Thank you all for joining us for the Q2 2020 Pentair plc Earnings Conference Call. I will now turn the call over to Jim Lucas. Please proceed.

Thanks, Mariama, and welcome to Pentair's Second Quarter 2020 Earnings Conference Call. We're glad you could join us today. I'm Jim Lucas, Senior Vice President, Treasurer and Investor Relations. With me today is 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 second quarter 2020 performance as well as our full year 2020 outlook, as outlined in this morning's press release. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in Pentair's most recent Form 10-Q, Form 10-K, and today's press release. Forward-looking statements included herein are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of Pentair's website. We will reference these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation. We will be sure to reserve time for questions and answers after our prepared remarks. I will now turn the call over to John.

Thank you, Jim, and good morning, everyone. Please turn to Slide #4 titled Executive Summary. First and foremost, we hope that everyone remains healthy and safe. While the impact of the COVID-19 pandemic continues to create uncertainty, our focus on the health and safety of our employees, our customers and our businesses continues to be our priority. Throughout the quarter, we built strong COVID-19 management capabilities, which are now part of our standard work processes. We recognize that there will continue to be disruptions due to the pandemic, but we believe we are better positioned to help manage any potential impact. While we had withdrawn our guidance entering the second quarter, we were generally pleased with the overall performance of the company. We anticipated that our commercial- and industrial-facing businesses would face challenges as global capital spending came to a halt in April, but the rate of decline did moderate as the quarter progressed. Our residential-facing businesses, including our leading pool franchise, saw healthy improvements during May and June and exited the quarter with continued improvement in trends. As consumers sheltered in place during the quarter, it appears swimming pools were being opened earlier and demand for swimming pools overall grew, resulting in increased demand for our equipment. Consumers also remain focused on their water quality, which led to improved orders for our Water Solutions business. We are extremely pleased with our free cash flow performance as we generated over $400 million of free cash flow during our important second quarter. We used this cash flow to reduce our outstanding revolver balance and the result was further strengthening of our liquidity profile. We continue to position ourselves to take advantage of opportunities as business recovers. Residential comprises roughly 60% of our portfolio, and we believe these businesses should continue to benefit from improved demand. While we anticipate that the rest of the portfolio serving commercial and industrial will likely remain challenged, we remain focused on aligning the cost structure appropriately while continuing to invest in longer-term opportunities. I'd like to thank all of Pentair's employees for continuing to deliver for our customers despite these unprecedented times. Please turn to Slide #5 labeled Segment Focus. We wanted to remind everyone of our focus within our two segments, which remain relatively unchanged. Within Consumer Solutions, our largest segment, our primary focus is advancing our growth in pools, both in gaining content as well as extending our aftermarket reach. As a reminder, there are approximately 80,000 new pools built each year and there are roughly 5.5 million pools installed in the ground. We believe that automation represents a longer-term opportunity, and we continue to evolve our product offering. We have launched the Pentair Home app and are rolling out a number of new products that can and will be interconnected. We also wanted to comment on an upcoming Department of Energy regulation that goes into effect in July of 2021, which we expect will result in further adoption of variable speed pumps. As a reminder, this is a category that we helped invent over a decade ago. We estimate that roughly 30% to 40% of in-ground pools have a variable speed pump today, and we expect this number to only increase after the new DOE regulation takes effect. While we believe we are well positioned from a product standpoint, we are working closely with our dealers and distributors to better educate them about what the new regulation means as well as help them manage the transition away from single-speed pumps. Within our Water Solutions business, we continue to invest in innovative components such as our flat connected valve for water softeners, while also expanding our residential systems business. Within our commercial systems business, we continue to invest in new areas around commercial office water and total water management. We see this as a long-term opportunity where we believe we are well positioned, and we look forward to updating you in the future. Finally, we continue to focus on our M&A funnel, primarily around tuck-in and bolt-ons. During the quarter, we made a small acquisition of an in-floor pool cleaner company that expands our product offerings. We see opportunities for other product line extensions in pool and much broader opportunities within Water Solutions. While our focus within Consumer Solutions is principally around growth, Industrial & Flow Technologies, or IFT, has more of a focus on productivity. We have reinforced our PIMS processes as we believe that there are a number of opportunities across the segment to improve the cost structure and also improve quality and delivery within a few select businesses. We continue to invest in productivity-enhancing technology in our manufacturing plants. While the focus in IFT is more on margin improvement, we believe that there are some potential niche growth opportunities, particularly in our food and beverage business focused on CO2 recovery as well as our beer membrane business. We continue to prioritize our opportunities for both segments to ensure we are allocating our resources most effectively to optimize our shareholder value creation opportunities. We have a balanced focus between growth and productivity and believe that both segments are well positioned to make contributions to Pentair and all of our stakeholders. Please turn to Slide #6 labeled What We Do Really Matters! Doing well by doing good has been a long-standing tradition at Pentair. Our purpose and our mission helped to energize our employees to make a difference within and beyond the workplace. Sustainability is not an initiative at Pentair, but instead is core to the products we create and the customers we serve. This slide is a brief snapshot of how some of our products are helping to make the world a safer, more sustainable place. Pentair is a water-focused company, and many of our products are energy-efficient solutions. Our variable speed pool pump has helped us to be named ENERGY STAR's Partner of the Year for six consecutive years, while helping consumers save nearly $2 billion in energy costs. Our Residential Water Solutions business has helped reduce the need for almost 10 billion water bottles annually. We also have a leading CO2 recovery business within industrial filtration that has helped customers capture and reuse over 11 million metric tons of CO2 every year. We remain focused on leveraging our strong product and technology offerings to help our customers deliver smart, sustainable solutions. This is core to Pentair and essential to our purpose and mission in building a leading water treatment company. I would now like to turn the call over to Bob to discuss our financial position and our results in more detail. Bob?

Thank you, John. Please turn to Slide 7 labeled Q2 2020 Pentair Performance. For the second quarter, our sales declined 11% and decreased 10% on a core sales basis. Consumer Solutions was down 8% on a core basis, while Industrial & Flow Technologies core sales declined 13%. I will discuss each segment's performance in more detail shortly. Segment income declined 19% and return on sales contracted 180 basis points to 17.5%. We made progress on our cost-reduction efforts, but the timing of these actions did not fully offset our decremental margins in the quarter. Below the operating line, our net interest and other expense ended the quarter at $8.1 million. Our adjusted tax rate was 16%, and our average shares outstanding in the quarter was 166.4 million. We delivered adjusted EPS of $0.59, which represented a 14% decline year-over-year. Overall, we were very pleased with the progression of the quarter following a difficult April. While there's still much work to do, we feel positive about our ability to align our cost structure with the weakened top line. Please turn to Slide 8 labeled Balance Sheet and Cash Flow. While the P&L faced its fair share of challenges during the quarter, we were extremely pleased with our cash flow performance and the further strengthening of our balance sheet. For the quarter, we generated free cash flow of $417 million, over a 20% increase for the comparable period one year ago. We used our strong cash flow performance primarily to pay down our revolver balance. We ended the second quarter with $764 million available under our $900 million revolver. Our net debt-to-EBITDA ratio ended the quarter at a very manageable 1.6x. While we have one small maturity upcoming in September, we have no other pressing capital needs outside of dividends in the second half. We plan to remain disciplined with our capital, and we feel good about the strength of our balance sheet and expect to deliver free cash flow for the year equal to or greater than our net income. Please turn to Slide 9 labeled Q2 2020 Consumer Solutions Performance. Consumer Solutions sales declined 8%, segment income decreased 11% and return on sales declined 80 basis points to 24.1%. Before discussing the full results of the two businesses within the segment, we wanted to remind you that Consumer Solutions is 75% residential and 25% commercial. Our pool business delivered flat sales for the quarter. This included a mid-teens decline in April, followed by continued improvements in May and June. As consumers were sheltered in place, it appears that more and more people were opening their pools earlier than usual. Further, demand inquiries for new pools were up substantially throughout the quarter, as confirmed in various publications about dealers having limited ability to keep up with the increased demand. This resulted in strong demand across all of our product categories. While we were focused on meeting this demand, we were impacted in the quarter by COVID-related manufacturing delays and supplier disruptions, notably during the early part of the quarter when we would historically be ramping up productions. We have seen less downtime in our own manufacturing facilities and have been able to ramp up production in several key product lines. The supplier disruptions occurred principally outside the U.S., and we have worked to add suppliers in addition to our current suppliers being able to produce once again. Within Water Solutions, the mid-teen sales decline does not tell the bifurcated story of the business. The smaller commercial business, which is exposed to restaurants and other hospitality industries, experienced a double-digit sales decline. It was encouraging to see the rate of decline moderate throughout the quarter, but we are not expecting any meaningful recovery for this business for the remainder of the year. Our residential business was a different story as we did see signs of improvement throughout the quarter in what can best be described as stabilization exiting the quarter. Early in the quarter, many of our dealers and customers were unable to get into consumers' homes to test their water and install systems. As the quarter progressed, we saw dealer activity increase and we also saw some pockets of stabilization in our components business. We believe Consumer Solutions is well positioned as we enter the third quarter based on the strong demand in pools and the continued improvement in orders.

Please turn to Slide #10 labeled Q2 2020 Industrial & Flow Technologies Performance. Industrial & Flow Technologies, or IFT, saw sales decline 14%, with all three businesses down in the quarter. Segment income decreased 26%, and return on sales declined 240 basis points to 14.1%. The rate of decline in IFT was steep, limiting our ability to quickly reduce costs, but there was a sequential improvement in sales as we exited the quarter. We are working on rightsizing the cost structure in IFT according to the demand run rate as we believe the top line will likely stay pressured in commercial and industrial as customers continue to pause their capital spending and reduce their aftermarket orders to lower asset utilization. Our Residential & Irrigation Flow business experienced a low double-digit sales decline as customers were actively managing their own balance sheets, and their demand was severely impacted earlier in the quarter due to many states' residents being sheltered in place. We experienced an improvement in activity as the quarter progressed, with orders in June up significantly versus April. Commercial and infrastructure flow posted a high single-digit decline in sales, with commercial demand down low double digits as the smaller infrastructure business continued to ship its backlog. We are monitoring orders closely in this business, but it appears to be too early to determine at what rate the backlog will be replenished. Industrial Filtration was hardest hit during the quarter, with sales declining just over 20%. This was broad-based as virtually all industries served saw a severe freeze in capital spending as well as lower asset utilization that had a negative impact on our aftermarket sales. It remains to be seen when these trends will reverse, and we are preparing for this part of IFT to remain under pressure for the remainder of the year. We expect the top line to remain pressured in IFT, and we are taking appropriate actions to rightsize the cost structure. We expect decrementals to improve throughout the second half of the year. Please turn to Slide #11 labeled Full Year 2020 Planning Assumptions. Despite a brief period when COVID first appeared in the U.S. in a meaningful way, our pool business has enjoyed an otherwise stronger first half of 2020. We expect this trend to continue in the third quarter as demand remains strong across the channel and we make progress in satisfying the strong demand the industry is experiencing. Our Water Solutions business, on the other hand, is not expected to have a second half recovery as hospitality and commercial offices are likely to remain impacted by the COVID-19 pandemic. We are also watching closely as COVID infection rates increased in key water quality states such as Florida, Texas and California. If tighter shelter-in-place restrictions are instituted, this could have an impact on our Residential Water Solutions business. As we stated earlier, IFT is expected to not see much in the way of recovery as we anticipate customers continue to pause their capital spending for the remainder of the year. Finally, the pandemic environment continues to create challenges for us as we make base economic assumptions. We expect continued uncertainty, but with the expected performance of our pool business, we are reinstating guidance as we expect the rest of our portfolio to face continued challenges. Please turn to Slide #12 labeled Full Year 2020 Pentair Outlook. While full visibility remains limited, with half of the year behind us, we are reinstating the full year guidance. For the full year, we expect adjusted EPS to be in the range of $2 to $2.20 on total sales of roughly $2.8 billion. Below the line, we are expecting an adjusted tax rate of 16% and average shares outstanding of approximately 167 million. We continue to target free cash flow greater than 100% of net income. Capital expenditures are expected to be $60 million to $70 million while D&A should approximate $75 million, and non-cash stock compensation should be around $20 million. I would now like to turn the call over to Mariama for Q&A. After which, John will have a few closing remarks. Mariama, please open the line for questions. Thank you.

Your first question comes from Josh Pokrzywinski with Morgan Stanley.

So no surprise, first question on pool. John, can you just talk a little bit about point of sale in the marketplace versus your business? Anything on backlog channel inventory that we should be thinking about as we head into the second half, and how maybe those two come into lockstep?

Yes, we are pleased with the order trend and the sell-through rates in the pool segment, and we are excited about the resilience of the business. As we evaluate what has occurred in the channel, it appears that most of the orders in the second quarter were fulfilled from inventory. This presents an opportunity to replenish that inventory and continue meeting external demand. That’s why Bob expressed such optimism about the second half, and we hope to see sustained strong demand.

Got it. And then I'm assuming I win some sort of prize or a T-shirt for a non-pool question. Just on commercial filtration, I would imagine that shelter-in-place was pretty punitive to things like restaurants and institutions. Any kind of swing factor that we should be aware of where 2Q maybe doesn't tell the story, but June exit rates or July, some of these organizations went from 0 to something better than 0. Any shift in demand there that you can speak to?

No. Even in June, it's important to view it as two distinct halves. As the country began to reopen, we saw a significant rebound in demand during June. However, as we noticed a slowdown in several key states, and across the nation, the trends started to decelerate again. Our forecast suggests that we may not see a consistent recovery and could instead face ongoing declines due to the pandemic. Therefore, I believe we are in a cautiously balanced position. As Bob noted, there was indeed a substantial increase in residential demand, particularly for water quality products in homes, which rose throughout the quarter. We have tempered our expectations for the latter half of the year due to concerns that states may reverse their reopening strategies. A positive takeaway is that we observed a recovery in China during the quarter, and we are optimistic about the year-over-year growth rates for June, as well as the trends looking into the third quarter. This gives us confidence that once there is stability regarding the pandemic, the strength of our portfolio will begin to emerge.

Your next question comes from the line of Jeff Hammond with KeyBanc Capital Markets.

So just on the pool kind of supply chain issues, can you just talk about what you think defers into 3Q as a result of that? And just what's your assessment of kind of those supply chain issues? Have they fully abated? Or are they still lingering?

Yes. So Jeff, we're carrying a fairly substantial backlog into Q3. The order trend was very positive throughout Q2. And yes, we did have some supply disruptions primarily related to COVID and our supply base. And so we are consistently trying to meet that demand, and we expect a very strong July, and we're doing everything we can to meet the existing demand and also the demand that was created in Q2.

Okay. And then IFT kind of surprised me in the model and the upside, like where did you see maybe better trends versus what you were expecting? And then I think Bob made a comment on decrementals getting better, how should we look at decrementals for the back half for IFT?

Yes. We'll split this answer, Jeff. I think on IFT, first of all, I think on long-cycle businesses, you carry a little bit of backlog into the quarter. So we did have a backlog from some orders that we had booked in previous quarters that we continue to ship throughout Q2. But also I am as pleased that we become less dependent on large projects and we've got more of a recurring revenue stream across the IFT portfolio than we had maybe three to five years ago. So I think the efforts around the team to position ourselves in more predictable revenue streams started to show through, especially as orders started to pull back. And I think we're positioned not to return to growth anytime soon, but at least to mitigate the downside growth potentials that we had in the last cycle. So I feel good about where we are in the portfolio. As Bob mentioned, we still have cost actions here to rightsize the business to where the trends are going to take it. We've been encouraged with a little bit of the order pattern as we started Q3, but we got to get this business in line with what the longer-term revenue stream looks like. And those are actions that we'll be discussing here throughout Q3. I'll have Bob talk about decrementals.

Thanks, John. There is a tremendous amount of work going on around the cost structure, understanding fixed variable, discretionary, nondiscretionary, especially within the IFT business. I would say the best way to model the back half is to continue to use low to mid-30s as decrementals for that business.

Our next question comes from Andrew Obin with Bank of America.

Just a follow-up question on pool. As we look at sales reported by public distributors, how long do you think it will take for your sales sort of to match what the industry is doing? And as I said, I'm using public guides as an example, but there's just the disconnect. You guys were flat, the industry pool I think reported up 14%. Should we expect the gap to close in the third quarter? Or how long does it take?

Yes. I mean we're going to do everything we can to close that gap in Q3. And as I said, I think the orders continue to remain strong. So I think, through the back half of the year, we expected to see our revenue increase significantly, Andrew.

Fantastic. You mentioned adding suppliers. Are you focusing on the same geography, or are you considering reducing risk by moving some suppliers to the U.S.? Can you share your thoughts on your supply chain after COVID?

Yes. Like many companies, we first need to address demand. In some instances, our suppliers source production from Mexico, which experienced significant COVID disruptions in Q2, affecting our supply chain. Looking ahead, we recognize the necessity for more localized supply chains, not just in the U.S., but also in Europe and China. The pandemic exposed various issues, and tariffs also indicated the need for supply chain adjustments. There hasn't been much change in tariffs, but we feel optimistic about their long-term trajectory. This encourages us in the manufacturing sector to focus on localized production to meet demand and mitigate risks associated with global supply chain disruptions. I believe this is a trend that applies to the entire industry.

Your next question comes from the line of Steve Tusa with JPMorgan.

What was the impact of the supply chain issues, dollar volume-wise?

Well, it was a big piece of what would have helped close the gap between the industry trends and where we ship our products, Steve. Let's just put it there. Part of that being that, as Bob mentioned, we got off to a slow start in the quarter as the orders started coming in just from our manufacturing operations and ramping ours up to the demand. But then when the supply disruptions happened, as I mentioned earlier, that put us further behind and now we're digging out of that aspect. We've seen a strong demand across the entire equipment portfolio, so it's not just a product line. And as we head into Q3, we're confident we have a path to get the customers their orders within Q3, but we also see the demand working its way into Q4 as well, Steve.

How strong were our orders kind of in June and July? You said you can grow significantly? I mean, are they up more than double digits?

Yes. No, not more than double that'd be triple, right? They're up double digits. They're definitely up double digits.

They're not 100% right. So are they up more than 20?

Yes.

Okay. So can you, in consumer, actually hold the flat line this year, do you think, for this segment?

I think that would be aggressive. As we mentioned, we expect a good year for the pool segment despite the challenges. We had easier year-over-year comparisons, and last year's weather was not favorable, while this year we've experienced excellent weather for the pool season. Additionally, the shelter-in-place orders have altered consumer behaviors regarding seasonal products that might not be regularly purchased. For instance, customers are now expressing interest in using their pools earlier, considering purchases like heaters or chlorinators, and thinking about automating their pools. We are hopeful that these trends will encourage consumers to invest in these areas long-term. We are optimistic about the pool segment's performance, though our only constraint is our supply chain management. We do recognize that our forecast for Water Solutions was perhaps overly optimistic, especially considering the uncertainty surrounding the reopening of offices and the travel recovery in the hospitality sector. We believe it will be challenging for Consumer Solutions to fully rebound, but we see positive trends. As conditions began to improve in June, we felt confident in our Water Solutions positioning and noted some recovery. However, towards the end of June, we noticed a slight pullback due to renewed closures. I understand this might seem lengthy, but I wanted to provide additional context. It's important to acknowledge that while we are optimistic about our businesses, there is a sobering reality regarding the unpredictability of the pandemic's impact on our economic outlook and global supply chains.

Right. Sorry, one last quick one. On productivity, you did $9 million this quarter. Is that kind of a good consistent run rate for the back half? Or do you have some more kind of costs coming through timing-wise that can improve that in the last couple of quarters?

We're focused on improving that number. Again, looking at the portfolio of businesses, we think there's opportunity to do better than that.

Your next question comes from the line of Brett Linzey with Vertical Research Partners.

Just wanted to circle back on the DOE efficiency changeover. How do you see that playing out as we roll into next year? Do you expect some prebuy of the single-speed ahead of the deadline and then you get the mix up kind of beyond '22? Or what's your thought process there?

Yes. We've always felt that there would be some prebuy just because of the way the other industries have handled transitions of this kind. I think we obviously are working with our distribution and dealer channels to help understand that the value of the variable speed is significant, both in the form of how quiet it is, its efficiency and just the fact that it plainly is a better pump. So while we do expect some of that prebuy to mitigate the impacts of not having it available next year, we really are hopeful that more of the mix switches to the variable speed pump in a very short order here.

Yes. Got it. And then just on price, encouraging, you're able to hold the line there in both the businesses in the quarter. Just given the strength in pool, you've got some commodities moving against you, do you think you have a price lever to kind of move price back up through the second half of the year, specifically in pool?

I think it's going to be a more normalized pricing environment, similar to the way we approach this year. While there are some challenges across certain product lines, I mean, overall, commodities have generally held in there, and we haven't seen significant inflation. So I think it's going to be a more normalized year as we head into the season.

Your next question comes from Joe Giordano with Cowen.

Can you hear me?

Yes. We can, Joe.

Can you explain what the regulatory change means for your margin profile and how it impacts the competitive landscape, particularly regarding efficient single-speed versus variable-speed production?

Yes. So this has been a product that's been out there for over a decade. And as I said in my comments, we helped with the channel and the needs, primarily on the high-cost energy states, introduced this product. So we've been the leader in it for a period of time, but candidly, everybody has got a variable speed pump. And I think our biggest challenge across the industry I think is getting people to understand that even though the cost of that product is almost double, the value in the pump both in how long it lasts and the value it creates is significant. So there's not really a change in margin profile. It goes out at more revenue and it throws out more margin dollars, but not higher margin.

Got it. That makes sense. And I was just curious about kind of like the channel evolution. Have you seen more of your business going through like an Amazon-type sale more recently? How has that kind of shifted over time?

Online has definitely picked up on do-it-yourself products like filtration or replacement filtration cartridges. There's definitely interest in water filtration that's going through those online channels. And then just as a reminder, we have our own online capability that we've got through the Pelican acquisition that we utilized to take some of that demand and shift it over into more of a water expertise because what we want to do is give people the right solution, not just sell them a product that they think they need. As it moves toward that channel, what does that mean for your margins? We believe there will always be a select group of products in every industry that people can use and replace themselves. However, we don't think that applies to our pool or Water Solutions businesses when it comes to addressing consumers' real concerns about the taste and quality of their water. We are confident that, in the long run, this will lead to significant service revenue for us.

Your next question comes from Brian Lee of Goldman Sachs.

Just maybe firstly on the decrementals on Consumer Solutions, specifically. They seem to come in pretty strong, a bit better than we would have expected given the 8% decline in sales. Anything in the quarter that might have helped the margin profile? Was it all a function of mix? Or was there something else? And then how should we think about whether this level of decrementals in the segment sustains in the next few quarters?

For Consumer Solutions, again, mix was helpful in the quarter. And we expect that trend to continue in the back half of the year. There's also, within Consumer Solutions, a number of productivity plays that are underway. So I expect decrementals to continue to do well within the Consumer Solutions segment.

Okay. Fair enough. Regarding the mix in the pool business specifically, do you notice different margin profiles for renovation projects compared to new construction? Are both segments showing similar strength, or is one performing better than the other? It seems that backlogs in new construction are above average according to some supply chain players, so I would be interested to hear your perspective and the relative impacts of each type of business.

Right. When we've been looking at it, both new construction and remodel are both strong in this environment. And the margin profile is very similar between those two pieces. So again, good news from our perspective in terms of consistent demand in both of those areas.

Your next question comes from the line of Scott Graham with Rosenblatt Securities.

I have three for you. If you could just give us a quick comment on IFT mix. Can you maybe tell us also when the new pool inquiries, when your dealers and when trade is expecting that to manifest into actual breaking of grounds? And if you could also tell us what your thoughts are on reinstating share repurchases?

Sure. I'll address this with Bob. It’s interesting to note that when the pandemic hit in late March and April, we found that the phones weren’t ringing and people were feeling anxious. However, throughout Q2, consumers began to refocus on enhancing their quality of life with what they have instead of considering vacations. As a result, demand increased significantly and has remained strong up to this point. This indicates that people understand that building a pool is not an immediate process, typically taking a couple of quarters. We feel optimistic about this trend for both new and remodeled pools moving forward. Additionally, we see each opportunity as a way to demonstrate to homeowners the best solutions for their pools, which may include automation and self-maintenance for an overall better experience. We are excited about the trends in new and remodeled pools since they present the best chance for us to enhance our offerings. We also continue to support existing pools, which generally involves like-for-like equipment replacements. Overall, we believe the current trends are positive and hope they will carry into 2021. Bob, would you like to discuss the capital allocation question?

Yes. On share repurchases, to me, it fits within the whole approach around capital structure. We continue to have a very balanced, disciplined approach. First and foremost, to me, it begins with driving free cash flow greater than or equal to net income. And we're on our way to do that here in 2020 and very pleased with the second quarter from a free cash flow perspective. The debt position at the company at 1.6x, very manageable, especially with covenants of 3.75. And then our liquidity position, if you were to take what's available in the revolver and add it to the cash, is over $850 million. And to me, what a difference 90 days makes, we were coming out of Q1 with that same liquidity position closer to $500 million. So $350 million higher going into the back half of the year. All those things then give us the optionality around return of cash to shareholders and investing in the business. We targeted $150 million of buybacks this year. We completed $150 million. We may resume the share repurchase in the future, but depending on market conditions and our capital needs, we still need to make that decision. We'll continue, obviously, to pay the dividend and invest in our highest margin growth opportunities both organically and inorganically. So I would best describe it as a balanced capital structure with really a lot of optionality but based on our liquidity position.

And then, Scott, your final question was really about mix in IFT. And I would say they're all relatively the same across the businesses, except we do better when agriculture does better. So we haven't seen that uptick in demand on ag this year as it pertains to OEM ag or spray irrigation ag, but that's the one piece of the portfolio we love when the market is strong.

Your next question comes from Bryan Blair with Oppenheimer.

I wanted to circle back on the runway for new pool demand for a minute. Is it reasonable, given construction backlogs, labor constraints, and the limited length of the construction season, to assume that the spike in new pool demand is going to remain significantly supportive through 2021? Or am I oversimplifying that?

That's a reasonable expectation. Obviously, there's all kinds of things that you need to consider like economic impacts, how people are feeling about their 401(k)s, those types of things. But based upon the trends we've seen right now, it's very realistic to assume the scenario that you shared.

Okay. You mentioned the M&A funnel in your remarks. Has the pandemic significantly changed the specific technologies or capabilities that interest you as you expand Water Solutions or integrate into the pool platform?

Yes. I mean it's reinforced several. I think we just did a small one in pool that we think really fits nicely in the portfolio. It's in-floor cleaning, so as you build and create a remodeled pool, it's the ability to put the jets at the bottom of the pool to create more of a mixture of filtration capability. So that's an example of a technology that you wouldn't go retrofit, but you'd certainly put in a new and remodeled pool. And adding that as a portfolio is really nice to have. As we think about where we want to take Water Solutions, we really believe more than ever now that the trends are going to shift faster, meaning people want touchless solutions when it comes to dispensing water. They're going to come back into office buildings and have a different feeling about the water they drink. And so people are going to maybe tend to think of branded water or certain forms of water being dispensed to a taste profile or a health profile that they seek. So all of those things were in our portfolio, and I feel we either want to accelerate the innovation internally or augment them with channel accelerators and/or service offerings into the markets that we'll go to. So I expect that we'll have some looks at some deals over the next six to nine months. We're going to continue to be disciplined, as Bob said, because most of this capability we can do organically. But if there's an accelerator out there that we can put in as a bolt-on or tuck-in, we're going to consider it.

Your next question comes from Andy Kaplowitz with Citigroup.

You obviously had a big cash flow quarter in Q2, and we understand the cash flow strength and seasonality coming out of pool, but could you continue to see working capital tailwind in the second half, given the strength in pool? And obviously, your guidance have greater than or equal to 100% conversion. I mean it's a little vague. So given what we've seen already, it would suggest that you could see conversion well above 100%. So I don't know if you could just comment on that.

Yes. So I would describe this year as a typical year from a free cash flow perspective. I would not describe '18 and '19 as such because of movements in working capital. But to us, it's playing out like we thought it would. In Q2, we saw strong cash collections and we did not have the headwind of payables in the first half that we had in '19. So that's two reasons why we're up so significantly at the turn. We'll continue to drive positive free cash flow in the back half of the year. What I really like about the profile right now is that the linearity, both in Q3 and Q4, is going to be much better than what it's been in the past. So I start each quarter off level-loading the plans and then having the opportunity to collect that cash. So I like the linearity. We do have potential to be better than 100% of net income. That's what we're calling right now. But overall, I think we've got exactly the right focus on free cash flow. One of the things we've changed in the last 90 days is building out a free cash flow forecast down to the business level. And so we have accountability around everything from CapEx to inventory to cash taxes throughout the company. So it always helps me when the company as a whole are focused on this metric. So I expect we'll continue to have strong cash flow performance in the back half of the year.

And then, John, can you give us a little more color into your comments regarding frozen CapEx in industrial filtration? If I'm not mistaken, it's a backlog business, so could you comment on the backlog trends you're seeing? And then as your customers have slowly come off of shelter-in-place, have they started to spend at all? Or is it that they're just waiting for more economic certainty? I think you mentioned in the past that you had a number of self-help opportunities in this particular business, so what are they? And are they helping you at all?

Yes. It's a great question. I think when you think about our industrial filtration offerings and you think of food and beverage and then you think of our membrane applications into broad industrial, many of our customers just don't yet have any economic outlook for the business that they can feel comfortable at. And even within F&B, even though that the stay-at-home liquor and beer sales have been pretty tremendous, we have to offset that with the hospitality demand that has dropped off considerably. So a lot of our food and beverage and beer customers that we're very intimate with are considering beer manufacturing in remote locations around the world that they're uncomfortable making that strategic investment right now given where the pandemic is. So I don't want to say it's a freeze, and I've been very careful with that because our dialogue has really been about more where they're going to put it and when they're going to do it versus if they are. And then on the industrial side, our customers, again, are in need of capital investment to accelerate productivity, and most of our membrane offerings create that, but they're in the evaluation stage of where those will be. So we've chosen that word carefully, pause, because we think it is really paused right now pending either more of a freeze or a reboot to that capital spend to drive the productivity they need.

Your next question comes from Deane Dray with RBC Capital Markets.

I want to circle back on the new pool construction industry, and we've been stuck at this 80,000 capacity for a while. Do you think the industry is going to put new capacity in place, and are you seeing any signs of that? And how would that change your mix? I mean you're typically 85% more about aftermarket, but would that increase the new pool sales?

Yes. Deane, I don't know if I can get there yet. I mean last year, we did have a pullback, as we talked about, due to weather. And this year, there's a little catch-up. And we'll be looking at those pool permits and the pool permit trends by these states as we go forward. I'm encouraged because I do think most people in these warm-weather states when they retire and/or they choose to be there, they look at the pool as a necessity for their lifestyle. So I think we believe that the trends are still in our favor. Where it goes and how fast it goes, I'm not ready to make that choice yet, Deane. I do think what we can do is continue to make you aware of if you have a pool, how we can help you maintain it better and how we connect you with our professional channel that can give you the solution that we feel is best for you.

Got it. Just an observation. I'm surprised that there's not more penetration of the variable speed pump because it is such a compelling economic decision. So anyway, that looks like the natural lift there is for more sales. And the second question on the Home app for automation. Where does that stand today? How many installations or users do you have? What's the expected pull-through in terms of products? And then more of a qualitative question is, does that in any way put you in competition with the pool service folks? I mean these are your channel partners typically. Or does that enhance the relationship?

Yes, thank you for the question. We have soft-launched the app and are currently in the testing phase with a couple of products we’ve introduced. I expect to see progress as we move into 2021. Our goal is to resolve any issues and enhance the user experience. The app integrates all of our in-home products into a single Pentair app to make it more consumer-friendly. Additionally, we will provide a dealer-specific app to support more technical requirements through the dealer network. The consumer app will notify users about their needs, such as salt levels or adjustments. We believe this will strengthen our dealer relationships by connecting consumers with the best dealer for their specific needs. I firmly believe that providing the right expert guidance for water quality, while linking consumers with our top dealers, will lead to the best overall experience. Our aim is to raise awareness through the app and improve user satisfaction without conflicting with our dealers.

Your next question comes from Damian Karas with UBS.

I have a few minor questions regarding the model. First, I want to inquire about the investment. It seems like there has been a slight reduction in R&D, particularly in the second quarter. I know you mentioned continuing long-term strategic investments, but I’m curious if this reduction is related to some of the facility shutdowns that occurred in the second quarter. What are your thoughts on this situation?

You nailed it. It wasn't by choice. It was because R&D was one of those functions that was hard to maintain at the consistent levels that we had prior year. It was the one function certainly in Pentair, but probably in the industry, that was hard to do remotely in work-from-home. And we are, candidly, on some of the key NPI programs, probably lost 90 days, and I would expect that R&D spend to pick up here in the back half of the year as we try to catch up on some of those interruptions in those projects. We are back now. Obviously, social distancing and working through all of the different requirements, but yes, that was a result of COVID, not from a strategic choice.

And I would just add to that. We do spend $60 million and $70 million of capital which is, to be honest, probably a little bit higher than what we talked about on our last call. And we look at that capital spend in three buckets: safety, growth, and productivity. On the safety piece, we won't compromise on that. On growth and productivity, spending a little bit more there, building the business cases to drive positive NPV and holding the teams accountable. We also expect to see benefits from that spend in the future.

Okay. Great. That makes sense. I'll leave it at that. I appreciate the time.

Your next question comes from Nathan Jones with Stifel.

I guess I'll start with just a question on the overall guide. I mean it looks like you've got pretty good visibility into a strong second half for pool, and it looks like you've taken a pretty conservative approach to the IFT business in the guidance. Can you just talk about how you approached giving guidance for the full year, particularly the second half? Have you taken a pretty conservative outlook to IFT where you're really confident that you can deliver that second-half guidance? And if things get a little bit better than you've built into the guide, then maybe there's some upside? Or do you think it's more of a realistic look at the second half?

Yes. Nathan, I mean first of all, I'm pleased that we could introduce guidance again. I think it's important externally to frame the goalpost of what you're trying to accomplish, but also it's very important internally that people are working towards expectations and actions and targets that they're held accountable for. And I feel really good that we worked as hard as we could in Q2 to deliver the best result. And that's always been our goal here, how do we keep our people safe? And how do we continue to lean in and produce the best financial results possible? That being said, the fourth bullet that I put on that one slide is that uncertainty around how the pandemic plays out is still a question mark for us. It's easier to think about it now with only six months in front of us and really more like five as we work through July. So I think we've got a better reasonable estimate of where we're going to land. And so I think we think it's an appropriate expectation. And there are scenarios that get to the high end and there are scenarios that are on the low end, Nathan. But one of the things we don't want to do is have to pull back guidance because there may or may not be some issue that we have to deem to be material. So a big thought process was, what do we feel comfortable with? And how can we give The Street what they need and give ourselves what we need to continue to operationalize the business and then deliver the best financial results possible, Nathan.

Your next question comes from Julian Mitchell with Barclays.

Maybe a question around the cost reduction. I think you alluded earlier in this call to some stepped up cost-cutting perhaps at the IFT segment. But if I look at the guidance provided in the release, it looks like you're only assuming about $4 million of restructuring for the year and maybe $1.5 million, $1 million or so in the second half. So just trying to understand, am I misreading that? Or is there a lot of pending restructuring to be announced? Or is the cost-cutting more of a variable-type approach and that sort of flows back once the top line recovers?

Yes. I would not associate any of the cost-reduction efforts relating to restructuring. We're primarily focused on our variable labor and our discretionary spend. So those typically do not bring significant restructuring costs with them. We'll continue to evaluate the top line and take actions as we need to, but the focus is primarily on those variable components.

And then my second one, sticking with IFT. That relative resilience you saw in the commercial and infrastructure business, with the organic sales only down high single-digit in the quarter, is that a trend you think stays fairly similar through the second half? Or is there something where as the backlog softens, it gets worse? Just trying to understand what's moving that business specifically more, is it the backlog or is it the flow-driven part, and how you see them in the second half?

Yes, so we had a fairly decent backlog, and we saw orders remain strong through Q1. I think what you're feeling from us is the anticipation that I mean it's municipalities and some of the commercial building needs might be lower in the future. And so it's not necessarily indicative of a trend we know. It's more indicative sequentially of a trend we're anticipating.

There are no further questions at this time. I will now turn the call back over to John Stauch for closing remarks.

Well, thank you for joining us today. We are all navigating these uncertain times together, and I would like to offer my best wishes to all of our employees, customers, and shareholders and urge you all to stay safe as we grind through this pandemic. While no one is expecting the type of year we have all experienced, we continue to believe that Pentair has a strong foundation to build upon. We have a strong purpose, strong mission, and strong vision focused on delivering smart, sustainable solutions that empower our customers to make the most of life's most essential resources. We believe that we are in attractive spaces that are expanding. We are a leader in helping people move, improve, and enjoy their water, and we are making the world more sustainable through our smarter systems and applications. We have the right enterprise strategy, businesses, talent, and culture. Our 'win right' values, our leadership competencies and our Pentair integrated management system enable all of our employees to continuously improve customer experiences and deliver more predictable and consistent results. Thank you for your continued interest. Mariama, you can conclude the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.