Financial Data and Key Metrics Changes - In Q3, the company achieved sales of $1.022 billion, a 3% increase year-over-year, with adjusted operating income rising 10% to $263 million and adjusted EPS increasing 14% to $1.24 [6][13] - Return on sales (ROS) expanded by 160 basis points to 25.7% [6][13] - The company generated record free cash flow of $719 million year-to-date, up 14% year-over-year, and reduced its net debt leverage ratio to 1.3 times from 1.4 times a year ago [16] Business Line Data and Key Metrics Changes - **Flow Segment**: Sales increased 6% year-over-year to $394 million, with residential sales up 3%, commercial sales up 5%, and industrial sales up 10% [13][14] - **Water Solutions Segment**: Sales declined 6% to $273 million, with commercial sales down 6% and residential sales also down 6% year-over-year [14] - **Pool Segment**: Sales increased 7% to $354 million, driven by price, volume, and the Gulfstream acquisition [15] Market Data and Key Metrics Changes - The company expects Flow sales to grow in low single digits, Water Solutions to decline in mid-single digits, and Pool sales to increase approximately 7% for the full year [17] - The company anticipates fourth-quarter sales to be up approximately 3% to 4% [17] Company Strategy and Development Direction - The company is focused on transformation initiatives and has delivered approximately $56 million in transformation savings year-to-date, aiming for $80 million by the end of 2025 [8][9] - The company continues to invest in growth initiatives and innovation through digital and product technology [8] - The company plans to share more insights on its 80/20 actions at an upcoming Investor Day in March [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's execution and increased full-year guidance, expecting adjusted EPS of approximately $4.85 to $4.90, up 12% to 13% from 2024 [7][16] - Management noted that while there are uncertainties due to tariffs and interest rates, they are optimistic about the company's performance and growth opportunities [64] Other Important Information - The company announced that CFO Bob Fishman will be leaving effective March 1, 2026, and Nick Cash will take over [10][11] - The company has been proactive in mitigating the impact of tariffs through price increases and other strategies [18] Q&A Session Summary Question: Discussion on Pool margin productivity and full-year outlook - Management acknowledged the tough comparison for Pool margins but expressed optimism for a rebound in Q4, indicating that investments made in Q3 would drive future growth [23][24] Question: Update on Water Solutions growth - Management noted a slight decrease in core Water Solutions growth due to lagging commercial growth and international sales softness, particularly in China [33][34] Question: Transformation savings and future potential - Management confirmed confidence in achieving the 26% ROS target and indicated that transformation savings have been balanced across various operational areas [36][43] Question: Insights on Flow segment pricing and performance - Management highlighted strong performance across residential, commercial, and industrial sectors, with price increases contributing positively [50][51] Question: Hydrostat acquisition impact - Management confirmed expectations of $10 million in sales contribution from Hydrostat in Q4 and projected $50 million in 2026, emphasizing cross-selling opportunities [73][86]

Financial Data and Key Metrics Changes - In Q3, the company achieved sales of $1.022 billion, a 3% increase year-over-year, with adjusted operating income rising 10% to $263 million and adjusted EPS increasing 14% to $1.24 [16][5][6] - Return on sales (ROS) expanded by 160 basis points to 25.7% [6][16] - The company has increased its full-year guidance, now expecting sales growth of approximately 2% and adjusted EPS of approximately $4.85 to $4.90, reflecting a 12% to 13% increase from 2024 [7][23] Business Line Data and Key Metrics Changes - **Flow Segment**: Sales increased 6% year-over-year to $394 million, with residential sales up 3%, commercial sales up 5%, and industrial sales up 10% [18][16] - **Water Solutions Segment**: Sales declined 6% to $273 million, with core sales flat and commercial sales down 6% [19][16] - **Pool Segment**: Sales increased 7% to $354 million, driven by price and volume, with segment income up 3% [20][16] Market Data and Key Metrics Changes - The company reported a record free cash flow of $719 million year-to-date, up 14% year-over-year [21][22] - The net debt leverage ratio improved to 1.3 times, down from 1.4 times a year ago [22] Company Strategy and Development Direction - The company is focused on transformation initiatives that have led to robust margin expansion and operational efficiencies [7][12] - The "eightytwenty" actions are underway, aimed at driving top-line growth and enhancing customer relationships [8][12] - The company plans to share more insights on its strategic initiatives at an upcoming Investor Day in March [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's performance and strategic direction, highlighting the successful execution of transformation initiatives [7][27] - The company remains cautious about potential headwinds such as tariffs and high interest rates but is optimistic about growth opportunities in 2026 [75][76] Other Important Information - The company announced the departure of CFO Bob Fishman, effective March 1, 2026, and expressed confidence in the transition to Nick [12][14] - The company has raised its dividend for 49 consecutive years and continues to repurchase shares [10][22] Q&A Session Summary Question: Concerns about pool margin productivity - Management acknowledged the tough comparison for pool margins but expressed optimism about future ROS expansion and investments made to drive top-line growth [33][34] Question: Update on Water Solutions growth - Management noted a slight decrease in growth expectations for Water Solutions, reflecting broader market conditions, but remains optimistic about North American performance [41][42] Question: Transformation savings and future potential - Management confirmed ongoing transformation savings and expressed confidence in achieving further improvements in operational efficiency [52][54] Question: HydroStop acquisition impact - Management indicated that HydroStop is expected to contribute approximately $10 million in Q4 and around $50 million in 2026, with significant cross-selling opportunities [88][100] Question: Digital strategy and future growth - Management emphasized the importance of digital transformation and the need for enhanced customer experiences through technology [114][115]

Financial Data and Key Metrics Changes - Q2 revenues reached $240 million, reflecting an 18% year-over-year increase and at the upper end of expectations, although 2% lower than Q1 [14] - Q2 gross margin was 12.5%, a slight increase of 10 basis points from Q1 but at the lower end of expectations due to hiring challenges [14] - Operating income for Q2 was $6.1 million, with net interest expense aligned with expectations at $1.6 million [14] Business Line Data and Key Metrics Changes - The revenue upside in Q2 was primarily driven by the lower margin gas panel integration business [4] - Hiring and retention challenges have limited output volumes, impacting the ability to achieve expected gross margins [5][6] - Significant progress was made in qualifying new proprietary components, including a major milestone with the flow control product [9][10] Market Data and Key Metrics Changes - Customer demand environment remains steady, with expectations for modest growth in wafer fab equipment (WFE) for 2025 [6] - Year-to-date revenues are up 20% year-over-year, with expectations to outperform overall WFE growth for 2025 [6] - Demand for NAND investments is continuing into the second half, while advanced packaging has plateaued [35] Company Strategy and Development Direction - The company is focused on ramping internal supply to meet strong customer demand and improve gross margins [6][10] - A new product strategy is gaining traction, with ongoing qualifications and commercialization of proprietary components [10] - The company aims to achieve a gross margin target of 20% as it scales production and aligns output with customer needs [77] Management's Comments on Operating Environment and Future Outlook - Management expressed a more conservative view on hiring and gross margin expectations for the upcoming quarters [12] - The second half of 2025 is expected to be slightly front-half weighted, with potential for a slower quarter in December [11] - Management remains confident in the long-term strategy but acknowledges the need for improved visibility on revenue growth and cost targets before raising gross margin expectations significantly [12] Other Important Information - The company announced CEO succession plans, with the current CEO remaining until a successor is identified [18][19] - The balance sheet shows cash and equivalents totaling $92 million, down from Q1, reflecting working capital investments [15] Q&A Session Summary Question: Can you unpack the dynamics that affected gross margins in Q2? - Management indicated that hiring challenges and turnover impacted the ability to meet production needs, which affected gross margins [25][26] Question: Where is the demand coming from in Q3? - Demand is strong in foundry logic and NAND, while advanced packaging has plateaued [35] Question: Are there any market share issues arising from hiring or retention challenges? - Management noted that market share is impacted by internal supply issues, as external purchases prevent capturing market share [44] Question: What are the expectations for the second half of the year? - Management expects a slight decline in the second half, primarily due to timing of shipments and customer demand patterns [90][91] Question: Are tariffs impacting the business? - Management confirmed that tariffs are being passed on to customers, and regulations are clearer now, allowing for better management of impacts [61][62]