WATTS WATER TECHNOLOGIES INC

Watts Water Technologies, Inc. operates as a global manufacturer and one of the world’s leading providers of water technologies and solutions designed to promote safety, energy efficiency, and water conservation for commercial and residential buildings. The company’s strategy is to be the preferred supplier of differentiated products and solutions that manage and conserve the flow of fluids and energy into, through and out of buildings in the commercial and residential markets of the Americas, Europe, and Asia-Pacific, Middle East and Africa (APMEA), its three geographic segments. The company focuses on three themes: safety and regulation, energy efficiency and water conservation. Products representing a majority of sales are subject to regulatory building codes and standards, and the company consistently advocates for plumbing code development and enforcement. The company has completed 17 acquisitions since 2016, with eight strategic and complementary acquisitions in the last three years that expanded its addressable market.

The domestic and international markets for energy efficient products, water conservation devices, and products that address safety and regulation for the flow of fluids are intensely competitive, requiring the company to compete against some companies possessing greater financial, marketing and other resources. The number and identities of competitors vary by product line and market. Primary competitive factors include quality, brand preference, delivery times, engineering specifications, plumbing code requirements, price, technological expertise, breadth of product offerings, products that help customers’ sustainability efforts, and smart and connected products and solutions. The company believes new product development and product engineering are important to success in the water industry and that its position is attributable in part to its ability to develop new and innovative products quickly and to adapt and enhance existing products. In 2025, the top ten customers accounted for $570.3 million ¹, or 23.4% ², of total net sales, with no single customer accounting for more than 10% of total net sales.

The company earns revenue and income almost exclusively from the sale of its products. Products are sold to plumbing, heating and mechanical wholesale distributors and dealers, original equipment manufacturers (OEMs), specialty product distributors, and major do-it-yourself (DIY) and retail chains. In 2025, approximately 66% ³ of net sales were to wholesale distributors, 10% ⁴ to OEMs, 21% ⁵ through the specialty channel, and 3% ⁶ to DIY chains. The company’s innovation strategy focuses on three core dimensions: connect, control, and conserve, with Nexa, an intelligent water management solution launched in 2024, at the core of its smart and connected initiatives. In 2025, the company expanded the range of equipment integrated into Nexa, combining industry leading equipment solutions with a cloud-based SaaS platform.

The company classifies its products into four global categories. Residential and commercial flow control and protection includes backflow preventers, water pressure regulators, temperature and pressure relief valves, thermostatic mixing valves, leak detection and protection products, commercial washroom solutions, hydration solutions and emergency safety products and equipment; this category accounted for approximately 61% ⁷ of total net sales in 2025, 60% ⁸ in 2024, and 56% ⁹ in 2023. HVAC and gas includes commercial, institutional and industrial high-efficiency boilers, water heaters and heating solutions, hydronic and electric heating systems for under-floor radiant applications, custom heat and hot water solutions, hydronic pump groups for boiler manufacturers and alternative energy control packages, and flexible stainless steel connectors for natural and liquid propane gas; this category accounted for approximately 23% ¹⁰ of total net sales in 2025, 24% ¹¹ in 2024, and 29% ¹² in 2023. Drainage and water re-use includes drainage products and engineered rainwater harvesting solutions for commercial, industrial, marine and residential applications, including connected roof drain systems; this category accounted for approximately 11% ¹³ of total net sales in 2025, 11% ¹⁴ in 2024, and 10% ¹⁵ in 2023. Water quality includes point-of-use, point-of-entry, closed loop, cooling tower, and other water applications used for water filtration, monitoring, conditioning and scale prevention systems; this category accounted for approximately 5% ¹⁶ of total net sales in 2025, 2024 and 2023.

During 2025, the company completed five acquisitions. On January 2, 2025, the company completed the acquisition of I-CON Systems Holdings, LLC for a final net purchase price of $70.7 million ¹⁷. On June 13, 2025, the company completed the acquisition of substantially all of the assets of Freije Treatment Systems, Inc. (EasyWater) funded with cash on hand. On November 4, 2025, the company completed the acquisition of Haws Corporation funded with cash on hand. On November 14, 2025, the company completed the acquisition of Superior Boiler for an aggregate net purchase price of $88.7 million ¹⁸. On November 29, 2025, the company completed the acquisition of The Industrial Company for Castings and Sanitary Fittings (Saudi Cast) funded with cash on hand. The company also repurchased 66,519 ¹⁹ shares of Class A common stock for $16.0 million ²⁰ during 2025. Aggregate common stock dividend payments in 2025 were $66.9 million ²¹, consisting of $55.1 million ²² for Class A common stock and $11.8 million ²³ for Class B common stock. On July 12, 2024, the company entered into a Third Amended and Restated Credit Agreement establishing a senior unsecured revolving credit facility of $800 million ²⁴ with a maturity date of July 12, 2029 ²⁵. As of December 31, 2025, the company had drawn down $200.0 million ²⁶ on this line of credit and had $12.2 million ²⁷ in letters of credit outstanding, resulting in $587.8 million ²⁸ of unused and available credit.

Net sales for 2025 increased 8.3% ²⁹, or $186.3 million ³⁰, on a reported basis and 5.3% ³¹, or $119.1 million ³², on an organic basis compared to 2024. Operating income of $448.1 million ³³ increased by $57.7 million ³⁴, or 14.8% ³⁵, in 2025 compared to 2024. Net income for 2025 was $340.8 million ³⁶, or $10.17 ³⁷ per share on a diluted basis, compared to $291.2 million ³⁸, or $8.69 ³⁹ per share on a diluted basis, for 2024. Gross profit was $1,206.0 million ⁴⁰ with a gross margin of 49.5% ⁴¹ in 2025, compared to $1,062.0 million ⁴² and 47.2% ⁴³ in 2024. The company generated $402.0 million ⁴⁴ of net cash from operating activities in 2025, compared to $361.1 million ⁴⁵ in 2024. Free cash flow was $356.3 million ⁴⁶ in 2025, compared to $331.7 million ⁴⁷ in 2024.

The company’s growth strategy includes expanding organically by introducing new, complementary products and solutions in existing markets, enhancing preferred brands, promoting plumbing code development, and improving merchandising in wholesale and retail distribution channels. The company targets selected new products and geographic markets based on growth potential, including the ability to leverage existing distribution channels. The company also intends to generate incremental growth by targeting select acquisitions both in core markets and in new complementary markets, focusing on businesses that manufacture preferred brand name products addressing safety and regulation, energy efficiency and water conservation. The company’s acquisition strategy targets businesses that provide entry into new markets, improved channel access, unique and/or proprietary technologies, advanced production capabilities or complementary solution offerings. The company is advancing its digital strategy through continued investment in internal digital capabilities and selective acquisitions, including scalable system architecture, enhanced digital tools, customer-facing platforms and the development of new smart and connected products, with Nexa at the core of smart and connected initiatives.

The company continues to focus on sustainability by taking steps to reduce the negative impact of its operations on the environment while generating economic value, and manufactures and sells solutions that enable customers to reduce their negative impact on the environment. In 2024, the company completed Life Cycle Assessments for all products manufactured at its largest production facility and foundry in Franklin, New Hampshire, enabling the creation of 30 Environmental Product Declarations for top-selling products. In 2025, the company expanded this effort globally, with BLÜCHER in Denmark now offering EPDs for its drains, channels and piping products, and EPDs for underfloor heating manifolds manufactured in Landau, Germany. The company has a defined timeline to complete EPDs for a significant number of major product lines throughout a number of European locations by the end of 2026. The company also continues to invest in its smart and connected product pipeline and global new product development program.

The company is committed to reducing manufacturing and operating costs using Lean methodologies to drive improvement across all key processes. The company has a number of manufacturing facilities in lower-cost regions, including a contract manufacturing facility in Mexico and manufacturing facilities in China, Bulgaria and Tunisia. In recent years, the company has announced global restructuring plans which reduced its manufacturing and distribution footprint in order to reduce costs and realize incremental operating efficiencies. In 2025, the company recorded a net restructuring charge of $23.7 million ⁴⁸, which included a $22.0 million ⁴⁹ charge related to the 2025 French restructuring program approved in the first quarter of 2025. The company is also striving to simplify administrative operations to drive further efficiencies, referring to this as operational excellence.

In 2024, the company initiated a multi-year implementation of the SAP Enterprise Resource Planning (ERP) system across its Americas and APMEA regions to consolidate business systems, enhance productivity, and support its smart and connected strategy. In 2025, the company successfully implemented the system at one manufacturing and one distribution location in the Americas, establishing a blueprint for future deployments. This achievement sets the foundation for a strategic rollout roadmap in 2026 and beyond, focused on scaling implementations across key facilities to drive efficiency, improve data visibility, and strengthen operational performance globally. The company anticipates investing approximately $25 million to $30 million ⁵⁰ during 2026 related to this multi-year cloud-based SAP ERP system implementation. The company also anticipates investing between $50 million to $60 million ⁵¹ in capital expenditures during 2026 to improve manufacturing capabilities and invest in technology and other commercial and operational excellence initiatives.

Capital expenditures were $45.7 million ⁵² in 2025, $35.3 million ⁵³ in 2024, and $29.7 million ⁵⁴ in 2023. Depreciation was $36.2 million ⁵⁵ in 2025, $34.6 million ⁵⁶ in 2024, and $30.1 million ⁵⁷ in 2023. The company repurchased 66,519 ⁵⁸ shares of Class A common stock for $16.0 million ⁵⁹ in 2025. On July 31, 2023, the Board of Directors authorized a stock repurchase program of up to $150 million ⁶⁰ of Class A common stock, which has no expiration date. As of December 31, 2025, $128,932,475 ⁶¹ remained available for repurchase under this program. Aggregate common stock dividend payments in 2025 were $66.9 million ⁶², and on February 9, 2026, the company declared a quarterly dividend of $0.52 ⁶³ per share on each outstanding share of Class A common stock and Class B common stock. The company intends to continue to repurchase shares of Class A common stock consistent with prior years.

The company faces headwinds from tariffs imposed on foreign imports to the United States, particularly from Canada, China and Mexico, which have increased the cost of products and could adversely impact gross margin. The company also continues to experience inflation in material, labor and overhead costs. The European economy remains weak and geopolitical uncertainties continue, which may adversely affect future financial results. The trade policy environment has created uncertainty which may result in reduced economic activity. On February 20, 2026, the U.S. Supreme Court rendered a decision invalidating tariffs imposed under the International Emergency Economic Powers Act, introducing uncertainty regarding future trade policy actions that could affect the company’s cost structure and supply chain planning. The company also faces risks related to ongoing disruptions and increased costs in its supply chain and logistics, including labor shortages and labor organizing activities that have affected manufacturing and distribution processes.

The company’s growth is subject to risks from economic cycles, particularly those involving reduced levels of commercial and residential starts and remodeling, which may have adverse effects on revenues and operating results. The level of business activity is influenced by commercial and residential starts and renovation and remodeling, which are heavily influenced by interest rates, consumer debt levels, changes in disposable income, employment growth and consumer confidence. Increases in prevailing interest rates or disruptions in financial markets and banking systems could make credit and capital markets difficult for the company or its customers to access and could significantly raise the cost of new debt. Multi-family and single-family housing, office, retail and recreation verticals are expected to be down, but light industrial, including data centers, is growing and institutional verticals remain steady.

The company faces material risks from tariffs imposed on foreign imports to the United States, particularly from Canada, China and Mexico, which have increased the cost of products and could adversely impact gross margin. The company also faces risks from changes in the costs of raw materials and purchased components, including bronze, brass, cast iron, stainless steel, steel and plastic, with commodity prices, particularly copper and stainless steel, experiencing tremendous volatility. The company’s growth strategy includes acquisitions, and the company has completed 17 acquisitions since 2016, with eight in the last three years; however, acquired companies may not achieve anticipated revenues, cost synergies, profitability or cash flows, and acquisitions involve risks including difficulties in integrating operations, challenges in conforming standards, and potential goodwill impairment charges. As of December 31, 2025, the company’s balance sheet included goodwill of $859.0 million ⁶⁴, indefinite-lived intangible assets of $79.4 million ⁶⁵, amortizable intangible assets of $215.2 million ⁶⁶, and property, plant and equipment of $297.1 million ⁶⁷, and while no impairments were recorded in 2025, 2024 or 2023, there can be no assurances that future impairments will not occur. The company is also subject to risks related to product defects, which could result in product recalls and warranty claims in excess of warranty provisions, and the company’s insurance policies may not cover the costs of a product recall.

Management’s message emphasizes the company’s strategy to be the preferred supplier of differentiated products and solutions that manage and conserve the flow of fluids and energy into, through and out of buildings, focusing on three themes: safety and regulation, energy efficiency and water conservation. Management highlights the company’s commitment to expanding organically through new product introductions, enhancing preferred brands, promoting plumbing code development, and improving merchandising in wholesale and retail distribution channels. Management also emphasizes the company’s digital strategy focused on three core dimensions: connect, control, and conserve, with Nexa at the core of smart and connected initiatives. Management states that the company is proactively managing changes in tariffs by leveraging its global sourcing strategy, driving incremental productivity within operations and implementing pricing actions as appropriate, and expects that its significant degree of vertical integration with manufacturing close to customers will be an advantage. Management notes that despite challenges and uncertainties, the company continues to invest in its business, including new products, smart and connected solutions, and growth and productivity initiatives, remaining focused on customers’ needs and executing on its long-term strategy.