Q4 2023 Franklin Electric Co Inc Earnings Call

Operator: Hello, and welcome to the Franklin Electric Report's fourth quarter 2023 and full year 2023 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press * one on your telephone. You will then hear an automated message advising that your hand has been raised.

Hello, and welcome to the Franklin Electric reports fourth quarter 2023, and full year 2023 results conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during.

This session you will need to press star one one on your telephone you will then hear an automated message advising that your hand has been raised to withdraw your question Press Star one again.

Operator: To withdraw your question, press star 1 1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Finance and Investor Relations, Sandy Statham. Thank you, Andrew.

Please be advised that today's conference is being recorded.

It is not my pleasure to introduce vice President of Finance and Investor Relations Sandy stats there.

Thank you Andrew and welcome everyone to Franklin Electrics fourth quarter and full year 2023 earnings call.

Sandy Statham: And welcome everyone to Franklin Electric's fourth quarter and full year 2023 earnings call. With me today is Gregg Sengstack, our Chairperson and Chief Executive Officer, and Jeff Taylor, our Chief Financial Officer. On today's call, Gregg will review our fourth quarter and full year 2023 business results, along with guidance for 2024. Jeff will provide additional detail on our financial performance, and we will then take questions. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements.

With me today is Greg Sun stack, our chairperson and Chief Executive Officer, and Jeff Taylor, Our Chief Financial Officer.

On today's call, Greg will review, our fourth quarter and full year 2023 business results along with guidance for 'twenty 'twenty four Jeff will provide additional detail on our financial performance. We will then take questions.

Before we begin let me remind you that as we conduct this call we will be making forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 D.

These statements are subject to various risks and uncertainties many of which could cause actual results to differ materially from such forward looking statements in.

Sandy Statham: A discussion of these factors may be found in the company's annual report on Form 10-K and today's earnings release. All forward-looking statements made during this call are based on information currently available, and, except as required by law, the company assumes no obligation to update any forward-looking statement. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Franklin Electric's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation, which is available on our website. With that, I will now turn the call over to Greg. Thank you, Sandy, and thank you all for joining us.

A discussion of these factors may be found in the company's annual report on Form 10-K, and today's earnings release.

All forward looking statements made during this call are based on information currently available and except as required by law. The company assumes no obligation to update any forward looking statements.

In addition on today's call non-GAAP financial measures will be used to help investors understand Franklin electrics ongoing business performance.

Conciliation of the non-GAAP financial measures being discussed today. She was a comparable GAAP financial measures is included in the company Investor presentation, which is available on our website.

With that I will now turn the call over to Greg.

Thank you Sandy and thank you all for joining us.

Gregg C. Sengstack: We delivered a solid quarter and finished the year, from Q3 to Q4 sequentially to experience more of the same market conditions with wetter weather and customer destocking continuing in the U.S. and to a lesser degree, Europe, and we experienced continued commodity pricing pressure in our distribution. Overall, reported sales were down $16 million, or 3%, mainly driven by lower volume and fueling systems and a $13 million negative impact from Ford Exchange, partially offset by favorable pricing. Even with soft demand, we delivered solid operating margins in water and fueling for the quarter. Our manufacturing margins will remain healthy throughout 2023 driven by continued cost. For the full year of 2023, we delivered sales growth of 1%, driven by pricing, partially offset by negative foreign exchange, and lower volumes in fueling sales. Operating income grew 2% due to the strong performance of water systems and cost management across the country.

We delivered a solid quarter and finish to 2023.

From Q3 to Q4 sequentially.

It's more of the same market conditions with wetter weather and customer destocking, continuing in the west and to a lesser degree Europe.

And we experienced continued commodity pricing pressure in our distribution business.

Overall reported sales were down $16 million or 3%, mainly driven by lower volume in fueling systems.

$13 million negative impact from foreign exchange, partially offset by favorable pricing.

Even with soft demand, we delivered solid operating margins in the water and fueling for the quarter.

Our manufacturing margins remained healthy throughout 2023, driven by continued cost controls.

For the full year of 2023, we delivered sales growth of 1% driven by pricing, partially offset by negative foreign exchange and lower volumes in fueling systems.

Operating income grew 2% due to the strong performance of our systems and cost management across the company.

Gregg C. Sengstack: Operating margins expanded to water and fueling with 140 and 230 basis points improvements over 2022, respectively. Sales of our critical acid monitoring products within our fueling business also set a full year record. Our distribution business was negatively impacted by commodity pricing pressure and de-stocking. However, our continued focus on the management of working capital translates into strong cash flow generation in both the fourth quarter and the full year. Our operating cash flow improved by approximately $214 million as compared to 2022, resulting in a free cash flow conversion of 142%. Free cash flow conversion was well above our five-year average of $106 million.

Operating margins expanded a water and fueling with 140 and 230 basis points improvement over 2022, respectively.

Sales of our critical asset monitoring products within our fueling business also set a full year record.

Our distribution business was negatively impacted by commodity pricing pressure and destocking activity.

Our continued focus on management of working capital translated into strong cash flow generation in both the fourth quarter and the full year.

Our operating cash flow improved by approximately $214 billion as compared to 2022.

Resulting in free cash flow conversion of 142%.

Free cash flow conversion was well above our five year average of 106%.

Gregg C. Sengstack: We used this cash to reduce our outstanding debt by over $115 million, complete several small acquisitions, and return cash to shareholders through increased dividends and stock returns. Our net debt is near zero, and we delivered a nice step up in our return on invested capital to 17.2%, an increase of 70 basis points. I am incredibly proud of the Franklin team for their commitment to driving operational excellence. We are proud to have been named on Newsweek's list of America's most responsible and trustworthy companies for two consecutive years.

We use this cash to reduce our outstanding debt by over $115 million.

Complete several small acquisitions.

And returning cash to shareholders through increased dividends and stock repurchases.

Our net debt is near zero and we delivered a nice step up in our return on invested capital to 17, 2% increase of 70 basis points.

I'm incredibly proud of the Franklin team for their commitment to driving operational excellence. We are proud to be named in Newsweek's list of America's most responsible and trustworthy companies for two consecutive years.

Gregg C. Sengstack: We were also recognized by USA Today as one of America's climate leaders for 2023. Turning to our segments, for the quarter in water systems, sales declined less than 1%, overcoming a 5% foreign currency impact. Demand in the US for our large dewatering products was strong, setting a quarterly record with 13% growth and full year record growth of 63%. In the U.S., demand for groundwater pumping systems was impacted by continued unfavorable weather patterns in the western U.S. and customer destocking. Additionally, our water treatment product lines were challenged by soft housing starts in existing homes.

We were also recognized by USA today as one of America's climate leaders for 2023.

Turning to our segments for the quarter in water systems sales declined less than 1%.

Overcoming a 5% foreign currency headwind.

Demand in the U S for a large dewatering products was strong.

Setting a quarterly record with 13% growth in.

In full year record growth of 63%.

In the U S demand for groundwater pumping systems was impacted by continued unfavorable weather patterns in the western U S and customer Destocking.

Our water treatment product lines were challenged with soft housing starts and existing home sales.

Gregg C. Sengstack: Outside the U.S., water systems had solid demand in Latin America, while EMEA and Asia Pacific were relatively flat. Operating income margin for the quarter was 15.8%, essentially flat with the prior year. For the full year, pricing actions and continued cost management more than offset inflationary challenges, driving an improvement in operating income margin of 16.3%, an increase of 140 basis points compared to last year. Fueling system sales and operating income decreased 23% and 20%, respectively, in the fourth quarter, lapping a difficult year-over-year comparison of record fourth quarter revenue and operating income in 2020. While end market demand remains healthy, fueling systems was negatively impacted by the continuation of customer inventory stocking, driving lower volume. Higher interest rates, labor constraints, and permitting delays caused some new station build plans to move in at 20%.

Outside of the U S water systems had solid demand in Latin America.

In Asia Pacific were relatively flat.

Operating income margin for the quarter was 15, 8% essentially flat with the prior year for the full year pricing actions and continued cost management more than offset inflationary challenges driving an improvement in operating income margin of 16, 3% increased 140 basis points compared to last year.

Fueling systems sales and operating income decreased 23% and 20% respectively in the fourth quarter.

Being a difficult year over year comparison of record fourth quarter revenue and operating income in 2022.

While end market demand remains healthy fueling systems was negatively impacted by the continuation of customer inventory destocking driving lower volumes.

Higher interest rates labor constraints and permitting delays caused some new station build plans to move into 2024.

Gregg C. Sengstack: Variable price and cost containment contributed to overall fueling system's fourth quarter operating margin of 29.5%, an increase of 110 basis points compared to the prior year. We continue to see strong growth in our critical acid monitoring products, which close out a record year. Overall, the fueling systems team did an excellent job of delivering for our customers while managing costs to maintain our operations. The U.S. distribution segment was impacted by normal seasonality, de-stocking, and continued unfavorable weather that reduced demand; sales decreased by approximately 1% while operating income decreased by 66% due to continued commodity pricing. The operating income margin of 0.7% decreased 120 basis points compared to the prior year quarter.

Favorable price and cost containment contributed to overall fueling systems fourth quarter operating margin of 29, 5% an increase of 110 basis points compared to the prior years.

We continue to see strong growth for in our critical asset monitoring products, which closed out a record year.

Overall, the fueling systems team did an excellent job delivering for our customers, while managing costs and maintain our operating margins.

The U S distribution segment was impacted by normal seasonality Destocking and continued unfavorable weather that reduced demand.

Sales decreased by approximately 1%, while operating income decreased by 66% due to continued commodity pricing pressure.

The operating margin income margin, 0.7% decreased 120 basis points compared to the prior year quarter.

Gregg C. Sengstack: These results are a reminder that our distribution segment is more seasonal with lower volume in Q4 and more earnings volatility than our manufacturing. As mentioned last quarter, we continue to make key investments to expand onsite inventory for large contractors. Year over year, we have 33% more onsite inventory or OSI containers deployed across the country, which is an integral part of our strategy to better serve our customers by making products available when and where they are needed. For the year, even with the demand and margin challenges, our distribution segment delivered 5.1% operating income. You may recall that when we established this business in 2017, we stated that the anticipated operating income of this segment would range between 5 and 7%. Over the last four years, it has averaged around the midpoint of six.

These results are a reminder, that our distribution segment is more seasonal with lower volume in Q4 as more earnings volatility in our manufacturing segments.

As mentioned last quarter, we continue to make key investments to expand onsite inventory from large contractors year over year, we have 33% more onsite inventory OSI containers deployed across the country, which is an integral part of our strategy to better serve our customers by making products available.

Where they are needed.

For the year, even with the demand and margin challenges our distribution segment delivered five 1% operating income.

You may recall that when we established this business in 2017, we stated that the anticipated operating income of this segment will range between five and 7%.

Over the last three years it has averaged around the midpoint of 6%.

Gregg C. Sengstack: As the business continues to mature and we are able to gain efficiencies with our footprint and technology, we look to raise our expectations for operations. We completed two small acquisitions in the fourth quarter. In early December, we acquired the assets of Action Manufacturing and Supply Incorporated, now part of our water treatment product line within our water system. Action Manufacturing is a producer and wholesale distributor of residential water conditioning, filtration, and indoor-outdoor aeration, with operations in Florida and North Carolina. Including this acquisition, our water treatment product sales are approaching $200 million. With a continued focus on growth in our distribution segment, we also acquired a professional groundwater distributor, WaterWorks Pumps, located in Springfield, Missouri, to expand our reach in Midwest markets. We welcome our new colleagues from Action and Water Works, the Franklin family.

As a business continues to mature and we're able to gain efficiencies with our footprint and technology look to raise our expectations for operating income.

We completed two small acquisitions in the fourth quarter in early December we acquired the assets of action manufacturing and supply incorporated now part of the water treatment product line within our water systems segment.

Manufacturing as a producer and wholesale distributor residential water conditioning filtration and indoor outdoor recreation systems with operations in Florida, and North Carolina.

Including this acquisition our water treatment product sales are approaching $200 million a year.

With a continued focus growth focused in our distribution segment. We also acquired a professional groundwater distributor waterworks pumps located in Springfield, Missouri to expand our reach and Midwest markets.

We welcome our new colleagues from action in Waterworks, the Franklin Cameron.

Gregg C. Sengstack: While we continue to invest and acquire businesses to further our strategy and growth, we also continue to maintain a conservative capital structure. With a net leverage ratio near zero, we are well positioned to execute on both organic growth and strategic equity. Turning to our 2024 Outlook, we anticipate 2024 to start much like 2023 ended and improve as we move through the year. Our outlook anticipates lower levels of de-stocking activity, normalizing weather conditions in the U.S., a reduction in large URA pump volume from a record 2023 performance, improved housing starts in existing homes, and Continued Pricing Pressure. We also anticipate continued supply chain improvements, greater confidence in lead times, lower rates of inflation, and productivity. We look for demand for our groundwater pumps to continue to benefit from a large replacement business, a favorable concentration of activity across the agricultural, industrial, and mining markets, and only modest exposure to new construction in U.S. housing. We foresee this demand will have a similar benefit or distribution. We also expect our U.S. residential specialty pumps and water treatment product lines to face fewer headwinds from exposure to new home starts and existing home sewers.

While we continue to invest and acquire businesses to further our strategy and growth. We also continue to maintain a conservative capital structure.

The net leverage ratio near zero, we are well positioned to execute on both organic growth and strategic acquisitions.

Turning to our 2024 outlook, we anticipate 2024 to start much like 2023 ended and improve as we move through the year.

Our outlook anticipates lower levels of Destocking activities normalizing weather conditions in the U S. A reduction in large dewatering pump volume from our record 2023 performance improved.

Improved housing starts and existing home sales.

<unk> pricing pressure.

We also anticipate continued supply chain improvements greater confidence lead times lower rates of inflation and productivity improvements.

We look for demand of our groundwater pumps to continue to benefit from a large replacement business a favorable concentrations of activity across the agricultural industrial and mining markets and only modest exposure to new construction in U S housing market.

We foresee this demand is similar benefit our distributions segment.

We also expect our U S residential specialty pumps, the water treatment product lines, a fewer headwinds from exposure in new home starts and existing home sales.

Gregg C. Sengstack: Outside the U.S., we expect to see Latin America and South America business improve, Europe to stabilize, and Asia-Pacific business to experience a meaningful recovery. In our fueling business, major marketers in the U.S. have signaled they plan to maintain their investment plans in 2024, all at normalized levels after several robust, Labor constraints are expected to ease and permit activity to return. In our distribution segment, we look to gain momentum through the year and build on our recent acquisition. Commodity pricing pressures, especially for pipe products, should stabilize as we enter. With that, we are initiating 2024 guidance, with full-year sales expected to be between $2.1 billion and $2.17 billion, and diluted earnings per share, or EPS, to be between $4.22 and $4.46. I'm now going to hand the call over to Thanks, Greg. And good day, everyone.

Outside the U S. We expect to see Latin America, and South America business improve Europe has stabilized and Asia Pacific business to experience a meaningful recovery.

In our fueling business major marketers in the U S have signaled they plan to maintain our investment plans in 2020 for.

Albeit at normalized levels after several robust years.

Labor constraints are expected to ease and permit activates returned to normal.

In our distribution segment, we look to gain momentum through the year and build on our recent acquisition.

<unk> pricing pressures, especially for pipe products should stabilize as we entered 2024.

With that we are initiating 2024 guidance with full year sales expected to be between $2 1 billion and $2 $1 7 billion.

And diluted earnings per share or EPS to be between $4 20 to $4 40 per share.

I'm now going to hand, the call over to Jeff to review our financials in more detail Jeff.

Thanks, Greg.

Jeffery L. Taylor: Fourth quarter 2023 consolidated sales were 473.0 million, a year over year decrease of 3%, excluding the impact of foreign currency translation; sales were basically flat to less. Our fully diluted earnings per share were $0.82 for the fourth quarter 2023 versus $0.84 for the fourth quarter 2022. While we don't report adjusted earnings, I do want to highlight the FX expense or foreign exchange expense below operating income related to foreign currency devaluation, primarily the Argentine peso. The $1.1 million higher expense year over year would impact earnings per share by two cents in the quarter.

And good day everyone.

Fourth quarter 2023, consolidated sales were 473.0 volume year over year decrease of 3%.

Excluding the impact of foreign currency translation sales were basically flat to last year.

Our fully diluted earnings per share were <unk> 82 for the fourth quarter 2023 versus <unk> 84 for the fourth quarter 2022.

While we don't report adjusted earnings I do want to highlight the FX expense for foreign exchange expense below operating income related to foreign currency devaluation, primarily the Argentine peso.

The $1 $1 million higher expense year over year would impact earnings per share <unk> <unk> in the quarter.

Jeffery L. Taylor: Moving on, water system sales in the US and Canada were down 6% compared to the fourth quarter of 2022, primarily due to lower volumes. The sales decline in the U.S. and Canada was primarily due to lower ground waters. Wet weather across parts of the U.S. and some destocking in the U.S. Pro Channel led to lower sales of groundwater pumping.

Moving on water systems sales in the U S and Canada were down 6% compared to the fourth quarter 2022, primarily due to lower volumes.

<unk> declined in U S and Canada was primarily due to lower groundwater sales.

Wet weather across parts of the U S and some destocking in the U S Pro channel led to lower sales of groundwater pumping equipment.

Jeffery L. Taylor: Water system sales and markets outside the US and Canada were up 7%, while foreign currency translation decreased sales outside the US and Canada by 12%. Excluding the impact of foreign exchange, sales were led by double-digit increases in both Latin America and EMEA and a single-digit increase in the Asia-Pacific market. Water Systems operating income was $44.1 million in the fourth quarter of 2023, down $0.5 million or 1% versus the fourth quarter of 20 Operating income margin was 15.8%, down 10 basis points compared to last year. The decrease in operating income was primarily due to lower sales and higher operating expenses. Distribution's fourth quarter sales were $148.0 million versus fourth quarter 2022 sales of $148.9 million, a 1% decrease. The distribution segment's operating income was $1 million for the fourth quarter, a year-over-year decrease of $1.9 million. Operating income margin was 0.7% of sales in the fourth quarter 2023 versus 1.9% in the fourth quarter of the prior year. The distribution segment's income was negatively impacted by adverse weather, consistent with our prior comments. Income was also negatively impacted by margin compression from lower pricing on commodity-based products sold through the business.

Water systems sales in markets outside the U S and Canada were up 7%.

Foreign currency translation decreased sales outside the U S and Canada at 12%, excluding the impact of foreign exchange sales were led with double digit increases in both Latin America, and EMEA and a single digit increase in the Asia Pacific market.

Water systems operating income was $44 1 million in the fourth quarter, 2023 down <unk> 5 million or 1% versus the fourth quarter of 2022.

Operating income margin was 15, 8% down 10 basis points compared to last year.

The decrease in operating income was primarily due to lower sales and higher operating expenses.

Distributions fourth quarter sales were $148 zero million versus fourth quarter of 2022 sales of $148 9 million.

1% decrease.

The.

<unk> segment's operating income was $1 million for the fourth quarter the year over year decrease of $1 9 million.

Operating income margin was <unk>, 7% of sales in the fourth quarter 2023 versus one 9% in the fourth and the prior year.

The distribution segment income was negatively impacted by adverse weather consistent with our prior comments income was also negatively impacted by margin compression from lower pricing on commodity based products sold through the business.

Jeffery L. Taylor: Fueling system sales were $65.7 million in 2023 versus fourth quarter 2022 sales of $85.5 million, a 23% decrease. As a reminder, the current year represents a tough comparison for the company. This fourth quarter 2022 fueling system sales represented an all-time fourth quarter record. However, fueling system sales in the US and Canada decreased 18% compared to the fourth quarter of 2022, as described by Gregg in his comments. Outside the U.S. and Canada, fueling system sales decreased 35 percent, due primarily to lower sales in the Asia-Pacific region.

Okay.

Fueling system sales were $65 7 million in 2023 versus fourth quarter of 2022 sales and $85 5, million% to 23% decrease.

As a reminder, the current year represents a tough comparison for the company as fourth quarter 2022, fueling systems sales represented an all time fourth quarter record.

Fueling system sales in the U S and Canada decreased 18% compared to the fourth quarter 2020 as described by Greg in his comments.

Outside the U S and Canada fueling systems sales decreased 35% due primarily to lower sales in the Asia Pacific region.

Fueling systems operating income was $19 4 million in the fourth quarter 2023, compared to $24 3 million in the fourth quarter of 2022.

Jeffery L. Taylor: Fueling Systems operating income was $19.4 million in the fourth quarter of 2023 compared to $24.3 million in the fourth quarter of 2022. The fourth quarter 2023 operating income margin was 29.5% compared to 28.4% of net sales in the prior year. Operating income decreased primarily due to lower volume, while the margin percentage increased due to a favorable product mix, gross margin expansion, and outstanding cost management. Franklin Electric's consolidated gross profit was $160.0 million for the fourth quarter of 2023, down from last year's fourth quarter gross profit of $166.2 million.

The fourth quarter 2023, operating income margin was 29, 5% compared to 28, 4% of net sales in the prior year.

Operating income decreased primarily due to lower volume, while the margin percentage increased due to a favorable product mix gross margin expansion and outstanding cost management.

Franklin Electric's consolidated gross profit was 160 <unk> for the fourth quarter 2023 down from last year's fourth quarter gross profit of $166 2 million.

The gross profit as a percentage of net sales was 33, 8% in the fourth quarter 2023.

Versus $34 zero percent in the prior year.

Selling general and administrative or SG&A expense was $108 8 million in the fourth quarter 2023, compared to $109 7 million in the fourth quarter of 2022.

Jeffery L. Taylor: Gross profit as a percentage of net sales was 33.8% in the fourth quarter of 2023, versus 34.0% in the prior year. Selling, General, and Administrative (SG&A) expense was $108.8 million in the fourth quarter of 2023 compared to $109.7 million in the fourth quarter of 2022. The decrease in FG&A expense was largely due to lower incentive-based compensation expenses in the quarter.

The decrease in SG&A expense was largely due to lower incentive based compensation expenses in the quarter.

SG&A cost as a percent of net sales increased to 23% in the fourth quarter of 2023 from 22, 4% in the fourth quarter of 2022.

Consolidated operating income was $50 8 million in the fourth quarter, 2023 down $5 4 million or 10% from $56 2 million in the fourth quarter 2020.

Jeffery L. Taylor: SG&A cost as a percent of net sales increased to 23% in the fourth quarter of 2023 from 22.4% in the fourth quarter of 2022. Consolidated operating income was $50.8 million in the fourth quarter of 2023, down $5.4 million, or 10%, from $56.2 million in the fourth quarter of 2022, due to year-over-year declines in fueling systems and distribution as previously described. The fourth quarter 2023 operating income margin was 10.7%, down from 11.5% in the fourth quarter of 2020. The effective tax rate was 18% for both the fourth quarters of 2023 and 2022.

Due to year over year declines in fueling systems and distribution as previously discussed.

The fourth quarter 2023 operating income margin was 10, 7% down from 11, 5% in the fourth quarter of 2022.

The effective tax rate was 18% for both fourth quarter of 2023 and 2022.

We generated approximately $316 million of operating cash flow in 2023 compared to $102 million in operating cash flow in 2020.

An improvement of $214 million.

In 2022, we invested in higher levels of working capital predominantly inventory to compensate for longer lead times and decreased supply availability.

Jeffery L. Taylor: We generated approximately $316 million of operating cash flow in 2023 compared to $102 million of operating cash flow in 2022, an improvement of $214 million. In 2022, we invested in higher levels of working capital, predominantly inventory, to compensate for longer lead times and decreased supply availability. In 2023, supply chain conditions are expected to improve, and working capital has returned to more normal levels, leading to higher levels of capital. We use the cash flow generated primarily to repay debt and return capital to shareholders via dividends and share repurchase. At the end of the year, our net debt was approximately $15 million, compared to approximately $170 million at the end of 2022.

In 2023 supply chain conditions have improved working capital has returned to more normal levels, leading to higher levels of cash flow.

We use the cash flow generated primarily to pay debt repay debt and return capital to shareholders via dividends and share repurchases.

At the end of the year, our net debt was approximately $15 million.

Compared to approximately $170 million at the end of 2022.

The company purchased approximately 144000 shares of its common stock in the open market for about $13 million during the fourth quarter 2023.

At the end of the fourth quarter 2023, the remaining share repurchase authorization is approximately 900000 shares.

On January 22nd the company announced a cash dividend increase of 11% since March the 30 <unk> consecutive year that Franklin has increased our cash dividend paid to shareholders.

Jeffery L. Taylor: The company purchased approximately 144,000 shares of its common stock in the open market for about $13 million during the fourth quarter of 2023. At the end of the fourth quarter of 2023, the remaining share repurchase authorization was approximately 900,000 shares. On January 22nd, the company announced a cash dividend increase of 11%, which marks the 32nd consecutive year that Franklin has increased its cash dividend paid to shareholders.

This concludes our prepared remarks, we will now turn the call over to Andrew for your questions.

As a reminder to ask a question. Please press star one one on your telephone and wait for units to be announced.

Withdraw your question. Please press star one again.

One moment please.

And our first question comes from the line of Matt Summerville with D. A Davidson.

Thanks Martin.

Couple of questions, maybe I can talk across the three business segments about where you think your own inventories or comment on how you are feeling about your own inventory levels and how much inventory still needs to kind of come out of the channel to be fully normalized and then I have.

Operator: This concludes our prepared remarks. We'll now turn the call over to Andrew for questions. Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Matt J. Summerville: One moment. And our first question comes from the line of Matt Summerville with D.A. Davis.

A follow up.

Yes, Matt.

I'll give some high level comments in terms of inventory.

Jeffery L. Taylor: Thanks, morning. A couple of questions, maybe: can you talk across the three business segments about where you think your own inventories are coming from, how you're feeling about your own inventory levels, and how much inventory still needs to kind of come out of the channel to be fully normalized? And then I have a follow-up question. Yeah, Matt, I'll give some high-level comments in terms of inventory. And, as you know, we don't dispose of inventory by segment, but, You know, overall inventory reduction. We finished this year at about 509 million; we finished last year at 545 million. So we had a nice reduction year over year, and that translates into about 2.5 turns for the business for the full year. Our goal is to drive that closer to three turns.

As you know, we don't disclose inventory by segment, but.

Overall inventory reduction we finished this year.

About $509 million, we finished last year at $545 million. So we had a nice reduction year over year and that translates into about two five turns for the business for the company for the full year.

Our goal is to drive that closer to three turns and so in terms of continued inventory reduction that's the direction, we're driving and.

When we look across the three segments I think all three segments made nice progress in terms of normalizing their inventory levels as <unk>.

Jeffery L. Taylor: And so, you know, in terms of continued inventory reduction, that's, that's the direction we're driving and where we want to go. When we look across the three segments, I think all three segments made nice progress in terms of normalizing their inventory levels as, you know, as supply conditions have improved. And so, you know, across all three businesses, water has pulled their inventory levels down. Distribution has done a really nice job of pulling their inventories down on a year-over-year basis. You know, they're a good indicator for us as to what is happening in the channel.

As supply conditions have improved and so across all three businesses in water has filed their inventory levels down.

Distribution has done a really nice job pulling their inventories down on a year over year basis.

A good indicator for us.

And what would be happening in the channel.

We believe that our team has done is reflective of mothers.

And we think that.

Most of the channel inventory Destocking has taken place in this point and we look forward to seeing an uptick in demand and then that pull through in 2024, and then fueling has managed their inventory levels.

Jeffery L. Taylor: And, you know, if what our team has done is reflective of others, then we think that, you know, most of the channel inventory destocking has taken place to this point, and we look forward to seeing an uptick in demand and then that pull through in 2024. And then fueling has managed their inventory levels as well as anybody in the business, certainly given how, you know, how their business has slowed down in 2024. And so, across the board, all three businesses made meaningful improvements in terms of how they manage their money without disclosing the hard data. I got it.

As good as anybody in the business and it's certainly given.

How that business has slowed down in 2020 for Enzo.

Across the board all three all three businesses made meaningful improvement in terms of how they manage it without disclosing the hard numbers.

Got it.

I.

Greg towards the end of your prepared remarks, you went through a number of.

Factors impacting the business.

As we move through the year you referenced price pressure I was wondering if you could put a little finer point on that and then maybe Jeff if in a normal year I kind of went back and looked and on average you guys do about 45% of your EPS in the first half 55 in the back half Thats not every year, but I'm just kind of.

Gregg C. Sengstack: And then, I think, Gregg, towards the end of your prepared remarks, you went through a number of, you know, factors impacting business in the KB as we move through the year. You referenced price pressure. I was wondering if you could put a little finer point on that.

Hunting to a general rule of thumb.

All of the factors, Greg kind of talked about how should we be thinking about that first half second half cadence. This year. Thank you guys.

Gregg C. Sengstack: And then maybe, Jeff, in a normal year, I kind of went back and looked, and on average, you guys do about 45% of your EPS in the first half, and 55% in the back half. That's not every year, but I'm just kind of pointing to a general rule of thumb. Given all the factors Gregg kind of talked about, how should we be thinking about that first half, second half KB? Thank you. Yeah. So Matt, I would say that the pricing is more indicative of more people behaving more like it was before the pandemic. And that is where you're getting promotional activity in the market. Now we're talking principally about groundwater, principally in North America, or the US and Canada.

Yes.

Matt I would say that the.

Pricing is more indicative of more behaving more like it was before the pandemic and that is where youre getting.

Promotional activity and marketing our I'm talking principally groundwater principally in North America, or the U S and Canada and so it's just it's more kind of normal.

<unk>.

With.

Inflation.

<unk> cost us.

Slowing again as Jeff pointed out there's still some excess inventory in the <unk>.

Panel manufacturers.

Manufacturers and maybe to a lesser degree of distribution. So we're seeing more I'll use hand to hand combat is a terminology for that.

Gregg C. Sengstack: And so it's just, it's more kind of normal conditions. And with inflation, input costs, slowing, you know, again, as Jeff pointed out, there's still some excess inventory in the channel manufacturers, and maybe the lesser grade distribution. So we're seeing more, I'll use hand to hand combat as a terminology for that, in this case.

In this case.

And then on the on the spread of earnings.

You are correct and Jeff can give you more detail about that with the distribution business. We're getting more of a I think a 50 50 break because distribution manufacturing as well in Q2 distribution does better.

Gregg C. Sengstack: And then on the spread of earnings, yeah, you're correct, and Jeff can get into more detail about that. You know, with the distribution business, we were getting more of, I think, a 50-50 break because distribution, manufacturing does well in Q2, and distribution does better in Q3. But yeah, that's, but we're gonna have a kind of slower start to the year. So Jeff, you want to give Matt?

Better than Q3, but yes.

But we're going to have a kind of a slower start the year. So Jeff you want to give.

Your thoughts sure.

I think that's a great lead and Greg as well.

We expect.

The start of 2024 are really kind of moved sideways from where we ended.

Obviously Q1 seasonally is typically the lowest quarter for us in the company.

Man I went back and looked at the past three years for Q1.

Jeffery L. Taylor: Sure. And I think that's a great lead-in, Gregg, is that we expect the start of 2024 to really kind of move sideways from where we ended. Obviously, Q1 seasonally is typically the lowest quarter for us in the company. And, man, I went back and looked at the past three years for Q1. Earnings as a percent of full year earnings are averaging about 18% in Q1. The range is from about 16 to 19%.

Earnings as a percent of full year is averaging about 18% in Q1.

Range is from about 16% to 19% and so I would say certainly this year.

We would expect similar profile and given that we expect to build as we go through the year.

First half second half may be more heavily weighted towards the back half of the year.

Okay.

Jeffery L. Taylor: And so, you know, I would say certainly this year we would expect to see a similar profile. And given that we expect to build as we go through the year, you know, that first half and second half may be more heavily weighted towards the back half. Got it.

Okay got it thank you.

Thank you.

One moment please for our next question.

Okay.

And our next question comes from the line of Bryan Blair with Oppenheimer.

Thank you and good morning, everyone. Good morning, Brian.

Action manufacturing strikes us is strategically very important expands into the southeast <unk> water treatment platform.

Brian Blair: Thank you. Thanks, Matt. Thank you. One moment, please, for our next question. Our next question comes from the line of Brian Blair with Oppenheimer. Thank you. Morning, everyone. Morning, Brian.

What is the the revenue base there you mentioned.

Approaching $200 million in total for the platform and then off of that base. How does your team thinking about 2020 for growth.

Gregg C. Sengstack: Action Manufacturing Strikes Us is strategically very important, you know, expanding into the southeast for your water treatment platform. What is the revenue base there? You mentioned approaching $200 million in total for the platform, and then off of that base, how's your team thinking about 2024 growth? When you say what's the revenue, are you asking specifically about action manufacturing? Yes, just what does that contribute to the approaching $200 million? Yeah, it'll be in the $15 to $20 million range overall for action manufacturing.

Yes.

When you say, what's the revenue or are you asking specifically for action manufacturing.

Yes, just what does that contribute to the approaching 200 it.

It'll be in the 15% to $20 million range overall for action manufacturing.

In terms of operating margins, we expect against that business in line with the restaurant and our water treatment business in 2024.

Okay, and the water treatment.

Revenue base.

Gregg C. Sengstack: And, you know, in terms of operating margins, we expect to get that business in line with the rest of the water treatment business in 2024. Okay, and the water treatment revenue base. You know, all in.

And how is your team is thinking about 'twenty four growth prospects.

Yes, I think we see that.

We've always said that our water systems as Scott.

GDP plus three.

Gregg C. Sengstack: How's your team thinking about 24 growth process? Yeah, I think we see that, you know, we've always said that water systems are kind of GDP plus, you know, three to 5% plus top line growth. We see water treatment can be a little stronger than kind of the segment average there, as we continue to grow that business and leverage it. And so I think top line, that's typically what we expect for growth in water systems. Okay, understood.

3% to 5% plus top line growth, we see water treatment can be a little stronger than the segment.

Segment average there as we continue to grow that business and leverage it.

And so I think topline that's that's typically what we expect for growth in <unk>.

Water systems.

Okay understood.

And specific to water treatment staying staying here how does your deal funnel look coming into 'twenty, four and given the assets that.

Gregg C. Sengstack: And specific to water treatment, staying there, how does your deal funnel look coming into 24? And given the assets that you now have in place, how's your team thinking about or prioritizing new technologies, further geographic expansion or penetration, and perhaps more of a move into commercial applications? cover all three points.

We now have in place how does your team is thinking about prioritizing.

New technologies further geographic expansion and penetration and perhaps more of a move into commercial applications.

We have covered all three point as well.

Yes, there is certainly moving into Florida in a meaningful way.

And it's a key market.

Gregg C. Sengstack: Well, yeah, there is certainly moving into Florida in a meaningful way. It's a key market. There are other key markets around in the southwest, which we've. We have, you know, privately held companies that people are reaching out to us for, which is always good to see, and I think the opportunity to move up the complexity and size of the system into commercial industrial would be a next logical extension for us as well. If I can sneak in one last one,

There are other key markets around the southwest which we've.

Acquired into.

We have.

Privately held companies and people are reaching out to us which is always good to see and I think the opportunity to move up.

And complexity and size of the system into light commercial industrial would be a next logical extension for us as well.

Gregg C. Sengstack: I think you mentioned record revenue from critical asset monitoring. I understand that's off of a relatively small base, but if you could speak to the momentum there, what you're seeing going into 24 and how large that business may become in the medium term, that would be helpful. Right now, the business is approaching about 10% of fueling. When you look at the critical asset monitoring that relates to the grid, what we call the grid business, it grew north of 20%. It's been growing at that rate now for several years, admittedly, again, off a small base.

Understood.

Ill sneak in one.

One last one I think you mentioned.

A record.

Revenue from critical asset monitoring to understand that's off of a relatively small base.

You can speak to the momentum there what youre seeing going into 'twenty, four and how large that business may become.

Medium term that would be helpful.

Yes, right now the business is approaching about 10% of the fueling segment. When you look at the at the critical asset monitoring and it relates to the grid, Okay, what we call the grid business.

It grew north of 20%, it's been growing at that rate now for several years of Italy again off a small base.

Gregg C. Sengstack: We're getting specked by more and more utilities. We're getting bigger orders from utilities. These are for monitoring devices that go on to high-voltage circuit breakers, medium-voltage circuit breakers, full-top transformers, also major transformers that are used to bring in power to a grid and communities.

We're getting specs.

More and more utilities.

Their orders from utilities. These are for monitoring devices that go on to <unk>.

Voltage circuit breaker medium voltage circuit breakers.

Transfer of farmers.

Also.

Gregg C. Sengstack: And then we're also into telco, into server farms, you know, into railroad crossings, uh, backup battery systems, and so on. So we think that just as our name gets out there, as we get more brand recognition, more specifications, uh, and as the world moves more to electrification over time, we're in a good place for that business. And we think it's kind of like where we started with fueling many, many years ago; we started with one product, and we added that product, listened to our customers, we listened to their pain points, and we helped solve pain points for customers. And we're beginning to see customers across not only the US but across the globe are talking with us about their pain points, and we hope to solve more problems and challenges for them in the future. We like the space, so that's encouraging. I appreciate the call.

Major Transformers that R. R.

<unk> ran powered too.

Sure.

Communities and then we're also in the telco and to server farms and railroad crossing backup battery systems and so on so we think that just as our name gets out there and as we get more brand recognition more specification.

As the world moves more to electrification over time.

Over time, it's going to take time is that we're in a good.

Place for that business and we think it's kind of like where are we starting with fueling many many years ago that we started with one product.

Added to that product, we listen to our customers, we listen to their pain points, and we help solve pain points for customers and we're beginning to see.

Where customers.

Across not only the U S, but across the globe are talking with us about their pain points, and we hope to solve more problems and challenges for them on a go forward basis.

We'd like to space.

That's encouraging I appreciate the color.

Brian Blair: Thank you, Brian. Thank you. A moment, please, for our next question. Our next question comes from the line of Ryan Connors with North Coast Research Partners. Good morning, gentlemen. Good morning, Ryan.

Thank you Brian.

Thank you one moment please for our next question.

And our next question comes from the line of Ryan Connors with Northcoast Research partners.

Good morning, gentlemen, good morning, Ryan.

Ryan Michael Connors: I have a few questions. Most of them are actually follow-ups on things you've discussed here in the Q&A already, but the first was you were talking with Mr. Blair there about the water treatment business, but in the press release, you do mention some softness in the quarter in that business. So can you talk specifically about what was behind that, any particular markets or products? Was that more volume or price? Curious what the weakness was there in the quarter itself.

I have a few questions most of them are actually follow ups on things you have you've discussed here in the Q&A already but the first was you were talking with Mr. Blair there about the water treatment business, but in the press release, you do mention some softness actually in the quarter to that business. So can you talk specifically about.

About what was behind that any particular markets or products is that more volume or price curious what was the weakness there in the quarter itself.

Gregg C. Sengstack: You know, Ryan, there are a couple of factors. One is, just like other product lines in the US, that we do sell in wholesale. And again, we see a lack of enthusiasm for taking additional inventory or people taking inventories. That's software.

A couple of factors one is just like in other product lines in the U S is that we do sell in wholesale and again seeing.

Lack of enthusiasm for taking additional inventory or people taking inventories down at the software. The other thing is is that water treatment business is more housing start related impacts as well as existing home sales.

Gregg C. Sengstack: The other thing is that, you know, Water Treatment Business is more housing start related impact, as well as existing home sales, because people often will make a decision to install or upgrade a water treatment system when they move. And so with existing home starts being at the lowest level in 30 years, you know, with the move, the rather dramatic movement of interest rates. Well, talked about that certainly has put downward pressure on that business. We don't think that we're kind of lapping at the fact that you're seeing interest rates coming down a bit. You're seeing home starts beginning to come up a little bit. So that's why we're a little more optimistic about 24. But I think it's going to again, the comparables will be easier to back up 24 like many companies in this area and in the front. OK. Good. And then over to the fueling side.

People, often will make a decision to.

Install our upgrade water treatment system when they move in.

So with with existing home starts being at the lowest level in 30 years.

With a rather.

A rather dramatic move in interest rates as it's been.

Well talk about.

And that certainly has put downward pressure on that business. We don't think that we're kind of lapping that youre seeing interest rates coming down a bit we're seeing.

Home starts to come up a little bit. So that's why we're more optimistic about 24, but I think it's going to again the comparable to be easier in the back half of 'twenty for like many companies in this area in the front half.

Yes.

Okay.

Gregg C. Sengstack: And on this discussion of channel inventory, destocking, we're trying to get comfortable with reconciling that with the comments you've made regarding Greg, regarding the underlying demand growth still being intact. So you can just discuss with us why we would be seeing the stocking, you know, persist for so long there if the demand, in fact, is still robust underneath that obviously lead times have come down, but at some point, you know, we expect that to run its course. Can you talk about the timing of fueling specifically, what your base case is for when?

Good and then over to the fueling side and on this discussion of channel inventory Destocking, we're trying to get comfortable with.

Reconciling that with the comments you've made.

Regarding Greg regarding the underlying demand growth still being a tax you can just discuss for US why would we be seeing destocking persist. This long there if the demand effect is still a robust underneath that obviously lead times have come down but at some point, we expect that to run. Its course can you talk about the timing of wear in fueling.

Specifically.

What your base case is for win.

That dynamic kind of levels out and that growth will start to shine through.

Gregg C. Sengstack: That dynamic kind of levels out, and that growth will start to shine through. Hey, Ryan, I'd say that we were a little surprised at the lack of appetite in Q4. You know, like many others, we've been talking about de-stocking and figuring like, okay, now it's over. Now it's over. It seems to kind of extend.

Alright, and I would say that we were a little.

Surprised at the lack of appetite in Q4.

Like many others, we've been talking about Destocking a figure like okay. Now it's over now silver seem to kind of extend.

We talked again with major markers of a couple of them are public and so again with the public major marketers, they're putting out their bid schedules are built schedules.

Gregg C. Sengstack: So we talked again with major marketers; a couple of them are public. And so, you know, with the public major marketers, they're putting out their bid schedules, their build schedules, and they have a say in commitment to the street like we do. And so, when you get that visibility with some of the private firms, things kind of move to the right. And so with that, and with the really, again, improved lead times, if you think about it, you're in distribution in the fueling space; you've got to have that product available when that station starts to build because they have a relatively tight schedule and build schedule. So you're going to buy ahead. And now with the lead times improving, you know, they really, you know, distributors had little appetite. We didn't see the normal kind of year-end activity that we would see many people hit rebate levels. There was very little incentive or very little interest in hitting rebate levels at the end of the year.

Save your commitment to the street like we do and so.

So you get that visibility with some private firms things kind of move to the right and so.

With that and with the really again improved lead times. If you think about it you are in distribution in the joint space, you've got to have that product available when that station starts to build because the relatively tight schedule and build schedules. So youre going to buy ahead and now with the lead times are improving.

Early distributors had little appetite, we didn't see the normal kind of year end activity that we would see many people to hit.

Rebate levels. There is very low incentives were variable interest hitting rebate levels.

The end of the year so.

Think thats as they kind of are customers kind of look at the year and said look we're going to go by.

Restart in 'twenty for the refresh.

It's really a very good station builds even through Covid with all the challenges.

But I think that what we're looking at as station builds maybe being kind of more like again 2019 2020 levels.

Gregg C. Sengstack: So I think that kind of, you know, our customers kind of looked at the year and said, Look, we're gonna let this go by, and we're gonna, you know, restart 24, the refresh. Certainly, there were good station builds even through COVID with all the challenges, but I think that what we're looking at is station builds maybe being kind of more like, you know, again, 2019, 2020 levels, which are down a little bit from the last couple of years. But again, the major marketers, because again, two-thirds of the stations out there in the United States, for example, there are 150,000 stations, call it 100,000, are people that operate 10 stores or less.

We're down a little bit from.

Last couple of years, but again the major marketers.

Because again two thirds of the stations out there in United States. For example, the 150000 stations call. It 100000 or are people to operate 10 stores or less.

Those number of operators are declining they're being bought off are replaced by the major marketers. Those are the companies that were focused on with respect and that's why we're encouraged to say that.

With the major markers consolidating with us gaining spec with them Thats why we feel that we're going to have.

Reasonable 24, but.

Like you said I think we renewables surprises kind of lack of appetite for the fourth quarter, but the.

<unk> told us that they are going to have a good schedule built in 2020 or their investors that we'd see.

Gregg C. Sengstack: And the number of operators is climbing; they're being bought up or replaced by the major marketers. Those are the companies that we're focused on with spec. And that's why we're encouraged to say that, you know, with major marketers consolidating, and us gaining spec with them, is why we feel that, you know, we're going to have a reasonable 24. But, like you said, I think we were even a little surprised at the kind of lack of appetite in the fourth quarter. But, you know, the marketers are telling us that they're going to have a good schedule built in 2024, which. Okay.

Got it that's all.

Very thorough I appreciate the detail and I did have one last one if I might sure this issue of price and and <unk>.

Stocking in these commodity oriented products as you call them and the distribution business can you just.

Unpack that for us a little bit some additional color on what proportion of the total line card for headwaters are we talking about here just kind of scale. It for US and then you also mentioned that you expect that to abate as the year progresses. So any any kind of additional sequencing color there would be helpful as well.

Gregg C. Sengstack: That's very thorough. I appreciate the detail. And then I did have one last one, if I might.

Ryan Michael Connors: Sure. This issue of price and de-stocking and these commodity-oriented products, as you call them in the distribution business, can you just unpack that for us a little bit? Some additional color on what proportion of the total line card for Headwaters are we talking about here?

Sure Ryan so call it commodity type product in the groundwater channels call around a half 40% to be half of.

Of the products that are handled.

And so.

So what we were seeing in 'twenty.

Three in particular with pipe, which is a large portion of that both class against steel, but certainly the classic.

Gregg C. Sengstack: Just kind of scale it for us. And then you also mentioned that you expect that to abate as the year progresses. So any kind of additional sequencing color there would be helpful as well.

Is that capacity came online and the manufacturers really one ship in big ways will begin a bit of a price war and so anything that held up you had on hand became worth less and where we got the squeezed.

Gregg C. Sengstack: Sure, Ryan. So call it a commodity type product, and the groundwater channels call around half of the products that are handled around 40% to maybe half of the products that are handled. And, So, what we were seeing in 23, in particular with pipe, which is a large portion of that, both plastic and steel, but certainly the plastic, capacity came online, and manufacturers really wanted to ship in big ways, so it began a bit of a price war, and so anything you held The fourth quarter is disappointing as the results were, on an absolute basis, on a relative basis, down about 120 base points, I think, Jeff, from the fourth quarter last year, and compared to a 300 base point decline overall during the year. So, it seems to be, and margins of pressure seem to be, you know, pressure on margins seems to be abating a bit. And so I think that, again, you know, Q1, always tough in the groundwater business, you know, we were expecting normal weather, but as you know, it's been well documented in January, we got one of the wettest months again in the West, flooding in California, and on the East Coast, we've got the big snow storms.

The fourth quarter is disappointing as the results were on an absolute basis on a relative basis down 120 basis points I think Jeff.

In the fourth quarter last year.

And compared to 300 basis point decline overall during the year. So it seems to be.

Slowing.

And margins in our pressure seems to be.

Pressure on margins seem to be abating a bit.

I think that.

Again, Q1 always tough in the groundwater business.

We're expecting normal weather, but as you know has been well documented in January.

One of the wettest months again, and the worst flooding in California East Coast, we got into the snow storms. These things will impact the start of the year, but I think as we go through the year again as inventories are normalized.

Supply is matched demand, we should see a more normal pricing environment environment, what I did mentioned to Matt earlier was that.

The sale of pumps in pumping systems and the groundwater channel. We said we tend to see more kind of one offs specials promos and responding to competitive threats there somebody's refining our competitive threat. So you see kind of more that's more normal or indicative of behavior before the pandemic.

Gregg C. Sengstack: You know, these things will impact the start of the year. But I think as we go through the year again, as inventories have normalized, as supply has matched demand, we should see a more normal pricing environment. What I did mention to Matt earlier was that, you know, in the sale of pumps and pumping systems in the groundwater channel, we tend to see more kind of just that, you know, one-offs, specials, promos, and if you're responding to a competitive threat, somebody's responding to our competitive threat. So you see kind of more that's more normal or indicative of behavior before. I got it.

Got it I appreciate the time this morning.

Sure Ryan.

Thank you one moment please for our next question.

Yes.

One moment please.

And our next question comes from the line of Walter Liptak with Seaport Research.

Hi, Thanks, Good morning, guys.

Well.

Just wanted to ask about pricing and.

Ryan Michael Connors: I appreciate the time. Sure, Ryan. Thank you. One moment, please, for our next question. One moment.

If it is a more normal year for pricing and inflation.

Walter Liptak: And our next question comes from the line of Walter Liptak. For more information, visit www.fema.gov. Hi, thanks.

What's the timing for any actions and maybe what kind of magnitude deal with that.

Yes, we certainly see pricing, becoming more like it has been.

Jeffery L. Taylor: Good morning, guys. I just wanted to ask about pricing. And, you know, if it is a more normal year for pricing and inflation, you know, what are you going to do, what's the timing for any actions? And maybe, you know, what kind of magnitude do you Yeah, we certainly see pricing becoming more like it has been, you know, several years ago in terms of the industry, certainly in the water business, but fueling to some extent as well. They had more annual price increases, and, you know, I think we see that returning to more normal versus the environment in late 21 and 22, where we were doing monthly or quarterly price increases just to stay on top of inflation that was happening out there.

Several years ago in terms of the industry certainly in the water business, but fueling to some extent as well.

They had more annual price increases and so I think we see that.

Returning to more normal versus really than the environment in late 'twenty, one and 'twenty, two where we were doing monthly or quarterly price increases just to.

Stay on top of inflation that was happening out there so.

Frequency of it will.

Think return more to normal obviously, we'll manage that la fitness.

Inflation kicks up again, we will manage our business and work through that.

Jeffery L. Taylor: So the frequency of it will, we think, return more to normal. Obviously, we'll manage that vault. And if, you know, inflation kicks in again, we'll manage our business and, you know, work through that typically priced, you know, we're going to get in that, you know, two to three to 4% price range, assuming that inflation is in check and at a more normalized level. We certainly want to, you know, recover our costs and maintain our margins. And so, but it depends on where we are in the world And we have a global business. And so outside of the US, the environment is much different than what we see inside the US.

Typically price, we're going to get in that 2% to 3% to 4% price assuming that inflation is injected in a more normalized level, we certainly want to recut.

We recover our cost and maintain our margins and so but it depends on where we are in the world and we have a global business and so outside of the U S. The environment is much different than what we see inside the U S. We tend to talk about.

<unk> numbers inside the U S much more frequently.

There are parts of our business outside of outside of North America.

Inflation and currency devaluation are.

Double digits in some cases high double digits, we're managing through.

Jeffery L. Taylor: We tend to talk about, you know, the inflation numbers inside the US much more. But, there are parts of our business outside of North America where, you know, inflation and currency devaluation are double digits and, in some cases, high double digits. And we're managing through those environments as well. And our teams do a really nice job of going out and recovering those., and Michael H.

Those environments as well and our teams do a really nice job.

We went out and recover in that.

Sure.

Lost sales or currency devaluation impact.

In terms of pricing so im hope.

Hopefully that answers your question, Okay, Yes, that's great.

And then maybe.

On the cash flow looks great balance sheets in great shape I Wonder if you could just talk about.

Jeffery L. Taylor: .. .. .. .. ...

Jeffery L. Taylor: You know, you know, anything that you're looking at that, you know, to utilize your balance sheet is, are you going to try and increase the number of M&A deals? You know, is there something else that you can do? Yeah, so, first of all, capital structure. I really like our capital structure. Well, you know, we effectively have no leverage on the balance sheet; net net leverage is 0.1 times.

Capital structure.

<unk>.

Anything that youre looking at that.

To utilize your balance sheet is are you going to try and increase the.

The number of M&A deals is there something else that you can do.

Yeah. So.

First of all capital structure.

Like our capital structure.

We effectively have no leverage.

On the balance sheet net net leverage is 0.1 times and so.

Jeffery L. Taylor: And so, you know, that gives us a lot of flexibility in the company. And so we're pretty pleased with that. We're very happy with the strong cash flow generation that we saw in the, you know, in the year and certainly really excited that that free cash flow conversion at 142% was certainly well north of, you know, what we say we target every year north of 100% free cash flow conversion. And I didn't I didn't mention it, but full year EBITDA was over 300 million of EBITDA. I think it was 306 million to be exact.

That gives us a lot of flexibility in the company and so we're pretty pleased with that we're very happy with the strong cash flow generation that we saw and the.

In the year, and certainly really excited that that free cash flow conversion at 142% certainly was well north of what we say we target every year at north of a 100% free cash flow conversion.

And I didn't I didn't mention that but full year EBITDA was over $300 million of EBITDA I think it was 306 million to be exact so.

Jeffery L. Taylor: So great great performance from a balance sheet perspective and from a cash flow perspective for the company. You know, Greg can comment here as well, but, you know, obviously, we've generated strong cash flow throughout our history. We expect to continue to do that, and that gives us a great, you know; we're well positioned to take advantage of opportunities as they present themselves. I think we would be excited to, you know, see more deals and be more active on the M&A front. And, you know, certainly, we've got our attention and focus on those opportunities. And we're going to, you know, we're going to maintain our discipline in terms of how we evaluate those and make sure that they make sense for us.

Great great.

Performance from from the balance sheet perspective, and from a cash flow perspective for the company.

Okay.

Greg can comment here as well, but.

Obviously, we generated strong cash flow throughout our history, we expect to continue to do that.

And that gives us a great well.

We're well positioned to take advantage of opportunities as they present themselves I think we would be excited too.

Two.

See more deals and be more active on the M&A front and.

Certainly we've got our attention and focus on those opportunities and.

We're going to we're going to maintain our discipline in terms of how we evaluate those and make sure that they make sense for us and it's a good deal for our shareholders overall.

Jeffery L. Taylor: To the extent that we have excess cash flow, then we've got a long history of paying a reasonable dividend. We've increased that dividend for 32 years; the board and the management team, I think, have a lot of commitment to continue paying the dividend and, hopefully, increasing it as we move forward. Obviously, the board makes that decision.

To the extent that we have excess cash flow then we've got a long history of <unk>.

Paying a reasonable dividend, we've increased that dividend for 32 years, the board and the management team I. Thank God.

A lot of commitment to continue paying the dividend and hopefully increasing.

As we move forward, obviously the board makes that decision.

Jeffery L. Taylor: And to the extent that we can repurchase shares, and it's accretive and makes sense for our shareholders as we continue to grow the business, then that's also an area where we can deploy some of that excess cash. But we certainly want to continue to invest in growing the business through acquisitions, as well as organic growth opportunities. Okay, great.

And to the extent that we can repurchase shares and its accretive and makes sense for our shareholders. As we continue to grow the business and that's that's also an area, where we can deploy some of that.

Excess cash, but we certainly want to continue to invest in growing the business through acquisition as well as organic.

Organic growth opportunities that we have.

Walter Liptak: Thank you. Thank you. One moment, please, for our next question. Our next question comes from the line of Michael Halloran with Bayer. Hi, good morning, everyone.

Okay, great. Thank you.

Thank you one moment please.

Please for our next question.

And our next question comes from the line of Michael Halloran with Baird.

Michael Patrick Halloran: You have Pez on for Mike, so I wanted to take a look at fueling again. You know, can you perhaps size how much of a headwind the declines in destocking versus the pushouts were in the quarter? And then, you know, are there any green shoots you're seeing that, you know, there's light at the end of the tunnel on destocking within fueling specifically? Yeah, I think the short answer is probably no, but let me let me try an attempt at it here, Pence.

Hi, Good morning, everyone you have pads on for Mike. So I wanted to take a look at fueling again.

Can you.

Yes.

How much of a headwind the declines.

Destocking versus the push outs were in the quarter and then.

Is there any green shoots you're seeing that.

There is light at the end of the tunnel on Destocking within fueling specifically.

Yes, I think the short answer is probably no, but let me let me take an attempt to Andrew Burns.

Jeffery L. Taylor: You know, in terms of fueling. If we look at the business and the pullback that we've seen in volume there, we certainly believe that destocking is the largest factor that's driving that decrease in volume. And that's based on discussions that our team is having with our customers and who we sell to in terms of... the distributors that sell through this market as well as the major marketers that are out there. But we also know that, you know, there have been delays, there have been pushouts, higher interest rates. Gregg talked earlier about the major marketers, and as they continue to grow in size, they become more sophisticated. And so they understand that higher financing costs impact their ability to, you know, carry high levels of inventory, and they've all pulled back on that. And certainly, as supply availability and lead times have improved, that certainly played a big factor in it as well. So I think those are, you know, those are the big factors.

In terms of in terms of feeling.

If we if we look at the business and.

Pullback that we've seen in volume there.

We certainly believe that Destocking is the largest factor that's driving that decrease in volume and that's based on discussions that our team is having with our customers and.

And who we sell through in terms of the distributors that sell through in this market as well as the major marketers that are out there.

But we also know that they have.

Been delays there had been push outs higher interest rates Gregg talked earlier about the major marketers and as they continue to grow in size and they get more sophisticated and so they understand that higher financing cost impacts their ability to carry high levels of inventory and they've all pulled back on that.

And certainly as supply availability and lead times have improved.

Certainly play to play to make factor in it as well.

<unk>.

So I think those are those are the big factors, we talk about demand in 2024 in fueling.

Jeffery L. Taylor: We talk about demand in 2024, and fueling is normalizing. And let me maybe unpack that just for a quick second, because, you know, if you replay the last several years, right, 2021 coming out of the pandemic, there was, there was certainly some recovery there. Because, if you recall, fueling was most impacted during the pandemic, and, you know, capital got shut down at the major marketers. And so, you know, when that came back, there was some level of recovery that came through in 2021. And, obviously, hindsight's always 20-20.

Is normalizing and let me unpack that just for a quick second because.

A replay of the last several years by 2021 coming out of the pandemic.

There were certainly some recovery there because if you recall fueling was most impacted during the pandemic.

Capital got shutdown at the major marketers and so.

When that came back there was some level of recovery that came through in 2021.

And obviously hindsight's always 2020, but.

Jeffery L. Taylor: But in 2022, you know, we know that demand was solid and strong in the fueling business for new to industry installations but also for replacement demand for upgrades of existing stations. But there was this factor in 2022 that was this buildup of stocking inventory in the channel. And I think we see that more clearly today than we did when it was happening.

In 2022.

We know that.

The demand was solid and strong and the and the fueling business.

For new to industry installations, but also for a replacement demand for upgrades of existing patients, but there was there was a factor in 2022 that was this buildup of stocking inventory in the channel and I think we see that more clearly today than maybe we did when it was.

Jeffery L. Taylor: But, you know, there was this big buildup of inventory, and then the big reset happened in 2023. And so as we move into 2024, we, you know, based on our discussions with our customers and the major marketers, we see that demand is normalizing, but it's not going to normalize back to where it was in 2022, right? It's not going to have that buildup of inventory that, you know, that drove sales, the strong record sales that we saw in 2022.

Happening but.

There was this big buildup of inventory and then the big reset happened in 2023, and so as we move into 2024 based on our discussions with our customers and the major marketers, we see that demand is normalizing, but it's not going to normalize back to where it was in 2022.

It's not going to have that buildup of inventory.

That drove sales.

Strong record sales that we saw in 2022, but the business is still solid the end market is healthy the major marketers are continuing to and the vast theyre going to continue to grow and we really think that we do a great job in terms of.

Jeffery L. Taylor: But the business is still solid, the end market is healthy, the major marketers are continuing to invest, they're going to continue to grow. And we really think that we do a great job in terms of, you know, supplying them, bringing them the best safety in the industry, the lowest total cost of ownership, and delivering a great product to them that we support. So that's that's a high level where we see 2024 for fuel. No, that's a super helpful color and a very robust answer.

Supply and them, bringing them.

Great safety in the industry, the lowest total cost of ownership.

And deliver a great product driven that we support after the sale. So that's high level, where we see 2024 for fuel.

No that's super helpful color and very robust answer I appreciate it.

Jeffery L. Taylor: I appreciate it. You know, maybe, maybe on the margin side of fueling, obviously, an impressive margin despite the volume levels, maybe thinking about margins in 2024, you know, is there any, any, you know, puts and takes that we should consider kind of as demand normalizes? Are there any mixed considerations we need to be mindful of?

Maybe maybe on the margin side of fueling obviously.

Impressive margin <unk>.

Despite the volume levels.

Maybe thinking about margins in 2024.

Is there any any puts and takes that we should consider kind of added that demand normalizes is there any mix considerations, we need to be mindful of or.

Jeffery L. Taylor: Or, you know, do we feel like we can, do we feel like we can maybe increase at relatively normal levels from here? Yeah, I mean, we've historically said this business is 25 to 27% operating income margin. We've been way past that for several quarters now.

Do we feel like we can do we feel like we can maybe instrument at relatively normal levels from here.

Yes.

We've historically said this business is 25% to 27% operating income margin, we've been way past that for several quarters now and so.

Jeffery L. Taylor: And so, you know, certainly as our grid solutions and our critical asset monitoring product increase in the mix, that certainly helps our business from a margin perspective. I would say as some of the core fueling products kind of come back and that mix starts to shift down, it's going to keep us in a margin range that is going to be at the high end of that range, if not higher. I expect that... I'm not predicting we're going to go back to 32% operating margin. We'll be in the high 20s and possibly touch over 30, depending on how things play out.

Certainly as our grid solutions and our critical asset monitoring products.

As they increase in the mix that certainly helps helps our business from a margin perspective.

I would say is.

Some of the core fueling products and I'll come back and that mix starts to shift down it's going to keep us in the margin range.

Is going to be at the high end of.

In that range, if not higher I expect that I'm.

I'm not predicting we're going to go back to 30, 32% operating margins, but we will be in the high twenty's and possibly touch over 30 dependent on how things play out.

Michael Patrick Halloran: Thank you. I'll pass it on. Thank you. I'll now hand the call back over to Chairperson and CEO, Gregg Sengstack, for any closing remarks. Well, I thank you all for joining us this morning for this call. Please have a safe week, and we'll look forward to speaking to you after the first quarter with our first quarter results. Thank you, and thank you for participating. This does conclude today's program, and you may now disconnect. Thanks for watching!

Super helpful. Thank you I'll pass it on.

Thank you I will now hand, the call back over to chairperson and CEO Gregg <unk> for any closing remarks.

Well. Thank you all for joining us this morning for this call. Please.

See if we can we will look forward to speaking to you after the first quarter I am with our first quarter results.

Thank you and thank you for participating this does conclude today's program and you may now disconnect.

Okay.

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Okay.

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Thanks.

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