WTS 10-Q

Watts Water Technologies Inc (WTS)

10-Q 2024-05-09 For: 2024-03-31

View Original

Added on April 12, 2026


Exhibit No.		Description
3.1		Restated Certificate of Incorporation, as amended. Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 25, 2023 (File No. 001-11499).
3.2		Amended and Restated By-Laws. Incorporated by reference to the Registrant’s Current Report on Form 8-K dated July 31, 2023 (File No. 001- 11499).
10.1†		Form of Indemnification Agreement between the Registrant and certain directors and officers of the Registrant.
10.2†		Form of 2024 Performance Stock Unit Award Agreement under the Watts Water Technologies, Inc. Third Amended and Restated 2004 Stock Incentive Plan.
10.3†		Third Amendment, dated March 29, 2024, to Unit Purchase Agreement, dated as of August 30, 2023, by and among G6 Adventures Corporation, Bradley Corporation, the shareholders of G6 Adventures Corporation, Watts Regulator Co. and Watts Water Technologies, Inc.
31.1†		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2†		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1††		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2††		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS**		Inline XBRL Instance Document
101.SCH**		Inline XBRL Taxonomy Extension Schema Document
101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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Delaware		04-2916536
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

815 Chestnut Street, North Andover, MA		01845
(Address of Principal Executive Offices)		(Zip Code)


Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐ Emerging growth company ☐


Class		Outstanding at April 28, 2024
Class A Common Stock, $0.10 par value		27,412,374

Class B Common Stock, $0.10 par value		5,958,290


Part I. Financial Information		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets at March 31, 2024 and December 31, 2023 (unaudited)	3

	Consolidated Statements of Operations for the First Quarters ended March 31, 2024 and March 26, 2023 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the First Quarters ended March 31, 2024 and March 26, 2023 (unaudited)	5

	Consolidated Statements of Stockholders’ Equity for the First Quarters ended March 31, 2024 and March 26, 2023 (unaudited)	6

	Consolidated Statements of Cash Flows for the First Quarters ended March 31, 2024 and March 26, 2023 (unaudited)	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	33

Part II. Other Information		33

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 5.	Other Information		35

Item 6.	Exhibits	36

Signatures		37


	March 31,		December 31,
	2024		2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	237.1	$	350.1
Trade accounts receivable, less reserve allowances of $13.0 million at March 31, 2024 and $11.9 million at December 31, 2023		305.7		259.8
Inventories, net:
Raw materials		151.9		150.6
Work in process		21.3		20.2
Finished goods		250.4		228.5
Total Inventories		423.6		399.3
Prepaid expenses and other current assets		43.6		51.8
Total Current Assets		1,010.0		1,061.0
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost		683.8		677.2
Accumulated depreciation		(428.8)		(429.0)
Property, plant and equipment, net		255.0		248.2
OTHER ASSETS:
Goodwill		724.3		693.0
Intangible assets, net		250.9		216.1
Deferred income taxes		21.6		23.6
Other, net		70.6		67.5
TOTAL ASSETS	$	2,332.4	$	2,309.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	162.6	$	131.8
Accrued expenses and other liabilities		186.6		190.3
Accrued compensation and benefits		58.1		83.7
Total Current Liabilities		407.3		405.8
LONG-TERM DEBT		283.5		298.3
DEFERRED INCOME TAXES		12.6		13.5
OTHER NONCURRENT LIABILITIES		77.2		78.5
STOCKHOLDERS’ EQUITY:
Preferred Stock, $0.10 par value; 5,000,000 shares authorized; no shares issued or outstanding		—		—
Class A common stock, $0.10 par value; 120,000,000 shares authorized; 1 vote per share; issued and outstanding, 27,418,449 shares at March 31, 2024 and 27,352,701 shares at December 31, 2023		2.7		2.7
Class B common stock, $0.10 par value; 25,000,000 shares authorized; 10 votes per share; issued and outstanding, 5,958,290 shares at March 31, 2024 and at December 31, 2023		0.6		0.6
Additional paid-in capital		680.6		674.3
Retained earnings		1,022.8		979.1
Accumulated other comprehensive loss		(154.9)		(143.4)
Total Stockholders’ Equity		1,551.8		1,513.3
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,332.4	$	2,309.4


	First Quarter Ended
	March 31,		March 26,
	2024		2023
Net sales	$	570.9	$	471.7
Cost of goods sold		303.4		253.6
GROSS PROFIT		267.5		218.1
Selling, general and administrative expenses		169.6		133.7
Restructuring		1.2		(0.3)
OPERATING INCOME		96.7		84.7
Other (income) expense:
Interest income		(2.1)		(0.4)
Interest expense		4.2		1.5
Other (income) expense, net		(0.6)		0.1
Total other expense		1.5		1.2
INCOME BEFORE INCOME TAXES		95.2		83.5
Provision for income taxes		22.6		18.8
NET INCOME	$	72.6	$	64.7
Basic EPS
NET INCOME PER SHARE	$	2.17	$	1.94
Weighted average number of shares		33.4		33.4
Diluted EPS
NET INCOME PER SHARE	$	2.17	$	1.93
Weighted average number of shares		33.5		33.5
Dividends declared per share	$	0.36	$	0.30


											Accumulated
	Class A			Class B			Additional				Other		Total
(For the first quarter ended	Common Stock			Common Stock			Paid-In		Retained		Comprehensive		Stockholders’
March 26, 2023)	Shares	Amount		Shares	Amount		Capital		Earnings		Loss		Equity
Balance at December 31, 2022	27,314,679	$	2.7	5,958,290	$	0.6	$	651.9	$	795.3	$	(149.9)	$	1,300.6
Net income	—		—	—		—		—		64.7		—		64.7
Other comprehensive income	—		—	—		—		—		—		2.7		2.7
Comprehensive income														67.4
Shares of Class A common stock issued upon the exercise of stock options	547		—	—		—		0.1		—		—		0.1
Stock-based compensation	—		—	—		—		4.0		—		—		4.0
Stock repurchase	(22,473)		—	—		—		—		(3.7)		—		(3.7)
Net change in restricted and performance stock units	121,647		—	—		—		2.1		(14.6)		—		(12.5)
Common stock dividends	—		—	—		—		—		(10.1)		—		(10.1)
Balance at March 26, 2023	27,414,400	$	2.7	5,958,290	$	0.6	$	658.1	$	831.6	$	(147.2)	$	1,345.8


	Three Months Ended
	March 31,		March 26,
	2024		2023
OPERATING ACTIVITIES
Net income	$	72.6	$	64.7
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		8.6		7.0
Amortization of intangibles		4.7		3.0
(Gain) on sale of asset and loss on disposal of long-lived asset		(1.0)		0.2
Stock-based compensation		4.0		4.0
Deferred income tax		0.9		(0.7)
Changes in operating assets and liabilities, net of effects from business acquisitions:
Accounts receivable		(44.5)		(34.8)
Inventories		(12.5)		(23.9)
Prepaid expenses and other assets		7.1		(1.9)
Accounts payable, accrued expenses and other liabilities		5.7		15.8
Net cash provided by operating activities		45.6		33.4
INVESTING ACTIVITIES
Additions to property, plant and equipment		(10.1)		(5.1)
Proceeds from the sale of property, plant and equipment		1.1		—
Business acquisitions, net of cash acquired		(100.8)		—
Net cash used in investing activities		(109.8)		(5.1)
FINANCING ACTIVITIES
Proceeds from long-term borrowings		—		30.0
Payments of long-term debt		(15.0)		(30.0)
Payments for withholding taxes on vested awards		(12.8)		(14.6)
Payments for finance leases and other		(0.7)		(0.7)
Proceeds from share transactions under employee stock plans		—		0.1
Payments to repurchase common stock		(4.0)		(3.7)
Dividends		(12.1)		(10.1)
Net cash used in financing activities		(44.6)		(29.0)
Effect of exchange rate changes on cash and cash equivalents		(4.2)		1.7
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(113.0)		1.0
Cash and cash equivalents at beginning of year		350.1		310.8
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	237.1	$	311.8

SUPPLEMENTAL CASH FLOW DISCLOSURE:
Acquisition of businesses:
Fair value of assets acquired	$	102.9	$	—
Cash paid, net of cash acquired		100.8		—
Liabilities assumed	$	2.1	$	—

Issuance of stock under management stock purchase plan	$	0.3	$	0.4

CASH PAID FOR:
Interest	$	3.2	$	1.2
Income taxes	$	13.7	$	7.7


	For the first quarter ended March 26, 2023
			(in millions)
Distribution Channel	Americas		Europe		APMEA		Consolidated
Wholesale	$	188.8	$	81.1	$	18.5	$	288.4
OEM		23.1		46.5		1.7		71.3
Specialty		90.5		—		—		90.5
DIY		20.8		0.7		—		21.5
Total	$	323.2	$	128.3	$	20.2	$	471.7

	For the first quarter ended March 26, 2023
			(in millions)
Principal Product Category	Americas		Europe		APMEA		Consolidated
Residential & Commercial Flow Control	$	194.5	$	45.5	$	15.9	$	255.9
HVAC and Gas Products		78.2		62.3		3.4		143.9
Drainage and Water Re-use Products		22.8		19.6		0.7		43.1
Water Quality Products		27.7		0.9		0.2		28.8
Total	$	323.2	$	128.3	$	20.2	$	471.7


Cash	$	4.6
Trade accounts receivable		4.3
Inventories, net		15.4
Prepaid expenses and other current assets		0.5
Property, Plant and Equipment		7.6
Intangible assets		39.4
Goodwill		34.6
Accounts payable		(1.5)
Accrued expenses and other current liabilities		(1.4)
Purchase price	$	103.5


Cash	$	9.2
Trade accounts receivable		23.5
Inventories, net		38.4
Prepaid expenses and other current assets		3.5
Property, Plant and Equipment		47.6
Intangible assets		115.3
Goodwill		96.9
Accounts payable		(8.2)
Employee benefits, other		(5.0)
Other current liabilities		(8.4)
Other noncurrent liabilities		(0.5)
Purchase price	$	312.3


	Three Months Ended March 31,
	2024		2023

	(Amounts in millions, except per share information)
Net Sales	$	570.9	$	521.6
Net Income	$	75.6	$	65.3
Net income per share:
Basic EPS	$	2.26	$	1.95
Diluted EPS	$	2.25	$	1.95


	2024		2023
Expected life (years)	3.0		3.0
Expected stock price volatility	28.9	%	33.7	%
Expected dividend yield	0.80	%	0.80	%
Risk-free interest rate	4.5	%	4.1	%


							Accumulated
	Foreign						Other
	Currency		Pension			Cash Flow	Comprehensive
	Translation		Adjustment			Hedges (1)	Loss

	(in millions)

Balance December 31, 2023	$	(147.3)	$	0.7	$	3.2	$	(143.4)
Change in period		(12.9)		—		1.4		(11.5)
Balance March 31, 2024	$	(160.2)	$	0.7	$	4.6	$	(154.9)

Balance December 31, 2022	$	(157.0)	$	—	$	7.1	$	(149.9)
Change in period		4.4		—		(1.7)		2.7
Balance March 26, 2023	$	(152.6)	$	—	$	5.4	$	(147.2)


	Fair Value Measurement at March 31, 2024 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.5	$	2.5	$	—	$	—
Interest rate swap(2)	$	6.9	$	—	$	6.9	$	—
Designated foreign currency hedges(3)	$	0.1	$	—	$	0.1	$	—
Total assets	$	9.5	$	2.5	$	7.0	$	—
Liabilities
Plan liability for deferred compensation(4)	$	2.5	$	2.5	$	—	$	—
Interest rate swap(5)	$	0.8	$	—	$	0.8	$	—
Total liabilities	$	3.3	$	2.5	$	0.8	$	—


	First Quarter Ended
	March 31,		March 26,
	2024		2023

	(in millions)
Intersegment Sales
Americas	$	2.6	$	2.0
Europe		5.8		5.6
APMEA		21.4		22.1
Intersegment sales	$	29.8	$	29.7


	First Quarter Ended				First Quarter Ended						% Change to
	March 31, 2024				March 26, 2023						Consolidated
	Net Sales		% Sales		Net Sales		% Sales		Change		Net Sales

	(dollars in millions)
Americas	$	418.8	73.4	%	$	323.2	68.5	%	$	95.6	20.3	%
Europe		123.3	21.6			128.3	27.2			(5.0)	(1.1)
APMEA		28.8	5.0			20.2	4.3			8.6	1.8
Total	$	570.9	100.0	%	$	471.7	100.0	%	$	99.2	21.0	%


									Change As a %								Change As a %
									of Consolidated Net Sales								of Segment Net Sales

	Americas		Europe		APMEA		Total		Americas		Europe		APMEA		Total		Americas		Europe		APMEA

	(dollars in millions)
Organic	$	35.4	$	(6.6)	$	1.3	$	30.1	7.5	%	(1.4)	%	0.3	%	6.4	%	11.0	%	(5.1)	%	6.4	%
Foreign exchange		—		1.6		(0.8)		0.8	—		0.3		(0.2)		0.1		—		1.2		(3.9)
Acquired		60.2		—		8.1		68.3	12.8		—		1.7		14.5		18.6		—		40.1
Total	$	95.6	$	(5.0)	$	8.6	$	99.2	20.3	%	(1.1)	%	1.8	%	21.0	%	29.6	%	(3.9)	%	42.6	%


														Change As a %
														of Prior Year Sales
	Wholesale		OEMs		DIY		Specialty			Total			Wholesale			OEMs			DIY			Specialty

	(dollars in millions)
Americas	$	23.2	$	3.0	$	2.2		$	7.0		$	35.4		12.3	%		13.0	%		10.6	%		7.7	%
Europe		1.9		(8.4)		(0.1)			—			(6.6)		2.3			(18.1)			(14.3)			—
APMEA		1.2		0.1		—			—			1.3		6.5			5.9			—			—
Total	$	26.3	$	(5.3)	$	2.1		$	7.0		$	30.1


	Fair Value Measurements at December 31, 2023 Using:
			Quoted Prices in Active		Significant Other		Significant
			Markets for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(in millions)
Assets
Plan asset for deferred compensation(1)	$	2.3	$	2.3	$	—	$	—
Interest rate swap(2)	$	6.5	$	—	$	6.5	$	—
Total assets	$	8.8	$	2.3	$	6.5	$	—
Liabilities
Plan liability for deferred compensation(4)	$	2.3	$	2.3	$	—	$	—
Interest rate swap(5)	$	2.0	$	—	$	2.0	$	—
Designated foreign currency hedges(6)	$	0.2	$	—	$	0.2	$	—
Total liabilities	$	4.5	$	2.3	$	2.2	$	—


	(in millions)		% Change
Organic	$	10.4	1.7	%
Foreign exchange		0.2	—
Acquired		25.3	4.2
Total	$	35.9	5.9	%


											Change As a % of										Change As a % of
											Consolidated Operating Income										Segment Operating Income

	Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate		Total		Americas		Europe		APMEA		Corporate

	(dollars in millions)
Organic	$	6.0	$	1.4	$	0.7	$	(3.2)	$	4.9	7.1	%	1.7	%	0.8	%	(3.8)	%	5.8	%	8.2	%	7.3	%	17.5	%	29.1	%
Foreign exchange		—		0.3		(0.2)		—		0.1	—		0.4		(0.2)		—		0.2		—		1.6		(5.0)		—
Acquired		7.8		—		0.7		—		8.5	9.2		—		0.8		—		10.0		10.8		—		17.5		—
Restructuring, impairment charges		(0.9)		(0.4)		(0.2)		—		(1.5)	(1.1)		(0.5)		(0.2)		—		(1.8)		(1.2)		(2.1)		(5.0)		—
Total	$	12.9	$	1.3	$	1.0	$	(3.2)	$	12.0	15.2	%	1.6	%	1.2	%	(3.8)	%	14.2	%	17.8	%	6.8	%	25.0	%	29.1	%


	Issuer Purchases of Equity Securities
					(d) Maximum Number (or
	(a) Total			(c) Total Number of	Approximate Dollar
	Number of			Shares (or Units)	Value) of Shares (or
	Shares (or	(b) Average		Purchased as Part of	Units) that May Yet Be
	Units)	Price Paid per		Publicly Announced	Purchased Under the
Period	Purchased	Share (or Unit)		Plans or Programs	Plans or Programs
January 1, 2024 – January 28, 2024	—	$	—	—	—
January 29, 2024 – February 25, 2024	34,300	$	209.10	—	—
February 26, 2024 – March 31, 2024	27,753	$	205.70	—	—
Total	62,053	$	207.58	—	—


	WATTS WATER TECHNOLOGIES, INC.

Date: May 9, 2024	By:	/s/ Robert J. Pagano, Jr.
		Robert J. Pagano, Jr.
		Chief Executive Officer (principal executive officer)

Date: May 9, 2024	By:	/s/ Shashank Patel
		Shashank Patel Chief Financial Officer (principal financial officer)