Pentair Stock

Welcome to the Pentair Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jeff Thompson, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and welcome to Pentair's Second Quarter 2026 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer; and Bob Fishman, our Interim Chief Financial Officer. On today's call, we will provide details on our second quarter performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance in addition to the impact these items have -- these items and events have on the financial results.

Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the nVent separation in 2018, unless noted otherwise. Following our prepared remarks, we will open the call up for questions. Please limit your questions to 2 and re-enter the queue to allow everyone to participate.

I will now turn the call over to John.

Thank you, Jeff, and good morning, everyone. We appreciate you joining us today. As you saw this morning, in addition to our quarterly results, we announced that we have agreed to acquire Taco Group Holdings, a market leader in hydronic and water-based solutions. This exciting transaction aligns with our strategic priorities and allows us to accelerate our growth trajectory.

First, let's begin with an executive summary on Slide 4. The second quarter was slightly better than the July 14 pre-announcement and reflects efforts to realign pool channel inventory ahead of the 2027 Pool season. Pool remains a fantastic business, and we believe it is well-positioned for a return to robust growth in 2027. Importantly, Water Solutions and Flow remain on track to deliver full year expectations, and we expect to see improved revenue growth from these businesses in the second half of 2026. Lastly, the addition of Taco creates another platform in Water Solutions that aligns with Investor Day themes and accelerates our growth profile.

Please turn to the Q2 overview slide on Slide 5. As we shared in the pre-announcement on July 14, Q2 was a challenging quarter, driven by the underperformance of our Pool segment and specifically the acknowledgment that we would not realize the Pool dealer growth that we had originally planned. While we are disappointed with the impact this had on our overall business, I want to emphasize 2 important points. First, our underperformance was concentrated in Pool. The Flow & Water Solutions businesses delivered record return on sales even when excluding the benefit of tariff refunds, further reinforcing the resilience of our balanced portfolio. Second, we believe the pool challenges are temporary, and we remain confident in the attractive nature of the segment and our position as a market leader. As we'll discuss in the following slide, we have a clear plan to address the near-term challenges we are facing and return the business to robust growth as we have historically realized.

Second quarter adjusted operating income included approximately $35 million of tariff refunds across our 3 reporting segments. During the quarter, we repurchased 150 million shares in the open market as we continue to put our capital to work to drive long-term shareholder returns. For full year 2026, we are reaffirming our adjusted EPS guidance range of $4.60 to $4.80 communicated through our pre-announcement on July 14.

Please turn to our Pool overview and growth action plan on Slide 6. The year-over-year decline in Pool sales was largely driven by a more pronounced inventory alignment with major channel partners than previously expected. Since learning the full magnitude of the inventory reduction during the quarter, we acted with urgency to address the issue, and we are confident that the inventory levels will be optimized by the end of Q3, setting us up nicely for the 2027 Pool season.

A smaller portion of the sales decline was related to moderating sell-through due to ongoing end market pressure across discretionary residential end markets in North America. In addition, we estimate modest movement in share on some older pool pads where we aren't capturing our fair share of replacement equipment installed 10 to 15 years ago. Our action plan includes initiatives to resolve this issue and increase aftermarket share moving forward.

As these dynamics became clear throughout the course of the quarter, we initiated a comprehensive review of our Pool business to determine how best to adapt to our current environment and ensure we are positioned for success heading into next year's pool season. This review showed us a few key points. First, we remain an industry leader with a premier brand, strong customer base and a large installed base with leading positions in energy-efficient and smart connected pool technologies. We believe the challenges we are facing are temporary and do not reflect a structural change in the Pool market or our long-term opportunity. And finally, we need to deepen dealer engagement and accelerate customer-driven innovation to deliver the value-added differentiated solutions that have become synonymous with the Pentair brand.

We have a clear action plan to invest in our highest performing growth initiatives and position the pool business for a return to more normalized performance in 2027. These actions include aligning the Pool sales organization and marketing strategies by region and realigning incentives with the industry growth priorities to ensure we have the right products and service levels in our most important geographic markets, implementing a dealer-centric and segmented sales process to drive enhanced engagement with channel partners and increase aftermarket growth, and increasing investment in customer-driven innovation to expand core Pool product categories with more differentiated value-added solutions.

We are focused on the work underway and the opportunities ahead. Pool remains an attractive market with compelling profitable growth opportunities. We are confident the actions we are taking will strengthen the business and position us to deliver on those opportunities, and we expect to build momentum throughout the rest of '26 and beyond.

Now let's turn to the strategic rationale and benefits of Taco acquisition on Slide 7. We believe Taco is a natural fit for our business. It advances our growth strategy and meets our disciplined M&A criteria. Taco broadens Pentair's innovative suite of water solutions, accelerating growth and strengthening our ability to serve more customers across more commercial, infrastructure and residential applications. The combination also brings together Pentair's innovation engine and Taco's strong engineering and product development capabilities. Together, we believe there are meaningful opportunities to develop new solutions that address customers' evolving water needs, including efficiency, reliability and sustainability.

Importantly, this transaction significantly strengthens our positions in attractive high-growth commercial end markets, including HVAC, data centers and related infrastructure build-outs. Demand for solutions in these markets is supported by key secular trends, including infrastructure investment, digital infrastructure and the AI revolution, energy efficiency and sustainable water management. Our increased exposure in these areas will allow us to create an attractive diversified growth engine and enhance our resilience.

During our Investor Day earlier this year, we identified the residential utility room and building a broader, more scaled offering for the North American plumber as a key growth priority. Taco expands the breadth and scale of our plumbing offering and positions us to increase share in this high-growth category. Taco will also expand our channel network, creating compelling cross-selling opportunities. Taco is a strong manufacturer representative model and established relationships with OEMs, distributors, contractors, engineers and end users. Taco's large installed base will allow us to leverage these channel opportunities to expand our aftermarket business.

In fact, approximately 85% of its revenue is associated with replacement products, maintenance and system upgrades. That durable demand will create more customer touch points and deepen those relationships, supporting growing recurring revenue streams and enhancing our resilience. This isn't just an opportunity to bring in an outstanding business into Pentair. It's an opportunity to bring in an outstanding growth-focused team. We look forward to welcoming the Taco team to Pentair, and we are confident that our shared values and commitment to excellence will allow us to seamlessly integrate our organizations as we work to capture the compelling opportunities ahead.

With that, I'd like to welcome back Bob Fishman, who is rejoining Pentair as Interim CFO while we search for a successor. Bob previously served as the Pentair CFO for 6 very successful years, and we couldn't be happier to have him back on the team. Bob will walk through our financial results in more detail. Bob?

Thank you, John, and good morning, everyone. I'm excited to be back at Pentair supporting the CFO transition and working with such a great team. Let's start on Slide 8. In Q2, we reported sales of $933 million, adjusted operating income of $237 million, ROS of 25.4% and adjusted EPS of $1.14. These results are slightly better than what we communicated in our pre-announcement on July 14. Core sales were down 17% year-over-year, driven primarily by the $170 million Pool channel inventory destocking.

Moving to adjusted operating income. Lower Pool volume was the primary year-over-year headwind. The volume decline and inflation were partially offset by price realization, $14 million of productivity savings and approximately $35 million of tariff refunds. Despite the recent challenges in Pool, we continue to invest in growth initiatives that support our long-term strategy.

Please turn to Slide 9. Flow sales were up 5% year-over-year to $264 million, driven by the Hydro-Stop acquisition. Order wins in the quarter across commercial building, data center and desalination markets highlight the breadth of the portfolio and provide confidence in our long-term growth trajectory. Segment income grew 27% and return on sales increased 470 basis points to 26.5%. Even when excluding the benefit of tariff refunds, Flow delivered record return on sales driven by productivity, the acquisition of Hydro-Stop and price.

Please turn to Slide 10. In Q2, Water Solutions sales decreased 5% to $422 million, driven primarily by the sale of our commercial service business in Q2 2025. Core segment sales declined 3%. Commercial sales were down 6%, inclusive of negative 8% impact from the Q2 2025 business exit. Residential sales were down 4% year-over-year as we lapped one final quarter of lower-margin portfolio exits in our residential filtration business. The Pro channel continued to grow during the quarter, reflecting gains supported by our 80/20 focus on top customers and strength in our combined product offering as we bring our residential pump and filtration portfolio together. Importantly, this growth came from repeatable, higher-quality demand.

Segment income grew 17% to $126 million and return on sales increased 560 basis points to 30%, driven by disciplined pricing and productivity. Water Solutions segment income included $18 million of tariff refunds, the largest benefit among the 3 segments, but similar to Flow delivered record return on sales even when excluding this benefit.

Please turn to Slide 11. In Q2, Pool sales declined 42% to $247 million and segment income was $58 million, down 62%. Return on sales was 23.4%, down from 35.7% in Q2 2025. The reduction in sales and income was mainly driven by the $170 million channel inventory destock in the quarter. Price offset inflation, excluding the onetime tariff refund benefit. We expect that the actions that John described earlier will drive significant growth in Pool in 2027.

Please turn to Slide 12. Our balance sheet remains strong. Our net debt leverage ratio was 1.4x as of the end of the second quarter. In Q2, we repurchased $150 million of shares, reflecting our strong confidence in the long-term strategy. As communicated earlier this year, we increased our dividend by 8% and achieved our 50th consecutive year of dividend increases, making Pentair a Dividend King while proudly maintaining our Dividend Aristocrat status. Our significant annual free cash flow generation has enabled us to strategically deploy capital via debt paydown, dividends, share repurchases and strategic acquisitions. We plan to remain disciplined with our capital deployment while also having the flexibility to strategically allocate excess cash towards areas with the highest shareholder returns.

Let's turn to our outlook on Slide 13. Our current guidance excludes the Taco acquisition, which is expected to close in the fourth quarter. For the full year, we are reaffirming our adjusted EPS guidance provided on July 14 of approximately $4.60 to $4.80. Also for the full year, we expect total Pentair sales in fiscal 2026 to be down approximately 4% to 7%, consistent with the July 14 pre-announcement or a midpoint of approximately $3.95 billion. Flow and Water Solutions are unchanged from the previous guidance given during our Q1 earnings call. We expect Flow sales to be up approximately mid-single digits to high single digits.

Water Solutions sales are expected to be up approximately flat with core sales up approximately low single digits. And pool sales are expected to decrease approximately 18% to 22% in fiscal 2026, consistent with the July 14 pre-announcement. We believe the rightsizing of channel inventory this year positions the company for robust Pool growth in 2027.

Within our down 4% to 7% sales guidance for total Pentair, we expect full year price to be up approximately 3%, with FX, acquisitions and divestitures providing a net benefit of approximately 50 basis points and the remaining change reflecting lower volume. We expect total Pentair adjusted operating income to decrease approximately 5% to 9%. We expect price to offset inflation and approximately $55 million of productivity savings net of investments. We are executing well on our productivity initiatives, but the savings now include the inefficiencies associated with the lower pool volume. Tariff refunds reflect a range of outcomes from $35 million to $50 million as described in our pre-announcement on July 14.

For the third quarter, we expect sales to be down approximately 4% to 6% or a midpoint of approximately $970 million. We expect Flow sales to be up approximately high single digits, which includes our Hydro-Stop acquisition of approximately $10 million of sales in the quarter at approximately 30% ROS. We anticipate Water Solutions sales to be up approximately low single digits.

As a reminder, we divested the Commercial Services business in Q2 of last year. And as a result, we do not face this sales headwind in Q3 for comparative purposes. Pool sales are expected to be down approximately 23% to 25% as we continue to rightsize channel inventories for the 2027 Pool season. We expect third quarter adjusted operating income to decrease approximately 14% to 16%. We are also introducing adjusted EPS guidance for the third quarter of approximately $1.05 to $1.08. We anticipate that the actions underway will support significant sales, operating income and EPS growth in 2027.

I'd like to now take the opportunity to provide additional detail on the exciting announcement of the Taco acquisition. Please turn to Slide 15, titled Transaction Overview. Under the terms of the agreement, Pentair will acquire Taco for $1.4 billion, subject to customary adjustments. The purchase price represents approximately 10.5x expected 2026 adjusted EBITDA when accounting for estimated tax benefits and run rate cost synergies. The transaction is expected to be approximately $0.10 to $0.15 accretive to adjusted EPS in fiscal 2027.

Taco is a fast-growing business with a large addressable market and will significantly strengthen our Water Solutions segment. The acquisition establishes a new growth engine, enhancing exposure to energy efficiency, comfort cooling and HVAC and data center infrastructure build-outs. While the real opportunity is top line growth, we expect to generate approximately $30 million in run rate cost synergies over the next few years through Pentair's purchasing power and economies of scale. We will preserve the brand, expertise and customer relationships that have made Taco so successful over the last 100 years.

We plan to fund the transaction with a combination of cash on hand and committed bridge financing, which we intend to refinance through a permanent debt issuance. At closing, we anticipate in the fourth quarter -- which we anticipate in the fourth quarter, we expect net leverage of approximately 2.4x. Supported by Pentair's strong cash flow generation, we expect to reduce net leverage to below 1.5x within 2 years following the close.

Next, turn to Slide 16, highlighting that Taco is a market-leading Hydronics and Water Solutions provider. Taking a step back, this is a business and team we've long admired and have cross paths with regularly. For over 100 years, Taco has built a premier brand and is a trusted market-leading provider of circulator pumps, valves, other pumps, tanks, heat exchangers, fabricated solutions and advanced controls. It has done so by maintaining a culture built on innovation with a relentless focus on customer service.

Taco is primarily a North American business with an especially strong presence in the Eastern United States, which we see particularly compelling growth opportunities in the multifamily residential market. It brings a large installed base of roughly 40 million units across commercial, industrial and residential markets. What makes this base even more compelling is that Taco products are specified by engineers, which fuels their aftermarket business as customers require like-for-like replacement solutions. The company has a strong growth profile along with attractive profitability.

Finally, turn to Slide 17 as we highlight the increased scale and enhanced Water Solutions platform. As we have touched on, this transaction advances our strategic priorities and accelerates growth, strengthening our positions in key high-growth end markets that are supported by secular water and sustainability trends. The addition of Taco will increase the scale and relevance of our Water Solutions segment. Just as important, it will enhance the resiliency of Water Solutions as we expand Taco's installed base and accelerate the growth of our aftermarket business. The transaction will give us a new growth profile.

Taco's commercial business is its fastest growing, driven primarily by its HVAC and data center exposure. Data centers represent approximately 15% of Taco's commercial and industrial revenue with a significant pipeline of opportunities expected to support accelerating growth. On the residential side, Taco's business is heavily weighted towards multifamily, which is a faster-growing and more compelling area of the market than single-family. The transaction will scale our business, enhance our growth profile and allow us to unlock significant profitability and value creation as we bring our businesses together. We are excited to welcome Taco to the Pentair family.

I'd now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Bryan Blair with Oppenheimer.

To level set a bit on Pool destocking, how regionalized is the reset? Are there certain geographies driving most of the realignment? And similarly, is the destock concentrated in any product categories?

No and no. I mean it's broad inventory, and it's broad on the product side. There's no particular subset that's being addressed in this one in the destocking.

Okay. Understood. And with regard to Taco's financial impact, you outlined some key near-term metrics and expectations. So we know margin dilution at the outset and then synergy capture helping to close that gap over time. I guess 2 related questions. One, what's the time line to achieve the $30 million in synergies? And then longer term, is there any reason why the gap would not be fully closed to current fleet average margin? Or is there something structural on the Taco side that may cap profitability below that range?

Yes, I'll start, and I'll have Bob add some color. I mean, first of all, I mean, we want to honor the fact that this is a growth platform. I mean, this is a 100-year rich in history brand that has done a lot of great things to evolve its product line. And right now, it is growing at a substantial rate. I do think there are some things in the Pentair business system that we think can add to the margin profile, mainly around sourcing and helping them drive operational leverage. But at the end of the day, I think what we want to do is learn and really open up our eyes to understanding where the continued opportunities are, and we see probably more growth synergies in the long haul than we are focused on the operating synergies. We're going to run it as a stand-alone unit, honoring its go-to-market capabilities and strategies, and we'll have a shorter light touch on the integration. And we see that integration period being somewhere between around 3 years to fully get those synergies out of the business.

Yes, I would agree with that. Over the next 2 to 3 years, we'll be able to drive those cost synergies. Those are primarily related to the purchasing power of Pentair, the economies of scale. And some of those will accrue to us next year, but definitely feel good about the $30 million of cost synergies from a run rate perspective.

And the next question comes from Andrew Krill with Deutsche Bank.

Digging a little deeper on Pool and the 2027 growth prospects. Could you put a finer point maybe on some expectations there? I think Bob said significant, robust. Does this mean it could be double digits? Or will this be closer to the mid-single digits Investor Day target?

Yes. It's important for us first to have dealt with the issue as quickly as possible in Q2. And then as we think through the balance of the year to make sure that the channel inventory is rightsized for success in 2027. I would say that the math that I do, if you put together the guidance that we gave on Pool, it's going to be roughly a $1,250 million type number for the year for Pool. The way that we start to build up the 2027 number is by looking at the inventory destock. So if you say conservatively inventory destock around $200 million for the year, you can put yourself in a position we're looking at a $1,450 million type number next year for Pool. Now a lot of things have to happen between now and then in terms of us assessing the 2027 Pool season. But when you're growing $1,450 million off a $1,250 million base, that's where we get the significant robust growth.

Great. That's very helpful. And related to that, just margins for Pool next year, any help there just given how big of a reset, the deleveraging this year? Do you think you can be back solidly into the 30s next year? Or are there going to be new headwinds from growth investments, et cetera? Just any help there would be great.

Yes. I'm targeting definitely keeping a 3 in front as the first digit. And I would start with a 0 as the second digit for now. I think we're going to use -- utilize this opportunity to reestablish a growth mindset in Pool, make sure that we're investing appropriately in the growth opportunities. And I do think that we've been afforded a small reset on that margin side, and I want to start with a growth orientation and driving a higher level of growth and getting the drop-throughs.

Structurally, nothing has really changed, and we would get the leverage on the way back up from all of the growth. And it's really about making sure that we take our higher growth profile that we have in Pool and invest in it. These are little things, right? This is about putting the dealer first. It's about rallying around the 7 regional sales leaders that we have today and making sure their voice is heard. It's also about making our product road map reflect our dealer councils and our dealer inputs. And those aren't huge investments, but it's a little bit here and there that I think I want to make sure that the organization feels that they have at their discretion and that the channel knows that we're supporting them.

And the next question comes from Brett Linzey with Mizuho.

Just wanted to follow back up with Pool. So I appreciate some of the destock details and the bridge there to '27, I guess. Are there any other signals or KPIs that are giving you a little bit more confidence that things do, in fact, come back and the inventory levels are rightsized? Are you seeing any pull forward on orders already? And then I guess, why does the $200 million come back? I mean, is there some just structural kind of reset on inventory levels in the system?

Yes. I'll have Bob chime in here. I mean, keep in mind, the $ 1,250 million that Bob is sharing with you is our ship-in number, consistent with all the previously reported numbers that we've had in our prior years. The inventory is really a doubling up of any inventory that was in the channel, and it comes out at a 2x factor to how it went in, right? Because the first $100 million is going to be serviced through existing inventory and then you've also got the rightsizing inventory to get you back to where you need.

We expect all of that to be cleared out by Q3, and then we head into next year with moderating prices where our price is not going to be as large as an increase as it was last year, which generated some of this prebuy into the channel. And it's going to be a slight add as we build that inventory out of season, but we have more clear lines of sight on the sell-through, which is our sales to dealers.

And so the numbers that Bob is giving you, if you look at dealer sell-through today, you can actually take the ship-in plus the change in inventory, and that's actually what we're selling to the dealer channel. So with no growth next year, we get those types of growth rates that Bob was alluding to. Now we have higher expectations than that with the growth actions we're taking, and we would like to be back to that mid-single-digit sell-through growth that we set in the LRP, and we'll build that credibility and trajectory over the next several quarters.

Yes. I would agree with that. Obviously, early to be giving a 2027 view, but important from our perspective because of the challenges we saw in Q2. That $1,450 million type number does approximate sell-through that we've seen over the last couple of years. And so conservatively, you're saying another flattish sell-through year. When you think about maybe get a little bit of price, maybe volume comes back with 5.4 million Pools in the ground and Pool equipment breaking, you'd like to think that there will be some volume growth next year. But again, we're not going to get ahead of ourselves. The number that I gave, the $1,450 million feels like a reasonable starting point to plan for the year.

All right. And then just one on Flow and Water Solutions to delivered the strong ROS in the quarter. I guess as you strip out tariffs and look at the underlying results between the productivity actions and maybe some mix benefit from the product exits, what is the jumping off point from here? Is there any kind of onetime noise? Or is this a sustainable run rate that we build off of into next year?

Yes. From a -- both Flow and Water Solutions are both performing well from a profitability perspective. They have a nice funnel of productivity improvement programs, and we believe ROS will continue to expand a number of complexity reduction plays as well as revisiting Wave 1 and Wave 2 of our sourcing programs. So we're optimistic that those businesses can continue to drive ROS improvement, but more importantly, drive top line growth. Those businesses are well positioned now. They've been investing for growth, and we should continue to see those businesses grow nicely. We're going to see some nice back half growth in both Water Solutions and in Flow. And that's with a challenging international environment as well. So we're optimistic both from a top line and a ROS expansion for both of those segments.

And the next question comes from Andrew Buscaglia with BNP Paribas. Andrew, your line may be muted. And the next question comes from Mike Halloran with Baird.

Couple of questions. First, just on the Pool side, how quickly do you think some of these efforts can drive results? So the commercial efforts innovation. I know some of these you put in place earlier this year, but how quickly can those drive results? And John, is there an implication to pricing in your commentary about maybe being a little less price aggressive in the marketplace as you look to stabilize the business?

Yes. I mean when I talk about moderating pricing, I'll give you a range. I think it's somewhere in the 3% to 5% range next year, and we haven't established those price increases yet, but we think we're covering some levels of freight, and we've got some unique inflation on some of the core product lines, and we think we cover within that context. It's really a reference, Mike, that last year, we had 7% to 8% price forecasted, and it really drove a prebuy energy level across the entire channel, right, to get ahead of those price increases. I think the prices that I'm talking about are more moderating, which doesn't generate that net need to get ahead of it at the same rate of last year.

I think when we talk about investment and how long it's going to take, I think credibility with the dealers that we've got there back and that we're supporting them on a consistent basis. We've started that already. But we've got to build that quarter by quarter by quarter over time. It's really in the way that we take our strategic advantages of our technical service reps and our field service support, and we make sure that they're backing them to get the product up and running and support them when it doesn't. It's also about making sure that we're understanding that the various regions that we participate in all have different competitive dynamics and that we're competing effectively in that channel.

And then the primary place that we're acknowledging that we lost share is we put pads in 10 to 15 years ago, and our technology on the premium pools we're building has evolved at a very rapid rate. And so we got to just make sure we have product that can go back and address a like-for-like replacement on the pads that we had established at a significant rate 10 to 15 years ago. When I put that into a context, Mike, we can make progress here in the back half of the year, I'm convinced. But I think you're looking at a 6- to 18-month time frame to get back to where we feel we should be and to maintain the getting back share -- winning share again versus just defending our share.

Got it. I appreciate that. And then -- Yes, super helpful. And then just a balance sheet question here, 2.4 turns, I think, is what the leverage is. Is the plan to let growth in EBITDA normalization in Pool, et cetera, inherently or naturally lower that leverage level over the next couple of years? Meaning, are you willing to deploy capital for buybacks beyond that or for other things? Or is there a targeted debt paydown plan concurrent?

We would run a similar play to what we ran with Manitowoc Ice. That was successful from a balanced capital allocation story, but leaning in on debt paydown, so we delevered quickly. So our expectation is that we would utilize some amount of Pentair's free cash flow for debt paydown. That would be the main driver to get us from the 2.4x down to the 1.5, 2 years later. But that still allows us room to continue to make the dividend payment and increase it and keep that 50-year streak alive to do share buybacks at least from a dilution perspective and then to have some optionality with other free cash flow that we have. But I would say we will prioritize the debt paydown, drive that leverage ratio down, and that's on the strength of the Pentair and the Taco free cash flow.

And the next question comes from Nathan Jones with Stifel.

I guess I'll just -- I'll start with another one on the Pool inventory buildup. Can you -- I mean, I think you've kind of, I don't know, whether explicitly or implicitly talked about the big price increases coming into this year is responsible for the prebuy. Can you -- it doesn't seem like a lot of the other suppliers are seeing the destocking at least to the same level that Pentair is. Can you just provide a little more color on how this inventory build got into the channel? And then I guess you guys gave guidance at the end of April. Did you have any indication that there was a big inventory destock coming there? I guess the question then is there some review of business processes that needs to be made so that you guys have better intelligence on what's actually going on with your dealers and in the market?

Yes, I appreciate the question. I can't speak to our competitors. I've said this often. We had a double-digit growth expectation on the sell-through side, Nathan, as we headed into this year. That was made up of about 7 to 8 points of price, and we had about 2 to 3 points of volume, which felt normal. We did our channel checks. We talked to our dealers and people were encouraged and optimistic that we would enter the year, and we would see that type of growth rate.

A lot of things happened throughout the first quarter. We had a war start in the Middle East. We saw gasoline spike. We saw interest rates that actually weren't declining, but actually went up. And we did our sell-through checks in Q1, and we did actually okay. I mean it wasn't a great sell-through period, didn't hit that double digit, but it was mid-single-digit type of growth.

What happened in Q2 is we saw that there might have been some pull ahead from the channel from Q2 into Q1 and that we also noticed that there's a fair amount of rebates to dealers and encouragement of dealers to buy product. And we learned that we weren't going to hit those sell-through rates, which is where we started to soften the guide in the April time frame.

We brought -- came out with a lower pool forecast, if you recall. And we had a little bit of the inventory correction in our Q3 numbers. And then it became apparent that we were going to be in an excess inventory situation in Q2, and we worked with the channel to actively try to rightsize everything so that we could get it all behind us by the end of Q3 and begin to get back to a sell-out mentality next year and also just make sure that inventory coming in equals the inventory that's going out. It's that simple. I can't speak for the competition. These numbers get large because when you have a large business, just a little bit of percentage miss on the way up, doubles the impact on the way down.

Now usually, you'll live with a little bit of excess inventory in the channel, but I think this one got to the point where we're just uncomfortable that it would affect our long-term growth rates, and we would be out trying to incentivize the channel differently to get beyond where the inventory levels are. So I'm comfortable with what we did. I think as far as going forward, we have the ability to measure sell-through and sell-in across all the regions and just keeping an eye on making sure that we understand what's going into the channel, what's going out of the channel. It will be different within a full year by quarter because there's seasonality in the business, but it's really easy to get your head around that, Nathan.

On Taco, you're talking here in the slide deck about mid-teens 2026 revenue growth. Can you put that in a bit of context with where it's been historically, what the expectations for that are going forward? And I assume the revenue from data centers is a big driver of the growth in there. If you could just parse that out maybe what the growth rate is ex the data center growth.

Yes. And I'll let Bob handle a piece of this. But I do want to acknowledge that our plumbing business exposure never included the HVAC channel. And those of you that follow the HVAC channel, it's always been a really good spot to service plumbers into. And that is historically what Taco is really good at is the #1 and #2 brand in the climate and hydronic and HVAC space. and they play in some really good core regions where they take advantage of multi-unit housing as well, where we have not historically played. And so their growth rate has always been mid- to high single-digit-ish kind of range. And then obviously, when you start adding data centers on to that, you get this ramp and this incremental growth related to those data centers. Bob?

Yes, they're really taking advantage of some fast-growing markets. We're excited with the fact that we will add roughly $10 billion of addressable market to Pentair. Taco has been taking advantage of that addressable market. Historically, they've been a high single-digit grower. They're having nice growth this year as they expand into data centers, including expanding their product offerings. But the commercial side of their business overall is doing well. They're right in the sweet spot of efficiency plays, sustainability plays. The residential business is doing well because of the focus on multifamily units.

So it's really across-the-board growth. They're building a nice funnel, and we're excited about not only Taco's growth, but being able to add what Pentair has to offer. They sell primarily through manufacturing reps. We sell through distribution. There's a nice cross-sell opportunity there. So overall, excited about the business. And again, it will be a stand-alone business unit within the Water Solutions segment.

And the next question comes from Deane Dray with RBC Capital Markets.

Bob, welcome back. And I do believe you lead the league now in the most comebacks and retirements. Is that true?

I don't know if I lead, but I do like coming back. And again, this is such a great company. So excited to be back.

Yes. And Pentair is fortunate to have you ready to step back in. So we really appreciate that. So hey, look, on the Taco deal, we know this brand. It's a top brand, great aftermarket, full disclosure. Our HVAC in my home has all Taco mixing valves. So I know the business from the user standpoint as well. This feels a lot like the Manitowoc deal where you're buying a top brand with really good aftermarket and you're going to run it like its own platform. And maybe is that right? And then can you expand a bit on where there are adjacencies where you can build out this platform further? I don't like to use the word plumbing, but just the idea here on some of the fluid handling side, but maybe we can start there.

Deane, thank you for the question. By the way, congratulations on your news as well. So -- but I will say that without a doubt, we plan to run it and learn from the Manitowoc way. We expect -- it's a proud-rich heritage of the brand. The Taco brand has a lot to be proud of. It's fourth-generation business, and we are going to run as a stand-alone entity and take the Manitowoc playbook in that regard. I want to focus the potential synergies on the fact that they participate in the mechanical side of data centers in a meaningful way. And we're starting to enter into the data center markets with a large HVAC offering, which takes you to the bigger side of the chilling and cooling aspects with our water solutions.

I think that's our biggest meaningful synergy that we see that would be worth focusing on is introducing each other to the products and making sure that we can share those leads and begin to work together to support that opportunity. And then again, through the plumbing channel, just making sure we're expanding the line card and making sure that we give our plumbers access to their products and that their plumbers have access to our products. We think those are meaningful synergies both.

Great. And then just a follow-up on the pool side. One of the questions that we get is, has there been any fallout from all of the 80/20 kind of disruptions on the customer side. So as you switch someone from direct sales to distribution, there can be some relationship disruption. That question has come up. Is there any validity applicability to this for you guys in your situation?

The answer, Deane, is yes. It's not 80/20 as a tool. It's the way you implement 80/20. And I think we made some assumptions on some of the smaller distributors, buying groups and small dealers that are independent and don't necessarily buy from the 2 largest distributors. And those actions did create disruptions and some of the lost share that we had alluded to in the aftermarket side of our business. And we are actively pursuing getting that back and reestablishing those relationships. They're long-term relationships, and we made some decisions that need to be reversed. And again, I won't blame that on the 80/20 tool. I'll acknowledge that we didn't implement the tool with the right assumptions, the right industry knowledge that we should have utilized.

Great. Well, look, I really appreciate the candor there. And I also appreciate all the support and insight you and the team have provided me over the years, and I wish you best of luck.

And the next question comes from Nigel Coe with Wolfe Research.

Bob, great to have you back. And maybe Deane can actually start rivaling you for the comeback. So I never say never, but Bob, good to see you back. We've covered a lot of ground, John. So it sounds like you've lost most ground with the smaller distributors, smaller contractors. So with the larger players, you feel like you're in good shape? Or do you think there's more to do there? And this new growth mindset in pool, is there anything on the product side or in terms of customer targeting, I'm thinking about some of the larger pool builders where you need to maybe reestablish a presence.

Yes. So I'll address that real quickly, too. I mean we segment the market, and we have premium large builders. Think of those as your regional large, making the multi-body pools, highly innovative, highly technologically advanced. I think we still feel like our product positioning and our dealer positioning there is where it needs to be, and we continue to serve those dealers. We have not historically played in larger pool builders that serve the mid-tier of the market. These would be the more mass-produced homes that have more single-body pools. It's a segment of the market that's actually growing faster right now than the premium pool builds, price-conscious buyers, good enough equipment. And it's one that we have to explore, do we want to participate or not, but we don't currently serve the top 20 builders in that space. We're looking at the economics of entering that space and understanding what that aftermarket service tail would be.

And then where I'm candidly saying where we've got to get better is making sure that we've got product that replaces our existing product in a very simple service user-friendly way. In a lot of cases, that aren't -- those aren't the installers or builders that place that product that are now servicing those pools. And we've got to make it easier for those -- that service channel to be able to have a product that replaces our product. And it's not a long length of time. We do have product availability today. We just need to make people aware of it, and we need to make sure it's being focused on the areas that can recapture and regain our share.

And then long term, I think our innovation has to be more iterative and has to be easy to use, easy to install, easy to sell. And I think we've gotten into a little bit more breakthrough thinking, which is a big leap for the channel. And I think we're going to bring that product road maps into more every single year, having a slight improvement versus having these more radical improvements in the product designs.

John, that's great color and good luck with that transition. Just a quick clarification on the margin question. You indicated something close to 30% is where you see the business maybe trending longer term. Do you think that's a good number for 2027? Or do you think this transition period means it could have a 2 handle on margins next year?

No, I think there's no need to put a 2 in front of it. Right now, before this reset, we were tickling mid-30s. I think if you look at the things we want to do, we want to build our brand. We want to put the brand in front of consumers in a way where they know what Pentair Pool is so then when they Google, our dealers are supported by a brand, and we want to make that a localized regional approach. We want to do a little bit more demand generation to bring leads to our core dealers to service pools. So I see some early investment there. And I want to set this up as we're recovering in those low 30 ranges as a more systemic place that I think we can be in pool. This is still a Rule of 40 business, right? So you can get to 30% plus 10% growth. You could be at 33% with 7% growth. That's the way I'm looking at it. And I think there's plenty of room to deliver income growth and a lot of value by having more of an emphasis on the top line here.

And the next question comes from Andy Kaplowitz with Citigroup.

Bob, welcome back. John, so how difficult do you think it is to pivot from this sort of 80/20 mindset and pool to this maybe more innovation-based focus? And I think you mentioned replacing products, but maybe some examples of where you're going to lean in to drive the growth? Is it more on the automation side? Is it more in specific products where you've lost share? Like how do you think about that?

Yes. I mean, stepping back, I mean, we've always been historically a customer-led, sales-led organization. When we experienced some of the supply chain disruptions during COVID, we had to solve more of the issues more centrally. And I think we stopped listening at the rate that we needed to at the localized dealer needs and some of the segmentation. This is not going to be hard to get back to, but I'm not going to suggest it's immediate, right? We got to go back and we've got to commit to supporting our dealers and making sure they recognize that they have that support behind them. And our salespeople have to have the empowerment to be able to say yes to what that dealer needs. It sounds simple. We also have to support them. And so it's going to be progress here already within the quarter and ultimately throughout the back of the year and making sure that, that consistency of voice is supported in '27, '28 and beyond.

Helpful. And then maybe I can ask you guys about flow in general for mid- to high single-digit growth for the year. I think Hydro-Stop is doing well, as you said. Core sales is down 1%. So maybe talk about the different businesses, John and Bob, and like CapEx doing reasonably well, but anything sort of slowing you down there?

Nothing really slowing us down in line with expectation. I would say, if anything, perhaps a headwind in regions in Europe, as an example, and that should come back once the economy and overall global conditions improve. So overall, it's more a macroeconomic that drove some of the core sales growth in the second quarter, but that rebounds quickly. We're optimistic that we can drive that high single-digit growth in the back half of the year. And so Flow performing well, continue to be focused on ROS expansion. So overall, nothing particular with any of the different business units within Flow, more just a geographic challenge at this point in time.

And the next question comes from Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. I wanted to dig into the Flow segment. Sales were up 5%. You called out some key order wins in commercial buildings, data centers and desalination end markets. Can you provide some more details on these order wins? Are you seeing any market share gains here? And is this business performing a little better than expected?

It really reflects. We talk about driving productivity improvements, but we do reinvest some of those savings back into growth initiatives. And so the work that we're doing around data centers is a reflection of some of the investments that we've made either in the channel or with the products themselves. Those were nice wins in the quarter that will drive revenue growth in future quarters. So we like the breadth of the portfolio within Flow right now, and that's what's giving us confidence that we can drive that type of growth. You'll remember, Flow used to be a low single-digit grower, growing in line with GDP. We now believe we can do better than that.

And just wanted to dig back into the Pool. And can you guys provide some more details on the plans you outlined to regain aftermarket share going forward? Like what's some of the low-hanging fruit or more near-term opportunities? And what do you see as more medium-term impacts?

The low-hanging fruit in the short term is just making sure that the industry understands our like-for-like replacements. Maybe the name of the brand is slightly different. So for instance, IF2 is on a pad that was one of the best pumps ever invented, making sure people know that the Whisperflo is a like-for-like replacement that can give the customer what they need.

What we were trying to do is promote our IF3, which has full automation baked into it and can allow you to have app-based capability and control of the pad. That's great for the person who actually wants that offering. But we got to make sure if that individual doesn't prefer that offering that there's an alternative that is ours. That's as simple as I can make it for now.

Okay. So I want to thank you for joining us today. In closing, I'd like to reinforce some key takeaways on Slide 18. We have taken actions to address near-term Pool dynamics while maintaining long-term growth priorities, and we anticipate robust growth in 2027. Flow and Water Solutions remain on track and continue to perform in line with our expectations. Our acquisition of Taco expands our suite of innovative water solutions, strengthening our position in high-growth end markets and expanding our channel network and aftermarket exposure. This transaction will create an attractive and diversified growth platform. We are confident that our focused water strategy and disciplined execution will further strengthen the business, enhance operational efficiency and position us to deliver long-term growth, profitability and value creation for customers and shareholders. Thank you, everyone. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, and welcome to the Pentair First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Shelly Hubbard, Vice President of Investor Relations. Ma'am, please go ahead.

Thank you, operator, and welcome to Pentair's First Quarter 2026 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer; and Nick Brazis, our Chief Financial Officer. On today's call, we will provide details on our first quarter performance as outlined in this morning's press release.

On the Pentair Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call. and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance in addition to the impact these items and events have on the financial results.

Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations.

We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K. Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the nVent separation in 2018, unless noted otherwise.

Following our prepared remarks, we will open the call up for questions. Please limit your questions to 2 and reenter the queue to allow everyone an opportunity to participate.

I will now turn the call over to John.

Thank you, Shelly and good morning, everyone. We appreciate you joining us today. Let's start with our long-term strategy on Slide 4. At our Investor Day in March, we outlined our long-term strategy, growth initiatives, favorable secular trends, innovation pipeline and our financial growth outlook. We are very excited about the next level of growth and profitability that we expect will build upon the structural improvements we've made to our operating model over the last several years to drive more durable financial performance during economic cycles.

We believe our balanced water portfolio is uniquely positioned to drive superior value across our Move, Improve and Enjoy Water segments. We are focused on accelerating growth through innovation and elite customer experiences. We expect to continue to see strong execution, drive profitable growth and accelerate operational efficiencies over the next few years. And our strong cash flow and ROIC provide flexibility for enhanced value creation.

Let's move to the executive summary on Slide 5. In Q1, we delivered another solid quarter supported by disciplined execution and continued focus on our Pentair Business System tools. Sales increased 3%, adjusted operating income increased 7%, ROS expanded by 100 basis points to 25.0%, our 16th consecutive quarter of margin expansion, and adjusted EPS rose double digits to $1.22.

Flow delivered strong financial and operational performance in the quarter, and Water Solutions and Pool also contributed to core sales growth and margin expansion. Our strategy, supported by our Pentair Business System tools including transformation processes, inclusive of 80/20, continues to guide our execution across the company.

At our Investor Day in March, we introduced new long-term financial targets through 2028. Reflecting our confidence in our value creation model, we repurchased $200 million of outstanding shares in the open market during Q1. We also achieved dividend king status, marking our 50th consecutive year of higher dividends.

We continue to see a range of underlying demand drivers, including aging U.S. infrastructure, population growth in Sunbelt states, evolving customer demand in beverage, premiumization and food service with an emphasis on reliability and serviceability and growth in the aftermarket. We also had several key wins in Q1, including sales growth with our top customers, Quad One, strong productivity driven by the Pentair Business System, a solid innovation pipeline across our segments and continued execution against our strategy.

Our 2026 outlook reflects our current expectations and continued confidence in our business model and the resilience of our end markets. We plan to continue investing in digital and AI-enabled solutions, strengthening our portfolio and returning capital to shareholders. while advancing our efforts in sustainable water technologies.

For full year 2026, we narrowed our adjusted EPS guidance range to $5.30 to $5.40 raising the low end by $0.05 versus our initial outlook. At the midpoint, this represents 9% growth year-over-year. We remain focused as we navigate macro volatility in the broader operating environment. and we are taking actions to manage risk and support consistent execution.

We are watching housing and related markets closely, along with the pace of nonresidential investment, and we remain focused on prudent pricing, productivity and execution to manage through the environment.

Now let's turn to our strategic actions driving performance on Slide 6. We are off to a solid start in 2026 with Q1 performance supported by targeted growth initiatives, strong productivity execution and disciplined delivery across our water portfolio. Q1 also reflected strong segment income and return on sales performance across all 3 segments.

We delivered 3% sales growth despite ongoing headwinds in the residential markets, driven by execution on our growth initiatives. We are investing in technology and capabilities to expand Pool's total addressable market, accelerate growth in commercial buildings and data center infrastructure and support U.S. water infrastructure needs.

We've also strengthened digital capabilities and leveraged our global technology and R&D resources across the portfolio. And we continue to maintain a strong balance sheet and a disciplined capital deployment strategy.

Before I turn it over to Nick, I want to thank Jerome Pedretti for 20 years of outstanding leadership. Throughout his career, Jerome has delivered superior results in all of the roles he has held. He's taken on difficult challenges and has always optimized the businesses and engaged employees in the Pentair way. And I and the ELT will personally miss his passionate debates with me and, of course, his enthusiasm for French and Italian food and wine.

I also want to thank Shelly Hubbard for over 3 years of superior and professional engagement with shareholders. She has elevated our investor outreach and discussions, and we wish her well in her new role. Shelly has accepted a new position as VP of Investor Relations for a much larger company that helps her to further her development and broaden her experience. An announcement regarding Shelly will be issued by her new company in the near future. Shelly will continue with Pentair through May 1.

We are using this opportunity to rotate Jeff Thompson, the CFO of our Flow and Water Solutions segment into the VP, Investor Relations role, and we are confident that Jeff will learn quickly and be able to share unique insights regarding our PBS playbook and business positioning.

With that, I'll turn it over to Nick to walk through our financial results and our 2026 guidance in more detail. Nick?

Thank you, John, and good morning, everyone. Let's start on Slide 7. We delivered a first quarter record for Pentair sales and adjusted operating income. Additionally, we enhanced return on sales across each of our 3 segments.

In Q1, we reported sales of over $1 billion, up 3%; adjusted operating income of $259 million, up 7%; return on sales of 25.0%, an increase of 100 basis points; and adjusted earnings per share of $1.22, up 10%. Core sales were up 1% year-over-year driven by a 2% increase in Flow and a 1% increase in both Water Solutions and Pool.

Moving to adjusted operating income. Driven by our long-term plan, our Pentair Business System and our targeted ongoing structural cost improvement actions, we achieved 100 basis points of margin expansion in Q1. Price offset inflation and we delivered net productivity of $21 million while continuing to invest in targeted growth initiatives and our innovation pipeline.

Please turn to Slide 8. Flow sales were up 11% year-over-year to $258 million, driven by our Hydra-Stop acquisition, growth in Quad 1 accounts and a focus on growing flow control equipment and aftermarket sales for the aging U.S. water infrastructure, data centers and other commercial buildings.

As a reminder, last quarter, we announced that we have strategically combined our Flow residential business and our residential business within Water Solutions beginning Q1 2026. Additionally, our long-range plan, as communicated in Q1, aims to deliver mid-single-digit growth within our Flow segment with margin and income expansion driven by structural cost improvements and a focus on growth within our Quad 1 customers.

Segment income grew 22% and return on sales expanded 210 basis points to 23.7% driven by strong sales growth, which, as mentioned, includes the acquisition of Hydra-Stop in Q3 last year. Finally, price offset inflation.

Please turn to Slide 9. In Q1, Water Solutions sales declined 1% to $391 million, driven primarily by our targeted portfolio shaping and exit of the Commercial Services business in Q2 of 2025. The pro channel grew mid-teens during the quarter. reflecting gains supported by our decision to combine the Residential Flow and Residential Water Solutions businesses to both drive structural cost improvements and bring targeted Quad 1 channel synergies to our Pro channel.

We continue to drive ongoing structural cost improvements and our make-buy strategies and tools. We've made progress on our structural cost initiatives, but remain early in those actions and opportunities as we continue to deploy our Pentair Business System.

Segment income grew 6% to $100 million and return on sales increased 160 basis points to 25.5% primarily driven by our Pentair Business System productivity savings. The contribution of price offset inflation.

Please turn to Slide 10. In Q1, Pool sales increased 1% to $387 million. Segment income was $128 million, up 2%. Return on sales increased 30 basis points to approximately 33%. Price offset inflation and our Pentair Business System drove continued net productivity.

We're focused on investing in this business through a regional focus with targeted and unique programs in sales and marketing, field service and customer service support, new product innovation and breakthrough innovation that we believe should grow the total addressable market for Pool and elevate our brand and offerings.

Please turn to Slide 11. Our balance sheet remains strong, and our return on invested capital increased to 16.6% from 15.8% a year ago, reflecting our strong commitment to ongoing shareholder value creation. Our net debt leverage ratio is 1.7x. In Q1, we repurchased $200 million of shares, reflecting the continued confidence in our strategy, our Pentair Business System and our team's ability to execute. .

We have also increased our dividend by 8% and achieved our 50th consecutive year of dividend increases, making Pentair a Dividend King while maintaining our Dividend Aristocrat status.

Our significant annual free cash flow generation has enabled us to strategically deploy capital via dividends, debt paydown, share repurchases and strategic acquisitions. We plan to remain disciplined with our capital and have flexibility to strategically allocate capital to areas with the highest shareholder returns and are planning additional share repurchases during 2026 reflecting our confidence in our ability to execute on our long-term strategy.

Let's turn to our outlook on Slide 12. For the full year, we are increasing our adjusted EPS guidance midpoint to approximately $5.35 with a range of $5.30 to $5.40, which is up roughly 8% to 10% year-over-year.

Also for the full year, we expect total Pentair sales in 2026 to be up approximately 2% to 4%. We expect Flow sales to be up approximately mid-single digits to high single digits and in line with our long-term plan. Water Solutions sales are expected to be approximately flat with core sales up approximately low single digits and in line with our long-term plan.

And Pool sales are expected to increase approximately 1% to 3% in 2026. While we're encouraged by sell-through dynamics in Q1, sell-through levels for this Pool season, which concludes in Q3 of 2026, may require our channel partners to reduce purchases in Q2 and Q3 to reflect 2026 pool industry growth. Therefore, we evaluate a wider range of Pool revenue and income scenarios and we have incorporated these assumptions and scenarios into our guidance update.

We expect total Pentair adjusted operating income to increase approximately 6% to 8%, with return on sales expansion of roughly 100 basis points to approximately 26%. We expect price to offset inflation and expect another strong year of Pentair Business System-driven productivity of approximately $70 million net of investment.

We continue to evaluate and respond to ongoing changes in U.S. tariffs, inflation and global supply chain impacts. We expect tariffs and inflation to have a net neutral impact over the year.

For the second quarter, we expect sales to be up approximately 1%. We expect Flow sales to be up approximately high single digits which includes our Hydra-Stop acquisition with approximately $10 million of sales in the quarter at approximately 30% return on sales.

We anticipate Water Solutions sales to be down approximately low single digits, with core sales approximately flat, reflecting the commercial services sale in Q2 2025. Commercial water core sales are expected to be up approximately low single digits.

And Pool sales are expected to be approximately flat to up 1%, reflecting our active management of sell-in and sellout dynamics. We expect second quarter adjusted operating income to increase approximately 5% to 6%. We're also introducing adjusted EPS guidance for the second quarter of approximately $1.47 to $1.50, up roughly 6% to 8%.

We're pleased with our performance in Q1. We have a balanced water portfolio and a global team with a proven track record of delivering our near and long-term strategies and we are focused on delivering our new near- and long-term plans for our shareholders, our customers and our employees.

I'd like to now turn the call over to the operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions. Thank you.

[Operator Instructions] And our first question today comes from Nathan Jones from Stifel.

This is Adam Farley on for Nathan. My first question is on the full year sales guidance. So price and FX tailwinds are likely to fade through the year as we lap last year's increases on price with volume likely needing to make up the shortfall. Could you talk about areas of the business that are expected to see volume improvement as the year progresses?

Yes. Thanks for your question. We're seeing green shoots in our Commercial Water and Water Solutions business. We're seeing volume improvements across pockets of our Flow business as well. Several of our innovation and targeted market efforts in those businesses are reading out.

As communicated in our Investor Day back in Q1, we're really working to drive both margin expansion and volume expansion in our Commercial Water Solutions business, and of course, in our Pool business as well. with margin expansion from our flow and water quality management businesses coming more from our structural cost efforts.

And then thinking about -- following up on that margin expansion, you can talk about where you're seeing better-than-expected productivity? And then again, maybe talk about the impact of volume on net productivity. And I'll leave it there.

Yes. We saw productivity gains that exceeded our plan really across the enterprise, but specifically within our Commercial Water Solutions and within our Water Quality Management business. So our Water Solutions business in aggregate drove incremental net productivity.

And I would just remind everyone that our transformation and productivity numbers are net of investment. And so driving that margin expansion within the Commercial Water business and incremental volume beyond what we had originally planned for Q1 really rode out nicely in the Water Solutions business.

And then in pockets of our Flow business, we saw additional productivity gains, and of course, about 30 basis points of margin improvement in Pool, but really drove nice productivity gains within the Water Solutions business in Q1, and we're working to continue to drive that through the year.

Our next question comes from Steve Volkmann from Jefferies.

I guess, I wanted to focus a little on the Pool segment. I guess, I was a little surprised by the decline there given sort of what we hear from other players in the channel doing some strong early buys. Maybe that's consistent. Do you think maybe they overdid it on the early buys? I guess you had some commentary about some potential destocking as the year progresses. Can you just tease that out a little for us?

Yes. I mean, again, I think we have 2 components to our growth. The first one is we measure and manage sell-through growth, which is equal to what you see as the channel distribution measurements, right? So generally in line with all of those external pulse points that you're hearing, but we also have ship-in growth or sell-in growth that goes into the channel.

And as we shared at the end of Q4 and into our full year guidance, we think that the current sell-through activity doesn't warrant a big pickup in the sell-in activity and we're expecting that to work its way out through Q2 and Q3 with lower shipments for us and then ultimately, better long-term dynamics as we head into 2027 pool season.

Okay. Great. That's helpful. And any comment on any trends you're seeing relative to market share in the Pool business?

Yes. We feel good about our positions. I mean I think what we're seeing in the dynamics is we have high-end premium pools, we have midrange goals and remodeling and then you ultimately have the aftermarket. And the challenge is that we're just not seeing overall volume growth across that pool industry as a whole. .

And what you're seeing is a series of defeaturing that's happening in the aftermarket or pushouts from consumer discretionary. But overall, I think we're looking at overall volume flat on the sell-through side and taken a lot of activity and energy to achieve that. But ultimately, we're hanging in there in what I would say is a flattish market.

Our next question comes from Nigel Coe from Wolfe Research.

Maybe can we just touch on the tariffs. We've obviously seen some changes in the regime during the quarter. I think you said $30 million of impact this year. Just curious how that might be changing.

Yes. I mean I think tariffs are net-net slightly more than we currently expected, not by a lot, Nigel, but a little bit more. And we feel that we've pushed that price appropriately to the channel. I do want to also mention that there is the tariffs and then what I would call incremental inflation. We are seeing some commodities running hotter right now than they were initially expected.

And again, we have taking price actions to neutralize those in our full year guidance forecast. So a little bit of benefit from one side of the tariffs. After the Supreme Court, it was little, and then we had the incremental 232 tariffs that offset it, and then we priced effectively on both of those elements.

And John, just to add to that, just a reminder, Nigel, about 70% of our sales go through 2-step distribution and when we think about the year, we're planning for price to offset those inflationary headwinds, whether they be tariff, commodity or otherwise.

Okay. That's great. And just curious then how is price looking over the balance of the year from here?

Yes. I would say for the aggregate of Pentair, we're looking at low single-digit price across the year and expected approximately flat volume across the full year.

Our next question comes from Patrick Baumann from JPMorgan.

I had a quick question on your assumptions related to sell-through for the pool market this year. What is embedded in kind of your new guide of 1% to 3% for the segment for industry sell-through?

Flattish on volume, plus price. So that's generally what we've assumed in this current outlook.

Flattish volume sell-through for the industry.

Plus price. plus price, yes. So you have price plus flattish volume for sell-through.

Understood. and then a quick one on the capital allocation side. Did I hear you say you're going to do additional share repurchases this year? Is that embedded in guidance? Or what did I miss there?

That's a great question. We expect to generate strong free cash flow in 2026 like we have historically about 100% of our net income converting into free cash flow. We did buy $200 million worth of shares in Q1 and we expect to remain active in 2026 in share repurchases, but none of those additional share repurchases are reflected in our current 2026 full year guide.

Our next question comes from Deane Dray from RBC Capital Markets.

Also I also want to wish Shelly all the best. Just a question, this came up at the Analyst Day, but just want to see if we've seen any evidence of this. You said there's still lots of opportunities in 80/20. Are there part of it is the walk away revenues to walk away from some customers, walk away shutting down some product lines? Have we seen any of the net effects on the those revenues going away? Just what's baked into the guide there?

Yes. We saw some of that in 2025, Deane, and we're actively managing our Quad 1 customers, which are our top tier customers buying our top-tier products and ultimately seeing really good results across the portfolio regarding that. There are temptations of the businesses to go back after some of those 20s as we mentioned.

And we're really pushing back on those efforts unless it is a misplaced 20. Maybe they were a big customer regionally, and we looked at them nationally. That would be the only reason that we'd go back to that, Deane, but we're not seeing further headwinds from 80/20 actions in 2026 results.

Yes. in pockets of our businesses, we are seeing growth with our Quad 1 customers. And so you've got that balance of the exits we made and then the growth with Quad 1. I mentioned it on the prepared remarks. In our Water Solutions business, we grew mid-teens with our Pro channel while we continue to drive out some of the structural cost opportunities within Water Quality management. So those Quad 1 growth opportunities are starting to read out for us, and we're excited about what that's going to continue to deliver.

Good to hear. And then just a second question on can you expand on the point in Pool on some of the new product innovation and expansion of the TAM. I know there are some product areas that you've said Pentair is not interested, like we wouldn't expect to see it to be in chemicals, for example. But just kind of where are attractive areas they might be? Is it in the automation side? And how much did the TAM increase?

Yes, it is partially in the automation side. So we have a great and sticky product offering already with our IntelliCenter and with our pumping technology. So we do expect to continue to expand the TAM with the automation capabilities that we deliver and are expecting to deliver in the future.

And then additionally, at our Investor Day, we talked about some new purification and membrane technologies that we're excited about bringing to market. So both of those are TAM expanders for us and we're excited to continue to develop those in addition to that digital connectivity of the pad.

Our next question comes from Julian Mitchell from Barclays.

I just wanted to echo Deane's thanks and best wishes to Shelly. Just first off, just trying to understand the overall sort of headline company-wide slight guidance changes. So you have a slightly lower sales guide because of the Pool uncertainty. But I think you pushed up your op profit guide slightly, but that's with sort of an unchanged productivity savings guide at $70 million, and that's with the sales guide coming down a touch. So maybe help us understand sort of the moving parts within that? And anything by segment that's changed in your line of thinking versus prior guide?

Yes. Real quick, Julian. Just to remind you, we have a large -- we're $4 billion plus, and we do have general revenue in Europe and Asia as well. And in this guide, we've reflected a little bit lower outlook in those regions relative to some of the supply chain challenges related to what's going on in the Middle East.

We are seeing those and reflected those in the guide. Some of that is being made up by North America, and you got a positive mix on U.S. revenue, offsetting what is lower margin mix in Europe and Asia. So I just wanted to share that insight as to what's in the guide as well that's helping margins.

Yes, that's right. It's a combination of mix, transformation and then driving a little bit of benefit below the line, but these are really strong transformation net of investments that we're driving within the businesses. .

That's helpful. And then just to circle back to the Pool business. So is the sort of core assumption that market sells through is pretty flat kind of year-on-year each quarter and the year in terms of volumes and then the sell in, there's a bit of pressure sort of second quarter from channel partners and then your sell-in kind of returns to growth perhaps later in the year? Just trying to understand the sort of sell-in, sell-through as we go through the year, understanding it's a very seasonal business.

Yes, you nailed it. We expect most of the sell-in pressure to be Q2 and Q3. We reflected that in this guide, and we're continuing to drive sell-through actions. Right now, the assumption is flattish, and we're looking to drive higher than that on the volume side.

And I think we're encouraged by what could be there in Q4 next year. But this industry has been hoping for that volume growth for the last couple of years. And I think with all the price activity that's happening in tariffs and inflation, they've generally bought ahead at a pace that we don't think will continue, which is why we're addressing that in Q2, Q3 this year.

Our next question comes from Andrew Krill from Deutsche Bank.

Going back to margins, could you give us some directional help on which segments you expect to lead the margin expansion this year? And for Pool, in particular, I believe, before it was going to be one of the lower expansion of the 3. Can you expand margins there this year with the modestly lower sales outlook?

Yes, it's a good question. What we guided at Investor Day is that our long-term plan is that Pool will modestly expand margin. whereas our Water Quality Management and Flow businesses will have margin expansion that outpaces the aggregate of Pentair.

And so when you look for the margin expansion within our businesses, it's really about Water Quality Management and Flow business that's going to drive the additional structural cost improvement that drives the margin expansion. And then the remainder of our businesses, effectively, you see margin expansion in line with the portfolio.

Okay. Great. And for productivity, the $21 million in the quarter, if you annualize that, you're tracking pretty nicely above the $70 million for the year. For the remaining 3 quarters, should we be expecting that about $50 million or so to be linear? Or is there any reason it's going to vary by quarter? Can you give us some help there?

Yes. I think a linearization is appropriate, and we're still holding to the $70 million for the year.

Our next question comes from Andy Kaplowitz from Citigroup.

Shelly, thanks for everything. So I think Flow revenue was slightly ahead of forecast for Q1. Maybe give a little more color on what you're seeing out of your CapEx businesses there? Obviously, you're also focused on significant commercial initiatives in that segment. So maybe talk about what you're seeing in the market versus your own improvements towards growth.

Yes. The Flow business, you're right, Andy, did generate a little bit of incremental top line in Q1. We're expecting full year for flow to be up approximately mid-single digits to high single digits, which is in line with where we had guided for the full year.

There are green shoots because of our efforts, specifically focused on commercial buildings. That's K-12, that's hospitals, universities and even a little bit of data centers. in the pumping technology space.

So we do have targeted technology and market investments to continue to grow Flow and those are reading out for us. You saw that in Q1, and we feel good about the full year guide.

Helpful. And then maybe give us a little more color about what's going on in Water Solutions with ICE, I think you did return to growth, very modest growth. I think you talked about North America sort of leading the charge. Are you seeing international stabilize? Like what are you seeing in that business?

Yes. I think that some of the changes we've made within Water Solutions, particularly our Commercial Water Solutions business are reading out nicely. And the targeted efforts, as we talked about at Investor Day, as we're seeing some of the retail shoppers moving from stopping at a drive-through to stopping at a convenience store, some of our efforts in those spaces are reading out for us in both the commercial filtration and the commercial ice space.

And we expect those to continue. We have ongoing efforts across North America to continue to develop those channel partnerships and to drive sales in that space.

Our next question comes from Scott Graham from Seaport.

Shelly, you've been excellent. Best of luck to you. I wanted to ask about the quarter's pricing and just with your guide for the year for pricing being sort of up low single, the decline there as we move through the quarters, is that maybe level set by first quarter having maybe 2 points of carryover price from last year?

There is a little bit of carryover and then there's -- so the year-over-year comp as well between Q1 of this year and last year. And then pricing, we expect, again, low single-digit price take on the year. So you're right on the Q1.

And just reflecting on that, keep in mind that the tariff impact came at us and most of the price increases put in, in Q2 in last year. And so that's why you're seeing a slightly higher readout in Q1.

Understood. The other question was simply on the Flow business, and you kind of gave us one liner there. In the past, you've talked about markets specifically with percentages. I know you indicated also some of your initiatives, but maybe if you could delineate specifically how is industrial versus how is commercial?

Both businesses performed well in the quarter, both from a top line and a margin expansion perspective. And both the commercial businesses and the industrial businesses and the businesses underneath them. are expected to continue on that track, specifically with the margin expansion initiatives that we've already seen readout and continuing to drive that into the rest of '26 and into our '28 longer-term plan horizon. .

Our next question comes from Amit Mehrotra from UBS.

I guess I just want to start on Pool really quickly. And just get your color commentary, if you think there's evidence that price is affecting demand elasticity or even share. And within the different categories, whether it's new pool remodel, replace and aftermarket, et cetera, any noteworthy inflections either positive or negative within each of those sort of subcategories?

No. I mean I think Pool is playing out generally the way we anticipated it to. Just as a reminder, we have decently high interest rates in the United States right now that didn't get any better after the Middle East war started.

We have higher levels of HELOCs on home remodeling, which would affect the remodeling spaces. And we have pressure on consumers in the form of overall cost of living. And if you play that out over the new pool builds, you've got the mid-market pools and remodels and you've got the service side.

What we're just seeing is people focused on break and fix repair, but not taking the opportunity to upgrade and those upgrades are a big part of the long-term growth drivers. Now we're going to have to work harder to build programs around it. But prices over the last 3, 4 years is pretty high. And ultimately, we needed to level off at these levels, and then we have to go work and drive the growth actions by region.

So in a region, you'd look at new pool builds separately than aftermarket and service you're making sure you've got the right product availability and the lineup and you have the right value proposition. And then you have the right marketing and sales programs to go penetrate the opportunities.

And so that's the playbook. And I think we're encouraged by the way that we've flattened out here on sell-through on volume plus the price. And we think that's more balanced as we look into '27 and beyond, and we'll get this sell-in behind us, and we'll be off to mid-single-digit growth plus in the future.

Yes. That makes sense. And I just wanted to maybe ask -- end on a more positive question. around green shoots because you mentioned green shoots, and we're all kind of trying to figure out whether in the broader industrial space of green shoots are really green shoots or are they, in fact, leads.

And we're not really sure. It feels like there's really more green shoots you're building. So maybe just give us a little bit more color, products, regions, why you feel comfortable that they're actually green shoots and maybe any other additional information on that side.

Yes. For clarity, when I say green shoots, I mean a result of our Pentair efforts and what we're doing to win commercial building opportunities, municipal opportunities and industrial opportunities, even if there aren't green shoots in those macro markets, particularly in Europe.

And so our teams are doing a good job with targeted selling efforts by region, by city, within those commercial and industrial opportunities for municipals and commercial buildings and by project. So green shoots there are really the result of our team's efforts to take those opportunities and to drive the growth at healthy margins that are nice mix balance within each of those flow businesses.

Our next question comes from Jeff Hammond from KeyBanc Capital Markets.

Just on the -- if you look at the 2Q guide, like first half is a little bit lower than kind of the midpoint of your revenue growth. Just talk through the moving pieces that get you to kind of a better second half to start?

Yes. I'm going to simplify Q2 just reminding you and everyone that, that's when we started to see the heavier price increases that followed the tariff actions last year.

So in our particular guide in Q2 is the anticipation that people jumped ahead of those price increases and bought a little bit more in Q2, and we going to be mindful that our year-over-year results reflect that. As you head into Q3, Q4, things leveled out. And quite frankly, we should have some more easier compares across the portfolio across those actions last year.

Okay. Perfect. And then it seems like that the preference is buybacks over deals, but maybe just talk about the pipeline and then where the focus is? I know historically, you weren't doing much in Flow, but that was your last deal. Do we start to see more activity in the Flow business going forward?

Yes. I mean, we're actively in the pipeline, but it's hard to say that it's a robust pipeline at the moment, right? A lot of sponsor-based deals are waiting for a better backdrop in climate to come out. and the deals that are in the market today, we're looking at, but we have to be thoughtful and careful is what are the returns on those assets.

And we have to look at them in the tariff environment, the inflation environment, the regional impacts and also across the vertical market landscape. And so we're active, but we want to make sure that we're always looking at long-term value creation and comparing that against our own organic growth opportunities.

[Operator Instructions] Our next question comes from Joe Giordano from TD Cowen.

Just curious, when we look at your performance in Pool versus your biggest channel partner, like it historically was a very tight relationship in terms of their tracking like your performance versus their purchases of inventories. And it's just -- it hasn't been nearly as reliable an indicator over the last year plus. Just curious how you think we should think about that relationship going forward?

I think you should use that indicator as how sell-through is tracking for us. And I would say that we are very mindful of that one channel partner's sell through. I'd remind you that there's other channel partners as well. But I would say that we feel and from our equipment performance, it was slightly higher than their equipment sell-through in the quarter.

And then you have to think about our sell-in and that should be equal to sell-through over time. But what we have been clear about is that our sell-in outpaced our sell-through at the end of last year, probably in anticipation of what the '26 full year would look like. and also people trying to get ahead of incremental tariff and pricing, and that needs to come back in line, which is why we're adjusting Q2 and Q3 appropriately.

And then if I think about automation, can you talk about how much this causes like a lock-in of equipment? Like if I use Pentair automation on the top, like as an overarching, do I need -- how much does that lock you into using Pentair equipment underneath it?

And the counterpoint is like I've heard there's been more kind of ability for other companies kind of automation solutions to sit on top of like an agnostic kind of hardware platform. So just curious how that has changed or evolved and how you think you're positioned there from like a lock-in from automation.

Yes. I think you got to look at where we're really well positioned on a premium pool, multi-body large water features, high-end aspects, and when you talk about automation at that level, you've got a lot of optimization of products. You turn on a spa, you want to move valves to change the flow of water. You want to flip on and off on heat pumps versus maybe natural gas heat to optimize your energy capability, you want to optimize energy of pumps.

That is what high-end automation looks like. If you're looking for simple control features on off and the time that you go on off, there are a lot of lower-cost automation solutions. And we will also have a low-end automation solution in 2027 to take care of that small or simple pad that you're referring to.

I'm optimistic that it could change the automation penetration, but you still need a consumer to say, I want automation. You want a service provider that wants to utilize that automation and you ultimately have to create value at a certain price point and the channel to sell it. And so we have it in our pipeline.

It is an opportunity. We talked about the TAM that it will produce at Analyst Day and we're going to work really, really hard to get that automation of simple pools to get to breakthrough levels.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Thank you for joining us today. In closing, I'd like to reinforce some key takeaways on Slide 13. We have a balanced and resilient water portfolio that has delivered superior value over the last several years. We have a clear strategy, proven operating model and an energized leadership team. We expect to accelerate long-term growth through innovation and elite customer experiences.

We expect our focused water strategy and strong execution to continue to strengthen our foundation and drive operational efficiency, supporting long-term growth, profitability and shareholder value.

Finally, we believe that we are well positioned to participate in growth opportunities supported by long-term water-related trends consistent with our focused strategy. Thank you, everyone, and have a great day.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Okay. Moving along here with Nick and John from Pentair. Guys, thanks for making it.

Thanks for having us.

So maybe just start at the top here, talk about -- I would assume you guys don't really have any like maybe just Middle East and any like exposure there just to kind of check the box on that one in the macro to get that kind of out of the way?

Yes. Really, no exposure in the supply chain to the Strait, no near-term concerns with what's going on over there as far as supply chain goes.

Right. I guess.

We did confirm our guidance at Investor Day on March 4, both for Q1 and full year, and there's no new updates to that, either of those two guidances. I will just make sure that's understood.

Okay. So nothing in the last 2 weeks necessarily. Can you just talk about -- starting with pool, just talk about what you're seeing in the various disciplines, new aftermarket remodel start there?

Yes. About 80% of our pool revenue, as you know, Steve, comes from the installed base with an aging installed base continue to provide valued products and services to our distributors, to our dealers, and we feel good about those relationships. Our sticky products, particularly with the adoption of automation in the U.S., in the pool pad. We're continuing to see an increase in automation adoption. Our automation platform is really sticky, brings our products along. And like I said, we continue to see that adoption increasing. So we feel pretty good about that.

And as far as your guidance this year on new versus remodel and aftermarket, how do we kind of see that from a volume perspective?

We modeled effectively a similar '26 to '25 as far as the volumes of new pools go. We did see a little bit of an uptick, the back part of 2025. As far as permits goes for new home construction, we'd expect to see a decent attachment rate for pools with that new construction.

When we thought about 2026, we thought decremental volume for the first quarter, and then we start to see that volume pick up with the seasonality of the pool builds for about flat volume, 2026 over 2025 with a couple of points of price.

And maybe just talk about the age of the installed base and how we should see this phasing when you think about the big boom that happened during COVID. And then maybe talk about the useful life of the bigger chunks of that pool pad and how we could see that play out how that gets updated.

Yes, a little over 5 million pool installed base in North America. With an approximate average age of that installed base of about 23 years for pools.

Equipment life anywhere from 5 to 10 years, you did see an installed boom during COVID. And so if you think about that COVID boom of 2020, 2021 with equipment life of 5 to 10 years, you should expect to see that repair, replace cycle starting to pick up here in the near term. But again, we didn't model that uptick in 2026. We modeled it much like 2025 as far as the volume goes.

And can you just talk about the various parts of the pool pad and maybe in that 5- to 10-year range, what's at the lower end, what's at the higher end? And what is kind of the richest replacement for you guys when it comes to the components of the pool pad.

It'd be the upgrades and automations. So as people automate their pool pads, that generally drives the attachment or stickiness to our entire pool product portfolio. And so really excited about the continued adoption of automation.

And even if people adopted automation a few years ago, 5-plus years ago, the upgrades that are available, much like if you bought an iPad 5 years ago, you might not even be able to put the latest apps on your iPad, right, because the technology just grown leaps and bounds.

Our automation technology is similar in that when that customer experiences the increase in the ability to control their whole pad, their heat, their lights, their flow, people really like that app and the stickiness that it brings. And so we're excited about the continued adoption of automation and the repair and replace of automation.

And to answer the second part, Steve, filters last the longest. Think about 10 to 15 years on a filter, talking about the vessel itself, the filters inside them get replaced every 6 to 12 months. And then probably on the shorter life cycle, you have things like chlorinators and the IntelliChem types of dosing for chemicals, and then pumps would be and heaters are somewhere in between, depending on the pump you bought and the life of that pump.

And I think in your long-term guidance, you guys were pretty cautious on resi recovery, maybe talk about the mindset there and what is your calculus around that? What's embedded? And then just talk about that hedge.

For pool in particular, we did not assume a robust residential recovery in our guide through 2028 back at Investor Day just a couple of weeks ago. What we did assume was a couple of points of volume a couple of points of price and a little bit of share take between now and 2028. So very modest recovery from a volume perspective built into the guide to 2028.

Right. And then maybe just taking a step back because it kind of like jump the gun getting to the wonkiness of the pool pad. But maybe what do you want the message to be coming from the Investor Day?

Yes, Steve, I talked to you after earnings call. I intentionally tried to guide to what I thought was an acceptable pool outlook that was inclusive of what people thought would difficult market or a fatigue around waiting for residential recovery. So I said, let's just accept that.

Let's put pool as we think pool's going to come out, and let's have inside of the pool number a continued investment which we have to put into pool for NPI, for sales and marketing and brand building to make it and continue to have it be our best business. And let's share that the other businesses, Flow and Water Solution, can more than offset what a 5% pool growth rate would be in the year. And we put together what I thought was a strong guide.

I think I actually have to reflect on that fed into fears about some thing going on in pool, Steve. And I want the message to be that there's nothing going on in pool. We have a great business. That business is well positioned for the long-term recovery of residential and high-end consumers who are buying pools. And we have two other businesses that now have to demonstrate the strength of the portfolio, which is Water Solutions and Flow, and they're both going to have great years and contribute to Pentair while Pool invests in the longer-term future. That's what I wanted the narrative to be and somehow that didn't come out the way it should have.

Right. And you would look at the year as highly achievable and then if we get a little bit of a resi recovery in the second half, that's upside for you guys?

Yes. And I want people to see the strength of the portfolio and the strength of transformation across the portfolio and start to see and build confidence that we're going to have a lifting of organic growth as a company and begin to prove that one discipline out that we haven't proved in the past across the portfolio.

Okay. When we think about this resi recovery, what is kind of your targeted content for the pool pad? If I was going to replace the entire thing today and throw automation in there, what is the average ticket that you guys would be looking at?

Our sales would be roughly around $15,000 on a full pad to the distributor. And then it'd be marked up and it would go through distributor dealers and probably close to $35,000 to $50,000 at the consumer level, right.

And the automation aspect of that, what is that kind of kicker to you guys versus what you may have gotten in the past?

We're probably roughly on average 3,000 to distribution, 6, 000 at the consumer for the highest end automation unit. And then you're probably going to be -- our IntelliFlo 3 today can actually run a basic pad. If you put in a new IF3 pump, you can run a heater lighting and that pump all off of our app for free, right? So that sit within that spectrum. And then you're going to be in the few thousand dollar range to upgrade a basic pad to some level of automation.

And your attachment rate on those upgrades now, like do you think of -- what are you seeing as -- obviously, we're at a low level of replacement. But what is that attachment versus maybe, I don't know, pre-COVID?

Yes, we're 98-plus on an attachment rate IntelliCenter. And when you get someone to automate, they generally affiliate with what the app is that they put on or whatever the automation devices that they're automating to.

Okay. When we think about this dance with distribution, I guess, I'll call it, where do inventories sit today with your distributors, normal, low, high and then follow up on that.

Yes. Historically, we see variation in kind of sell in, sell out cyclically every some goes up, some comes down. So we would say that it's been pretty normal. And our early buy programs we cap with our distributors. And so we don't allow them to go over certain dollar amount for the early buy, and we were well within that cap last year we plan to be again this year.

So there's no real kind of like inventory to eat through. It's pretty normal and as sales grow for them, your sales should grow as well?

Yes. I mean, we said in our Q4 earnings call that we thought that we slightly outpaced so mean sell-in was slightly higher than sell-out, which is normal for what happens in early buy. What will really be important is as the product starts to leave distribution into dealers in Q1 and Q2 and what's that build and what's the rate of pools, we'll start to identify did the industry get the buys right? Or did the industry be slightly more optimistic than they should have been. But I think it's generally within normal trends.

And more strategically and higher level, what is the relationship with somebody like POOLCORP right now? I know they're kind of pushing hard. They've got some competition coming in. You guys are partners, obviously, to a degree as well as supply and demand engagement. What what's that like today? And how are you kind of assisting them in their efforts to?

Listen, the industry needs a healthy POOLCORP. We need a healthy POOLCORP. And I'm going to do everything to work with Pete and the POOLCORP team to help drive sell-through and help make sure the industry has the products and technology it has.

I mean I think if you're them and you're asking a Pentair who's a leader in the industry, we have to continue to grow the total available market. We have to have new innovation, new products that grow the TAM. So what we don't have is just people fighting over the existing TAM. And that's our responsibility as an industry leader. And I understand that, and we're moving really fast to try to make sure that we continue to do that.

We invented the variable speed pump. We brought in LED lighting. We brought in the dosing chemicals capability and the IntelliChem. We need to continue to have that innovation in the industry. And I think the last couple of years, the supply chain fighting and all the aspects that's been going on, in the loom of pricing and offsetting that, we haven't had that same level of innovation that we should have had. Now we've got some exciting products coming out here in '26. We're going to have exciting ones come out in '27. And that's our responsibility in the industry.

And is that something that is -- is that -- that's incremental investment that's fully embedded in the margin trajectory you guys put out for the next 3 years.

Yes.

Okay. And as far as measuring that kind of NPI, is there like a vitality index you watch or any kind of KPIs we can look for as far as that vitality is concerned?

Yes. We look at our percent of sales that's coming from new products. We look at age of products that are in the field and then we listen to our customers. where do they want to see innovation. We listen to our dealers, where do they want to see increased automation, increase stickiness? What are some of the products or the adjacencies on the pad that they think would drive value.

So we're trying to really drive a customer-obsessed view of both new technology development and introduction and our entire NPD life cycle.

And I guess on the automation side, you talked about $150 million to $200 million like revenue opportunity I think at the Investor Day?

Over the cycle, yes.

Is the attachment rate on new pools like every new pool put in has some degree of automation or around 80%?

Ok, not. So there are still some single body pools where someone makes a choice that they don't need the automation for the pool itself, and they choose not to. I mean, sadly, it's hard to go back and retrofit in automation. So we like that attachment rate to be 100%.

Okay. And then can you talk about the pool dealer engagement model, what precisely you're kind of doing there?

Yes. I mean our pool dealers are the heart, blood of our pool business. I mean the brand affiliations, we understand them as private business owners who are subcontractors to builders, their reputations on the line with every customer build. They rely on us.

And then one of the things that I don't think people really understand or appreciate is we've got 150 infield specialists that are technology savvy that work with our key dealers and make sure they're side by side with them on buckets on jobs and fixing challenges and problems. And that's been a really value-add to us. We do that at our cost embedded in our margins, and we help that dealer be successful when there's something technical that they can't figure out.

And then we honor, if our products aren't living up to their expectations, we honor that with dealer swap-outs at our cost. Because this is a sell the product industry. It's not a repair the product industry. And what I mean by that is they're not looking to repair a pump, they're not looking to repair a heater, they're going to sell it, they're going to get the margins. So if the product doesn't work, we take the product back within the warranty period, and we let them have full margins on a new install, which has always been the stickiness that we create with dealers.

And again, that's all embedded in our margin profile and embedded in our cost model. And I think those are hard hills to climb, if you're our competition to get that capability and have that capability in the field and also absorb that cost on behalf of your dealers, which is why even when we tend to lose a dealer we tend to get that dealer back in a year or 2 time frame because they realize the value of that customer service model.

Yes. And just to double-click on that, too. When we talk about the investments in pool, for clarity, it's not just investments in products and NPD. It's investments in new customer service centers, new dealer centers, new servicing capabilities so that we bring in these dealers, train them on how to use our automation, how to use our technology how to use our products and service it well, and that relationship with the dealers is extremely valued, and it brings a lot of stickiness to the Pentair brand with those dealers who are interacting with the end customer.

And then just to be clear on the pool pad and kind of the whole value of that pool pad. On the replacement side and in the aftermarket, if you will, I mean, like there's -- it's pretty rare for them to replace the entire pad. Is that correct? It's usually something. It's usually product by product, right? So just to be clear on that.

And I haven't really heard of repair as much of a factor in this industry, I mean with HVAC, it is because it's a unit that sits outside and you can put a compressor or a motor or something in it. How prevalent is really repair in your in pool?

It doesn't tend to be the choice because of exactly what you said. Products tend to break at different times because they're putting their -- they run an independently as they combine to make a system, but they're independent products. And so they're generally swapped out. They're not usually repaired. You might see some repairs and heaters and certainly the high end heaters at the cost. But again, those are going to be unique products to the original equipment manufacturers. So our two equipment manufacturing competitors will have their own product specs in there, and we'll have our own product specs. So they tend to be our parts that are purchased to do that. And obviously, there's margins that are pretty high there, and then you've got labor dollars that go into it. So sometimes swapping it out is just a better answer.

And just remind us, as of the end of last year, how much of your business is new and then how much is remodel and how much is aftermarket of the pool business.

Yes, it's about 70% of the business is going through aftermarket. A little over 70%.

Got it. And most of that is like I mean we call it remodel, but most of that is like replacement, just basic replacement of parts, okay, of the parts of the pool pad.

I have to ask about competition. There's been some discussion about lower end products coming in from China. Maybe if you could just address how you guys are defending your pretty strong moat.

Do you mind I would just say new entrants, Chinese or otherwise is not new to the pool industry. This has been going on years. And we've been able to demonstrate the ability to take price, deliver innovative products and leverage our brand for a very long time with those entrants coming and going over the years.

And so certainly, there are new entrants, but our ability and our relationships with our distributors and with our dealers remains really strong, and our pipeline of innovation is stronger than it, even was just over the last couple of years.

So I think we feel good about our position in the market. Does that mean we're like high-end mighty on our ivory tower and saying no one is going to touch us, absolutely not. Like we have to continue to get better. We have to continue to innovate, and we have to continue to be a more valued provider to our distributors and our dealers, but we've demonstrated the ability to do that, and we think we're going to continue to do that.

And can you address it more specifically like where you're seeing it today? And then what kind of scale and size are these guys coming it at because to your point, it's not new, and this isn't billions of dollars here. We're talking, I think, low millions of like very, very low millions of dollars. So maybe just a little more.

Yes. Just to make sure everybody understands the pool business model really quickly is embedded in our net sales. So we sell on a gross basis, we have that. Think about close to very high teens, what we'd call discount and rebates that we pass along to the channel. Those rebates go to distribution for the amount of volume that they sell.

And then -- so we sell the old distribution at the same dollar basis and then we discount them at the end of the year based upon the amount of revenue that they move through the channel.

Dealers are incentivized the same way. So when dealers buy from whatever distributor they buy from they're going to get a rebate from Pentair.

So the large builder side generally is always affiliated with an OEM brand, and it's very sticky because missing out on your rebates would be a loss in margin perspective.

Where the potential risk is in the replacement cycle to these competitors that we talk about is on a service tech who might not be affiliated with any brand. They're generally there for the water chemistry, maintenance of the pool, and they'll see an equipment that goes down and then they're going to make a decision how to replace the equipment. Those are where the challenges could be. That's probably a nonautomated pool. And it's probably an aged pool and it's probably a family that doesn't use the pool very often.

And so we've always said that we expected and we have seen about $10 million to $15 million of what I would say, decremental share loss in an aftermarket pad, to what we'd say a lesser like-for-like product would be primarily on filters and now rumored to be maybe on lower-end pumps.

I think the differential between the price of that competitive product to the consumer and ours or the margin to the dealer doesn't warrant the dealer to switch. And so we got to continue to fight from a standpoint of technology, proving the brand loyalty out and making sure we stay on our toes.

And your total pool sales remind us last year?

Close to $1.6 billion, $1.5 billion. billion. Yes. Yes. So it seems like a point like.

Yes, like not that huge of an issue. But thanks for all the color on that.

Can we move to Water Solutions and just talk about the main end markets there and what you're seeing from a demand perspective?

Yes, you've got partial residential through our water quality management business so that you can think of that as point-of-use filtration, point-of-entry filtration for the home, some pumps, well pumps, things like that.

And then we've got our commercial water business, which includes our Everpure brand, so you go to drive-thru and you get your diet coke, it's probably filtered by Everpure for water, and it probably has Manitowoc Ice in the cup. So you've got both Everpure and Manitowoc. Both of those end markets been a bit challenged the last couple of years from a fast food, fast service industry perspective.

You've also seen a little bit of a pivot into more of these like gas stations where people are going there instead of a McDonald's or potentially a Starbucks, somebody like that for their beverage or for a snack. And we've got a really great entry into those more convenience centers with our Manitowoc and our Everpure brands. So we feel pretty good about where those two businesses sit going into 2026.

And I guess from a...

Return to growth and they're both at healthy profitability.

Right I was going to get to the margins. You know, might as well touch on the margin. So your margin construct for the longer-term outlook is really pool very high level, but still improving just not as much as the others. This one has some pretty robust margin expansion dialed in. Maybe talk about the visibility around that and what the drivers are?

Yes, driver for the commercial side of the Water Solutions business on margin would be through volume. So as that volume grows to drop through is really healthy, around 40%. And then you have the Water Quality Management business, and that business has a lot of structural cost opportunity remaining within it as we've brought the residential pieces of water together. And so you can think about it, it's about $1 billion of revenue, but it has an oversized portion of our labor and overhead costs and G&A.

And so as we're getting after that structural cost opportunity, that drives margin improvement Water Quality Management, and we expect that to be the most robust margin profile enhancement over the next couple of years.

And as far as the growth is concerned, I mean, it's been a bit disappointing in the last couple of years. Obviously, you mentioned those markets that are down. Is there any visibility to any catalysts that make you confident -- give you confidence that you can accelerate from this, I don't know, flat kind of volume to down volume to something...

Product in part with the commercial water business. We've had some really good innovations with our NEO offering, with the refrigerant changeover coming for the commercial ICE business. And we think we're ahead of the curve on a lot of that, and we're starting to see some of that read out in that business. So we're really excited about the products, our relationship with our dealers in the commercial water space that gives us a bit of confidence to see some organic growth there.

We also grew the North American business last year despite the noise around quick-serve restaurants. We still grew like 3% to 4% from a volume perspective. The challenge has been the international and primarily China, and we've now got that to what I would say is a plateaued level where we don't see that those headwinds are going to affect the overall optics of the growth rates of the commercial water business going forward.

How big is China now for that business?

For that business, it's probably $30 million, $40 million in revenue.

But that's pretty...

But we saw a huge load-in '23-'24 time frame for luck-in China that took us almost double of that, and then it came back down because that was a big project fulfilled. And that type of lumpiness is behind us now, and you can see more of the organic growth profile of this business.

I'm not really a thematic guy, but when you think about these quick-serve restaurants and there could be new formats and more automation. Is that at all an influence on your business?

Yes. All that just drives any type of change drives demand. And obviously, the beverages -- or I shouldn't say obviously, and you guys probably know this, but beverage is the most profitable part of a restaurant's P&L. And so the beverage is what they're always trying to push on you. And ultimately, that's where ICE and our filtration plays.

As Nick mentioned, the part that we need to get a deeper amount of share is in the convenience stores, which is the gas stations and the quick serve convenience model. Those are becoming a growing stop and replenishment aspect, and that's a huge opportunity for Pentair and Manitowoc and Everpure.

And then on the flow side, maybe the demand drivers there and what you're excited about on that front?

Yes. The first thing I'll mention is the U.S. infrastructure had a design life of 60 to 70 years and the average design -- excuse me, the average age of the water infrastructure now is north of 70 years. And so when you think about our commercial pump offerings, whether it be water supply, water disposal, or insertion valve technology through the Hydra-Stop acquisition, those specific businesses are well positioned to take advantage of that aged infrastructure, the repair and replace cycles that were already -- we've seen an uptick in that last half of last year and it's starting to read out again this year.

So that aged infrastructure is going to be a nice tailwind for us. We have really proprietary sustainable process technology, sustainable gas technologies that are being leveraged across Europe that utilize our filtration technologies, our carbon recapture technologies. Those have been nice tailwinds. And then as you see in the food and beverage space, there's a move from really consumption of beer to consumption of other alternative carbonated, sometimes alcoholic beverages. And those end markets, the OEMs that are creating those beverages, they can't use the same line for a beer process as an alternative carbonated beverage. So as they put those lines in, our technology is there, and we're a good partner to them. So those are some of the end market, I think, tailwinds that I think...

There was an inflection in that market last night. A little it to...

Thank you for your home for helping us.

A little bit too late, just a blip. And as far as the margins there, that is another segment that has a pretty robust margin outlook. I know there is some -- perhaps some G&A and transformation benefits here, maybe.

That's right. continued structural cost opportunities. That business done a fantastic job of delivering the margin expansion even with modest growth, and we see that trajectory continuing. And we've got a pretty good pipeline both in sourcing and in the facility consolidation operational opportunities while we continue to drive the growth in that business.

The other thing I'll mention, Steve, I think Flow has done a really good job moving from being more project-based to having aftermarket pull-through built into the products that they provide to those OEMs. So it's not a one and done. We may sell and upgrade to food and beverage, but then they're going to continue to buy the technologies and the products go with that initial capital install, whether it be through the carbonation part, the filtration part or the sustainable gas part.

Okay. Moving to the margin side, just on price. I know that you talked a little bit about the incremental competition and some investments in pool, pool has always been a good price capture market. I think the average over time has been about 2% net realized. You guys went to like as high as double digit during COVID. Even with all this kind of noise, is this still a 2% type price capture market in pool?

We think so, yes.

Okay. And how do you guys think about price cost? Any risk on the inflationary side? And then how do you manage that? Just remind people how you manage that on an annual basis?

Yes. We actively manage the price cost. But I think as importantly, perhaps is we've got value-based pricing tools through our transformation and Pentair Business System toolkit that we deployed across the enterprise.

And so our teams don't just look at price cost. Obviously, it's an important indicator for sure. But we're also working closely with customers and with the channel to understand that real value that's delivered so that we're doing value-based as well.

And any risk around inflation here this year? You feel pretty good about being able to offset?

Nothing beyond what's already in the guide.

Okay. And then just from an 80/20 perspective, like where are you -- how far are you down this journey and where are you going to...

Early stages. Okay. But Nick, you can -- you lead it, so why don't you go ahead? .

It's never -- 80/20 is never over, right? Like a good 80/20 process constantly looking at your portfolio, your footprint and you're deploying the tools of 80/20. But I would say that with that, the exits in the portfolio due to 80/20 are behind us. We feel good about portfolio we have now, both from a product rationalization and a portfolio rationalization perspective. And so we're driving 80/20 to continue to gain efficiencies, but we don't expect to have headwinds from a volume perspective that we did over the last few years because of the 80/20 exits.

Okay. So you're on your front foot on that and get some benefits less revenue slippage.

That's right, leaning hard into Quad 1 within some of the businesses, and we talked about at Investor Day, we have businesses that are prime for the Quad 1 growth based on where they're at with the key ratio, looking at the material margin versus spend. Those businesses are front foot leaning in Quad 1 growth.

And then we have other pockets that are more optimized. But again, that's not exit. It's more around the footprint, getting our processes and our SIOP ready provide that premium Quad 1 customer experience that we're developing and working through.

And then when we launched it, as I said, we didn't have -- when we launched transformation, primarily the sourcing piece transformation, we had not yet implemented 80/20, there's this huge opportunity to utilize the combination of 80/20 and sourcing again, primarily around those AAs and the upper Quad-1 to go out again and benefit from the sourcing or create, make versus buy strategic opportunities for Pentair. So I'm excited by that because that's a whole another wave that we would add to the transformation cycle.

Any updates on tariffs from recent news at all?

I haven't checked my Twitter, so I'm not sure that I have anything all that up to date.

But I mean, the latest round would provide a slight benefit to the second half of the year. Mostly, everything is locked in for the first half of the year, and we're not going to have to give back pricing or anything in our industries related to that adjustment or change. So we're slightly benefiting from that.

We probably got a slight headwind on oil and what it could do to the second half on freight and things of that nature. And so net-net, we're still in a pretty good position, but wait and see with what's going to happen with the 301 investigations and what that could add back.

Feel good about the pricing model though, again, 75% going through distribution, we would take the same tools we used in the past, and we would pass those tariffs or increased tariffs back through the industries that we play in.

And just to kind of back up a little bit, I mean, the 100 bps of margin expansion per year is the target and that's a pretty good one that gets you to high single-digit operating profit growth over the next couple of years, which I think is differentiated.

And we have a lot of cash.

Yes. One last one. Great segue. Capital allocation with maybe tell everybody that you're just going to buy back a ton of stock, and then we'll spend 10 seconds on acquisitions.

Go ahead. Go ahead. I don't know that I can tell everyone that we're going to buy a bunch of stock. But what I can tell you is we're going disciplined in looking at the capital allocation opportunities. We're going to be potentially 1x levered by the end of the year. We throw off a lot of cash, about 100% free cash flow conversion from net income. We're going to be opportunistic and strategic in the buybacks and compare any M&A deal to the value that could be created for shareholders through the buybacks. And we like the optionality that we have the year.

Yes, the stock really is like officially cheap. And I think you guys you do not get the credit for the cash conversion. Nobody everybody is mucked up their numbers adjustment wise, and nobody is really converting it 100% anymore. So your cash yield is also very attractive.

Till haven't found a way to do adjusted cash yet. Steve, so...

No, no, they haven't.

That's interesting. I look at cash is cash, and I do think that it's going to be hard for an acquisition right now to outpace the hurdle rate of what biometric stock would do. Yes, that's the way I look at it. .

Yes. Well, we're -- we think it's a cheap stock, and we're recommending it. So we were talking last night about I think you've been CEO now for 8 years, and there's definitely been a lot of change in my sector. So you're definitely one of the more tenured guys. So congrats on the run and keep it going, and thanks for joining us.

Appreciate it. Thanks Steve.

Thank you.

Please welcome to the stage, Vice President, Investor Relations, Shelly Hubbard.

Good morning, everyone, and welcome to Pentair's Investor Day 2026. Thank you for joining us today. I'm Shelly Hubbard, Vice President and Head of Investor Relations at Pentair. Before we begin, I'd like to note that today's discussions will include forward-looking statements and references to certain non-GAAP financial measures. These statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the disclosure statements included in today's presentation materials and our SEC filings for additional information.

2 years ago, at our last Investor Day, we outlined a series of commitments to drive shareholder value. Since then, we've made significant progress executing against those priorities, strengthening the quality of our portfolio, improving operational performance and enhancing our results. Today is an opportunity to share with you what we have delivered along the way and discuss how these efforts position Pentair for its next phase of value creation.

I'm excited to have members of our executive leadership team with us today to walk you through that progress and discuss where we are headed next. You will hear from our President and CEO, John Stauch; our Chief Strategy, Innovation and Digital Officer, Adrian Chiu; our President of Flow & Water Solutions, Demon Wiggins; our CEO of Pool, Jerome Pedretti; the President and Chief Revenue Officer of Pool, Greg Claffey; and our Chief Financial Officer, Nick Brazis.

We plan to take a 15-minute break around 10:25 a.m. following Demon's presentation. We expect to reconvene around 10:40 a.m. with Jerome, Greg's and Nick's presentations, followed by Q&A. We will conclude at 12 noon Eastern. For those attending the event with us today, we invite you to join us for a management lunch and to peruse the new product innovation we have displayed out in the fire. Thanks again for joining us.

I will now hand it over to John Stauch, President and CEO.

Please welcome to the stage Pentair President and Chief Executive Officer, John Stauch.

I want here twice. Well, thanks for joining us today. I'm really excited to share with you an update. I want you to view today's presentation as an update against what we told you in 2024. Not a lot of what we're going to share with you is new. But I think what's exciting is we're entering a new phase where I think we're going to be able to give you both organic growth and productivity while continue to drive margins and drive organic growth in a way that starts to accelerate profitability.

Our key messages today would be that we have a balanced water portfolio that has delivered it's pure value. One of the things I want to talk to you about today, and you should hear throughout the presentation, is that we're structurally better today than we were 2 years ago when we shared with you our investor outlook. I believe we've improved margins through the down cycle. So we've improved the overall company profitability profile, and we're poised to return to leveraging that opportunity and dropping through a lot of organic growth at higher profit margins because of the work we've done over the last couple of years.

Innovation and elite customer experience are expected to accelerate growth because of some of the challenges we've experienced in the headwinds on the North American residential market, which I'll share with you today, you haven't seen all this evidence. All we need is a flattening of that growth profile, which we think we'll see in 2016. And you'll start to see the Quad 1 efforts of 80/20 readout, but you'll also see the benefits from innovation and the hard work we've done to make sure that our dealers get the type of service and elite treatment that they deserve.

Profitable growth and operational efficiencies, we want both. We've spent arguably a little bit more time on the transformational part while we cleaned up a little bit of the portfolio. But as I mentioned earlier, you're going to see throughout the presentation today, those pockets we're getting both and the value that it's bringing to shareowners. And the one thing I think we're extremely undervalued with as a company is the amount of cash flow we generate and that cash flow being put to good uses, both in organic investments but also smart disciplined capital allocation. We plan to develop -- deliver a lot more cash flow over this profile, and we'll share with you what we plan to do with that and how it can add value.

I'm grateful to lead this company. We're in our 60th year. So imagine 60 years ago, 5 people getting together and deciding they were going to do air research balloons and turn that in a public company. Yes. That was their vision. We're a lot of different company today, add the nVent spin, which happened roughly 8 years ago to that, I think we delivered a ton of value for our shareholders, which was their ultimate goal is how do we put companies together, how do we run more effectively and how do we continue to deliver for shareholders. You can see I'm also proud in the middle there of a mid-teens ROIC and our industry-leading profitability in ROS.

Now I got to hold microphone for online. We also are seeing 50 years of dividend raises. So I've only been here about 20 years of that 50, but I'm proud I didn't screw that history up. And this marks our 50th straight year and puts us in dividend King status. I think you as a shareowner to take a look at that and really reflect on the fact that we are committed to shareowner value. We've always been investment grade. We like the flexibility that provides and it gives us the ability to do either buyback or to make good bolt-on strategic acquisitions if we find that they'll create longer-term value as well. Our balance sheet is stronger than when we talked to you 2 years ago. and we're well positioned to give ourselves the flexibility to compound what we think we can do in the base case and create that shareowner value creation method.

I want to talk a moment about a slide you spend a lot of time internally on, which I think also reflects externally where we are. First of all, we're really sure and confident that our purpose defines us. Nowadays with all the VUCA in the world, all the volatility, uncertainty, complexity, ambiguity, our people get up every day and they have to feel committed to what they're trying to accomplish.

We're committed to our purpose. We believe that we need an organization that guides us, we'll talk a little bit about the tweaks we made in the organization. It was really about combining the channel opportunities of 2 residential businesses that need to be where the growth is going to be versus where it was in the past. Our productivity propels us, not just because it provides shareowner value, but it also enriches our opportunity to invest wisely in strategic growth inside of our businesses.

And finally, we believe our culture can distinguish us. Our culture of always putting shareowners first, delivering for customers, creating value for shareowners, but also being more obsessed with how we can please and delight our customers so that we can have sustained predictable growth in the future.

Here's the team. It is a new, lean, high energy focused team. The thing I'm most proud about this team is it's mostly internally promoted even Lance only left for a year and then came back to be our new GC. So I think when you build the team internally, you're building a shared understanding and culture and allows you to work more effectively with the organization to drive value. We all believe in the Pentair business system, and we all believe in delivering value for our customers and our shareowners.

We still operate in 3 segments. That has not changed. We changed a little bit of what the segment alignment is, and we'll take you a click deeper with that today, so you can have the understanding of how to adjust your models and why we did that. And we're in great spaces. When I joined the company back in 2007, I was wondering if water was a hobby or a business model. Most of the projects that we were working on were in Africa, Honduras. We weren't getting paid for it, and we were demonstrating the types of value that we could add through the systems and technologies we had.

Today, water and energy at the nexus of everything we do. And with the data center drivers and communities water becomes a very big part of that. They're consumers of water, but they're also consumers of energy. And we have to be able to produce water and energy efficient ways. And so we've got a lot of discussions going on in our business about how do we add value in the future and we're really excited about those solutions we can bring to customers at. These are big growing markets. We play in a part of these markets, and we have the opportunity to really make sure that our products and technologies stand out against competition.

I want to take a moment and just talk about our key industry, which is U.S. residential. We call it North America, but let's be honest, most of it is in the U.S. You can see on the far left side of the slide, we've mapped out housing starts in the U.S. and also pool builds in the U.S. And what I want you to take away from this particular chart is this concept that while we talk about cyclicality of industries, I want you to think about how we're making our businesses structurally better but we're also making them durable. If we can produce the types of margins that we have at the bottom of the cycle, think about what we can do if these markets just flatten, which is our expectation for '26 or if they recover which is what we think will happen in the strategic horizon that we're talking to you about.

I want to talk briefly about what our focus strategy has been. It's been about focusing on the core. When we think about that, think about our Quad 1 revenue, we're an 80/20 company. So our Quad 1 is why most people did business with us in the first place. And underlying is that in most of our businesses, we're getting double-digit growth in that Quad 1 as we're exiting the Quad 4 complexity in our organizations. We're pursuing a few targeted initiatives. I'll talk to you about a couple of them towards the end of my presentation, Adrian will reintroduce them, and Demon and Jerome will talk about how they fit our business models.

But ultimately, that investment has been focused. It's been based upon large strategic discussions we've had with our board and ourselves and in some cases, about changing the dynamics of how we go to market and how do we make sure that we keep the profitability, the channels to market aligned with the value that we want to bring. We're executing transformation.

I told you earlier that I wished I had started with 80/20 first in Transformation second. I said that in 2024. I'm not going to walk back from that statement. But I'm going to tell you because we had transformation laid out and the clear definition of the playbooks we had, 80/20s moved quickly from acknowledging the reality of what we need to do to using the transformation playbook to drive value, and that's evidenced by both our margins that we've delivered and the future profitability that we're confident that we can continue to deliver on.

And our balance sheet is strong. We don't use a lot of capital. We generate a lot of cash. We're not optimizing where we are in cash flow yet. We're still holding on to a little bit more inventory than I would like. Most of that inventory is because we've been dealing with tariffs or supply chain disruptions caused by tariffs and we ultimately are still spending money to drive transformation. When those 2 headwinds are gone, you're going to see even a greater earning power in our cash flow as we move forward.

And here's how we've done since 2017, really '18 was the first year that we became a water company. We put up some pretty good numbers over that horizon. And I say we've done that despite the fact of having peak markets in that -- or what felt like peak markets in 2021 and now where we sit in 2026 against those deliverables. I wouldn't listen to what we said we're going to do over the next 3 years, and we didn't tell you how we did against the last couple of years. So I'm proud to announce that in against our metrics in 2024, and I'm sure you guys have all done the math and the checks on the data that we've shared with you today. We've achieved most of those milestones. We have come short on our revenue forecast, which we will share with you the dimensions of why. And we'll try to share with you why we have confidence that we can accelerate performance from here.

Here's how we win across the 3 segments. The one takeaway that I want you to really focus on is that our business model for 75% of what we do is we sell into channel partners, distributors, who then sell into professional dealers who align with brands and then ultimately, they go to consumers and serve their particular needs. Where we don't do that, we work with specifiers that need the power of those brands to work with industries on proven technologies and solutions for what they do. Our brands matter, our promises behind those brands matter and how we stand behind our individual business people matters. And that's ultimately how we continue to create that elite level of service to those dealers, and they trust us every single day they put their business models on the line between our products, brands and our technologies.

I wanted to show you intentionally the businesses below the businesses today. And hopefully, you use that in a positive conversation with me as we spend more time together, and you don't beat me up with it. But my goal there was to show you that separate from pool, which is on the left, that goes to market as a 1 scale business with all their products going through the same similar channel. And the rest of our businesses, we have key brands and key revenue streams that have to win at that point in the market where they serve their customer. So that brand matters, that general manager leads those businesses, leads quality salespeople, quality technology leaders, quality marketing leaders and in some cases, even drive operations. This has been become important as we try to empower our businesses and realize that not all the businesses are the same journey and transformation and that standard work doesn't necessarily apply anymore to building out these business models to accelerate growth.

So I'm not going to go through these businesses, Jerome and Demon will capture that later in the presentation. But I did want to set them up for you. We stacked the revenue. Now I'm aware that you could take a ruler and probably get the precision around that. But you'll probably do that when you leave this room, some of you on the call might have already done that. That's okay. It's directionally where I want you to take away. We wanted you to see the margin profiles of these businesses show you the value that we think has been created since we stood here in 2019 and '19 is the last period that you can point to before COVID and before some of these challenges that we've had. So we think it's a good marking point. And we've set the charts up to why we win, why we think we have the right technologies to participate.

The key industry to main is the aligned deliverables that we think we need to absolutely work with our customers and dealers to win to be able to grow the TAMs in these businesses and then ultimately take share, and you'll see the key growth actions talked about later today. So we have that for all 4 of the businesses. And as I said, Jerome and Demon will spend a little bit more time on those slides later.

All right. Here's what I think the growth priorities are that I want you to take away. First and foremost, our biggest business inside of Pentair, still in the leading position despite what some of you guys hear from rumors is our pool business. And where we think the long-term growth is going to come from is our ability to flip the 5.4 million in-ground pools that are mostly nonautomated into an automated feature set. Don't think of automation as control. Think of automation as being able to run your pool, optimizing energy usage, optimizing water usage and also having it at your desired specifications for water quality. The ability to automate those pools eases the way that service works. It also eases the work that an installer needs to and also provides peace of mind to the end consumer.

We believe by focusing on filtration ice expansion and expanding. You saw some of our dispense units out there today. And then ultimately, in the residential utility room, North American plumber, that's the combination of RWT coming together for Water Solutions with R&I and having a more scaled line card offering to the North American plumber, we need to be where the market is today, not where it was 10, 15 years ago when it was more of a specialty business. and then ultimately, making sure we bring more content and specify ourselves into the buildings to benefit from the specified aspect of the products that we serve.

PBS is working. Hopefully, you're getting a sense that it isn't just the margin expansions, but it's the processes and the sustainability of how we can use those tools in tariff applications and the unique supply chain challenges. We are using these tools to better Pentair and deliver for share owners despite the volatility that we're dealing with. Our productivity is propelling us, as I said, we're delivering to our expectations. We're driving sustained value. And I want to hit this head on in my section right now, we are a long way from finished. We have 2 businesses that are best-in-class, which is Pool and CWS, which are going to continue to expand margins as they grow. But ultimately, we have 2 businesses that still have a lot of complexity inside of Pentair, and we need to continue to drive that complexity out to fund growth elsewhere, but also to make sure that we continue to deliver for shareowners, that margin expansion.

I want to talk to you about a little bit about cultural guiding principles. We are a public company. We always work on fiscal years. So everybody assumes that everything gets done on January 1. That's generally how budgets are built. And we've had to spend a lot of time talking about the word sequencing, right? So even within a year, you might start something in Q1. We need you to finish it before you start something else later in the year. That concept of sequencing is a big part of 80/20. Maybe it's really important. But what is the one thing you're going to do today that's going to make the biggest impact, then we'll get to the next thing that you want to accomplish and do.

Ultimately, we need engaged employees. We do engagement surveys. Quite frankly, the last organizational tweak we made was based upon listening to their employees. Our employees did not feel they had the speed or agility to get certain things done. And so combining businesses together removing barriers of execution, removing management layers provides the speed that our customers need, and it's all part of empowerment.

I want to spend just a minute on this slide because I think this is a tool that has served us well and will continue to serve us well. So Tanya Hooper, my CHRO, recommended that we as a leadership team 2 years ago, go to the Thayer Institute at West Point. I thought, okay, it's just another training exercise that will be interesting and it was fundamentally game-changing in the way we lead as an organization. Leaders like me should spend times on why's and what's, not how's. We were a standard work company built from Lean still works really effectively in a factory, but not all our business is at the same stage of the transformation journey. What we have the ability to do with this tool is to empower people to serve customers and deliver value by using the tools at different stages of where they are in their journey, but also by reacting quickly to optionality that we might have not thought about ourselves.

Huge impact on the way we've handled tariffs, the way we've handled COVID as a company, a big piece of how we deliver transformation and more importantly, the big piece of how we're going to drive organic growth over the period that we're talking to you about. You'll see the technology that cuts across our portfolio, bigger themes that I think you knew. And we're starting to really get excited about how we're sharing that technology and how we're bringing that technology into future innovations. Adrian will spend more time on this chart.

I think if you were looking at 1 chart in my presentation, I saw a few of you looking at it. This is the algorithm that we think will drive future value. You can see how by business, we're looking at the growth rates and the top line growth rates. You'll also see how we think the margin expansion continues to unfold between now and 2028. The main point I want you to take away from this is that ultimately, we're not counting on market recovery. I didn't have a crystal ball to figure out how to put it back. And quite frankly, when it comes, I don't think it's going to come in 1 to 2-point increments. I think it's going to come roaring back sometime in '27, '28 or '29 time period. So I didn't have the ability to capture that. And it doesn't yet include capital allocation and Nick will spend more time with you in his section.

So here are the takeaways I want you to take away from my presentation, more balanced contribution of growth plus productivity, the ability to still create shareowner value through transformation. All of it focused in 2 businesses and primarily most of it focused on 2 businesses and that it doesn't yet assume U.S. residential recovery and the use of capital allocation or those 4 large innovation projects that I showed you. Thank you.

Please welcome to the stage EVP and Chief Strategy, Innovation and Digital Officer, Adrian Chiu.

All right. Good morning. My name is Adrian Chiu. I'm Pentair's Chief Strategy Innovation and Digital Officer. Today, I'm going to be talking to you about 4 main themes. First, the world's water challenges are evolving. The water needs of today require new solutions that add to our growing industry and expand the total addressable market. Second, Pentair's broad and deep portfolio of businesses make us uniquely well positioned to address those challenges, creating opportunities for long-term organic growth and shareholder value creation.

Third, we're elevating our capabilities across the company to deliver value through strategic clarity innovation and digital. And finally, we have an exciting pipeline of innovation projects underway that will create new revenue streams and allow us to lead for our customers and shareholders.

I'm excited to step into this new role at Pentair, which brings strategy, innovation and digital under 1 roof. We recognize that change is happening fast. And that's why we believe an integrated and aligned view of our growth priorities innovation and customer-first digital solutions provide a strong framework for future value creation. I bring the experience that I've gained from corporate leadership roles at Pentair and my time as one of the segment presidents in our businesses to this position. emphasizing the P&L mindset and a customer-first approach. I also look forward to working closely with my friends, Jerome and Demon and helping their businesses grow and create value.

So how does this come together? Our strategy teams focused on defining clear growth priorities and M&A funnels that create long-term value. Our innovation teams act as technology and business incubators that unlock new revenue streams. And finally, we're taking a customer-first approach to digital and AI to differentiate our products and business models.

At Pentair, we recognize that water is life's most essential resource and more and more -- we also recognize we need to protect this precious commodity differently. Water covers 71% of the planet, yet very little of it is accessible and the water that is accessible requires care. What's in our water has changed. What used to be concerns about contaminants that are organic content is now concerns of man-made content, which is even harder to treat. For example, 45% of U.S. tap water is at risk of containing PFAS.

Our water infrastructure is also aging, which means that we're losing significant amounts of water every single day. And the water that's treated centrally is not the same as the water that arrives in our homes and businesses. And as John talked about, our need for water continues to increase, so we must use this water responsibly. Modern water problems require modern solutions.

This is why I'm so proud to be a part of Pentair. With 12 businesses across the segments, we have one of the broadest and deepest portfolios of water businesses in the world that solve residential, commercial and industrial water needs. Our technologies, our experience and our people make us uniquely advantaged to win. These capabilities are why I'm so confident that not only will we be able to lead in our industries, but we also are well positioned to deliver above-market growth. So I'm going to walk you through 4 areas on exactly what we're doing to drive that growth.

First, Pool. Pool is an amazing business. And industry trends provide us even with more opportunity ahead. We expect that lifestyle trends in outdoor and wellness will continue. There are 5.4 million pools in the U.S., much of that aging that gives us enormous opportunities to upgrade and replace equipment. And as residential recovers, we have even more upside. Now we've been a leader for Pool for a long time. Pentair has the largest dealer network in the industry. We have an incredibly large installed base, and we maintain leadership in innovation and new products introduced every year.

Our focus to grow mid-single digits is to provide the best premium pool experience possible. That gives us further opportunity to expand the value of the pool and grow the TAM. We're changing the perception of the pool pad from individual pool equipment to an integrated connected pool experience. This elevates the value of the Pool for the homeowner for our servicers and builders and for Pentair.

In Commercial Water Solutions, we have 2 incredibly well-known brands, the Manitowoc Ice and Everpure. These brands have been industry leaders for a long time and are both well known for innovation and quality. The Manitowoc acquisition in '22 changed our footprint in foodservice. As Demon will talk about later. We've been incredibly happy with the integration and the synergies that we've captured. Ice and high-quality water are critical for restaurant owners. Coffee and beverages continue to drive high-margin sales and profitability for businesses. So we continue to be confident about the upside in commercial water because commercial operators need our equipment to be successful. And we have even more places to grow in the industry and more products and innovation that gives us confidence in mid-single-digit growth over the long term.

In commercial buildings, we've also been in the industry for a long time. We provide water where we need it and when we need it. There are nearly 6 million commercial buildings in the U.S. that use nearly 11 million gallons of water a day. And as water challenges continue to evolve, water systems and buildings will require more decentralized technologies, more automation and better energy-efficient products. Our capabilities, relationships, growth priorities, they're expected to deliver mid-single-digit growth in the long term, and we have further opportunities to expand our offerings through portfolio adds and connected automated technologies.

And as John talked about, we just recently brought together 2 of our businesses in residential, water supply and disposal pumps and water treatment and filtration. The reason why we did this is we believe that there's opportunity here. There are roughly 23 million private wells in the U.S. Studies have shown that 1 in 5 contained contaminants above benchmark levels, which means we have an opportunity to help support our channels.

Our strategy in the residential space is to drive synergies in the residential professional trade channel, giving them products and solutions that homeowners need and want. We'll be growing our filtration business in these channels and expanding our capabilities to provide full suite of water management solutions for the home.

Now what gives me confidence in our ability to grow is our global scale and the investments that we've made in technology, our innovation centers, R&D labs, certified water labs and even our customer-first experience centers create a unique advantage in developing new solutions. This is why I'm so proud of the hundreds of employees around the world that go to work every single day to define the future of water. As John talked about, we have 12 businesses and 3 reporting segments, but you also see common technology platforms. We've got $1.5 billion in pumps, $1.3 billion in filtration and separation, $800 million in heating and cooling, and while the end application may be different, these share technologies uniquely differentiate us by allowing us to come up with new breakthrough innovation ideas. And I'll give you a couple of these examples later on.

We brought real focus on sustainability in '21 when we came out with some pretty meaningful targets. We were happy to have achieved those in 2024. And last year, we extended them even further. Now our focus really is about taking what we've learned internally and then helping our customers achieve their sustainability goals through energy, water, material efficiency. All right. So let me give you a few examples on what we're doing in innovation.

First, we'll begin with the Xcentric Impeller. This showcase and demonstrates how we can innovate in a 200-year-old brand. We first highlighted this product in 2024, and we've been proud of the progress we've made. It's a breakthrough revolutionary award-winning design change that changes the game for wastewater pumps. This allows more solid pass-through results and less operational challenges, has improved energy efficiency. This pump decreases the total cost of ownership for customers while also being more sustainable. Since our initial launch in Europe, we've been really happy with the positive sales results, and we look forward to seeing this in the U.S. later on this year.

This is a great example of leveraging technologies across the company to create innovative solutions in Pool. Pool filtration is one of the last pieces of the Pool pad to be truly connected and here, we are leveraging our membrane technologies and flow and our experience with IoT sensors to create a breakthrough product. This reimagines how water quality can be addressed in the Pool because Pool owners look at unmatched clarity that not only elevates how a Pool looks and feels, but also addresses water quality challenges like bacteria and viruses. We're capturing growth in the high-end luxury market. This product will expand the value of the Pool and enable aftermarket and recurring sales through ongoing Pool filtration maintenance. Again, sharing different parts of our business to create value.

Okay. For my next innovation initiative, I'd like to play a short video on what we're doing differently to transform water in our homes.

[Presentation]

All right. Introducing Naia by Everpure Home, a brand-new all-in-one water appliance from Pentair. We debuted this product for the very first time just a few weeks ago at the International Builder Show in Orlando and we'll be shipping and installing this product later this year. And I need to tell you the response has been incredible. Builders are telling us that they've never seen anything thing like this before. Naia by Everpure Home redefines how water is experienced in the home by leveraging the best of Pentair technologies. The system is built with proprietary filtration from our commercial water business, leverages our membrane experience out of our flow business, utilizes pumps and controls out of our water quality management business because innovation isn't just about technology, it's also about application.

Our vision for Everpure Home is simple. We believe that water is life's most essential resource and that every home should be built with the best water system possible. Our goal is to turn water from an afterthought into an integrated part of the home. The system is smart. It removes hardness without the use of salt-based water systems. It's connected. It has leak detection and it gives high-quality balanced pH water out of every tab. We're also innovating in our path to market, starting with luxury homes. This gives us an ability to sell a product that's 3x to 5x [ x ] the high-end water systems that already exist today. We intend to expand the total addressable market for residential water and create new recurring revenue streams for Pentair and servicers. I really couldn't be more proud of this launch, and congratulations to the entire Everpure Home team.

My next case study shows that how innovation can be also about business model innovation and the power of partnerships in creating new markets. We were first introduced to HOPE Hydration, a start-up out of Miami just a couple of years ago, and their vision was clear. How do you make free quality water accessible by turning water access from a cost into a revenue driver? And they're doing just that by intersecting 2 previously disconnected business models water dispense and advertising. We were inspired by their innovative thinking, their product design, their start-up entrepreneurial mindsets. And to that end, we invested in their startup, and we helped them get placed at the Minneapolis St. Paul Airport, resulting in national awards for both the airport and HOPE.

The reason why we're excited about our relationship with HOPE is for a few reasons. One, they are using the best filtration in the market, Everpure. Second, this opens up new opportunities for Pentair. This opens up new revenue opportunities for us in dispense. By having the cost be turned into a revenue stream, it ensures that we've got high-quality filtration and public water access and brings up more opportunities, whether that's through manufacturing or Pentair to enter new markets and institutions.

My last topic is digital and AI. There is no question that technology is advancing at a high speed. And that's why we are focused on elevating our digital and AI capabilities. We already have a strong foundation. We've got experience in automated connected pools. We recently launched a Bluetooth connected ice machine, and we've been utilizing connected solutions in our beer membranes business for years. We are adopting AI at a rapid pace with AI tools being used by thousands of employees on a daily basis. We're leveraging AI and machine learning tools to improve our speed to market through engineering, coding and product design and we're excited to implement additional AI technologies to improve factory efficiency, enable demand and also increase our focus on turning data into value.

Here's an example of the opportunity. Like I said, Pentair is a leader in Pool automation. Hundreds of thousands of pool owners utilize our app every single day. Our vision is to provide the best integrated Pool experience possible enabled by connected equipment and optimized through AI. That provides tremendous value for our customers and our channel. Our homeowners get reduced downtime. Service and dealers can optimize their routes. We can help homeowners solve problems before they even occur. As a result, Pentair gets deeper insight into our channel. We can drive stickiness in the Pool pad, and we can have deeper, more measurable relations with all aspects of the channel.

So yes, we are proud of our 50-year history as a company, but I'm even more excited about the opportunities ahead. We are focused on driving shareholder value through clear strategies, breakthrough innovation and customer first, digital strategies. Water challenges are evolving and our opportunities are enormous, and this gives me confidence in our ability to deliver long-term value for our customers, our employees and our shareholders. Thank you.

Please welcome to the stage EVP and President, Pentair Flow and Pentair Water Solutions, Demon Wiggins.

Good morning. every time I see a video like that, it gives me such energy because I get to see the impact that Pentair makes on the community, the world and how we protect the planning. And I also get to reflect on our employees and our teams and the great work that they do each and every day to ensure the same thing happens that they protect the community, world and our property for our planning.

I'm Demon Wiggins, the leader of the flow and Water Solutions segment. Today, I'm going to talk to you about the business itself and the businesses that report into it. But there are a few key messages I want you to remember first. Our brands. Our brands are important to our customers. They're essential to their delivery each and every day, and we're in key water secular trends. The Pentair business system is truly in effect and it's how we have driven value in the past and how we will actually drive additional value in the future.

Customer intimacy is so important. It allows us to be more elite to our customers, identifying areas for aftermarket and reoccurring revenue opportunities. That same intimacy is actually how we decide where their needs, where they have unmet needs and where we have opportunities for new innovations and new acquisition opportunities to allow us to provide more value to those customers.

So let's talk about the flow business unit. That business unit is known for protecting people and property, also turning waste into value. The other part is this business is very much a global business with footprint in Europe and North America. It's a $1 billion business with sales in commercial, infrastructure and light industrial. We go to market in 5 distinct different businesses. And you can see the performance of those businesses since 2019. Profitability has really improved. We delivered $225 million of income in full year 2025 improving the ROS profile of that business significantly.

But you have to ask yourself, why? What changed? That business really started to understand that what we do matters. The impact we make to customers is extremely important. So we started to lead more with our brands. We enhanced our partnerships. John mentioned that we sought to spend more time with specifiers. How do you ensure that you are locking in on the potential that you bring to them and that now you're specified on future job opportunities with those particular customers.

The technology we bring to the table is significant. And it's something that we've used in our key terrain that we focus on in our commercial, light industrial and infrastructure businesses. This has led to growth aspirations in this business because we have leading innovation. We are now in a profile where we not only look at projects, but the projects lead to reoccurring revenue. Reoccurring revenue in aftermarket sales, service level agreements and other mutual value that we can create. This also enhanced by that elite customer experience that we bring in to the table each and every day.

We actually truly understand and have a clear formula on how we are focused on growth. The first is innovation. We have new pump technology we're bringing to the table. Our next gen submersible pump is one. We have new hydraulics and fire suppression pumps, and we also have the Xcentric Impeller that Adrian talked about. That state-of-the-art pump that allows the waste to pass through all way to the waste treatment plant that allows that to be the location where the waste is collected, but also there's less maintenance, better energy efficiency and allows more uptime for the party and also for the product itself. That has also allowed us to move to more of a durable recurring revenue model. That's driven by our revenue operations team.

We now understand the full installed base where the opportunities are for the cycle of replacements, connecting with those customers and clearly engaging with them before a stoppage occurs. This allows us to create a more elite customer experience because now we're talking to them in an IoT fashion, predicting the models of failure before they actually happen. This is the additional value we're bringing in the flow business. This is just a snapshot, as Adrian mentioned, of 200 years of products and really goes to the installed base that we have today, significant and large.

The next 3 slides I'm going to talk about are our growth platforms. And I'll talk to you about how we're actually using these platforms to drive future value creation for the organization. The first one, commercial building water systems. This is an area where we've been a lead in some pumps, as I mentioned, actually, this building is actually protected by a fire suppressant pump. And we've improved that with things like our red hot program, where we reduced lead times. We're actually closer to the customer and their aftermarket sales are increasing because we have speeder solutions to get to them in a faster rate. That also allows us to move the friction of their journey. They have the opportunity to order online and work quicker to the solutions that they need.

Because of that, that has opened up opportunities for more of our portfolio. For example, our water transport pumps, which there are numerous more of those types of pumps in a commercial building than a fire suppression pumps. Because of our expertise and our speed and lead times in this area on the fire suppression pumps, that has opened the opportunity for growth in this space, and our customers are really taking advantage of that. and that continues to build that confidence that this is a space that Pentair can continue to succeed in.

The next growth platform, municipalities infrastructure. This space, as we know, is that our aging infrastructure is happening every day. We have an opportunity to be a solutions provider in this space. Every 2 minutes a water main fails. And I want to call your attention to the Hydrostop business that we acquired in 2025. That business allows for us to use insertion valves to ensure that even though there's a water main that may break, we keep the businesses like hospitals, educational buildings, those mission-critical applications still up and running.

The insertion valve is able to quantine where the upside happen, but under pressure but still allow those buildings to remain and keep water into their needs. That's what this technology does. And this is what we continue to focus on as we drive more value in the ecosystem in this particular space.

The next platform I want to talk to you about is our sustainable gas systems. This is actually where we do CO2 recovery, specifically in areas in food and beverage. Example would be beer manufacturing or carbonated soft drinks, where we are capturing that CO2 and putting it back into the stream of processing or taking that opportunity to sell it out for revenue for our customers. This business was very much an engineered-to-order business. It's about $150 million in revenue for Pentair, very much focused on kind of engineered-to-order applications, but was very unprofitable.

So we took an opportunity to use our principles that -- their principles or Pentair principles and took a tactical pause to ensure that we can rightsize the business and ensure that we could drive more profitable revenue moving forward. What we were able to do is utilize the same system, connect with our customers, understand where the opportunities were to standardize these systems, use them as more LEGO brick applications that fit their needs, and that has allowed us to ensure that we're getting more revenue and more of a profitable measurement. That is driving a growth in the business.

You see orders increasing from '24 to '25 because we've allowed that they've earned the right to grow. And the key to that is that is additional aftermarket and reoccurring revenue opportunities that have happened as we've added not only the standardization of projects, but we have service level agreements and opportunities that we're driving mutual value creation in this business. That business has moved from negative profitability to 18% return on sales in the business.

Overall, in flow, you saw the performance since 2019. And you have to ask, yes, you've mentioned business model portfolio optimization. But a lot of what we've done was around 80/20. We really focus on SKU reduction standardization and then understanding where we provide more value to our customers. You see a significant cost reduction that we've taken place, and this has allowed us to focus on our top customers and create more strategic conversations, moving from tactical "where are my orders" to strategic, "what new innovations can we bring forward, what new ideas can we do and work together" and has become much more of a partnership inside the flow business and is driving towards more revenue growth opportunities.

Transformation. The 4 pillars are still here, pricing, sourcing, operations organization. The focus for this business is really in that operations and organization. If you look at our labor and overhead and our G&A costs, they are above the Pentair averages. This is an area that we will continue to focus on. And what that means to us is that transformation in this business, margin improvement is still available. And so our commitment, as we move forward, inflow is to continue to deliver mid-single-digit growth and continue to expand robust ROS expansion and margin expansion in this business.

So what I would like to do before I start into Water Solutions is play a video and allow you to see what we do in that space.

[Presentation]

Pentair Water Solutions. This business, I always like to say we're touching you all day and every day. You see us in all aspects of Pentair throughout the day in this opportunity. This business is comprised of 2 business units: water quality management, and commercial water solutions. I will break it down into 2 businesses.

First, we'll talk about water quality management. This business is focused on 5 -- 4 different categories, Spray &

Specialty, which is in our agricultural space, the Water Disposal International business, which is out of Germany, more of a service pump business on the disposal side. And then we have the Water Supply & Disposal and the Residential Water Treatment business which we feel coming together will give us opportunities that I'll talk about in a second inside the home.

This business has been about rightsizing and optimizing the portfolio since 2019. And we feel we've done that. You see the profitability has continued to improve, and we continue to win with our recognized leadership brands. We've enhanced our channel partnerships, and we continue to drive a portfolio that our dealers want. The key terrain is focusing on the pro channel and also our plumbing trade. We see the opportunities in elite customer experience and also accelerating new channels, and the next piece is around the synergies that we're going to create.

By bringing the Residential Water Treatment and also the Supply Disposal business together, it gives us an opportunity to put those portfolios together and allow us to meet the needs of homeowners in a more larger capacity with a larger portfolio. Why are we doing that today? Our channel is asking for it. They're looking for those opportunities to walk into that homeowner's home and see, here's the value that we can bring for your water treatment and your water management inside the home. And that allows us to play a more active role in the customer experience by our tools, training and enhancing our reward system for those particular dealers and customers.

This is a pictorial. Just look at all the areas where Pentair can help with water movement. This is part of that consolidation of bringing the brands together. It drives more synergies, we become more relevant in the discussion, and we now partner more with those channel partners, the plumbers, the water treatment dealers to understand now what is the unmet need inside the home? How can we bring new innovations or how can we add acquisitions to actually build out that portfolio that enhances the value for this business.

I also have to focus on 80/20 here. 80/20 was a focus of moving a lot of our business from retail, really focusing on our professional channel, and that's been our commitment. We did eliminate SKUs. We got out of those particular channels. and focusing on our pro channel has allowed us to really drive additional growth and see where fruits of that labor is actually coming to fruition as we work with those particular top customers. Again, more strategic discussions, not tactical discussions around just ordering and tactical issues.

Water quality management, much like flow we have the opportunity still focused in the operational and organizational side of things, still a significant footprint opportunities and DNA that we will be looking at as we drive continued performance in this business. and that performance looks like this. Over the next 3-year, vision is low, single-digit sales growth and robust ROS expansion.

The next business, Commercial Water Solutions. We go to market in 2 different businesses. That's Manitowoc Ice and our Everpure filtration. These are strong brands, well-known brands and a strong portfolio that we work with our water professionals and a really strong team of industry experts inside of Pentair that we go to market with. The key terrain in this business is around our food service, hospitality and then our expansion into really getting into convenience stores.

Growth is going to be about innovation, account management and smart connected solutions of the future. That's where we'll be moving. And it really comes to filtration innovation. There are significant water needs that we will definitely take advantage of and help bring our technology to solve those problems.

ICE innovation, how we will continue to innovate to be more relevant to our customers and then the smart systems to be able to understand how we provide uptime and transformation inside their business to drive productivity with our customers. Manitowoc is fully integrated into Pentair. We have identified significant growth levers that we will drive as we move forward. Cost synergy, we have used 80/20 in this business, but the NPI road map is poised for growth. And we're moving to some vertical markets adjacent to where we played in the past that will open up the aperture for growth in this business.

One of those areas is convenience stores. Convenience stores are growing, and they're becoming more of a destination location where people are traveling and it's more than just picking up snacks. There's opportunity for carbonated beverages and other hot coffee and other types of beverages that we can support through filtration and ICE applications. This is a significant opportunity that we see playing forward in the future where we can drive growth in this business. This is an example of innovation.

Our NEO Refresh. It has given us a competitive advantage where we're actually integrating our filtration product with our ice machines, creating a better ICE experience, better taste, better quality, better clarity. It also has a sustainability aspect, decreases the energy use of this machine compared to the competitors. And it's also easy for the operator to access. We won several awards around this particular product and excited about what that's going to do as we move forward in the future in this business with this new innovation.

Couple of growth priorities in this business. Number one, innovation and it has to be cutting edge. We will expand our presence specifically in areas with new customers, new OEMs and new opportunities, as I mentioned, in the convenience store space. Connected Systems and Solutions. Those are going to be key to understand where the needs of the customers are and how we can connect with them to be an easier provider and more seamless situation and solution. This business and the 3-year vision mid-single-digit sales growth, and we will have ongoing ROS expansion in this business to deliver growth.

Key takeaways today. We have the right portfolio that we're operating inside of Pentair. We're evolving the business in our distribution, but also being more of a specified business. We're becoming much more relevant where we play in recurring revenue, aftermarket work streams and opportunities to drive growth. Our teams are curious into how they look for those new opportunities to grow through innovation. And then our PBS is foundational to what you're going to see for growth and transformation and margin expansion inside of Pentair. And most importantly, I'm excited about the journey that we have in front of us and we're going to do some great things moving forward. Thank you.

We will now be taking a break. Please be back in 15 minutes.

[Break]

[indiscernible] and Chief Executive Officer, Pentair Pool, Jerome Pedretti.

Good morning. inspiring video that tells us why we exist and how we support our customers. I'm Jerome Pedretti, CEO of Pentair Pool, and I'll kick it off, and then I'll pass it on to Greg Claffey, our Chief Revenue Officer. Greg spends most of his time in the field. I think it was best positioned to explain how our growth opportunities really impact and impact positively our customers.

Well, we'll do -- we'll have a quick look back, how Pentair Pool and the successes of Pentair Pool and how we manage through our leadership through our mode to create value and then spend most of our time, of course, on the future and how our growth opportunities are going to help us to accelerate growth, to gain share and to continue to expand margin and continue to create value for the future.

But let me step back and let me step back and tell you how proud I am of the Pentair Pool team. Pentair Pool team delivered over the past 60 years -- 6 years, 8% annual growth, 600 basis points of margin expansion and that has created $4 billion of value. And we've been doing that consistently throughout the years, even when the cycle of the industry was not in our favor like lately. So very, very proud of the Pool team, and we have a great business. a business which is durable, a business which is sustainable, which is resilient. And we do that because we have a great brand.

We have a great brand like Adrian said, fantastic innovation, but we have in the past. We have also some great dealer relationship with our customers, and we have a great installed base. And our customers are going to need us going forward. I'm going to need innovation, and we can help there. We're going to need to improve the customer experience for digital. And I think we can help there, like Adrian said also earlier, and we can solve some of their issues. And the issues they have now is about skilled labor shortage. And we have solutions. And that's why our growth opportunity of automation, innovation and customer experience is going to help us grow, accelerate growth and take share.

Take share in an industry but, yes, has some headwinds or short term, but we have a lot of upside over the long term. And we have a lot of upside because we are a resilient industry. 80% of our revenue comes from existing Pool. And when you have a pool, you need to maintain it. So really an industry which is mainly nondiscretionary. We also at a lower point. If you look at existing -- our new pool, it's about 60,000 new pools now in the U.S. Just before the pandemic, it was about 80,000. So there's some growth opportunities there. And when we look at the 5.4 million Pool that exists in the U.S., the average age is 20 years, 23 years exactly. And when you have a pool, which is that old, you need to remodel it.

So we have this. We have also great consumer trends, secular trends, people continue to migrate to the south. There's about 3,000 people every single day but still migrate to the south. And that's where we are the strongest. 75% of our revenue comes from the Sunbelt. And then, like we said before, a lot of opportunity with connected pools. 70% of new pools are connected today should be 100%. And of the existing pools, 2 out of 3 pools are not connected today. It's a huge growth opportunity. a growth opportunity where we are well positioned, well positioned to really benefit from.

And I think we have competitive advantages that differentiate us, differentiates from our competitors, from large or small competitors, from established or new competitors. And those competitive advantages are, first of all, our brand. We are recognized for our quality. We are recognized for our performance, we are recognized for our sustainability. We also have the largest dealer network. We have the most connected tool in North America, and we have also the largest installed base. And those really represent growth opportunities.

For our dealers, yes, we go to market through distribution. We have great relationship with our distributors. We work well together to drive growth. But at the same time, we have the largest team in the field as well supporting dealers, supporting the Pool builders, supporting the Pool services so that they can serve their customers even better. And what is important for them, it's about quality, it's about supporting the field. It's about innovation, and it's about providing them programs, loyalty programs, training programs, and we score very, very well on all those 5 elements. And that's why we have great retention and we have great loyalty from our customers.

If we look about innovation, Pentair has a history of game-changing innovation, game-changing innovation, but has increased the TAM enabled us to drive and gain share but also change regulations for the good. And the poster chart is IntelliFlo. The IntelliFlo was launched in 2005. And I remember because that's why I joined Pentair and I was responsible to grow and to scale up the IntelliFlo. And what it was difficult to explain to a dealer that a pump you had to pay 3 eggs, the price of an existing pump, the value prop was so compelling, compelling for the homeowner, energy savings, lower noise longer longevity of a pump, but very compelling also for the dealer. The dealer could do an upsell. He also had 1 SKU and a pump, it could dial up or dial down, so that the Pool looked amazing, so that the water features looked amazing. We have that ability to change the industry.

And what is coming next, it's really about connectivity. Connectivity is going to be so important because it's going to change the customer experience of all the different customers. That's where the opportunity is. It's going to simplify water quality, which is a little bit more enigma right now for the homeowner and difficult for the dealer to manage. It's going to help a dealer be more productive and solve those key labor challenges that it has. Think about preventive maintenance that they can do. And then it's going to help both dealers install, maintain and repair was about equipment in an easier way.

Think about remote able shooting, self-heating. This is why it's a huge growth opportunity that we have in front of us. This is why we need to change from being a manufacturer of premium equipment to really being a provider of premium experiences for all our customers. That's a game-changing opportunity that we have in front of us. That's what Adrian talked about before. And I think that's huge. And I think we can really benefit from this.

And with this, I'll pass it on to Greg Claffey, our Chief Revenue Officer. Greg?

Thanks, Jerome. I feel a little left out not having the voice of God introduced me, but that was a good introduction Jerome. I'm Greg Claffey. I am the Chief Revenue Officer for Pentair Pool. And I'm honored to hold that position for such a great company in a great industry. Our responsibility is spanned from marketing, sales, customer service, product management, strategy and also technology, which includes digital.

I'm also proud to lead a great field of people in to spend time with our customers each and every day. As Jerome mentioned, I spent a predominant amount of my time in the field, somewhere between 36, 44 weeks a year. interacting with our customer base, also interacting with our channels, our channel partners and our customers and dealers. I'm also honored to serve as a board member on the PHCA, Pool and Hot Tub Association where I'm honored and Home have been selected to be the next Chairman of that Board going into next year.

All those things and the interactions I have in the field have given me a great feedback of why we are the industry leader. We do a lot of things great in the field. Our sales team is a sustainable competitive advantage, but they're not just salespeople. They're technical industry experts that spend time in the field with our dealers sitting on upside on buckets at the pad, solving challenges in the field each and every day, and I'm proud to work alongside them. Additionally, we have great channel partners. These are partners that are investing in our business, investing in our brand and want to grow this industry responsibly, and we're happy to call them partners.

And last but not least, our dealers themselves. These are industry professionals that are significantly passionate about our brand in Pentair. They have high expectations of us. So we should have high expectations of ourselves. And so we will look at our future. We're building on our 3 key terrain that we have done so well over the last number of years as Pentair pool, and we're going to continue to build on those and enhance them. What's changing is how we do those things. So for us, it's about automation and delivering quality product and a quality experience. It's continuing to drive industry innovation that advances the industry and increases the TAM. And last but not least, like I said it before, our sustainable competitive advantage is the customer experience we provide when we bring all those 3 things together with the great people that we have with channel partners, our dealers and our teams in the field.

So as Jerome mentioned, connectivity is our future. When you look at the equipment that's on the pad, the value used to be created in the individual pieces of the equipment we feel like the long-term value that is created by how all those pieces of equipment interact with each other. And I'll give you an example of that in the field. In certain regions, we saw some challenges with our heating technology depending on where you were regionally. Now initially, you would say, "Oh, there must be some challenges with the heating technology." What we found is as the technology advanced with our variable speed technology and our salt generated areas. The Salt will continue to generate concentrations but the flow would fluctuate up and down. And during low flow events, we started having heater challenges. Those are things we didn't know or find out until we were in the field.

By having the entire pad connect together, we're going to be able to see those things happen in real time and prevent them from happening altogether, ultimately providing a better experience for our consumers, right? We're preventing the downtime when those birthday parties happen on the weekends before they happen. Additionally, we're creating more value for our servicers and our builders so that can bring that value through service and availability and having available technology and analytics to see those things happen in real time and ultimately providing better experience for our channel partners where they can have the right piece of equipment in the right location at the right time.

So as we continue to pull those things together and our flywheel that you see here above, how we create value creation is ultimately, again, bringing those digital platforms, enabling our technology to provide a technology-enabled customer experience. And as we continue to work ourselves around that flywheel, we will again enhance the experience with our channel partners, again, allowing them to be more efficient to have the right product in the right location. Again, training our dealers and having them having the ability to be able to see things in real time and prevent truck rolls from happening non-revenue site visits and again, providing a better consumer experience ultimately so that we can provide increase the TAM and expand the market.

I'd like to take a picture of that again, our IntelliFlo technology. Jerome mentioned about the history of us providing disruptive technology in the industry that provides long-term value. We are now in our third iteration of this fantastic technology. It's an award-winning pump. It's received its Energy Star award again, and it continues to build upon itself each and every year. The great thing about the IFI technology is that was the first pump that actually had smart technology built into it. So we're able to have an entry-level automation piece of equipment that was tied directly into the pump. We can control 2 different features, whether it be heater and lights. And again, it starts to expand and expose people to what automation can do for you long term.

In addition to that, it continues to provide value with variable speed technology, lower energy cost of ownership for the owner and again, ultimately providing long-term value through reliability. The best part about this technology is that as we continue to iterate because it's smart, we have the ability to provide firmware updates remotely instead of having to provide new technology on the pad. That again provides speed of innovation and provide value in real time to our consumer base. And we're not done. We're already thinking about what we could do with the fourth iteration of this pump.

I'd also like to say I'm very proud of our teams and what we've done to continue to drive industry-level automation to the field. We talked about the IF3 and IntelliFlo. We continue to add value through our Intellicentre platform, providing easy provisioning for start-ups for our dealers. But we also launched 2 great technologies in 2025. One is our IntelliVibe lights. It provides an infinite level of colors to our consumer base. so they can enjoy their pools in aesthetically, but ultimately it provides a differentiator for our dealers to have them to be able to sell versus their competitors in their field.

The last one was our IntelliChlor Plus, our salt cell that we launched in 2025. This was actually innovation from getting feedback from our dealers and spending time in the field. This wasn't something that we thought of ourselves, it was listening to our customers and the challenges that they were having in the field. And we were seeing our customers actually spending a lot of time maintaining the salt cells. And what we found is that -- and when there was an issue, they would actually actual rip the salt sell out completely, throw it away and install a new one. A lot of the challenges were in the electrical display. What we decided to do is to make that modular.

So now our dealers can actually service the equipment in line. And if there's a problem with the electricals, they can remove the electricals off the top, it's modular and replace the electricals on top not having to replumb. So again, sustainable, easy maintenance, and again, providing value long term for our dealers. But we're not done there. As Adrian mentioned earlier, we're continuing to push the limits of what industry disruption can be from a technology perspective, and we're super excited about our hydro purifier.

The filtration aspect of the pad has been an area that has not been automated and/or innovated in a really long time. So we're excited about what we're able to provide here. We're actually using technology from inside Pentair that's got IP. And we're going to take those things and combine it with Water Care and IoT technologies to provide an up-level experience for our consumers. Again, looking at this thing regionally, we can provide a green to clean Pool when you're opening and closing the pools in the Northeast in just 24 hours.

If you're living in Arizona and you have hard water, we're actually going to provide a much more enjoyable experience for our consumers in that space with this technology. It provides an opportunity for us to increase the TAM long term. and also provides additional revenue stream through recurring revenue potentially in the future. So we're super excited about this technology. It's going to going to revolutionalize the Pool space. And again, continuing to put ourselves in the map as the industry leader in the Pool industry.

Okay. All that being said with technology, it does not get done without the people in the field. And as technology advances, we have to do things differently. We have to sell differently. We have to service differently. And so we took our 80/20 approach, and we looked at kind of our go-to-market strategy and what we need to do to continue to enhance the customer experience. And this is what you're seeing here, continuing to stay focused on growth, what we can do to support our customers better, how we can educate and train our customers and our teams. And again, providing that service locally where they need it, when they need it, for what they need. And we're continuing to do that each and every day.

This is another example of that. We've been in the field training and educating our customers for a number of years. We currently have 8 customer service locations located where we actually do this locally. But I want to take a step back and recognize what we do for the industry overall. We actually trained 6,000 to 7,000 dealers each and every year through our Pentair universities. It's a tremendous value we provide. It helps them serve their customers better. It helps them understand our technology. But ultimately, it's going to grow the business overall. We also have expanded that into our learning management system, where we're actually starting to touch up to 15,000 and more digitally.

So we're trying to figure out how -- ways we can expand the TAM and train the labor in the field to be more efficient and also educate them on the technologies that are coming out so they can actually do things to grow their business and create long-term value for their customers. We're going to continue to enhance that and grow on that model because, again, it's a sustainable competitive advantage for us at Pentair.

So lastly, I just want to leave with you that it's a fantastic business. It's a fantastic industry. I'm proud of the people I get to work with alongside. We've got tremendous growth opportunities out in front of us. both inorganically and organically, and we're excited about the future at Pentair Pool.

Thanks for your time, and I'll pass it back to Jerome.

Thank you, Greg. Super exciting to see those growth opportunities, which are really differentiating us. And that's not the only thing we've done. We've also used the Pentair business system that John has talked about before an 80/20 to simplify our business to simplify our business so we can reinvest into growth. We can reinvest with our top customers. We can reinvest on our flagship products. We've reduced 6,500 SKUs. We've taken 750 of our smaller customers and redirected them distribution to be able to reinvest in growth and accelerate by doing that, we also accelerate the transformation.

We accelerate the transformation with our customers, improving the quality, providing better experiences for them doing the sales excellence that Greg has just talked about but also accelerating the transformation on the sourcing side in order to expand margin. And that's why I have a ton of confidence but not just me, the entire Pool team. We have a ton of confidence to be able to continue to grow mid-single digit and expand margin. And that's going to create value.

And there is one thing I want to leave you with is that we, as a Pool team, we are committed to continue to lead the Pool industry, continue to lead the Pool industry with both differentiated and need customer experiences which are going to be more and more digital. That's going to enable us to accelerate growth, gain share and expand margin. And that's going to create a ton of value, value for our customers, like Greg has talked about, but for our shareholders as well. Thank you.

Please welcome to the stage Chief Financial Officer, Nick Brazis.

Good morning, everyone. My name is Nick Brazis. I've been with Pentair since 2023, working closely with John and this executive team during the last several years. I've been excited to talk to you today and get into it here.

As you've already seen today, Pentair is fundamentally a stronger company than we were just a few years ago. We're more focused with structurally higher margins, improved free cash flow conversion and with a business system that drives results. We have a stronger balance sheet than we did just a few years ago, and it provides us with optionality to continue to drive incremental shareholder value. These results reflect disciplined portfolio actions, the development and the deployment of our Pentair business system, our operational rigor and discipline and a commitment to return value to shareholders. We are executing with discipline, and we expect that to continue.

Looking at the last several years, we've delivered margin expansion despite volume pressure, demonstrating structural cost reset, not cyclical leverage. Incremental margins have exceeded historical averages, this is a testimony to our operating discipline. Return on invested capital remains high teens, even in a slower growth environment, reflecting our relatively low capital intensity business model and our operating discipline. Free cash flow conversion remains about 100% of net income, reinforcing our confidence in normalized earnings growth. And we believe that we have built a track record of delivering on our commitments and delivering value to shareholders.

When you look at our revenue profile from the last few years, we have actively managed our portfolio for quality revenue, not just volume. We've exited lower return, higher volatility revenue streams and improved our mix quality. Portfolio simplification has reduced lower margin and more volatile holdings. And revenue today carries higher margin and stronger incremental flow-through. We believe this positions us for outsized earnings leverage when volumes do recover, and as our organic growth initiatives read out.

As we have developed and deployed the tools of transformation, we have evolved our Pentair business system and updated our 80/20 processes with discipline and rigor. Our structural cost actions have permanently lowered our fixed overhead. Incremental margins are now sustainably higher than historically through the cycles. Our Pentair business system is fundamentally not a cost-out program. This is an operating system. And that operating system as we have developed it and deployed it is taking our return on sales from about 19% just a few years ago in 2022 to an expected 28% in 2028. And through mix improvement, structural cost and productivity.

Our business system is becoming our operating system and our tools are being embedded into our enterprise. I'll highlight just a few of our Pentair business system tools and how we expect them to drive shareholder value creation over the next several years. Foremost, you've heard us regularly talk about 80/20. 80/20 has become a way of life at Pentair. SKU rationalization an 80/20 focus have reduced complexity and freed up some of our capacity to prioritize our Quad 1 customers, our priority customers. We've executed with discipline and focus to complete our Quad 4 exits, and our 80/20 journey is continuing with our key ratio guiding our focus Commercial water and tool are focused on Quad 1 growth and margin expansion through that growth.

Our flow and water quality management businesses are also focused on Quad 1 growth but they also have robust operational and functional cost opportunities, which I'll talk more about here in a few minutes. We're taking our Quad 1 customers with initial focus on commercial water and Pool and advancing the tools of sales, inventory and operational planning. These efforts are going to provide an enhanced customer experience for our Quad 1 customers, while also increasing our forecast accuracy, reducing future excess and obsolescence inventory, improving inventory turns, and ultimately, improving our free cash flow from operations. We've also embarked on a comprehensive make-buy program.

Across our global and integrated supply chain, we've initiated this program. This initiative and the tools within our Pentair business system are aimed at further improving our fixed cost structure, lowering landed product costs, lowering our inventory levels required to satisfy our customers, continue to enhance operating margins, enhance our return on assets and ultimately also enhance our free cash flow from operations.

As John mentioned, we have an intentional portfolio view of our businesses and going forward, each segment within our business has a defined path to grow and expand margin. Accountability sits at the business unit level and is supported by disciplined capital allocation strategies by our executive team. Mid-single-digit organic growth plus approximately 100 basis points of annual margin expansion we believe, drives durable earnings per share compounding. Incremental margins in flow and water quality are expected to exceed portfolio averages. And our capital deployment is aligned to higher-return platforms within these businesses with strict hurdle rates.

Our baseline growth that you see today does not require disproportionate capital investment, and we expect to remain an asset-light business model. The model that we've talked to you about today is intentional. We're being transparent to give you clarity into how we're thinking about the businesses and how we're thinking about driving shareholder value over the next several years. As stated, we expect to see mid-single-digit revenue growth high single-digit adjusted operating income growth and low double-digit earnings per share growth through 2028. And we expect to remain we expect to have return on invested capital remain above our cost of capital through the cycles.

Looking at our revenue expectations through 2028. We expect revenue to be diversified across residential, commercial and infrastructure businesses and that alignment of our portfolio with long-term water sustainability trends supports sustained growth and margin expansion. We also expect our commercial execution and innovation to support share gains. Our expected balanced growth reduces dependency on any single end market or cycle.

For clarity, our breakthrough innovations we've talked about today and a normalized residential recovery support incremental revenue beyond the $4.8 billion shown to you today. Those innovations and that North America recovery have been backed out of this plan through contingency. When we think about our return on sales expansion, these gains reflect permanent and structurally embedded productivity gains through our operating system through the Pentair business system. Again, these are not temporary cost out actions. These are structural modifications to our business.

Incremental margins now exceed historical bench benchmarks, again, through our mix, cost structure and portfolio actions. And we believe we have robust G&A and manufacturing efficiency opportunities that are going to drive incremental margin expansion within our flow and water quality management businesses. Both of these business units have margin expansion opportunity to be harvested through our Pentair business system, operational excellence tools. They both have fixed cost opportunities and working capital opportunities. And our structural cost efforts are being prioritized via our 80/20 key ratio and harvested through our SIOP tools, our make buy tools and our other operational excellence tools. We expect these exercises to improve the quality of our earnings and to reduce earnings volatility through the cycles.

Our adjusted operating income growth is expected to be balanced across our portfolio and not reliant on a single rebound or a single end market. Margin expansion reflects operating leverage within our commercial water and Pool businesses and structurally lower cost basis throughout the portfolio. We'll also see benefit from our portfolio mix improvements and our already executed 80/20 exits. Our path to approximately $1.4 billion of adjusted operating income again, does not include these breakthrough innovations or volume normalization through residential recovery. These have been contingencies out of our plan to $1.4 billion of adjusted operating income.

I'd like to call your attention to the middle of this slide. We're targeting low double-digit earnings per share growth as our base case scenario. This base scenario expects mid-single-digit revenue growth high single-digit adjusted income growth with about 1 turn of net leverage. This base scenario provides strong balance sheet optionality going forward. With our free cash flow conversion at approximately 100% of net income, we expect to have strong capital deployment flexibility.

Our balance sheet strength we believe, reduces downside risk while again preserving capital allocation optionality. This base plan is intentional. It's reflective of our Pentair business system, operating discipline and rigor and our history of strong execution. We're balancing growth, resilience and return to shareholders. And our team has a high sense of accountability to generate compelling value through this base case plan. We believe that we have upside opportunity from volume normalization in the residential sector and with attractive incremental margins. This volume normalization with modest balance sheet utilization would create a mid-teens earning per share compounding opportunity while maintaining our high return on invested capital above our cost of capital.

This plan would deliver approximately $2.7 billion of cash over this time horizon. We'll use this strong cash flow to drive organic investment first to create the highest return growth opportunities focused on higher margin and higher 80/20 key ratio businesses within our portfolio. Our M&A opportunities must be accretive to return on invested capital and earnings within our disciplined framework and time lines. And our dividend growth reflects 5 decades of disciplined capital return, prioritizing shareholder value creation. We will strategically and opportunistically participate in share buybacks and our investment-grade balance sheet will remain a nonnegotiable constraint as we deploy capital. We expect our capital allocation to be balanced with flexibility over this plan and time line. We expect that balance to be preserved, while pursuing higher return opportunities.

Again, our base case drives sustained revenue growth with continued margin expansion and compounding earnings per share, achieving low double-digit EPS growth. Our strong and cumulative multiyear cash flow supports disciplined reinvestment and investment and strong capital allocation opportunity and optionality. We High teens return on invested capital remains guardrail for our capital deployment and our entire exec team is incentivized and compensated based on achieving those ROIC targets. Our earnings durability and capital efficiency underpins a long-term value creation opportunity for our Pentair shareholders.

In closing, through our Pentair business system, our growth algorithm supports revenue growth, strong margin expansion, low double-digit and consistent earnings growth and free cash flow generation and capital deployment optionality. Our downside risk, we believe, is significantly mitigated by the structural cost improvements and business model improvements we've already made and embedded into our business with additional opportunities to be harvested within our water quality and flow businesses. Residential recovery, breakthrough innovation, and disciplined capital allocation, we believe, provide additional value creation upside to this base plan.

To reiterate, our capital allocation priorities are: first, organic growth second, returning capital to shareholders in the form of dividends and then finally, pursuing strategic and opportunistic M&A and share buybacks. Pentair today is a stronger, more focused company with a clear line of sight to sustained value creation. We have structurally improved our margin profile, strengthened our returns and increase the predictability of our cash flow. Just as importantly, we have done this while improving our balance sheet and our financial flexibility.

As we execute with discipline, our expected outcomes will be consistent earnings per share growth, strong free cash flow and returns on capital that remains solidly above our weighted average cost of capital. We believe we are well positioned to compound value for our shareholders as we execute for our customers and our Pentair employees. We thank you for your continued support. And again, thank you for being here this morning. John, back to you.

Please welcome back to the stage, John Stauch.

Doing anybody better than Nick, so we'll just call it a mic drop, and we'll get on with Q&A. I do want to let you know, Nick and I will be up here to answer any questions, but my entire executive team is available for any questions you have. I'll just see it and generally facilitate those questions. We have mics in the room, and we'll get going with Q&A. Oh, there's no questions, we can move on to lunch.

Mike Halloran with Baird. So 2 questions here. First, you talked about the 2 different cases here. base case and then the potential upside case. Maybe talk about the incremental margins in the base case. And then the upside case assumes some level of volume recovery gets sort of the contingency. With all the work you've done and with volumes coming back, what does that mean for the incremental margins and the extra pull-through you could probably get from that? So what's the spread? What's the difference?

Yes, we'd expect incremental margins within our Pool business probably be a little bit north of $40 million, and that's net of investments, incremental investments into the business. And then our commercial water business would be north of 30% drop-through.

And do those increase then when you get the volume? Or is that going to be regardless of the case A or B?

Yes. No, they increase as you get the volume to a certain point. Over the next few years, we would think that those would be north of 40%, though for Pool and north of 30% for commercial water.

With investment, net of investment.

With net of investments, yes.

And then second question, when you laid out your growth opportunities, maybe just give some more color on the pharma and the data center opportunity. where you guys play specifically? And what kind of investments you're making to make yourself more relevant in those spaces as we move forward?

Demon?

Yes. So I would say for the data center opportunity from the initial bill, that has not been our focus. It's about the continued chip and water cooling that we would play from a standpoint of our pump initiation. So that's where the focus would be in that business. So we're tapping into that today, understanding where those opportunities are, and that's where their growth potential would be in that business.

And then as I said earlier, like I think there's a growing issue with the data centers consuming both tremendous amounts of water and also energy, which puts a huge constraint on the overall subdivisions and the communities that those data centers are involved in. and several of our discussions are how can we help with our ability to manage both the energy and water aspects of that. Obviously, anytime you move water, you consume energy, so you're looking for energy efficiency there. And ultimately, I think we're going to see emerging opportunities over this time frame that engages Pentair with those solutions.

Yes, specifically with our blue pumps and our red pumps, right? Blue for water supply, providing supply into a data center into a hospital, a university or into our big pharma complex and then our red pumps supplying the fire suppression technology for any of those businesses. So those technologies can be applied across those industries.

Scott Graham from Seaport. Two questions for you. I'm assuming that the revenue targets are organic within those organic estimates. Can you give us what your pricing assumptions are by segment? And then as a follow-up question, and I don't -- I'm not looking to have you go through the deck. But there's a chart that shows 80/20 growth versus optimization. And it looks like but it's about half and half what does it take to get to the optimization boxes to get it to growth.

Yes. So on pricing, I would say, generally, we expect pricing to offset inflation and maybe a little bit more than that over this planned horizon. As far as the 80/20 optimize, we use our key ratio, which is net material margin over cost of labor to drive our decisions on whether those businesses are focused on growth or more focused on optimizing that key ratio before we try to drive incremental growth. So we look across the portfolio at that key ratio within the sub businesses to determine if that key ratio is healthy and whether or not that business needs to be prioritized to continue to grow top line and volume or if we need to do additional work before they're allowed to grow incrementally.

And say, on top of that, Scott, we got a gift when the tariffs and the supply chain challenges came. I mean if you didn't really have pricing power or the ability to price the tariffs, it was kind of a strong signal that you were probably not properly placed in the industry, and therefore, that led to some of the rationalization we did in the portfolio because I don't think -- if we were a me too or were a commodity, it was going to be really hard to go through all the supply chain rework and the manufacturing work and then we still might have only just been competitive, if that makes sense. So that's what you saw in the waterfall when we talk about the portfolio exits or some of the rationalization.

I guess my first question on the Water Solutions business. It's the one that -- I mean, had declining revenue over the last few years. I think we know what some of the reasons for that were. And it wasn't all of the businesses within there. Can you talk about what's been done to those businesses? And then I guess the crux of the question is how you manage that transition of those businesses going from optimize, get out, simplify, really focused on shrinking and cost reductions to moving into a growth mode?

Yes. So I'll start with -- you're right. Everpure and Manitowoc are phenomenal businesses and really good brands. I do want to share that we would never use as an excuse or wine about it, they're also global businesses. And while we've had steady, consistent growth even in the down cycle of restaurants in North America, we have a different output with competitive price pressure in China and how we can compete for business in China, both on those product lines. And so what you're seeing in that business is a netted result of where we are.

I think when you look forward, we feel like we're really strongly positioned on that side. And we are really committing to mid-single-digit growth again, which is where that business has historically delivered going forward. the water quality management is, as you showed 4 different businesses with all 4 different end cycles. And so the complexity has to be reduced as we have but we also have to go where the market is. And I can't be more clear that we were in the specialty filtration side of the business.

And most of the filtration needs -- and I'm talking water softwares in the United States is being held through that large distribution channel, which is the plumber channel, big name starts with an F, and ultimately works its way into the plumber channel, and you're seeing a lot more solutions being solved through that aspect, which is where this repositioning needs to occur, and we need to go with a stronger line card and really have a long-term focused outcome. We're confident of that. I mean by the early innings of where we are in that process, we think that growth profile looks a lot better as we go forward.

I didn't go through the deck and add up all of the incremental growth opportunities in there, but it seems like a lot relative to what's in the breakthrough innovation bar in the walk there. Are they included in the base mid-single-digit growth? Or they're all in the breakthrough innovation growth? And I guess kind of how have you weighted the probability of getting to each of those in the walks, I guess?

Yes, our NPI, our ongoing new product development and organic revenue enhancers are in our base case scenario. What's not in the base case scenario are those incremental breakthrough innovations that you saw Adrian talking about. And so those would be upside to the base case.

You're getting appointed to a price, those still seem like there's a fair amount there that probably would push you past mid-single-digit growth. So are you handicapping some of those things?

Well, we're hopeful on just flat markets. the core market this year. I mean, if you go back, we've had volume declines because that market, as I shared with you, it's hard to outraise a market decline. And so we're encouraged that we have new product introductions. We have innovation. We have the growth actions that you saw in flow, and we do think we're going to get growth going forward, Nathan. But it is hedged a little as you saw in the charts.

Andy Kaplowitz, Citigroup. So Nick, would probably should ask you any updates on the quarter. And then my real question is like just sort of double-clicking on pricing and Pool I think, John, you talked last quarter about having to bring value to customers, right? You put a lot of price through. So how do you sort of balance that with the elevated inflation that's out there? And I think the message today, right, is focused more on Quad 1 customers even more and Propel innovation, but maybe any thoughts on if you're able to do that?

Let me take the first one, and then I'll kick it to you, Jerome, Greg. I mean, I have been very clear eyed and very transparent. I'm not worried about pricing on a high-end in telecenter set of Pool aspects. That is a wealthy individual buying a multi-body Pool they generally understand the tariffs, the needs and the pass-throughs and the value is there. At some point, the cost of those tariffs and inflation are asking you in an older Pool that might be used a couple of times a year, to have a repair cost that might be outside the parameter of where you're at.

You're also then in your mind saying, okay, do I need all these features? Do I need all the bells and whistles. And by driving that cost-plus mentality, we're opening up this opportunity for lower-end replacements. Most of that share that we talked about in the installed Pool is ours. I mean we were the leading Pool provider for a long period of time. We want to have a like-for-like replacement, and we want to get you back up and running. And I'm just being honest, I think that's where the pricing pressure is going to be.

Now I don't think you're going to see it overall in the whole scheme of our growth elements going forward, but we can't continue to just build product for the high end. We also have to go back and say, how do we make sure we're competitive enough on your good enough product for that solution that I'm just talking about. I don't think it's a lower margin. I mean we have most of that product developed today. We just need to be there offering you the features that you want at the right competitive price point.

I don't know if you want to add anything?

No, I would say was on the second part of your question, it's about Quad 1, and I think we work really well with our top customers. I think we work really well with distribution in order to drive sell-through to drive share gain and that's really the long-term objective that we have. We also work really well with our top dealers in order to continue to help them to have in their day-to-day to support them in what they need and provide them innovation so that they can grow and be promote productive themselves. So I think it's really about the focus where the growth is going to come and where the share is going to come.

And I would just finalize our growth algorithm in a normalized period is a couple of points of price and Pool. We generally, we get 2 to 3 points of market growth from aftermarket and new pools. And then we would have something that we've done to create TAM, our total available market, which would be incremental innovation for the whole entire industry. And then since we've invented it, we would get an incremental portion of that. And that was the high single-digit performance that we've had for a long period of time. What we think we pitched to you today is a path to get back there. And I think that's the type of potential we have in Pool.

Nick, no big changes to the quarter.

No changes...

No big changes...

No big changes to the quarter, reiterating the quarter?

I think this morning...

No, we confirmed it. Yes. So that would be no big changes. Confirmation.

And then just like demand kind of came out with the 5 subsegments. So it's something sort of clicked I guess, in the second half of '25, like where has the growth been the strongest, if I look at the 5 subsegments and the durability of that growth?

Yes. So Andy, in those areas, the strongest growth was in our industrial space, specifically the food and beverage, the CO2 capture. We also saw strong growth in our commercial building, as I shared before, really driving that move to the fire suppressant water transport opportunities. That's where we're seeing most of the growth. And the -- working with our end users, our distributors and specifiers. Now that also has turned from just project-oriented, but that recurring revenue, we're starting to see that read out at a much higher level.

I've got to give Demon a commercial here. I mean, it seems like every investor call, we were asking why we're keeping flow, right? And we always knew that we had this potential to create real tremendous value, and we thought we could do both. We could grow it and optimize it. And I think the team, Jerome had led a lot of that effort and then Demon picked it up and took it to the next level. And I think demonstrating that growth and getting to the market and serving the market the way they need, I think it opens up the aperture for M&A. And then that's what you want.

We did have the one business in there, which was the sustainable gas and that was the business that was causing us the most pain because it was growing and losing money. But now we're growing mid-teens, and we're producing high teens ROS. It's a great business. And so congratulations to the team for all of that.

It's Deane Dray with RBC. So I just struck off the question about where you're going to divest flow because that was a pretty convincing.

Thank you, Dean.

All right. Thank you, Dean.

So I appreciate that. I just want to make sure I'm clear on the contingency assumption. And first of all, I love seeing that. One of the companies in the industrial space, United Technologies always had a contingency in every plan because stuff happens. And -- but just the idea here is, are you backing out upside in a resi recovery from all of the businesses. Is there anything else that you're baking or could add some contingency baked in?

Yes. I would say it this way, Dean, we haven't put a residential recovery into our base case scenario. So that base case does not assume that we see resi recovery. And then the incremental breakthrough innovations and residential recovery would lead to that higher than mid-single-digit growth, and we have backed both of those out of that incremental plan.

And if we stood up here in a couple of years and do the update, we would compare ourselves to the base plan, and we do expect to have beat it handsomely. That would be our expectation.

Great. And then just as a follow-up, and maybe it's also a follow-up to John, your comment about M&A. When you look at the upside case, you're baking in a potential increase of a turn of leverage. Is that an assumed M&A optionality, if you will? Or is it buybacks? And maybe just kind of address the it's not a big spike in leverage, but it's just -- it looks like that could be one of the levers that you could pull. And anything about the funnel.

When we build that longer-term view internally, we generally use buyback as the metric that an M&A would need to exceed. Obviously, buyback has a shorter-term benefit. Good M&A would have the best long-term benefit. But if you're not comparing it to what buyback would have got you, I don't think you're starting out with M&A being the fair metric is the buyback value, investing in yourself.

I think the -- all of our incentive plans are based upon organic revenue growth. So we're not incentivized to do the M&A. The ROIC is a check and balance against an M&A that would destroy the ROIC. We're not going to get paid on it. And ultimately, we're trying to build long-term sustained cash flows and EPS.

The only thing I would add to that is, I mentioned earlier that our investment-grade target is a nonnegotiable for us. we're going to remain investment grade. And so we would put that cap of approximately 2.5 turns on our deal flow.

It's Joe Giordano from TD. Just wanted to make sure I understand how you're like differentiating between what's kind of like a core growth and what's in and what's in these opportunities that are on all these slides? Because like I look at Pool, for example, right? I think it said $400 million to $500 million of cumulative opportunity over the next couple of years. The midpoint of that is 9% or so for growth over the next couple of years, and we're guiding mid-single. So like which stuff is in that? And how were we kind of bridging.

I think those are opportunities. I appreciate that. We're not going to capture all that opportunity but think about that being mid-single digit in the core in the base. I'm not trying to confuse you on the residential. I don't think the residential recovery is going to come in a sustain 1 or 2 extra points per year. I think we're going to see it the way we saw it last time where it's going to just start roaring.

And I think if you're going to -- we feel like we need to hold ourselves accountable to the drop-throughs on that incremental value that would come from it. And I think that that's the way I'm sharing it. I don't know if it's going to come in -- the tail end of '26, '27 or '28. I do believe there's a higher degree of probability happen sometime in this longer-range look and I think we're going to capture our fair share of that. And I think that's the opportunity to get to the high side of the delivery.

So second question, when you think about new targets, new products that you're putting into the resi channel. And I think in pool, you've had good success there in that in-home stuff outside of Pool. I think it's been a challenge historically in terms of things that seem like a good idea at the time and then the market doesn't develop. Like what have you learned over that period to give you confidence that the stuff that you're launching over this next 2, 3 years, like is more viable?

Yes. I mean, Greg and Jerome, I'll let you hit, but Pool, our dealers and Pool love innovation. They love expensive innovation because they make substantial margin on the install, substantial margin on the install. They don't worry as much about the warranty and the call back rates because we stand behind those products, we provide the field service, and we support them over the first 5-ish years of that installation. So they're geared up and ready to sell the innovation, what they need us to do and the channel is to pull it, create the demand and help homeowners understand what that is. I don't think that's the same in our residential Water Solutions aspect.

So the plant advanced water appliance that you saw Adrian talk about, we've got a different channel to market there. And I don't want to give too much details on it because Adrian having great success in the channel. But think about a high on Pool builder getting paid on content, right, because they make their margin on the content pull through. So that's where your high-end appliances come in, your high end countertop, your high-end windows. We believe that, that channel is looking for a solution for water and a luxury water that feels good everywhere in the house.

So we're talking about great drinking water. We're talking about no spots on your showers. We're talking about clean dishes and the luxury feel of the water, and we think it's willing to pay a very high price point for it. But it's not something we think our traditional channel could actually take to market in a productive way. Does that answer your question? Thanks, Joe.

Andrew Krill from Deutsche Bank. First question, big picture on 80/20. I think you're in year 3 or so with the marquee 80/20 consulting firm. Can you just give us some more color on what inning you believe you're in, in this process? Maybe comment on the revenue drag you had and when that could start to become a tailwind.

Sure. Yes. I would say giving you an inning is difficult because it's in particular businesses, right? And so we're using the key ratio to guide our decisions on growth versus optimized and how we're thinking about enhancing that key ratio before we go and grow. And so that chart that I showed, if you think about commercial water and pool, those businesses that are at a place where their key ratio is strong, and we want to see the 80/20 become a revenue driver through the Quad 1 focus, whereas other pockets have that quad-on opportunity still through the 80/20 exits that have been completed, but we still have work to do on the key ratio and optimizing that business. before we feel as good about the revenue drivers.

And I'd say we're in a third inning of an intense playoff game that might go into extra innings. I say it because I think 2 of our 4 business leaders, they wake up every day, breathing it, it's theirs. They're driving it. We're not consultant-based anymore, so we transfer that internally. But we're not everywhere doing it every single day, the way that we should be making every decision, and we haven't yet got it deep into the functions, which I think is where the biggest opportunity is, what do we want to stop doing in HR? What do we want to stop doing in finance? What do we want to stop doing in IT? And then how do we want to replace it with lesser cost solutions. And that's why I think we're in the third inning.

Great. And then for the unchanged overall mid-single-digit sales target. Could you array maybe which segments are a little fast or slower within that, if at all? And did you intentionally remove the plus sign from Pool? That was there last time we were here.

Yes. I think what we did was we -- instead of putting the plus sign in the base case, just to let you know, I mean, obviously, a big piece of the extra value we can create would come when the market comes back and pool, then you'd see them in the plus. You might even see low double digit. But that's in what I would say the higher end case is where that plus sign is this time. And then you want to talk about the fastest in the...

Yes. I would say that the plan is really balanced across the entire portfolio. And we're not expecting any one business unit or segment to drive more opportunity from a percentage of increase perspective than any of the others. We're looking to have balanced growth across those business units and then the Ross expansion, as we talked about, modest within pool, but again, driven by the volume, commercial water driven by the volume and then water quality management and flow that Ross expansion and that incremental income through the optimize the functional and operational excellence tools within our Pentair Business System toolkit.

And the reason we lowered the WQM is we have just exited most retail and most direct-to-consumer, and I don't want to go back there. And there's a ton of growth in the lower-end spaces around filtration and consumer-based solutions. We want to stay professional channel, and we want to continue to stay at the higher-end premium solution part of the market.

It's Andrew Buscaglia with BNP Paribas. As a much higher margin, high return company. I'm wondering what your philosophy from here is going forward on M&A in that probably I guess, deals might be more dilutive to that margin going forward. In that upside case, how much are you assuming in terms of that assuming if there is M&A coming before 2028 and that 28% margin?

Let me start and go there. I don't think I look at the margin as a deterrent. I think for the right M&A property, we'd come to you, we'd demonstrate where it is against our expectations. And I think we've built a lot of confidence on what 80/20 can do and ultimately, what the transformation toolkit could bring to improve its margins. But I think we're looking for assets that have a good growth profile and we're looking for them to create incremental shareowner value.

Right now, some of the assets in the market, they'll have like $1 million of data center exposure, and they're looking for data center like multiples. And you ask yourself, why are they -- why aren't they keeping it then, right? And so right now, we're in the early stages of emerging properties, and I think we need realistic selling multiples. And I think we really feel confident that between 80/20 and transformation, we can bring a lot of value to these assets. around the core spaces that we feel we want to be in longer term to create long-term shareholder value.

Yes, that's right. Well, when we look at a target, if you look at the last 2 deals we've done, high single-digit growth, great margin but great capability enhancers for our portfolio. And we've used the tools of 80/20 and our Pentair business system during the diligence process, to screen where we think we can add value to those businesses and whether or not they're a fit for us to be the right owner for them. So we'll be using that filter of ROIC accretion over the right time line. And then how is it adding growth capabilities to our businesses? And can we use 80/20 and our Pentair business system tools to enhance the business we're buying.

Yes, makes sense. I just want to switch to the Pool market and the Pool outlook. So you're not baking in much at all of a recovery in resi, which is great. But I wonder when you think about a recovery in Pool and it sounds like you think that the up cycle could be pretty strong when it comes. What about the -- what would you say to someone who thinks that maybe the cost of the pools so much significantly more than it was in the past trough, inflation is high. You have cost of labor high, you have -- the prices of your products are a lot higher than they were in the past trough. So yes, when you're talking with your customers and put together these slides with your outlook, how do you think about the context of maybe a more dampened recovery.

I acknowledge that there's probably a lower-end buyer to a mid-market buyer of a home who could be priced out from a potential Pool. But I think that's going to be thwarted and I don't mean this as flip as it's going to sound. But tell a rich person they can't have something and wait until they find a way to buy it, right? And that becomes such a part of your landscape in the areas than the south where we build the pools and the backyards and the water features and the hot tub and all those other aspects.

And I said this last time, it's true. The hot tub is for you and the pools for the grandchildren. There is still a tremendous market. We're probably being held back more by permitting and zoning than we are from consumers' ability to pay, right? So the rebuild programs in Arizona are slower. And there's no more real data communities being built around golf courses. So you're seeing the substantial remodeling that's occurring, and that is a part of the opportunity for us. And then if you take a look at the L.A. market where those homes were lost, which are all subject to pools, they're still not out of the permitting processes of what that new development is going to look like from fireproofing hurricane.

But I don't think that it's really going to come down to a desire. I think we're going to see a recovery. And as soon as the market opens up, I think the pools are going to follow because it's just part of what is required, they are like not having air conditioning in a lot of the places they're at.

Yes, maybe I would just add that the tool equipment is actually a relatively small piece of the total cost of building a Pool. And we've been in this business for a long time. And as Greg was talking, and Jerome were talking, our relationships with our channel, our distributors and our dealers is extremely strong. And as we continue only about a 50% of North America Pool pads have any form of automation. And that adoption rate is increasing. And so we think that through our adoption -- or excuse me, through our automation platforms, you're going to see even stickier comprehensive Pentair Pool pads in the market in that luxury top end. And again, it's only a small percentage of the total cost of building a Pool.

John, did you want to add something?

And what I would add is that 80% of our revenue is with existing Pool and not just Newport, right? And so we have technology that can really improve the customer experience for all those 5.4 million Pool that exist. And if you add connectivity, you're going to improve the experience. And with that experience, there's going to be even more technology. People are looking for solution, people who have pools today. And that's the vast majority of our revenue.

I've said it's the best business I've ever been exposed to my career. I sit here today and tell you the best business. I think I'll ever be exposed to in my career. I know people are worried about where we are in this inflection point. We've been here before. We've had to create that incremental TAM, the total available market. That's up to us as the leader. And we have to make it almost nonnegotiable for somebody to want a pool, and we need to make it easier to use, and I think we've got all the capability to do that.

David Tarantino, KeyBanc. Here for Jeff Hammond. Just following up on the more balanced gross assumptions versus the last targets. Can you talk about why that's the right way to think about it, particularly with a lot of the businesses in Flow and Water Solutions still in the optimization stage and maybe earning the right to grow still?

Yes, I can take that. So this plan is through 2028. So when we think about those growth targets that we provided you for those businesses, don't assume that they stay and optimize through 2028, right? As this team has demonstrated, they know how to get after the cost structure. They know how to get after improvement of that key ratio. And as that is completed, then you start to see the focus on Quad 1 and then the incremental growth that comes with it. So they'll be pivoting over this planned horizon from optimized to growth.

We've been getting growth from growth actions, but it's been offset by volume declines. And so '26, we've got volume basically a net neutral as we think about going forward. There is going to be some contribution, '27, '28 from the volume side, and it's generally going to come from growth actions. And then we think we can leverage that volume up and also still get the cost that it feels more balanced to us.

This is Pat Baumann for Steve Tusa at JPMorgan. A quick question on the multiyear margin expansion that you have planned is -- do you see that as kind of evenly weighted annually? Or is there like a transformation benefit from what you're doing with the nonpool segments that unlocks more of that earlier or later? Just wanted to get color on that?

Yes. Thanks for your question. It's about 100 basis points a year, approximately, uniformly distributed through 2028.

So evenly weighted.

Yes.

Evenly weighted, okay.

[indiscernible]

I'm sorry.

Closing comments.

Oh, I'm sorry. Thank you, everybody, for coming. I am excited about what we're -- what we shared with you today, hopefully, you are as well. I'm excited to talk to you about it further. We think we're going to sit here on the verge of creating tremendous value. And as I said, we take a commitment seriously. We're compensated to those commitments. And we would like anything and everything to be that when we talk to you at our next Investor Day, we beat that base target, and we did it by making sure that we hit it the way we are attempting to hit it.

What I mean by that is we would expect that if we use more leverage than what we did in the base case, there should be upside value created from it. And so I just want to make sure that's clear. And also, hopefully, you appreciate the transparency, like I said, and you don't beat me up with it or beat it up with it.

Thank you for coming. Thank you for listening. Have a great day.

Thanks, everyone, for being here. It's my pleasure to have up next, Pentair. So we've got Bob Fishman, that many of you know, who'll be retiring soon. Nick Brazis, the new CFO. So congratulations; look forward to working with you. And De'Mon Wiggins from the Flow business. So we'll have a good discussion today.

I don't know if there's any quick remarks you'd like to make upfront?

Absolutely. So first of all, thank you for the invite. And thank you for your support, Julian, over the years. I have until March 1, it was announced on the Q3 earnings call that I'm retiring.

Nick will be an exceptional CFO. We've been working very closely together over the last couple of years. And De'Mon has taken on a bigger piece of the business, he is now running both the Flow business and Water Solutions.

Thank you, Julian.

Thanks very much. So maybe we'll start, perhaps, De'Mon, help us understand kind of impressions of kind of running both businesses. How do you see the demand outlook at present and kind of synergies across the 2?

Yes. First and foremost, really excited about running both segments. We've had a really strong run in Flow, both from a growth and also profit expansion. And as far as Water Solutions, excited about that in 2 phases. But I think about the water quality coming together, we have a residential pump business, that we're bringing the residential filtration business together. And that gives us another opportunity to align with the homeowner in how we treat their water and enhance the water quality inside the home. And that's something that our channel has been asking for. So that's a nice opportunity for, not only growth, but we also have some synergy opportunities inside of that business.

As far as our Commercial Water Solutions, which is your Everpure and your Manitowoc businesses, strong brands, and we are excited about the future in that business. And Nick will talk about guide itself. But the businesses have strong opportunity, not only just in the restaurants, but also opportunities in convenience stores where those are becoming much more destination locations of travelers and because they offer so much more. And that's an opportunity for us to gain share. And so truly excited about both sides of the business.

Great. And on the demand side, what are we seeing on the different verticals kind of within commercial and then resi at those 2 segments?

Yes. So I'll start and then Nick can give some pieces. But from a demand standpoint, we think about commercial, still seeing commercial buildings being strong. We're able to play, as you think about our pumps, fire suppression, water movement too in the commercial building. That's becoming consistent. And we have the ability to navigate different spaces, commercial buildings and educational, health care, and even in data centers, we're seeing some pickup there. So some opportunities there.

Industrial continues to be strong because we've moved from just being project-oriented to more component solutions, recurring revenue. So less dependent on CapEx and more OpEx needs.

And then on the resi side, I would say, a little bit more the market itself flat. But what I've been seeing is that we have opportunities with the work we've done in 80/20, that has moved us towards a pivot to growth and opportunities to gain share in those spaces. So nice outlook.

Nick?

We guided for 2026 expecting really no residential recovery. That doesn't mean that there won't be one, but we've guided that there wouldn't be one in our guide. And so we think about the Pool business for 2026 looking a lot like the full year 2025, relatively flat volumes but with a couple points of price, 2 to 3 points of price for the year in the Pool business.

And we think about our Water Solutions business being up about low single digits, with some healthy margin expansion, in part due to the transformation tools that we've, I think, demonstrated a real strong ability to execute with across sourcing, operational excellence, organizational excellence. And bringing the residential water and residential flow businesses together, we can create a lot of margin opportunity.

And then our Flow business has been doing fantastic, and we guided high single digits for the year, growth, with margin expansion about in line with the company, so about 100 basis points for the year. We're excited about each of those 3 businesses.

And our guide for '26, Julian, is really a balanced guide across our move, improve and enjoy segments, where each segment is contributing approximately equally to the incremental EBITDA and income dollars that we expect to deliver in 2026.

So we're excited about the balanced water portfolio that we have. We're excited about continuing to deploy those transformation tools in the businesses that really have runway on margin expansion, and continuing to use transformation tools for that incremental margin across the portfolio.

And you mentioned price there, 2 or 3 points, I think, dialed in, in Pool. I think one thing that's come up in a lot of investor conversations kind of since the earnings was that price was really high, 8 points I think in the fourth quarter for Pool. And then the guide seems to embed almost no price realization exiting 2026. So I guess kind of why is that? Is it simply about matching price to offset costs through the year? Is anything changing in terms of competition, or price fatigue at the customer level? How should we look at that price in Pool?

Yes, our price carries over nicely from '25 into '26. And I think our products, the quality, the service that we deliver and our sticky relationships with our dealers, price has remained sticky across our channels to market. We guided with price effectively offsetting inflation in the year 2026, but that price carries over nicely from '25 into '26.

Got it. And so there's nothing changing on the competitive landscape, if at all. I think we get some reports around more China-sourced products at 1 or 2 of the larger distributors in the U.S. Is that something genuinely new or something to be alarmed about, or it looks pretty stable, the competition overall?

Yes, Julian, thanks for asking that. The pool market is always changing, but these low-cost entrants have come and gone for a long time. This isn't a new phenomenon where all of a sudden there's people bringing lower-cost products into the Pool business. And what our team has been able to do by driving high-quality, innovative, value-expanding products and systems into the pool industry, I mean we've been doing that for a very long time. And we predominantly compete in the more luxury pool market. And only about 50%, it's a little less than 50%, of the North America pools have any automation feature.

And so as pool owners continue to take on automation capabilities that we offer, that just drives an even stickier solution for their whole entire pool pad. When you've got on your phone the ability to see your heater, your lights, your pump, your filters, and you can control that on your way home from the office and have everything ready, or you've got predictive analytics where you know that you've got to replace your filter in a couple of weeks and it's not going to disrupt the pool party that you have, I mean people love that automation capability. So we're excited about that. We're continuing to innovate, particularly in that automation and connected systems space.

And the last thing I'll mention is that our dealers, and Pentair, we have great relationships. Our quality, our service -- our dealers want to interact with their customer and have it go right. And our products do that.

Got it. So as you think about market share, being kind of pretty stable, no major shifts.

Yes, that's right, Julian.

Great. And then if we think about kind of where are we in that pool volume cycle, it seems like sort of volumes the last 6 years or so, there's very little growth kind of decade to date. It seems like we're well below trend. How should we think about the catch-up back towards trend there?

Sure. I'll make a couple of comments. The first, Julian, is that, again, for our guidance '26, we assume effectively flat volumes for the whole year. So we don't assume a residential recovery. Again, that doesn't mean it won't happen; we just haven't built it into our guide.

Additionally, as you recall, during the COVID years, there's a large amount of pools that were installed. And typically, we see a 5 to 7-year kind of break-fix cycle for some of the pad equipment. And we haven't built that kind of break-fix incremental into our guide either. And about 70% of our pool sales are related to that repair-replace cycle. And so both the North America recovery, both the incremental repair-replace cycles aren't built into our guide.

Yes, I'll just call out also that De'Mon did run Pool for a while. So he's got some great insights into how we work with our dealers. Maybe if you want to make a comment on that, De'Mon.

Yes. And I think it's important as we work with our dealers, training is key. And we spend a lot of time working with them so that they have the best experience that they provide to the homeowner. And where we believe that continues to play out as we move forward, and as you know, from the pandemic, there was significant demand pull-through, that will get to a point where that starts to repeat and need to be changed out. And we have confidence that those dealers that we worked with at that initial phase of putting those pools in will replace that with Pentair equipment.

So that's how we look at it, and ensure that training, that seamless support that we give enhances their desire to put our product back on the pads that they first serviced, and also ensuring that the experience that the homeowner receives is elevated because of that.

Great. And then one question we've had, and this is sort of the last very short term one I'll ask, I think, is around, I think the guidance for the first quarter, because you give very detailed quarterly guidance as a corporation, you've got the Pool volume down mid-single digit, but it exited last year pretty healthy. So maybe help us understand why the Pool volumes, that shouldn't roll over?

Yes. We saw, as we mentioned on our earnings call, we saw sell-in a little higher than sell-out in Q4. And so our guide for the quarter takes that into account. So you see the decremental volume offsetting that sell-in/sell-out dynamic in Q4 writing itself after Q1. And then you see our Q2, Q3, Q4 volumes increase.

And so that balance of incremental volume Q2 through 4, again, our big season is Q2, Q3, those incremental volumes then offsetting the decremental in Q1, balancing that sell-in, sell-out, and then we have approximately flat volume in aggregate for the year. Thanks for asking that, Julian.

Okay. Perfect. And when we think about the transformation program, I mean, it's been extremely successful. The company is on track to do that, 26% plus margin, and we'll get updated targets in just a couple of weeks now. But when we think about, De'Mon, your businesses you're operating now, I think those 2 will have the lion's share of further margin expansion from here versus the Pool division. So maybe how are you thinking about the entitlement on incremental margins for the 2 segments? How much left is there on productivity to keep pushing the margins up there?

Yes. First and foremost, I want to say there is still room to go in transformation. I want to put that out there right up front. And each business is in its unique journey as to where they capture more margin expansion.

As I think about our water quality business, about 25% of our factory footprint is inside of that business. And we have opportunities to look at those as they come together and see where those transformational activities can play out. We've seen a really good run in Flow, specifically in our industrial business, industrial solutions business, where margins and income dollars have really improved. But that still has a significant factory footprint, operational opportunities, that we can continue to go after in not only '26 but and beyond.

So those businesses, while we're starting to pivot to growth, still have that opportunity to improve the margin profile of those businesses. So that's the area that we will focus the most on, as we see areas like our Commercial Water Solutions business be ready and primed for growth because the margin profile is really strong. So that's how we're looking at it today.

And when we're thinking about that algorithm of kind of top line revenue growth versus kind of margin expansion, I think some investors are sort of curious, there'll be a big shift across Pentair to top line growth kind of maximization versus margin expansion, which has been the sort of the last 4 years' push.

Kind of how would you assess the balance between those 2 things? And I guess to your point, De'Mon, just now, if you get good growth in the higher-margin businesses, there's no reason you shouldn't get high-margin expansion with the top line growth. So maybe flesh out how we should think about that interplay in your segments and also Pool perhaps.

I'm going to start with my segment, and I'll say it this way. Each -- I want to talk about 80/20 from a standpoint of 80/20 now being a growth driver in our business, because what has happened is, as we've taken the -- and exited the Quad 4, whether that's products and customers, that's allowed us to focus on our top customers. And what that is achieving is moving from tactical conversations to strategic conversations around growth.

And we're seeing that play out in the industrial business and we see that playing out in our commercial business as we know the areas that we want to expand into. And then we see that opportunity as we take that same type of playbook into Water Solutions, specifically water quality management and our CWS business, as an opportunity for pivoting that to growth and driving the growth that we want.

So it's a balance. And we're now at a place where many of the businesses have started to earn the right to grow because the profile is consistent in the margin that they're delivering. And now that that consistency is there, we are giving that authority to grow because that accountability goes down to the general managers into driving those specific businesses.

Yes. I would just add, Julian, that March 4, you mentioned the upcoming, our Investor Day, we're excited to share our growth algorithm with you guys and how we're thinking about the next several years. And we'll share that during Investor Day.

But just a bit of a teaser, when we look across the portfolio, as De'Mon mentioned, there are pieces of the portfolio that, as they grow, that operating leverage -- for Pool, for example, we've shared that incremental volumes dropped through at north of 40%. Our commercial water business, commercial flow business, we have businesses that are dropping through well north of 30%.

And so those businesses are going to be focused on growth. We've got some exciting innovations and NPI to share at our Investor Day. And then there are other parts of the portfolio that are really primed for continued deployment of our transformation tools: sourcing, operational excellence, organizational excellence, that price-for-value in the market.

So we'll give you a breakdown of which of the 12 revenue streams under our segments we're really focused on growing through sales and marketing, R&D deployment, new product introductions, and show you some of those innovations, and which parts of the portfolio are going to continue to expand incrementally on the margin side, both dollars and percentages, but really incremental margin expansion across the portfolio, just different levers to pull to get there.

That's helpful. And when you look across or think about those 12 revenue streams, is there a sense that, having reviewed all of them, that there's much need to kind of catch up investment? I think people sometimes worry, "Okay, if you had a multiyear margin story, does the pendulum kind of swing back again to top up investment?" Or you think not necessarily, there's no obvious areas of...

No. I think the team has done a phenomenal job. Our transformation results have all been net of investments. And so in those growth-focused businesses, I love the way De'Mon talks about it, is you got to earn the right to grow because you've got to have sustainable, great-margin businesses that, as we grow, we can keep it growing the right way at the right margins. But we've been investing in these businesses for the last several years, while we've been delivering the transformation savings, and specifically investing in service centers, sales and marketing, R&D. And that's already been reading out in the P&L, net of the transformation tools.

Got it. And when we look at, De'Mon, your businesses in Flow and Water, margin rates there are some way behind Pool, and there's various reasons why. So when you look at the Pool margins or you look at specific benchmarks of industry peers for Water and Flow, do you see a lot of room, like do you think Pentair is sort of under-earning on the margins versus specific industry peers for those businesses?

It's interesting. We do look at our peers, but to be honest with you, Julian, we focus on what we can control. And we still have more room, because what we continue to do is focus on the value that we offer to the customer and how efficiently we can do that inside of our operation to ensure that we can achieve that margin expansion.

And what we've been able to do is, where necessary, pass price, and because of the value we provide, that price has been sticky. And as we move forward, we continue to ensure that through transformation, our 80/20 usage and our overall Pentair Business System, we continue to enhance that continual profitability inside the business. And that should be something that we can deliver continued margin expansion regardless of what is happening externally with peers and competitors right now.

Perfect. And I think the Flow business, the sort of medium-term growth target from the prior Investor Day was not super-high organic growth. Kind of when you look at it today, do you think there's room for it to grow faster now that a lot of the 80/20 work is well underway? What are the areas -- extremely fragmented market, myriad niches in the flow industry globally, maybe help us understand what are the specific areas you're focused on, on that to get organic growth dialed up.

We'll get into a lot more of that in detail at Investor Day, but I will shed a little light on: we understand the categories at a much deeper level. We've elevated the business teams and the PODs who run those businesses. They understand where there are opportunities for growth, the adjacencies that they can move in. And that's what is exciting me about the growth that we can achieve in specifically those businesses.

That we've started to see readout even prior to the point that we're at now. And so the projections we probably gave a few years ago in low single digit has improved. I mean you've seen us in the performance that we've been giving in that Flow business, and very proud of what the team has been able to achieve.

And we've touched on price at the beginning as a sort of cost offset item. But if you think about it more strategically, with the Quad 4 having gone, does that mean the price realization potential is just higher for Pentair now because you're focusing on higher-value customers, so there's more ability to get higher price consistently almost regardless of inflation?

I would say the value we give is going to be key, because those conversations, I'd say, become much more strategic. We're talking about innovative solutions that, because of the value, that you're going to get more price. So the pricing power comes from what solutions that you're offering and the needs that you're meeting, and that's going to be key. Because those discussions have changed from being a tactical provider of product to a solutions provider of the needs that our customers have.

Yes, I would just add, Julian, that our pricing tools, that value-based pricing toolkit, is part of our Pentair Business System. And it's something that is -- all of our businesses are using, to understand the customer, to understand the value that they're delivering to that customer and to price appropriately based on that value proposition. Certainly, we want to cover off any inflation, tariffs, and we've done so over the last several years. But we're really thinking about and providing tools to the businesses of how to drive value-based pricing.

Got it. And when we wrap together kind of all the efforts on productivity that you've been discussing, is that kind of $70 million plus tailwind that you're seeing annually, is that something sort of repeatable for the balance of the decade, do you think?

We'll give you more guidance on our transformation objectives for the next 3 years on -- at our Investor Day. But we don't see this transformation journey as stopping in 2026 by any means. And we think we've got a great runway. And a lot of funnel work that's been done, that will be done, revisiting Wave 1 and Wave 2 of our sourcing activities that read out really nicely over the last few years, De'Mon talked about some of the operational opportunities within that water quality management business. So we'll give you more of an aggregate view on the next several years of transformation opportunity at Investor Day. But we don't see that halting after '26.

And lastly, kind of capital deployment. Could we see more of an M&A kind of push? Alongside the effort for higher organic growth, should we expect or inorganic revenue contribution as well now?

Yes. The last 3 years, we -- about 3 years ago or so, we acquired Manitowoc. We levered up to about 2.5x. We've been delevering since that. We ended '25 at about 1.4x levered. And during that time, we acquired Gulfstream, a really nice bolt-on with great heat pump technology that's a complement and a capability to our Pool business. We acquired Hydra-Stop late last year, a great insertion valve product that complements our commercial and infrastructure flow business really well. And so I bring up the last few years to just demonstrate I think we've done a really good job of having disciplined capital allocation strategy.

Going forward, you can expect a similar view, to have a disciplined capital allocation strategy balanced between share buybacks, M&A, and importantly, investing in our businesses, whether it be CapEx in some of our factories -- we're still going to be CapEx light. We have been, that's going to continue. But we'll do bolt-on M&A when it is a complement to our portfolio and going to drive synergies and incremental EPS over the long haul.

I'll just add, Julian, too, we have been and will continue to be over the next several years, incentivized as an executive team by not just earnings growth, but by our return on invested capital targets. And that's something we look at whenever we consider any capital deployment, is ROIC, and we're incentivized as an executive team to drive that.

Fantastic. Well, I think we'll switch quickly now to the audience response questions, please.

So the first one is, you currently own shares in Pentair?

So slightly above average no. So a lot of opportunity there.

The second question is around, general bias or attitude to Pentair right now?

So fairly neutral.

Third question is around, through-cycle EPS growth for Pentair versus the kind of multi-industry average?

So generally in line with the average.

Next question is on capital deployment. What should the uses of excess cash be?

So mostly buyback weighted.

Penultimate question is on valuation. What's the appropriate kind of year 1 P/E multiple for Pentair?

It's around kind of high teens. Looks to be the right level.

And then the last question is around, what's the main factor holding back that valuation multiple today?

So all about core growth.

So with that, thanks very much. It's been a great pleasure to have Nick, De'Mon and Bob. And Bob, you've been coming to this conference for a number of years. So I really appreciate your partnership on this. And I'm sure everyone in this room wishes you well in your retirement, so...

Thanks very much. Thank you.

We are very excited to have Pentair Corporation with us. We've got Bob Fishman, who is still the CFO, right? Still the CFO right now.

CFO.

And Nick Brazis, who's the incoming CFO; and then De'Mon Wiggins, who is the EVP and President of Pentair Flow and Water Solutions. And so with that, I'm going to turn it over to Bob just for a couple of prepared remarks, and then we'll get into Q&A.

Yes, absolutely. Thank you again for allowing us to come to Florida here. Pentair, so we help our customers move, improve and enjoy water, $4 billion pure-play water company that has performed exceptionally well. We had announced my retirement effective March 1. And so Nick will come in and be my successor officially on March 1. And De'Mon, who has run our Flow segment over the last few years, now has responsibility for Water Solutions and our Flow segment. So you'll hear more from Nick and De'Mon today.

Great. So very succinct, Bob. So obviously, as we just talked about, you're in the middle of a CFO transition. So maybe this is for Nick. I mean Bob has obviously played a very formative role in Pentair's transformation. So maybe you could talk about what you've learned from Bob through the transition. Is there anything that you'll do differently? What would be your areas of focus?

Yes. Thank you for that. I think I've gotten to work closely with Bob, John, De'Mon, Jerome, Adrian and the entire executive team for almost 3 years now and have worked really closely with Bob, especially in these last 5 months during the transition. My takeaways from Bob are many. I wouldn't have time to summarize them here today, but our focus on driving operational excellence and transformation is most certainly one of them.

And then also our approach to disciplined and balanced capital allocation. I think that I'm going to carry forward most certainly. And one thing that will be a little different going forward is that transformation now works directly in -- under the CFO. And so we're really excited about driving that into the organization even further and accelerating some of those benefits with the ISE and transformation in finance. So we're really excited about that.

That's interesting, Nick. And I know you guys just reported a couple of weeks ago, but I got to ask this question. Anyway, anything new in your markets? I think in Pool and Water Solutions, you're supposed to start a little slowly. I think sell-in in 1Q a little bit slow in Pool and still weak international commercial markets in Water Solutions. But anything you're now seeing in those segments and conversely with the strength of your flow business. So maybe De'Mon can get involved here, too.

Yes. I'll just mention. So we guided really a balanced approach across our 3 segments for our incremental income and EBITDA in 2026 across our Move, Improve and Enjoy segments. And when we look at the pool business, we talked on the earnings call about how Q4 sell-in versus -- sell-in versus sell-out. We had a little more sell-in than sell-out, but we think that's going to be balanced in Q1 and that will right itself in Q1. And then the rest of the year, we start to see more flat volume across the Q2 and incremental volume in the back half of the year leading to that flat volume for Pool in 2026 with a little bit of incremental margin and 3% aggregate revenue for Pool. Did you want to take Flow & Water Solutions?

Yes. And Andy, I appreciate the question. I think it's a great opportunity to talk about a lot of the great work that was done in Flow. And I think we had strong momentum coming out of 2025. And I'm excited to continue to see our disciplined approach to drive growth and excited around what '26 has to offer. Water Solutions, I think we've got strong brands and continue to focus on those opportunities in our current spaces, but in some nice adjacent opportunities also. So again, getting back to what we guided, getting back to growth in that business, we see that happening.

That's helpful, De'Mon. So just maybe -- I don't know if this is for Bob or Nick. Like in terms of transformation, obviously, you'll be updating us at the Investor Day. We know that. That's just in a couple of weeks. But it's been quite a success story for you guys. Maybe the main driver of delivering your 26% ROS target, what you're expecting in '26. And can you give any incremental color about how to think about normalized incremental margin going forward? Obviously, you're still high in '26 around 50%. I mean, should we get used to that kind of incremental moving forward?

Yes. We're excited about what the transformation tools have delivered for Pentair and what we think they're going to continue to deliver across our abilities to price, our sourcing capabilities, operational excellence, organizational excellence and our 80/20 tools. I would suggest that I think what we've told before is about 40% plus on incremental pool volumes and 30% to 35% in that flow -- commercial flow and water solutions space.

Okay. That's helpful. And then I want to hone in on 80/20 for a second. You've delivered $250 million of net productivity savings in '23, correct me if I'm wrong with any of this stuff. You got to $70 million in '26, driven by sourcing waves 1 and 2 and implementing wave 3. So I think you've mentioned you have good line of sight to the $70 million. But -- basically because you're revisiting prior waves. But could you talk about how you're accelerating your strategy? Like what are you doing?

Yes. I'll start, maybe if you want to add on. But our 80/20 journey really started about 2 years ago now after we had already deployed some of the tools of transformation. And one of the things that we've done with our 80/20 tools is we've exited some Quad 4 customers. We've had some SKU rationalization. And as we move incremental volume into Quad 1, we start to see that relationship with Quad 1 deliver incremental sales, but it also puts more of the volume across a smaller number of SKUs. So you can get incremental sourcing benefit as you revisit waves 1 and 2 and as you introduce some of the make-buy dynamics and exploring that and bringing that into our sourcing transformation lever.

Yes. When we talk about 80/20, a lot of times, people think cost and taking cost out. But it is truly a growth lever, and we're seeing that play out, especially in the flow business. A lot of the work that was done in 80/20 where we removed the focus on the Quad 4, now you focus on Quad 1 that allows you to actually have different conversations with your customer. We're now talking about innovation, additional products they want from us, adjacencies that we can move into. So that's what 80/20 has allowed us to shape is a pathway to growth with our top customers and setting new innovations because of it.

De'Mon, you're almost answering my next question. So I'll just ask you, like do you expect now 80/20 to almost be a tailwind to growth in Flow in '26? I mean, obviously, we kind of are familiar with walkaway. It seems like you're done with that.

Yes. We've made a concerted effort to get the walkaway done early. And you'll see less of that in '26, almost minimal. And it's all about how you drive growth now. And we are seeing real opportunities because of that, specifically in certain businesses like our food and beverage business. You see that in our commercial building strategy. And so as we continue to bolt on those opportunities, you will see more growth because of that. So yes, it will be more of a tailwind.

Yes, that's helpful. And then I want to move a little bit more into your segments. So maybe just starting in Pool. New pool installs in '25 bounce along the bottom, as you guys know, comparable to 2009 levels. We know interest rates are higher for longer, maybe that's hurt demand a little bit. But you're guiding for new pools, remodels, aftermarket levels in '26 to be similar to '25. So why does it seem like such an extended period of normalization? And I'd throw in there, like isn't it getting close to where like heaters are going to start to break from the pandemic, things like that?

It's a great question. So -- when we guided for '26, we assumed that our 2026 was going to look a lot like 2025 as far as volumes being in that mid-50,000s for new pool starts, similar breakdown between new, repair and remodel. We did not assume that we were going to see North America residential recovery in our guide. We also, as you noted, during the COVID year, we saw a large spike in pool equipment demand. And typically, we see about a 5- to 7-year repair, replace cycle. And so we did not bake that 5- to 7-year replace cycle into our 2026 guide. And so we think those are both potential upsides to the year.

Got it. And again, correct me if I'm wrong, Nick, but you're forecasting 3% organic growth. It's basically all price. But there was, I mean, kind of a freeze, maybe not excess freeze from a few years ago, but it's pretty bad in the south for a while. I don't think you're baking any of that in, but have you seen any activity like that in pool? Or how to think about that?

Yes. I'll give you a real-life example. My brother-in-law lives in Texas, and he sent me -- they had the freeze in the Dallas area, and he's got a Pentair pool, and he sent me a video of the freeze happening to his pool. And of course, that led to some discussions about buying a new IF3. So absolutely, we just didn't bake that into our guide. So when we look at the freeze dynamic that happened in the southern states, that could definitely lead to some additional repair and replacement.

I should ask you, Nick, the opposite of that, right? If it's cold in the south, people don't use their pools as much. So is there any impact to worry about there? Or like how do you think about the channel, that kind of stuff?

Yes. It certainly can impact the pool purchases in the south. But as I mentioned, we see that as a potential upside to our guide, where, again, we've got that sell-in, sell-out dynamic in Q1, but then we see growth then after that in volumes leading to the flat volume for the year and then that 2 to 3 points of price.

Yes. And then, Nick, you already commented this. But like I think investors after you reported were like, oh, sell-in is lower in Q1. We're worried about that. Is it another destock? Like so maybe we could just talk about that. Is it really just a rightsizing because we went to the pool show in Atlantic City and it seemed fine in terms of inventory, but then we heard you and -- well, let's clarify what's going on?

Yes. I think we thought of Q4 early buy as being really a relatively normal year that we've had for the last couple of years. And Bob's got, what, 6 pool seasons under his belt now. So welcome his input as well. But it was really a pretty normal early buy program for us. And we just -- as we mentioned, we saw that sell-in, sell-out dynamic just in Q4.

Yes. I think because we're getting such a strong balanced contribution, Andy, across the 3 segments, we don't have to over rely on pool like might have been done in the past. So we cannot count on the resi recovery. And if it does happen, we can capture that. We're pleased that the sell-in, sell-out disconnect rectifies itself in Q1, and then we move on with volume growth in the second quarter.

Yes.

Got it. No, that's helpful. And I think maybe the other investor concern about pool was comments around pricing. You guys -- I mean, the whole pool industry has put a lot of price through over the last few years. We understand that. And so it's like now there's still some lingering inflation. Can you get more pricing through? So maybe clarify, can you get more pricing through if commodity inflation lingers? Like how do you think about that?

Yes. I think the team has done a phenomenal job demonstrating over the last few years that we have been able to take price where appropriate and where especially connected to tariffs or commodity price increases, we've got really high quality, high service, high differentiation in our offerings, and we found those prices to remain sticky in our channel and with our dealers. And our dealers are extremely loyal to Pentair. We've got great relationships with them. And when we look out into the year and we think about commodity increases or potential inflation, there's really only that one headwind that we see right now with ruthenium. But as we've talked about, we think we could take price for that, and that's just isolated to that one product in the chlorinators.

Right. And so maybe, Nick, you can comment then on where we are like midway through Q2 -- sorry, Q1. Like have you seen lingering inflation? Are you going to do more price? Like any thoughts?

Yes. We'll continue to monitor it. And what our guide is that we expect price to offset inflation.

Okay. I got it. And then maybe just the competitive environment. There's been some questions to me about Chinese competition, sort of what's going on with that. So maybe you can just sort of address that when it comes to pricing.

Yes. The Chinese competition or any of the low-cost entrant for that matter had been around for a long time. And this isn't a new dynamic. Our customers value the product, the product quality, the service, the serviceability, the relationship with the dealers. And so we've been able to successfully navigate that for a long time. And now that's not to say with some kind of hubris that new entrants won't come in that we have to navigate.

But I think our team is well prepared to do that. And only about 50% of North America pools are -- have an automation feature. And as automation adoption increases, we see that stickiness with our Pentair products connected to that automation just continue to increase. And we were having a conversation with somebody earlier that owns a pool and has an automated Pentair pad. And they said they don't even know that their dealer would even consider using any other product of Pentair when they're servicing that pad. So it's really that stickiness with our dealers and our customers, that differentiated product and playing in that more luxury premium space than in the lower cost space.

Well, Nick, I think we went around together a couple of months ago. I think what I heard from you guys is pretty significant new product intros in Pool actually for '26 and like a real focus on growth. So you kind of spurred me when you talked about more automation, whatever. I think you've got a focus on that. So how much can new products help? Like would you expect a bigger year in '26 than '25 on that front?

Yes. We'll talk more about that at Investor Day here on March 4. We're excited to talk about some of the new innovations, product launches and capabilities that we're going to bring to market. But I'll just remind everyone, we've had great transformation journey and the transformation savings have been net of investments. So we've been continuing to invest in our businesses that we think are poised for growth and differentiated growth, and we're going to talk more about that at Investor Day.

Got it. But I mean, to your point, like we still should be able to grow margin in Pool if price cost is relatively neutral. You've got new products going through even in kind of a relatively flat market. Is that fair?

Yes, we agree.

Okay. And then moving on to Flow, maybe this is for De'Mon. Like so the start of '25, industrial solutions revenue started off quite light. And there were some delays in food and beverage, but double-digit growth in the second half, very strong. And it seems like that business returned to good growth. So kind of what happened? And can you talk about what's going on in that business for '26?

Yes. And Andy, I'm very proud of that business, first of all. We put a very much of a focus on the business model itself. And it was a heavy project business when we first started where we would go out and win large projects and that create a lot of lumpiness in our performance. As I got into the business and worked with the team, we found opportunities to find where we create value. And instead of being the full integrator of a project, be a component provider that adds value to the end user and help with uptime reliability inside their business.

So what that allowed was consistent revenue, recurring revenue and being more of a partner to that end user. And so as we continued to do that, they created a really nice profile for the business that we can continue in future quarters and drive that moving forward and not have the lumpiness that was in the business before.

What that also created was an ability to -- now that we're not doing large projects, the resources needed to keep that going, i.e., large engineering staff or customer service staff just to support the project implementation. Now you have a more standardized functioning business. And so now you saw the profitability get better and you see growth behind it because in the 80/20, now we're talking to our top customers more. The discussion has moved from tactical to more strategic innovation, new portfolio and adjacencies that we could actually bring into. So that's the exciting part about that industrial business, not focused as much on CapEx, but even benefiting when you're more focused on OpEx.

Yes. No, that's super interesting. So like how much of the business actually becomes kind of recurring in nature or what have you?

Yes. We've moved that up. It's definitely more of the percentages on the higher side of us doing that. I want to give a full percentage. But as we're moving to -- that's more the core of the business versus the project. The project is only there to get you to installed base.

Got it. And like sort of changing trends with like your customers and stuff, has that helped you with industrial solutions, too?

It actually has. And especially we talk about food and beverage. If you think about those trends, and you'll hear a lot because people aren't drinking as much beer as they used to, but they're still...

Protein drinks.

Yes, other protein drinks, they move into other carbonated beverages, other types of beverages, which we've actually navigated with our customers. And so it's actually given us a tailwind because when they do that, there's a need to move from just the product line they have today to a new product line or additional components that they have to add. That's been a benefit for us.

Yes. No, that's good. And then maybe within the commercial piece, can you talk about some of the growth avenues you started. If I look at your results, commercial was up, I think, low double digits for the quarter, mid-single digits for the year. So it seems like -- I think I remember from the last Investor Day, you talked to us about sort of focusing on key growth businesses. So like this is driving your fire suppression systems business and data centers, things like that. So where have you been successful?

Yes. So we actually looked at owning the commercial building. And there could be different types of buildings. It could be a hotel, it could be educational, it could be institutional-type opportunities and data centers. So when we focus on that, fire suppression was the lead product, which is the pumps you need for protecting the build from thermal event. But on top of that, we had other pumping opportunities around moving water throughout the building. So it was a pool of bringing those products into that building. And so we've seen those opportunities to navigate those different spaces depending on where you can have growth tailwinds to ensure that we're getting our products into those spaces. And we're working with our channel, especially our distributors to work to be more specified in those applications because the work that we've done inside of the business, reducing lead times and the service level appreciating has made us one of the main providers and that people want to work with because of our speed to help them with their install.

Right, right. And I imagine that helps with pricing, too, because you become more focused, differentiated, all that kind of stuff?

Yes. It has helped a lot on our -- the focus then you know exactly where your value is and you get to this value-based pricing versus just pricing across the board. So that's...

And the momentum in the commercial side expected to continue in '26, feel good, still kind of, I think, led by data centers or is there other stuff going on?

It's still strong. And I will also shift to the other part of our commercial business, which gets into that infrastructure and the need of our current infrastructure in the U.S. is -- it needs to be worked on, and we've got to improve the system that's in place today. And we have products that actually help with that. And if you think about the addition of Hydra-Stop into our business, that's a really nice business for us. And that's our valve replacement business, insertion valve. And we know a water main breaks every 2 minutes. And so now this gives us an opportunity to quarantine where that water is being lost and make sure that we keep mission-critical applications up and running like the hospitals, schools. And so those are, again, that reoccurring revenue that I was speaking about, this is where we're seeing that also and not just being lumpy related to projects.

De'Mon, because we have you here, like we often bother Bob about Man Ice and Everpure synergies. So maybe we'll talk about Hydra-Stop for a second, like and sort of what you've been able to do because I think it's interesting, you guys are pretty good at that.

Yes. What I like about the Hydra-Stop business is their ability to understand the needs of the end user. They sell a lot direct, and they work with the municipalities and not only the municipalities, but PEs that are working in that space. So we see that as a real opportunity for growth, and we're learning from that in our existing business of how to help our channel get to those end users and that being a multiplier for us in the long run. So seeing those sales processes, implementing those processes across Pentair and specifically in that system, in that ecosystem is going to be a really nice win for us in the long run.

It's really encouraging to me, Andy, too. We used to talk about Flow being low single digits, complexity reduction, ROS expansion to have the discussion around the top line and flow for at least a couple of years, De'Mon kept telling me they've got to earn the right to grow. And so there was some blocking and tackling that needed to be done to build the business to where he was comfortable to let the teams grow. And now that's starting to show through.

Yes. Bob, and that's a great point because one of the major reasons I wanted to do that, I want to ensure that our margin profile would stay consistent even with growth that would come behind that. So now we have that, we feel really confident that the current margin profile and even opportunity to expand that will continue as we bring more growth in because we're making the right decisions. That's why I remember at last Investor Day, you asked me how can we be better than low single-digit growth? And we're...

Yes, yes. Here we go.

Very nice. I'm going to open it up to the audience in a second. But De'Mon, I want to ask you one sort of ag spray tips, it's kind of a one-off business for you guys a little bit, but I think it's been kind of weak for a while. Is it troughing? Like how do you think about it? It's a pretty high-margin business, if I remember correctly.

Yes. And it's interesting. The spray business, spray tip business or what we call spray specialty is a nice business, kind of unique to our portfolio. It's one I like a lot. I ran it for a while, and it's a nice space. I love the technology. So basically, what we have is the macro has been more of the challenge there. It's not the business itself. The business actually has really strong technology being able -- because application is so important. You don't want run off and sustainability is a big piece.

So the technology, what we're doing and how that business is performing is actually quite well for the situation it's in. It was very much an OEM-led business. And since the softening in the marketplace, they moved to more of an aftermarket sales. So less of the sprayers are being sold from an OEM standpoint. But now you have the repeat business that requires more of the used sprayers still in application have to be up kept, and that's where we're winning the opportunities there. So -- but still a nice little business. Look forward to the day where the farmers get a better opportunity to actually make the profits.

Not a huge business, about $200 million of revenue.

$150 million.

$150 million, but a really well-run business.

Well run, great business to train in. I learned a lot in that space, and that's why we like a lot. business.

Excellent. Any questions from the audience? Any questions?

Yes. Do you anticipate any meaningful changes in distribution in pool going forward?

Distribution pool?

I would say the short answer is no. We've got really good relationships with our distributors and our dealers, and we continue to lead with our distributors and our dealers. So the short answer would be no.

You're not seeing any changes since Home Depot bought one of those companies, right?

No. We work really closely with all of our distributors and work to bring them highly differentiated value-creating products for the dealers and for the customers. So no, we plan to continue to work across our distributors and channels.

Any other questions? Okay. So moving to Water Solutions. So you announced you talked about relocating residential flow into Water Solutions. And I know it's effective this quarter, and you talked about synergy realization materialize more significantly in '27. But maybe you can elaborate on specific channel growth opportunities from combining these businesses. To what extent do you anticipate operational scale? These businesses are pretty big together, 25% of total Pentair factory seems like a lot to me. So it seems like you can do a lot with that.

Yes. I'll start with the channel piece, which is if you think about these 2 businesses, we have one called residential irrigation and residential water treatment. Bringing those together, you bring more of a portfolio together. So you got products like your well pump, your sump pump coming together with your filtration, your softener, and we found from our channel that they were looking for an opportunity to have a one-stop shop as we think about treating the water in our homes.

So your water quality, your water treatment is important. And if we can provide the one set of solutions that allow the plumber, the water treatment dealer or professional to be more successful and also work to educate the homeowner of how important this is, these businesses were perfect to be together. And so the biggest thing we're working through is how we make sure that, that goes smoothly with the channel, driving that through. And then to your point, there's a significant opportunity around transformation because there's a pretty significant factory footprint that we're going to be getting after one identifying where the opportunities are and then executing on making those improvements.

Got it. And then I think you're guiding to low single-digit organic growth for Water Solutions for '26. Maybe bridge your expectations for commercial versus residential. Residential is now greater than 50% of the segment. So after the resi flow move with no resi improvement assumed in the guide, what's embedded for sequential acceleration after flat core organic growth in Q1?

Yes. We expect to see really uniform or even contributions to incremental income from both those pieces of the Water Solutions business from the residential piece and from the commercial piece. Different levers to pull, right? And we're going to talk more about that at Investor Day across the portfolio. We expect to see margin expansion, but in different ways. Some pieces of the business prime for growth. And as we see some of that organic growth and that volume come through, that operating leverage creates really nice margin expansion. Other pieces like this water quality management business, where there's opportunity for both some top line and additional transformation savings.

Nick, just remind me, and maybe I should know this, but you were doing like I feel like some 80/20 on the residential water solutions side, you kind of finished that, I think. And then what can beverage kind of done with that too, right? Like is the business kind of where you want it to be now?

Yes. We don't expect to have any additional 80/20 related exits or portfolio pruning going forward. We're really focused on our Quad 1 customers and delivering that sticky relationship and then the incremental benefit that comes with it through those -- that Quad 1 focus. So I think that the Quad 4 exits are behind us. We're going to continue to use the tools of 80/20, but again, focus on that Quad 1.

Yes. I would agree. And we actually started to see some of that play out in '25, where we saw our top customers have shown significant growth, and then, as I said earlier, have an opportunity to have different types of discussions with them as we think about this is a good fit to, let's say, if you're talking about someone who's in that well water space of how do you bring filtration along with that. So those will be the growth drivers because we're bringing the full Pentair portfolio with us when we're having those discussions.

Yes. And then De'Mon or Nick, like I think you talked on the call that you're expecting Man Ice and Everpure to return to growth in '26. I want to dig in a little bit more because you mentioned on the call, international weak, North America holding up. So maybe talk about that because I feel like North America restaurants are kind of mixed at best. But what are you seeing there? And what are you expecting for '26?

Yes. And I think you hit it on the head. North American restaurants are mixed, but the reality is we have opportunities to continue to expand and grab share there. But also what we're seeing is opportunity in C-stores. And as we see that continue to grow, develop for them to have more of an offering as people are making that destination stops to get refueled, we have an opportunity to pull more of our Everpure and our Ice products into those spaces. And what excites me is our sales process to be able to drive that. So we're building funnels, executing on those funnels, and those are going to be the growth drivers that we see start in '26. What I'm also excited about is the innovation that we'll be bringing in '26 that layers into our future years because that's going to be the key, bringing innovation that drives future growth. But we're doing the right things to get back to growth in that business.

Got it. And I kind of remember you guys having a tough comparison in China. I think you're past that. But like how is that market? And maybe just talk about the EU, too. I know it's -- you're expected to be kind of weak in '26, but...

Yes. That -- to your point, we've gotten past that comp. The market itself still has some challenges. I think what we're going to do is just be wise in the large projects that we take on to ensure that if we take those on, those are long-term consistent so we can remove any kind of lumpiness we may see. So we will be vetting those and be very disciplined in how we approach those.

Got it. And then I want to shift to the balance sheet a bit. You've obviously done quite a bit of work here to get leverage down. You're underlevered, I think, now. Free cash conversion is 100%. So it gives you good flexibility to do stuff. So where are you focused now? Because you have a bunch of different avenues. I'm sure you'll talk to us at the Investor Day about this, but where are you focused now?

Well, yes. I know you bring up a couple of great points, Andy. We levered up to about 2.5x with the purchase of Manitowoc. Over the last few years, we've done a really good job servicing that debt, and we ended 2025 around 1.4x. We've got really great free cash flow conversion from net income. We've had the portfolio pruning, the 80/20 exits. Now when we look into 2026 and beyond, hopefully sitting around 1x levered this year, we've got a really great balance sheet that we can deploy either towards organic growth M&A, bolt-on M&A or through share buybacks. And as we started the conversation, we're going to be really disciplined around our approach with capital allocation like we have been for quite some time now. And we're excited to weigh the differences between bolt-on M&A and share repurchases, focusing on that bolt-on M&A in the commercial water space, the pool space and in pockets of the commercial flow business.

Nick or Bob, are there any lessons learned on capital allocation from Ken's or some of the residential foray that you did in Water Solutions? Because I do get that question sometimes is like how do we think about -- because Man Ice is a good deal, but these others were a little tougher. So what did you kind of learn from these other deals?

Well, again, I buy into the, if you're going to fail, fail fast, acknowledge it. And we're a 2-step distribution business. To try to run a services business with wage inflation, with electrification of vehicles. It's just -- and the scale, it's just a tough business to be in. So we do best when we're selling to our distributors and understanding what our dealers need to be successful. I would say that's the lesson we've learned.

Yes. I would just add, after Manitowoc, we had a really nice bolt-on that continues to be a value creator for us with Gulfstream in the pool business. As De'Mon mentioned, we acquired Hydra-Stop not too long ago. It's been a really nice addition to the commercial and infrastructure business within Flow, and we've managed to delever during that time period. We see probably 100 deal opportunities for every one we even engage in. So we've got a really disciplined process at exploring M&A. It's got to be aligned to our strategy. It's got to be value creating for shareholders. And so I think we've done a really good job of that the last couple of years.

And the whole executive team is paid on return on invested capital. So it just makes sense to make smart decisions in terms of how you want to utilize your cash.

And I think it's important to -- when you make that decision to do that, it meets the need and fills out your portfolio. I think that is key because if you do that, that's going to be something that you can continue to build on as part of your foundation.

Yes. And then without you guys telling me all the targets that you're going to tell me on March 4, like just maybe the flavor of the Investor Day. It feels like in talking to you guys that it's kind of like a pivot to growth with still good transformation opportunities, but I'm putting your words in your mouth, so you tell me.

Yes. I think you should come to March 4, first of all. We're excited to talk about the fact that we've got a balanced water portfolio. We move, improve and enjoy water, and we've got different levers to deploy across that portfolio. We're going to talk about the 12 revenue streams and how each of those different revenue streams can generate incremental margin and dollars for us using volume, organic growth and then the tools of transformation, but applied potentially differently across the portfolio, some more operational, some more sourcing, others with that incremental volume.

We're also excited to talk about we've got -- we've done a really good job, I think, investing in the businesses and our transformation savings have been net of those investments. So we've got some really cool innovations and product displays to show you guys at Investor Day that we think are going to be really, really impactful long term.

Helpful. And so just last question, I've asked you this every year. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Changes, innovation changes that we see across the business.

Yes. I would say, from an innovation standpoint, we're always looking for things that actually continue to enhance our customers' business, business management and productivity and how we continue to utilize, whether that's AI and other scenarios to support that.

When you look at what knits the 3 segments together, it's the pump technology, it's filtration and separation and it's heating and cooling. So anything really in those 3 technology areas is a great place for us to innovate to share across the businesses.

Absolutely.

You don't have a lot of software, so you're okay with that.

That's right.

Exactly right.

Yes. Look, we really appreciate the time, guys.

Thank you, Andy.

Nick, De'Mon, thank you very much.

Thank you, Andy.

Welcome to the Pentair Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Shelly Hubbard, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and welcome to Pentair's Fourth Quarter 2025 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer; Bob Fishman, our outgoing Chief Financial Officer; and Nick [ Brazos, ] our incoming Chief Financial Officer.

On today's call, we will provide details on our fourth quarter and full year performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance in addition to the impact these items and events have on the financial results.

Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K.

Please note that during the presentation today, we will be making references to record financial results. These references reflect the time period post the invent separation in 2018 unless otherwise noted. Following our prepared remarks, we will open the call up for questions. Please limit your questions to 2 and reenter the queue to allow everyone an opportunity to participate.

I will now turn the call over to John.

Thank you, Shelly, and good morning, everyone. Thank you for joining us today. As we celebrate our 60th anniversary year and approached dividend King status, Pentair stands at the forefront of solving the world's most pressing water challenges. Our focus on customer obsession, innovation, operational excellence and sustainability positions us for strong growth in 2026 and beyond. To capitalize on our opportunities, I'm pleased to introduce Nick [ Brazos, ] our incoming CFO. Nick brings a deep track record of operational rigor and financial acumen, and I'm confident he will help us extend our legacy of disciplined execution.

I also want to thank Bob for his 6 years and 24 quarters of outstanding service. Bob's leadership has been instrumental in positioning us for our next phase of growth. He leaves behind a very strong financial organization that partners with our businesses to drive excellence in their respective industries. I would like to acknowledge that Demon Wiggins and Adrian Chiu have accepted new, expanded and important roles, and I want to extend my sincere appreciation to Steve Pilla and Phil Rolchigo for their significant contributions over the roughly 20 years that each have served the Pentair shareholders.

At Pentair, we believe that culture and talent are our ultimate competitive advantage, and we are committed to developing leaders who can drive sustained outperformance for creating future value. We are entering an exciting new chapter for our company, one defined by accelerated growth through customer obsession, innovation and operational excellence. As announced this morning, we have strategically combined our flow Residential business with our residential business within Water Solutions beginning in quarter 1 of 2026.

This move allows us to combine 2 businesses that both serve plumbers in the North American Residential segment under the same leadership. It opens up channel growth opportunities, creates operational scale and efficiency. Together, they make up about 25% of total Pentair factories and allows for regional sales and G&A synergies and creates organic and inorganic growth opportunities to build the business for the future. Demon, who has led a remarkable transformation and flow, we'll now will receive both the Flow and Water Solutions segments driving cross-segment collaboration and best practice sharing. Adrian will lead our efforts in strategy, digital, AI and innovation for Pentair, helping to ensure that we stay at the forefront of technological change and partner with the businesses to build growth strategies to drive enduring success.

As we position our company for continued growth in the future, we believe this new leadership structure provides more agility to drive long-term shareholder value. We believe our balance sheet is solid. Our free cash flow is strong and our opportunities are plentiful.

Now let's turn to the Q4 executive summary on Slide 4. In the fourth quarter, we delivered 5% sales growth and the 15th consecutive quarter of margin expansion. This was made possible by the relentless application of our Pentair business system tools, and a culture of continuous improvement. Adjusted operating profit increased 9%, ROS expanded by 90 basis points to 24.7% and adjusted EPS rose 9% to $1.18.

Turning to the full year. Let's move to the full year 2025 executive summary on Slide 5. In 2025, we achieved record annual sales adjusted operating income, ROS and adjusted EPS. These results reflect our focus on execution, disciplined capital deployment and the resilience of our balanced water portfolio. And 80/20 is gaining traction, allowing us to deepen relationships with our largest customers, our 80s, while streamlining our portfolio for the higher efficiency and growth by reducing our efforts on the 20s. We generated record free cash flow of $748 million and returned $225 million to shareholders through share repurchases, demonstrating our ongoing commitment to disciplined, balanced capital allocation.

Our innovation engine remains robust with notable launches, including the Eccentric Impeller and Flow, PFAS Everpure Filtration and Water Solutions, the award-winning Manitowoc Ice Neo, which leverages integrated filtration and next-generation refrigerants, which are compliant with new EPA standards and in Televide Lights and Intellicorp and pool.

Our focus on launching differentiated high-value products that solve critical customer needs and drive sustainable growth is highlighted by both the PFAS Everpure filtration and Neo under-counter ice machine, winning the Kitchen Innovation Awards at the 2025 National Restaurant Association Show. Our 2026 outlook reflects confidence in our business model and the resilience of our end markets. We plan to continue to invest in digital and AI-driven solutions, strengthen our portfolio and return capital to shareholders all while advancing our leadership in sustainable water technologies.

Looking ahead, we are introducing our full year 2026 adjusted EPS guidance range of $5.25 to $5.40, an 8% increase at the midpoint. We expect approximately 3% to 4% sales growth and approximately 5% to 8% adjusted operating income growth, driven by continued operational excellence and innovation. We remain vigilant in responding to macro volatility and the broader operating environment and continue to take proactive steps to mitigate risks, helping to ensure that we deliver on our commitments regardless of the external environment.

Let's turn to Slide 6, titled Aligning Organization in 2026 for Accelerated Success. As I previously mentioned, we have moved our residential flow business into Water Solutions and combined it with our residential Water Solutions business to help accelerate efforts to improve customer experiences, enhance operational efficiencies and deliver more comprehensive solutions to our channel partners. Our Flow segment will now consist of our commercial and industrial flow businesses, and our Water Solutions segment will consist of our non-pool residential businesses as well as our Everpure filtration and Manitowoc Ice businesses.

You will see these changes reflected in our Q1 2026 results. We've also provided the revised segment information for historical sales, reportable segment income and return on sales in the Supplemental Information section of our earnings presentation.

Let's move to the key takeaways on Slide 7. With a strong foundation, a clear strategy and an energized leadership team, we believe Pentair is poised to deliver sustainable growth and value creation. 2025 was another record year for Pentair. We delivered strong margin expansion, sales and earnings growth and robust free cash flow. We have a clear strategy, a proven operating model and an outstanding team.

Our balance sheet is solid, and we plan to continue to drive a balanced capital allocation strategy. We remain confident in our ability to drive sustained outperformance creating value for our customers, employees and shareholders alike. Thank you for your continued investment in our company, and I'm looking forward to seeing many of you at our upcoming Investor Day on March 4.

I will now pass the call over to Bob and Nick, who will discuss our financial results and 2026 guidance in more detail. Bob?

Thank you, John, and good morning, everyone. As John highlighted, Pentair is entering an exciting new chapter, one defined by innovation, sustainability and operational excellence. Our financial results for Q4 and full year 2025 reflect the tangible impact of our transformation journey and disciplined execution, and most importantly, our commitment to creating value for all stakeholders.

Before I review our performance, I'd like to echo John's welcome to Nick. Nick and I have worked closely together over the last 3 years, and I'm excited to pass the baton over to him. I'm confident he will excel as the incoming CFO. We are well aligned in how we think about capital allocation and driving shareholder value. Our Q4 and full year results are a testament to our commitment to building a more resilient, innovative Pentair. The sale of our commercial services business in Q2 and the acquisition of Hydro-Stop in Q3 are deliberate steps in our strategy to focus on higher-growth, higher-margin businesses, which we believe positions us to lead in the water industry.

We remain focused on our transformation initiatives and 80/20 approach, which have enabled us to streamline operations, invest in differentiated products and deliver consistent margin expansion. These actions are not just about the short term, there about building the foundation for sustainable long-term success.

Let's start on Slide 8 titled Q4 2025 Pentair Performance. I will also be discussing our full year performance on Slide 9. In Q4, we delivered a strong fourth quarter. We have remained focused on our transformation initiatives in 80/20 and proven that we can successfully navigate through a variety of macroeconomic and geopolitical landscape. In Q4, we delivered sales growth of 5%, strong margin expansion and adjusted EPS growth. Sales were driven by a 9% increase in flow with core flow sales growth of 4% and an 11% increase in pool sales with core pool sales up 9%, slightly offset by Water Solutions. The sale of our commercial services business in Q2 2025 was a strategic move to sharpen our portfolio focus.

Fourth quarter adjusted operating income increased 9% to $252 million, with return on sales expanding 90 basis points year-over-year to 24.7%. This improvement was driven primarily by price and transformation. Adjusted EPS of $1.18 was up 9% versus the prior year. For the full year, sales were up 2% to $4.18 billion driven by growth in pool and flow slightly offset by Water Solutions. Adjusted operating income grew 10% and return on sales expanded 170 basis points to a record 25.2%. Adjusted EPS increased to a record $4.92, up 14% versus the prior year.

Please turn to Slide 10 labeled Q4 2025 flow performance. In addition to the fourth quarter performance for flow, I'll also be referencing the full year performance on Slide 11. In Q4, flow sales were up 9% to $394 million. Commercial and industrial sales both increased 12% year-over-year, while residential sales rose 4%. Reportable segment income was up 22% and return on sales increased 240 basis points to 22.8%, driven by price, the acquisition of Hydro-Stop and transformation.

For the year, Flow sales increased 3% to $1.55 billion, driven by commercial and industrial. Full year reportable segment income grew 14% and return on sales increased 230 basis points to 23.3%, a record margin for flow driven primarily by transformation.

Please turn to Slide 12 labeled Q4 2025 Water Solutions performance. In addition to the fourth quarter performance for Water Solutions, I'll also be referencing the full year performance on Slide 13. In Q4, Water Solutions sales decreased 10% to $232 million. Commercial sales were down 15%, which includes an 11% impact from the sale of our commercial services business in Q2. Reportable segment income declined 12% to $55 million and return on sales decreased 60 basis points to 23.5% due to FX and a decline in volume.

For the year, Water Solutions sales decreased 6%. Reportable segment income was flat and return on sales increased 130 basis points to 23.9%, a new full year record as transformation drove significant productivity.

Please turn to Slide 14, labeled Q4 2025 Pool Performance. In addition to the fourth quarter performance for pool, I will also be referencing the full year performance on Slide 15. In Q4, pool sales grew 11% to $393 million driven primarily by price. Reportable segment income increased 11% and return on sales decreased 20 basis points to 33.6%. We continue to invest in growth initiatives in Q4, which slightly offset strong productivity. In the fourth quarter, we also experienced higher-than-expected inflation, primarily from certain metals.

If this inflation persists, we will review pricing and other mitigation efforts to offset this impact. For the year, pool sales grew 9%, driven by price, volume and the acquisition of Gulfstream in December 2024. Reportable segment income increased 11% and return on sales increased 60 basis points to 33.8%, a new annual record, driven by sales growth and transformation. While inflation and tariffs present ongoing challenges to total Pentair, our proactive pricing strategies and operational discipline have enabled us to sustain margin expansion.

We are closely monitoring global supply chain dynamics and remain ready to adjust quickly to protect profitability and invest in future growth. Our risk management approach remains agile and disciplined, allowing us to navigate volatility and seize new opportunities. Our record free cash flow not only strengthens returns for our shareholders, but also empowers us to invest in our people, our communities, and the technologies that will deliver cleaner, safer water for millions. These results reflect our commitment to all stakeholders, shareholders, employees, customers and partners and our purpose-driven approach to value creation.

I will now hand the call over to Nick to discuss our balance sheet and 2026 guidance.

Thank you, Bob. It's been a privilege to partner with you these last few months and to learn from and work with you the past few years. Good morning, everyone. Please turn to Slide 16, labeled Balance Sheet and Cash Flow. We maintained a strong financial position with record annual free cash flow of $748 million, a healthy leverage ratio of 1.4x, and we've delivered return on invested capital of 16.7%, up from 15.5% in 2024. We expect to continue to have a balanced capital allocation strategy focused on delivering shareholder value with flexibility to invest in organic growth, pursue strategic acquisitions, repurchase shares and pay dividends, all guided by our high-teens return on invested capital targets as well as earnings growth.

2025, we repurchased 2.3 million shares for a total of $225 million and announced a new share repurchase authorization for up to $1 billion.

Moving to Slide 17, titled Q1 and Full Year 2026 Pentair Outlook and Expectations. Looking ahead, our priorities are clear: continue to deliver for customers and create value for shareholders as we accelerate innovation, deepen our quad on customer relationships and drive operational excellence through the Pentair business system. Our guidance reflects customer obsession, continued investment in focused priorities, portfolio optimization and disciplined capital allocation.

For the full year, we are introducing our adjusted earnings per share guidance range of approximately $5.25 to $5.40, which represents a year-over-year increase of 7% to 10%. We expect total Pentair sales in fiscal 2026 to be up approximately 3% to 4%. We expect flow sales to be up approximately mid-single digits to high single digits. Water Solutions sales are expected to be approximately flat with core sales up approximately low single digits. And pool sales are expected to increase approximately 3% in fiscal 2026. Within our 3% to 4% sales guide for total Pentair, we expect full year volume to be roughly flat, price to be up 2% to 3% and FX, acquisitions and divestitures to be an approximate 50 basis point benefit.

We expect total Pentair adjusted operating income to increase approximately 5% to 8% with return on sales expansion of roughly 100 basis points to approximately 26%. We expect price to offset inflation and another strong year of transformation savings of approximately $70 million net of investments, which delivers on our 26% return on sales target set at our last Investor Day in March 2024.

We expect pool to improve its return on sales slightly and flow in Water Solutions to continue to benefit from complexity reduction and transformation savings. We expect flow to improve its return on sales in line with the company's return on sales expansion and Water Solutions to do better than the overall company. Also, for the full year, we expect corporate expenses of approximately $90 million, net interest expenses of roughly $67 million, an adjusted tax rate of approximately 17% and a share count of approximately 165 million.

For the first quarter, we expect sales to be up approximately 1% to 2%. We expect flow sales to be up approximately high single digits, Water Solutions sales to be down approximately low single digits, with core Water Solutions roughly flat and pool sales to be approximately flat year-over-year. We expect to maintain normal seasonality trends where sales in Q1 are typically the lowest and Q2 are typically the highest. The rate of year-over-year growth is expected to be slightly higher in the second half of 2026 than the first half as is typical for our business.

We expect first quarter adjusted operating income to be up 2% to 5%. We expect return on sales expansion in Q1 for Total Pentair including return on sales expansion in each of our 3 segments. Similar to sales, we expect return on sales to follow a normal seasonality pattern, with the highest rate in Q2, followed by Q3 and then Q4. We're also introducing adjusted EPS guidance for the first quarter of approximately $1.15 to $1.18, an increase of approximately 4% to 6%.

In the first half of 2026, we expect adjusted EPS to be approximately 50% of our full year adjusted EPS guide, roughly in line with our historical norm. Q1 adjusted EPS is expected to be roughly 22% of the full year, consistent with the prior 3 years. We are targeting strong free cash flow in 2026 of approximately 100% of net income. As a reminder, Q1 is a cash use quarter in any given year, while Q2 is typically our highest cash generation quarter.

At this time, our 2026 guidance assumes a balanced contribution from Flow, Water Solutions and Pool. We have not included a residential recovery in our guide, which we believe would be upside. We expect transformation, 80/20 and innovation to drive growth across our balanced portfolio. We expect new pool builds, remodels and aftermarket to be similar to 2025. We expect tariffs will have an incremental impact on Q1. Please recall that new tariffs impacted us beginning Q2 of 2025. We expect to maintain a disciplined capital allocation strategy and deliver strong free cash flow.

Moving to Slide 18. We had roughly $70 million of tariff impact in 2025, and we expect approximately $30 million in incremental tariffs in 2026, primarily in Q1, but we believe our carryover pricing and ongoing mitigation strategies position us to offset these impacts.

Let's move to Slide 19. We look forward to welcoming you at our upcoming Investor Day on March 4, where you'll hear more about our updated long-term strategy and outlook, our growth strategies and expectations to drive future growth our Pentair business system and how it fuels continuous transformation and growth, new product launches and innovation and a lot more.

As I step into the CFO role, I'm committed to upholding Pentair's legacy of financial integrity, discipline, transparency and stakeholder engagement. I look forward to embarking on the next phase of our journey together and meeting many of you at our Investor Day in March and then throughout the year. Thank you for your trust and partnership. Together, we are building a Pentair that is not only stronger financially, but also making a lasting impact by helping our customers move, improve and enjoy water, like most essential resource.

I would now like to turn the call over to the operator for Q&A, after which John will have a few closing remarks.

Operator, please open the line for questions. Thank you.

[Operator Instructions] Our first question comes from Andy Kaplowitz with Citigroup.

Bob, thanks for all your help.

Thank you, Andy. Appreciate that.

Sure. So can you give us a little more color on what you're seeing in your commercial Water Solutions business. I think you said for Water Solutions in general start out flat in the quarter in Q1 after being down in Q4. I think you're guiding to low single digits for the year. So the visibility into that improvement that you're modeling and maybe any difference you're seeing between [indiscernible] and Everpure.

Yes, I'll just start with '26. I mean, we think CWS, those 2 businesses returned to growth in 2026 as far as [indiscernible] and filtration and remind you that even throughout '25, the North American market remained relatively strong, the volatility that we're generally seeing in the business is more of the international and the China sales and how they're flipping a little bit what the metrics look like in North America. So we feel like we've ended the year positioning ourselves in a really good position to grow again in 2026. They're both very high-margin businesses, and we expect the contributions next year to be very solid from both.

And then maybe just a follow-up on sort of this combination of residential flow and residential water. I think you said it has 25% of your factories, which is obviously quite a bit of a high number. So maybe you could talk a little bit about the incremental productivity opportunity that you have. I would assume something you'll highlight a little more for us at the Investor Day, but what kind of time line could you get these improvements that you're talking about?

Yes. I don't want to give away my Investor Day, but I'll give you an inter these businesses come together, form a roughly $1 billion what we call water quality management business. And as you saw from the pie charts that we shared, we get our channels aligned better on go-to-market. If you recall, residential water treatment, which was in Water Solutions, was historically a specialty filtration play with people just designed to be high-end servicers for water softeners where the market has shifted, we believe, is into the North American plumbing channel, well diggers, which we service from the R&I side. And we believe we can bring the technologies and the channel opportunities together to create some growth synergies and begin to merge into the utility room opportunities in a broader way.

On the cost side, they both have large regional global operations, both factories and regional sales and G&A structures, and we do see a substantial amount of margin improvement in the combined business over the next several years.

Our next question comes from Mike Halloran with Baird.

So can we just stand on the pool side of things, maybe some help on what you're seeing in the first quarter here for that flattish guidance, all else equal. The price volume dynamics, inventory levels and the confidence in seeing that normalize through the year a bit.

Yes. So since we're thinking Bob, I promised Bob, a normal pool year when he joined the company and said it was the most steady easily to predict business that Pentair had. I still believe it's the best business Pentair has had and one of the best businesses I've ever seen. '25 ended from a full year perspective, if you look at it, mostly normal, but there was anything but normal as the quarters unfolded. So I want to start there.

I think we're well positioned in the industry. I think we're still waiting for the markets to recover. We wanted to put out a guide that reflected no residential recovery in 2026, which means a flattish pool year. And I also wanted to make sure I mentioned, Mike, that, that would also include no indication of a '27 recovery. Not that we don't believe it will happen, but that we don't want it in our guide. And as '27 starts to recover, we would expect that demand to work its way into the back half of the year.

But we don't see that yet, and we have no evidence that that's going to happen. So we wanted to put the pool opportunity on the upside versus putting risk out in 2026. With that, I'm going to let Nick answer a couple of the dynamics.

Yes. I'll just add, when you look at sell-in for Q4, it's up a little bit relative to sellout, which we believe balances in Q1. And then we see volume up Q2 through Q4 for flat volume for pool in our guide for the year. And we think we're being pragmatic with this guide. When you look at weather patterns in Q1, some of the freezes in the South, tariffs driving some buying patterns, we think that it's a pragmatic guide we're, again, as John said, we're just not assuming a change in residential recovery in 2026.

Great. Makes sense. And then secondarily, could you just maybe talk about capital priorities outside of the dividend, which I know you guys are going to still keep moving that higher. But buyback, how interested are you guys pursuing the buyback side? Any thoughts on the M&A side of things and actionability in the channel?

Yes. So first of all, it's good to have a healthy balance sheet. I think we're well positioned. We generate a lot of cash and don't use a lot of capital. So those are lesson to have. We're moving into our 50th year of raising the dividends and dividend King status. So let's say we're going to continue to raise that likely. And then I look at buyback and M&A is what creates the best longer-term value if we find more hydro stops, if we find more golf streams, those are really nice acquisitions to tuck into the portfolio, and we're always actively looking for those bolt-ons. And if not, we'll begin to nibble at the stock and continued return to shareholders through buyback.

Our next question comes from Nathan Jones with Stifel.

I guess I'll start off -- well, first, congratulations on your retirement. Bob, and thanks for all the help over [indiscernible]. And I start off with a couple of questions around 80/20. Sometimes early in 80/20, you see some headwinds to revenue from revenue that you're walking away from you guys have targeted a bit more as a growth tool. Can you talk about kind of the impact that you're expecting 80/20 to have in 2026 on organic growth? Is it a headwind? Is it a tailwind start there?

No headwind. All of those early, let's allow businesses to walk away from Quad 4 revenue are behind us. And what we have going forward is what should be a higher level of growing the 80s, which is the Quad 1 and the top customers we have, and we would expect those relationships to bear fruit and drive revenue higher in the upcoming next several years.

I guess I'll ask a question on pricing. You did talk about seeing more inflation than expected in Q4, primarily, I think it was in the pool business. John, you talked about the amount of price that's gone through in pool, especially over the last few years and maybe the difficulty of passing through any more price. Can you talk about how you've approached pricing for kind of normal 2026 price increases, whether you pulled back a little bit on that, whether you have any concerns about market acceptance of further price increases or just how you guys are thinking about price this year?

Yes. So just -- real quickly, Nathan, I just as a reminder, all of us in the equipment side of pool have our own proprietary technologies, and we buy from our unique motor suppliers, unique drive suppliers and have our own relationships. So it's not like other industries where you have the same central buying pattern. So sometimes tariffs affect us differently across depending where our supply chains are.

I think our goal is we're not trying to do more than offset cost with price. Now we're not always able to get that perfectly, but that's our going-in general position is that we have a right to recapture our inflationary pressures in the form of price. What we want to do, though, is work more cooperatively with our channel partners to incentivize the products we want to sell and to make sure that our dealers and our distributors are benefiting from the sale of products as well as we are. And that's how we're thinking about 2026.

We're all at our best if we're adding content to the pad from a volume perspective and not just adding price. And so we're the new innovations. We've offered a few of those in our earnings call here today of things we're trying to drive, and we want the industry to rely on us again to create that innovation pathway and everybody benefits when we're adding content and adding capability to the homeowners. So that's what we're off doing, Nathan.

Our next question comes from Deane Dray with RBC Capital Markets.

Just on the leadership announcements, just want to say welcome to Nick, Bob, and it was noted before. I think this is your second retirement. So we'll be watching for a potential third act. And then I know he's not on the call, but Dr. Phil, I just want to congratulate him for over 2 decades of thought leadership in the water space, and I wish him all the best.

Thank you for that, Deane. He's been an absolute contributor to us. He's heading off to North Carolina, but we'll pass along those wishes, and we -- his contribution is enormous here.

Absolutely. I appreciate that. And I know we've already touched on price and pool, but I would love to hear what the contribution from new products were part of that price increase. And you didn't mention any early buy. I don't think it was needed at this time, but was there any contribution there?

Yes. So just as a reminder, Deane, early buy is really about us trying to balance our manufacturing over Q4 and Q1, and we take orders into Q4 at pre next year's prices, which means we don't raise prices on those orders. Generally, the order intake on early buy was in line with previous years and reflected in our 2026 guide. There is NPI contribution in all of our businesses. It's generally harder to find when the volume in the industry is not, but we're really excited about our new product introductions, and we shared a few of them, and we're hopeful to continue to update more of that at Investor Day, and we're excited about that early innovation aspects on all the industries that we serve.

Good to hear. And just as a follow-up, what struck me on the slide on the tariffs, Slide 18. A year ago, we were all pretty nervous about what the fallout would be and what the reactions and how could you offset. And when I look at the slide, the one that jumps off the page is how you offset all of the China impact. And so just give us a sense of how you were able to work as the supply chain adjustments, but that 0 on there, I know it came through a lot of hard work, but just some color there would be helpful.

And this is Bob. Just a clarification on that particular chart. So the first column represents the tariff impact in 2025. And so call it, $70 million. The 2026 column would be the incremental tariff impact in 2026. So think of $30 million more tariffs in 2026 than 2025.

And what happened in China, is there was some earlier headwinds at the beginning of the year on the higher tariffs and they started to mitigate in the back half of the year, and now they're basically flat year-over-year from a China perspective mean.

Our next question comes from Brett Linzey with Mizuho.

I appreciate all the detail and congrats to Bob. Just a follow-up on the transformation. So lots of moving pieces here, expect to deliver the $70 million in '26 and you're implementing this wave 3. Maybe just talk about the phasing of that as you progress through 2026 is a little bit more heavy lifting. I know 1 and 2 continue, but as you shift to that next wave.

Yes. So a couple of things. I mean I think we're anticipating another $70 million of year-over-year transformation next year, which, if you're doing your math correctly, kicks off that 3-year contribution that Bob promised in 2024. And certainly, I am accountable for. And Nick and I are going to update everybody at Investor Day of how we see transformation in '27 and beyond. But I think that is a net number, as I want to remind everybody. So it's net of headwinds that we see. It's also net of investments. And some of our investments are going to hit us earlier in the year, which means our overall contribution and transformation will be a little bit more skewed to the Q2, Q3 and Q4 range, but we fully expect to achieve it. And most of that is already in the funnel and to be realized versus having to be created.

Great. And then just a follow-up on Slide 18, so the tariff impact and specifically, the steel aluminum copper line. So $10 million in 25 million grows to $14 million and $26 million. Does the $14 million include tariff plus some assumption for just general inflation of metals?

No, it's just the tariff impact. And if inflation continues to go forward, we kind of picture that -- pick up that in the overall right-hand side where we mentioned metal inflation is running hot. But what you see on the far left is just the tariff impact and then the right would be just your normalized inflation. And we felt like needed to call it out because I think as we work with our channel partners, we work at our customers, we're pricing both for tariffs. We're pricing for wage inflation, and we're pricing for just general inflation overall and trying to align that by industry.

Our next question comes from Saree Boroditsky with Jefferies.

Just building on some of the previous guidance commentary, I believe the guidance assumes around $70 million of EBIT improvement, but I think you just said you had $70 million in cost out in 2026, plus I think you have about $10 million to $15 million from the hydro deals. So can you just talk about any headwinds embedded in the guidance that are offsetting these cost savings and deal contribution.

Yes, your math is correct. I think we have an investment that we're planning to make on digital and innovation and strategic priorities that comes within Adrian's role. We've got some new product launches that we're generating and getting behind we have modest volume contribution in this plan, and we have year-over-year price generally equal costs. So your math is correct. A lot of moving pieces behind it, but the overall read on your view of our guide is accurate.

Appreciate that. And then maybe a bigger picture question. I know you talked about the nondiscretionary demand and pull being flattish this year, but do you expect to see any benefit from the replacement of equipment that was put in during the code as we're about 5 years out now. And then any benefit from the recent cold weather in the nonseasonal markets?

Yes, hard to track both. I mean both are out there is incremental demand that we think are tailwinds for us eventually to time it exactly and assume what's going to happen each year is hard. The weather is a timing issue. Your -- the weather sometimes delays overall shipments and in sales and then the weather that we see and especially when it freezes in the northern part of Warren states, generally means breakage of product and a replacement cycle for that product. So all of that is properly captured in the guide right now and Hard to see upside at the moment.

Appreciate the color.

Our next question comes from Andrew Krill with Deutsche Bank.

So John, in some of your recent presentations, you started to like the role more consistently. It seems like Pool clearly checks that box, maybe the other 2 segments are a little further away from there, at least right now, the question, any like changing views on potential portfolio reshaping to achieve that?

Yes. I don't -- I mean I like the businesses we have. I mean, obviously, some are in a higher-performing space than others. I mean, I think what we'll do at Investor Day is I want to give you a look at the 4 businesses that kind of fall underneath the segments today share with you where we think the margin opportunities are. Certainly, remind everybody that our margin goals are a combination of growing high-margin business faster. That would be our food service businesses and our pool businesses and making sure that our underperforming businesses or the businesses that aren't yet at industry margins are leaning into both some growth contribution, but really going after their operational efficiencies, and that's how we get to a Pentair number.

Right now, I think everybody's got the ability to feature value, which is growing EBITDA and taking advantage of our multiple times EBITDA from a value creation standpoint. We're always looking wanting to tuck in or add and be more relevant to the channels we serve as well as find adjacencies that might be growing faster than the markets we're in, and that's what our M&A funnel and profile looks like today.

Great. That's very helpful. And then the building a little on [ Terry's ] question. Just last year, I think you were pretty explicit there was a contingency in the guide, mostly related to tariffs. So this year, have you approached the guide similarly? Or do you think the certainty is a little bit better this year and you don't need as much of a cushion? Or would it be similar to how you -- any way you can quantify that for us?

Yes, I'll kick it off and I'll let Nick add a word or 2 as he's going to be leading in as the accountable party to all of you, of course, I am as well. I think what we've done is allowed for our view of the markets and the residential view in the guide versus what we think it will be to be a little contingency as we head into the back half of the year. We want a more balanced contribution, which is what you should be able to calculate here that all 3 segments generating equally contributing. That's important to me because I want to make sure we continue to invest in Pool over the next couple of years, while we're also waiting for that recovery to occur, which means stepping up the contribution on transformation of the other 2 segments and making sure that we've got growth contributions across our businesses.

Nick, do you want to address the contingency at all?

Yes. I just mentioned, we think it's a very pragmatic guide. As we mentioned earlier, there's no residential recovery in our guide. And the transformation number is net of investments. We are investing in many of these businesses. We'll talk to you more about this at Investor Day, how we have differentiated investment in a couple of different pieces of our portfolio. And we expect a balanced contribution across the existing portfolio in our 2026 guidance.

Our next question comes from Steve Tusa with JPMorgan.

The pool pricing, you guys had a great fourth quarter, but I guess you're guiding -- I'm not sure I heard it correctly, but like a low single-digit type of trend line into next year. Anything you're seeing on like the competitive front that's influencing that? It just seems a little bit light relative to how you're exiting the year?

Yes. Fair point, Steve. You'll see a fairly sizable year-over-year in Q1 and then that number starts to level off as we get into more year-over-year inflationary was equal and generally the same in '25 as it was '26. So think of a higher number starting off the year and and moderating as the year goes on. It's still double the normal pricing that we generally expect to have, but less than the 25% contribution by a couple of points.

But I mean, are you seeing anything? Is the consumer given where they are and where the market is? Is the consumer looking at or the dealer looking at cheaper products or any kind of like mix dynamics there?

Not in a meaningful way, Steve, but it's definitely at the front and center of my mind. I think we can't just keep adding price and enforcing consumers to pay more money. I think we've got to make sure we're working with our channel partners and that include the dealers and distributors to giving value and making sure that value is realized. And so we are raising price to cover inflation, but we're not moving price beyond what we need to cover inflation, if that answers your question.

Okay. And yes, sorry, so just for the total company, it's like 1.5 points of price, something like that or maybe 2 points of price for the total company in the bridge?

Yes, that's about right, Steve. And it's going to be slightly more than that in pool because pool has more of the inflationary pressure through the metals and the copper and also the tariffs.

Our next question comes from Nigel Coe with Wolfe Research.

Just wanted to follow up on that last point, the 2 points or so of price. Is that enough to cover the inflation. And obviously, pool is strong. So I'm assuming that the answer is yes. But think about Water Solutions, you do have a lot of raw mats especially in the Ice business. So just wondering if we're covering inflation across the portfolio.

Right now, with what we've shared, we are covering inflationary pressures. I mean obviously, if things change and there's more inflation, and there's more tariffs, we would need to go back and work with the channel to incrementally price to reflect what those new tariff impacts would be.

And just to be clear, John, is that covering a price or is some of the productivity, $70 million covering that as well? Because if we just layer in $70 million on top of your revenue guide, EPS guide does look quite conservative.

Right now, our pricing assumptions for Pentair, Total Pentair are roughly a couple of points, which would mean that, that's roughly an $80 million price contribution that's offsetting roughly $80 million in overall company expected inflation.

Okay. That's very clear. And then just a quick 1 on FX. I think it's $9 million a pinch in 4Q, $5 billion over solutions. Just wondering what that was? And is that just a 4Q impact? Or do we see some of that coming through in 2026 as well?

Question again was on FX at the company level or at the Water Solutions?

No, FX -- $9 million for Pentair total, $5 million for Water Solutions. You had positive sales contribution but negative EBIT. Just wondering what that was? And is that a factor in 2026?

No. I mean we basically set 2026 at any point. We always set the guide and plain point where we are today. There's a small tailwind for FX in next year's guide, but it's not really a meaningful number.

[indiscernible] particular Water Solutions headwind in income related to a cash build in certain countries. And as the local currencies strengthened. We had a negative impact in the quarter, but we have strategies in place to offset that risk going forward.

Our next question comes from Brian Lee with Goldman Sachs.

Maybe just a couple here. On M&A, I guess, you guys have been pretty active over the last couple of years. Given where valuations are, kind of how would you characterize how attractive the pipeline of opportunities is today versus maybe last year?

There's a lot. So let's say, quantity of opportunities. Our certainly emerging. I think what we're spending time on is understand the quality, and we're going to do deals that we think are bolt-on or tuck-in nicely to our current strategies. That is our first priority. If we were to step into slight adjacencies, we've got to be really comfortable that we understand the dynamics of the businesses and make sure that the multiples we're paying would create returns for shareholders, which is why we've been doing a little bit of buyback along with the dividend and waiting for opportunity on the right M&A to come along.

And then maybe just going back to the resegmentation, I'm not sure if you covered this, but can you kind of level set us on the revenue and margin profile of the residential flow business? And then maybe the time line to realize some of the synergies from the resegmentation, is this pretty immediate or more of an effort that impacts beyond the '26 outlook?

Yes. So we did put the actual R&I business finances into the deck for '23, '24 and '25. Going forward, they'll be in the '26 actuals. So you can see what that margin profile looks like in the back. Combined, the residential piece of Water Solutions was on the lower end of the average, right? So if you've got a couple close to 30% margin businesses, you could get to a low -- you're definitely in the teens for the residential component. So when you put those 2 businesses together, they're on the lower side of the contribution for overall Pentair, which means they have the most amount of future ROS potential.

Our next question comes from Julian Mitchell with Barclays.

And thank you, Bob, for all the help the last 5 years. Maybe just my question was to try and focus on the organic volume guide through the year? Because based on the previous comment, it sounds like price starts out a big tailwind in Q1. And then fades quite dramatically as the year goes on. So it implies that volumes conversely start the year down decently and then have a nice bounce in the back half. Maybe help us understand what's driving that volume assumption? Is there just some basic elasticity element here, something around comps, maybe flesh out the confidence in the volume reversal to pick up in the back half?

Yes, you're spot on with the comp and the comment around some decremental volume the first part of the year with incremental volume in the back half of the year, which leads to the flat full year volume. There's been a series of investments in several of our businesses to help drive some of that incremental growth in the back half of the year. And we think that's going to start to read out in pool in Q2 and then in our commercial water businesses in Q2 and through the rest of the year. So spot on, on the growth in the back half for volume versus the first half.

Yes, I'd just add that I think if you take our Q1 guide is completely in line with where we've historically delivered a percentage of EPS than a percentage of revenue. So we believe it aligns nicely with the overall guide for the year. I think the difference in the '26 guide versus the 2 years prior is, I think the industry overall was optimistic on residential recovery. And generally, was buying in, in Q1 to take advantage of what the Q2 demand would be for the residential recovery. And we don't have that plan this year.

And therefore, we think we're going to take -- and have a more year-over-year in Q1, that's normal, meaning we're going to be slightly upside down in volume in Q1 because of that year-over-year dynamic. But then we get easier compares as we work through the rest of the year because as that again, we're expecting the next year to recover in the industry, and it's not recovering, then the buy-in from the inventory side starts to be muted in that back half of the year. And this year, we'll be in a positive scenario regarding that with this guide.

That's helpful. And then just a quick one. I know we're at the top of the hour. Just to address sort of full on the question marks, we get on increased competition in the pool industry from cheaper sourced products and so forth. Are you seeing any sign of that behavior sort of becoming more prevalent at distributors and so forth? Or do you think the competitive landscape in pool is unchanged versus a couple of years ago?

Well, I wouldn't say unchanged. I would say that on the cleaner side, which we don't participate in with our own cleaner strategy, definitely, you've got China-based AI product there on the cleaner side, which is involved in the industry. And then on anything that's not technologically advanced or doesn't have automation or IoT, there's always a threat of a lower-cost solution replacing it, which is why we're really focused on making sure we got a fully automated pad. We driving automation solutions. We're driving higher levels of technology and value to our customers.

And regarding those particular technological solutions, we don't see the China impact influencing our outcomes at all.

Our final question comes from Jeff Hammond with KeyBanc Capital Markets.

Just on -- maybe to go at transformation a little bit differently. You had buckets kind of in the last Analyst Day. Can you talk about what buckets kind of ran ahead and where there's still opportunities as you look into the next transformation period. Seems like maybe you were a little behind on sourcing because of the volume not coming through and then footprint.

Jeff, I'm going to start off and then I'll have Nick preview a little bit of where we're going. First of all, I think, as I said, we hit our transformation goals on a dollar basis, both on a margin basis. But if you go against the original expectations, we underperformed on one element, which was the volume leverage and operational efficiencies in the factory. We still have that as opportunity, meaning we've been driving the labor overhead efficiencies, the factory efficiencies. And when volume comes back, you'll see that start to work its way through the transformation savings of the organization.

We overperformed in sourcing, and we did really, really well on pricing to not only drive value but also to offset the dynamics around tariffs. But I don't know what you want to add give them all of the Analyst Day that you give...

Yes. Yes. I would say that the $70 million that we've got, I just want to remind everyone again, that is net of investment, which means we're investing in our businesses and delivering the $70 million. The sourcing pipeline that we have for 2026 is robust. The operational efficiency pipeline is robust. And then we've got some org excellence opportunities as well. And we'll talk to you about by category, by business, how we're thinking about transformation. Certain businesses are better poised for growth. We're going to invest incremental dollars for them to grow, whereas other businesses have more of that sourcing, operational excellence opportunity that we're going to focus on in '26 and beyond.

Jeff, I will say that we expect to be more balanced between growth contribution and transformation as we go forward, but transformation is a long way from over.

Okay. I just want to thank everybody for joining the call today. In closing, I want to reiterate some key themes on Slide 20. We delivered our 15th consecutive quarter of margin expansion and drove another record year in sales and profitability. We introduced our 2026 sales and adjusted EPS outlook and remain confident in our long-term strategy. We expect a long runway of productivity, savings driven by transformation and 80/20 and our focused water strategy and strong execution continue to build a solid foundation with optimal operational efficiency to help drive long-term growth, profitability and shareholder value.

Lastly, we believe we are well positioned to address opportunities from favorable secular trends in water with the right long-term strategy. I want to thank everyone, and we look forward to sharing our story at our Investor Day on March 4. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Hi, everybody. Mike Halloran with Baird here. Thanks for joining the Pentair session. Pretty standard protocol here. We have John Stauch, CEO; Bob Fishman, CFO; and then Nick Besas, who's going to be the incoming CFO. So we got a full team here, which is great.

Again, pretty standard. We're going to do some prepared remarks, followed by a Q&A session. So if you've got any questions, use the card in front of you, e-mail me. I'm also fine if you raise your hand, I'll call on you. We can do it that way as well. So with that, gentlemen, thank you.

First of all, thanks for having us. It's always a great conference, and we're happy to be here. So I appreciate that. Bob, are you going to kick it off?

Yes. Let me say a few words about Pentair for those that might not know the story quite as well. So thank you, Mike, for the invitation. Again, Nick will be taking over from me March 1. So a really nice transition period. I've been the CFO at Pentair for 6 years, 6 fantastic years. And just time for me to retire and move on. But the company is obviously in very capable hands with Nick.

In terms of Pentair, one of the water industry's largest pure-play water companies, over $4 billion of revenue, $1.1 billion of EBITDA. We operate through 3 segments. We help the world move, improve and enjoy water. The MOVE segment is our Flow segment. So think about small pumps, large pumps and then an Industrial Solutions business.

The improved piece of the business is 2/3 commercial water. That's where 2 of our crown jewels sit, our Everpure filtration business and our Manitowoc Ice. The other 1/3 of the business is residential. And then the enjoy part of the business is the one that seems to get the most questions and most of the limelight is our pool business. So those are the 3 segments that we have. 75% of our revenue goes through distribution and 75% of our revenue is break fix.

So that's quite handy to have during uncertain times. We launched a transformation program about 2.5 years ago. We still feel like we're in the early innings, even though transformation has been reading out really well in our P&L in terms of ROS expansion. We have improved our ROS by close to 600 basis points over the last 3 years. As we talk about our business, there's really 3 technologies that bring it all together.

Our pump technology, think about $1.5 billion of pumps cutting across the 3 segments, about $1 billion of filtration separation and around $800 million of heating and cooling. And what we'd like to think that we do well is share technologies across the businesses to create innovation within the company. That, Mike, would be in a nutshell, a little bit about Pentair. Happy to take any questions you might have.

I'll let him do that because he stays on point. He does it great. I would mess that up.

I think we can both agree that our personalities do become a little more verbose relative to Bob. I think that's a fair statement. If you wouldn't mind passing me the iPad just in case someone says something, I don't want to lie to them and say I was willing to answer questions and not listen to it.

So why don't we start with the transformation piece. Simplistically, where are we? What are the next steps? I think it's really interesting to hear you say, not the first time I've heard you say it, that you're in the earlier innings despite seeing some pretty aggressive expansion already with some pretty interesting targets, right? So maybe just talk through the phasing. What have we done? And then what's next to give you the confidence that you are in those earlier innings?

Yes. So I'll just start with -- I think all companies struggle with what should be centralized and what should be decentralized. I think it's really easy to think of decentralization, being closer to the customer, your sales, your marketing, staying agile because that's where you compete and fight for your market share against competitors that look like you. But one of the things through being a series of acquisitions over a period of time, there's lots of things that were not scaled. And one of the biggest ones was sourcing.

The problem with -- if you leave people to decentralized, everybody creates their own PCBA boards their own way. Everybody thinks of their products being unique. You have a lot of local suppliers. And so a big part of our transformation push was how do we take these 4 pillars, which we believe if we standardize processes, pricing, sourcing, -- we already had operations in lean. We just wanted to do that a little bit better. And then the fourth one was how do we digitize the global support. And I think those are the 4 pillars of transformation. And clearly, the ones that have been great to have, we started the sourcing one way off front.

That's where we've gotten the most amount of benefit. And then pricing was right on its heels. And those are embedded processes in our organization. I said this in our Investor Day, I wish I would have done 80-20 before the transformation. I think it's good to have both. I mean we're in an 80-20 period, but it's great when we do the 80/20 work by product line, by business and by revenue stream to have that transformation playbook to pull from because the analysis is one thing, but what do I do about it is the second. And so we're very happy with that progress. I think what we want now is a more balanced approach of how do we get organic volume growth combined with the continued transformation benefit.

So long-winded, Michael, we are early innings on transformation because a lot of work has been done just offsetting tariffs, and we still have the huge opportunities to go back and do some of the transformation work better than we did. And I think now it's about how do we also bring a better balance between volume growth and transformation as we head into '26, '27 and '28.

So maybe put that in the context of 80/20, right, because often people associate with early 80/20 adoption with a couple of years of volume headwinds. I think you've seen less of the headwind part relative to some of the other firms we've seen implement a similar strategy. So how do you balance those 2 equations?

Yes. I mean you have your 4 quadrants and the easy exits are usually in quadrant 4, which statistically would be about 4% of the revenue stream that you're doing 80/20 on. You want to reduce the cost to serve in that box, but it doesn't mean you have to give up all the revenue.

So there were businesses like residential water treatment, where we use as an opportunity to do portfolio exits, and we didn't want to have that business at any price and you still see some of that headwind and it will be done by Q4. But for most of our higher-performing businesses, it was really changing how we transact with the customers. And you're going to lose maybe 1-ish to 2 points of growth while you do that. And then the faith is that you're going to grow faster with the top customers because you're serving them better. And so I think, ultimately, I don't think 80/20 is a headwind to growth.

I think it's about focused execution. And really what you should be doing is freeing up going back to your customers and being good at what you used to be good at with them and making them feel differentiated and more special, which then you can grow with them better.

How has the adoption been internally? What's the response been from the team?

I'd give us a solid B. You always have those business leaders that are on board because they've done it before and they believe it's helping to break through culturally what they need to do, and we have several of those. And there's always the 1 or 2 who likes to do it their own way and make it more art than science. And I think what we have to do is just continue to encourage the use of the tool. And then one of the things I'm doing is making sure that not everybody has to use the tool at the same time.

So for some of the businesses, they have a bigger operational footprint opportunity. For some of the businesses, they have a better digitized customer opportunity. So we're doing that to kind of balance the workload, Michael.

That makes sense. Why don't we go division by division for a little bit here. Let's start with Flow. It doesn't happen often so might as well.

It's been performing great, so we like to talk about it now.

Yes. And I think what's underappreciated is I think internally, you feel better about the growth outlook relative to maybe where investor sentiment is on the growth potential for Flow. So what gets you excited about that segment from a growth perspective?

Do you want to give them a little love right now?

Absolutely. So again, the flow business, think about $1.5 billion of revenue, 1/3 is residential. I would say the best news there is that, that business is stabilizing. People are learning to live in the higher interest rate environment. And so resi flow has seen 3 years of headwinds relating to the higher interest rates, and they were down high single digits in many of the quarters. They showed growth in the third quarter. The spray specialty business within there has made its way to growing their top line.

And so that resi business is stabilizing, which is good news for Flow. There's another 1/3 of the revenue sitting in commercial and infrastructure. That's a business that's grown 12 quarters in a row. That business would supply pumps to buildings like this. We would lead with the fire suppression pump, but the ability to grow is through our water supply and water disposal pumps and selling to different types of customers. So office buildings, apartments, selling to data centers as an example. So they're reaching out to increase the market that they go after.

And then we have an Industrial Solutions business, think about food and beverage, sustainable gas, which is starting to increase its top line because it's gotten through what I would call a lot of complexity reduction work. And so they've standardized their offering and can go to market in a much more consistent manner. So we feel good around the flow business. It's typically a low single-digit grower, but we just guided Q4 to be up high single digits. Half of that is our Hydra-Stop acquisition. They just grew close to 6% in Q3. So they've got a lot of momentum entering 2026.

And what did the Hydra-Stop acquisition bring to the table for you?

Yes. And maybe, Nick, did you want to take that one?

Sure. Yes. They serve the municipalities, particularly in the repair space. So you've got an aging infrastructure. A lot of the water infrastructure that you see in big cities was put in 60, 70 years ago. And so as you go into repair, those pipes the Hydra-Stop offering provides the tools and the means to stop the valve right at the point that you need to repair instead of shutting down an entire municipality. So there's good adjacency for us in that and then also some pull-through in our pump products into the municipalities that we serve.

It seems like that's part of a broader strategy, right, where you mentioned data centers and you're trying to find other adjacencies to go into. How much opportunity is to go into what would be a white space for Pentair here? Maybe use the data center piece as an opportunity as a case study, however you want to answer that?

Yes. Pumps, the specification of pumps, I mean, it's one of the oldest industries in the world. So some of these specifications might be 50, 60, 70 years, which is good for aftermarket and repair when you get around to doing it. Mike. But I think the thing that gives us opportunities is we're not always the largest pump player in these spaces, and we do have good competitive brands that we go head-to-head with.

So the more that we get specified in the list and the better we operationally improved our business, so we have some of the lowest lead times in the industry now. We're able to respond quicker to some of the customers. We're taking midrange jobs with higher margin. Some of our competitors are more distracted by the much larger jobs that they're going after. And so it seemed easy to say, well, if we're selling you the fire pump anyway where we have a leading position, why don't we also give you the water supply and the water disposal?

We didn't discount margins to do that. We promised delivery, lead times and customer experience, and that's been a really big momentum builder for us. What's slowing us down a little bit is the rate of specification, which is where we put in sales and marketing teams to make sure we get specified and to make sure we can quote on all these jobs nationally in the United States. Also helps to be a U.S. manufacturer product, too.

Did the process of pushing through 80/20 and some of these transformation initiatives help inform.

Absolutely.

The opportunity to do this expansion, right?

Absolutely. The beauty of 80/20 is it creates a clear pricing strategy. If you're bogged down on product, serving the customer, -- sometimes it's because you haven't priced it effectively. And sometimes the customers are willing to take those 5-day turnarounds or the next-day delivery of spare parts at a much higher price point because they need to. And that frees you up a little bit, but it also informs where you should spend your time and where you shouldn't spend your time, and it's been a big, big plus for the Flow business. I think Flow took out 1/3 of their SKUs during the 80/20 process in the last few years.

Yes, it's interesting. As we work to overserve those Quad 1 customers, it really gives the sales teams an opportunity to spend more time with the distributors and the dealers. It might be putting a new service person on their account, new salesperson as we shift some of the cost to deploy to that Quad 1. But just that ability to track metrics for a particular distributor or dealer, that face time with the dealers is incredibly important to understand how we grow the business.

Makes sense.

So we have like -- I look at 12 businesses underneath the 3 segments and the business units. And these brands and revenue leaders are incentivized to drive profitable growth, and they're measured by a metric called realized standard margin, and that comes out of the 80/20 work, which don't look at the numerators, the revenue. Think of your standard margin plus or minus in-period pricing and in period inflation. And we incentivize them on that -- those metrics.

And that's been -- it's been a game changer for us to get the focus on what we need to do. But also attached to these categories is all the complexity, the factories, the different legal entities for sales and marketing support globally, et cetera. And that's really been able to create that transformation journey. And then we want to make sure that every one of those 12 unique revenue streams has a rule of. You've heard us talk about pool being greater than Rule of 40, right? That's the margin plus the growth rate. And we choose those benchmarks based upon other industry leaders and what the entitlement would be for that margin rate.

And that's how we set our expectations and our transformation targets. and that's how we're getting the ROS expansion. The reason I'm sharing that with you is not always going to be equal. It's not always go to be 1/3, 1/3, 1/3. Some of our opportunities around costs are going to be outside of pool and pool having the growth opportunities that it does, we will be investing often for that growth, and you might see a more muted margin expansion as we go forward.

And you guys are doing something besides pool?

Yes.

We love pool. So we are going to go to pool now and parks I have a couple of questions on it. But just maybe a generic statement on how you're looking at the market today. And beyond interest rates, is there anything that we should be thinking about for a reacceleration curve?

Yes. I told Bob when he joined that this would be the easiest, simplest and most predictable business he would ever be associated with and it's been anything but. And it still doesn't mean it's not a great business. But we're -- we've had the supply chain disruptions in this business. We had rates of peak inflation. We also had COVID and what that did to the supply chain.

And I would say now we're into a flattish pool environment driven by high interest rates. It's our job as an industry leader on the equipment to build the content and be innovator so that we can continue to grow the pie so that we don't all fight for the share of an existing pie. So we've got some exciting new products that we're going to introduce in '26 and '27 that we think will be tailwinds for innovation in the industry. And then what we also have to do is make sure that we're spending the appropriate amount of time with our dealers to help them win and make sure we're servicing them differentially, which is where 80/20 has really helped.

We used to have 17,000 dealers that we treated equally. That's hard to do, right? So we quadranted the dealers, and we have our A dealers, and it takes it down to about 400 that make up the majority of our revenue. And every single one of those 400 should have a field service tech behind them. They should have a dedicated customer service line. They should have a dedicated sales organization. And we're going to have to go work with those dealers to go try to create the demand and get people excited about industry automation and an automated pad has got a better longer-term value to Pentair and to the industry.

Yes. That actually segues pretty well into a question here. Within pool, are you seeing any push by the distributors to have exclusivity of products? So how are you reacting?

No, to the first one. I think there's 3 major equipment brands that we -- that are in the industry. It's us and 2 other really good equipment players. I think we all have our strengths and by region, and we all have our opportunities to improve. I haven't heard the exclusivity one. I do think we have our particular channel partners that are looking for differentiation, and they would like to have something different than the other individual distributor or distributors have. And I think that we have to think about that more is what value do our distributors bring to the channel and how can we partner effectively with them to take advantage of the regions that we really need to get higher share in.

Yes. The follow-up is with some of the distributor changes that are seeing out there, competition between scale players, the roll-up that continues. How much of an opportunity is that for you? Are you seeing any change in how they approach the market as a result that impacts you?

Yes. I mean I think what we've always liked about the pool industry is we've had a more even distribution of profit between the equipment manufacturers, the distributors, which are very important channel partners to us and then ultimately, the dealers. And I think lately, it's not as equally distributed, no pun intended on the distribution side. And I think we're very mindful because I think they're a very partner and they have a key role to play. And we got to make sure that they're getting their margins up and they're winning in the industry for their service and their differentiation to the dealers.

And that's kind of how we're thinking about it. Don't have solutions yet. But it happens in lots of industries. There was that one big box starts with an H, and there's another big box that starts with an L. And you saw some of the efforts to put singular products in one versus the other. It usually backfires because if your brand is really valued in the industry, your dealers who support your brand want to go to where they're getting the best service element from. And that's why I think we've got to continue to be mindful of that.

Yes. I mean the pool industry remains very attractive. 5.4 million pools in the ground, average age, 20 years plus, less than half have any form of automation. 20% of our revenue comes from new pools being built, 20% from remodels and 60% is aftermarket. And a number of the products within the break/fix area are nondiscretionary that need to be fixed immediately. So A typical year in pool, and John is right, I have not had a typical year since I've been the CFO for 6 years, but a couple of points of price, 2 to 3 points of volume and a couple of points of either share gain or new products or M&A gets you that mid-single-digit plus growth in a business that has a 34% ROS.

So a very profitable business within pool. I think we're slowly getting back to that more typical structure. I thought we were there this year, but tariffs came along. And while we'll grow about 7% this year in pool, roughly 5 points of that is price. And so it's a flattish market. But overall, a lot of purchases in the early years of COVID will now need to be replaced a lot of innovation, a lot of opportunities for us to go to market and over serve the customers. So we're encouraged and optimistic about Pool.

Maybe a twofold question on this side. How do you monetize the automation piece? What are you doing on that side? And then you mentioned new product introductions and excited about it. Is it automation? Is it something more? I know there's a variable speed change coming. How do you feel about the variable speed side? You guys have a great position there. So just all in a bucket, I suppose.

Yes. First of all, we're not going to charge for an ongoing service, ongoing annuity on a revenue and software. Let me just hit that one. There's great apps out there. Our dealers like to use applications that are productive to them running their businesses. There's 4 great home automation platforms out there that you can as a high-end pool builder buy. Our goal has always been how do we have the best and simplest way to automate and run our product and then how do we integrate it into the solutions that you find to be useful.

We do have to break through -- the industry has to break through the dealer confidence of the value of automation, the value of AI. And I think AI becomes that powerful tool that allows it to happen. So as we get more and more, we have 650,000 connected pools that we actively can manage and monitor. We can look at pump life. We can look at the characteristics of what's challenging that pump. Are you turning it on and off where you should be running at the lower variable speed to your point? And how do we help you as a dealer, help your customer extend the life of that product by being more intelligent in helping that individual think about what they're doing wrong. Weather notifications as well that can often cause freezing in places like Texas and which traditionally don't close down pools, those can be very helpful.

And we got to build that connectivity, and that's where we think we just have to create more and more features that are stickier to Pentair products and then we elevate the level of support that we give to our dealers. That's how we're looking at automation and I think if we were to jump in and say, okay, we're going to create a revenue model out of this. We're going to displace everybody in the industry. I think that becomes extremely disruptive. I think POOLCORP has a great app that a lot of people like to use. There's also an independent server app. I won't name it, that a lot of people like to use, and I think we should support both of them.

Yes. And you just wonder if it becomes just more of a pull-through exercise as well, right? -- visibility of your product, giving the tools, not only does it just incentivize replacing like-for-like Pentair, Pentair, but maybe you can get a little something extra out of it, right?

Yes. I think every elevated experience that makes you want to have automation. I was able to turn on the hot tub from the 16th hole and the hot tub was warm when I got home to sit in my hot tub. And by the way, that's a significant use of the hot tub and the app. What else can I automate? Well, my lights can be automated. Great.

What do I want to do with my lights? Now you have IntellVy, which is a product that has infinite color schemes. You can actually go into the dial and kind of brand your own color based upon your university or something and then have that color in the pool. So those are the features that people like. And obviously, they're enabled by automation. And if you don't have automation, you can't do it. And so how do you keep building that awareness and building the momentum of wanting the thing that nobody else has.

So one question on price here. Obviously, prices have been pretty sticky in the marketplace. How worried are you about the magnitude of pricing that's come into the market in the pool side over the last 5 years or so? Are you seeing any implications from that?

Yes, I don't want to use the word worried because, I mean, in distribution dealer models, it's great, right? You can raise the price to offset the inflation and pass it on. I think we owe our channel more than that, right? I think as we drive these productivity benefits, how do we mute the amount of price that we're passing on so we can maybe keep price more constant as we go forward, still get our margin, but allow us to put more product into the channel. The reason I want to say I'm conscious of it because I think overall, we've always been an industry that replaces. And there isn't a service network today that's really good at repairing.

If we're not careful and the prices continue to drift, instead of replacing that pump on the seventh or eighth year, you could try to repair it. Instead of replacing the heater in a particular time frame, you might try to repair it. And that's when you start to get third-party product that enters in as replacements and you could have disruption of how the system actually works. And that's what I'm being conscious of.

That makes sense. On the Water Solutions side, the deemphasis of the residential piece, focus on the Man Ice, the Everpure business, KBI no longer there. Maybe talk about how those 2 pieces are transacting together and what you're seeing with Everpure and Man Ice and how much cross-sell is there?

Yes. Let me describe the deemphasis of residential really quick because I think it's important as we talk forward as a growth opportunity that we do think we have. What happened is Pentair used to have the leading valve -- water softener valve in the industry, and it also had the tanks. And we sold that as a branded product through a specialty channel.

Back then, it used to be Kinetico, Culligan, it used to be regional players that private label, but they sold and supported our brand. It's really commoditized over time, and it's really become about how do you bring that system together and then sell your plumbing work into the channel, which means that there's this larger plumbing distribution channel that's evolved, and I think we've got to go there. We're already selling our R&I efforts, our water supply water disposal through that channel. We service weldgers. We service that -- we service Ferguson as the name of the company, right?

And so we got to be part of their line card. And then if our specialty dealers want to go buy the product there, they can, but they actually acted as distributors mainly. They bought products at discounts and then they send them out to the regional end. So that's been where the deemphasis of the revenue has been. It doesn't mean we won't continue to support the industry, but we need to be more relevant to the actual plumber who's coming in the utility room, either on the commercial side or the residential side. And if you can have more on that plumber's line card and truck, I think you got a better chance to continue to drive the value going forward. That's really the...

Yes, there are some really exciting opportunities within the resi space, whole home filtration, big opportunity for us in the higher-end homes. That's exciting. And then just overall, we have a nice joint venture with Hope Hydration, which allows you to fill up your water bottle in an airport or wherever you might be.

So that allows the owner to monetize a solution with some ads that are placed on a particular machine. But you're right, commercial water is 2/3 of that Water Solutions business. 2 very profitable business. What we've done quite successfully since the Manitowoc Ice acquisition is to go to market through the distribution through both filtration and ICE. So by combining Everpure with the leading brand of Manitowoc Ice, we have an opportunity to give one-stop shopping to distribution and then make it easier for the dealers as well.

Great. And then how are you thinking about capital usage right now? Balance sheet is in a great position. Cash flow is improving, aided by a lot of the work you guys are doing on the transformation, simplification efforts.

Len, I'd start with return on invested capital is really important to me. It's really important to Bob and it will be really important to Nick. I think it's the way you actually measure a leadership team over time. You might strategically do an acquisition that takes you down ever so slightly, but you've got to demonstrate that you can borrow money and return to shareowners a differential strategy above that. Next year will be our 50th year of raising the dividend if we do it. I don't think we won't do it.

I we're going to do it. And that means 50 out of the 60 years that we've been a company because we be 60 next year, we'll raise the dividend. I think a little bit of buyback is really helpful and healthy, and I think we're in a really good spot with the balance sheet. I think at any given time, we like the flexibility for maybe to have access to maybe around $1 billion over a couple of years to do acquisitions. But I think that's the discipline you need to make sure they're bolt-ons and they're strategic and they're going to return more than what a buyback would or some other use of organic capital.

Is there a reasonable funnel out there right now or no?

There's a lot of -- the funnels are actually really busy and active. But I think what I'm happy is strategically, we're being very disciplined and price-wise, we're being very discipline.

Great. Well, please join me in thanking Bob -- sorry, John, Bob, Nick, for their time with us today.

Thank you.

Thanks for having us.

Thank you. Management will be available outside and up the stairs for a brief breakout session. Thank you.

Welcome to the Pentair Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I would like to turn the floor over to Shelly Hubbard, Vice President, Investor Relations. Please go ahead.

Thank you, operator, and welcome to Pentair's Third Quarter 2025 Earnings Conference Call. On the call with me are John Stauch, our President and Chief Executive Officer; and Bob Fishman, our Chief Financial Officer.

On today's call, we will provide details on our third quarter performance as outlined in this morning's press release. On the Pentair Investor Relations website, you can find our earnings release and slide deck, which is intended to supplement our prepared remarks during today's call and provide a reconciliation of differences between GAAP and non-GAAP financial measures that we will reference.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's performance in addition to the impact these items and events have on the financial results.

Before we begin, let me remind you that during our presentation today, we will make forward-looking statements, which are predictions, projections or other statements about future events. Listeners are cautioned that these statements are subject to certain risks and uncertainties, and many of which are difficult to predict and generally beyond the control of Pentair. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors in our most recent Form 10-Q and Form 10-K. Please note that during the presentation today, we'll be making references to record financial results. These references reflect the time period post the invent separation in 2018, unless noted otherwise.

Following our prepared remarks, we will open the call up for questions. Please limit your questions to two and reenter the queue to allow everyone an opportunity to participate. I will now turn the call over to John.

Thank you, Shelly, and good morning, everyone. Thank you for joining us today. Please turn to the executive summary on Slide 8. In Q3, we delivered sales growth and a record third quarter across adjusted operating income, return on sales and adjusted EPS. Sales increased 3%, driven by our pool and flow segment. Adjusted operating income increased 10%. ROS expanded 160 basis points to 25.7% and adjusted EPS rose 14% to $1.24.

In September, we acquired Hydro stop, a leading specialty valve solutions provider for water infrastructure for approximately $292 million in cash or $242 million, net of the anticipated $50 million of tax benefit. This acquisition enhances our commercial flow business with a strong financial profile and strategic fit. We are excited to welcome the Hydro stop team and their customers to Pentair.

Year-to-date, we delivered record free cash flow, and we repurchased $175 million of shares. Lastly, we are increasing our full year guidance, driven by a strong third quarter and continued confidence in our execution. We now expect sales growth of approximately 2% and adjusted EPS of approximately $4.85 to $4.90, up 12% to 13% from 2024.

Let's move to the strategic overview on Slide 9. Over the last 3 years, our teams have successfully implemented our transformation initiative while continuing to drive strong execution, leading to robust margin expansion. As we enter 2026, we feel confident that we've developed a flywheel that we expect will continue to drive efficiencies, opportunities and profitability.

Our 80/20 actions are well underway and show early signs of success in driving top line growth. Our businesses are in various stages of implementation on this multiyear journey. We plan to share more insights with you on our 80/20 actions at an upcoming Investor Day in March. We continue to invest in focused growth initiatives where we see great opportunities to drive near-term and long-term growth. We are also investing in innovation through digital and product technology.

In addition to investing for growth, our strong financial discipline and free cash flow has enabled us to make strategic acquisitions to align well with our current businesses and provide a platform for growth. As a dividend aristocrat, we have raised our dividend for 49 consecutive years, and we will have continued to repurchase shares. Collectively, we believe this is a smart use of capital deployment to drive future sales and earnings growth.

Let's turn to Slide 10. We have delivered approximately $56 million in transformation savings year-to-date and are on track to reach approximately $80 million in 2025. I want to remind you that this performance is net of strategic growth investments and is in addition to the $174 million of net performance we drove in 2023 and 2024 combined. As I mentioned earlier, we believe transformation in 80/20 are creating a flywheel for continued sales growth and profitability.

Let's turn to Slide 11. There are several key themes that I wanted to share. We delivered another quarter of sales growth and double-digit earnings growth due to strong execution. We increased our full year 2025 guidance, driven by a strong Q3 and continued confidence in our strategy. We continue to build a foundation of optimal operational efficiency that we believe can be leveraged when volume returns to normal. We have a balanced water portfolio and a capital-light business model with 75% of our business going through 2-step distribution and roughly 75% of revenue representing replacement sales. And we have strong free cash flow, a solid balance sheet and a balanced capital deployment strategy that we'll expect will accelerate earnings and ROIC.

Before I hand the call to Bob, I want to acknowledge that we announced this morning that Bob will be leaving Pentair effective March 1, 2026, and embarrass him a little by complementing him on having been an outstanding partner to me and Pentair. Over nearly 6 years of what will be 23 quarters of dedicated service, Bob has driven deep financial competency throughout the organization. It shows in our operating performance, the level of commitment to results from the team our transformation progress, our cash flow and ROIC performance and of course, the total shareholder return that he has overseen as CFO.

What makes Bob an even better teammate is a steady and measured communication style and has no drama approach to challenges. We have seen tremendous operating performance throughout his tenure, despite us having had to deal with COVID, a period of supply chain instability, rapid inflation and, of course, tariffs. Bob has led us through all of it with a bold leadership style and a sensor humor.

Now to nearly 60 quarters of being a public company CFO, he's moving on to his next chapter. Bob has built and developed a great financial team. As you get to know, Nick, I'm confident you'll see that he has a lot of Bob skills plus unmatchable energy and drive. [ Fabelle ] will oversee a smooth transition process through March 1, 2026, and ensure that we do not miss a beat on our value creation journey. I will now pass the call over to Bob, who will discuss our performance and financial results in more detail. Bob?

Thank you, John, for the very kind words. I have thoroughly enjoyed my time at Pentair, our partnership and working with all the great people in the company. We have very strong finance and IT teams at Pentair, which is evidenced by Nick and Heather's promotions. Personally, I will be 63 in May, and I'm looking forward to spending more time with my family and enjoy my hobbies. It is comforting to know that not only is my team in a great place, but the company is expected to exit the year with continued momentum and is poised for significant success going forward. I look forward to continuing to work with Nick and Heather over the next few months to help ensure a smooth transition.

Let's move to Slide 12. As John mentioned, we delivered a third quarter record in adjusted operating income, return on sales and adjusted EPS. In Q3, we drove sales of $1.022 billion, up 3%, adjusted operating income of $263 million, up 10%, ROS of 25.7% and an increase of 160 basis points and adjusted EPS of $1.24, up 14%. Core sales were up 3% year-over-year. driven by core growth of 6% in Pool, 4% in flow and Water Solutions approximately flat.

Moving to adjusted operating income, transformation was the primary driver of 160 basis points of margin expansion in Q3. Price offset inflation and we delivered transformation savings of $12 million while continuing to invest in growth initiatives.

Please turn to Slide 13. Flow sales were up 6% year-over-year to $394 million. Within flow, residential sales were up 3%. Commercial sales increased 5%, marking the 13th consecutive quarter of year-over-year sales growth. and industrial sales rose 10%. Segment income grew 15%, and return on sales expanded 200 basis points to 24% and driven by strong sales growth and transformation.

Please turn to Slide 14. In Q3, Water Solutions sales declined 6% to $273 million Core Water Solutions sales were flat. Commercial sales were down 6%, inclusive of a 9% negative impact from the sale of commercial services in Q2. Residential sales were down 6% year-over-year, primarily due to portfolio exits. Segment income grew 6% to $68 million and return on sales increased 280 basis points to 25%, primarily driven by transformation savings. The contribution of price slightly offset inflation.

Please turn to Slide 15. In Q3, pool sales increased 7% to $354 million, driven by price volume and the Q4 2024 Gulfstream acquisition. Segment income was $116 million, up 3% and Return on sales decreased 120 basis points to approximately 33%. As a reminder, in Q3 2024, [ ROS ] reflected margin expansion of nearly 500 basis points resulting in a challenging compare. In Q3 this year, we continue to invest in growth initiatives, such as new products, sales plays and digital solutions to drive higher top line growth in future periods. We expect Pool margins to expand in Q4 and for the full year as we continue to drive a balanced approach of top line growth and continued [ ROS ] expansion in the future.

Please turn to Slide 16. We generated record free cash flow of $719 million year-to-date up 14% year-over-year. Our balance sheet remains strong and our return on invested capital increased to 16.7% from 15.2% a year ago. Our net debt leverage ratio was 1.3x, down from 1.4x a year ago. This includes our recent acquisition of Hydro Stop for $292 million with an estimated $50 million of future cash tax benefits. Year-to-date, we have repurchased $175 million of shares.

Our significant free cash flow generation has enabled us to strategically deploy capital through debt paydown, dividends, share repurchases and strategic acquisitions. We plan to remain disciplined with our capital and have additional flexibility to strategically allocate additional capital to areas with the highest shareholder return.

Let's turn to our outlook on Slide 17. For the full year, we are increasing our adjusted EPS guidance to approximately $4.85 to $4.90, which is up roughly 12% to 13% year-over-year. Also for the full year, we are increasing our sales guidance to up approximately 2%. We expect flow sales to be up low single digits. Water Solutions to be down mid-single digits with core sales down approximately low single digits and pool sales to be up approximately 7%. We expect adjusted operating income to increase approximately 9% to 10%. We continue to expect to drive approximately $80 million in transformation savings this year, net of investments.

For the fourth quarter, we expect sales to be up approximately 3% to up 4%. We expect flow sales to be up approximately high single digits, which includes our Hydro stop acquisition of approximately $10 million of sales in the quarter at approximately 30% ROS. We anticipate Water Solutions sales to be down approximately mid-single digits, with core sales approximately flat, reflecting the commercial services sale in Q2.

For commercial water sales are expected to be up approximately low single digits. Full sales are expected to be up approximately mid-single digits. We expect fourth quarter adjusted operating income to increase approximately 4% to 8%. We're also introducing adjusted EPS guidance for the fourth quarter of approximately $1.11 to $1.16, up roughly 3% to 7%.

Let's turn to Slide 18. We continue to execute well and are offsetting the impact of tariffs through increased prices and other mitigation strategies. Our total 2025 tariff impact of approximately $75 million remains consistent with our outlook in Q2, but tariff uncertainty continues.

Our 2025 guidance does not include further China and Mexico impact, which could go into effect later this year. However, these are expected to be immaterial for this year. We expect to take mitigating actions as needed to offset these additional tariffs if they occur. We are very pleased with our performance in Q3 and year-to-date. Our teams have been hard at work to mitigate the impact of tariffs while continuing to focus on transformation in 80/20 and continuing to deliver strong results. We are excited to welcome the Hydro Stop team to pent there and look forward to driving continued success. We are in a solid financial position with a strong balance sheet and record free cash flow, which allows us to continue to invest to drive higher sales growth and profitability over the long term. I now would like to turn the call over to the operator for Q&A, after which John will have a few closing remarks. Operator, please open the line for questions.

[Operator Instructions] And our first question today comes from Steve Tusa from JPMorgan.

I think you addressed some of like the tough comp in pool on the margin side, but I think the productivity was definitely weaker than we were expecting there. Could you just talk about what the trend is? And then maybe how you're feeling about that number for the full year for the full company? And then secondarily, I guess it's good to see the volume picking up there. Is that kind of like signs of life of a little bit of a bounce in the kind of replacement of the aged installed base. And then just talk about how you're measuring -- how you're kind of balancing that against price?

Very good. Let me go ahead and start with that one. So in terms of transformation as a whole for the company, still driving towards that $80 million commitment we made at the beginning of the year, net of investments. So feel good about that. Also optimistic that pool will rebound in terms of ROS expansion in the fourth quarter and drive transformation savings.

Frankly speaking, when we compare Pools performance in Q3 this year, last year, their ROS was sitting at 34%, up roughly 500 basis points. So we always knew that was going to be a challenging compare. And then frankly speaking, we had the luxury this quarter to invest in tools to drive that top line growth in the future. We started off the year very strong from a transformation perspective, drove over half of our savings. So we could afford to invest in Q3, especially in Pool. Flow had an amazing quarter in the third quarter. And again, once again, that allowed us to invest in other businesses.

So that investment in the quarter for Pool has really helped in terms of sales plays, new products, digital solutions. For us, it's all about making the life of the dealers and the distributors easier by making those investments creating an effortless cool experience for the end consumer and then just driving an improved level of customer service. So we think it was money well spent. But again, from a ROS perspective, I expect pool will end the year very strong. They'll be very close to that 34% ROS. And when you think about the journey Pool's been on, 6 quarters in a row of strong top line growth and their ROS was 31% back in 2023. So to be approaching 34% this year, really an amazing trajectory for that business.

Right. And then I guess just a follow-up on the volume and the sources of upside there and then just how you're balancing that against price.

Yes. I would just say, I felt like it was more predictable in Q3, Steve, and I think some of that is -- we're not seeing the levels of decline across the new pool build and we're also not seeing the some of the same challenges that we were seeing in the app market side on when the price first went into place at some of that was consumer shock and looking at substitutions. So it feels stable. We're highly encouraged that we're going to have a volume-based growth plan for pool next year, and prices are holding. I mean, clearly, I don't know if we get this next wave of of if China were 100% tariffs, we're going to have to go consider those prices again. But right now, the price cost is in line, and we're doing fine, and we feel comfortable with where we are, Steve.

And just to add a few numbers to that. We talked last quarter, our view has not changed. That price would read out about 4% for the company and about 5% for pool. So on track for that. And when you think about our guide, Steve, up 7% this year for pool, think about 5% being price, 1% to 2% being the Gulfstream acquisition and the market generally flat from a volume perspective.

Our next question comes from Andy Kaplowitz from Citigroup.

Congrats, Bob. Thanks for all your help.

Thank you, Andy.

So you lowered your '25 year-over-year core Water Solutions growth, I think, just a little bit down low single digits flat. So as commercial growth continue to lag a bit for you, I know you -- I think, Bob, you said it will go to a low single-digit growth in Q4. And then any preliminary thoughts on '26 for the segment?

Yes, you're right, Andy. It was the only full year guide we tweaked down a little bit in terms of core water solutions. You'll remember, for Q3, we were saying commercial Water Solutions would be low to mid-single digits. That came in at low single digits, and we guided Q4 for core commercial water to be low single digit. So it's a little bit off where we like that business to be in kind of that low to mid-single-digit range. But to me, it's reflective of the foodservice industry in general. That's the type of growth we're seeing. We're going to continue to drive optimization in that business from a bottom line perspective, but it is a slower market right now.

Yes. And Andy, I would just add to that. I think North America, we continue to do extremely well against the market backdrop, but we do have international sales, and we've seen some softness in 2025 or some of the sales into China. And we're still doing well despite that. And that will level off as we look at next year, and I think we're encouraged by some of the recent volume trends that we've seen in North America.