Q4 2025 Watts Water Technologies Inc Earnings Call

February 12, 2026

Operator: All over to Diane McClintock, Chief Financial Officer. Please go ahead.

Speaker #1: Over to Diane McClintock, Chief Financial Officer. Please go ahead.

Speaker #2: Thank you and good morning, everyone. Joining me today is Bob Pagano, President and CEO. Before we begin, I'd like to remind everyone that during this call we may be making certain comments that constitute forward-looking statements.

Diane McClintock: Thank you, and good morning, everyone. Joining me today is Bob Pagano, President and CEO. 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, see 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.

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.

Diane McClintock: 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, Diane, and good morning, everyone. Please turn to slide 3 where I'll recap 2025 and outline the key drivers for our 2026 outlook.

Robert J. Pagano, Jr.: Thank you, Diane, and good morning, everyone. Please turn to slide 3, where I'll recap 2025 and outline the key drivers for our 2026 outlook. I want to begin by expressing gratitude to the entire Watts team for their dedication and meaningful contributions, which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the Q4 and the full year. Organic sales rose 8% and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5% and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities.

Bob Pagano: Thank you, Diane, and good morning, everyone. Please turn to slide 3, where I'll recap 2025 and outline the key drivers for our 2026 outlook. I want to begin by expressing gratitude to the entire Watts team for their dedication and meaningful contributions, which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the Q4 and the full year. Organic sales rose 8% and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5% and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities.

Speaker #3: I want to begin by expressing gratitude to the entire Watts team for their dedication and meaningful contributions which made 2025 another outstanding year. We achieved record sales, operating margin, and earnings per share for both the fourth quarter and the full year.

Speaker #3: Organic sales rose 8%, and reported sales were up 16% this quarter. Adjusted operating margin climbed 220 basis points to 19%. For the entire year, organic sales grew 5%, and adjusted operating margin improved by 190 basis points to 19.6%, while we continued investing in strategic priorities.

Speaker #3: We generated a record $356 million in free cash flow for 2025, up 7%, reaching a conversion rate of 105%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth.

Robert J. Pagano, Jr.: We generated a record $356 million in free cash flow for 2025, up 7%, reaching a conversion rate of 105%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth. Our capital allocation continues to focus on strategic M&A, high return organic investments, competitive dividends, and steady share buybacks. Since our last earnings call, we completed 2 acquisitions. Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire tube, water tube, and condensing boilers for commercial, institutional, and industrial uses. Superior's mission-critical heating and hot water solutions expands our customer offerings. Superior has about $60 million in annual sales. Saudi Cast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for non-residential and industrial markets.

Bob Pagano: We generated a record $356 million in free cash flow for 2025, up 7%, reaching a conversion rate of 105%. This strong cash flow supports our robust balance sheet and gives us flexibility to invest in future growth. Our capital allocation continues to focus on strategic M&A, high return organic investments, competitive dividends, and steady share buybacks. Since our last earnings call, we completed 2 acquisitions. Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire tube, water tube, and condensing boilers for commercial, institutional, and industrial uses. Superior's mission-critical heating and hot water solutions expands our customer offerings. Superior has about $60 million in annual sales. Saudi Cast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for non-residential and industrial markets.

Speaker #3: Our capital allocation continues to focus on strategic M&A, high-return organic investments, competitive dividends, and steady share buybacks. Since our last earnings call, we completed two acquisitions.

Speaker #3: Superior Boiler, based in Hutchinson, Kansas, is a leading designer and maker of customized fire-tube, water-tube, and condensing boilers for commercial, institutional, and industrial uses.

Speaker #3: Superior's mission-critical heating and hot water solutions expand our customer offerings. Superior has about 60 million in annual sales. SaudiCast, located in Riyadh, Saudi Arabia, manufactures high-quality cast iron and stainless steel drainage products for non-residential and industrial markets.

Speaker #3: This acquisition grows our footprint in the fast-developing Middle East region. SaudiCast's annual sales are around $20 million. Both acquisitions are expected to be accretive to adjusted EPS in 2026, after accounting for added interest expense and normal purchase accounting adjustments.

Robert J. Pagano, Jr.: This acquisition grows our footprint in the fast-developing Middle East region. Saudi Cast's annual sales are around $20 million. Both acquisitions are expected to be accretive to adjusted EPS in 2026, after accounting for added interest expense and normal purchase accounting adjustments. Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80/20 model within the One Watts Performance System. Through this ongoing evaluation, we've identified $10 to 15 million of European sales and $25 to 30 million in the Americas, mainly in lower-margin retail and OEM channels, that we intend to eliminate during 2026. We anticipate these changes will be neutral or potentially margin accretive in 2026. Here's an overview of what will drive our 2026 outlook.

Bob Pagano: This acquisition grows our footprint in the fast-developing Middle East region. Saudi Cast's annual sales are around $20 million. Both acquisitions are expected to be accretive to adjusted EPS in 2026, after accounting for added interest expense and normal purchase accounting adjustments. Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80/20 model within the One Watts Performance System. Through this ongoing evaluation, we've identified $10 to 15 million of European sales and $25 to 30 million in the Americas, mainly in lower-margin retail and OEM channels, that we intend to eliminate during 2026. We anticipate these changes will be neutral or potentially margin accretive in 2026. Here's an overview of what will drive our 2026 outlook.

Speaker #3: Integration efforts are already underway for both companies. As previously discussed, we regularly review our portfolio and phase out underperforming products under our 80/20 model within the One Watts Performance System.

Speaker #3: Through this ongoing evaluation, we've identified 10 to 15 million of European sales and 25 to 30 million in the Americas, mainly in lower-margin retail and OEM channels that we intend to eliminate during 2026.

Speaker #3: We anticipate these changes will be neutral or potentially margin accretive in 2026. Here's an overview of what will drive our 2026 outlook. We expect that pricing, along with continued repair and replacement activity, will fuel further growth in 2026.

Robert J. Pagano, Jr.: We expect that pricing, along with continued repair and replacement activity, will fuel further growth in 2026. Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets. In the Americas, indicators for non-residential new construction present a mixed picture. The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in non-residential projects. Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses, and recreation. We also anticipate a soft single-family and multifamily residential construction market through 2026. Lastly, Europe's new residential and non-residential construction is expected to remain sluggish. Uncertainty surrounding inflation, trade policies, and interest rates might continue to hamper new construction projects.

Bob Pagano: We expect that pricing, along with continued repair and replacement activity, will fuel further growth in 2026. Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets. In the Americas, indicators for non-residential new construction present a mixed picture. The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in non-residential projects. Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses, and recreation.

Speaker #3: Global GDP, a proxy for our repair and replacement business, remains positive within our main end markets. In the Americas, indicators for non-residential new construction present a mixed picture.

Speaker #3: The ABI remains below 50, suggesting subdued market conditions in 2026. However, the Dodge Momentum Index is slightly more optimistic, indicating potential growth in non-residential projects.

Speaker #3: Most of this growth should come from strength in institutional and data center sectors, though it could be tempered by weaker segments such as offices, retail, warehouses, and recreation.

Speaker #3: We also anticipate a soft single-family and multifamily residential construction market through 2026. Lastly, Europe's new residential and non-residential construction is expected to remain sluggish.

Bob Pagano: We also anticipate a soft single-family and multifamily residential construction market through 2026. Lastly, Europe's new residential and non-residential construction is expected to remain sluggish. Uncertainty surrounding inflation, trade policies, and interest rates might continue to hamper new construction projects.

Speaker #3: Uncertainty surrounding inflation, trade policies, and interest rates might continue to hamper new construction projects. Overall, we foresee market conditions similar to those experienced in 2025.

Robert J. Pagano, Jr.: Overall, we foresee market conditions similar to those experienced in 2025. We expect to benefit over $130 million in incremental revenues from the acquisitions of EasyWater, Haas, Superior, and Saudi Cast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the One Watts performance system and realize synergies. Now, let me highlight a few strategic growth initiatives, including our data center and M&A strategy. On slide four, you'll see examples of solutions we've developed for both air-cooled and liquid-cooled data centers. Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers. Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling.

Bob Pagano: Overall, we foresee market conditions similar to those experienced in 2025. We expect to benefit over $130 million in incremental revenues from the acquisitions of EasyWater, Haas, Superior, and Saudi Cast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the One Watts performance system and realize synergies. Now, let me highlight a few strategic growth initiatives, including our data center and M&A strategy. On slide four, you'll see examples of solutions we've developed for both air-cooled and liquid-cooled data centers. Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers. Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling.

Speaker #3: We expect to benefit from over $130 million in incremental revenues from the acquisitions of Easy Water, Haas, Superior, and SaudiCast. Collectively, these additions are projected to dilute adjusted operating margin by about 50 basis points in 2026 as we implement the One Watts Performance System and realize synergies.

Speaker #3: Now, let me highlight a few strategic growth initiatives, including our data center and M&A strategy. On slide 4, you'll see examples of solutions we've developed for both air-cooled and liquid-cooled data centers.

Speaker #3: Our most notable product is the cooling valves that control the flow of chilled water to sustain the required temperatures in data centers. Typically, these valves and related equipment are made of iron for air cooling and stainless steel for liquid cooling.

Speaker #3: Other important offerings include strainers, drainage, and our cool-vault thermal storage tanks, which serve as emergency backups during chiller restarts. Our data center initiative spans the globe, and we estimate the addressable market exceeds $1 billion.

Robert J. Pagano, Jr.: Other important offerings include strainers, drainage, and our CoolVault thermal storage tanks, which serve as emergency backups during chiller restarts... Our data center initiative spans the globe, and we estimate the addressable market exceeds $1 billion. In 2025, sales from this sector represented just over 3% of total company sales and are growing at a double-digit rate. We'll keep investing in new products and technologies to meet evolving customer needs and believe this market will continue expanding for years. Slide 5 covers our acquisitions over the past three years. We finalized 8 deals, deploying about $660 million in cash and adding around $450 million in annualized revenue. These acquisitions have broadened our product range, expanded channel access, and increased our geographic reach.

Bob Pagano: Other important offerings include strainers, drainage, and our CoolVault thermal storage tanks, which serve as emergency backups during chiller restarts... Our data center initiative spans the globe, and we estimate the addressable market exceeds $1 billion. In 2025, sales from this sector represented just over 3% of total company sales and are growing at a double-digit rate. We'll keep investing in new products and technologies to meet evolving customer needs and believe this market will continue expanding for years. Slide 5 covers our acquisitions over the past three years. We finalized 8 deals, deploying about $660 million in cash and adding around $450 million in annualized revenue. These acquisitions have broadened our product range, expanded channel access, and increased our geographic reach.

Speaker #3: In 2025, sales from this sector represented just over 3% of total company sales, and our growing at a double-digit rate. We'll keep investing in new products and technologies to meet evolving customer needs and believe this market will continue expanding for years.

Speaker #3: Slide 5 covers our acquisitions over the past three years. We finalized eight deals, deploying about $660 million in cash and adding around $450 million in annualized revenue.

Speaker #3: These acquisitions have broadened our product range and expanded channel access and increased our geographic reach. Just as importantly, they diversified our end market exposure and shifted our mix toward higher-growth, higher-margin, non-residential, institutional, and industrial segments.

Robert J. Pagano, Jr.: Just as importantly, they diversified our end market exposure and shifted our mix toward higher growth, higher margin, non-residential, institutional, and industrial segments. By leveraging the One Watts Performance System, we're driving value through successful integration, synergy realization, and improving margins. Despite the typical early-stage margin dilution from acquisitions, we've expanded adjusted operating margin by 320 basis points in 3 years. We're proud of our performance and pleased to add such quality brands to our portfolio. With that, I'll hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026. Diane?

Bob Pagano: Just as importantly, they diversified our end market exposure and shifted our mix toward higher growth, higher margin, non-residential, institutional, and industrial segments. By leveraging the One Watts Performance System, we're driving value through successful integration, synergy realization, and improving margins. Despite the typical early-stage margin dilution from acquisitions, we've expanded adjusted operating margin by 320 basis points in 3 years. We're proud of our performance and pleased to add such quality brands to our portfolio. With that, I'll hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026. Diane?

Speaker #3: By leveraging the One Watts Performance System, we're driving value through successful integration, synergy realization, and improving margins. Despite the typical early-stage margin dilution from acquisitions, we've expanded adjusted operating margin by 320 basis points in three years.

Speaker #3: We're proud of our performance, and pleased to add such quality brands to our portfolio. With that, I'll hand things back to Diane, who will discuss our Q4 and full year 2025 results and share the outlook for Q1 and all of 2026.

Speaker #3: Diane?

Speaker #1: Thank you, Bob. Let us now turn to slide 6, which outlines our fourth-quarter results. Sales reached $625 million, reflecting a 16% increase on a reported basis and an 8% increase organically.

Diane McClintock: Thank you, Bob. Let us now turn to Slide 6, which outlines our Q4 results. Sales reached $625 million, reflecting a 16% increase on a reported basis and an 8% increase organically. The Americas region delivered strong organic growth of 10% and reported growth of 17%, exceeding our expectations. This performance was supported by favorable price and volume, including the benefit of 1 additional shipping day and growth from data center sales. Acquisitions accounted for an additional $27 million in sales, contributing 7 percentage points to the Americas' reported growth. In Europe, organic sales rose by 1%, while reported sales increased 10%. Organic growth stemmed from favorable pricing and the extra shipping day, while reported sales also benefited from positive foreign exchange effects.

Speaker #1: The Americas region delivered strong organic growth of 10% and reported growth of 17%, exceeding our expectations. This performance was supported by favorable price and volume, including the benefit of one additional shipping day and growth from data center sales.

Speaker #1: Acquisitions accounted for an additional $27 million in sales, contributing 7 percentage points to the Americas reported growth. In Europe, organic sales rose by 1%, while reported sales increased 10%.

Speaker #1: Organic growth stemmed from favorable pricing and the extra shipping day, while reported sales also benefited from positive foreign exchange effects. In Atmia, organic sales grew 9% with acquisitions adding 6% for a total reported sales growth of 15%.

Diane McClintock: In APMEA, organic sales grew 9%, with acquisitions adding 6%, for a total reported sales growth of 15%. Adjusted EBITDA totaled $134 million, an increase of 28%, with an adjusted EBITDA margin of 21.4%, up 210 basis points year-over-year. Adjusted operating income of $119 million increased 31%, and adjusted operating margin improved 220 basis points to 19%. These improvements were primarily driven by favorable pricing and productivity gains, more than offsetting inflationary pressures, volume deleverage in Europe, tariffs, and acquisition dilution. Segment margins were as follows: Americas increased by 150 basis points to 23.3%. Europe increased by 490 basis points to 15.1%, while APMEA decreased slightly by 20 basis points to 17.3%.

Speaker #1: Adjusted EBITDA totaled $134 million, an increase of 28%, with an adjusted EBITDA margin of 21.4%, up 210 basis points year over year. Adjusted operating income of $119 million, increased 31%, and adjusted operating margin improved 220 basis points to 19%.

Speaker #1: These improvements were primarily driven by favorable pricing and productivity gains. More than offsetting inflationary pressures, volume deleverage in Europe, tariffs, and acquisition dilution. Segment margins were as follows: Americas increased by 150 basis points to 23.3%.

Speaker #1: Europe increased by 490 basis points to 15.1%, while ATMIA decreased slightly by 20 basis points to 17.3%. Adjusted earnings per share equaled $2.62, representing a 28% year-over-year increase, with operational performance, acquisitions, and foreign exchange gains outweighing higher tax and net interest expense.

Diane McClintock: Adjusted earnings per share equaled $2.62, representing a 28% year-over-year increase, with operational performance, acquisitions, and foreign exchange gains outweighing higher tax and net interest expense. Turning to full year results, please refer to Slide 7. As previously noted, we achieved record operating results for 2025. Total company sales were $2.4 billion, up 8% on a reported basis and 5% organically. Organic growth in the Americas and APMEA reached 8% and 5%, respectively, partially offset by a challenging year in Europe, where organic sales declined by 5%. Acquisitions contributed $52 million, or 2% of incremental sales growth, and favorable foreign exchange added another 1%. Adjusted EBITDA for the year was $534 million, up 18%, and adjusted EBITDA margin improved by 180 basis points to 21.9%.

Speaker #1: Turning to full year results, please refer to slide 7. As previously noted, we achieved record operating results for 2025. Total company sales were $2.4 billion, up 8% on a reported basis and 5% organically.

Speaker #1: Organic growth in the Americas and Atmia reached 8% and 5%, respectively. Partially offset by a challenging year in Europe, where organic sales declined by 5%.

Speaker #1: Acquisitions contributed $52 million, or 2% of incremental sales growth, and favorable foreign exchange added another 1%. Adjusted EBITDA for the year was $534 million, up 18%, and adjusted EBITDA margin improved by 180 basis points to 21.9%.

Speaker #1: Adjusted operating income rose 19% to $477 million, resulting in 19.6 operating margin, up 190 basis points. These increases reflect the benefit of price, volume, and productivity gains which more than compensated for inflation, European volume deleverage, tariffs, and acquisition-related dilution.

Diane McClintock: Adjusted operating income rose 19% to $477 million, resulting in 19.6% operating margin, up 190 basis points. These increases reflect the benefit of price, volume, and productivity gains, which more than compensated for inflation, European volume deleverage, tariffs, and acquisition-related dilution. Segment margin in the Americas increased to 24.5%, up 190 basis points. Europe increased to 13.3%, up 160 basis points, and APMEA remained flat at 18.3%. Adjusted EPS was $10.58, up $1.72, or 19% compared to prior year, with benefits from operations, acquisitions, favorable foreign exchange, and lower net interest expense exceeding higher tax costs.

Speaker #1: Segment margin in the Americas increased to 24.5%, up 190 basis points. Europe increased a 13.3%, up 160 basis points. And Atmia remained flat at 18.3%.

Speaker #1: Adjusted EPS was $10.58, up $1.72, or 19% compared to prior year, with benefits from operations, acquisitions, favorable foreign exchange, and lower net interest expense exceeding higher tax costs.

Speaker #1: For GAAP reporting, after-tax charges of 22.3 million were recorded related to restructuring, and acquisition-related costs, partly offset by an 8.3 million tax benefit from the reversal of a prior year tax liability.

Diane McClintock: For GAAP reporting, after-tax charges of $22.3 million were recorded related to restructuring and acquisition-related costs, partly offset by an $8.3 million tax benefit from the reversal of a prior year tax liability. Free cash flow reached $356 million, a 7% increase from 2024, setting a new company record. This was primarily driven by higher net income, lower tax payments due to changes in US tax regulations, and contributions from acquisitions, which more than offset higher inventory investment and capital expenditures. Free cash flow conversion was 105%. Our balance sheet remains strong and continues to support our disciplined approach to capital allocation. In 2025, we returned $83 million to shareholders through dividends and share repurchases, increasing our annual dividend payout by approximately 20%.

Speaker #1: Free cash flow reached $356 million, a 7% increase from 2024, setting a new company record. This was primarily driven by higher net income, lower tax payments due to changes in US tax regulations, and contributions from acquisitions.

Speaker #1: Which more than offset higher inventory investment and capital expenditures. Free cash flow conversion was $105%. Our balance sheet remains strong and continues to support our disciplined approach to capital allocation.

Speaker #1: In 2025, we returned $83 million to shareholders through dividends and share repurchases, increasing our annual dividend payout by approximately 20%. On slide 8, we will review our outlook for the first quarter and full year 2026.

Diane McClintock: On slide 8, we will review our outlook for Q1 and full year 2026. The outlook for 2026 is based on the anticipated market conditions discussed earlier. For the full year, we anticipate reported sales growth of 8% to 12% and organic sales growth of 2% to 6%. Excluding the impact of product rationalization, our organic sales growth would be approximately 2% higher. Organic sales in the Americas are expected to increase by 3% to 7%, driven by price and volume, especially within data centers, more than offsetting anticipated product rationalization headwinds of $25 to 30 million. Price contribution will be higher in the first half, particularly Q1, due to the carryover effect of prior year tariff-related price increases.

Speaker #1: The outlook for 2026 is based on the anticipated market conditions discussed earlier. For the full year, we anticipate reported sales growth of 8% to 12%, and organic sales growth of 2% to 6%.

Speaker #1: Excluding the impact of product rationalization, our organic sales growth would be approximately 2% higher. Organic sales in the Americas are expected to increase by 3% to 7%, driven by price and volume, especially within data centers, more than offsetting anticipated product rationalization headwinds of 25 to 30 million dollars.

Speaker #1: Price contribution will be higher in the first half, particularly Q1, due to carryover effect of prior year tariff-related price increases. In Europe, organic sales are projected to range from a 4% decline to flat, as favorable price is offset by lower volume, partly due to 10 to 15 million dollars in product rationalization.

Diane McClintock: In Europe, organic sales are projected to range from a 4% decline to flat, as favorable price is offset by lower volume, partly due to $10 to 15 million in product rationalization. APMEA is expected to achieve organic growth between 4% and 8%. Additionally, we anticipate incremental sales from acquisitions of between $110 and 115 million in the Americas and between $18 and 20 million in APMEA, with foreign exchange favorability estimated at $18 million. We expect adjusted EBITDA margin to be in the range of 21.5% to 22.1%, and the adjusted operating margin between 19.1% and 19.7%. Margin expansion from price, volume leverage, and productivity and restructuring savings is expected to be partially offset by inflation and 50 basis points of acquisition dilution.

Speaker #1: Atmia is expected to achieve organic growth between 4% and 8%. Additionally, we anticipate incremental sales from acquisitions of between $110 million and $115 million in the Americas and between $18 million and $20 million in Atmia.

Speaker #1: With foreign exchange favorability estimated at $18 million, we expect adjusted EBITDA margin to be in the range of 21.5% to 22.1%, and the adjusted operating margin between 19.1% and 19.7%.

Speaker #1: Margin expansion from price, volume leverage, and productivity in restructuring savings is expected to be partially offset by inflation, and 50 basis points of acquisition dilution.

Speaker #1: Regionally, America's segment margin is anticipated to decrease by 50 to 110 basis points, mainly due to approximately 100 basis points of acquisition dilution. Europe's segment margin is expected to be down 30 basis points to up 30 basis points, and Atmia is estimated to increase by 30 to 60 basis points.

Diane McClintock: Regionally, the Americas segment margin is anticipated to decrease by 50 to 110 basis points, mainly due to approximately 100 basis points of acquisition dilution. Europe's segment margin is expected to be down 30 basis points to up 30 basis points, and APMEA is estimated to increase by 30 to 60 basis points. This guidance assumes no changes to the current tariff environment. We expect free cash flow conversion at or above 90% of net income for 2026, reflecting planned investments in automation in our core operations and with our new acquisitions, investments in our data center capabilities, and investment in our SAP implementation. Key considerations for Q1. Reported sales are expected to increase 12 to 16%, with organic sales up 4 to 8%. We anticipate high single-digit growth in the Americas, low single-digit decline in Europe, and low single-digit growth in APMEA.

Speaker #1: This guidance assumes no changes to the current tariff environment. We expect free cash flow conversion at or above 90% of net income for 2026, reflecting planned investments in automation and/or core operations and within our new acquisitions, investments in our data center capabilities, and investment in our SAP implementation.

Speaker #1: Key considerations for Q1: reported sales are expected to increase 12 to 16%, with organic sales up 4 to 8%. We anticipate high single-digit growth in the Americas, low single-digit decline in Europe, and low single-digit growth in Atmia.

Diane McClintock: Key considerations for Q1. Reported sales are expected to increase 12 to 16%, with organic sales up 4 to 8%. We anticipate high single-digit growth in the Americas, low single-digit decline in Europe, and low single-digit growth in APMEA. These estimates incorporate a negative impact from product rationalization of approximately $1 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at $25 to 30 million for the Americas and around $5 million for APMEA, with a foreign exchange benefit estimated at $13 million. Q1 EBITDA margin is expected to be between 21.1% and 21.7%. Operating margin is expected to be between 18.6% to 19.2%.

Speaker #1: These estimates incorporate a negative impact from product rationalization of approximately $1 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at 25 to 30 million for the Americas, and around $5 million for Atmia.

Diane McClintock: These estimates incorporate a negative impact from product rationalization of approximately $1 million in Europe and $6 million in the Americas. Incremental sales from acquisitions are projected at $25 to 30 million for the Americas and around $5 million for APMEA, with a foreign exchange benefit estimated at $13 million. Q1 EBITDA margin is expected to be between 21.1% and 21.7%. Operating margin is expected to be between 18.6% to 19.2%. Price and volume leverage in the Americas and APMEA are anticipated to be offset by volume deleverage in Europe and acquisition dilution of approximately 70 basis points. Additional key assumptions for the Q1 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: With a foreign exchange benefit estimated at $13 million, first quarter EBITDA margin is expected to be between 21.1% and 21.7%. Operating margin is expected to be between 18.6% and 19.2%.

Speaker #1: Price and volume leverage in the Americas and Atmia are anticipated to be offset by volume deleverage in Europe and acquisition dilution of approximately 70 basis points.

Diane McClintock: Price and volume leverage in the Americas and APMEA are anticipated to be offset by volume deleverage in Europe and acquisition dilution of approximately 70 basis points. Additional key assumptions for the Q1 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: Additional key assumptions for the first 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. Let's move to slide 9, where I'll summarize before taking questions. In 2025, we posted strong outcomes across the board, record Q4 and full year sales, operating income, EPS, and free cash flow.

Robert J. Pagano, Jr.: Thanks, Diane. Let's move to slide 9, where I'll summarize before taking questions. In 2025, we posted strong outcomes across the board: record Q4 and full-year sales, operating income, EPS, and free cash flow. We continue investing in strategic growth and productivity programs, including data center solutions, our Nexa digital strategy, and factory automation for enhanced efficiency. 5 strategic acquisitions in 2025 further diversified our business and market reach. Our broad portfolio is resilient, and our teams are positioned to capitalize on growth opportunities, including institutional and data centers. Our model, driven largely by repair and replacement, ensures steady revenue and cash flow. Our balance sheet remains strong and provides flexibility to support our balanced capital strategies. The M&A pipeline is active, and we plan to pursue appealing opportunities to expand our solutions and global presence as we aim for sustainable, profitable growth.

Bob Pagano: Thanks, Diane. Let's move to slide 9, where I'll summarize before taking questions. In 2025, we posted strong outcomes across the board: record Q4 and full-year sales, operating income, EPS, and free cash flow. We continue investing in strategic growth and productivity programs, including data center solutions, our Nexa digital strategy, and factory automation for enhanced efficiency. 5 strategic acquisitions in 2025 further diversified our business and market reach. Our broad portfolio is resilient, and our teams are positioned to capitalize on growth opportunities, including institutional and data centers. Our model, driven largely by repair and replacement, ensures steady revenue and cash flow.

Speaker #2: We continue investing in strategic growth and productivity programs, including data center solutions, our Nexa Digital strategy, and factory automation for enhanced efficiency. Five strategic acquisitions in 2025 further diversified our business and market reach.

Speaker #2: Our broad portfolio is resilient and our teams are positioned to capitalize on growth opportunities, including institutional and data centers. Our model, driven largely by repair and replacement, ensures steady revenue and cash flow.

Speaker #2: Our balance sheet remains strong and provides flexibility to support our balanced capital strategies. The M&A pipeline is active and we plan to pursue appealing opportunities to expand our solutions and global presence as we aim for sustainable, profitable growth.

Bob Pagano: Our balance sheet remains strong and provides flexibility to support our balanced capital strategies. The M&A pipeline is active, and we plan to pursue appealing opportunities to expand our solutions and global presence as we aim for sustainable, profitable growth. With that, operator, please open the line for questions.

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

Robert J. Pagano, Jr.: With that, operator, please open the line for questions.

Speaker #3: We will now begin the question and answer session. To ask a question, press star, then the number 1 on your telephone keypad. We ask that you please limit your questions to one and one follow-up.

Operator: We will now begin the question-and-answer session. To ask a question, press star, then the number one on your telephone keypad. We ask that you please limit your questions to one and one follow-up. Our first question will come from the line of Nathan Jones with Stifel. Please go ahead.

Speaker #3: Our first question will come from the line of Nathan Jones with Steeple. Please go ahead.

Speaker #4: Good morning, everyone.

Joseph Giordano: Good morning, everyone.

Nathan Jones: Good morning, everyone.

Speaker #2: Good morning.

Diane McClintock: ... Good morning, Nathan.

Speaker #5: Good morning, Nathan.

Speaker #4: I'm going to start with a question on M&A. Obviously, the level of M&A that you guys have done over the last couple of years has picked up, and it looks to be something that's going to be a little more serial.

Nathan Jones: I'm gonna start with a question on M&A. Obviously, the level of M&A that you guys have done over the last couple of years has kicked up, and it looks to be something that's gonna be a little more serial, and a little more of a contributor to the earnings growth over the next several years. So I'm just interested in hearing a bit more about your philosophy around M&A, kind of, you know, on average, over the next few years, what percentage of revenue you'd like to be able to acquire, leverage targets that you'd be comfortable going to? Just any more color you could give us around that, given it's becoming a bigger piece of the value driver for Watts. Thanks.

Speaker #4: And a little more of a contributor to the earnings growth over the next several years. So I'm just interested in hearing a bit more about your philosophy around M&A—kind of, on average, over the next few years, what percentage of revenue you'd like to be able to acquire, and leverage targets that you'd be comfortable going to.

Speaker #4: Just any more color you could give us around that, given it's becoming a bigger piece of the value driver for Watts. Thanks.

Speaker #2: Well, thanks, Nathan. But as you can imagine, we certainly have a healthy balance sheet that does that. We cultivate acquisition targets for many, many years, and sometimes they break.

Robert J. Pagano, Jr.: Well, thanks, Nathan. But, as you can imagine, we certainly have a healthy balance sheet that does that. We cultivate acquisition targets for many, many years, and sometimes they break, and certainly this year, you know, five of them broke, which is exciting. So M&A has always been a key part of our strategy. It has to make strategic and financial sense, obviously, and it also has to fit our culture and making sure the cultures work together. So, we'll continue to be active, as we always have been. The teams are focused on this, where it makes sense and where it makes financially attractive. But certainly we'd like to deploy capital. You know, we look at small, medium, and large acquisitions.

Bob Pagano: Well, thanks, Nathan. But, as you can imagine, we certainly have a healthy balance sheet that does that. We cultivate acquisition targets for many, many years, and sometimes they break, and certainly this year, you know, five of them broke, which is exciting. So M&A has always been a key part of our strategy. It has to make strategic and financial sense, obviously, and it also has to fit our culture and making sure the cultures work together. So, we'll continue to be active, as we always have been. The teams are focused on this, where it makes sense and where it makes financially attractive. But certainly we'd like to deploy capital. You know, we look at small, medium, and large acquisitions.

Speaker #2: And certainly this year, five of them broke, which is exciting. So M&A has always been a key part of our strategy. It has to make strategic and financial sense.

Speaker #2: Obviously, and it also has to fit our culture and making sure the cultures work together. So we'll continue to be active as we always have been.

Speaker #2: The teams are focused on this. Where it makes sense and where it makes financially attractive. But certainly, we'd like to deploy capital we look at small, medium, and large acquisitions.

Robert J. Pagano, Jr.: Certainly in this environment, we wouldn't want to leverage more than 2, 2.5 at this point in time. But, again, it just depends on how fast cash flow, you know, drives repayment of debt. So anyways, those are philosophically what we're looking at, but the team's focused on it where it makes sense.

Speaker #2: Certainly, in this environment, we wouldn't want to leverage more than two, two and a half at this point in time. But again, it just depends on how fast cash flow drives repayment of debt.

Bob Pagano: Certainly in this environment, we wouldn't want to leverage more than 2, 2.5 at this point in time. But, again, it just depends on how fast cash flow, you know, drives repayment of debt. So anyways, those are philosophically what we're looking at, but the team's focused on it where it makes sense.

Speaker #2: So anyways, those are philosophically what we're looking at. But the teams focus on it where it makes sense.

Speaker #4: And do you need things that are going to be created to earnings in the first year? Return on invested capital, 10% by year three or year five, or what are the kind of hurdles that you're looking at when you're looking at these kinds of deals?

Nathan Jones: Do you need things that are gonna be accretive to earnings in the first year, return on invested capital, 10% by year 3 or year 5? Or what are the kind of hurdles that you're looking at, when you're looking at these kinds of deals?

Speaker #3: Yeah, Nathan, those are our key criteria. We like to have the acquisitions be a creative EPS in year one, try to get our EBITDA margins up to Watts level between year three and year five.

Diane McClintock: Yeah, Nathan, those are our key criteria. We like to have the acquisitions be accretive to EPS in year 1, try to get our EBITDA margins up to Watts level between year 3 and year 5. We've been pretty successful at that with the acquisitions we've had so far. You know, it's not, there are opportunities sometimes where you may not get your EPS accretive in year 1, but those are certainly our key criteria.

Speaker #3: We've been pretty successful at that with the acquisitions we've had so far. It's not there are opportunities sometimes where you may not get your EPS accretive in year one, but those are certainly our key criteria.

Speaker #4: And I'll just make one in on data center saying, as you highlighted it in the deck, 3% of sales is a meaningful amount. And Bob, you talked about it growing double digits, which is a pretty wide kind of range.

Nathan Jones: I'll just sneak one in on the data center, seeing as you highlighted it in the deck. Three percent of sales is a meaningful amount, and Bob, you talked about it growing double digits, which is a pretty wide kind of range. Any more color you can give us on what kind of a bit more narrow range for double digits, and potentially what you think that business could get to over the next few years? Thanks, and I'll pass it on.

Speaker #4: Any more color you can give us on what kind of a bit more narrow range for double digits and potentially what you think that business could get to over the next few years?

Speaker #4: Thanks and I'll pass it on.

Speaker #2: Yeah, I mean, it's the higher end of the double digits, I would say, and certainly it's a key focus of ours. Asia Pacific was the leader of that several years ago.

Robert J. Pagano, Jr.: Yeah, I mean, it's the higher end of the double digits, I would say, and certainly it's a key focus of ours. You know, Asia Pacific was the leader of that several years ago. Now, America is taking that, and Americas is over half of that. And, you know, as long as they continue to build, we'll continue to be there and provide our products to support them. So, it's our fastest growing initiative that the teams are focused on.

Bob Pagano: Yeah, I mean, it's the higher end of the double digits, I would say, and certainly it's a key focus of ours. You know, Asia Pacific was the leader of that several years ago. Now, America is taking that, and Americas is over half of that. And, you know, as long as they continue to build, we'll continue to be there and provide our products to support them. So, it's our fastest growing initiative that the teams are focused on.

Speaker #2: Now, America is taking that, and America's over half of that. And as long as they continue to build, we'll continue to be there and provide our products to support them.

Speaker #2: So it's our fastest growing initiative that the teams are focused on.

Speaker #4: Thanks very much for taking the questions.

Nathan Jones: Thanks very much for taking the question.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question will come from the line of Mike Halloran with Baird. Please go ahead.

Operator: Our next question will come from the line of Mike Halloran with Baird. Please go ahead.

Speaker #4: Good morning, everyone.

Michael Halloran: Good morning, everyone.

Speaker #2: Good morning, Mike.

Robert J. Pagano, Jr.: Good morning, Mike.

Bob Pagano: Good morning, Mike.

Speaker #5: Good morning, Mike.

Diane McClintock: Good morning, Mike.

Michael Halloran: So, first question, just want to make sure I understand the moving pieces in the organic guide. I think the 80/20 revenue is included in that organic number? Just want to confirm. And then, how should I think about price versus volumes at the midpoint? Are volumes roughly flattish, embedded in the guide?

Speaker #4: So first question, just want to make sure I understand the moving pieces in the organic guide. I think the 80/20 revenue is included in that organic number.

Speaker #4: Just want to confirm, and then how should I think about price versus volumes at the midpoint? Are volumes roughly flattish embedded in the guide?

Speaker #3: Yeah, Mike, that's right. The 80/20 is included in the organic guide. So the organic growth would be two points higher excluding that 80/20. And from a price-volume perspective, from a full year, we kind of expect price to be low single digits.

Diane McClintock: Yeah, Mike, that's right. The 80/20 is included in the organic guide, so the organic growth would be two points higher, excluding that 80/20.

Michael Halloran: Yeah.

Diane McClintock: From a price, volume perspective, from a full year, we kind of expect price to be low single digits. There'll be a little bit of volume, more, maybe more in the Americas than in Europe, and most of that volume is gonna be offset by the eighty-twenty efforts.

Speaker #3: There'll be a little bit of volume, maybe more in the Americas than in Europe, and most of that volume is going to be offset by the 80/20 efforts.

Speaker #4: Great. Appreciate that. And then staying on the 80/20 piece, kind of a twofold question here. Maybe just discuss what you saw this year that gave the opportunity.

Michael Halloran: Great. Appreciate that. Then, staying on the 80/20 piece, kind of a twofold question here. Maybe just discuss what you saw this year that gave the opportunity. I think Bobby said it was retail. And then secondarily, and I think it was a little more than I was expecting, probably more in the Americas at this point. How much opportunity do you see broadly over the next chunk of years here to continue to push on this type of thing, to streamline the organization, products, et cetera? You know, I know Europe has always been a focal point for this more consistently, so I suppose the question is a little more geared to the Americas on that side.

Speaker #4: I think Bobby said it was retail. And then secondarily, I think it was a little more than I was expecting, probably more in the Americas.

Speaker #4: At this point, how much opportunity do you see broadly over the next chunk of years here to continue to push on this type of thing to streamline the organization, products, etc.?

Speaker #4: I know Europe has always been a focal point for this more consistently. So I suppose the question is a little more geared to the Americas on that side.

Speaker #2: Yeah, Mike. So we're always looking for productivity through the One Watts performance system. And certainly, with tariffs and all the adjustments and refocus on more, let's call it faster growing, higher margin type businesses.

Robert J. Pagano, Jr.: Yeah, Mike, so we're always looking for productivity through the One Watts Performance System, and certainly with tariffs and all the adjustments and refocus on more, let's call it, faster growing, higher margin type businesses. So you know, we make profit on some of this retail OEM business, but really it's about focus, keeping our team focused on the growing, more profitable types of business and reallocating resources in the organization. So we'll keep looking at it and keep driving it, but certainly, you know, our expectations are to gain higher returns, higher margins, and, you know, we'll continue to look at it. It presented an opportunity, where our team said: "Hey, let's focus more on data centers than on retail," and, and that's what we're doing.

Bob Pagano: Yeah, Mike, so we're always looking for productivity through the One Watts Performance System, and certainly with tariffs and all the adjustments and refocus on more, let's call it, faster growing, higher margin type businesses. So you know, we make profit on some of this retail OEM business, but really it's about focus, keeping our team focused on the growing, more profitable types of business and reallocating resources in the organization. So we'll keep looking at it and keep driving it, but certainly, you know, our expectations are to gain higher returns, higher margins, and, you know, we'll continue to look at it. It presented an opportunity, where our team said: "Hey, let's focus more on data centers than on retail," and, and that's what we're doing.

Speaker #2: So we make profit on some of this retail OEM business, but really, it's about focus. Keeping our team focused on the growing more profitable types of business and reallocating resources in the organization.

Speaker #2: So we'll keep looking at it and keep driving it. But certainly, our expectations are to gain higher returns, higher margins, and we'll continue to look at it.

Speaker #2: It presented an opportunity where our team said, "Hey, let's focus more on data centers than on retail." And that's what we're doing.

Speaker #4: Thank you.

Michael Halloran: Thank you.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of Jeff Hammond with KeyBank Capital Markets. Please go ahead.

Operator: Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Speaker #6: Hey, good morning. So, Bob, we should put you down for 99% growth in data center. Is that?

Jeffrey Hammond: Hey, good morning.

Jeff Hammond: Hey, good morning.

Robert J. Pagano, Jr.: Good morning, Jeff.

Bob Pagano: Good morning, Jeff.

Diane McClintock: Hey, Jeff.

Jeffrey Hammond: So, Bob, we should put you down for 99% growth in data center? Is that-

Jeff Hammond: So, Bob, we should put you down for 99% growth in data center? Is that-

Speaker #2: That's a little high, Jeff.

Robert J. Pagano, Jr.: That's a little high, Jeff.

Bob Pagano: That's a little high, Jeff.

Speaker #6: Oh, no. Just on maybe just a quick one on data center. One, if you look at that billion-dollar TAM, I'm just wondering how much that really is expanded as we've shifted from just air cooling to liquid cooling, just the liquid cooling opportunity, which seems early and nascent.

Jeffrey Hammond: No. Just on, maybe just a quick one on data center. One, if you look at that billion-dollar TAM, I'm just wondering, like, how much that really has expanded as we've shifted from just air cooling to liquid cooling, just the liquid cooling opportunity, which seems, you know, early and nascent. And then as you shift to stainless, can you talk about, you know, how that impacts, you know, price mix within data center?

Jeff Hammond: No. Just on, maybe just a quick one on data center. One, if you look at that billion-dollar TAM, I'm just wondering, like, how much that really has expanded as we've shifted from just air cooling to liquid cooling, just the liquid cooling opportunity, which seems, you know, early and nascent. And then as you shift to stainless, can you talk about, you know, how that impacts, you know, price mix within data center?

Speaker #6: And then as you shift to stainless, can you talk about how that impacts price mix within data center?

Speaker #2: Yeah. So certainly, the stainless steel is growing faster as you're seeing the shift there. And we're moving towards that. And stainless steel, because of its metallurgies and properties, is more of a solution.

Robert J. Pagano, Jr.: Yeah. So certainly, the stainless steel is growing faster as you're seeing the shift there, and we're moving towards that. And stainless steel, because of its metallurgies and properties, is more of a solution, so it has higher margins. So that's the teams are focused on that, driving that, and, you know, that will be accelerating our growth into the market. And we took that into consideration when we developed the basically $1 billion plus market.

Bob Pagano: Yeah. So certainly, the stainless steel is growing faster as you're seeing the shift there, and we're moving towards that. And stainless steel, because of its metallurgies and properties, is more of a solution, so it has higher margins. So that's the teams are focused on that, driving that, and, you know, that will be accelerating our growth into the market. And we took that into consideration when we developed the basically $1 billion plus market.

Speaker #2: So it has higher margins. So that's the teams are focused on that, driving that. And that will be accelerating our growth into the market.

Speaker #2: And we took that into consideration when we developed the basically $1 billion-plus market.

Speaker #6: Okay. And then I was at your age, our booth, and a lot of excitement around Nexa, but also this EZ Water, which I know is small, but it seems like the technology is pretty disruptive and seems like they could benefit from your scale and manufacturing expertise.

Jeffrey Hammond: Okay, and then I was at your HR booth, and, a lot of excitement around Nexa, but also this EasyWater, which I know is small, but it seems like the technology is pretty disruptive and, and seems like they could benefit from, from your scale and, and manufacturing expertise. Maybe just talk about, uptake on Nexa as you roll it out and maybe a little more on this, this EasyWater deal and, and the opportunity there.

Jeff Hammond: Okay, and then I was at your HR booth, and, a lot of excitement around Nexa, but also this EasyWater, which I know is small, but it seems like the technology is pretty disruptive and, and seems like they could benefit from, from your scale and, and manufacturing expertise. Maybe just talk about, uptake on Nexa as you roll it out and maybe a little more on this, this EasyWater deal and, and the opportunity there.

Speaker #6: Maybe just talk about uptake on Nexa as you roll it out and maybe a little more on this EZ Water deal and the opportunity there.

Speaker #2: Yeah. Well, Nexa's you certainly see the focus, the buzz is it's getting out there. We're excited about we're making very good progress. We completed the installation of a very large real estate investment group in their hospitality properties.

Robert J. Pagano, Jr.: Yeah, well, Nexa's, you know, you certainly see the focus. The buzz is, you know, it's getting out there. We're excited about. We're making very good progress. We completed the installation of a very large real estate investment group and their with their hospitality properties, and we're gaining. They've gained significant insights and benefits, and we're also growing in, you know, other hospitality and stadiums and multifamily properties. So we're excited about the growth. A lot of potential there. But I, I think, as I've told many of you, that also supports selling our core products, and, that's where we're focused on. And EasyWater, what, what they're known for is their salt and chemical-free treatment solutions, which, you know, they're offsetting a lot of places that use chemicals. And certainly, you know, using less chemicals is obviously more environmentally friendly, etc.

Bob Pagano: Yeah, well, Nexa's, you know, you certainly see the focus. The buzz is, you know, it's getting out there. We're excited about. We're making very good progress. We completed the installation of a very large real estate investment group and their with their hospitality properties, and we're gaining. They've gained significant insights and benefits, and we're also growing in, you know, other hospitality and stadiums and multifamily properties. So we're excited about the growth. A lot of potential there. But I, I think, as I've told many of you, that also supports selling our core products, and, that's where we're focused on. And EasyWater, what, what they're known for is their salt and chemical-free treatment solutions, which, you know, they're offsetting a lot of places that use chemicals.

Speaker #2: And we're gaining—they've gained significant insights and benefits. And we're also growing in other hospitality and stadiums and multifamily properties, so we're excited about the growth.

Speaker #2: A lot of potential there. But I think as I've told many of you, that also supports selling our core products. And that's where we're focused on.

Speaker #2: And EZ Water, what they're known for is their salt and chemical-free treatment solutions, which they're offsetting a lot of places that use chemicals. And certainly, using less chemicals is obviously more environmentally friendly, etc.

Bob Pagano: And certainly, you know, using less chemicals is obviously more environmentally friendly, etc. So that's an opportunity. It was something we had smaller versions of that in our portfolio, and now we're expanding that. So yes, we're really excited about that. There's many opportunities. There's some new codes out there in the healthcare industry that are, you know, on things like medical device cleaning, et cetera, which would be a nice fit for that, you know, because there's no chemicals. So yeah, the teams are excited, and I'm glad you saw the momentum inside the booth.

Speaker #2: So that's an opportunity. It was something we had smaller versions of that in our portfolio, and now we're expanding that. So yes, we're really excited about that.

Robert J. Pagano, Jr.: So that's an opportunity. It was something we had smaller versions of that in our portfolio, and now we're expanding that. So yes, we're really excited about that. There's many opportunities. There's some new codes out there in the healthcare industry that are, you know, on things like medical device cleaning, et cetera, which would be a nice fit for that, you know, because there's no chemicals. So yeah, the teams are excited, and I'm glad you saw the momentum inside the booth.

Speaker #2: There's many opportunities. There's some new codes out there. In the healthcare industry that are on things like medical device cleaning, etc., which would be a nice fit for that.

Speaker #2: Because there's no chemicals. So yeah, the teams are excited. And I'm glad you saw the momentum inside the booth.

Speaker #4: Great. Thank you.

Jeffrey Hammond: Great. Thank you.

Jeff Hammond: Great. Thank you.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of James Coe with Jefferies. Please go ahead.

Operator: Our next question comes from the line of James Ko with Jefferies. Please go ahead.

James Ko: Good morning. Thanks for taking questions here. I wanted to talk about-

Speaker #7: Good morning. Thanks for taking questions here. I wanted to touch on the data center good morning. Yeah, I wanted to talk about the data center here again.

James Ko: Good morning. Thanks for taking questions here. I wanted to talk about-

Robert J. Pagano, Jr.: Good morning.

Bob Pagano: Good morning.

James Ko: Good morning. Yeah, I wanted to talk about the data center here again. Can you kind of talk about, like, competitive landscape for cooling valves, and who are the main competitors, and what share do you estimate you have today? And what are kind of the risk if new competitors kind of enter into the market?

Speaker #7: Can you kind of talk about competitive landscape for cooling valves? And who are the main competitors? And what share do you estimate you have today?

Speaker #7: And what are kind of the risks if new competitors kind of enter into the market?

Speaker #2: Well, certainly, we don't talk about competitors usually in general. But I would say there's a handful of competitors. In this market, it's about quality delivery and reputation and standing by the product.

Robert J. Pagano, Jr.: Well, certainly, you know, we don't talk about competitors usually in general, but I would say there's a handful of competitors. In this market, it's about quality, delivery, and reputation, and standing by the product. So we're, you know, I would say we're in the top three competitors in this area based on the products we sell, and I would say we've gained a great reputation based on our performance in the industry. And so different people can enter it, but you got to make sure you have the reputation. With our 151-year history, I think that gives us credibility, and we've been delivering on time and having great results with our customers.

Bob Pagano: Well, certainly, you know, we don't talk about competitors usually in general, but I would say there's a handful of competitors. In this market, it's about quality, delivery, and reputation, and standing by the product. So we're, you know, I would say we're in the top three competitors in this area based on the products we sell, and I would say we've gained a great reputation based on our performance in the industry. And so different people can enter it, but you got to make sure you have the reputation. With our 151-year history, I think that gives us credibility, and we've been delivering on time and having great results with our customers.

Speaker #2: So we're I would say we're in the top three competitors in this area based on the products we sell. And I would say we've gained a great reputation based on our performance in the industry.

Speaker #2: And so different people can enter it, but you got to make sure you have the reputation. With our 151-year history, I think that gives us credibility and we've been delivering on time and having great results with our customers.

Speaker #2: So that's a key area of focus for us. And we'll continue to grow, and we believe it's a great opportunity and we're working with the general contractors, the architects, and the entire value chain and penetrating more into the hyperscalers.

Robert J. Pagano, Jr.: So that, that's a key area of focus for us, and you know, we'll continue to grow, and we believe it's a great opportunity. And we're working, you know, with the general contractors, the architects, and the entire value chain and you know, penetrating more into the hyperscaler. So you know, that just doesn't happen. It takes time to do that, and our multi-year effort here is starting to really pay off.

Bob Pagano: So that, that's a key area of focus for us, and you know, we'll continue to grow, and we believe it's a great opportunity. And we're working, you know, with the general contractors, the architects, and the entire value chain and you know, penetrating more into the hyperscaler. So you know, that just doesn't happen. It takes time to do that, and our multi-year effort here is starting to really pay off.

Speaker #2: So that just doesn't happen. It takes time to do that. And our multi-year effort here is starting to really pay off.

Speaker #7: Great, thanks for the caller. And I guess, touching on the Europe margin here, obviously it improved pretty meaningfully this quarter. And in 2025, looking at 2026, I think you're guiding for roughly flattish.

James Ko: Great. Thanks for the color. And I guess touching on the Europe margin here, obviously it improved pretty meaningfully this quarter and in 2025. Looking at 2026, I think you're guiding for roughly flattish. So, does that kind of suggest that restructuring benefits are largely done, or are there still more margin opportunities remaining in that region?

Speaker #7: So does that kind of suggest that restructuring benefits are largely done, or are there still more margin opportunities remaining in that region?

Speaker #3: Yeah. Hi, James. Q4 really benefited from that extra shipping day and some of the volume leverage in Q4. We expect volume to be muted in 2026.

Diane McClintock: Yeah. Hi, James. Q4 really benefited from that extra shipping day and some of the volume leverage in Q4. We expect volume to be muted in 2026. We do expect to continue to get some of the restructuring savings, primarily really in Q1, and in Q2, it will trail off after that. But we are expecting to have some headwinds with the 80/20 as well and with volume deleverage. Also, a little bit of the mix is at play there. So but we expect margins will be flat. As you know, we're, we're always a little bit cautious on Europe when we're starting the year, and, and we'll see how things go as we, we go through the year.

Speaker #3: We do expect to continue to get some of the restructuring savings, primarily really in the first quarter. And in the second quarter, it will trail off after that.

Speaker #3: But we are expecting to have some headwinds with the 80/20 as well and with volume deleverage. Also, a little bit of the mix is at play there.

Speaker #3: So but we expect margins will be flat. As you know, we're always a little bit cautious on Europe when we're starting the year. And we'll see how things go as we go through the year.

Speaker #7: Great. Thanks for taking questions.

James Ko: Great. Thanks for taking the questions.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of Jeff Reeve with RBC Capital Markets. Please go ahead.

Operator: Our next question comes from the line of Jeff Reeve with RBC Capital Markets. Please go ahead.

Speaker #4: Good morning. Thanks for all the detail thus far. It's really great to see the data center opportunity highlighted. I was hoping, can you just walk us through your go-to-market model in data centers?

Jeff Reeve: Good morning. Thanks for all the detail thus far.

Diane McClintock: Good morning.

Jeff Reeve: It's really great to see the data center opportunity highlighted. I was hoping, can you just walk us through your go-to-market model in data centers? Are you selling through distribution directly to liquid cooling OEMs, or are you engaging upstream with hyperscalers? And also, how customized are your solutions here versus more standardized?

Diane McClintock: Good morning.

Speaker #4: Are you selling through distribution directly to liquid cooling OEMs, or are you engaging upstream with hyperscalers? And also, how customize your solutions here versus more standardized?

Robert J. Pagano, Jr.: ... We're playing with all of those. We're leveraging our distribution chain as well as working with general contractors all the way through the value chains. We have to hit all of them, for various reasons, and it depends on what type of product. I would say, for the most part, these are more standardized products. We're starting to work with them on more technical, finite solutions on that, and that's as we grow with confidence in them in going up the value chain. So, yeah, it's been an exciting ride, and we're working very closely and with all of them.

Bob Pagano: ... We're playing with all of those. We're leveraging our distribution chain as well as working with general contractors all the way through the value chains. We have to hit all of them, for various reasons, and it depends on what type of product. I would say, for the most part, these are more standardized products. We're starting to work with them on more technical, finite solutions on that, and that's as we grow with confidence in them in going up the value chain. So, yeah, it's been an exciting ride, and we're working very closely and with all of them.

Speaker #2: We're playing with all of those. We're leveraging our distribution chain as well as working with general contractors, all the way through the value change.

Speaker #2: We have to hit all of them. For various reasons and it depends on what type of product. I would say for the most part, these are more standardized products.

Speaker #2: We're starting to work with them on more technical, finite solutions on that. And that's as we grow with confidence in them and go up the value chain.

Speaker #2: So yeah, it's been an exciting ride. And we're working very closely and with all of them.

Speaker #4: That's great to hear. As you scale your data center deployments, is there a meaningful opportunity for Nexa or digital monitoring solutions here? And maybe how should we think about the long-term opportunity?

Jeff Reeve: That's great to hear. As you scale your data center deployments, is there a meaningful opportunity for Nexa or digital monitoring solutions here? And maybe how should we think about the long-term opportunity?

Speaker #2: Yeah, that's an opportunity for the long run. Right now, they have their own systems that they've developed over many years. The last thing they want is a new system.

Robert J. Pagano, Jr.: Yeah, that's an opportunity for the long run. Right now, they have their own systems that they've developed over many years. The last thing they want is a new system, but we're leveraging some of our smart and connected products where it makes sense with them. So that would be the next evolution. We're working with them on that, and but right now, that's early innings on that.

Bob Pagano: Yeah, that's an opportunity for the long run. Right now, they have their own systems that they've developed over many years. The last thing they want is a new system, but we're leveraging some of our smart and connected products where it makes sense with them. So that would be the next evolution. We're working with them on that, and but right now, that's early innings on that.

Speaker #2: But we're leveraging some of our smart and connected products where it makes sense with them. So, that would be the next evolution—we're working with them on that.

Speaker #2: But right now, that's early innings on that.

Speaker #4: Got it. Thank you.

Jeff Reeve: Got it. Thank you.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Our next question comes from the line of Andrew Krill with Deutsche Bank. Please go ahead.

Operator: Our next question comes from the line of Andrew Krill with Deutsche Bank. Please go ahead.

Speaker #8: Hi. Thanks. Good morning, everyone. Going back to the good morning. To a 2026 organic sales guy for the Americas. I was hoping you could put a little finer point on the level of growth or decline you expect for some of your bigger verticals.

Andrew Krill: Hi. Thanks. Good morning, everyone. Going back-

Robert J. Pagano, Jr.: Good morning, Andrew.

Bob Pagano: Good morning, Andrew.

Andrew Krill: Good morning. To the 2026 organic sales guide for the Americas, I was hoping you could put a little finer point on the level of growth or decline do you expect for some of your bigger verticals, you have institutional, commercial, and then in resi, you know, single family versus multifamily, maybe just some help on how you're thinking about those different markets. Thanks.

Speaker #8: Institutional, commercial, and then in resi, single-family versus multi-family, maybe just some help on how you're thinking about those different markets. Thanks.

Speaker #2: Yeah. So look at the residential. We're projecting to be down again, right? Single-family, low single digits, multi-family, mid-single digits. Institutional, we're seeing low single digits.

Robert J. Pagano, Jr.: Yeah. So when we look at the residential, we're projecting to be down again, right? Single family, low single digits, multifamily, mid single digits. Institutional, we're seeing up low single digits, data centers up double digits, and I would say all the other commercial top types of businesses would be down low single digits. So that's how we're kind of framing it. Very similar to what we saw here in last year, in 2025. Kind of the markets are kind of about the same here, maybe a little more softness in residential than what we saw, but that's how we're framing it at this point in time.

Bob Pagano: Yeah. So when we look at the residential, we're projecting to be down again, right? Single family, low single digits, multifamily, mid single digits. Institutional, we're seeing up low single digits, data centers up double digits, and I would say all the other commercial top types of businesses would be down low single digits. So that's how we're kind of framing it. Very similar to what we saw here in last year, in 2025. Kind of the markets are kind of about the same here, maybe a little more softness in residential than what we saw, but that's how we're framing it at this point in time.

Speaker #2: Data centers up double digits. And I would say all the other commercial top types of business would be down low single digits. So that's how we're kind of framing it.

Speaker #2: Very similar to what we saw here in last year in 2025. Kind of the markets are kind of about the same here. Maybe a little more softness in residential than what we saw, but that's how we're framing it at this point in time.

Speaker #4: Okay. Great. That's helpful. And then going back to 80/20, I think the acceleration to it being a two-point headwind. It had been, I think, a point or a little bit less in '25.

Andrew Krill: Okay, great. That's helpful. And then, going back to 80/20, you know, I think the acceleration to it being a 2-point headwind, you know, it had been, I think, 1 point or a little bit less in 2025. Just what-- were these existing businesses, you just found new opportunities, or really, what changed? And then, as we look forward into 2027, do you think, you know, this could flip to being more neutral, or maybe it's even a positive as, you know, you start to overserve, you know, some of your, like, better customers? Thanks.

Speaker #4: Were these existing businesses where you just found new opportunities, or really, what changed? And then as we look forward into '27, do you think this could flip to being more neutral, or maybe even a positive as you start to overserve some of your better customers?

Speaker #4: Thanks.

Speaker #2: Yeah. So again, we look at the portfolio. I think in the residential section, it's been more competitive, especially after all the tariffs and stuff.

Robert J. Pagano, Jr.: Yeah. So again, we look at the portfolio. I think in the residential sector section, it's been more competitive, especially after all the tariffs and stuff. And you know, we're always looking at making sure we have differentiated products and solutions that customers are going to pay for, right? So in the end, we're trying to get rid of lower margin-type products and focusing our teams on higher margin businesses. So we've identified a portion of that, you know, it, it's just not worth us spending the time and effort, and it's better for us to reallocate our resources to the faster, higher growing margin businesses. So that's all it is.

Bob Pagano: Yeah. So again, we look at the portfolio. I think in the residential sector section, it's been more competitive, especially after all the tariffs and stuff. And you know, we're always looking at making sure we have differentiated products and solutions that customers are going to pay for, right? So in the end, we're trying to get rid of lower margin-type products and focusing our teams on higher margin businesses. So we've identified a portion of that, you know, it, it's just not worth us spending the time and effort, and it's better for us to reallocate our resources to the faster, higher growing margin businesses. So that's all it is.

Speaker #2: And we're always looking at making sure we have differentiated products and solutions that customers are going to pay for, right? So, in the end, we're trying to get rid of lower-margin type products and focusing our teams on higher-margin businesses.

Speaker #2: So we've identified a portion of that that it's just not worth us spending the time and effort, and it's better for us to reallocate our resources to the faster, higher-growing margin businesses.

Speaker #2: So that's all it is. We took a second look another look, especially after all this tariffs have settled down and pricing actions and looked at this and where we're going and said, "It's time to exit some of this business."

Robert J. Pagano, Jr.: We took a second look, another look, especially after all this tariffs have settled down and pricing actions, and looked at this and where we're going, and said, "It's, it's time to exit some of this business.

Bob Pagano: We took a second look, another look, especially after all this tariffs have settled down and pricing actions, and looked at this and where we're going, and said, "It's, it's time to exit some of this business.

Speaker #3: And Andrew, just a little more color on that. It is products and channels within our core America's business. So it's not within the acquisition.

Diane McClintock: Andrew, just a little more color on that. It is, it is products and channels within our core Americas business. So it's not within the acquisition. It's our core Americas business, retail and OEM.

Speaker #3: It's our core America's business. Retail and OEM.

Speaker #4: Thank you.

Andrew Krill: Thank you.

Speaker #3: Our next question will come from the line of Ryan Connors with North Coast Research. Please go ahead.

Operator: Our next question will come from the line of Ryan Connors with North Coast Research. Please go ahead.

Speaker #7: Good morning.

Ryan Connors: Good morning.

Speaker #8: Good morning.

Diane McClintock: Morning.

Speaker #2: Good morning, Ryan.

Robert J. Pagano, Jr.: Good morning, Ryan.

Bob Pagano: Good morning, Ryan.

Ryan Connors: I'm not going to ask about data centers, although I would say your call is going to screen really well here with the AI bots on the data center mentions. I might set a new record, but, yeah, back to the basics. You know, when we talk about price for a minute, you, you-- I was a little bit surprised, underwhelmed, I guess, would be the word, low single digit price you mentioned, Diane, in 2026. When I think about copper year to date and the fact that we've set a new record there, I was just curious how that fits into the equation on the thoughts around price. I know we've taken a lot of price the last few years.

Speaker #7: I'm not going to ask about data centers. Although I would say your call is going to screen really well here with the AI bots on the data center mentions.

Speaker #7: I might set a new record. But yeah, back to the basics. Talking about price for a minute—I was a little bit surprised. Underwhelmed, I guess, would be the word.

Speaker #7: Low single-digit price you mentioned, Diane. In 2026, when you think about copper year to date and the fact that we've set a new record there, I was just curious how that fits into the equation on the thoughts around price.

Speaker #7: I know we've taken a lot of price the last few years. Just kind of reset us with the move in copper, how we feel about price-cost going forward.

Ryan Connors: Just kind of reset us with the move in copper, how we feel about price cost going forward, you know, just conceptually.

Speaker #7: Just conceptually.

Speaker #3: Yeah. So we expect certainly we expect higher price in the first quarter as we carry over some of the price that we price increases we had in the fourth quarter.

Diane McClintock: Yeah. So we expect, certainly, higher price in Q1 as we carry over some of the price increases we had in Q4. So think about that as higher in Q1 and then ramping down sequentially over the year and probably averaging out to maybe low single digits. But we expect to be, you know, high single digits Q1, and then sequentially going down after that across the year. In terms of copper, we're watching that very carefully. Bob, you want to add some color on that?

Speaker #3: So think about that as higher in Q1, and then ramping down sequentially over the year, and probably averaging out to maybe low single digits.

Speaker #3: But we expect to be high single digits Q1 and then sequentially going down after that across the year. In terms of copper, we're watching that very carefully.

Speaker #3: Bob, you want to add some color on that?

Speaker #2: Yeah. I mean, we're looking at copper just like you are, Ryan. And as you know, we're not bashful about pushing prices. So if this continues, we'll probably be looking for another price increase mid-year.

Robert J. Pagano, Jr.: Yeah. I mean, we're looking at copper just like you are, Ryan, and, as you know, we're not bashful about pushing prices. So if this continues, we'll probably be looking for another price increase, mid-year.

Bob Pagano: Yeah. I mean, we're looking at copper just like you are, Ryan, and, as you know, we're not bashful about pushing prices. So if this continues, we'll probably be looking for another price increase, mid-year.

Speaker #7: Yep. Okay. Yeah, that's kind of what I figured. Okay. And then just a real quick one on. So you've talked quite a bit in the Q&A here about these product lines, you're exiting.

Ryan Connors: Yep. Okay. Yeah, that, that's, that's kind of what I figured. Okay. And then just a real quick one on... So you've talked quite a bit in the Q&A here about these product lines you're exiting. And I'm just curious the mechanics on that. So these aren't any kind of divestiture. There's no monetization here. We just literally stopped taking orders, kind of just stopped making the products and let whoever else is out there take that share. I mean, is that what happens here? You just sort of just walk away?

Speaker #7: And I'm just curious, the mechanics on that. So these aren't any kind of divestiture; there's no monetization here. We just literally stopped taking orders, kind of just stopped making the products, and let whoever else is out there take that share.

Speaker #7: I mean, is that what's happened here? You just sort of just walk away?

Robert J. Pagano, Jr.: Or walk away from various channels of inventory. In other words, we'll still make it and sell it through other channels, but some of the channels we're de-emphasizing based on competitive nature and profitability in those markets.

Speaker #2: Or walk away from various channels. In other words, we'll still make it and sell it through other channels, but some of the channels we're de-emphasizing based on competitive nature and profitability in those markets.

Bob Pagano: Or walk away from various channels of inventory. In other words, we'll still make it and sell it through other channels, but some of the channels we're de-emphasizing based on competitive nature and profitability in those markets.

Speaker #7: Oh, I see. So it's not a product walk away. It's just on the channel. I see. Okay. That helps so much. Thanks for your time.

Ryan Connors: Oh, I see. So, so it's not a product walk away, it's, it's just on the channel. I see. Okay, that helps so much. Thanks for your time.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: Thanks, Ryan. Thank you. Our next question comes from the line of Joe Giordano with TD Cowan. Please go ahead.

Joseph Giordano: Thanks, Ryan. Thank you.

Joe Giordano: Thanks, Ryan. Thank you.

Operator: Our next question comes from the line of Joe Giordano with TD Cowen. Please go ahead.

Speaker #9: Hi. Good morning. This is Chris Connor for Joe. For the fifth good morning. For the 2026 America's Guide, could you elaborate on how much growth is anticipated from repair replace versus new construction?

Joseph Giordano: Hi, good morning. This is Chris, on for Joe. Good morning, Chris. Good morning. For the 2026 Americas guide, could you elaborate on how much growth is anticipated from repair, replace versus new construction?

Joe Giordano: Hi, good morning. This is Chris, on for Joe. Good morning, Chris. Good morning. For the 2026 Americas guide, could you elaborate on how much growth is anticipated from repair, replace versus new construction?

Speaker #2: Yeah. I mean, we usually basically repair replace, we assume GDP, right? So around 2%. That's kind of what we're assuming on repair and replace.

Robert J. Pagano, Jr.: Yeah, I mean, we usually, you know, basically repair, replace, we assume GDP, right? So around 2%. That's kind of what we're assuming on repair and replace.

Bob Pagano: Yeah, I mean, we usually, you know, basically repair, replace, we assume GDP, right? So around 2%. That's kind of what we're assuming on repair and replace.

Speaker #9: Got it. And could you elaborate on how you're set from a capacity standpoint to meet the demand from the data center end market?

Joseph Giordano: Got it. And, could you elaborate on how you're set from a capacity standpoint to meet the demand from the data center end market?

Joe Giordano: Got it. And, could you elaborate on how you're set from a capacity standpoint to meet the demand from the data center end market?

Speaker #2: Yeah, so we're leveraging our global supply chain and our facilities around the world, whether it be in North America, Europe, and our facilities in Asia-Pacific, and our global supply chain.

Robert J. Pagano, Jr.: Yeah, so we're leveraging our global supply chain and our facilities around the world, whether it be in North America, Europe, and our facilities in Asia Pacific and our global supply chain. So, we've been adding capacity, building capacity, and, you know, we feel good about our ability to ramp up for this market.

Bob Pagano: Yeah, so we're leveraging our global supply chain and our facilities around the world, whether it be in North America, Europe, and our facilities in Asia Pacific and our global supply chain. So, we've been adding capacity, building capacity, and, you know, we feel good about our ability to ramp up for this market.

Speaker #2: So, we've been adding capacity, building capacity, and we feel good about our ability to ramp up for this market.

Speaker #9: Thank you very much.

Joseph Giordano: Thank you very much.

Joe Giordano: Thank you very much.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #8: Thank you.

Joseph Giordano: Thank you.

Joe Giordano: Thank you.

Speaker #3: Again, that is Star One for any questions. And our next question comes from the line of Brian Lee with Goldman Sachs. Please go ahead.

Operator: Again, that is star one for any questions, and our next question comes from the line of Brian Lee with Goldman Sachs. Please go ahead. Brian, you might be on mute.

Speaker #3: Brian, you might be on mute.

Speaker #10: Hello. Can you hear me?

Brian Lee: Hello, can you hear me?

Speaker #2: I can hear you now.

Robert J. Pagano, Jr.: Can hear you now.

Bob Pagano: Can hear you now.

Speaker #8: Good morning.

Joseph Giordano: Good morning.

Joe Giordano: Good morning.

Speaker #10: Okay. Sorry about that. Good morning. Yeah, just a couple of questions around the outlook. A lot's been covered. Already on the call. But when I look at the top line outlook here for 2026, you seem to be growing well ahead of many water peers at the 2 to 6 percent organic, which actually two points lower due to the 80/20, as you mentioned.

Brian Lee: Okay, sorry about that. Good morning. Yeah, just a couple questions around the outlook. A lot's been covered already on the call, but, you know, when I look at the top line outlook here for 2026, you know, you seem to be growing well ahead of many water peers at, you know, the 2 to 6% organic, which actually, you know, 2 points lower due to the 80/20, as you mentioned, so even better than on paper. Maybe kind of walk us through what's driving some of that performance. Is it, you know, is it price? Is it geo? Is it specific end markets? It just seems like you guys, even off of a good 2025 performance, positioned better here in terms of growth versus peers.

Speaker #10: So even better than on paper. Maybe kind of walk us through what's driving some of that performance. Is it price? Is it geo? Is it specific end markets?

Speaker #10: It just seems like you guys, even off of a good 2025 performance, are positioned better here in terms of growth versus peers.

Speaker #2: Yeah. I think it's a combination of all of the above, right? We're leveraging the institutional market, the data center market, certainly price, repair and replacement's growing, and again, our new solutions, which are around Nexa and I would call some of our electrification products in our heating and hot water solutions group with our Aegis heat pump.

Robert J. Pagano, Jr.: Yeah, I think it's a combination of all of the above, right? We're leveraging the institutional market, the data center market, certainly pricing, repair and replacement is growing, and again, our new solutions, which are around Nexa, and I would call some of our electrification products, in our heating and hot water solutions group, with our Aegis heat pump. So again, those are all growing, and we're leveraging those capabilities. As you know, we've been investing a lot in R&D, and we're starting to see the benefits of some of that new product, even in difficult markets.

Bob Pagano: Yeah, I think it's a combination of all of the above, right? We're leveraging the institutional market, the data center market, certainly pricing, repair and replacement is growing, and again, our new solutions, which are around Nexa, and I would call some of our electrification products, in our heating and hot water solutions group, with our Aegis heat pump. So again, those are all growing, and we're leveraging those capabilities. As you know, we've been investing a lot in R&D, and we're starting to see the benefits of some of that new product, even in difficult markets.

Speaker #2: So again, those are all growing and we're leveraging those capabilities. As you know, we've been investing a lot in R&D and we're starting to see the benefits of some of that new product even in difficult markets.

Speaker #10: Yep. Fair enough. And then on the margin guidance here as well, you called out the 50 basis points of dilution due to acquisitions. If you strip that out, I think you guys would have been guiding to basically a typical annual margin expansion targets that you've maintained for the past several years.

Brian Lee: Yep, fair enough. And then on, on the, the margin guidance here as well, you, you called out the 50 basis points of dilution due to acquisitions. You know, if you strip that out, I think you guys would have been guiding to basically, you know, a typical annual margin expansion targets that you've maintained for the past several years. How should we think about sort of the, the recapture of that margin into, you know, into the out years, as you kind of, realize some of these synergies? Is that something that comes right back in, in 2027?

Speaker #10: How should we think about sort of the recapture of that margin into the out years? As you kind of realize some of these synergies, is that something that comes right back in 2027?

Speaker #2: Yeah. I mean, that's our goal and focus as an organization. 30 to 50 basis points improvement on margins or operating income really at that point.

Robert J. Pagano, Jr.: Yeah, I mean, that's our goal and focus as an organization, 30 to 50 basis points improvement on margins or operating income, really, at that point. And we'll get that, you know, through leveraging the One Watts Performance System, through factory automation, productivity initiatives, and some of our products that are, you know, we can charge higher prices because they're having better solutions to our customers. So again, it's not just one thing, it's a combination of things that give us confidence that we'll continue to grow the 30 to 50 basis points on a go-forward basis.

Bob Pagano: Yeah, I mean, that's our goal and focus as an organization, 30 to 50 basis points improvement on margins or operating income, really, at that point. And we'll get that, you know, through leveraging the One Watts Performance System, through factory automation, productivity initiatives, and some of our products that are, you know, we can charge higher prices because they're having better solutions to our customers. So again, it's not just one thing, it's a combination of things that give us confidence that we'll continue to grow the 30 to 50 basis points on a go-forward basis.

Speaker #2: And we'll get that through leveraging the one watts performance system, through factory automation, productivity initiatives, and some of our products that are we can charge higher prices because they're having better solutions to our customers.

Speaker #2: So again, it's not just one thing. It's a combination of things that give us confidence that we'll continue to grow the 30 to 50 basis points on a go-forward basis.

Speaker #10: Okay. Appreciate the color. I'll pass it on. Thank you.

Brian Lee: Okay. Appreciate the color. I'll pass it on. Thank you.

Speaker #2: Thank you.

Robert J. Pagano, Jr.: Thank you.

Bob Pagano: Thank you.

Speaker #3: And that will conclude our question and answer session. I'll hand the call back over to Bob Pagano for closing remarks.

Operator: That will conclude our question and answer session. I'll hand the call back over to Bob Pagano for closing remarks.

Speaker #2: Thank you for joining us today. We appreciate your ongoing interest in Watts, and we look forward to speaking with you again in May for our first quarter results.

Robert J. Pagano, Jr.: Thank you for joining us today. We appreciate your ongoing interest in Watts and look forward to speaking with you again in May for our Q1 results. Have a great day, and stay safe.

Bob Pagano: Thank you for joining us today. We appreciate your ongoing interest in Watts and look forward to speaking with you again in May for our Q1 results. Have a great day, and stay safe.

Speaker #2: Have a great day and stay safe.

Operator: This concludes today's call. Thank you all for joining. You may now disconnect.

Q4 2025 Watts Water Technologies Inc Earnings Call

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