11, titled CEO summary.

Speaker 4: We delivered another strong quarter with significant ROS expansion. Our Manitowoc ice acquisition continued to exceed expectations.

We delivered another strong quarter with significant our west expansion, our Manitowoc ice acquisition continued to exceed expect expectation.

Speaker 4: Our IFT and water solution segments more than offset pools' volume decline, and our transformation initiatives drove margin expansion.

Our IFC in water solutions segments more than offset pools volume decline and our transformation initiatives drove margin expansion.

Speaker 4: Our performance through Q3 resulted in another positive update to 2023 adjusted EPS guidance.

Our performance through Q3 resulted in another positive update to 2023 adjusted EPS guidance. All in we are building a strong foundation to drive long term growth and profitability across our diverse water portfolio.

Speaker 4: All in, we are building a strong foundation to drive long-term growth and profitability across the diverse water and portfolio.

Speaker 4: We have updated the full year adjusted EPS guidance to a range of $3.70 to $3.75 from the previous range of $3.65 to $3.75.

We have updated the full year adjusted EPS guidance to a range of $3.70 to $3.75 from the previous range of $3 65 to $3 75.

Speaker 4: We are mindful of the uncertainty across the global macroeconomic and geopolitical landscape, and we continue to closely monitor macroeconomic developments and implement risk mitigation strategies when and where necessary.

We are mindful of the uncertainty across the global macroeconomic and geopolitical geopolitical landscape and we continue to closely monitor macroeconomic developments and implement risk mitigation strategies, when and where necessary we.

Speaker 4: We have continued to accelerate transformation funnels while focusing on investing in the long-term growth. I reckon.

We have continued to accelerate transformation funnel, while focusing on investing in the long term growth of our company.

Speaker 4: We remain confident in our diversified water business model, long-term strategy, and our transformation initiatives, which we expect to continue to drive shareholder.

We remain confident in our diversified water business model long term strategy and our transformation initiatives, which we expect to continue to drive shareholder returns.

Speaker 4: We have a long, successful track record of generating strong cash flow and being disciplined with capital allocation.

We have a long successful track record of generating strong cash flow and being disciplined with capital allocation. We achieved 47 consecutive years of dividend increases and are targeting high teens ROIC.

Speaker 4: We achieved 47 consecutive years of dividend increases and are targeting high teens ROI.

Speaker 4: We have a strong balance sheet and an end of the year will five year financial draft.

We have a strong balance sheet and an enviable five year financial track record.

Speaker 4: I will now pass the call over to Bob who will discuss our performance and financial results in more detail. Bob?

I will now pass the call over to Bob who will discuss our performance and financial results in more detail Bob.

Speaker 4: Thank you, John . And good morning, everyone. Let's start on slide 12 titled Q3, 2023, 10-Tair Performance. We delivered another strong quarter of significant margin expansion, despite sales being down 4% year over year. The diversification of our portfolio and our transformation initiatives continue to more than offset pool's lower volume impact on margin.

Thank you John and good morning, everyone.

Starting on slide 12, titled Q3, 2023 Pentair performance.

We delivered another strong quarter of significant margin expansion, despite sales being down 4% year over year.

The diversification of our portfolio and our transformation initiatives continue to more than offset pools lower volume impact on margin.

Speaker 4: Core sales for Q3 were down 7% year-over-year, driven by our residential businesses. Our commercial and industrial businesses performed well in the quarter.

Core sales for Q3 were down 7% year over year, driven by our residential businesses.

Our commercial and industrial businesses performed well in the quarter.

Speaker 4: While Q3 sales declined primarily due to the volume headwind in pool, the negative volume impact on pentare and pool improves sequentially from Q2.

While Q3 sales declined primarily due to the volume headwind in pool.

Negative volume impact on Pentair and pool improved sequentially from Q2.

Speaker 4: Third quarter segment income increased 3% to $212 million and return on sales expanded 140 basis points year over year to 21%.

Third quarter segment income increased 3% to $212 million and return on sales expanded 140 basis points year over year to 21%.

Speaker 4: This improvement was driven primarily by productivity from transformation.

This improvement was driven primarily by productivity from transformation.

Speaker 4: Accretive margins from the Manitowoc ice acquisition and some price versus cost benefit We delivered adjusted EPS

Accretive margins from the Manitowoc ice acquisition and.

And some price versus cost benefit.

We delivered adjusted EPS of <unk> 94 cents.

Speaker 4: Net interest expense was nearly $29 million, and our adjusted tax rate was 15% during the quarter with a share count of $166.6 million.

Net interest expense was nearly $29 million and our adjusted tax rate was 15% during the quarter with a share count of $166 6 million.

Speaker 4: Please turn to slide 13 labeled Q3 2023 Industrial and Flow Technologies Performance.

Please turn to slide 13, labeled Q3, 2023, industrial and flow technologies performance.

Speaker 4: Industrial and flow technology sales increased 3% year over year driven by commercial sales growth of 8% and industrial sales growth of 12% which more than offset a decline in residential sales of 7%.

Industrial and flow technologies sales increased 3% year over year, driven by commercial sales growth of 8% and industrial sales growth of 12%.

Which more than offset a decline in residential sales of 7%.

Speaker 4: Segment income grew 18% and return on sales expanded 250 basis points to 19.4%, marking the fifth consecutive quarter of equal to or greater than 200 basis points of improvement.

Segment income grew 18% and return on sales expanded 250 basis points to 19, 4%.

Marketing, the fifth consecutive consecutive quarter of equal to or greater than 200 basis points of improvement.

Speaker 4: The strong margin expansion was a result of continued progress on our transformation initiatives.

The strong margin expansion was a result of continued progress on our transformation initiatives.

Speaker 4: IFT's continued success was partly driven by a revised go-to-market strategy and industry leadership that has been underway over the last two years.

I F. T has continued success was partly driven by our revised go to market strategy.

And industry leadership that has been underway over the last two years.

Speaker 4: For example, within our industrial businesses, our strong reputation and industry expertise is driving above industry growth.

For example, within our industrial businesses, our strong reputation and industry expertise is driving above industry growth.

Speaker 4: We've been moving away from primarily project-led business to standardized solutions focused on ease of doing business with distributors.

We've been moving away from a primarily project led business to standardized solutions focused on ease of doing business with distributors.

Speaker 4: and our key accounts have begun to reinvest in sustainable product lines following the pandemic.

And our key accounts have begun to reinvest and sustainable product lines following the pandemic.

Speaker 4: Within our commercial businesses and IFT, we are focused on driving business beyond warehouses and office space.

Within our commercial businesses and Iot, we are focused on driving business beyond warehouses and office space.

Speaker 4: to data centers and institutions such as universities, airports, hospitals, and government buildings.

Data centers, an institution, such as universities airports hospitals and government buildings.

Speaker 4: We also believe there are large opportunities in municipal infrastructure as driven by the infrastructure investment and job-zack legislation in the U.S. with a focus on investments in clean water, flood control, and broadband.

We also believe there are large opportunities in municipal infrastructure as driven by the infrastructure investment and jobs Act legislation in the U S with a focus on investments in clean water flood control and broadband.

Speaker 4: Interestingly, one of our customers is the leader in directional drilling equipment for fiber optic cables.

Interestingly one of our customers is the leader in directional drilling equipment for fiber optic cables we.

Speaker 4: We continue to believe the aftermarket is a good opportunity for future growth because of our significant product installed base.

We continue to believe the aftermarket is a good opportunity for future growth because of our significant product installed base.

Speaker 4: Lastly, we believe we are in a strong position to benefit from the Build America, Buy America Act as our compliance is expected to give us a strategic advantage.

Lastly, we believe we are in a strong position to benefit from the build America Buy America Act as our compliance is expected to give us a strategic advantage.

Yeah.

Speaker 4: Within our residential businesses and IFT, we have seen a return to normalization, recall that these products are typically not a discretionary spend. When a sum pump or a well pump breaks, it's critical to get it fixed.

Within our residential businesses and I S. T. We have seen a return to normalization.

Call that these products are typically not a discretionary spend.

When a sump pump, where a well pump breaks it's critical to get it fixed.

Speaker 4: Please turn to slide 14, labeled Q3 2023 water solutions performance.

Please turn to slide 14 labeled Q3 2023 water solutions performance.

In Q3 water solutions sales increased 9% to $299 million.

Speaker 4: In Q3, water solution sales increased 9% to $299 million, driven by our Manitowoc ice acquisition and price.

Driven by our Manitowoc ice acquisition and price.

Segment income grew 40% to $69 million and return on sales expanded 510 basis points to 23%.

Speaker 4: driven primarily by our creative managed to walk ISAC position and productivity from our transformation initiatives.

Driven primarily by our accretive Manitowoc ice acquisition and productivity from our transformation initiatives.

Speaker 4: Margents have expanded over the last seven quarters from 10.8% in Q1 of 2022 to 23% in Q3 of 2023.

Margins have expanded over the last seven quarters from 10, 8% in Q1 of 2022% to 23% in Q3 of 2023.

Yeah.

Speaker 4: Within our residential business and water solutions, we noted last quarter that we are seeing North America stabilize. This was evident in Q3 as residential sales declined improved sequentially from Q2.

Within our residential business in water solutions, we noted last quarter that we are seeing North America stabilized.

This was evident in Q3 as residential sales decline improved sequentially from Q2.

Speaker 4: Within our commercial business and water solutions, filtration sales in North America remain strong, and managed to walk ice continue to exceed our expectations.

Within our commercial business in water solutions filtration sales in North America remained strong and Manitowoc ice continues to exceed our expectations.

Speaker 4: Please turn to slide 15 labeled Q3 2023 pool performance.

Please turn to slide 15 labeled Q3 2023 pool performance.

In Q3 pool sales declined 21% to $309 million.

Speaker 4: In Q3, pool sales declined 21% to $309 million.

Speaker 4: The volume decline of 28 points was primarily due to continued channel inventory corrections in the quarter and reflects a strong Q3 2022 comparison.

The volume decline of 28 point was primarily due to continued channel inventory corrections in the quarter and reflects the strong Q3 2022 comparison.

Speaker 4: Sequentially, the negative impact of volume significantly improved from Q2. The pricing benefit of seven points helps

Sequentially, the negative impact of volume significantly improved from Q2.

The pricing benefit of seven points.

Helped partially offset the volume decline.

Speaker 4: Despite lower pool sales in Q3, return on sales expanded 130 basis points due to price offsetting inflation.

Despite lower pool sales in Q3 return on sales expanded 130 basis points due to price offsetting inflation.

Speaker 4: prior actions to right-size direct labor to align with lower volumes and improve productivity driven by our transformation initiatives.

Prior actions to rightsize direct labor to align with lower volumes and improved product trip productivity driven by our transformation initiatives.

Please turn to slide 16 labeled transformation initiatives.

Speaker 3: Please turn to slide 16, Label Transformation Initiative.

Similar to last quarter. We believe this slide provides a good illustration of our transformation initiatives and our ultimate goal of driving margin expansion.

Speaker 3: The middle last quarter, we believe this slide provides a good illustration of our transformation initiatives and our ultimate goal of driving margin expansion.

Speaker 3: For reference, our transformation initiatives focus on four key themes.

For reference our transformation initiatives focused on four key themes.

Speaker 3: pricing excellence, strategic sourcing, operations excellence, and organizational effectiveness.

Pricing excellence strategic sourcing operations excellence and organizational effectiveness.

Speaker 3: As we've mentioned in past quarters, we expect strategic pricing actions to benefit the top line of all three of our segments.

As we've mentioned in past quarters, we expect strategic pricing actions to benefit the top line of all three of our segments.

Speaker 3: We expect our other three transformation initiatives to help improve our overall cost structure.

We expect our other three transformation initiatives to help improve our overall cost structure.

Speaker 3: As a result, we are targeting Ross of approximately 23% by the end of fiscal 2025, expanding margins over 400 basis points as compared to fiscal 2022.

As a result, we are targeting Ross of approximately 23%.

By the end of fiscal 2025.

Expanding margins over 400 basis points as compared to fiscal 2022.

Yeah.

Speaker 3: Please turn to slide 17, label transformation runway.

Please turn to slide 17 labeled transformation runway.

Speaker 3: As you look at each of the four key themes, you can see that the work within these transformation initiatives is in various different stages. For example, in 2023, we have begun to see early readouts from Wave 1 within pricing, sourcing, and operation.

As you look at each of the four key themes you can see that the work within these transformation initiatives isn't various different stages.

For example in 2023, we have begun to see early readouts from wave one within pricing sourcing and operations.

Speaker 3: We are beginning wave two within each of these three themes and expect margin benefits to read out in 2024.

We are beginning wave two within each of these 333 themes and expect margin benefit to read out in 2024.

Speaker 3: You can see how each new wave is expected to compound on the others to drive expected margin expansion year over year through 2025 and beyond.

You can see how each new wave is expected to compound on the others to drive expected margin expansion year over year through 2025 and beyond.

Speaker 3: In pricing excellence, the strategic pricing playbook has been developed which is just beginning to roll out across segments and category.

And pricing excellence the strategic pricing playbook has been developed with it which is just beginning to roll out across segments and categories.

Speaker 3: For example, in Q3, we began to implement strategic pricing actions across select products within our pool segment.

For example in Q3, we began to implement strategic pricing actions across select products within our pool segment.

Within these price actions.

While these price actions are reflected.

Speaker 3: while these price actions are reflected in our recent annual price increase.

In our recent annual price increase.

Speaker 3: Please note that these strategic actions differ from annual price increases.

Please note that these strategic actions differ from annual price increases.

Speaker 3: Typically on an annual basis, we evaluate overall inflation, both material and cost to determine the appropriate price, increase the cost.

Typically on an annual basis, we evaluate overall inflation both mature at all in costs to determine the appropriate price.

Increase across our products.

Speaker 3: With regards to strategic price action, we are evaluating all products through a value-based model and identifying which ones have opportunities for adjustment.

With regards to the strategic price actions, we are evaluating all products through a value based model and identifying which ones have opportunities for adjustments.

Speaker 3: Recall that in the past, we primarily evaluated pricing through a cost-plus approach.

Recall that in the past, we primarily evaluated pricing through a cost plus approach.

In sourcing excellence the implementation of wave one is underway with savings currently reading out.

Speaker 3: En sourcing excellence, the implementation of Wave 1 is underway with savings currently reading out. As a reminder, Wave 1 included materials such as electronics, motors, maintenance repair and operation spend, packaging and logistics.

As a reminder, wave one included materials, such as electronics motors maintenance repair and operations span packaging and logistics.

Speaker 3: Additionally, we successfully kicked off Wave 2 this summer with over 800 suppliers attending our supplier show.

Additionally, we successfully kicked off wave two this summer with over 800 suppliers, depending our supplier shelf.

Speaker 3: for reference, way two materials include metals, molding, resin, ocean freight, and purchase finished goods.

For reference wave two materials include metals molding resin ocean freight and purchased finished goods.

Operator: Good morning and welcome to the Pentair 3rd quarter, 2023 Earnings Conference call. All participants will be in listen only mode. Should you need assistance, please signal conference specialist by President Starkey, followed by zero.

Speaker 3: We expect Wave 2 to begin to read out beginning in 2024.

We expect wave two to begin to read out beginning in 2024.

Speaker 3: Incremental to our strategic sourcing waves, we have seen benefit from our rapid renegotiation process that is a part of our transformed sourcing excellence work.

Incremental to our strategic sourcing waves, we've seen benefit from a rapid renegotiation process that is a part of our transformed sourcing excellence work.

Operator: After today's presentation, there will be an opportunity to ask questions. So ask a question, you may press star then when you're touched on phone. To withdraw from the question, please press star then two. We ask that you ask one question and one follow up.

Speaker 3: In operational excellence, we have completed the consolidation of three facilities while continuing our execution on lean transformation plans across our site.

In operational excellence, we have completed the consolidation of three facilities.

While continuing our execution on lean transformation plans across our sites.

Operator: Please note, this event is being recorded.

Shelly Hubbard: I will now like to turn the conference order to Shelly Hubbard. Vice President of investor relations, please go ahead.

In organizational effectiveness, we are in the earliest stages with wave one and expect margin benefits to be realized beginning in 2024.

Speaker 3: In organizational effectiveness, we are in the earliest stages with wave one and expect margin benefits to be realized beginning in 2024.

Shelly Hubbard: Thank you, Anthony, and welcome to Pentair's third quarter, 2023 Earnings Conference call. On the call with me are John Stauk, our President and Chief Executive Officer, and Bob Fishman, our Chief Financial Officer. On today's call, we will provide details on our third quarter performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our Earnings release in slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAP financial measures that we will reference.

Speaker 3: Due to the staggered nature of these transformation initiatives, we expect Wave 3 to begin to read out post-2025 in operations, excellence, and organizational effectiveness.

Due to the staggered nature of these transformation initiatives, we expect wave three to begin to read out post 2025.

In operations excellence and organizational effectiveness.

Speaker 3: Overall, we are excited about the savings we have begun to realize from the early waves and remain confident that our teams can execute on pricing actions and savings we have identified, particularly in sourcing.

Overall, we are excited about the savings we have begun to realize from the early waves and remain confident that our teams can execute on pricing actions and savings we have identified particularly in sourcing.

Shelly Hubbard: The non-GAP financial measures provided should not be considered as a substitute for or superior to the measures the financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance. In addition to the impact these items and events have on the financial results.

Yeah.

Speaker 3: Please start to slide 18 labeled balance sheet and cash flow.

Please turn to slide 18 labeled balance sheet and cash flow.

Speaker 3: In Q3, we generated $143 million in free cash flow up nearly 100% year over year, reflecting another strong quarter.

In Q3, we generated $143 million in free cash flow up nearly a 100% year over year, reflecting another strong quarter year.

Speaker 3: Year-to-date, our free cash flow was $453 million, up nearly 115%.

Year to date, our free cash flow was $443 million $453 million.

Shelly Hubbard: Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections, or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent form 10Q and form 10K.

Up nearly 115% year over year.

Speaker 3: Our net debt leverage ratio was 2.1 times, down from 2.6 times in Q1 and 2.2 times in Q2.

Our net debt leverage ratio was two one times down from two six times in Q1, and two two times in Q2 or.

Speaker 3: Our maturity stock is very manageable. Total debt is now less than $2 billion. And the average rate is approximately 5.3%.

Our maturity stack is very manageable total debt is now less than $2 billion and the average rate is approximately five 3%.

Speaker 3: Our ROIC was 14.1%.

Our our ROIC was 14.1%.

Speaker 3: exceeding our cost of capital and includes debt from the Manitowoc ice acquisition.

Exceeding our cost of capital and includes debt from the Manitowoc ice acquisition.

Shelly Hubbard: Following our prepared remarks, we will open up the call for questions. Please note that we will limit your questions to two, after which we ask you to then re-enter the Q in order to allow everyone an opportunity to ask questions. A quick reminder before I hand the call over to John. Similar to last quarter, we have included slides four through seven in our Earnings slide deck, which provide a brief overview of Pentair. Please see these slides titled Strategic Framework, Pentair at a Glance, Pentair Overview, and making better essential for more information.

Speaker 3: We continue to target high teams of ROIC in the long term.

We continue to target high teens ROIC C in the long term.

Speaker 3: We plan to remain disciplined with our capital and continue to focus on debt reduction amid the higher interest rate environment.

We plan to remain disciplined with our capital and continue to focus on debt reduction amid the higher interest rate environment.

Speaker 3: Moving to slide 19 titled Q4 and full year 2023 PENTER Outlook.

Moving to slide 19, titled Q4, and full year 2023 Pentair outlook.

Speaker 3: For the full year, we are updating our adjusted EPS guidance to approximately $3.70 to $3.75 from our previous range of $3.65 to $3.75.

For the full year, we are updating our adjusted EPS guidance to approximately $3.70 to $3 75 from our previous range of $3 65 to $3.75.

Shelly Hubbard: In reference to slide seven, making better essential, we are proud to share two recent recognitions that Pentair has received for its work in social responsibility and ESG. We have been recognized as the constituent of the FTSE for Good Index Series, and we have been named one of America's Greenest Company's 2024 by Newsweek. This recognition from Newsweek evaluated Pentair's environmental performance in relation to our industry, assessing our progress against key environmental factors.

Speaker 3: Also, for the full year, we expect sales to be roughly down 1 percent, segment income to increase 10 to 11 percent, with corporate expense of approximately 85 to 90 million dollars.

Also for the full year, we expect sales to be roughly down 1%.

Segment income to increase 10% to 11% with corporate expense of approximately $85 million to $90 million.

Speaker 3: net interest expense of roughly $123 to $125 million.

Net interest expense of roughly $123 million to $125 million.

Shelly Hubbard: Including greenhouse gas emissions, water usage, waste profile, and commitment to disclosing sustainability data. Pentair's achievement supports our purpose to create a better world for people and the planet through smart sustainable water solutions. We look forward to continuing to reduce the environmental impact of our operations and further integrate sustainability into our product innovation as guided by our social responsibility strategic targets.

Speaker 3: an adjusted tax rate of approximately 15% and a share count of 160.

And adjusted tax rate of approximately 15%.

And a share count of $166 million.

For the fourth quarter, we expect sales to be down approximately 3% to 4%.

Speaker 3: For the fourth quarter, we expect sales to be down approximately 3 to 4 percent.

Speaker 3: This is mainly attributable to expected lower pool volume year over year and the return of seasonality in our business now that lead times have normalized.

This is mainly attributable to expected lower pool volume year over year and the return of seasonality in our business now that lead times have normalized.

Speaker 3: We expect fourth quarter segment income to increase, 3% to 8% with corporate expense of roughly $23 million. Net interest expense of roughly $28 to $30 million. An adjusted tax rate of approximately 15% and a share count of 106.

Shelly Hubbard: Roberts. Please refer to our published 2022 Corporate Responsibility Report for more information on our sustainability strategy.

We expect fourth quarter segment income to increase 3% to 8% with corporate expense of roughly $23 million net.

Shelly Hubbard: I will now turn the call over to John. Thank you, Shelley.

Net interest expense of roughly $28 million to $30 million and.

John Stauch: Good morning, everyone. Let's begin with the Executive Summary on Slide 8. We are very pleased with our third quarter results, which surpassed the guidance that we provided on our last earnings call. Q3 marked the sixth consecutive quarter of sales over $1 billion, and the sixth consecutive quarter of adjusted margin expansion. Segment income increased 3% in our west expanded by 140 basis points. Adjusted EPS was 94 cents versus our previous guidance of 84 cents to 89 cents, and year-to-date free cash flow was 453 million, up 115% over the prior year. As we look to the full year, we are updating our 2023 adjusted EPS guidance range to $3.70 to $3.75, which reflects the high end of our previous guidance.

And adjusted tax rate of approximately 15%.

And a share count of $166 million.

Speaker 3: We are also introducing adjusted EPS guidance for the fourth quarter of approximately $0.82 to $0.87.

We are also introducing adjusted EPS guidance for the fourth quarter of approximately 82 to 87 cents.

Speaker 3: Moving to slide 20. Title full year 2023 guidance at midpoint.

Moving to slide 'twenty.

Titled full year 2023 guidance at midpoint.

Speaker 3: We continue to expect total 10-air sales in fiscal 2023 to be approximately $4.1 billion or down about 1%.

We continue to expect total pentair sales in fiscal 2023 to be approximately $4 $1 billion or down about 1%.

Speaker 3: We continue to expect IFT sales to be up mid-single digits and water solution sales to be up high teens.

We continue to expect <unk> sales to be up mid single digits and water solutions sales to be up high teens.

Speaker 3: For pool sales, we have made a slight adjustment to down high teens from previous guidance of down mid-teens at the high end of the range.

For pool sales, we have made a slight adjustment to down high teens from previous guidance of down mid teens at the high end of the range.

John Stauch: I want to celebrate these strong results with all our employees. Your resilience and dedication to serving our customers and delivering value for our shareholders during a year of global macroeconomic uncertainty is making a difference. Thank you for your leadership.

Speaker 3: Segment income is expected to increase approximately 10 to 11 percent with Roth expansion of over 200 basis points to 20.9 percent.

Segment income is expected to increase approximately 10% to 11% with Ros expansion of over 200 basis points to 29%.

Speaker 3: Moving to slide 21 titled Q3 Progress Summary.

Moving to slide 21, titled Q3 progress summary.

John Stauch: Let's move to Slide 9, titled Strategic Focus. Through our mission to help the world sustainably move, improve, and enjoy water, we are enabling the right investments to both deliver the core and build our future to drive long-term value for shareholders. In deliver the core, we have driven profitably in productivity across all three segments, industrial flow technologies, water solutions, and pool in 2023. We have also been making better essential through our products and solutions for people in the planet, with a focus on sustainability, and we have been investing in our people to develop talent and build a higher performing culture.

Speaker 3: We are very pleased with our Q3 and year-to-date performance.

We are very pleased with our Q3 and year to date performance.

Speaker 3: As John mentioned earlier, our third quarter marked the six consecutive quarter of sales over $1 billion, and the six consecutive quarter of adjusted margin expansion.

As John mentioned earlier, our third quarter marked the sixth consecutive quarter of sales over $1 billion and the sixth consecutive quarter of adjusted margin expansion.

Speaker 3: We have executed well in a dynamic environment and delivered on our commitment.

We have executed well in a dynamic environment and delivered on our commitments.

Speaker 3: Specifically, our diversified water portfolio and transformation initiatives have driven significant margin expansion despite pools volume decline.

Specifically, our diversified water portfolio and transformation initiatives have driven significant margin expansion despite pools volume decline.

Speaker 3: Our Manitouac Ice Act physician has exceeded our expectations.

Our Manitowoc ice acquisition has exceeded our expectations.

Speaker 3: We have instilled performance, accountability across the organization, which is being measured through key metrics.

We have instilled performance accountability across the organization, which is being measured through key metrics.

John Stauch: Another strategic focus of ours is to build our future to accelerate performance. In 2023, we have further invested in transformation, innovation, and M&A. In fact, we have seen great results across all three of these areas with our transformation having begun to read out and new innovation launched this year with exciting new products coming in all three segments. In our Man's Walk Ice Acquisition is exceeding expectations. Regarding innovation, in 2023, our businesses have launched 25 new products.

Speaker 3: We have a very strong balance sheet and free cash flow generation.

We have a very strong balance sheet and free cash flow generation and.

Speaker 3: and we have a disciplined capital allocation strategy that aligns to our high teens ROIC target.

And we have a disciplined capital allocation strategy that aligns to our high teens ROIC target.

Speaker 3: I'd now like to turn the call over to the operator for Q&A, after which John will have a few questions.

I'd now like to turn the call over to the operator for Q&A.

After which John will have a few closing remarks.

Speaker 1: Anthony, please open the line for questions. Thank you. We will now begin the question and answer session. Who asks a question when pressed star than one on your touch tone phone? If you're using a speaker phone, please pick up your hands up.

Anthony Please open the line for questions. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

John Stauch: Examples include a new high-efficiency ice maker for convenience stores and fast casual restaurants designed in advance to meet the future EPA regulation for refrigerants, expansion of our energy star award-winning and smart and teleflow three pump series, and the advancement of our beer membrane filtration solutions to operate continuously with higher levels of smart automation. In addition, these new product launches, our innovation teams continue to make great progress, advancing our strategy to build our future, as they focus on our longer-term growth themes centered on the pool of the future, reimagining residential commercial water treatment, and industrial waste value solutions. Over the last three years, we have launched over 100 new products.

If you're using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

Speaker 1: We ask that you ask one question and one follow-up. At this time, we will pause momentarily to assemble our rockets.

We ask that you ask one question sorry, one question and one follow up at this time, we will pause momentarily to assemble our roster.

Yeah.

Speaker 1: Our first question will come from Brett Lindsey with Mizuho. You may now go ahead.

Our first question will come from Brett Linzey with Mizuho you May now go ahead.

Hey, good morning, all good morning.

Speaker 5: Hey, good morning, all. Morning. Hey, first question is just on pricing and polls. So it sounds like you're going to have two different actions here. So one being the normal course of business. And then on top of that, some surgical. If you could just square that comment. And then anything you can share in terms of the magnitude of the actions that you're contemplating there.

Hey, first question is just on pricing in pool. So sounds like you're you have two different actions here. So one being the normal course of business and then on top of that some surgical if you could just square that comment and then anything you can share in terms of the magnitude of the actions that you're contemplating there.

John Stauch: Let's turn to slide 10, titled Transformation. Foundation update. We embarked on this transformation journey nearly two years ago, with the intent to transform our business for the Pentair of the future. Our companies evolved substantially with the separation of invent and then evolving to a leading diversified water company. Through our four key transformation themes, including pricing, sourcing, operational excellence, and organizational effectiveness, we are streamlining our processes and building additional capabilities which add more tools in our toolbox to drive growth and productivity.

No I think you know.

Speaker 4: No, I think, you know, just to clarify, as we go into next year, we're only counting on a price increase, which would be a more normalized price increase and modest compared to prior years, but slightly higher than what we would have said would have normally occurred, which is us covering the inflation.

Just to clarify as we go into next.

Next year, we were only counting on a price increase which would be a more normalized price increase and modest compared to prior years, but slightly higher than what we would've said would have normally occurred which is us covering the inflation inflationary aspects.

Speaker 3: Not aware of anything incremental than that. And those price increases have already been announced to the market. Yeah, our comment was that not only did we use an approach that looked at inflation, but for certain product lines, looked at adjustments based on a value-based model. But that is all included in the pricing that went out to be effective Jan 1.

I'm not aware of anything incremental from that those price increases have already been announced to the market yeah, our our our comment towards that.

Not only did we use unapproached that looked at inflation, but for certain product lines looked at adjustments based on a value based model, but that is all included in India and the pricing that went out.

John Stauch: In Q3, transformation gained momentum and drove a substantial increase in productivity sequentially from Q2. After implementing Wave 1 in both pricing and sourcing, we expected transformation to begin to scale in the second half of this year, and we are pleased to know that our transformation initiatives remained on track.

To be effective Jan one.

Yes.

Speaker 5: I understood, thanks for that. And then just wanted to circle back to the comments around the market extensions within IFT commercial. It's great to see some, you know, opportunity outside those traditional verticals. Is there any way to quantify the total addressable market size that will increase here given this new reach, this new focus?

Understood. Thanks for that and then just wanted to circle back to the comments around the market extensions within I S. T commercial great to see some opportunity outside those traditional verticals is there any way to quantify the total addressable market size that will increase here given this this new reach this new focus.

John Stauch: Let's turn to slide 11 titled CEO Summary. We delivered another strong quarter with significant RWS expansion, our Man-to-Walk Ice Acquisition continued to exceed expectations. Our IFP and Water Solutions segments more than offset cool value decline, and our transformation initiatives drove margin expansion. Our performance through Q3 resulted in another positive update to 2023 adjusted EPS guidance. All in, we are building a strong foundation to drive long-term growth and profitability across a diverse water portfolio.

Speaker 4: No, but I mean, you know, it opens up what we would say would be at least a billion dollars plus for our particular opportunities, you know, and I think that's a conservative estimate, Brett.

No, but I mean, it you know it opens up what we would say would be at least $1 billion plus for our particular opportunities you know.

And I think that's a conservative estimate Bret.

Okay, Great best of luck. Thanks. Thank you.

Speaker 1: Our next question will come from Andy Kaplowicz with Citigroup.

John Stauch: We have updated the full-year EPS guidance to a range of $3.70 to $3.75 from the previous range of $3.65 to $3.75. We are mindful of the uncertainty across the global macroeconomic and geopolitical landscape, and we continue to closely monitor macroeconomic development and implement risk mitigation strategies when and where necessary. We have continued to accelerate transformation funnels while focusing on investing in the long-term growth of our company. We remain confident in our diversified water business model, long-term strategy, and our transformation initiatives, which we expect to continue to drive shareholder returns.

Our next question will come from Andy Kaplowitz with Citigroup you May now go ahead.

Speaker 6: Good morning, everyone. Good morning. Good morning. John , can you update us, give us more color on what you're seeing in the pool market? It looks like you're suggesting with your Q4 guide, you know, slightly bigger inventory correction than the 150 you were guiding to. Maybe you could give us some more color on that, and then how do you think that sets up pool for 2024, especially given our interest rate environment?

Hey, good morning, everyone. Good.

Good morning.

Can you update us give us more color on what you're seeing in the pool market. It looks like youre, suggesting with your Q4 guide is slightly bigger inventory correction in the $1 50, you were going to maybe you could give us some more color on that and then how do you think that sets a pool for 'twenty 'twenty, four, especially given our higher interest rate environment.

Speaker 4: Yeah, so I think, you know, first of all, we're pleased that we were able to predict, you know, the way that Q3 was going to unfold and it played out generally as we expected.

Yeah. So I think you know first of all we are pleased that we were able to predict.

The way that Q3 was going to unfold and it played out generally as we expected I think we focused on sell through data and then also focus on the metrics of our channel partners and I think that data is providing clarity of what's going on.

Speaker 4: I think we focused on sell through data and then also focused on the metrics of our channel partners and I think that data is providing clarity of what's going on.

John Stauch: We have a long, successful track record of generating strong cash flow and being disciplined with capital allocation. We have achieved 47 consecutive years of dividend increases and are targeting high-teens RYC. We have a strong balance sheet and an end-of-year-old five-year financial track record.

I think the inventory is generally behind us I don't think that's what Q4 represents I think Q4 represents what we would say is.

Selecting the higher interest rates and the impact it could have on the sell through aspects within the market and it's helping to position ourselves for the best possible 2024 that we can we can have so it's a modest purchase patient in early buy it's making sure that we're not continuing to build inventory ahead of next year and is setting ourselves up for a really good too.

Bob Fishman: I will now pass the call to Bob. We'll discuss our performance and financial results in more detail.

Speaker 4: we can have. So it's a modest participation in early buy, it's making sure that we're not continuing to build inventory ahead of next year, and it's setting ourselves up for a really good 2024.

Bob Fishman: Bob, thank you, John, and good morning, everyone. Let's start on slide 12 titled Q3, 2023, Pentaire Performance. We delivered another strong quarter of significant margin expansion despite sales being down 4% year over year. The diversification of our portfolio and our transformation initiatives continue to more than offset pool's lower volume impact on margins. Core sales for Q3 were down 7% year over year driven by our residential businesses. Our commercial and industrial businesses performed well in the quarter.

24.

Yeah.

Speaker 6: It's helpful, John . And then, you know, you beat your forecast for Q3 sales overall at down 4%. I think you're expecting down 7%. You didn't change anything other than pool, which we just talked about, but my question is whether you're seeing anything in IFT or water solutions that's stopped you from raising your forecast at all. I would imagine you want to be conservative, as you talked about, but any more color there on, you know, current economic conditions, how they're affecting the other segments.

It's helpful. John and then you know you beat your forecast for Q3 sales overall were down 4% I think youre expecting down southern you didn't change anything other than pool, which we just talked about but my question is whether youre seeing anything and I have to your water solutions to stopped you from raising your forecast at all I would imagine you want to be conservative as you talked about but any more.

Color there on current economic conditions out there 50, the other segment.

Speaker 4: No, I mean I think Water Solutions has benefited from significant performance at Manitowoc Ice and we're really pleased with how that acquisition came in and has performed. Just a reminder though, we're going to start comparing against really good delivered quarters in the prior years and so that year over year performance is going to moderate. I think the market outlook for that business continues to be strong, but it's going to be hard to continue to put up those types of numbers on it.

No I mean, I think water solutions has benefited from significant performance. It at Manitowoc ice and we're really pleased with how that acquisition came in and has performed just a reminder, though we're gonna start comparing against really.

Bob Fishman: While Q3 sales declined primarily due to the volume headwind in pool, the negative volume impact on Pentair and pool improves sequentially from Q2. Third quarter segment income increased 3% to $212 million, and return on sales expanded 140 basis points year over year to 21%. This improvement was driven primarily by productivity from transformation, a creative margins from the Manitawak ice acquisition, and some price versus cost benefit. We delivered adjusted EPS of 94 cents, net interest expense was nearly $29 million, and our adjusted tax rate was 15% during the quarter with a share count of $166.6 million.

Good delivered quarters in the prior years and so that year over year performance is going to moderate I think the market outlook for that business continues to be strong, but it's going to be hard to continue to put up those types of numbers on it on a consistent basis.

Speaker 6: And then in IFT, anything you're seeing in terms of channel D stock or anything like that?

And then and I have T anything youre seeing in terms of channel destocking or anything like that.

Speaker 1: No, but I think it's only fair to suggest that higher elevated interest for longer, make sure that productivity-based projects and or expansion investments are going to be up against higher hurdle rates. And we're reflecting that in our particular revenue forecast as we go forward. Appreciate the call, John . Thank you. have Administration.

No, but I you know I think it's only fair to suggest that higher elevated interest for longer make.

Make sure that productivity based projects and or expansion of investments are going to be up against higher hurdle rates and we're reflecting that in our particular revenue forecast as we go forward.

Appreciate the color John Thank you.

Our next question will come from Brian Lee with Goldman Sachs. You May now go ahead.

Bob Fishman: Please turn to slide 13 labeled Q3 2023 industrial inflow technologies performance. Industrial inflow technology sales increased 3% year over year driven by commercial sales growth of 8%, and industrial sales growth of 12%, which more than offset a decline in residential sales of 7%. Segment income grew 18% and return on sales expanded 250 basis points to 19.4%, marking the fifth consecutive quarter of equal to or greater than 200 basis points of improvement.

Hey, guys. Good morning, Thanks for taking my questions I know, there's a lot of questions around pool I'll just throw another one in there.

Speaker 7: I know there's a lot of questions around pool. I'll just throw another one in there, and a lot of moving parts, and the macro is still uncertain, but is there sort of a framework you guys can provide us, you know, to think about for pool? Because if all goes right, it sounds like, you know, by the time we get to end of 23 here, you know, channeled stocking is fully complete. You've got, you know, normal seasonality returning. Price is still kind of elevated in the mid-single digits. So I guess, you know, first off, do you see that holding in 24 on the price side, and then just from a volume framework perspective, assuming all those things do play out as you expect, channeled the stocking seasonality, like what is a framework we should be thinking about in terms of, you know, the pool volume outlook here, you know, as we think about the next kind of 12 to 18 months?

And a lot of moving parts in the macro is still uncertain, but is there sort of a framework that you guys can provide.

Provide us to think about for pool, because if all goes right. It sounds like you know by the time, we get to end of 'twenty. Three here you know channel Destocking is fully complete you've got normal seasonality returning prices still kind of elevated in the mid single digits. So.

Yes first off do you see that holding in 24 on the price side and then just from a volume framework perspective, assuming all of those things.

Do play out as you expect channel Destocking seasonality like what is the framework, we should be thinking about in terms of you know.

Bob Fishman: The strong margin expansion was a result of continued progress on our transformation initiatives. IFT's continued success was partly driven by revised go-to-market strategy and industry leadership that has been underway over the last two years. For example, within our industrial businesses, our strong reputation and industry expertise is driving above industry growth. We've been moving away from primarily project-led business to standardized solutions, focused on ease of doing business with the distributors, and our key accounts have begun to reinvest in sustainable product lines following the pandemic.

The pool volume outlook here.

As we think about the next kind of 12 to 18 months.

Speaker 4: Yeah, first I think we're feeling really good about the ability in 2023 to have continued to raise our guide.

Yeah first I think we're feeling really good about the ability in 2023 to have continued to raise our guidance through the diversified portfolio offsetting really consistent performer in pool, I mean pool has generated a lot of income and growth for us over the years.

Speaker 4: through the Diverse by Portfolio offsetting, you know, really.

Speaker 4: I mean, Poole has generated a lot of income and growth for us over the years.

Speaker 4: You know, I think it was a little bit worse this year than we anticipated coming into the year, primarily because that inventory was larger. And the overall market wasn't as strong as we had hoped.

I think it was a little bit worse this year than we anticipated coming into the year, primarily because that inventory.

It was larger than the overall market wasn't as strong as we had hoped it would be but as we head into 2024, we're looking at the framework as being that we do pick up the tailwind from not having that inventory correction and then as we get closer to the end of the year will predict what the markets are going to be I think it's fair to say that we're not thinking that overall pool build.

Speaker 4: But as we head into 2024, we're looking at the framework as being that we do pick up the tailwind from not having that inventory correction. And then as we get closer to the end of the year, we'll predict what the markets are going to be. I think it's fair to say that we're not thinking that overall pool builds expand from here.

Bob Fishman: Within our commercial businesses in IFT, we are focused on driving business beyond warehouses and office space, to data centers and institutions such as universities, airports, hospitals, and government buildings. We also believe there are large opportunities in municipal infrastructure as driven by the infrastructure investment and jobs act legislation in the US with a focus on investments in clean water, flood control and broadband. Interestingly, one of our customers is the leader in directional drilling equipment for fiber optic cables.

Expand from here and.

Speaker 4: And we don't think overall remodeling expands, but I do think we're going to see a little bit of recovery in that aftermarket, which I think was accelerated into the prior years and now it will be normalized.

And we don't think overall remodeling expands but I do think we're going to see a little bit of recovery in that aftermarket, which I think was accelerated into the prior years and I will be normalized and in a lot of those are non discretionary purchases and we think we get back to a you know a potential overall growth plus the benefit of the tailwind.

Speaker 4: A lot of those are non-discretionary purchases, and we think we get back to a potential overall growth plus the benefit of the tailwinds of inventory.

Inventory.

Speaker 7: Okay, fair enough. Makes sense. And then maybe just, you know, with interest rates backing up here and, you know, the macro, I think a lot of focus around kind of what it meant for your pool business all year long. Are you seeing anything beyond?

Okay Fair enough makes sense and then maybe just you know with.

Bob Fishman: We continue to believe the aftermarket is a good opportunity for future growth because of our significant product installed base. Lastly, we believe we are in a strong position to benefit from the Build America Buy America Act as our compliance is expected to give us a strategic advantage.

Interest rates backing up here.

And you know the macro I think a lot of focus around kind of what it meant for your pool business all year long.

Are you seeing anything beyond the resi sector.

Speaker 7: the resi sector in your kind of end-market exposures that are having any impacts or constraints on spending when it comes to that sort of cost of capital environment and just financing conditions getting a little bit tougher here. Anything you can speak to at kind of a high level?

In your kind of end market exposures that are having any.

Impacts or constraints on spending when it comes to that sort of cost of capital environment, and just financing conditions getting a little bit tougher here anything you can speak to it kind of a high level I mean.

Bob Fishman: Page. Within our residential businesses and IFT, we have seen a return to normalization. Recall that these products are typically not a discretionary spend. When a sump pump or a well pump breaks, it's critical to get it fixed.

Speaker 4: yeah i mean i think you're you're calling and i think we're seeing it everywhere to be honest with you and

I think you're calling it I think we're seeing it everywhere to be honest with you in a little bit I mean, as a reminder, 75% of our end customers or small.

Speaker 4: reminder, you know, 75% of our end customers are small dealers and professional trade channel people and their borrowing of capital is higher and harder to get access to capital. I think that slows down some of the projects they were working on. You know, we're not exposed to commercial buildings, more than a, you know, $100 million or a couple hundred million, but I think you're going to see financing be tougher on the building side. And so an elevated higher interest rates for long, just, I think,

Bob Fishman: Please turn to slide 14, labeled Q3 2023 water solutions performance. In Q3 water solution sales increase 9% to 299 million dollars driven by our manate to walk ice acquisition and price. Segment income grew 40% to 69 million dollars and return on sales, expanded 510 basis points to 23%. Driven primarily by our creative manate to walk ice acquisition and productivity from our transformation initiatives. Margins have expanded over the last 7 quarters from 10.8% in Q1 of 2022 to 23% in Q3 of 2023.

Dealers and professional trade channel people and they're borrowing of capital is higher and harder to get access to capital I think that slows down some of the projects that we're working on we're not exposed to commercial buildings more than a 100 million or a couple of hundred million, but I think youre going to see financing be tougher on the building side until an elevated higher interest rates for long just.

I think produces a sluggish environment is the way we're looking at it which is why we're really putting that accelerating the transformation initiatives, we have pricing selectively making sure that we understand market back in and how to position our products and services effectively in the industries and then making sure that we're managing the cost structure well within the company.

Speaker 4: sluggish environment is the way we're looking at it, which is why we're really putting that accelerator on the transformation initiatives we have. Pricing selectively, making sure that we understand market back and how to position our products and services effectively in the industries, and then making sure that we're managing the cost structure well within the company.

Alright I appreciate it guys. Thank you. Thank you.

Yeah.

Bob Fishman: Within our residential business and water solutions, we noted last quarter that we are seeing North America stabilized. This was evident in Q3 as residential sales decline improves sequentially from Q2. Within our commercial business and water solutions, filtration sales in North America remain strong and manate to walk ice continue to exceed our expectations.

Our next question will come from Brian <unk> with.

Speaker 1: Our next question will come from Brian Blair with Oppenheimer. You may now go ahead.

Oppenheimer.

Oh go ahead.

Thank you good morning, everyone.

Morning.

Speaker 3: I was hoping to drill down a little bit more on commercial water solutions trends. It sounds like underlying market activity remains pretty solid. Just curious if your team is seeing anything shift on a sequential basis. I know a lot of questions have been asked already in terms of macro backdrop.

I was just hoping to drill down a little bit more on commercial.

Commercial water solutions trends sounds like underlying.

Market activity remains pretty solid just curious if your your team is seeing anything.

Bob Fishman: Please start to slide 15, labeled Q3 2023 pool performance. In Q3 pool sales decline 21% to 309 million dollars. The volume decline of 28 points was primarily due to continued channel inventory corrections in the quarter and reflects a strong Q3 2022 comparison sequentially the negative impact of volume significantly improved from Q2. The pricing benefit of 7 points health partially offset the volume decline. Despite lower pool sales in Q3, return on sales expanded 130 basis points due to price offsetting inflation, prior actions to right size direct labor to align with lower volumes and improve productivity driven by our transformation initiatives.

Shift on a sequential basis.

I know a lot of questions have been asked already in terms of macro backdrop.

Speaker 3: higher-for-longer rate environment, etc. Specific to that platform, are you seeing anything as we get into Q4 or the outlook for 2024 that concerns your team in terms of the strength that you've been leveraging recently?

Higher for longer rate environment et cetera.

Specific to that platform are you seeing anything you know as we get into Q4 or the outlook for 2024 that concerns you or your team in terms of the you know the.

The strength that you've been leveraging recently.

There's there's there's no doubt that.

Speaker 3: There's no doubt that Commercial Water Solutions has had an excellent 2023, going to market with an end-to-end solution.

Commercial water solutions has had a excellent 2023 go into market with the end to end solution of.

Speaker 3: Water quality, ice, and services has been very compelling. Manitowoc has had an excellent year. And we've done well in North America filtration. So, you know, overall, we continue to see the market within the restaurants, primarily the quick service restaurants, they're staying solid for us. The challenge for us is bumping up against tough compares next year. But overall, the markets that we serve are doing well.

Our water quality ice and services has been very compelling Manitowoc has had an excellent year and we've done well in North America filtration. So you know overall, we continue to see the market within the restaurants, primarily the quick service restaurant space staying solid for us.

Bob Fishman: Please turn to slide 16 labeled transformation initiatives. Similar last quarter, we believe this slide provides a good illustration of our transformation initiatives and our ultimate goal of driving margin expansion. For reference, our transformation initiatives focus on 4 key themes. Pricing excellence, strategic sourcing, operations excellence and organizational effectiveness. As we mentioned in past quarters, we expect strategic pricing actions to benefit the top line of all three of our segments. We expect our other three transformation initiatives to help improve our overall cost structure. As a result, we are targeting Ross of approximately 23% by the end of fiscal 2025, expanding margins over 400 basis points as compared to fiscal 2022.

The challenge for US is bumping up against tough comparisons next year, but overall of the markets that we serve are doing well.

Speaker 4: You know, just to give you some indication of point to point, I mean, you know, despite the.

So just to give you some indication of.

Point to point I mean, despite the fact that we're gonna see cigna.

Speaker 4: significant shipments in Manus Walk this year and you know feel really good about their progress the overall Cagor from 2019 to the end of 2023 is about 8%ish or slightly a little bit higher than that which be as slightly normal than or higher than the mid single digits that we had forecast

Significant shipments in Manitowoc this year and feel really good about the progress. The overall CAGR from 2019 to the end of 2023 is about 8% ish or slightly a little bit higher than that which is slightly normal than or higher than the mid single digits that we had forecast the business too.

Speaker 4: to have. So just a reminder that the markets, as Bob mentioned, are recovering globally and they continue to participate.

To have so just a reminder, that the markets as Bob mentioned, a recovering globally and they continue to participate in that recovery.

Yeah.

I appreciate the color that's very helpful and you mentioned the antenna solution than theirs.

Speaker 3: I appreciate the color. That's very helpful. You mentioned the N10 solution and there's no doubt that the value proposition combining Everpure, KBI, Nanise, that's resonating with your customer base.

There's no doubt.

Bob Fishman: Luke, please turn to slide 17 label transformation runway. As you look at each of the four key themes, you can see that the work within these transformation initiatives is in various different stages. For example, in 2023, we have begun to see early readouts from Wave 1 within pricing, sourcing, and operations. We are beginning Wave 2 within each of these three themes and expect margin benefits to read out in 2024. You can see how each new wave is expected to compound on the others to drive expected margin expansion year over year through 2025 and beyond.

The value proposition combining ever pure Katy I nice that's resonating with your.

Customer base.

Speaker 3: Can you speak to, you know, direct cross-selling, you know, traction within the platform, what's been realized to date, you know, for your legacy businesses, not just the WIFTMN, I suppose?

Can you speak to that.

Direct cross selling track.

Traction.

Within the platform, what's been realized to date.

<unk>.

For your legacy.

Businesses not just the the west are minimized.

Speaker 4: Yeah, I mean, I would I would quantify that that values a couple points of.

I mean, I I would I would quantify that values a couple points of.

Speaker 4: incremental growth as the overall commercial water solutions business from those synergies. I mean, you know, lots of excitement and putting Evercure, you know, in the trade shows next to the Manitowoc ice and vice versa, and helping our customers, which are a distributor and an installer, realize the benefits of promoting both. And I think when you have a good filtered solution on an ice machine, you're extending the life of the ice.

Incremental growth.

The overall commercial water solutions business from from those synergies I mean.

Lots of excitement and putting every pure in the trade shows next to.

The Manitowoc ice and vice versa, and helping under helping our customers, which are distributor and in an installer realize the benefits of promoting both and I think when you have a good filter solution on an on an ice machine you are extending the life of the ice machine and then it also leads to the service capabilities, we have and the fact that we can offer.

Bob Fishman: In pricing excellence, the strategic pricing playbook has been developed which is just beginning to roll out across segments and categories. For example, in 2003, we began to implement strategic pricing actions across select products within our pool segment. Within these price actions, while these price actions are reflected in our recent annual price increase, please note that these strategic actions differ from annual price increases. Typically, on an annual basis, we evaluate overall inflation, both material and cost to determine the appropriate price increase across our products.

Speaker 4: And then it also leads to the service capabilities we have and the fact that we can offer some of those services. Or more importantly, just understand what the service provider is up against so that we can redesign for service and also work with our partners to help them get in and out of those end markets faster. So I mean there's a lot of energy and excitement and we couldn't be more pleased with the synergies and the go-to-market strategies of these three businesses put together.

Some of those services, but more importantly, just understand with the service providers up against so that we can redesign for service and also work with our partners to help them get in and out of those end markets faster. So I mean, there's a lot of energy and excitement and we couldnt be more pleased with the synergies and the go to market strategies of these.

Three businesses put together.

All makes sense. Thanks for the color. Thank you.

Bob Fishman: With regards to strategic price actions, we are evaluating all products through a value-based model and identifying which ones have opportunities for adjustments. Recall that in the past, we primarily evaluated pricing through a cost-plus approach. In sourcing excellence, the implementation of Wave 1 is underway with savings currently reading out. As a reminder, Wave 1 included materials such as electronics, motors, maintenance repair and operation spend, packaging and logistics. Additionally, we successfully kicked off Wave 2 this summer with over 800 suppliers attending our supplier show.

Speaker 1: Our next question will come from Mike Halloran with Beard. You may now go ahead.

Our next question will come from Mike Halloran with Baird. You May now go ahead.

Speaker 8: Hey, good morning, everyone. So two quick ones here. First, on the DSTOCK impact last quarter, you talked about about $150 million impact on DSTOCK this year. Is that still the number we should be thinking about? Or has that changed at all?

Good morning, everyone. So two quick ones here first on the Destocking impact last quarter, you talked about it was about 150 million dollar impact on Destocking. This year is that still the number we should be thinking about or has that changed at all.

Speaker 4: You know, I think, you know, there's nothing that's changed in that number played out as we said it.

No I think you know there's nothing that's changed in that to that number and it played out as we said as expected.

Speaker 8: Thanks for that. And then on the balance sheet side of things, you're two times levered now on a net basis. Bob, talk to debt pay down still the priority.

Thanks for that and then on the balance sheet side of things senior two times Levered now on a net basis, Bob talk to debt pay downs still the priority.

Speaker 8: Maybe you could just talk to, given the changes in the interest rates, how your financing terms are.

Maybe you could just talk to given the changes in interest rates.

Bob Fishman: For reference, Wave 2 materials include metals, molding, residence, ocean freight and purchase finished goods. We expect Wave 2 to begin to read out beginning in 2024. In incremental to our strategic sourcing waves, we have seen benefit from our rapid renegotiation process that is a part of our transformed sourcing excellence work. In operational excellence, we have completed the consolidation of three facilities. We'll continue our execution on lean transformation plans across our sites.

All your financing terms or is there.

Speaker 8: Is there been any shift in what kind of leverage levels you're looking at going forward, or maybe better put, where would you, what kind of leverage levels would you want to see before you became more aggressive using your balance sheet, whether it's for buybacks, M&A, whatever it is?

Has there been any shift in what kind of leverage levels. You are looking at going forward or maybe better put where would you what kind of leverage levels would you want to see before you became more aggressive using your balance sheet, whether it's for buybacks or M&A or whatever it is.

Speaker 4: You know, Mike, I promised myself I wouldn't give a target today. I think, I think right now, I, I think we all have to be mindful of access to capital and managing with our capital.

You know, Mike I promised myself I wouldn't give a target today I think I think right now I think we all have to be mindful of access to capital and managing within our capital.

You know framework and I think paying down the debt right now is a good use of it obviously, we're always looking at strategic complementary businesses to our.

Speaker 4: Framework, and I think paying down the debt right now is a good use of it. Obviously. We're always looking at strategic complementary businesses to our You know current business units the markets not robust though at the moment

Bob Fishman: In organizational effectiveness, we are in the earliest stages with Wave 1 and expect margins benefits to be realized beginning in 2024. Due to the staggered nature of these transformation initiatives, we expect Wave 3 to begin to read out post 2025 in operations, excellence and organizational effectiveness. Overall, we are excited about the savings we have begun to realize from the early waves and remain confident that our teams can execute on pricing actions and savings we have identified particularly in sourcing.

Current business units, the market's not robust, though at the moment and you know even when Youre seeing assets availability you have got a question how those interest rates environments affect their business. So youre not seeing transactions happen. So I think just paying down the debt right now and given ourselves maximum flexibility is where Bob and I are focused.

Speaker 4: You know, even when you're seeing assets availability, you've got to question how those interest rates environments affect their business, so you're not seeing transactions happen. So I think just paying down the debt right now and giving ourselves the maximum flexibility is where Bob and I are focused.

For the remainder of this year and into next year, Yeah, I would just add to that that you know obviously staying investment grade a hugely important to us.

Speaker 3: I would just add to that that obviously staying investment grade is hugely important to us.

Speaker 3: As the variable rates have crept up, we did undertake the interest rate swap in the collar. So that turned out to be a smart move where when you include the collar, effectively 65 percent of our debt is fixed.

As the variable rates have crept up a we did undertake the interest rate swap in the collar. So that that turned out to be a smart move where when you include the collar effectively 65% of our debt is fixed that brings us to kind of a weighted average rate.

Bob Fishman: Please start to slide 18 labeled balance sheet and cash flow. In Q3, we generated $143 million in free cash flow, up nearly 100% year over year, reflecting another strong quarter. Year to date, our free cash flow was $453 million, up nearly 115% year over year. Our net debt leverage ratio was 2.1 times, down from 2.6 times in Q1 and 2.2 times in Q2. Our maturity stack is very manageable. Total debt is now less than $2 billion, and the average rate is approximately 5.3%.

Speaker 4: That brings us to kind of a weighted average rate of 5.3% in the quarter, maybe 5.5% going forward. So, overall, we've done some good things to manage within this environment and paying down the debt has certainly helped from an overall perspective. Thanks for that. All very reasonable.

A five 3% in the quarter, maybe five 5% going forward. So overall, we've done some good things to manage within this environment and in paying down down down the debt has certainly helped us from an overall perspective.

Thanks for that all very reasonable I appreciate it.

Thank you Mike.

Our next question will come from Julian Mitchell with Barclays. You May now go ahead.

Speaker 1: Our next question will come from Julian Mitchell with Barclays. You may now go ahead.

Bob Fishman: Our ROIC was 14.1% exceeding our cost of capital and includes debt from the Manitouac Isaac position. We continue to target high-teens ROIC in the long term. We plan to remain disciplined with our capital and continue to focus on debt reduction amid the higher interest rate environment.

Speaker 9: Hi, good morning. Maybe just wanted to follow up on the sort of profit bridge a little bit from slide 12. So the sort of price net inflation number was close to zero. You know, it seemed inflation picked up a bit as a headwind year on year versus the prior quarter. So maybe help us understand kind of the inflation.

Hi, Good morning, maybe just wanted to follow.

Follow up on the sort of profit bridge, a little bit from slide 12, so the sort of price net of inflation number was close to zero.

Inflation picked up a bit as a headwind year on year versus the prior quarter. So maybe help us understand kind of the inflation moving part in Q4 into early next year and should we expect that price net of inflation number to be sort of close to zero. It was in Q3.

Speaker 9: moving part in Q4 into early next year and should we expect that price net of inflation number to be sort of close to zero, you know, like it was in Q3.

Bob Fishman: Moving to slide 19 titled Q4 and full year 2023 Pentair Outlook. For the full year we are updating our adjusted EPS guidance to approximately $3.70 to $3.75 from our previous range of $3.65 to $3.75. Also for the full year we expect sales to be roughly down 1%, segment income to increase 10 to 11% with corporate expense of approximately $85 to $90 million. Net interest expense of roughly $123 to $125 million and adjusted tax rate of approximately 15% and a share count of $166 million.

Speaker 4: So I think the way it's good observation, I would remind you that in inflation as we show in our bridges is a year over year. So it doesn't necessarily reflect sequentially this year, it could be.

So I think the way it's a good observation I would remind you that you know and inflation as we show in our bridges as a year over year. So it doesn't necessarily reflect sequentially. This year. It could be that we saw some elevated inflation on some of the buys that we had last year. So we think that we are overall.

Speaker 4: that we saw some elevated inflation on some of the buys that we had last year or so.

Speaker 4: We think that we are overall moderating to price versus cost being neutral or slightly more close to neutral. And then obviously focusing on the productivity contribution that's coming from our transformation initiatives. That's the model going forward.

Moderating to price versus cost being neutral or slightly more close to neutral and then obviously focusing on the productivity contribution that's coming from our transformation initiatives.

Going forward. If you recall, we were benefiting quite substantially early in the year than last year on price versus cost and now that shifting to more of a transformation benefit as we go forward, but I don't know if you want to add yeah, I would just add to that that.

Speaker 4: If you recall, we were benefiting quite substantially earlier in the year and last year on price versus cost, and now that's shifting to more of a transformation.

Bob Fishman: For the fourth quarter we expect sales to be down approximately 3 to 4%. This is mainly attributable to expected lower pool volume year over year and the return of seasonality in our business now that lead times have normalized. We expect fourth quarter segment income to increase 3% to 8% with corporate expense of roughly $23 million. Net interest expense of roughly $28 to $30 million and adjusted tax rate of approximately 15% and a share count of $166 million. We are also introducing adjusted EPS guidance for the fourth quarter of approximately 82 cents to 87 cents.

Speaker 3: Bob, I don't know if you want to add anything. Yeah, I would just add to that that, you know, while inflation did the change in inflation and increase in Q3 versus Q2, the nice thing was that, you know, price was able to cover that. We do expect inflation to moderate significantly in the fourth quarter and certainly where price exceeds inflation. At the beginning of the year, we talked about inflation being around 4.5 percent of sales.

You know while inflation did did the change in inflation and increase in Q3 versus Q2. The nice thing was that price was able to cover that we do expect our.

Inflation to moderate significantly and in the fourth quarter, and certainly where price exceeds inflation.

At the beginning of the year, we talked about inflation being around four 5% of sales and we're really tracking right towards that so the team has done a nice job of understanding inflation.

Speaker 3: and uh... we're really tracking right towards that uh... so the team has done a nice job of understanding inflation uh... and uh...

And Hum factoring in the impact of that so overall pleased with what we're seeing and that will moderate in the fourth quarter.

Speaker 3: factoring in the impact of that. So overall pleased with what we're seeing and that'll moderate in the fourth quarter.

Bob Fishman: Moving to slide 20 titled full year 2023 guidance at midpoint. We continue to expect total 10th air sales in fiscal 2023 to be approximately $4.1 billion or down about 1%. We continue to expect IFT sales to be up mid single digits and water solution sales to be up high teens. For pool sales we have made a slight adjustment to down high teens from previous guidance of down mid teens at the high end of the range. Page, Segment Income is expected to increase approximately 10 to 11 percent with Roth's expansion of over 200 basis points to 20.9 percent.

Speaker 9: That's helpful. And as you said, hopefully that productivity piece becomes larger as a driver. It was substantial already in Q3. Maybe just sort of refresh where we are on the sort of wave two from transformation savings and how substantive that productivity number should be as a segment income driver next year when you kind of roll together sort of incremental savings from transformation next year.

That's helpful and as you said hopefully that productivity piece, you know it becomes larger as a driver it was substantial already in Q3.

Maybe just sort of refresh where we are on the sort of wave two from transformation savings and in house substantive that productivity number should be.

The segment income drive the next year, when you kind of roll together sort of incremental savings from transformation next year.

Yeah and that is a very important part of our margin expansion story as we talked about.

Speaker 3: Yeah, and that is a very important part of our margin expansion story. As we talk about, you know, price equaling inflation, it's important that productivity then drives that Ross expansion. So we were pleased to see the $29 million readout in the third quarter up significantly from the single digit in Q2 and expect to have a significant transformation benefit in the fourth quarter.

The equaling inflation, it's important that productivity then drives that that Ross expansion. So we were pleased to see the the.

Bob Fishman: Moving to slide 21 titled Q3 Progress Summary. We are very pleased with our Q3 and year-to-date performance. As John mentioned earlier, our Q4 marked the 6th consecutive quarter of sales over $1 billion and the 6th consecutive quarter of adjusted margin expansion. We have executed well in a dynamic environment and delivered on our commitments. Specifically, our diversified water portfolio and transformation initiatives have driven significant margin expansion despite pool's volume decline. Our Manitouac ISAC position has exceeded our expectations.

$29 million readout in the third quarter up significantly from the single digit in Q2 anixter.

And expect to have a significant transformation benefit in the fourth quarter were really within wave one and in terms of <unk> reading out in 2023, we built some healthy funnels around each of the four pillars of transformation and so that that'll start to read out to an even greater extent next year.

Speaker 3: We're really within wave one in terms of reading out in 2023, we built some healthy funnels around each of the four pillars of transformation. And so that that'll start to read out to an even greater extent next year. So overall, pleased with the momentum going into 2024.

So overall pleased with the momentum going into 2024.

Speaker 4: And your second half run rate for those savings, we should expect that to be steady through at least the first half of next year, I suppose. And maybe the comps get a bit tougher on productivity. Well, and then that's when the Wave 2 kicks in, Julian, but you're right. The material took a long time to realize because of all the engineering work and the resupply.

Got it and you'll sort of second half run rate for those savings, but you know we should expect that sort of to be steady through at least the first half of next year I suppose maybe that's sort of the comps get a bit tougher on productivity well and then that's when the wave two kicks in Julian so, but you're right.

Bob Fishman: We have instilled performance accountability across the organization which is being measured through key metrics. We have a very strong balance sheet and free cash flow generation and we have a discipline capital allocation strategy that aligns to our high teams ROIC target.

The material took a long time to realize because of all the engineering work and the resupply efforts that we had to do with the supply community. So we're starting to benefit from those in Q4 that run rate will go into next year and then wave two starts to take over in the second half of next year from a sourcing standpoint to give you. Some color you know about a third of our businesses engaged in that.

Operator: I'd now like to turn the call over to the operator for Q&A after which John will have a few closing remarks.

Speaker 4: So we're starting to benefit from those in Q4. That run rate will go into next year and then wave two starts to take over and the second half of next year.

Operator: Anthony, please open the line for questions. Thank you. We will now begin the question and answer session. To ask a question, we press star than one on your touchstone phone. If using a speaker phone, please pick up your hands up before pressing the keys. To withdraw your question, please press star than two. We ask that you ask one question. Sorry, one question and one follow-up.

Pricing exercises in 2023 will be close to two thirds of the way through that in 2024. So that's kind of how the waves that Bob mentioned start to unfold and.

And we start to benefit from the performance inside the businesses.

That's great. Thank you thank.

Operator: At this time, we will pause momentarily to assemble our roster.

Thank you.

Our next question will come from Saree Barra Goetzke with Jefferies. You May now go ahead.

Speaker 1: Our next question will come from Sari Borodowski with Jeffries. You may now go ahead.

Brett Linzey: Our first question will come from Brett Lindsay with Mizzouho. You may now go ahead. Hey, good morning, all. Morning.

Speaker 10: Just building on the Transformation Initiative comments, when we discussed seeing the benefit from Wave 2 in the second half of next year, can you just quantify how you should think about that as contributing to margin performance?

My question, just starting on the chance here.

No comment.

Scott.

Brett Linzey: First question is just on pricing and pool. So it sounds like you have two different actions here. One being the normal course of business and then on top of that some surgical. If you could just square that comment and then anything you can share in terms of the magnitude of the actions that you're contemplating there? No, I think just to clarify, as we go into next year, we're only counting on a price increase which would be a more normalized price increase and modest compared to prior years but slightly higher than what we would have said would have normally occurred, which is us covering the inflation area aspects.

It can lead to second half of next year can you just quantify how we should think about that is contributing to margin performance.

Speaker 3: Well, we're very focused on Ross expansion. So if you think about us finishing around 21% this year, we've talked about improving the Ross to 23% by 2025. And we've said that being done in a linear way versus it being all back end loaded. So we expect Ross to, you know, improve next next year as we head towards that 23%.

Well, we're very focused on ross' expansion. So if you think about us Fisher, finishing around 21% this year, we've talked about.

Improving the Ross to 23% by 2025, and we've said that's.

Being done in a in a linear way versus it being all backend loaded so we expect the Ross to.

Prove it next next year as we head towards that 23%.

Speaker 10: appreciate the color. Then just kind of going back to pools and a lot of questions today, but when you talked about some of the early buy programs, having modest participation there, and maybe as you think about 4Q delivery versus 1Q, is there any way to think about how you thought about those delivery patterns and what that could mean for 1Q sales? Thank you.

I appreciate the color, but just kind of going back to Columbia, and a lot of questions today.

Brett Linzey: Not aware of anything incremental than that. Those price increase there already been announced in the market. Yeah, our comment was that not only did we use an approach that looked at inflation but for certain product lines looked at adjustments based on a value based model, but that is all included in the pricing that went out to be effective. Jan, one. I understood. Thanks for that.

Turning to document the early buy program I'm having manner.

Maybe I should think about Q1.

Is there any way to think about how you thought about that.

And my back in <unk>.

Speaker 4: Yeah, I mean, I think, you know, what we'd like to see unfold is we believe Q4 can be higher from a shipment perspective for Pentair than Q3 and then we would expect Q1 to be better than Q4.

Yeah, I mean I think.

You know what we'd like to see unfold as we believe Q4 can be higher from a shipment perspective for Pentair, then Q3, and then we would expect Q1 to be better than Q4.

Speaker 4: And then, you know, we would be in the normalized pattern then of Q2 next year, finally being a normal seasonal pattern, which would be the strongest pool quarter of the year. And as a reminder, Q3 is modestly less than that. And then, again, Q4 starts the preload for the 2025 season. So we feel like we've worked through this, and now we've got a clear line of sight to more normal seasonality in the business. And, you know, really keeping our eye on sell-through going forward so that we don't get in this inventory situation with.

And then we would be the normalized pattern of Q2 next year finally, being a normal seasonal pattern, which would be the strongest quarter of the year and as a reminder, Q3 is modestly less than that and then again in Q4 starts to preload for the 2025 season. So we feel like we've worked through this and now we've got a clear line of.

Brett Linzey: And then just wanted to circle back to the comments around the market extensions within IFT commercial. I'd great to see some opportunity outside those traditional verticals. Is there any way to quantify the total addressable market size that will increase here given this new reach, this new focus? No, but I mean, you know, it opens up what we would say would be at least a billion dollars plus for our particular opportunities. You know, and I think that's a conservative estimate, Brett. Okay, great. Best of luck, thanks. Thank you.

Site to more normal seasonality in the business and really keeping our eye on sell through going forward. So that we don't get into this inventory situation.

With our channel again.

Speaker 11: immediately and

I appreciate the color.

Speaker 1: Next question will come from Jeff Hammond with KeyBank Capital Markets. You may now go ahead.

Next question will come from Jeff Hammond with Keybanc capital markets.

Andy Kaplowitz: Our next question will come from Andy Kaplowitz with City Group. You may now go ahead. Good morning, everyone. Good morning. John, can you update us and give us more color on what you're seeing in the pool market? It looks like you're suggesting with your Q4 guide, you know, slightly bigger inventory correction than the 150 you were going to. Maybe you could give us some more color on that. And then, how do you think that sets up pool for 2024, especially given higher interest rate environment?

No go ahead.

Speaker 12: Hey, good morning guys. Good morning. I got it. Hey, just on IFT, can you just talk about like the order trend you're seeing? I don't know if it was really a comp issue, but seemed like there was a step down in the growth rate.

Hey, good morning, guys.

Hi, Jeff.

Just on I F. T can you just talk about like the order trends Youre seeing I don't know if it was really accomplish issue, but it seemed like there was a step down in the growth rate.

Speaker 12: And, you know, I'm just wondering, you know, what the orders are telling you about kind of the go forward there.

And I'm just wondering you know what the orders are telling you about kind of the go forward there.

Speaker 4: Yeah, I mean, just again, we're looking at year over year comps, Jeff, and, you know, our our infrastructure businesses had a really solid 2022. And so some of these growth rate reflect against the prior quarter 2023. You know, I think the orders continue to be, you know, strong from a mid single digit indicator as we go forward. But the year over year comparisons are going to be tougher. And as Bob mentioned, we are really focused on non project related wins.

Yeah, I mean, just again, we're looking at year over year comps, Jeff and you know our infrastructure businesses had a really solid 2022, and so some of these growth rates reflect against the prior quarter of 2023.

Andy Kaplowitz: Yeah, so I think, you know, first of all, we're pleased that we were able to predict, you know, the way that Q3 was going to unfold and it played out generally as we expected. I think we're going to be able to do that. We focused on cell through data, and then also focus on the metrics of our channel partners. And I think that data is providing clarity of what's going on. You know, I think the inventory is generally behind us.

I think the orders continued to be strong from.

From a mid single digit indicator as we go forward, but the year over year comparisons are going to be tougher and as Bob mentioned, we are really focused on non project related wins.

Andy Kaplowitz: I don't think that's what Q4 represents. I think Q4 represents what we would say is, you know, reflecting the higher interest rates and the impact it could have on the cell through aspects within the market. And it's helping to position ourselves for the best possible 2024 that we can, we can have. So it's a modest participation in early buy. It's making sure that we're not continuing to build inventory at up next year, and it's sending ourselves up for a really good 2024.

Speaker 4: We're focusing on service, we're focusing on app-to-market, we're focusing on recurring revenue streams with our key distributors and end-market providers. Jump.

We're focusing on service, we're focusing on aftermarket we're focusing on recurring revenue streams with our key distributors and end market providers Jeff.

Speaker 12: Okay, great. And then just just back on this man to our guys, you know, tough comp issue. Can you just talk about, you know, I think he called out, you know, a lot of the success in the synergies, but just

Okay, Great and then just just back on this Manitowoc ice you know tough comp issue can you just talk about you know.

Andy Kaplowitz: Selfal John, and then, you know, you beat your forecast for Q3 cells overall at down 4%. I think you're expecting down 7. You didn't change anything other than pool, which we just talked about. But my question is whether you're seeing anything in IT or water solutions that stopped you from raising your forecast at all. I would imagine you want to be conservative as you talked about. But any more color there on current economic conditions, how they're fed to the other segments?

I think you'd called out you know a lot of the success and the synergies, but just what.

Speaker 12: What's been going on with backlog drawdown and order age there to kind of think about, you know, this tough comp dynamic, we're also kind of picking up in the channel that, you know, commercial food equipment and some of their markets are maybe, you know, starting to see, you know, more normal growth as well.

What's been going on with backlog drawdown in order rates there to kind of think about.

This tough comp dynamic, where we're also kind of picking up in the channel that you know commercial food equipment and in some other markets, where maybe you're starting to see you know more normal growth as well.

Yeah, I would say backlogs have returned to more normalized levels I'm just as a reminder, manitowoc grew roughly 30% in the second quarter.

Speaker 3: Yeah, I would say backlogs have returned to more normalized levels. It just as a reminder meant Manitwak grew roughly 30% in the second quarter.

Andy Kaplowitz: No, I mean, I think water solutions has benefited from significant performance at Manitwaka ice, and we're really pleased with how that acquisition came in and has performed. Just a reminder, though, we're going to start comparing against really good delivered quarters in the prior years. And so that year over year performance is going to moderate. I think the market outlook for that business continues to be strong, but it's going to be hard to continue to put up those types of numbers on a consistent basis.

Speaker 3: uh... will have grown or did grow twenty percent in the third quarter and for the full year manitowoc will be up roughly twenty percent uh... they've had a very strong year to to john's point when you look at the kager uh... from two thousand nineteen that's sitting at roughly eight percent so we do expect uh... of more normalized here next year as we bump up against

We will have grown or did grow 20% in the third quarter and for the full year Manitowoc will be up roughly 20%. So they've had a very strong year to John's point. When you look at the CAGR from 2019, that's sitting at roughly 8%. So we do expect a more normalized year next year or so.

Andy Kaplowitz: And then an IFT, anything you're seeing in terms of channel destock or anything like that? No, but I, you know, I think it's only fair to suggest that, you know, higher elevated interest for longer, you know, makes sure that, you know, productivity based projects and or expansion investments are going to be up against higher hurdle rates. And we're reflecting that in our particular revenue forecast as we go forward. Appreciate the color, John. Thank you.

We bump up against 2023, 20% growth, but overall the business remains very healthy and the end to end approach in terms of going to market is resonating well, so very confident the manitowoc business and Jeff few data points are right is this isn't a sustainable growth level for our ice.

Speaker 4: twenty twenty three twenty percent growth but overall the business remains very healthy the end-to-end uh... approach in terms of going to market is resonating well so very confident in that walk business and jeff your data points are right this isn't a sustainable

Is this I mean, when your mid to high single digits. We would hope that that is the more linear growth rate that we get to and obviously, we're going to satisfy the demand and make sure that you know, it's a manitowoc ice machine that someone's putting into the restaurants. So it gives us the ongoing service and relationship with that customer, but this is not this is not normal as we've said all year.

Speaker 4: We're mid to high single digits. We would have hoped that that is the more linear growth rate that we get.

Speaker 4: Obviously, we're going to satisfy the demand and make sure that it's a man's walk ice machine that someone's putting into their restaurant, so it gives us the ongoing service and relationship with that customer, but this is not normal, as we've said all year.

Andy Kaplowitz: Our next question will come from Brian Lee with Goldman Sachs. You may not go ahead. Hey guys, good morning. Thanks for taking the questions. I know there's a lot of questions around pool. I'll just throw another one in there and a lot of moving parts and the macro still uncertain. But is there sort of a framework you guys can provide us, you know, to think about for pool? Because if all goes right, it sounds like, you know, by the time we get 10 of 23 here, you know, channel destocking is fully complete.

Okay I appreciate it guys. Thank you.

Right.

Our next question will come from Andrew Krill with Deutsche Bank You May now go ahead.

Speaker 1: Our next question will come from Andrew Krill with Deutsche Bank. You may now go ahead.

Speaker 13: Hey, thanks. Good morning, everyone. I want to go back to the pool pre-buy. I think you might have said you were expecting like a modest pre-buy this year. So just any more insight you can give on that and maybe try to like quantify, you know, how it's tracking versus, you know, more normal years. And just to clarify, like, are you assuming that as part of the 2023 guide or would that be incremental to the pool sales guidance? Thanks.

Hey, Thanks, Good morning, everyone I want to go back to the pool of pre buy I think you said you were expecting like a modest pre buy this year. So just any more insight you can give on that and maybe try to like quantify you know how it's tracking versus you know more normal years, and just to clarify like our youth.

Andy Kaplowitz: You've got, you know, normal seasonality returning, prices still kind of elevated in the mid single digits. So, I guess, you know, first off, do you see that holding in 24 on the price side? And then just from a volume framework perspective, assuming all those things, do play out as you expect, channel destocking seasonality. Like, what is a framework we should be thinking about in terms of, you know, the pool volume outlook here, you know, as we think about the next kind of 12 to 18 months?

You made that as part of the 2023 guide or would that be incremental to the pool sales guidance. Thanks.

Speaker 4: It's all included in our current view of what our business will do in Q4.

It's all included in our current view of of what our business will deal in Q4, and just to just to remind.

Brian Lee: Yeah, first, I think we're feeling really good about the ability in 2023 to have continued to raise our guidance through the diverse bipolar setting, you know, or really consistent performer and pool. I mean, pool has generated a lot of income and growth for us over the years, and I think it was a little bit worse this year than we anticipated coming in the year primarily because that inventory was larger. And the overall market wasn't as strong as we had hoped it would be.

Speaker 4: remind everybody, what we try to do is level load factories to make sure that we're not taking down our shipments in any one quarter beyond the level of our employment.

Everybody on what we tried to do is level load factories to make sure that we're not taking down our shipments in any one quarter beyond the level of our employment groupings. So we're obviously encouraging the channel to buy ahead of next year's pool season through discounts that we offer and term extensions right.

Speaker 4: So we're obviously encouraging the channel to buy ahead of next year's pool season through discounts that we offer.

Speaker 4: We're now at a level that we think is prudent for us, and that's where the modest early buy is. And as you know, the channel would take more if they're incentivized more to take it. And if they don't, then those become standard buy orders in the next year. And so...

We're now at a level that we think is prudent for us and that's where the modest yearly by is it is as you know the channel would take more if they're incentivize more to take it.

Brian Lee: But as we head into 2024, we're looking at the framework as being that we do pick up the tailwind from not having that inventory correction. And then as we get closer to the end of the year, we'll predict what the markets are going to be. I think it's fair to say that we're not thinking that overall pool builds expand from here. And we don't think overall remodeling expands, but I do think we're going to see a little bit of recovery in that aftermarket, which I think was accelerated into the prior years and now it'll be normalized.

And if they don't then those become standard by orders in the next year and so.

Speaker 4: It's always what the forecast is reflecting, and we have to do it to our economic best interest, our channel partners do it to their best economic interest. And right now we feel our guide is the best reflection of what we'd say a more normal seasonality and a more normal early buy, which would set us up nicely for a 2024 growth.

It's always what the forecast is reflecting and we have to do it said our economic best interest our channel partners do its in their best economic interest in it right now we feel our guide is the best reflection of what we'd say a more normal seasonality and a more normal early buy.

Which would set us up nicely for 2020 for growth here.

Brian Lee: And a lot of those are non discretionary purchases. And we think we get back to a potential overall growth plus the benefit of the tailwinds of inventory. Okay, fair enough, makes sense. And then maybe just with interest rates backing up here and the macro, I think a lot of focus around what it meant for your pool business all year long. And are you seeing anything beyond the ready sector in your end market exposures that are having any impacts or constraints on spending when it comes to that sort of cost of capital environment?

Speaker 13: Got it. Thank you. And just for the 4Q guidance, I think the implied margin for the total company, you know, mark a pretty meaningful step down sequentially. I think historically, you've been more flattish from 3Q to 4Q. I know this isn't necessarily a normal year, but...

Got it thank you and just for the for Q guidance, the implied margin for the total company and a mark a pretty meaningful step down sequentially I think historically, you've done more flattish from three two to four key I know this isn't necessarily a normal year.

But just it seems a little perhaps conservative, especially with the cost actions starting to come through so maybe if you can unpack that and it's like you know any segments in particular I think the margins are weaker than normal for <unk> X.

Speaker 13: Just this seems a little, perhaps, conservative, especially with the cost action starting to come through. So maybe if you could unpack that, and it's like, you know, any segments in particular, and I think the margins are weaker than normal for Q6.

Speaker 3: We implicit in our guide is a significant Ross expansion versus last year's Q4. When you look sequentially, it does come down, but a lot of that does reflect some of the seasonality that is returning back to more normalized levels. So overall, please with the Ross expansion in Q4 versus last year's Q4, and it'll be the momentum we need exiting the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . a bit more. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

We are implicit in our guide is a significant Ross expansion versus last year's Q4, when you look sequentially. It does come down but a lot of that does reflect some of the seasonality that that is returning back to more normalized levels.

Brian Lee: And then just financing conditions getting a little bit tougher here. Anything you can speak to at kind of a high level. I mean, I think you're calling it. I think we're seeing it everywhere to be honest with you in little bits. I mean, as a reminder, 75% of our end customers are small dealers and professional trade channel people. And they're borrowing of capital is higher and harder to get access to capital.

So overall I'm pleased with the Ros expansion in Q4 versus last year's Q4, and it'll be the momentum we need exiting the year.

Brian Lee: I think that slowed down some of the projects they were working on. We're not exposed to commercial buildings more than a hundred million or a couple hundred million. But I think you're going to see financing me tougher on the building side. And so an elevated higher interest rates for long just I think produces a sluggish environment is the way we're looking at it, which is why we're really putting that accelerate on the transformation issues we have pricing selectively, making sure that we understand market back and how to position our products and services effectively in the industries. And then making sure that we're managing the cost structure well within the company. All right. Appreciate it guys. Thank you.

Thank you.

Thank you.

Speaker 1: Our next question will come from Joe Giordano with Cohen.

Our next question will come from Joe Giordano with Cowen You May now go ahead.

Speaker 14: You may not go ahead. Hey guys, good morning. Good morning. I want to start on margins when we keep it there for a sec. I mean, not always splitting hairs a little bit, but I pull margins went below 30. I think we were kind of talking about 30 being like a new floor. And you're close enough where that's still like a bell of statement, but just from here into the fourth quarter into next year, that 30% kind of feel good still as probably kind of a bottom level.

Hey, guys. Good morning, Good morning, John I wanted to start on margins and keep it there for a second I mean, not probably splitting hairs, a little bit but full margins went below 30, I think we were kind of talking about 30 being like a new floor.

And you you're close enough where that still like a valid statement, but just from here and then into the fourth quarter into next year is that 30% kind of feel good still is probably a kind of a bottom level.

Speaker 4: But let's say yes on the second part of your question, and I think, you know, delivering the margins we did despite the European year decline in volume is what I'm most proud of the team having accomplished.

Brian Lee: Our next question will come from Brian Blair with Oppenheimer. You may now go ahead. Thank you. Good morning, everyone. Good morning.

But let's say, yes on the second part of your question and I think delivering the margins. We did despite the year over year decline in volume is what I'm. Most proud of the team having accomplished and yeah. I mean I do think we're splitting hairs I think they're directionally in a really good spot as a business model and obviously getting growth from here is going to leverage.

Brian Blair: I was hoping to drill down a little bit more on commercial water solutions trends. You know, sounds like underlying market activity remains pretty solid. Just curious if your team is seeing anything. You shift on a sequential basis. I know a lot of questions have asked already in terms macro backdrop, you know, higher for longer rating, environment, etc. Specific to that platform. Are you seeing anything, you know, as we get into Q4 or the outlook for 2024 that concerns your team in terms of the strength that you've been leveraging recently?

Speaker 4: Yeah, I mean, I do think we're splitting hairs. I think they're directionally in a really good spot as a business model, and obviously getting growth from here is going to leverage up.

Nicely.

Okay, and then similarly on our water solutions I think you were talking about like the commentary coming out of last quarter was that the margins were going to step down pretty decently sequentially in the third quarter because of the deliveries that Manitowoc did in <unk> and not the opposite happen right. It went up sequentially. So how should we think about margins. There I know national is still delivering at a high.

Speaker 14: And then similarly on water solutions that I think you were talking about like the commentary coming out of last quarter was that the margins were going to step down pretty decently sequentially in the third quarter because of the deliveries that Manantwalk did.

Speaker 14: In 2Q, it's the opposite of that, it went up sequentially, so how should we think about

Speaker 4: margins there, I know Manifloch still delivering at a high level, but I should we think about sequential margins there and the sustainability of this like 22-23% level. Yeah, I would remind you that water solutions has a

Level, but how should we think about sequential margins there and the sustainability of this like 22, 23% level.

I would remind you that water solutions has a.

Brian Blair: There's no doubt that commercial water solutions has had, you know, excellent 2023 going to market with the end-to-end solution of water quality, ice and services has been very compelling. Manifloch has had an excellent year and we've done well in North America filtration. So, you know, overall we continue to see the market within the restaurants, primarily the quick service restaurant space staying solid for us. The challenge for us is bumping up against tough compares next year, but overall the markets that we serve are doing well.

Speaker 4: Residential components and systems businesses and they also have the commercial water solutions when we mix towards commercial We're going to have a lot higher margin profile and what we're really doing is being very selective on the product

Residential components and systems businesses and they also have the commercial water solutions when we mix towards commercial we're going to have a lot higher margin profile and what we're really doing is being very selective on the products that we're offering on the residential side and we've tried to mix up that business and so a lot of the decline in the revenue was on the <unk>.

Speaker 4: that we're offering on the residential side, and we tried to mix up that business. And so a lot of the decline in the revenue was on the residential side, and that actually helped the overall mix of the business.

Initial side and then actually help the overall mix of the business to the positive.

Speaker 14: Okay, that makes sense. And if I could just sneak in one last one on just volume. So, I mean, your pool volumes this quarter came in better than what we were thinking about when we spoke three months ago. Your commentary from your largest distributor calls for, like, fourth quarter, their inventory levels in dollars are going to go up from the third quarter. So,

Okay that makes sense and if I could just sneak in one last one on just volume. So I mean, you pull volumes this quarter came in better than what we were thinking about and when we spoke three months ago.

Your commentary from your largest distributor.

Brian Blair: You know, just to give you some indication of point to point, I mean, you know, despite the fact that we're going to see significant shipments in Manus Walk this year and, you know, feel really good about their progress. The overall Kager from 2019 to the end of 2023 is about 8%-ish or slightly a little bit higher than that, which be as slightly normal than or higher than the mid-single digits that we had forecast the business to, to have, so just a reminder that the markets, as Bob mentioned, are recovering globally and they continue to participate in that recovery.

Distributor calls for like fourth quarter their inventory levels and dollars are going to go up from the third quarter. So like that kind of implies growth for you guys. You know if they do normal seasonality implies growth in pool of like high single digits. If they do less maybe it's more modest growth, but how would you kind of think about where growth can look like for pool.

Speaker 14: that kind of implies growth for you guys, you know, if they do normal seasonality implies growth in pool of like high single digits that they do less, maybe it's more modest growth. But how would you kind of think about where growth could look like for pool into fourth?

Into the fourth quarter.

Speaker 4: I think we're a piece of their puzzle, so we'll start there, and I think we are indicating that we do think sequentially our revenue numbers do go up from Q3. And then it's really a discussion of how much more. And I really think that, you know, we do our best to predict that business with reasonable accuracy, and getting it exactly to the dollar is improbable. And so I would say we got really close in Q3, and I think we feel really good about our Q4 revenue estimate at this moment.

Well I think we are a piece of their puzzle. So we'll start there.

And I think we are indicating that we do think sequentially our revenue numbers do go up.

From Q3, and then it's really a discussion of how much more.

Brian Blair: I appreciate the color, that's very helpful. You mentioned the intent and solution and there's, you know, there's no doubt that the value proposition combining Ever Pure, KVI, NANICE, that's resonating with your customer base. Can you speak to direct cross-selling, you know, traction within the platform, what's been realized to date, you know, for your legacy, businesses, not just the lift demand. Yeah, I mean, I would quantify that value as a couple of points of incremental growth as the overall commercial water solutions business from those synergies.

And I really think that we do our best to predict that business with reasonable accuracy and getting it exactly to the dollar isn't probable and so I would say if we got really close in Q3 and I think we feel really good about our Q4 revenue estimate at this moment.

Thanks, guys. Thank you.

Speaker 1: Our next question will come from Scott Graham with Seaport Research. You may now go ahead.

Our next question will come from Scott Graham with Seaport Research you May now go ahead.

Speaker 13: Good morning, John , Bob, Shelly, how are you? Morning, how are you? Hi, Scott. Good, thank you. So the productivity jump was obviously meaningful. How much of that 2.8% maybe was some help from a better supply chain, sort of external?

Good morning, John Bob Shelly how are you.

How are you hi, Scott good. Thank you. So the productivity jump was obviously meaningful how much of that 2.8% maybe was some help from a better supply chain sort of external.

Brian Blair: I mean, you know, lots of excitement and putting Ever Pure, you know, in the trade shows next to the Manus Walk ice and vice versa and helping our customers, which are distributor and an installer, realize the benefits of promoting both. And I think when you have a good filtered solution on an ice machine, you're extending the life of the ice machine. And then it also leads to the service capabilities we have and the fact that we can offer some of those services more importantly, just understand with the service providers up against so that we can redesign for service and also work with our partners to help them get in and out of those end markets faster. So, I mean, there's a lot of energy and excitement and we couldn't be more pleased with the synergies and the go-to-market strategies of these three businesses put together. I'll make sense. Next we'll go.

Well I think a lot coming from that Scott I mean, I think were you know where.

Speaker 4: I think a lot's coming from that, Scott. I mean, I think we're, you know, we're...

Speaker 4: Working more seamlessly with our supply chain today, obviously we've caught up on most.

Working more seamlessly with our supply chain today, obviously, we've caught up.

On most of the.

Speaker 4: demand to them and aligned with our channels and so we are benefiting substantially from a lot of more seamless

Demand to them in an aligned with our channels and so we are benefiting substantially from.

Operator: Thank you.

A lot of.

More seamless deliveries across the entire supply chain.

Thanks.

Speaker 15: I'm back on to pool, sorry, but, you know, historically, these numbers kind of shook out as 40, 30, 30, new remodel, and then, you know, sort of the maintenance, the aftermarket. As we look at a weak 2023, kind of what is that, what are those numbers kind of in the year at? Is that an estimate you can make?

I'm back onto pool, sorry, but.

Historically these numbers kind of shook out his 40 30 30, new remodel and then.

Sure the maintenance of the aftermarket.

As we look at a weak 2023 kind of what does that what are those numbers kind of in the year at an estimate you can make.

Speaker 4: Yeah, I think they're generally in that ballpark and I, you know, we could, we could argue weak. I mean, you know, I think the overall bill.

Yeah, I think they are generally in that ballpark and I, we could we could argue week I think the overall builds in two.

Mike Halloran: Our next question will come from Mike Halloran with Beard. You may now go ahead.

2023 are going to definitely be a pre pandemic levels, but generally in line with what we had seen prior to the pandemic. So I think we're in a more normalized area. Scott I think the learning is across the channel as Theres high end pools, there's low to mid market pools in the interest rates are definitely impacting the more low to mid <unk> and.

Mike Halloran: Hey, good morning, everyone. So two quick ones here. First on the destack impact last quarter, you talked about about about $150 million impact on destack this year. Is that still the number we should be thinking about or is that change at all? No, I think, you know, there's nothing that's changed in that number played out as we said as expected.

Speaker 4: prior to the pandemic. So I think we're in a more normalized area. Scott, I think the learning is across the channel is there's high-end pools, and there's low-to-mid market pools, and the interest rates are definitely impacting the more low-to-mid.

Speaker 4: and the highs are continuing to be built. So, you know, I think that we'll all probably start to refine the numbers to try to break it out by the demographics that it's serving, but I think generally the model is still working.

Hi is there continued to be built so you know I think that will will all probably start to.

Mike Halloran: Thanks for that. And then on the balance sheet type of things in your two times levered now on a net basis, Bob talked to that paydown still the priority. Maybe you could just talk to given the changes in the interest rates, you know, how your financing terms are. Is there, is there been any shift in what kind of leverage levels you're looking at going forward or maybe better put where would you, what kind of leverage levels would you want to see before? You became more aggressive using your balance sheet, whether it's for buybacks, MMA, whatever it is.

Refine the numbers to try to break it out by the demographics that are serving but I think generally the model is still working.

Speaker 4: Okay, thank you, John . Last one. You indicated builds, you were assuming kind of flattish, remodeling flattish, and then aftermarket up. Were you referring to the fourth quarter or a period of time longer than that? No, we're talking about if we think about heading into the 2020.

Okay. Thank you John last one you indicated.

Builds you are assuming kind of flattish for modeling flattish and then aftermarket up were you referring to the fourth quarter or.

Period of time longer than that now we're talking about if we think about heading into the 2020 for full season.

Speaker 4: Generally what we're current expectations would like.

That's generally what we're our current expectations would likely suggest.

Bob Fishman: You know, Mike, I promised myself I wouldn't give a target today. I think I think what right now, I think we all have to be mindful of access to capital and managing with our capital. So, you know, framework and I think paying down the debt right now is a good use of it. Obviously, we're always looking at strategic complimentary businesses to our, you know, current business units. The market's not robust though at the moment.

Speaker 15: Okay, so your mid single digit post long term thinking on pool, it's not going to be that next.

Okay. So your mid single digit plus long term thinking on pool.

It's not going to be that next year.

Speaker 4: Based on that. I will give that in January . Scott, I remind you that there's an inventory correction next year, which

Based on that we'll give that in January .

God I remind you that theres, an inventory correction next year, which creates.

Speaker 4: some benefits, and then there's the overall general market conditions that we were addressing. But when we get to giving our Q4 earnings, we'll update and share with our 2020 portfolio.

So benefits and then theres the overall general market conditions that we were addressing but when we get to giving our Q4 earnings we'll update and share with our 2020 for guidance.

Bob Fishman: And, you know, even when you're seeing assets availability, you've got to question how those interest rates, environments affect their business so you're not seeing transactions happen. So I think just paying down the debt right now and giving ourselves a maximum flexibility as well. We're Bob and I are focused for the remainder of this year and in the next year, you know, I would just add to that that, you know, obviously staying investment grade, you know, hugely important to us, as the variable rates have crept up, we did undertake the interest rates swap in the collar.

Speaker 4: All right, thank you. Pat, to try. Yeah, you tried. Thank you.

Alright. Thank you had to try you tried thank you.

Bob Fishman: So that, that turned out to be a smart move where, when you include the collar effectively 65% of our debt is fixed. That brings us to kind of a weighted average rate of 5.3% in the quarter, maybe 5.5% going forward. So, overall, we've done some good things to manage within this environment and paying down, down the debt has certainly helped from an overall perspective.

Speaker 1: Our next question will come from Dean Dre with RBC Capital. You may now go ahead.

Our next question will come from Deane Dray with RBC capital you May now go ahead.

Mike Halloran: Thanks for that. All very reasonable.

Speaker 13: Good morning, this is Jeff Rive on for Dean. Maybe my first question you talked about your innovation, the 25 new products, this quarter, 100 for the year or the last 12 months. Is there an internal metric you target? Like are you targeting a new product vitality? And what is the typical margin differential on new products?

Good morning, this is Jeff Reive on for Deane.

Maybe my first question you talked about your innovation the 25, new products. This quarter 100 for the year or last 12 months.

Internal metric you target like are you targeting a new product vitality.

Operator: Appreciate it.

And what is the typical margin differential on new products.

Speaker 4: Yeah, I mean, we do. We have all those vitalities. Obviously, they're by product line by product line.

Yeah, I mean, we do we have all those vitality is obviously the right product line by product line will be create new valuable products at the market or that our customers want we tend to see margin lift from those new products you know not not usually in its initial stage. It usually takes probably a year or two for that to recognize but that is the model we work.

Speaker 4: create new valuable products at the market or that our customers want. We tend to see margin-lifts from those new products. You know, not usually it's initial stage. It usually takes probably a year or two for that to recognize. But that is the model.

Two.

Speaker 16: So nothing to quantify. And then maybe on...

Okay, so nothing to quantify.

Operator: Thank you, Mike.

And then maybe on.

<unk>.

Speaker 16: IFT you kind of mentioned the build America by America provision and infrastructure spending. Are there any products that you offer where you're on? Look, I have a virtually 100% America made where your competitors aren't. And is that a meaningful piece of the business?

Julian Mitchell: Our next question will come from Julian Mitchell with Barclays. You may now go ahead. Hi, good morning.

IMT you kind of mentioned the build America buy America, a provisioning for infrastructure spending are there any products that you offer where your bonds are virtually 100% American made where your competitors arent and is that a meaningful piece of the business.

Julian Mitchell: Maybe just wanted to follow up on the sort of profit bridge a little bit from slide 12. So the sort of price net inflation number was close to zero, you know, it seemed inflation picked up a bit as a headwind year on year versus the prior quarter. So maybe help us understand kind of the inflation moving part in Q4 into early next year. And should we expect that price net of inflation number to be sort of close to zero, you know, like it was in Q3.

Speaker 4: Yeah, you know, we we add to their the born in America, you know, we're, you know, a lot of our historic brands, you know, 120 130 years old, or have originated in the United States, they've been specified here for long periods of time, and they're manufactured.

Yeah, we add to their the born in America.

A lot of our historic brands.

100, 230 years older have originated in the United States, they've been specified here for long periods of time.

And there are manufactured here and so.

Speaker 4: So our employees are really proud of those brands. Our customers are really proud of those brands and they tend to give us the ability to have at least a fair opportunity to win those jobs when we go to market.

Our employees are really proud of those brands are customers really proud of those brands and they tend to give us.

You know the ability to have at least a fair opportunity to win those those jobs when we go to market.

Julian Mitchell: So I think the way it's good observation, I would remind you that, you know, inflation as we show in our bridges is a year of a year. So it doesn't necessarily reflect sequentially this year. It could be that we saw some elevated inflation on some of the buys that we had last year. So we think that we are overall moderating to price versus cost being neutral or slightly more close to neutral.

Got it thanks.

Thank you.

Yeah.

Speaker 1: Our next question will come from Nathan Jones with CTEFL. You may now go ahead.

Our next question will come from Nathan Jones with Stifel. You May now go ahead.

Speaker 17: Good morning, everyone. Good morning. Hi, Nathan. A couple of questions on water solutions. I think the first one is probably on Manitowoc ice. I think you guys have shipped out a backlog this year. You had maybe a couple of large projects that might not repeat next year.

Good morning, everyone. Good morning, I made that call a couple of questions on water solutions.

Julian Mitchell: And then obviously focusing on the productivity, contribution that's coming from our transformation initiatives. That's the model going forward. If you would call, we were benefiting quite substantially early in the year and last year on price versus cost. And now that shifting to more of a transformation benefit as we go forward. I don't know if you want to add anything. Yeah, I would just add to that that, you know, while inflation did did the change in inflation and increase in Q3 versus Q2, the nice thing was that price was able to cover that.

First one is probably that Manitowoc ice.

Yeah, I think you guys had shipped out of backlog. This year you had maybe a couple of large projects that might not repeat next year.

Speaker 17: You've talked about mid-single-digit plus, but should we be thinking of that long-term mid-single-digit plus as being off a lower number than what you've done in 2023? Or do you think you can actually grow from the number that you're putting up in 2023 as we go into 2020?

You've talked about mid single digit plus.

Should we be thinking of that long term mid single digit plusses being I'll say, a lower number than what you've done in 2023 or do you think you can actually grow from the number that youre, putting up in 2023 as we go into 2024.

Speaker 4: That's a nice try, Nathan. We're not going to go there yet. You know, right now we're trying to satisfy our customer demand for the rest of the year and then we'll do an assessment of where we think we are and we'll be preparing.

Julian Mitchell: We do expect inflation to moderate significantly in the fourth quarter. And certainly where price exceeds inflation. At the beginning of the year, we talked about inflation being around 4.5% of sales. And we're really tracking right towards that. So the team has done a nice job of understanding inflation and factoring in the impact of that. So overall, please with what we're seeing and that will moderate in the fourth quarter. That's helpful, and as you said, hopefully that productivity piece, you know, becomes larger as a driver, it was substantial already in Q3.

It's a nice try anything we're not going to go there yet.

Right now, we're trying to satisfy our customer demand for the rest of the year and then we will do an assessment of where we think we are and will be.

Prepared to share that insight with you as we head into 2024.

Speaker 17: Okay, fair enough. In water solutions, I think you've also had some inventory destocking and some other business, residential water treatment businesses. Can you talk about the impact that, you know, comping against that as we go into next year might have without looking at the fundamental outlook of 2024? Yeah, as a reminder, we

Okay fair enough.

Water solutions I think you've also had some inventory destocking from other business residential.

Water treatment businesses.

Can you talk about the impact that.

Youre comping against that as we go into next year might have without looking at the fundamental outlook of 2024.

Yeah as a reminder, we.

What we did in 2022 as we exited a fair amount of lower margin direct to consumer business and we've been up against those comparisons this year.

Speaker 4: We did in 2022 as we exited a fair amount of lower margin.

Julian Mitchell: Maybe just sort of refresh where we are on the sort of wave two from transformation savings and how substantive that productivity number should be as a segment income driver next year when you kind of roll together sort of incremental. So saving some transformation next year. Yeah, and that is a very important part of our margin expansion story as we talk about, you know, price, the equaling inflation, it's important that productivity then drives that that Ross expansion, so we were pleased to see the $29 million read out in the third quarter up significantly from the single digit in Q2 and expect to have a significant transformation benefit in the fourth quarter.

Speaker 4: up against those comparisons this year. And water solutions, those comparisons, as we had it next year go away.

Water solutions those comparisons as we head into next year go away and so obviously.

Speaker 4: This is all included in water solutions this year, and next year we get a little bit less contribution from acquisitions, and we have a little bit less headwind from the business exits that we took on this year.

This is all included in water solutions. This year and next year, we get a little bit less contribution from acquisitions, and we have a little bit less headwind from the business exits that we took on this year.

Alright, thanks for taking the questions.

<unk>.

Our final question will come from Andrew <unk> with Bank of America, You May now go ahead.

Speaker 1: Our final question will come from Andrew Obed with Bank of America. You may now go ahead.

Speaker 18: Hey, you have Sabrina Abrams on for Andrew Oben. Just wanted to ask, I know there's been a couple questions about Manitowic, but are you guys still committed to the $370 million full-year guidance?

Hey, you have Sabrina Abrams on for Andrew then just wanted to ask I know there's been a couple of questions about Manitoba <unk>, but are you guys still committed to the 370 million full year guidance.

Julian Mitchell: We're really within wave one in terms of rough reading out in 2023. We built some healthy funnels around each of the four pillars of transformation and so that that'll start to read out to an even greater extent next year. So overall, please with the momentum going into 2024. And your sort of second half run rate for those savings, you know, we should expect that sort of to be steady through at least the first half of next year, I suppose, and then maybe the sort of the comp get a bit tougher on productivity.

Oh that would be an easy commit.

Speaker 3: Oh, that would be an easy commit. Yeah, we we had talked at the beginning of the year of that 370. But the business has done significantly better than that, and will grow roughly 20% this this

Yeah, we had talked at the beginning of the year of that $3 seven day, but that business has done significantly better than that and will grow roughly 20%. This this year.

Got it and then just going to ask another one about pool and maybe if you could give some color on the pricing number cause I know you are returning to the regular guest counts and for kill.

Speaker 18: And then, just going to ask another one about pool and maybe if you could get some color on the pricing number, because I know you're returning to the regular discounts in 4Q. Any color on what we should think about the pricing in 4Q23, given that the past couple of years you were not having normal pre-buy?

Any color on what we should think about the pricing in four key twenty-three given that the past couple of years, you were not having normal pre buy.

Julian Mitchell: Well, and then that's when the wave two kicks in, Julian, but the material took a long time to realize because of all the engineering work and the resupply efforts that we had to do with the supply community. So we're starting to benefit from those in Q4 that run rate will go into next year and then wave two starts to take over and the second half of next year from the sourcing standpoint to give you some color, you know, about a third of our businesses engaged in the pricing exercises in 2023.

Yeah.

Speaker 4: Yeah, I don't know how to answer the question. I mean, I think as a reminder, we put our price increases in for the season over the next year. We do that in Q3.

Yeah, I don't know how to answer the question I mean, I think as a reminder, we put our price increases in for the season over the next year, we do that in Q3 and so the discounts usually take you two more flattish pricing year over year, so there pre buys or term extensions, but they don't.

Speaker 4: So the discount usually take you to more flat-ish pricing year over year. So the pre-bys are term extensions, but they don't include a price increase necessarily because there's a discount to what the price increase would be. So it's not like with discounting products to sell it, we're just not getting the full raised prices in that early buy.

Julian Mitchell: You know, we'll be close to two thirds of the way through that in 2024. So that's kind of how the wave that Bob mentioned start to unfold and we start to benefit from the performance inside the businesses.

Include a price increase necessarily because there's a discount to what the price increase would be so its not like were discounting products sell it. We're just not having to we're just not getting the full raise prices in that early buy.

Julian Mitchell: That's great. Thank you.

Got it thanks.

Hey.

Saree Boroditsky: Our next question will come from Sarri Barodowski with Jeffries. You may now go ahead. Hi, I think this is my question. Just going on the transformation initiative comments, we discussing the benefit from wave two and the second half of next year. Can you just quantify how we should think about that as contributing to margin performance? Well, we're very focused on Ross expansion. So if you think about us finishing around 21% this year, we've talked about improving the Ross to 23% by 2025. And we've said that's being done in a linear way versus it being all back and loaded. So we expect Ross to, you know, improve next year as we head towards that 23%. I appreciate the color.

Thank you.

Speaker 4: Okay, so thank you for joining the call today. In closing, I want to reiterate some key themes on slide 22. First, solid execution within our diversified portfolio and transformation initiatives continue to drive significant margin expansion.

Okay. So thank you for joining the call today in closing I wanted to reiterate some key themes on slide 22, first solid execution within our diversified portfolio of transformation initiatives continue to drive significant margin expansion in Q3 second we updated our 2023 guidance due to strong performance year to date and confidence.

Speaker 4: Second, we updated our 2023 guidance due to strong performance year-to-date and confidence in our strategy. Third, our transformation initiatives have gained momentum in 2023 with benefits expected for the remainder of 2023 and beyond. And finally, we expect to continue to deliver long-term value creation. Thank you, everyone, and have a great day.

And our strategy third our transformation initiatives have gained momentum in 2023 with benefits expected for the remainder of 2023 and beyond and finally, we expect to continue to deliver long term value creation. Thank you, everyone and have a great day.

Speaker 1: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Saree Boroditsky: But just kind of going back to pool with a lot of questions today, but we talked about some of the early bioprograms having mon of participation here. And maybe as you think about more to delivery version one, two, is there any way to think about how you thought about the delivery patterns and what that can be for one. Thanks. Yeah, I mean, I think, you know, what we'd like to see unfold is we believe Q4 can be higher from a shipment perspective for Pentair than Q3 and then we would expect Q1 to be better than Q4.

Saree Boroditsky: And then, you know, we would be in the normalized pattern then of Q2 next year, finally being a normal seasonal pattern, which would be the strongest pool quarter of the year. And as a reminder, Q3 is modestly less than that. And then again, Q4 starts the preload for the 2025 season. So, we feel like we've worked through this and now we've got a clear line of sight to more normal seasonality in the business. And, you know, really keeping our eye on cell through going forward so that we don't get in this inventory situation with our channel again. I appreciate the color. Thank you.

Jeff Hammond: Question will come from Jeff Hammond with key bank capital markets. You may now go ahead. Hey, good morning, guys. Good morning. I got just on IFT. Can you just talk about like the order trend you're seeing? I don't know if it was really a comp issue, but seem like there was a step down in the growth rate. And, you know, I'm just wondering, you know, what the orders are telling you about kind of the go forward there.

Jeff Hammond: Yeah, I mean, just again, we're looking at you over a year comps Jeff and, you know, our infrastructure businesses had a really solid 2022. And so some of these growth rate reflect against the prior quarter of 2023. You know, I think the orders continue to be, you know, strong from a, you know, mid single digit indicator as we go forward. But the year of year comparison are going to be tougher. And as Bob mentioned, we are really focused on non-project related wins. We're focusing on service. We're focusing on aftermarket. We're focusing on recurring revenue streams with our key distributors and market providers. Jeff. Okay, great.

Jeff Hammond: And then just just back on this Manitouac ice, you know, tough comp issue. Can you just talk about, you know, I think he called out, you know, a lot of the success and the synergies, but just what's been going on with backlog drawdown and orderage there to kind of think about, you know, this tough comp dynamic. We're also kind of picking up in the channel that, you know, commercial food equipment and some of their markets are maybe, you know, starting to see, you know, more normal growth as well.

Jeff Hammond: Yeah, I would say backlogs have returned to more normalized levels. Just as a reminder, Manitouac grew roughly 30% in the second quarter. Will have grown or did grow 20% in the third quarter. And for the full year, Manitouac will be up roughly 20%. So they've had a very strong year to John's point when you look at the Kager from 2019, that's sitting at roughly 8%. So we do expect a more normalized year next year as we bump up against 2023 is 20% growth.

Jeff Hammond: But overall, the business remains very healthy. The end to end approach in terms of going to market is resonating well. So very confident in the Manitouac business. And Jeff, you data points are right. This isn't a sustainable growth level for our ice business. I mean when you're mid to high single digits, we would have hoped that that is the more linear growth rate that we get to and you know obviously we're going to satisfy the demand and make sure that you know it's a man's walk ice machine that someone's putting into their restaurant so it gives us the ongoing service and relationship with that customer but this is not this is not normal as we've said all year. Okay, appreciate it guys. Thank you.

Andrew Krill: Our next question will come from Andrew Krill with Deutsche Bank. You may now go ahead Hey, thanks. Good morning everyone.

Andrew Krill: Want to go back to the pool pre-buy. I think you might say you're expecting like a modest pre-buy this year. So just any more insight you can give on that and maybe try to like quantify you know how tracking versus you know more normal years and just to clarify are you assuming that as part of the 2023 guide or would that be incremental to the pool sales guy. Thanks. Oh, it's all included in our current view of what our business with the only Q4 and just to just remind everybody what we try to do is level load factories to make sure that we're not taking down our shipments in any one quarter beyond the level of our employment groupings.

Andrew Krill: So we're obviously encouraging the channel to buy ahead of next year's pool season through discounts that we offer and term extensions right. We're now at a level that we think is is prudent for us and that's where the modest really by is and is as you know the channel would take more if they're incentivized more to take it and if they don't and those become standard by orders in the next year and so that's always what the forecast is reflecting and you know we have to do it's in our economic best interest our channel partners do it's in their best economic interest and and right now we feel our guide is the best reflection of what we'd say a more normal seasonality and a more normal early by which would set us up nicely for a 2024 growth year.

Operator: God, thank you. And just for the 4Q guy and the implied margins for the total company and mark a pretty meaningful step down sequentially. I think historically you've been more clandest from 3Q to 4Q. I know this isn't necessarily a normal year, but just this seems a little perhaps conservative, especially with the cost action starting to come through so maybe if you can unpack that and it's like you know any segments in particular and I think the margins are weaker than normal for 4Q, thanks.

Operator: We implicit in our guide is a significant Ross expansion versus last year's Q4. When you look sequentially it does come down, but a lot of that does reflect some of the seasonality that is returning back to more normalized levels. So overall please with the Ross expansion in Q4 versus last year's Q4 and it'll be the momentum we need exiting the year. Thank you.

Joe Giordano: Our next question will come from Joe Giordano with Cohen. You may not go ahead. Hey guys, good morning. I want to start on margins when keep it there for a second. I mean not always splitting hairs a little bit, but I cool margins went below 30. I think we were kind of talking about 30 being like a new floor. And you're close enough where that's still like a bell of statement, but just from here into the fourth quarter into next year that 30% kind of feel good still as probably kind of a bottom level.

Joe Giordano: Let's say yes on the second part of your question. And I think you know delivering the margins we did despite the year of year decline in volume is what I'm most proud of the team having accomplished. Houston. Yeah, I mean, I do think we're splitting hairs. I think they're directly in a really good spot as a business model and obviously getting growth from here is going to leverage up nicely. Okay. And then similarly on water solutions that I think you were talking about, like the commentary coming out of last quarter was that the margins were going to step down pretty decently sequentially in the third quarter because of the deliveries that man and swap did in two queue.

Joe Giordano: And if the opposite happened right in one up sequentially. So how should we think about margins there? I know. Man, it's still delivering at a high level, but I should we think about sequential margins there and the sustainability of this like 22, 23% level, but I would I would remind you that water solutions has a residential components and systems businesses, and they also have the commercial water solutions when we mix towards commercial, we're going to have a lot higher margin profile.

Joe Giordano: And what we're really doing is being very selective on the products that we're offering on the residential side, and we're trying to mix up that business. And so a lot of the decline in the revenue was on the residential side and then actually help the overall mix of the business to the positive. Okay. That makes sense. And if I could just sneak in one last one on just a volume. So I mean, your pool volume this quarter came in better than what we were thinking about.

Joe Giordano: When we spoke three months ago, you commentary from your largest distributor calls for like fourth quarter their inventory levels and dollars are going to go up from the third quarter. So like that kind of implies growth for you guys, you know, if they do normal seasonality implies growth in pool of like high single digits, if they do less, maybe it's more modest growth. But how would you kind of think about where growth could look like for pool in the fourth quarter?

Joe Giordano: Well, I think we're a piece of their puzzle. So we'll start there. And I think we are indicating that we do think sequentially our revenue numbers do go up from Q3. And then it's really a discussion of how much more. And I really think that, you know, we do our best to predict that business with reasonable accuracy and getting it exactly to the dollar isn't probable. And so I would say we got really close in Q3. And I think we feel really good about our Q4 revenue estimate at this moment. Thank you guys. Thank you.

Scott Graham: Our next question will come from Scott Graham with seaport research. You may not go ahead.

Scott Graham: Good morning, John Bob Shelley. How are you? Good morning. Are you all right Scott? Thank you. So the productivity jump was obviously meaningful. How much of that 2.8% maybe was some help from a better supply chain sort of external? Well, I think a lot's coming from that Scott. I mean, I think we're working more seamlessly with our supply chain today. Obviously we've caught up on most of the demand to them and aligned with our channels. And so we are benefiting substantially from a lot of more seamless deliveries across the entire supply chain today.

Scott Graham: I'm back on to pool. Sorry, but you know, historically, these numbers kind of shook out as 40, 30, 30 new remodel and then, you know, sort of the maintenance, the aftermarket. As we look at a week 2023 kind of what is that? What are those numbers kind of in the year at an estimate you can make? Yeah, I think they're generally in that ballpark, and we could argue weak, I think the overall builds in 2023 are going to definitely be at pre-pandemic levels, but generally in line with what we had seen prior to the pandemic.

Scott Graham: So I think we're in a more normalized area. Scott, I think the learning is across the channel is there's high end pools, and there's low to mid market pools, and the interest rates are definitely impacting the more low to mids, and the highs are continuing to be built. So, I think that we'll all probably start to refine the numbers to try to break it out by the demographics that it's serving, but I think generally the model's still working.

Scott Graham: Okay, thank you, John. Last one, you indicated builds you are assuming kind of flatish were modeled in flatish, and then after market up, were you referring to the fourth quarter or a period of time longer than that? We're talking about if we think about heading into the 2024 pool season, that's generally what our current expectations would likely suggest. Okay, so your mid single digit plus long term thinking on pool, it's not going to be that next year based on that.

Scott Graham: We'll give that in January. Scott, I remind you that there's an inventory correction next year, which creates some benefits, and then there's the overall general market conditions that we were addressing. But when we get to giving our Q4 earnings, we'll update and share with our 2024 guide.

Operator: All right, thank you, Pat, to try. Yeah, you tried.

Operator: Thank you.

Nathan Jones: Our next question will come from Dean Dre with RBC Capital. You may not go ahead. Good morning. This is Jeff Riev on for Dean. Maybe my first question, you talked about your innovation, the 25 new products, this quarter, a hundred for the year or the last 12 months. Is there an internal metric you target? Are you targeting a new product vitality? And what is the typical margin differential on new products? Yeah, I mean, we do.

Nathan Jones: We have all those vitalities, obviously, they're by product line by product line. We'll be create new valuable products at the market or that our customers want. We tend to see margin lift from those new products, you know, not not usually an initial stage, it usually takes probably a year to for that to recognize, but that is the model we work to.

Nathan Jones: So nothing to quantify. And then maybe on IFT, you kind of mentioned the build America by America provision and infrastructure spending. Are there any products that you offer where you're on or virtually 100% America made where your competitors aren't? And is that a meaningful piece of the business? Yeah, you know, we add to there the born in America. You know, we're, you know, a lot of our historic brands, you know, 120, 130 years old have originated in the United States.

Nathan Jones: They've been specified here for long periods of time. And they're manufactured here. And so our employees are really proud of those brands. Our customers really proud of those brands and they tend to give us, you know, the ability to have at least a fair opportunity to win those jobs when we go to markets.

Nathan Jones: Thank you.

Nathan Jones: Our next question will come from Nathan Jones with Tefl. Give me now, go ahead.

Sabrina Abrams: Good morning, everyone. Good morning, I'm Nathan. A couple of questions on water solutions. I think the first one's probably out in Manitoba guys. I think you guys have shipped out a backlog bushy. You had maybe a couple large projects that might not repeat last day. Next year, you talked about mid-single digit plus, but should we be thinking of that, you know, long time mid-single digit plus is being off a low a number than what you've done in in 2023? Or do you think you can actually grow from the number that you're putting up in 2023 as we go into 2024?

Sabrina Abrams: That's a nice try, Nathan. We're not going to go there yet. You know, right now we're trying to satisfy our customer demand for the rest of the year and then we'll do an assessment of where we think we are and we'll be prepared to share that insight with you as we head into 2024.

Sabrina Abrams: Okay, fair enough. In water solutions, I think you've also had some inventory destructing from other business residential water treatment businesses. Can you talk about the impact that you're comping against that as we go into next year might have without looking at the fundamental outlook of 2024? Yeah, as a reminder, what we did in 2022 is we exited a fair amount of lower margin direct to consumer business and we've been up against those comparisons this year in water solutions, those comparisons as we had in next year go away.

Sabrina Abrams: And so obviously, this is all included in water solutions this year and next year we get a little bit less contribution from acquisitions and we have a little bit less headwind from the business exits that we took on this year. All right, thanks for taking the questions.

Operator: Thank you.

Operator: Our final question will come from Andrew Obed with Bank of America. You may now go ahead. Hey, you have Sabrina Abrams on for Andrew Obed. Just wanted to ask, I know there's been a couple questions about Manitowic, but are you guys still committed to the 370 million full year guidance? Oh, that would be an easy commit. Now we had talked at the beginning of the year of that 370, but the business has done significantly better than that and will grow roughly 20% this year.

Operator: Got it. And then just going to ask another one about pool and maybe if you could get some color on the pricing number because I know you're returning to the regular discounts in 4Q. Any color on what we should think about the pricing in 4Q 23 given that the past couple of years you were not having normal pre-buy? Yeah, I don't know how to answer the question. I mean, I think as a reminder, we put our price increases in for the season over the next year, we do that in Q3.

Operator: And so the discounts usually take you to more flatish pricing year over year, so the pre-buys are term extensions, but they don't include a price increase necessarily because there's a discount to what the price increase would be. So it's not like we're discounting products to sell it, we're just not having... Andrew, we're just not getting the full raised prices in that early buy. Got it, thanks. Okay, thank you.

John Stauch: Okay, so thank you for joining the call today. In closing, I want to reiterate some key themes on slide 22. First, solid execution within our diversified portfolio and transformation initiatives continue to drive significant margin expansion in Q3. Second, we updated our 2023 guidance due to strong performance here to date. And confidence in our strategy. Third, our transformation initiatives have gained momentum in 2023 with benefits expected for the remainder of 2023 and beyond. And finally, we expect to continue deliver long term value creation. Thank you, everyone, and have a great day.