Watts Water Technologies, Inc. (NYSE:WTS) Q3 2023 Earnings Conference Call November 2, 2023 9:00 AM ET Company Participants Diane McClintock - Senior Vice President, Investor Relations and Financial Planning and Analysis Bob Pagano - President and Chief Executive Officer Shashank Patel - Chief Financial Officer Conference Call Participants Mike Halloran - Baird Adam Farley - Stifel Ryan Connors - Northcoast Research David Tarantino - KeyBanc Michael Anastasiou - TD Cowen Joe Ahlersmeyer - Deutsche Bank Oper ...

| --- | --- | |-------|-----------------------------------------------------------| | | | | | | | | Watts Water Technologies Q2 2023 Earnings Conference Call | | | August 3, 2023 | August 2, 2023 © 2023 Watts Water Technologies, Inc. 1 Forward Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are related to forecasts of sales, margins, earnings, earnings per share, effe ...

Watts Water Technologies, Inc. (NYSE:WTS) Q2 2023 Earnings Call August 3, 2023 9:00 AM ET Company Participants Diane McClintock - SVP FP&A & Investor Relations Bob Pagano - President and Chief Executive Officer Shashank Patel - Chief Financial Officer Conference Call Participants Ryan Connors - Northcoast Research Adam Farley - Stifel Jeff Hammond - KeyBanc Capital Markets Mike Halloran - Baird Walt Liptak - Seaport Global Operator Ladies and gentlemen, thank you for standing by. My name is Brent, and I wil ...

Financial Data and Key Metrics Changes - The company reported sales of $472 million, up 2% on a reported basis and up 4% organically compared to the previous year [15] - Adjusted operating profit increased by 16% to $84 million, and adjusted earnings per share rose 18% to $1.92 [16] - Adjusted operating margin improved by 220 basis points to 17.9%, driven by price, mix, and productivity [16] Business Line Data and Key Metrics Changes - The Americas experienced organic sales growth of approximately 3%, primarily driven by price realization [18] - Europe saw organic sales growth of about 4%, although reported sales were negatively impacted by 5% due to unfavorable foreign exchange [19] - APMEA delivered 11% organic growth, with China showing double-digit growth primarily from commercial valves sold into data centers [20] Market Data and Key Metrics Changes - Global GDP remains positive in key markets, but new building permits in Europe are trending downwards [10] - In the Americas, new residential single-family construction is weak, with single-family starts down double digits [10] - The Asia Pacific region showed resilience, particularly in China, while rising interest rates are impacting new construction in Australia and New Zealand [11] Company Strategy and Development Direction - The company acquired Enware Australia to broaden its product offering and channel access, with expected sales contribution of approximately $20 million in 2023 [8][13] - The focus remains on integrating Enware and leveraging global sourcing capabilities to optimize production [59] - The company plans to continue making incremental investments in new product development and automation to drive productivity [27] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the second half of 2023 due to potential impacts from rising interest rates and persistent inflation [13] - The company expects muted organic growth in the second quarter due to tough comparisons with the previous year [12] - Despite challenges, management remains confident in the company's ability to execute and capitalize on market opportunities [27] Other Important Information - The company announced a 20% increase in dividends starting in June, reflecting strong earnings and cash flow expectations [7] - Free cash flow for the quarter was $28 million, a significant improvement from negative cash flow of $8 million in the same quarter last year [17] Q&A Session Summary Question: Is there deterioration happening in North America outside of residential? - Management noted that deterioration is primarily seen in the residential single-family side, with OEMs experiencing destocking [30] Question: Can you provide insights on non-residential markets? - Management indicated that while office building activity is down, institutional projects are still ongoing due to labor shortages [32] Question: What are the factors affecting margins? - Management highlighted favorable mix and price realization in Q1, but cautioned about volume declines and the impact of prior price increases fading in Q2 [34][38] Question: What is the outlook for the Enware acquisition? - Management expects Enware to be breakeven initially, with plans to ramp up margins over the next three years through profitable growth and operational focus [41][59] Question: How is the company addressing M&A opportunities? - Management stated that M&A activity remains steady, with a full pipeline of potential acquisitions being monitored [53] Question: What is the rationale behind the dividend increase? - The increase aims to align with the median yield for the water sector and reflects the company's strong EPS and stock performance [55]

Product Development and Innovation - The company launched 20 new smart and connected product offerings in 2022, expanding its portfolio and smart strategy[50] - The Centurion, a new 2000 MBH water heater, features state-of-the-art combustion control technology for optimal efficiency and low emissions[48] - The company has made advancements in its backflow product line, now providing sensors for flood detection, potentially avoiding significant water loss[48] - The company has invested in leak detection solutions for both residential and commercial markets, helping to prevent costly water damage[48] - The company has seen increased demand for high-efficiency products due to growing interest in energy efficiency and water conservation[66] Employee and Corporate Governance - Approximately 4,600 employees were reported globally as of December 31, 2022, with 2,100 in the Americas, 2,200 in Europe, and 300 in APMEA[52] - The company aims for zero hazards and injuries by prioritizing employee safety through education and training initiatives[60] - The company has a Code of Business Conduct applicable to all officers, employees, and Board members worldwide, driving policy development and training initiatives[71] - The company’s executive team includes Robert J. Pagano, Jr. as CEO, Shashank Patel as CFO, and Monica Barry as Chief Human Resources Officer[80] - The company has a commitment to high governance standards and periodically reviews its corporate governance policies[71] Environmental, Social, and Governance (ESG) Initiatives - The Governance and Sustainability Committee reviews the company's ESG performance and strategic plans quarterly[63] - The company was recognized for the fourth consecutive year as one of Newsweek's Most Responsible Companies[72] - The company was promoted to the "low-risk" category by Sustainalytics in their annual ESG Risk Rating Report[72] - The company supported several non-profit organizations in 2022, including funding the construction of AquaTowers providing clean water for up to 10,800 people[70] - The company has implemented smart monitoring systems to reduce global water consumption and greenhouse gas emissions[67] - The company’s sustainability efforts are detailed in its latest Sustainability Report, which is available on its investor website[73] Financial Instruments and Risk Management - The company uses derivative financial instruments primarily to reduce exposure to adverse fluctuations in foreign exchange rates, interest rates, and costs of certain raw materials[253] - The company hedges approximately 80% to 85% of forecasted intercompany purchases between its Canadian and U.S. subsidiaries for the next twelve months[256] - The company has entered into forward exchange contracts that hedge up to 60% of forecasted intercompany sales transactions between its Chinese and U.S. subsidiaries for the next twelve months[256] - The fair value of the company's designated foreign hedge contracts outstanding as of December 31, 2022, was an asset of $0.2 million[256] - The company entered into an interest rate swap agreement on March 30, 2021, with a notional amount of $100.0 million, paying a fixed rate of 1.02975%[257] - The interest rate swap was amended on August 2, 2022, to replace LIBOR with Term SOFR, with the company paying a fixed rate of 0.942% on the same notional amount[257] - The company manages commodity price risks by monitoring market prices and working with suppliers to achieve cost stability[258] Legal and Environmental Liabilities - The company is defending approximately 550 lawsuits related to asbestos exposure, with no substantial evidence found against its products[77] - The company maintains product liability and other insurance coverage, which may not be adequate to fully protect against substantial damage claims[74] - The company has been named as a potentially responsible party for a limited number of identified contaminated sites, with environmental liabilities recorded based on the most probable cost[75] Reporting and Transparency - The company provides free access to its Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K through its website[79]

Watts Water Technologies, Inc. (NYSE:WTS) Q4 2022 Earnings Conference Call February 9, 2023 9:00 AM ET Company Participants Diane McClintock - SVP, FP&A and IR Robert Pagano - Chairman & President, CEO Shashank Patel - CFO Conference Call Participants Michael Halloran - Baird David Tarantino - KeyBanc Capital Markets Operator Ladies and gentlemen, thank you for standing by. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Watts Water Techn ...

| --- | --- | |-------|-----------------------------------------------------------| | | | | | | | | Watts Water Technologies 3Q 2022 Earnings Conference Call | | | November 3, 2022 | November 2, 2022 © 2022 Watts Water Technologies, Inc. 1 Forward Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are related to forecasts of sales, margins, earnings, earnings per share, ...

Watts Water Technologies, Inc. (NYSE:WTS) Q3 2022 Earnings Conference Call November 3, 2022 9:00 AM ET Company Participants Diane McClintock - SVP, FP&A and IR Robert Pagano - Chairman & President, CEO Shashank Patel - CFO Conference Call Participants Jeffrey Hammond - KeyBanc Capital Markets Tristan Margot - Cowen & Company Brian Lee - Goldman Sachs Nathan Jones - Stifel, Nicolaus & Company Michael Halloran - Robert W. Baird & Co. Ryan Connors - Northcoast Research Operator Ladies and gentlemen, thank you ...

| --- | --- | |-------|-----------------------------------------------------------| | | | | | | | | Watts Water Technologies 2Q 2022 Earnings Conference Call | | | August 4, 2022 | August 3, 2022 © 2022 Watts Water Technologies, Inc. 1 Forward Looking Statements Certain statements in this presentation constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are related to forecasts of sales, margins, earnings, earnings per share, effe ...

Financial Data and Key Metrics Changes - Sales for Q2 2022 were $527 million, up 13% on a reported basis and up 16% organically compared to the previous year [22][23] - Adjusted operating profit increased by 40% to $98 million, and adjusted EPS rose by 43% to $2.11 [23] - Adjusted operating margin improved by 360 basis points to 18.5%, driven by price, volume, and productivity [23][24] Business Line Data and Key Metrics Changes - The Americas experienced organic sales growth of approximately 22%, with strong price realization and underlying market demand [26] - Europe saw organic sales growth of about 5%, but reported sales were negatively impacted by 12% due to unfavorable foreign exchange movements [29] - APMEA (Asia Pacific, Middle East, and Africa) grew organically by 3%, with China experiencing high single-digit growth in commercial valves despite lockdown impacts [31] Market Data and Key Metrics Changes - In the Americas, nonresidential new construction indicators are mixed, with positive ABI and Dodge Momentum Index but recent moderation [12] - Europe faces potential recession concerns due to the war and rising energy costs, with an estimated impact of $12 million annualized from exiting the Russian market [13] - APMEA's growth was hindered by COVID lockdowns in China, but business activity is resuming as restrictions lift [14] Company Strategy and Development Direction - The company is focusing on Smart and Connected product initiatives, aiming for 25% of total sales to come from these products by 2024 [16] - Sustainability efforts are emphasized, with significant improvements in water use intensity, greenhouse gas intensity, and hazardous waste intensity [20][21] - The company is committed to investing an additional $20 million in 2022 to support future growth and Smart and Connected strategies [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the second quarter results exceeded expectations despite challenges from inflation, the Ukraine war, and supply chain disruptions [7][10] - The outlook for the third quarter anticipates organic sales growth and margin improvements, with solid demand in the Americas expected to buffer against European economic slowdowns [15] - Management expressed caution regarding the visibility of the European market due to the ongoing geopolitical situation and energy costs [46][80] Other Important Information - Year-to-date free cash flow was $33 million, down from $65 million in the previous year due to increased working capital and inventory investments [24] - The balance sheet remains strong, with gross leverage at 0.6x and net leverage at negative 0.1x [25] - The company repurchased approximately 434,000 shares for $61 million year-to-date [25] Q&A Session Summary Question: Insights on price-cost dynamics for the second half - Management indicated that the benefits from lower-cost inventory in Q2 would not be repeated in the second half, with a net benefit of $6 million to $8 million in Q2 [45] Question: Differentiation in outlook for EMEA and Asia - Management expects North America to see double-digit growth, while Europe may decline low single digits, with APMEA expected to grow mid-single digits [46] Question: Visibility into channel inventories and destocking - Management noted limited visibility into channel inventories but indicated that destocking is occurring, particularly in Europe [77] Question: Commentary on margin sustainability in the Americas - Management acknowledged that volume leverage in the Americas would be less in the second half, impacting margins, along with higher incremental investments [53] Question: Future capital allocation strategy - Management emphasized a balanced allocation strategy, remaining disciplined in M&A while also considering dividends and capital expenditures [59] Question: Selling prices and commodity costs - Management conducts evaluations every 90 days on cost inflation and adjusts prices accordingly, with ongoing monitoring of commodity costs [83][84]