Q2 2026 Watts Water Technologies Earnings Call

August 6, 2026

Operator: Welcome to Watts Water Technologies Inc.'s Q2 2026 earnings call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Ray Nash, Vice President, Investor Relations.

Operator: Welcome to Watts Water Technologies Inc.'s Q2 2026 Earnings Call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Ray Nash, Vice President, Investor Relations.

Speaker #1: Welcome to Watts Water Technologies, Inc., Q2 2026 earnings call. At the end of the presentation, we will open the line for questions. I will now turn the call over to Ray Nash, Vice President, Investor Relations.

Speaker #2: Thank you. And good morning, everyone. Welcome to our Q2 earnings conference call. Before we begin, I'd like to remind everyone that during this call, we may be making certain comments that constitute forward-looking statements.

Ray Nash: Thank you. Good morning, everyone. Welcome to our Q2 earnings conference call. Before we begin, I'd like to remind everyone that during this call, we may be making certain comments that constitute forward-looking statements. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, see Watts' publicly available filings with the SEC. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Today's webcast is accompanied by a presentation which can be found in the investor relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. With that, I will turn the call over to Bob.

Speaker #2: These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially. For information concerning these risks, Steve Watts publicly available filings with the SEC.

Speaker #2: The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of our website.

Ray Nash: Today's webcast is accompanied by a presentation which can be found in the Investor Relations section of our website. We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. With that, I will turn the call over to Bob.

Speaker #2: We will reference this presentation throughout our prepared remarks. Any reference to non-GAAP financial information is reconciled in the appendix to the presentation. With that, I will turn the call over to Bob.

Speaker #3: Thank you, Ray. And welcome to your first earnings call with Watts. Good morning, everyone. Please turn to slide 3, and I'll provide an overview of the Q2.

[Company Representative] (Watts Water Technologies): Thank you, Ray, and welcome to your first earnings call with Watts. Good morning, everyone. Please turn to slide three, and I'll provide an overview of the Q2. We delivered another quarter of better-than-expected results, including record sales, operating income, and earnings per share. I'd like to thank the entire Watts team for their dedication and contributions, which made these results possible. Organic sales rose 12% in the quarter as we benefited from strong growth in data centers and favorable price, as well as pull forward demand, partly offset by our 80/20 rationalization program. Adjusted operating margin was 21%, down 60 basis points, primarily reflecting the anticipated dilution from recent acquisitions and a difficult comparison against the one-time price cost benefit in the prior year that we discussed last quarter. Even with those headwinds, margin performance was better than expected due to favorable price, volume leverage, and productivity.

Bob Pagano: Thank you, Ray, and welcome to your first earnings call with Watts. Good morning, everyone. Please turn to slide three, and I'll provide an overview of the Q2. We delivered another quarter of better-than-expected results, including record sales, operating income, and earnings per share. I'd like to thank the entire Watts team for their dedication and contributions, which made these results possible. Organic sales rose 12% in the quarter as we benefited from strong growth in data centers and favorable price, as well as pull-forward demand, partly offset by our 80/20 rationalization program. Adjusted operating margin was 21%, down 60 basis points, primarily reflecting the anticipated dilution from recent acquisitions and a difficult comparison against the one-time price cost benefit in the prior year that we discussed last quarter.

Speaker #3: We delivered another quarter of better-than-expected results, including record sales, operating income, and earnings per share. I'd like to thank the entire Watts team for their dedication and contributions which made these results possible.

Speaker #3: Organic sales rose 12% in the quarter, as we benefited from strong growth in data centers and favorable price, as well as pull-forward demand partly offset by our 80/20 rationalization program.

Speaker #3: Adjusted operating margin was 21%, down 60 basis points, primarily reflecting the anticipated dilution from recent acquisitions and a difficult comparison against a one-time price-cost benefit in the prior year that we discussed last quarter.

Speaker #3: Even with those headwinds, margin performance was better than expected, due to favorable price, volume leverage, and productivity. Our balance sheet remained strong, and provides ample capacity to support our disciplined capital allocation strategy.

Bob Pagano: Even with those headwinds, margin performance was better than expected due to favorable price, volume leverage, and productivity. Our balance sheet remains strong and provides ample capacity to support our disciplined capital allocation strategy. This includes evaluating strategic M&A opportunities while continuing to invest in productivity, product innovation, and other key growth initiatives. Moving on to our business updates. We continue to make good progress integrating our recent acquisitions using the OneWatts performance system. As a reminder, we completed five acquisitions in 2025 to expand our portfolio, strengthen our market reach, and increase exposure to non-residential markets. Overall, these businesses are performing well, and we remain on track to achieve or exceed our targeted synergies.

[Company Representative] (Watts Water Technologies): Our balance sheet remains strong and provides ample capacity to support our disciplined capital allocation strategy. This includes evaluating strategic M&A opportunities while continuing to invest in productivity, product innovation, and other key growth initiatives. Moving on to our business updates. We continue to make good progress integrating our recent acquisitions using the OneWatts performance system. As a reminder, we completed five acquisitions in 2025 to expand our portfolio, strengthen our market reach, and increase exposure to non-residential markets. Overall, these businesses are performing well, and we remain on track to achieve or exceed our targeted synergies. We have also continued to proactively manage the impact of the Middle East conflict on our business. While it created some headwinds during the quarter, our teams have responded with pricing, supply chain, and productivity initiatives to help mitigate both the direct and indirect impacts.

Speaker #3: This includes evaluating strategic M&A opportunities while continuing to invest in productivity, product innovation, and other key growth initiatives. Moving on to our business updates, we continue to make good progress integrating our recent acquisitions using the One Watts Performance System.

Speaker #3: As a reminder, we completed 5 acquisitions in 2025 to expand our portfolio, strengthen our market reach, and increase exposure to non-residential markets. Overall, these businesses are performing well, and we remain on track to achieve or exceed our targeted synergies.

Speaker #3: We have also continued to proactively manage the impact of the Middle East conflict on our business. While it created some headwinds during the quarter, our teams have responded with pricing, supply chain, and productivity initiatives to help mitigate both the direct and indirect impacts.

Bob Pagano: We have also continued to proactively manage the impact of the Middle East conflict on our business. While it created some headwinds during the quarter, our teams have responded with pricing, supply chain, and productivity initiatives to help mitigate both the direct and indirect impacts. We're also pleased with the resilience of our newly acquired Saudi Cast business, as its in-country, for-country business model has limited the impact from the disruptions in the region. The tariff environment also remains fluid, with new Section 301 and Section 338 tariffs recently announced. These are in addition to the Section 232 currently in effect and replace the Section 122 tariffs, which recently expired. Based on the tariff structures currently in place, we continue to believe we're well-positioned from a price cost standpoint.

Speaker #3: We're also pleased with the resilience of our newly acquired Saudicast business, as its in-country/four-country business model has limited the impact from the disruptions in the region.

[Company Representative] (Watts Water Technologies): We're also pleased with the resilience of our newly acquired Saudi Cast business, as its in-country, for-country business model has limited the impact from the disruptions in the region. The tariff environment also remains fluid, with new Section 301 and Section 338 tariffs recently announced. These are in addition to the Section 232 currently in effect and replace the Section 122 tariffs, which recently expired. Based on the tariff structures currently in place, we continue to believe we're well-positioned from a price cost standpoint. Watts offers one of the industry's broadest portfolios of water solutions, and as we've discussed before, approximately 60% of our sales come from repair and replacement activity. Together, these characteristics give us a strong foundation across different economic environments.

Speaker #3: The tariff environment also remained fluid, with new Section 301 and 338 tariffs recently announced. These are in addition to the Section 232 currently in effect and replace the Section 122 tariffs, which recently expired.

Speaker #3: Based on the tariff structures currently in place, we continue to believe we're well-positioned from a price-cost standpoint. Watts offers one of the industry's broadest portfolios of water solutions and, as we've discussed before, approximately 60% of our sales come from repair and replacement activity.

Bob Pagano: Watts offers one of the industry's broadest portfolios of water solutions, and as we've discussed before, approximately 60% of our sales come from repair and replacement activity. Together, these characteristics give us a strong foundation across different economic environments. As a result, while residential and non-institutional new construction markets remain challenged, we have continued to execute well and have been able to allocate resources towards high growth market opportunities, including our data center initiative. We continue to see accelerated demand in data center cooling applications, and while data centers remain a relatively small part of our overall business today, we're encouraged by the momentum we're seeing. I'll provide more of an update on our data center initiatives in a few moments. We published our 2025 sustainability report in June.

Speaker #3: Together, these characteristics give us a strong foundation across different economic environments. As a result, while residential and non-institutional new construction markets remain challenged, we have continued to execute well and have been able to allocate resources toward high-growth market opportunities including our data center initiative.

[Company Representative] (Watts Water Technologies): While residential and non-institutional new construction markets remain challenged, we have continued to execute well and have been able to allocate resources towards high growth market opportunities, including our data center initiative. We continue to see accelerated demand in data center cooling applications, and while data centers remain a relatively small part of our overall business today, we're encouraged by the momentum we're seeing. I'll provide more of an update on our data center initiatives in a few moments. We published our 2025 sustainability report in June. Our sustainability efforts continue to create value for both our customers and Watts. We've made meaningful progress against our second generation of environmental goals while expanding innovative solutions that improve safety, water conservation, and energy efficiency. These efforts reinforce our commitment to solving our customers' most critical water challenges while supporting long-term growth.

Speaker #3: We continue to see accelerated demand in data center cooling applications and, while data centers remain a relatively small part of our overall business today, we're encouraged by the momentum we're seeing.

Speaker #3: I'll provide more of an update on our data center initiatives in a few moments. We published our 2025 Sustainability Report in June. Our sustainability efforts continue to create value for both our customers and Watts.

Bob Pagano: Our sustainability efforts continue to create value for both our customers and Watts. We've made meaningful progress against our second generation of environmental goals while expanding innovative solutions that improve safety, water conservation, and energy efficiency. These efforts reinforce our commitment to solving our customers' most critical water challenges while supporting long-term growth. I'm proud of the progress our global teams have made, invite you to read more about it in the appendix of today's presentation or in our sustainability report, which can be found on our investor relations website. Now, an update on our outlook for the remainder of the year. Due to our strong H1 and our expectations for Q3, we are increasing our full-year sales and margin outlook.

Speaker #3: We've made meaningful progress against our second-generation of environmental goals, while expanding innovative solutions that improve safety, water conservation, and energy efficiency. These efforts reinforce our commitment to solving our customers' most critical water challenges while supporting long-term growth.

Speaker #3: I'm proud of the progress our global teams have made and invite you to read more about it in the appendix of today's presentation or in our Sustainability Report, which can be found on our Investor Relations website.

[Company Representative] (Watts Water Technologies): I'm proud of the progress our global teams have made, invite you to read more about it in the appendix of today's presentation or in our sustainability report, which can be found on our investor relations website. Now, an update on our outlook for the remainder of the year. Due to our strong H1 and our expectations for Q3, we are increasing our full-year sales and margin outlook. Data center growth, price realization, and performance in Europe and APMEA are all better than expected versus the outlook we provided in May. However, we do continue to see weakness in some of our macro indicators. Inflation measures and commodity prices are persistently higher compared to earlier this year. In addition, the market outlook for interest rates has shifted, with expectations of no further rate reductions throughout the rest of the year.

Speaker #3: Now, an update on our outlook for the remainder of the year. Due to our strong first half and our expectations for the third quarter, we are increasing our full-year sales and margin outlook.

Speaker #3: Data center growth, price realization, and performance in Europe and APMEA are all better than expected versus the outlook we provided in May. However, we do continue to see weakness in some of our macro indicators.

Bob Pagano: Data center growth, price realization, and performance in Europe and APMEA are all better than expected versus the outlook we provided in May. However, we do continue to see weakness in some of our macro indicators. Inflation measures and commodity prices are persistently higher compared to earlier this year. In addition, the market outlook for interest rates has shifted, with expectations of no further rate reductions throughout the rest of the year. These factors are compounded by continued uncertainty around trade policies and geopolitical disruptions, especially the ongoing Middle East conflict. As a result, we continue to expect softness in residential and non-institutional new construction markets. Next, please turn to slide four for an update on our data center growth initiative.

Speaker #3: Inflation measures and commodity prices are persistently higher compared to earlier this year. In addition, the market outlook for interest rates has shifted, with expectations of no further rate reductions throughout the rest of the year.

Speaker #3: These factors are compounded by continued uncertainty around trade policies and geopolitical disruptions. Especially the ongoing Middle East conflict. As a result, we continue to expect softness in residential and non-institutional new construction market.

[Company Representative] (Watts Water Technologies): These factors are compounded by continued uncertainty around trade policies and geopolitical disruptions, especially the ongoing Middle East conflict. As a result, we continue to expect softness in residential and non-institutional new construction markets. Next, please turn to slide four for an update on our data center growth initiative. In Q2, our data center sales more than tripled compared with the prior year, reflecting continued strong demand for our cooling solutions, including our recently launched CoolVault thermal storage tanks. Through H1 2026, our data center sales represented 8% of total sales, including some of the pull-forwards I mentioned earlier, which Diane will discuss in more detail. We estimate our served addressable market is approximately $2 billion.

Speaker #3: Next, please turn to slide 4 for an update on our data center growth initiative. In the second quarter, our data center sales more than tripled compared with the prior year.

Bob Pagano: In Q2, our data center sales more than tripled compared with the prior year, reflecting continued strong demand for our cooling solutions, including our recently launched CoolVault thermal storage tanks. Through H1 2026, our data center sales represented 8% of total sales, including some of the pull-forwards I mentioned earlier, which Diane will discuss in more detail. We estimate our served addressable market is approximately $2 billion. This is based on our view of the global market opportunity, including regions beyond China and North America, the double-digit growth rate of the market, and also the trend towards more liquid cooling solutions. As liquid cooling adoption continues to increase, we're also seeing greater content opportunities per megawatt than the traditional air-cooled systems.

Speaker #3: Reflecting continued strong demand for our cooling solutions, including our recently launched CoolVault thermal storage tanks. Through the first 6 months of 2026, our data center sales represented 8% of total mentioned earlier, which Diane will detail.

Speaker #3: We estimate our served addressable market is approximately $2 billion. This is based on our view of the global market opportunity including regions beyond China and North America, the double-digit growth rate of the market, and also the trend toward more liquid cooling solutions.

[Company Representative] (Watts Water Technologies): This is based on our view of the global market opportunity, including regions beyond China and North America, the double-digit growth rate of the market, and also the trend towards more liquid cooling solutions. As liquid cooling adoption continues to increase, we're also seeing greater content opportunities per megawatt than the traditional air-cooled systems. Because this is a project-based business, the timing and volume of sales will be more variable than in some of our other markets. This can have an impact on our quarterly outlook, as we saw with customer-driven pull-forward in Q2. Our expanding global data center organization, along with investments in new product launches, have been paying off, and we feel confident in our ability to scale with our customers.

Speaker #3: As liquid cooling adoption continues to increase, we're also seeing greater content opportunities per megawatt than the traditional air-cooled systems. Because this is a project-based business, the timing and volume of sales will be more variable than in some of our other markets.

Bob Pagano: Because this is a project-based business, the timing and volume of sales will be more variable than in some of our other markets. This can have an impact on our quarterly outlook, as we saw with customer-driven pull-forward in Q2. Our expanding global data center organization, along with investments in new product launches, have been paying off, and we feel confident in our ability to scale with our customers. We now expect data center sales for the full year to represent mid to high single digits as a percentage of overall company sales, compared with just 3% of sales last year.

Speaker #3: This can have an impact on our quarterly outlook, as we saw with customer-driven pull-forward in Q2. Our expanding global data center organization, along with investments in new product launches, have been paying off, and we feel confident in our ability to scale with our customers.

Speaker #3: We now expect data center sales for the full year to represent mid to high single digits as a percentage of overall company sales, compared with just 3% of sales last year.

[Company Representative] (Watts Water Technologies): We now expect data center sales for the full year to represent mid to high single digits as a percentage of overall company sales, compared with just 3% of sales last year. We've been growing faster than the market based on our ability to serve our customers and deliver quality products while continuing to develop strong relationships with contractors, OEMs, and hyperscalers. Data centers continue to represent one of our most attractive growth opportunities. With that, let me turn the call over to Diane, who will address our Q2 results and our Q3 and full-year outlook. Diane?

Speaker #3: We've been growing faster than the market based on our ability to serve our customers and deliver quality products while continuing to develop strong relationships with contractors, OEMs, and hyperscalers.

Bob Pagano: We've been growing faster than the market based on our ability to serve our customers and deliver quality products while continuing to develop strong relationships with contractors, OEMs, and hyperscalers. Data centers continue to represent one of our most attractive growth opportunities. With that, let me turn the call over to Diane, who will address our Q2 results and our Q3 and full-year outlook. Diane?

Speaker #3: Data centers continue to represent one of our most attractive growth opportunities. With that, let me turn the call over to Diane, who will address our second quarter results and our third quarter and full-year outlook.

Speaker #3: Diane?

Speaker #4: Thank you, Bob, and good morning, everyone. Please turn to slide 5, which highlights our second quarter results. Sales increased to $763 million, reflecting a 19% increase on a reported basis, and a 12% increase organically, both better than expected.

Diane McClintock: Thank you, Bob. Good morning, everyone. Please turn to slide five, which highlights our Q2 results. Sales increased to $763 million, reflecting a 19% increase on a reported basis and a 12% increase organically, both better than expected. Growth was driven by price and volume, including the benefit of growth in data center sales and pull-forward sales from the Q3, which more than offset the impact of our 80/20 rationalization initiative. The Americas region delivered strong organic growth of 12% and reported growth of 17%, both better than expected, driven mainly by price and volume, largely from data center sales. The region also saw some pull-forward demand from wholesale customers of approximately $10 million ahead of our SAP implementation at the end of June at our largest site, as well as approximately $5 million of pull forward of data center project sales, which shipped earlier than planned.

Speaker #4: Growth was driven by price and volume, including the benefit of growth in data center sales, and pull-forward sales from the third quarter, which more than offset the impact of our 80/20 rationalization initiative.

Speaker #4: The Americas region delivered strong organic growth of 12% and reported growth of 17%, both better than expected, driven mainly by price and volume, largely from data center sales.

Speaker #4: The region also saw some pull-forward demand from wholesale customers, of approximately $10 million, ahead of our SAP implementation at the end of June at our largest site.

Diane McClintock: The region also saw some pull-forward demand from wholesale customers of approximately $10 million ahead of our SAP implementation at the end of June at our largest site, as well as approximately $5 million of pull forward of data center project sales, which shipped earlier than planned. Our 80/20 product rationalization initiative resulted in a reduction of sales of approximately $8 million or a 1% impact on organic growth. Acquisitions accounted for $28 million in sales, contributing 6 points to the Americas' reported growth. In Europe, organic sales rose 9% while reported sales increased 12%. Organic growth stemmed from favorable pricing and higher volumes, particularly in our HVAC business. While reported sales also benefited from positive foreign exchange. Our 80/20 product rationalization resulted in a decline of sales of roughly $1 million or a 1-point impact on organic growth.

Speaker #4: As well as approximately $5 million of pull-forward of data center project sales, which shipped earlier than planned. Our 80/20 product rationalization initiative resulted in a reduction of sales of approximately $8 million, or a 1% impact on organic growth.

Diane McClintock: Our 80/20 product rationalization initiative resulted in a reduction of sales of approximately $8 million or a 1% impact on organic growth. Acquisitions accounted for $28 million in sales, contributing 6 points to the Americas' reported growth. In Europe, organic sales rose 9% while reported sales increased 12%. Organic growth stemmed from favorable pricing and higher volumes, particularly in our HVAC business. While reported sales also benefited from positive foreign exchange. Our 80/20 product rationalization resulted in a decline of sales of roughly $1 million or a 1-point impact on organic growth. In APMEA, organic sales grew 31%, driven by an increase in data center sales in China, partly resulting from approximately $5 million of pull forward of several data center projects, which shipped early due to customer requirements, which more than offset the headwinds from the Middle East conflict.

Speaker #4: Acquisitions accounted for $28 million in sales, contributing 6 points to the Americas reported growth. In Europe, organic sales rose 9%, while reported sales increased 12%.

Speaker #4: Organic growth stemmed from favorable pricing and higher volumes, particularly in our HVAC benefited from positive foreign exchange. Our 80/20 product rationalization resulted in a decline of sales of roughly $1 million, or a 1-point impact on organic growth.

Speaker #4: In APMEA, organic sales grew 31%, driven by an increase in data center sales in China, partly resulting from approximately $5 million of pull-forward of several data center projects, which shipped early due to customer requirements, which more than offset the headwinds from the Middle East conflict.

Diane McClintock: In APMEA, organic sales grew 31%, driven by an increase in data center sales in China, partly resulting from approximately $5 million of pull forward of several data center projects, which shipped early due to customer requirements, which more than offset the headwinds from the Middle East conflict. Acquisitions added 17% and favorable foreign exchange contributed 9% for total reported sales growth of 57%. Adjusted EBITDA totaled $177 million, an increase of 15%, with an adjusted EBITDA margin of 23.1%, down 70 basis points year-over-year. Adjusted operating income of $160 million increased 15%, and adjusted operating margin decreased 60 basis points to 21%. The margin declines were primarily driven by the expected acquisition dilution of 70 basis points, the difficult comparisons of the prior year tariff-related price-cost benefit and inflation.

Speaker #4: Acquisitions added 17%, and favorable foreign exchange contributed 9% for total reported sales growth of 57%. Adjusted EBITDA totaled $177 million, an increase of 15%, with an adjusted EBITDA margin of 23.1%.

Diane McClintock: Acquisitions added 17% and favorable foreign exchange contributed 9% for total reported sales growth of 57%. Adjusted EBITDA totaled $177 million, an increase of 15%, with an adjusted EBITDA margin of 23.1%, down 70 basis points year-over-year. Adjusted operating income of $160 million increased 15%, and adjusted operating margin decreased 60 basis points to 21%. The margin declines were primarily driven by the expected acquisition dilution of 70 basis points, the difficult comparisons of the prior year tariff-related price-cost benefit and inflation. This decline was partially offset by favorable price, volume leverage, and productivity gains. Segment margins were as follows. Americas decreased 150 basis points to 25.7%, while Europe increased 160 basis points to 13.3%, and APMEA increased 100 basis points to 19.9%. Adjusted earnings per share were $3.66, representing 18% year-over-year growth, with operational performance, acquisitions, tax, and foreign exchange driving the majority of the increase.

Speaker #4: Down 70 basis points year over year. Adjusted operating income of $160 million, increased 15%, and adjusted operating margin decreased 60 basis points to 21%.

Speaker #4: The margin declines were primarily driven by the expected acquisition dilution of 70 basis points, the difficult comparison to the prior year tariff-related price-cost benefit and inflation.

Diane McClintock: This decline was partially offset by favorable price, volume leverage, and productivity gains. Segment margins were as follows. Americas decreased 150 basis points to 25.7%, while Europe increased 160 basis points to 13.3%, and APMEA increased 100 basis points to 19.9%. Adjusted earnings per share were $3.66, representing 18% year-over-year growth, with operational performance, acquisitions, tax, and foreign exchange driving the majority of the increase. The adjusted effective tax rate in the quarter was 23.1%, favorable by 210 basis points compared to Q2 of 2025, primarily due to a non-recurring tax benefit from the reversal of a prior year tax liability. Our free cash flow year to date was $98 million, compared to $105 million in the same period last year. The cash flow decrease was primarily due to an increase in accounts receivable due to higher sales and our strategic investment in inventory.

Speaker #4: This decline was partially offset by favorable price, volume leverage, and productivity gains. Segment margins were as follows: Americas decreased 150 basis points to 25.7, while Europe increased 160 basis points to 13.3%, and APMEA increased 100 basis points to 19.9%.

Speaker #4: Adjusted earnings per share were $3.66, representing 18% year-over-year growth, with operational performance, acquisitions, tax, and foreign exchange driving the majority of the increase. The adjusted effective tax rate in the quarter was 23.1%, favorable by 210 basis points, compared to the second quarter of 2025, primarily due to a non-recurring tax benefit from the reversal of a prior year tax liability.

Diane McClintock: The adjusted effective tax rate in the quarter was 23.1%, favorable by 210 basis points compared to Q2 of 2025, primarily due to a non-recurring tax benefit from the reversal of a prior year tax liability. Our free cash flow year to date was $98 million, compared to $105 million in the same period last year. The cash flow decrease was primarily due to an increase in accounts receivable due to higher sales and our strategic investment in inventory. We expect seasonal sequential improvement in H2 of the year and are on track to achieve our full year goal of free cash flow conversion greater than or equal to 90% of net income, as previously communicated. The balance sheet remains strong and provides us with good flexibility to execute on our capital allocation priorities.

Speaker #4: Our free cash flow year-to-date was $98 million, compared to $105 million in the same period last year. The cash flow decrease was primarily due to an increase in accounts receivable, due to higher sales, and our strategic investment in inventory.

Speaker #4: We expect seasonal sequential improvement in the second half of the year and are on track to achieve our full-year goal of free cash flow conversion greater than or equal to 90% of net income, as previously communicated.

Diane McClintock: We expect seasonal sequential improvement in H2 of the year and are on track to achieve our full year goal of free cash flow conversion greater than or equal to 90% of net income, as previously communicated. The balance sheet remains strong and provides us with good flexibility to execute on our capital allocation priorities. Our net debt to capitalization ratio at quarter end was -12%, and our net leverage is -0.4. On slide six, we'll review our outlook for Q3 and full year 2026. As Bob mentioned, we are raising our full year sales and margin outlook. This is based on the strong H1 and our Q3 outlook. This updated guidance assumes there's no change in the current status of the Middle East conflict. We are also assuming that there are no further changes to the tariff structure that is currently in place.

Speaker #4: The balance sheet remains strong, and provides us with good flexibility to execute on our capital allocation priorities. Our net debt-to-capitalization ratio at quarter-end was negative 12%, and our net leverage is negative 0.4.

Diane McClintock: Our net debt to capitalization ratio at quarter end was -12%, and our net leverage is -0.4. On slide six, we'll review our outlook for Q3 and full year 2026. As Bob mentioned, we are raising our full year sales and margin outlook. This is based on the strong H1 and our Q3 outlook. This updated guidance assumes there's no change in the current status of the Middle East conflict. We are also assuming that there are no further changes to the tariff structure that is currently in place. We are also not including any potential IEEPA tariff refunds in our outlook. Any refunds received in future periods will be treated as non-recurring special items and will therefore not be included in our adjusted results.

Speaker #4: On slide 6, we'll review our outlook for the third quarter and full-year 2026. As Bob mentioned, we are raising our full-year sales and margin outlook.

Speaker #4: This is based on a strong first half and our third quarter outlook. This updated guidance assumes there is no change in the current status of the Middle East conflict.

Speaker #4: We are also assuming that there are no further changes to the tariff structure that is currently in place, and we are also not including any potential IEPA tariff refunds in our outlook.

Diane McClintock: We are also not including any potential IEEPA tariff refunds in our outlook. Any refunds received in future periods will be treated as non-recurring special items and will therefore not be included in our adjusted results. We now anticipate organic sales growth of 8% to 11%, which reflects over a five-point increase to the midpoint of our previous outlook. Excluding the impact of our ongoing 80/20 product rationalization, our organic sales growth would be approximately one point higher. Our reported sales are now expected to be up 14% to 17%. Regionally, organic sales in the Americas are now expected to increase by 9% to 12%, driven by price and volume, especially within data centers, more than offsetting anticipated 80/20 product rationalization headwinds of $25 to $26 million.

Speaker #4: And any refunds received in future periods will be treated as non-recurring special items and will therefore not be included in our adjusted results. We now anticipate organic sales growth of 8% to 11%, which reflects over a 5-point increase to the midpoint of our previous outlook.

Diane McClintock: We now anticipate organic sales growth of 8% to 11%, which reflects over a five-point increase to the midpoint of our previous outlook. Excluding the impact of our ongoing 80/20 product rationalization, our organic sales growth would be approximately one point higher. Our reported sales are now expected to be up 14% to 17%. Regionally, organic sales in the Americas are now expected to increase by 9% to 12%, driven by price and volume, especially within data centers, more than offsetting anticipated 80/20 product rationalization headwinds of $25 to $26 million. In Europe, organic sales are now projected to increase by one point to four points as favorable price and volume are partly offset by $6 to $8 million in 80/20 product rationalization. APMEA is now expected to achieve organic growth between 9% and 12%.

Speaker #4: Excluding the impact of our ongoing 80/20 product rationalization, our organic sales growth would be approximately 1 point higher. Our reported sales are now expected to be up 14% to 17%.

Speaker #4: Regionally, organic sales in the Americas are now expected to increase by 9% to 12%, driven by price and volume, especially within data centers, more than offsetting anticipated 80/20 product rationalization headwinds of 25 to 26 million.

Speaker #4: In Europe, organic sales are now projected to increase by 1 point to 4 points, as favorable price and volume are partly offset by 6 to 8 million in 80/20 product rationalization.

Diane McClintock: In Europe, organic sales are now projected to increase by one point to four points as favorable price and volume are partly offset by $6 to $8 million in 80/20 product rationalization. APMEA is now expected to achieve organic growth between 9% and 12%. Incremental sales from acquisitions are expected to be between $105 and $110 million in the Americas, a slight decline from our previous outlook as we begin to drive 80/20 actions in these businesses. We also expect between $21 and $22 million of acquired sales in APMEA. Foreign exchange is estimated to be an $18 million favorable impact. We are raising our full year adjusted EBITDA margin outlook to a range of up 20 to up 80 basis points, which is a 60 basis point increase in the midpoint of our previous outlook.

Speaker #4: APMEA is now expected to achieve organic growth between 9 and 12 percent. Incremental sales from

Diane McClintock: Incremental sales from acquisitions are expected to be between $105 and $110 million in the Americas, a slight decline from our previous outlook as we begin to drive 80/20 actions in these businesses. We also expect between $21 and $22 million of acquired sales in APMEA. Foreign exchange is estimated to be an $18 million favorable impact. We are raising our full year adjusted EBITDA margin outlook to a range of up 20 to up 80 basis points, which is a 60 basis point increase in the midpoint of our previous outlook. We are also raising our full year adjusted operating margin expansion to a range of up 20 to up 80 basis points, which is a 70 basis points higher than the midpoint of our previous outlook.

Speaker #1: Acquisitions are expected to be between 105 and 110 million in the Americas , a slight decline from our previous outlook as we begin to drive 80/20 actions in these businesses We also expect between 21 and 22 million of acquired sales in Apmea .

Speaker #1: Foreign exchange is estimated to be an 18 million favorable impact . We are raising our full year adjusted EBITDA margin outlook to a range of up 20 to up 80 basis points , which is a 60 basis point increase in the midpoint of our previous outlook .

Speaker #1: We are also raising our full year adjusted operating margin expansion to a range of up 20 to up 80 basis points , which is a 70 basis points higher than the midpoint of our previous outlook Margin expansion continues to come from price , volume , leverage , and productivity , which more than offset higher inflation and 50 basis points of acquisition dilution Regionally , Americas segment margin is now anticipated to range from a decrease of 20 basis points to an increase of 40 basis points , largely overcoming approximately 100 basis points of acquisition dilution .

Diane McClintock: We are also raising our full year adjusted operating margin expansion to a range of up 20 to up 80 basis points, which is a 70 basis points higher than the midpoint of our previous outlook. Margin expansion continues to come from price, volume leverage, and productivity, which more than offset higher inflation and 50 basis points of acquisition dilution. Regionally, Americas' segment margin is now anticipated to range from a decrease of 20 basis points to an increase of 40 basis points, largely overcoming approximately 100 basis points of acquisition dilution. Europe segment margin is now expected to increase 20 to 80 basis points based on strong price and productivity, which includes the expected benefits from our France restructuring program. APMEA segment margin is forecasted to increase by 30 to 90 basis points. This guidance assumes no changes to the current tariff environment.

Diane McClintock: Margin expansion continues to come from price, volume leverage, and productivity, which more than offset higher inflation and 50 basis points of acquisition dilution. Regionally, Americas' segment margin is now anticipated to range from a decrease of 20 basis points to an increase of 40 basis points, largely overcoming approximately 100 basis points of acquisition dilution. Europe segment margin is now expected to increase 20 to 80 basis points based on strong price and productivity, which includes the expected benefits from our France restructuring program. APMEA segment margin is forecasted to increase by 30 to 90 basis points. This guidance assumes no changes to the current tariff environment. Our free cash flow expectation remains in line with our previous outlook, and we expect to deliver free cash flow conversion of greater than or equal to 90% of net income. Next, a few items to consider for Q3.

Speaker #1: Europe segment margin is now expected to 20 to 80 basis points based on strong price and productivity , which includes the expected benefits from our France restructuring program .

Speaker #1: Apnea margin is forecasted to increase by 30 to 90 basis points . This guidance assumes no changes to the current tariff environment Our free cash flow expectation remains in line with our previous outlook , and we expect to deliver free cash flow conversion of greater than or equal to 90% of net income .

Diane McClintock: Our free cash flow expectation remains in line with our previous outlook, and we expect to deliver free cash flow conversion of greater than or equal to 90% of net income. Next, a few items to consider for Q3. Reported sales are expected to increase by 11% to 14%, with organic sales up 5% to 8%. We anticipate high single digit to low double digit growth in the Americas, which is sequentially lower than Q2 due to the pull-forward demand previously discussed and the sequential decline in price as we comp prior year price increases. We expect flat to low single digit growth in Europe and mid to high single digit growth in APMEA, with our expected data center sales offsetting the impact of the Middle East conflict.

Speaker #1: Next , a few items to consider . For the third quarter , reported sales are expected to increase by 11 to 14% , with organic sales up 5 to 8% .

Diane McClintock: Reported sales are expected to increase by 11% to 14%, with organic sales up 5% to 8%. We anticipate high single digit to low double digit growth in the Americas, which is sequentially lower than Q2 due to the pull-forward demand previously discussed and the sequential decline in price as we comp prior year price increases. We expect flat to low single digit growth in Europe and mid to high single digit growth in APMEA, with our expected data center sales offsetting the impact of the Middle East conflict. These estimates incorporate the negative impact from product rationalization under our 80/20 initiative of approximately $2 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at $30 to $33 million for the Americas and around $5 million to $6 million for APMEA.

Speaker #1: We anticipate high single digit to low double digit growth in the Americas , which is sequentially lower than the second quarter due to the pull forward demand previously discussed and the sequential decline in price .

Speaker #1: As we comp prior year price increases . We expect flat to low single digit growth in Europe and mid to high single digit growth in Apmea .

Speaker #1: With our expected data center sales offsetting the impact of the Middle East conflict These estimates incorporate the negative impact from product rationalization under our 8020 initiative of approximately 2 million in Europe and 6 million in the Americas , incremental sales from acquisitions are projected at 30 to 33 million for the Americas , and around 5 to 6 million for Apmea .

Diane McClintock: These estimates incorporate the negative impact from product rationalization under our 80/20 initiative of approximately $2 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at $30 to $33 million for the Americas and around $5 million to $6 million for APMEA. We also estimate an unfavorable foreign exchange impact of approximately $3 million. Q3 EBITDA margin is expected to be between 22.2% and 22.8%. Operating margin is expected to be between 19.8% and 20.4%. Across all regions, price and volume leverage are anticipated to be partly offset by higher inflation and acquisition dilution of approximately 50 basis points. Additional key assumptions for Q3 and full year are available in the appendix of the earnings presentation. With that, I'll turn the call back over to Bob before moving to Q&A. Bob?

Speaker #1: We also estimate an unfavorable foreign exchange impact of approximately $3 million . Third quarter EBITDA margin is expected to be between 22.2% and 22.8% , operating margin is expected to be between 19.8% and 20.4% .

Diane McClintock: We also estimate an unfavorable foreign exchange impact of approximately $3 million. Q3 EBITDA margin is expected to be between 22.2% and 22.8%. Operating margin is expected to be between 19.8% and 20.4%. Across all regions, price and volume leverage are anticipated to be partly offset by higher inflation and acquisition dilution of approximately 50 basis points. Additional key assumptions for Q3 and full year are available in the appendix of the earnings presentation. With that, I'll turn the call back over to Bob before moving to Q&A. Bob?

Speaker #1: Across all regions , price and volume leverage are anticipated to be partly offset by higher inflation and acquisition . Dilution of approximately 50 basis points Additional key assumptions for the third quarter and full year are available in the appendix of the earnings presentation With that , I'll turn the call back over to Bob before moving to Q&A .

Speaker #1: Bob

Speaker #2: Thanks , Diane . To wrap up , we delivered another strong quarter with record sales , operating income , and EPS As we've discussed throughout the call , data centers are an important growth opportunity and also a good example of how we are successfully targeting additional growth markets At the same time , our diverse market exposure and significant repair and replacement business continue to provide a consistent foundation for revenue and cash flow generation across different economic conditions Based on our strong first half performance in third quarter expectations , we are increasing our full year sales and margin outlook .

[Company Representative] (Watts Water Technologies): Thanks, Diane. To wrap up, we delivered another strong quarter with record sales, operating income, and EPS. As we have discussed throughout the call, data centers are an important growth opportunity and also a good example of how we are successfully targeting additional growth markets. At the same time, our diverse market exposure and significant repair and replacement business continue to provide a consistent foundation for revenue and cash flow generation across different economic conditions. Based on our strong H1 performance and Q3 expectations, we are increasing our full-year sales and margin outlook. We are monitoring the macro environment, including tariffs, interest rates, and geopolitical developments, and we believe we are well-positioned to navigate those uncertainties. Our balance sheet is strong and our cash flow is healthy, and we have ample flexibility to support our disciplined capital allocation priorities.

Bob Pagano: Thanks, Diane. To wrap up, we delivered another strong quarter with record sales, operating income, and EPS. As we have discussed throughout the call, data centers are an important growth opportunity and also a good example of how we are successfully targeting additional growth markets. At the same time, our diverse market exposure and significant repair and replacement business continue to provide a consistent foundation for revenue and cash flow generation across different economic conditions. Based on our strong H1 performance and Q3 expectations, we are increasing our full-year sales and margin outlook. We are monitoring the macro environment, including tariffs, interest rates, and geopolitical developments, and we believe we are well-positioned to navigate those uncertainties.

Speaker #2: We are monitoring the macro environment , including tariffs , interest rates and geopolitical developments , and we believe we are well positioned to navigate those uncertainties Our balance sheet is strong and our cash flow is healthy , and we have ample flexibility to support our disciplined capital allocation priorities .

Bob Pagano: Our balance sheet is strong and our cash flow is healthy, and we have ample flexibility to support our disciplined capital allocation priorities. We will continue to deploy capital to high-return opportunities that will help us deliver sustainable, profitable growth and create value for our shareholders. With that, operator, please open the lines for questions.

Speaker #2: We'll continue to deploy capital to high return opportunities that will help us deliver sustainable , profitable growth and create value for our shareholders .

[Company Representative] (Watts Water Technologies): We will continue to deploy capital to high-return opportunities that will help us deliver sustainable, profitable growth and create value for our shareholders. With that, operator, please open the lines for questions.

Speaker #2: With that , operator , please open the lines for questions .

Speaker #3: Thank you . We will now begin the question and answer session . If you have dialed in and would like to ask a question , please press star one on your telephone keypad to raise your hand and join the queue .

Operator: Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up question only. Thank you. Our first question comes from the line of Andrew Krill with Deutsche Bank. Your line is open.

Speaker #3: If you would like to withdraw your question , simply press star one again . If you are called upon to ask your question and are listening via speakerphone in your device , please pick up your handset to ensure that your phone is not on mute .

Speaker #3: When asking your question . We do request for today's session that you please limit to one question and one follow up question only .

Speaker #3: Thank you Our first question comes from the line of Andrew Creel with Deutsche Bank . Your line is open

Speaker #4: Hi . Thanks . Good morning everyone

Andrew Krill: Hi. Thanks. Good morning, everyone.

Speaker #1: Good morning Andrew .

[Company Representative] (Watts Water Technologies): Morning.

Bob Pagano: Morning.

Diane McClintock: Good morning, Andrew.

Speaker #4: , I want to first on data centers . , could you just give us some more color on why the Tam expanded or doubled from a billion ?

Andrew Krill: I want to first on data centers. Could you just give some more color on why the TAM expanded or doubled from $1 billion you were saying pretty recently to $2 billion so quickly? Does this include the opportunity in Europe, or would that be incremental to this $2 billion? On Europe, have you made any data center sales there? Is that in the forward look? Thanks.

Speaker #4: You were saying pretty recently to 2 billion . So quickly . , does this include the opportunity in Europe , or would that be incremental to this 2 billion ?

Speaker #4: , and on Europe , have you made any data center sales there or is that , you know , in the forward look ?

Speaker #4: Thanks

Speaker #2: Yes . So we've been fine tuning that , , analysis really where we increased it from 1 to 2 billion . And yes , we added Europe inside of that .

[Company Representative] (Watts Water Technologies): Yeah. We've been fine-tuning that analysis really where we increased it from $1 to 2 billion. Yes, we added Europe inside of that, and we have been selling some business inside of Europe. In my prepared remarks, I talked about some of the shift towards liquid cooling, some of the growth we're seeing, and then adding our thermal storage tank with our CoolVault. Again, refining it more of a global number now versus just an APMEA in North America number.

Bob Pagano: Yeah. We've been fine-tuning that analysis really where we increased it from $1 to 2 billion. Yes, we added Europe inside of that, and we have been selling some business inside of Europe. In my prepared remarks, I talked about some of the shift towards liquid cooling, some of the growth we're seeing, and then adding our thermal storage tank with our CoolVault. Again, refining it more of a global number now versus just an APMEA in North America number.

Speaker #2: And we have been selling some small , , some business inside of Europe , but look at , in my prepared remarks , I talked about some of the shift towards liquid cooling , , some of the growth we're seeing .

Speaker #2: And then adding our thermal storage tank with our cool vault . So again , refining it more of a global number . Now versus just a , in , in North America , number .

Speaker #4: Thanks . That's helpful . And then related , , topic for the , you know , for the data centers , like , can you give us some color on how hard you say you're running your manufacturing site ?

Andrew Krill: Thanks. That's helpful. Related topic for the data centers, can you give us some color on how hard that you're running your manufacturing sites? I noticed the CapEx in the guide moved modestly higher. Is it fair that's all related to data centers? Are we ever going to get to a point where there needs to be a more major footprint expansion? Thanks.

Speaker #4: I noticed the CapEx and the guide moved modestly higher, as is fair. That's all related to data centers. And are we ever going to get to a point where there needs to be a more major footprint expansion?

Speaker #4: Thanks

Speaker #2: Yeah . So you're correct . We did expand our CapEx and that is directly related to some of the additions we're doing at both our sites in North America , as well as inside of China , as well as we're growing our global supply chain .

[Company Representative] (Watts Water Technologies): You're correct. We did expand our CapEx, and that is directly related to some of the additions we're doing at both our sites in North America as well as inside of China, as well as we're growing our global supply chain. The teams are really focused on that, and we're adding shifts where we need to. But as we look and look for the future here, we'll adjust our CapEx accordingly. But we're not seeing huge CapEx, and we're really focused on our existing facilities and some of our new acquisitions. Superior Boiler, for example, is making some of those CoolVault tanks. We're adjusting their capabilities inside their factories to allow them to continue to expand and leverage their capacity that they have.

Bob Pagano: You're correct. We did expand our CapEx, and that is directly related to some of the additions we're doing at both our sites in North America as well as inside of China, as well as we're growing our global supply chain. The teams are really focused on that, and we're adding shifts where we need to. But as we look and look for the future here, we'll adjust our CapEx accordingly. But we're not seeing huge CapEx, and we're really focused on our existing facilities and some of our new acquisitions. Superior Boiler, for example, is making some of those CoolVault tanks. We're adjusting their capabilities inside their factories to allow them to continue to expand and leverage their capacity that they have.

Speaker #2: So the teams are really focused on that . And , , we're adding shifts where we need to , but , , you know , as we look and look for the future here , we'll adjust our CapEx accordingly .

Speaker #2: But we're not seeing huge CapEx and we're really focused on our existing facilities and some of our new acquisitions , , superior boiler , for example , is making some of those cool tanks .

Speaker #2: So we're adjusting , , their capabilities inside their factories to allow them to continue to expand and leverage their capacity that they have

Speaker #4: Okay , great . Thank you .

Andrew Krill: Great. Thank you.

Speaker #2: Thank you

[Company Representative] (Watts Water Technologies): Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of William Griffin with Barclays . Your line is open .

Operator: Our next question comes from the line of William Griffin with Barclays. Your line is open.

Speaker #5: Hi . Hi . Good morning and thanks for the time here

William Griffin: Hi. Good morning, and thanks for the time here.

William Grippin: Hi. Good morning, and thanks for the time here.

Diane McClintock: Morning, William.

Speaker #2: , good .

[Company Representative] (Watts Water Technologies): Morning.

Bob Pagano: Morning.

Speaker #5: I guess just just to start here . , on data centers , maybe not surprisingly , but it feels like growth has been much stronger even than maybe your own internal expectations .

William Griffin: I guess just to start here on data centers, maybe not surprisingly, but it feels like growth has been much stronger even than maybe your own internal expectations. Just curious if you could provide a little more color here on where you're seeing the most success. How has adoption been of new products as you roll those out? Could you give us a flavor of sort of what maybe products are in development, what could be next, and how could that continue to drive growth in this customer segment?

William Grippin: I guess just to start here on data centers, maybe not surprisingly, but it feels like growth has been much stronger even than maybe your own internal expectations. Just curious if you could provide a little more color here on where you're seeing the most success. How has adoption been of new products as you roll those out? Could you give us a flavor of sort of what maybe products are in development, what could be next, and how could that continue to drive growth in this customer segment?

Speaker #5: Just curious if you could provide a little more color here on like where you're seeing the most success ? How is adoption been of new products as you roll those out and you know , could you give us a flavor of sort of what , , maybe products are in development , what could be next ?

Speaker #5: And how , how could that continue to drive growth in this customer segment

Speaker #2: Yeah . So , , yes , , look , in this business , the customers rely on quality products delivered on time and our teams are doing exactly that .

[Company Representative] (Watts Water Technologies): Yeah. Yes. Look, in this business, customers rely on quality products delivered on time, our teams are doing exactly that. It's all about profitable growth in this market. We're very selective to make sure we can meet the customer requirements and Certainly our focus on the new CoolVault that we talked about earlier, we did not have that product last year, and we do have it now, and that's been growing with the thermal storage tank. We'll continue to expand. We're developing new products, especially in the stainless steel side. Really as things move to more towards liquid cooling is where we're focused some of our R&D efforts. We're working closely with our customers and looking forward to sharing more as some of these new products come online.

Bob Pagano: Yeah. Yes. Look, in this business, customers rely on quality products delivered on time, our teams are doing exactly that. It's all about profitable growth in this market. We're very selective to make sure we can meet the customer requirements and Certainly our focus on the new CoolVault that we talked about earlier, we did not have that product last year, and we do have it now, and that's been growing with the thermal storage tank. We'll continue to expand. We're developing new products, especially in the stainless steel side. Really as things move to more towards liquid cooling is where we're focused some of our R&D efforts. We're working closely with our customers and looking forward to sharing more as some of these new products come online.

Speaker #2: And , , you know , it's all about profitable growth in this market . So we're very selective to make sure we can meet the customer requirements .

Speaker #2: And , , certainly our focus on the new cool vault that we talked about earlier , we did not have that product last year .

Speaker #2: And we do have it now . And that's been growing with the thermal storage tank . So we'll continue to expand . We're developing new products , especially in the stainless steel side , really , as things move to more towards liquid cooling is where we're focused .

Speaker #2: Some of our R&D efforts , but we're working closely with our customers . And , , looking forward to , you know , sharing more as some of these new products come online

Speaker #5: Appreciate that . And then , , I think the guidance encompasses mid to high single digit revenue mix for data centers . , what sort of puts and takes , I guess , or how are you thinking about what would drive you to the low end versus the high end of that range ?

William Griffin: Appreciate that. I think the guidance encompasses mid to high single-digit revenue mix for data centers. What sort of puts and takes, I guess, or how are you thinking about what would drive you to the low end versus the high end of that range? What is your visibility into the second half? I know you talked about this being a project-based business, so maybe it's some of that, but would just be curious there for some more color.

William Grippin: Appreciate that. I think the guidance encompasses mid to high single-digit revenue mix for data centers. What sort of puts and takes, I guess, or how are you thinking about what would drive you to the low end versus the high end of that range? What is your visibility into the second half? I know you talked about this being a project-based business, so maybe it's some of that, but would just be curious there for some more color.

Speaker #5: And what is your visibility into the second half ? I know you talked about this being a project based business , so maybe it's some of that , but we'd just be curious there for some more color

Speaker #2: Yeah , this is a really lumpy business . It , , project is Diane talked earlier about it . We had customers move different projects around in .

[Company Representative] (Watts Water Technologies): Yeah. This is a really lumpy business. Project, as Diane talked earlier about it, we had customers move different projects around, and they accelerated some of our products and delayed some other projects that we weren't on. It is lumpy. We have clearer visibility on construction schedules for Q3. Gets a little tougher in Q4 because some of these delays could push some of the projects out or in. Again, we monitor that very closely. We have our project management teams working very close with customers to stay on top of that and continuing to work and leverage that. Again, these are large projects, so it gets lumpy in some of these quarters. All things came together in Q2, quite honestly, and we shipped a lot. We'll monitor that.

Bob Pagano: Yeah. This is a really lumpy business. Project, as Diane talked earlier about it, we had customers move different projects around, and they accelerated some of our products and delayed some other projects that we weren't on. It is lumpy. We have clearer visibility on construction schedules for Q3. Gets a little tougher in Q4 because some of these delays could push some of the projects out or in. Again, we monitor that very closely. We have our project management teams working very close with customers to stay on top of that and continuing to work and leverage that. Again, these are large projects, so it gets lumpy in some of these quarters. All things came together in Q2, quite honestly, and we shipped a lot. We'll monitor that. Our best visibility is in Q3 right now, but we feel comfortable with our guidance.

Speaker #2: They accelerated some of our products and delayed some other projects that we weren't on . So , , it is lumpy . , we have clearer visibility on construction schedules for Q3 gets a little tougher in Q4 because some of these delays could push some of the projects out or in .

Speaker #2: So again , we monitor that very closely . We have our project management teams working very closely with customers to stay on top of that .

Speaker #2: And continuing to work and leverage that . But again , , these are large projects . So it gets lumpy in some of these quarters .

Speaker #2: And we , you know , all things came together in the second quarter , quite honestly . And we shipped a lot , but we'll monitor that .

Speaker #2: And , you know , our best visibility is in Q3 right now . But we feel comfortable , , with our guidance

[Company Representative] (Watts Water Technologies): Our best visibility is in Q3 right now, but we feel comfortable with our guidance.

Speaker #5: All right . Thank you very much .

William Griffin: All right. Thank you very much.

William Grippin: All right. Thank you very much.

Speaker #2: Thank you

[Company Representative] (Watts Water Technologies): Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of Mike Halloran with R.W. Baird . Your line is open .

Operator: Our next question comes from the line of Mike Halloran with RW Baird. Your line is open.

Speaker #6: Hey , good morning everyone . Good morning . Hey . So maybe just a state of the Union . What you're seeing on the the , you know , more legacy construction markets , non data center , which is obviously exciting for you guys .

Mike Halloran: Hey, good morning, everyone.

[Company Representative] (Watts Water Technologies): Good morning.

Bob Pagano: Good morning.

Diane McClintock: Good morning.

Mike Halloran: Hey, maybe just a state of the union on what you're seeing on the more legacy construction markets, non-data center, which is obviously exciting for you guys. Any signs of change either way in the quarter? I know the environment cumulatively remains challenging, but if you think about the sub-segments that you serve within the non-res landscape, or multifamily, are you seeing any real change either way in any of those sub-areas?

Speaker #6: But , , any signs of change either way in the quarter . I know that environment cumulatively remains challenging . But if you think about the sub segments that you serve within the Non-res landscape , , or multifamily , are you seeing any real change either way in any of those sub areas ?

Speaker #2: Mike . Not , you know , when I look at the residential side , you know , single family is probably getting slightly worse than it was last quarter .

[Company Representative] (Watts Water Technologies): Mike, when I look at the residential side, single family is probably getting slightly worse than it was last quarter. multifamily is hanging in there, still soft compared to what we've seen before. Institution, both healthcare and education is holding up, which is good. Other than data centers, the other non-residential product new construction is still soft. It varies by region. I would say in general, it's similar to what we talked about last quarter, maybe slightly worse in the residential side.

Bob Pagano: Mike, when I look at the residential side, single family is probably getting slightly worse than it was last quarter. multifamily is hanging in there, still soft compared to what we've seen before. Institution, both healthcare and education is holding up, which is good. Other than data centers, the other non-residential product new construction is still soft. It varies by region. I would say in general, it's similar to what we talked about last quarter, maybe slightly worse in the residential side.

Speaker #2: Multifamily is hanging in there . , still soft compared to what we've seen before . Institution , you know , both , , healthcare and education is holding up , , which is good .

Speaker #2: The other other than data centers , the other non , residential , , product , new construction is still soft . So it varies by region , but I would say in general , it's similar to what we talked about last quarter .

Speaker #2: Maybe slightly, you know, worse than the residential side.

Speaker #6: Thanks for that . And then when you think about the pricing side of things , , kind of a two fold question here , do you think the pricing actions you've taken position you for Favourability or at least neutrality as you work through the back half of the year and maybe help just understand how that cadence is the price cost piece , cadences and the guidance in the back half of the year .

Mike Halloran: Thanks for that. When you think about the pricing side of things, kind of a twofold question here, do you think the pricing actions you've taken position you for favorability or at least neutrality as you work through H2? Maybe help just understand how that cadences the price cost piece and the guidance in H2.

Speaker #1: Yeah . Mike . , we saw about 6% price in the second quarter . We do expect that to sequentially decline in the back half .

Diane McClintock: Yeah, Mike. We saw about 6% price in Q2. We do expect that to sequentially decline in the H2. We feel okay about our price cost dynamic right now. We did do a couple of selected price increases globally just to address some of the inflation from the Middle East conflict. We're watching that closely, but we feel pretty good about where we're at.

Speaker #1: , we feel , we feel okay about our price cost dynamic right now . , we did do a couple of selected price increases globally just to address some of the , the inflation from the Middle East conflict .

Speaker #1: , and we're watching that closely , but we feel pretty good about where we're at

Speaker #6: Thank you much . Appreciate it . Thank you .

Mike Halloran: Thank you. Much appreciated.

[Company Representative] (Watts Water Technologies): Thank you.

Bob Pagano: Thank you.

Speaker #7: Thank you .

Diane McClintock: Thank you.

Speaker #3: Next question comes from the line of Jeff Hammond with KeyBanc Capital Markets . Your line is open

Operator: Next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Your line is open.

Speaker #8: Hey , good morning everyone .

Jeff Hammond: Hey, good morning, everyone.

Speaker #6: Good morning Jeff .

[Company Representative] (Watts Water Technologies): Good morning, Jeff.

Bob Pagano: Good morning, Jeff.

Diane McClintock: Good morning, Jeff.

Speaker #7: Jeff .

Speaker #8: So, Bob, I'd call doubling your TAM more than fine-tuning.

Jeff Hammond: Bob, I'd call doubling your TAM more than fine-tuning.

[Company Representative] (Watts Water Technologies): Well, Jeff, I always said greater than a billion, certainly $2 billion is greater than a billion.

Bob Pagano: Well, Jeff, I always said greater than a billion, certainly $2 billion is greater than a billion.

Speaker #2: Maybe Jeff . I , I always said greater than a billion . So , , certainly 2 billion is greater than a billion .

Speaker #8: Can we just unpack that a little bit ? Like how much is the Europe Tam expansion ? How much , you know , do you do you have a Tam for this thermal tank piece ?

Jeff Hammond: Can we just unpack that a little bit? Like how much is the Europe TAM expansion? Do you have a TAM for this thermal tank piece? Then, as you look at your product portfolio, and I think you mentioned some of the work you're doing in liquid cooling, like other products or applications that you are finding you can sell into that market would be helpful.

Speaker #8: And then , you know , as you look at your product portfolio , and I think you mentioned some of the work you're doing in liquid cooling , like other products or applications that you are finding , you can sell into that market would be helpful

Speaker #2: Yeah . So it's , there's a lot of puts and takes here , but it's not only Europe . We looked at the Middle East .

[Company Representative] (Watts Water Technologies): Yeah. There's a lot of puts and takes here, but it's not only Europe. We looked at the Middle East. We also looked at Southeast Asia and some of the other markets. Before, the number was primarily, let's call it North America and China related. We've now expanded it global. We're seeing opportunities that we're quoting on a global basis. That's the big shift. Certainly, we had a little more weighted towards air-cooled, and we're seeing more of a shift towards liquid cooled. A bunch of math, but it gets us closer there. When we said $1 billion before, we were around $1 billion 1.4, but we rounded it to $1 billion. Now we're leaning more up towards that $2 billion. Again, we believe it's a good number. We've cross-referenced it, tied it globally, and feel better about that overall number.

Bob Pagano: Yeah. There's a lot of puts and takes here, but it's not only Europe. We looked at the Middle East. We also looked at Southeast Asia and some of the other markets. Before, the number was primarily, let's call it North America and China related. We've now expanded it global. We're seeing opportunities that we're quoting on a global basis. That's the big shift. Certainly, we had a little more weighted towards air-cooled, and we're seeing more of a shift towards liquid cooled. A bunch of math, but it gets us closer there. When we said $1 billion before, we were around $1 billion 1.4, but we rounded it to $1 billion. Now we're leaning more up towards that $2 billion. Again, we believe it's a good number. We've cross-referenced it, tied it globally, and feel better about that overall number.

Speaker #2: We also looked at , , you know , Southeast Asia and some of the other markets . So before the number was primarily , let's call it North America in China .

Speaker #2: Related . We've now expanded it global . We're seeing opportunities that were quoting on a global basis . So that's the big shift .

Speaker #2: And certainly we had a little more weighted towards air cooled . And we're seeing more of a shift towards liquid cooled . So a bunch of math , but it gets us closer .

Speaker #2: There . We when we set a billion before we were around a billion , 1.4 . But we rounded it to billion . Now we're leaning more up towards that two $2 billion .

Speaker #2: So again , we believe it's a it's a good number . We've cross-referenced it , tied it globally . And feel better about that overall number

Speaker #8: Well , can you think of the the thermal tank Tam and then , you know , other products that you can pull in ?

Jeff Hammond: Okay. The thermal tank, TAM, and other products that you can pull in. I want to say you've mentioned EasyWater in the past, a newer acquisition.

Speaker #8: I want to say you've mentioned Easy Water in the past , , newer acquisition .

Speaker #2: Yeah . The thermal tanks is a part of that , especially in the liquid cooling side of that . You know , each customer is different in how they're using thermal storage tanks .

[Company Representative] (Watts Water Technologies): Yeah. The thermal tanks is a part of that, especially in the liquid cooling side of that. Each customer is different in how they're using thermal storage tanks, and we are leveraging our Superior Boiler because they had the ability to make large custom boilers. They have the capacity to do these very large tanks as well as what we can do in our Texas location. Again, those are opportunities. We've seen some really strong success, especially in Q2, in winning some projects that we have visibility through the rest of this year on that market.

Bob Pagano: Yeah. The thermal tanks is a part of that, especially in the liquid cooling side of that. Each customer is different in how they're using thermal storage tanks, and we are leveraging our Superior Boiler because they had the ability to make large custom boilers. They have the capacity to do these very large tanks as well as what we can do in our Texas location. Again, those are opportunities. We've seen some really strong success, especially in Q2, in winning some projects that we have visibility through the rest of this year on that market.

Speaker #2: And we are leveraging , , our superior boiler because they had the ability to make large custom boilers . And , , they had the capacity to do these very large tanks as well as what we can do in our Texas location .

Speaker #2: So again , those are opportunities . We've seen some really strong success , especially in Q2 and winning some projects . , that we have visibility through the rest of this year on that market

Speaker #8: Okay . And then last one , just , , you mentioned the market 15 to 20% growth , which seems a little bit low , but maybe just talk about , you know , your outgrowth .

Jeff Hammond: Okay. The last one, just you mentioned the market 15% to 20% growth, which seems a little bit low. Maybe just talk about your outgrowth. It seems like you're crushing market growth in the near term, but just what do you think your data center business can grow at versus that 15% to 20%?

Speaker #8: I mean , it seems like you're , you're crushing market growth in the near term , but just how much do you think , you know , what do you think your , your data center business can grow at versus that 15 to 20 ?

Speaker #2: Yeah . So , , prior to this , I go back to that . Cool vault and those thermal storage tanks , we're shipping a lot more of that than we had last year .

[Company Representative] (Watts Water Technologies): Yeah. Prior to this, I go back to that CoolVault and those thermal storage tanks. We're shipping a lot more of that than we had last year. We didn't ship any last year, quite honestly. As we're looking at that, we are outgrowing the market, from that point of view, because of our new product development. As I said earlier, we're focused on profitable growth. There's more activity you can get, but we're driving profitable growth. We're being disciplined in making sure we can meet the customer demand. Although the market might be growing, we're going to focus on the more profitable side of that market where the people and our customers trust our quality and on-time delivery and value that. Again, that's where we're focused and why we believe that number is the right number for us to look at.

Bob Pagano: Yeah. Prior to this, I go back to that CoolVault and those thermal storage tanks. We're shipping a lot more of that than we had last year. We didn't ship any last year, quite honestly. As we're looking at that, we are outgrowing the market, from that point of view, because of our new product development. As I said earlier, we're focused on profitable growth. There's more activity you can get, but we're driving profitable growth. We're being disciplined in making sure we can meet the customer demand. Although the market might be growing, we're going to focus on the more profitable side of that market where the people and our customers trust our quality and on-time delivery and value that. Again, that's where we're focused and why we believe that number is the right number for us to look at.

Speaker #2: We didn't ship any last year , quite honestly . So as we're looking at that , we are outgrowing the market from that point of view because of our new product development .

Speaker #2: And as I said earlier , you know , we're focused on profitable growth . There's more activity you can get , but we're driving profitable growth .

Speaker #2: We're being disciplined in making sure we can meet the customer demand. So, although the market might be growing, we're going to focus on the more profitable side of that.

Speaker #2: Market where people in our customers trust our quality and on time delivery and value that . So again , that's where we're focused and why we believe that number is , is the right number for us to look at

Speaker #8: Okay . Thanks for the time , Bob .

Jeff Hammond: Okay. Thanks for the time, Bob.

Speaker #7: Thank you .

[Company Representative] (Watts Water Technologies): Thank you.

Bob Pagano: Thank you.

Diane McClintock: Sure.

Speaker #3: Our next question comes from the line of Brian Lee with Goldman Sachs . Your line is open .

Operator: Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is open.

Speaker #9: , hey guys , this is Kashif Chaudhry on for Brian Lee . Thanks for taking my question , so earlier .

Keshav Chaudhary: Hey, guys. This is Keshav Chaudhary on for Brian Lee. Thanks for taking my question.

Keshav Choudhary: Hey, guys. This is Keshav Chaudhary on for Brian Lee. Thanks for taking my question.

Diane McClintock: Morning.

Keshav Chaudhary: Yeah. Earlier this year, you had mentioned that Asia Pacific used to be the leader for your data center business, then Americas accounted for more than half of the revenue. With the high growth highlighted in the Q2 for China data center demand, can you update us on the geographic mix and how you expect it to evolve over the next 12 months to maybe 24 months? More importantly, are there any meaningful differences in the margin profile between US and China and maybe other markets? Could a shift towards China be a tailwind or a headwind to the margins? Thank you.

Speaker #7: This .

Speaker #9: Yeah , earlier this year , you had mentioned that , , Asia Pacific used to be the leader for your data center business .

Keshav Choudhary: Yeah. Earlier this year, you had mentioned that Asia Pacific used to be the leader for your data center business, then Americas accounted for more than half of the revenue. With the high growth highlighted in the Q2 for China data center demand, can you update us on the geographic mix and how you expect it to evolve over the next 12 months to maybe 24 months? More importantly, are there any meaningful differences in the margin profile between US and China and maybe other markets? Could a shift towards China be a tailwind or a headwind to the margins? Thank you.

Speaker #9: , and then Americas accounted for more than half of the revenue with the , , high growth highlighted in the Q2 for China data center demand .

Speaker #9: Can you update us on the , geographic mix and how you expect it to evolve over the next 12 months to , maybe 24 months ?

Speaker #9: , and , and more importantly , are there any , , meaningful differences in the margin profile between us and China and maybe other markets ?

Speaker #9: And could a shift towards China be a tailwind or a headwind to the margins ? Thank you .

Speaker #2: So I'll take the first part of the question . You know , we continue to grow specifically in the China market , but we're expanding beyond that .

[Company Representative] (Watts Water Technologies): I'll take the first part of the question. We continue to grow specifically in the China market, but we're expanding beyond that. We've had some really strong growth in Asia Pacific, at least from the inquiries point of view, other than China. As we look in Americas is growing faster than China right now, primarily because of that CoolVault, which we're really only have in the US at this point in time. That's where the US is growing even faster than that region. Again, we're continuing to grow in all of our regions around the world, including Europe. It's a global initiative where we're focused on leveraging our global capabilities to win in that market.

Bob Pagano: I'll take the first part of the question. We continue to grow specifically in the China market, but we're expanding beyond that. We've had some really strong growth in Asia Pacific, at least from the inquiries point of view, other than China. As we look in Americas is growing faster than China right now, primarily because of that CoolVault, which we're really only have in the US at this point in time. That's where the US is growing even faster than that region. Again, we're continuing to grow in all of our regions around the world, including Europe. It's a global initiative where we're focused on leveraging our global capabilities to win in that market.

Speaker #2: , we've had some really strong growth in Asia Pacific , at least from the inquiries point of view . , other than China , as we look in Americas is growing faster than China right now , primarily because of that cool vault , which we're really only have in , in the US at this point in time .

Speaker #2: So that's where , , the US is , is growing even faster than that region . But , , again , we're continuing to grow in all of our regions around the world , including Europe .

Speaker #2: So it's a , it's a global initiative where we're focused on leveraging our global capabilities to win in that market .

Speaker #1: And I think on , on your margin question , you know , Bob's right . I think the , the Americas is growing , , faster than , than Asia Pacific region .

Diane McClintock: I think on your margin question, Bob's right. I think the Americas is growing faster than the Asia Pacific region. From a margin perspective, all of it's accretive. I don't think we're going to see a mix issue going forward.

Speaker #1: But from a margin perspective , it all of it's accretive . I don't think we're going to see a mix issue going forward

Speaker #9: Okay , cool . Thank you . And just to maybe , , continue on the data center part , , you've disclosed a content opportunity of about 25,000 to 100,000 , , , per megawatt content .

Keshav Chaudhary: Okay. Cool. Thank you. Just to maybe continue on the data center part, you disclosed a content opportunity of about 25,000 to 100,000 per megawatt content. Can you just help us identify what will drive a project towards the high end versus the low end of that range, and whether the average content per megawatt opportunity is increasing over time? Additionally, is the content higher in the US region versus the other regions?

Keshav Choudhary: Okay. Cool. Thank you. Just to maybe continue on the data center part, you disclosed a content opportunity of about 25,000 to 100,000 per megawatt content. Can you just help us identify what will drive a project towards the high end versus the low end of that range, and whether the average content per megawatt opportunity is increasing over time? Additionally, is the content higher in the US region versus the other regions?

Speaker #9: , can you just help us identify what , , what will drive a project towards the high end versus the low end of that range and whether the average content per megawatt opportunity is increasing over time .

Speaker #9: And additionally is the content , , higher , , in , in the US region versus the , , other regions .

Speaker #2: , so , , going back to your previous question , yes , there's more content inside the US only because we're selling that cool vault , but overall , , when we look at it , each project varies depending on what part of the project and where we're getting .

[Company Representative] (Watts Water Technologies): Going back to your previous question, yes, there's more content inside the US only because we're selling that CoolVault. Overall, when we look at it, each project varies depending on what part of the project and what we're getting. A project could be as low as $50,000 or as high as $30 million. Again, it varies based on content, based on customer need, and based on it's going to be higher in a liquid cooling application because there's more content inside of that. That drives you towards the higher liquid cooling with a tank, would drive you to that higher one versus smaller content on the bottom of that. Again, it varies by project.

Bob Pagano: Going back to your previous question, yes, there's more content inside the US only because we're selling that CoolVault. Overall, when we look at it, each project varies depending on what part of the project and what we're getting. A project could be as low as $50,000 or as high as $30 million. Again, it varies based on content, based on customer need, and based on it's going to be higher in a liquid cooling application because there's more content inside of that.

Speaker #2: So it could , a project could be as low as , you know , $50,000 or as high as $30 million . So again , it varies based on content , based on customer need and based on it's going to be liquid cooling application because we're selling , , there's more content inside of that .

Speaker #2: So that drives you towards the higher liquid cooling with a tank, which would drive you to that higher one versus, you know, smaller content on the bottom of that.

Bob Pagano: That drives you towards the higher liquid cooling with a tank, would drive you to that higher one versus smaller content on the bottom of that. Again, it varies by project. We're giving a range, the ranges adjust accordingly based on each one of the customer and based on project timing or where customers need us the most. It's a big range, again, that's what we're seeing in the market.

Speaker #2: So again, it varies by project. We're giving a range, and ranges adjust accordingly based on each one of the customers and based on project timing or where customers need us the most.

[Company Representative] (Watts Water Technologies): We're giving a range, the ranges adjust accordingly based on each one of the customer and based on project timing or where customers need us the most. It's a big range, again, that's what we're seeing in the market.

Speaker #2: So it's a big range , but again , that's what we're seeing in the market

Speaker #9: Cool . Thank you . That's

Keshav Chaudhary: Cool. Thank you. That helps. Have a blessed one.

Keshav Choudhary: Cool. Thank you. That helps. Have a blessed one.

Speaker #7: Thank you

[Company Representative] (Watts Water Technologies): Thank you.

Bob Pagano: Thank you.

Speaker #3: Next question comes from the line of James Cowie, Jefferies. Your line is open.

Operator: Next question comes from the line of James Ka with Jefferies. Your line is open.

James Ka: Good morning. Thanks for taking questions here, congrats on the quarter.

James Ko: Good morning. Thanks for taking questions here, congrats on the quarter.

Speaker #10: Good morning . , thanks for taking the questions here . And congrats on the .

Speaker #7: Good morning .

Diane McClintock: Good morning.

Speaker #10: Good morning . , I wanted to touch on the data center again . Sorry for getting on this , but like on project feasibility , I think other companies can serving the data center construction kind of supply chain kind of describe that as kind of multi-year backlog .

James Ka: Morning. I wanted to touch on the data center again. Sorry for keep getting on this, but on project visibility, I think other companies kind of serving the data center construction kind of supply chain kind of described it as kind of multiyear backlog. They have all that design win pipelines and everything. Does Watts have similar visibility into its data center pipeline longer term? Is the nature of your product such that orders are placed closer to the construction date with kind of less lead times? Yeah, any color on that would be helpful.

James Ko: Morning. I wanted to touch on the data center again. Sorry for keep getting on this, but on project visibility, I think other companies kind of serving the data center construction kind of supply chain kind of described it as kind of multiyear backlog. They have all that design win pipelines and everything. Does Watts have similar visibility into its data center pipeline longer term? Is the nature of your product such that orders are placed closer to the construction date with kind of less lead times? Yeah, any color on that would be helpful.

Speaker #10: And they have all the design , wind pipelines and everything . So does what's have similar visibility into its data center pipeline , longer term , or is the natural product such that orders are placed closer to the construction date with kind of less time ?

Speaker #10: Yeah . Any color on that would be helpful

Speaker #2: Yeah . So I think the answer is both , right ? We have longer visibility in particular with the cool vaults because they're very large and take a long time to do it .

[Company Representative] (Watts Water Technologies): Yeah. I think the answer is both, right? We have longer visibility, in particular with the CoolVaults, because they're very large and take a long time to do it. Some of the other products, we have lower visibility. We don't have 2 years' worth of visibility. I would say at the largest amount we have maybe 5 months, and then it is down from there. We stay very close to customers. We understand where their plans are, construction contractors, et cetera, on what their needs are, and we're anticipating their future needs based on discussions with them. We have a great pipeline. We're working with them. It's also a timing of their release. A lot of them change their designs and won't finalize a design till very close to the end, which impacts the piping and the valve structure inside that business.

Bob Pagano: Yeah. I think the answer is both, right? We have longer visibility, in particular with the CoolVaults, because they're very large and take a long time to do it. Some of the other products, we have lower visibility. We don't have 2 years' worth of visibility. I would say at the largest amount we have maybe 5 months, and then it is down from there. We stay very close to customers. We understand where their plans are, construction contractors, et cetera, on what their needs are, and we're anticipating their future needs based on discussions with them. We have a great pipeline. We're working with them. It's also a timing of their release.

Speaker #2: But some of the other products we have lower visibility . So we don't have , you know , two years worth of visibility .

Speaker #2: I would say at the largest amount we have , you know , maybe five months . And then it is down from there .

Speaker #2: But we stay very close to customers . We understand where their plans are , construction contractors , etc. , on what their needs are .

Speaker #2: And we're anticipating their future needs based on discussions with them . And , you know , we have a great pipeline . We're working with them .

Speaker #2: It's also a timing of their release . A lot of them change their designs and won't finalize the design until very close to the end .

Bob Pagano: A lot of them change their designs and won't finalize a design till very close to the end, which impacts the piping and the valve structure inside that business. It's based on size, et cetera, as it gets closer. We've been combating that by having inventory available on the various sizes and adjust accordingly. As you can see, we've been investing in inventory to have that variability inside each one of those customer requirements.

Speaker #2: , which impacts , you know , the piping and the valve structure inside that business . So based on size , etc. , , as it gets closer .

[Company Representative] (Watts Water Technologies): It's based on size, et cetera, as it gets closer. We've been combating that by having inventory available on the various sizes and adjust accordingly. As you can see, we've been investing in inventory to have that variability inside each one of those customer requirements.

Speaker #2: So that's , we've been combating that by having inventory available on the various sizes and adjust accordingly . So as you can see , we've been investing in inventory to , you know , have that variability inside each one of those customer requirements

Speaker #10: Got it . Thank you . And I guess kind of similar question . Can you kind of walk us through how you actually kind of go to market on this data center cooling loop ?

James Ka: Got it. Thank you. I guess kind of similar question. Can you kind of walk us through how you actually go to market on this data center cooling loop? Are you selling primarily through a distribution, like direct to mechanical contractors or directly to hyperscalers and OEMs that are doing actual system? At what stage product design process does Watts typically get specified in? Do they usually sole source or do they usually use multiple sourcing?

James Ko: Got it. Thank you. I guess kind of similar question. Can you kind of walk us through how you actually go to market on this data center cooling loop? Are you selling primarily through a distribution, like direct to mechanical contractors or directly to hyperscalers and OEMs that are doing actual system? At what stage product design process does Watts typically get specified in? Do they usually sole source or do they usually use multiple sourcing?

Speaker #10: Are you like selling primarily through distribution , like direct to mechanical contractors or directly to hyperscalers ? And OEMs ? That are doing actual system and like at what stage product design process does what's typically gets specified in ?

Speaker #10: And do they usually source , source or do they usually use multiple sourcing ?

Speaker #2: Well , I think in this market , I think all of them are multiple sourcing based on projects and where they're doing it .

[Company Representative] (Watts Water Technologies): Well, I think in this market, I think all of them are multiple sourcing based on projects and where they're doing it. We involved a lot of with our rep network. We're working closer with the customer, we're partnering with our reps and the contractors, working directly with them. In some cases, especially on the CoolVault, we're really working with some of the hyperscalers and the contractors directly with that. Each one of it varies. You get qualified by the hyperscalers and working directly with all the channel partners to do it. We're in the whole process. We see the pipelines, we see the jobs, we're speaking with them, and we stay very close with them until the final release is out there.

Bob Pagano: Well, I think in this market, I think all of them are multiple sourcing based on projects and where they're doing it. We involved a lot of with our rep network. We're working closer with the customer, we're partnering with our reps and the contractors, working directly with them. In some cases, especially on the CoolVault, we're really working with some of the hyperscalers and the contractors directly with that. Each one of it varies. You get qualified by the hyperscalers and working directly with all the channel partners to do it. We're in the whole process. We see the pipelines, we see the jobs, we're speaking with them, and we stay very close with them until the final release is out there.

Speaker #2: , we involved a lot of , with our rep network . We're working closely with the customers . So they're , we're partnering with our reps in the contractors , working directly with them .

Speaker #2: And in some cases , especially on the cool vault , it's more we're , we're really working with the , some of the hyperscalers and the contractors directly with that .

Speaker #2: So each one of its berries . We've been . You get qualified by the hyperscalers and , , working directly with all the channel partners , , to do it .

Speaker #2: So we're in the whole process . We see the pipelines , we see the jobs , we're speaking with them , and we stay very close with them until the final release is out there

Speaker #10: Great . Thanks for taking questions here .

James Ka: Great. Thanks for taking questions here. Thank you.

James Ko: Great. Thanks for taking questions here.

Speaker #7: Thank you . Thank you

Bob Pagano: Thank you.

Speaker #3: And again , if you would like to ask a question , press star , then the number one on your telephone keypad Our next question comes from the line of Geoffrey Reeve , which has happened to disconnect his line .

[Company Representative] (Watts Water Technologies): Thank you.

Diane McClintock: Thank you.

Operator: Again, if you would like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Jeffrey Reeves, which has happened to disconnect his line. Okay, everyone, that concludes the question and answer session. I would like to turn the call back over to Ray Nash for closing remarks.

Speaker #3: Okay , everyone . That concludes the question and answer session . I would like to turn the call back over to Ray for closing remarks

Speaker #2: Operator . Oh , it looks like he came back in to the queue

[Company Representative] (Watts Water Technologies): Operator. It looks like he came back into the queue.

Ray Nash: Operator. It looks like he came back into the queue.

Speaker #3: Okay . , Geoffrey Reeves , your line is now open .

Operator: Okay. Jeffrey Reeves, your line is now open.

Jeffrey Reeves: Yeah, sorry about that. The long pause made me question if I was logged in for a question. I just want to go back to some of the data center stuff. I'm sorry for kind of going so much of this discussion, the $25,000 to $100,000 per megawatt I think is a new disclosure. Can you just help us understand where within the range your current mix sits and maybe what your pipeline looks like? Should we just think about the 100,000 as like a data center with both air and liquid cooling, or is there something else?

[Analyst]: Yeah, sorry about that. The long pause made me question if I was logged in for a question. I just want to go back to some of the data center stuff. I'm sorry for kind of going so much of this discussion, the $25,000 to $100,000 per megawatt I think is a new disclosure. Can you just help us understand where within the range your current mix sits and maybe what your pipeline looks like? Should we just think about the 100,000 as like a data center with both air and liquid cooling, or is there something else?

Speaker #5: Yeah . Sorry about that . The long .

Speaker #4: Pause made me question .

Speaker #11: If I was logged in for a question . , so I just want to go back to some of the data center stuff .

Speaker #11: I'm sorry for kind of going so much of this discussion , but the 25,000 to $100,000 per megawatt , I think is a new disclosure .

Speaker #11: You just help us understand where within the range your current mix sits and maybe what your pipeline looks like . And should we just think about the 100,000 as like a data center with both air and liquid cooling ?

Speaker #11: Or is there something else

Speaker #2: Yeah , we talked a little bit about this in the previous questions , but again , I would say the high end would assume it's a liquid cooled that also has thermal storage tanks .

[Company Representative] (Watts Water Technologies): Yeah. We talked a little bit about this in the previous questions. Again, I would say the high end would assume it's a liquid cooled that also has thermal storage tanks. That's on the high end and very high end. I would say the answer's always in between some of those numbers. I see that's kind of where we're seeing a lot of these. Again, every project's different. These are just general discussions. We've had a lot of inquiries over the past quarter, people asking us, could you quantify this for us? We did our best job of doing it. Anytime you give a range like this, it gets very difficult because it can be on the small end. It depends on whether liquid cooled, air cooled, whether it's in the US, whether it's in China or wherever in Europe.

Bob Pagano: Yeah. We talked a little bit about this in the previous questions. Again, I would say the high end would assume it's a liquid cooled that also has thermal storage tanks. That's on the high end and very high end. I would say the answer's always in between some of those numbers. I see that's kind of where we're seeing a lot of these. Again, every project's different. These are just general discussions. We've had a lot of inquiries over the past quarter, people asking us, could you quantify this for us? We did our best job of doing it.

Speaker #2: So that's on the high end . And very high end . I would say the answer is always in between some of those numbers .

Speaker #2: I see that's kind of where we're seeing a lot of these . But again , every project is different . Every , you know , yeah , you know , these are just general discussions .

Speaker #2: We've had a lot of inquiries over the past quarter , people asking us , could you quantify this for us ? So we did our best job of doing it .

Speaker #2: Anytime you give a range like this , it gets very difficult because it can be on the small end . It depends on whether liquid cooled , air cooled , whether it's in the US , whether it's in China or wherever in Europe .

Bob Pagano: Anytime you give a range like this, it gets very difficult because it can be on the small end. It depends on whether liquid cooled, air cooled, whether it's in the US, whether it's in China or wherever in Europe. Again, we participate throughout the whole cycle. We're just trying to give you the ranges for each one of these, to give you some clarity when you look at inside of an overall data center and how we play.

Speaker #2: So again , we participate throughout the whole cycle . We're just trying to give you , you know , the ranges for each one of these to give you some clarity .

[Company Representative] (Watts Water Technologies): Again, we participate throughout the whole cycle. We're just trying to give you the ranges for each one of these, to give you some clarity when you look at inside of an overall data center and how we play.

Speaker #2: When you look at inside of an overall data center and how we play

Speaker #11: Appreciate that . I guess directionally , we can then make an assumption kind of where liquid cooling growth is and kind of your opportunity and maybe just one more on just the gross margin .

Jeffrey Reeves: Appreciate that. I guess directionally, we can then make an assumption kind of where liquid cooling growth is and kind of your opportunity. Maybe just one more on just the gross margin compressed this quarter, I think SG&A improved. Is that related to the data center business mix? Should we expect that to continue? Maybe is there a natural floor on gross margins as the portfolio shifts?

[Analyst]: Appreciate that. I guess directionally, we can then make an assumption kind of where liquid cooling growth is and kind of your opportunity. Maybe just one more on just the gross margin compressed this quarter, I think SG&A improved. Is that related to the data center business mix? Should we expect that to continue? Maybe is there a natural floor on gross margins as the portfolio shifts?

Speaker #11: Compress this quarter . I think a improved Is that related to the data center business mix ? Should we expect that to continue ?

Speaker #11: And maybe is there a natural floor in gross margins as the portfolio shifts

Speaker #7: Yeah .

Diane McClintock: Yeah. From the gross margin perspective, remember, there's a little bit of acquisition dilution in there. We did have the challenging price cost compared to last year. Those are a couple pieces of it. Yeah, on the data centers, we do have a little bit of gross margin dilution from that. It's actually accretive to operating margin because there's a very low operating expense burden on that data center business. You will see that a little bit going forward.

Speaker #1: You know , from from the gross margin perspective , remember , there's a little bit of acquisition dilution in there . We did have that .

Speaker #1: The challenging price cost compared to last year . So those are a couple pieces of it . And yet on the data centers , we do have a little bit of gross margin dilution from that , but it's actually accretive to operating margin because there's a very low operating expense burden on that data center business .

Speaker #1: So you will see that a little bit going forward

Speaker #11: Great .

Jeffrey Reeves: Great. Thank you.

[Analyst]: Great. Thank you.

Speaker #7: Thank you

Speaker #3: There are no further questions at this time. I would like to turn the call back over to Ray Nash for closing remarks.

Operator: There are no further questions at this time. I would like to turn the call back over to Rainesh for closing remarks.

Speaker #7: Thank you . Operator . Thank you for joining us today . We appreciate your continued interest in Watts and look forward to speaking with you again during our third quarter earnings call in early November .

Ray Nash: Thank you, operator. Thank you for joining us today. We appreciate your continued interest in Watts and look forward to speaking with you again during our Q3 earnings call in early November. Have a great day and stay safe.

Speaker #7: Have a great day and stay safe

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Q2 2026 Watts Water Technologies Earnings Call

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