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Presentation

Franklin Electric Co., Inc. beats earnings expectations. Reported EPS is $0.83, expectations were $0.77.

Operator: Good day, and welcome to the Franklin Electric Co., Inc. Reports First Quarter 2026 Sales and Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Director of Investor Relations, Dean Cantrell.

Dean Cantrell: Thank you, Andrew, and welcome everyone to Franklin Electric Co., Inc.’s first quarter 2026 Earnings Conference Call. Joining me today is Jennifer Wolfenbarger, our Chief Financial Officer, and Joseph Ruzynski, our Chief Executive Officer. On today’s call, Joseph will review our first quarter business highlights, Jennifer will provide additional details on our financial performance, and then Joseph will make some additional comments highlighting our distribution segment. We will then take your questions. A replay link of the webcast will be archived for seven days and a transcript and audio version of this call will be available on our website tomorrow. Before we begin, let me remind you that as we conduct this call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are subject to various risks and uncertainties, many of which could cause actual results to differ materially from such forward-looking statements. A discussion of these factors may be found in the company’s Annual Report on Form 10-Ks and in today’s earnings release. During this call, we will present both GAAP and certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the appendix of our earnings presentation. All forward-looking statements made during this call are based on information currently available and, except as required by law, the company assumes no obligation to update any forward-looking statements. Earlier today, we published a slide deck to accompany our prepared remarks.

The slides can be found in the Investor Relations section of our corporate website at franklin-electric.com. With that, I will now turn the call over to Joseph.

Joseph Ruzynski: Thank you, Dean, and good morning, everyone. Thank you for joining today’s call. I am pleased to share our results for the first quarter with you all today. Let us move to Slide 3. Our first quarter was a strong one for all segments. Organic growth was healthy across our end markets with volume growth and disciplined pricing across our segments. Our quarter finished with healthy backlogs and order trends as we entered the second quarter. Our balance sheet remains healthy as we look to continue to invest in our strategic initiatives and returns for our shareholders. Our launch of the Value Acceleration Office is off to a great start, with a strong funnel and some good initial returns. If we could move to Slide 4, I would like to look at our performance in terms of our strategic objectives and specifically growth.

Our sales were up 10%, and each segment saw volume growth along with positive pricing and contribution from new products, channels, and new customers. Our operating income was up 9% with adjusted income up 17%. GAAP EPS was up 15% with adjusted EPS up 24%. Our adjusted EPS growth in Q1 more than doubled our sales growth year-over-year. This was helped by strong improvements in our income and SG&A productivity. We have worked through some thoughtful restructuring as we align our capacity and production to our regions and markets that are growing, and we work to streamline parts of our business that have grown through acquisition these past few years. We are positioned well for 2026 with a backlog of 10% and a positive book-to-bill as we enter the quarter.

If we move to Slide 5, I would like to share our progress on some of our strategic priorities. Our value creation model starts with clear growth focus, and we continue to see opportunities to innovate and serve markets that are seeing good underlying strength. Our dewatering business was driven by 10% growth in the mineral OpEx market, and we are thoughtfully bringing together recent acquisitions in this space, channel expansions, and customer acquisition together to build a great part of our portfolio. In Q1, we launched a great addition to our pressure boosting portfolio with our new VersaBoost product. We are thinking of scale and velocity for new products and our VersaBoost Pro delivers smarter, reliable water pressure with effortless installation and lasting performance in residential markets.

These types of launches will help us set a new bar in 2026 and 2027 for new product vitality and revenue. Our margin expansion efforts are on track with our new Value Acceleration Office, launched in 2025. Our funnel is growing, and we expect to solve our biggest growth and productivity challenges with sound governance and speed. We see our office delivering over $15 million in productivity this year with an opportunity to accelerate this as we move into 2027. Our expectation is to deliver over 100 basis points of productivity a year once we ramp up our efforts. We are pleased to see our focused margin improvement efforts in water treatment up 40 basis points and our distribution business up 20 basis points in the full year 2025. This demonstrates that growth and efficiency can work hand in hand.

We are expanding our capital deployment for new projects this year and have recently inaugurated our new water factory in Izmir, Turkey, with more focused expansions and regional efforts in India, South America, and Mexico to name a few. We have continued to smartly buy back shares, 120 thousand in Q1, and have continued our dividend expansion in 2026, now at 34 years of growth. Most importantly, on team and talent, a big thank you to Franklin’s employees, as our growth happens every day with every customer served. Every problem we solve, growth strategy we execute, and employee we keep safe helps us to grow and to build on our strong culture. Our people and our talent are our bedrock. With that, I will turn the call over to Jennifer to discuss the financial results in more detail.

Jennifer Wolfenbarger: Thank you, Joe. Please turn to Slide 6. Our fully diluted earnings per share was $0.77 for the first quarter of 2026 versus $0.67 for the first quarter of 2025. First quarter adjusted diluted EPS was $0.83, a new first quarter record, compared to our 2025 first quarter adjusted diluted EPS of $0.67. The 24% year-over-year expansion in adjusted diluted EPS was primarily driven by the expansion of our adjusted operating income year-over-year. This is a testament to our commitment to expand the earnings power of our business. There were $3.9 million in restructuring costs in the first quarter of 2026 compared to $200 thousand in the prior-year first quarter. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations.

These actions will deliver savings in 2026 and will be accretive in 2027. The effective tax rate was 24.2% for the quarter compared to 25% in the prior-year quarter. The change in the effective tax rate was driven by favorable discrete stock compensation in 2026. Moving to Slide 7, first quarter 2026 consolidated sales were $500.4 million, a year-over-year increase of 10%. The sales increase in the first quarter was primarily due to price and volume growth across all three segments, as well as the positive impact of foreign currency translation and the incremental sales impact from recent acquisitions. Franklin Electric Co., Inc.’s consolidated gross profit was $175 million for the first quarter of 2026, up from the prior year’s gross profit of $163.9 million.

Gross profit as a percentage of net sales was 35% in the first quarter of 2026 compared to 36% in 2025, a decline of 100 basis points compared to the prior year. The gross profit margin was unfavorably impacted in the first quarter of 2026 by higher material costs driven by the hangover of tariffs. Selling, general, and administrative expenses were $123 million in the first quarter of 2026, compared to $119.6 million in 2025. The increase in SG&A expenses was primarily due to the incremental impact of our acquisitions in the past year. SG&A as a percent of net sales was 24.6% in 2026 and 26.3% in 2025. Without the impact of acquisitions, our SG&A as a percentage of net sales was 24%, an improvement year-over-year of 230 basis points. Consolidated operating income was $48.1 million in the first quarter of 2026, up $4 million or 9% from $44.1 million in 2025.

The increase in operating income was primarily due to higher sales volumes in the first quarter. As previously mentioned, there were $3.9 million in restructuring costs in 2026 versus $200 thousand in the prior-year first quarter. These were related to structural improvement initiatives across our global water operations. Consolidated operating income before restructuring was $52 million in the first quarter of 2026, up $7.7 million or 17% from $44.3 million in 2025. The first quarter 2026 adjusted operating income margin was 10.4% versus 9.7% in the first quarter of last year, up 70 basis points year-over-year. Moving to the segment results starting on Slide 8. Global Water Systems sales were up 11% compared to the first quarter of 2025 driven by strong price, favorable currency exchange on sales, and additional volume from our recent acquisitions.

Water system sales in the U.S. and Canada were up 7% compared to 2025. The sales increase was led by sales of all other surface pumping equipment up 17%, as sales of water treatment products increased 8%, and sales of groundwater pumping equipment increased 3%. These sales increases were partially offset by lower sales of dewatering equipment, large dewatering equipment down 9% compared to 2025 in the U.S. and Canada. Sales increased 1% in the first quarter due to the positive impact of foreign exchange rates compared to the prior year. Water system sales in markets outside the U.S. and Canada increased 17% overall. Foreign currency translation increased sales by 8% and recent acquisitions added roughly 7%. Excluding the impact of acquisitions and foreign currency translation, sales in 2026 increased in Asia Pacific and Latin America, as EMEA sales were down year-over-year.

EMEA sales volume, specifically in the Middle East and Eastern Europe, were negatively impacted by the ongoing conflict in the Middle East. Global Water Systems operating income was $44.4 million, up $1 million versus 2025. The operating income margin was 14%, a year-over-year decrease of 110 basis points. There were $3.9 million in restructuring costs in 2026 in the water segment. Restructuring costs in the quarter are primarily related to structural improvement initiatives across our global water operations. Adjusting for restructuring charges, the water system’s adjusted operating income was $48.3 million, up $4.9 million or 11% from the prior year, with operating income margin of 15.2%, up 10 basis points from the first quarter of last year.

Moving to Slide 9. Distribution’s first quarter sales were $150.9 million versus first quarter 2025 sales of $141.9 million, an increase of 6%. The Distribution segment sales increase was primarily due to higher volumes and price realization. The Distribution segment’s operating income was $3 million for the first quarter, a year-over-year increase of $900 thousand. Operating income margin was 2% of sales in the first quarter, an improvement of 50 basis points versus the prior year. Operating income margin increased primarily due to higher sales volume, strong price realization, and solid leverage on SG&A costs from higher sales. Moving to Slide 10. Energy Systems sales in 2026 were $71.8 million, an increase of $5 million or 7% compared to the first quarter of 2025.

Energy system sales in the U.S. and Canada increased 3% compared to 2025. Outside the U.S. and Canada, energy system sales increased 29%, primarily in Asia Pacific. Energy Systems operating income was $24.2 million compared to $21.9 million in 2025. The first quarter 2026 operating income margin was 33.7% compared to 32.8% in the prior year, an improvement of 90 basis points. Operating income margin increased primarily due to higher sales volume, solid price realization, and strong leverage on SG&A costs from higher sales. Moving to the balance sheet and cash flow on Slide 11. The company ended the first quarter of 2026 with a cash balance of $80.4 million and with $88 million outstanding under its revolving credit agreement. We used $40.9 million in net cash flows from operating activities during the first quarter compared to $19 million in 2025.

The main driver for the change versus prior year is higher accounts receivable of $20 million driven by a year-over-year increase in net sales for the company. The company purchased 120 thousand shares of its common stock for approximately $11.3 million in the open market during 2026. As of the end of the first quarter of 2026, the total remaining authorized shares that may be repurchased is about 700 thousand shares. Yesterday, the company announced a quarterly cash dividend of $0.28. The dividend will be payable on May 21 to shareholders of record on May 7. Moving to Slide 12, the first quarter financial results were in line with our expectations and underlying demand remains. Although our confidence in the outlook is increasing, we are holding our full-year sales expectations of $2.17 billion to $2.24 billion and full-year adjusted diluted EPS to a range of $4.40 to $4.60.

This range reflects some uncertainty in our global markets as we further assess macroeconomic and geopolitical outlook. Our outlook does not include a clawback of tariff-related expenditures. We have formally submitted our request and are awaiting a response. Now I will turn the call back to Joseph for some additional comments.

Joseph Ruzynski: Thanks, Jennifer. If we move to Slide 13, we want to give a deeper look at our segments these next few quarters. We will share what we like about the businesses we are in and why we are optimistic about our opportunity to profitably grow them. We will start this quarter with a look at our distribution business. As many of you know, we built this segment fairly recently in our history, growing through our strategy of building channel solutions, adding new offerings, and smart acquisitions. It has become a recognized leader in the water distribution and services space along with our strategic partnerships and other leading distributors in the U.S. It has helped us to develop the strongest channel in our industry.

This is an important channel for Franklin Electric Co., Inc.-manufactured pumps, motors, and drives, but also brings together leading products in a wide portfolio to serve the residential, groundwater, wastewater, industrial, agricultural, and water treatment markets. This business is now over $700 million with a solid return on invested capital and great opportunities to productively grow. Although we are proud of our 84 branches and 650 OSI locations and wide product portfolio, the real value in this segment is how we help our customers win and how we win with our customers. Starting with how we help our customers win: critical inventory at customer sites enables them to win jobs and deliver with speed, accelerate growth, and invest in strategic initiatives rather than tying up cash in inventory.

Our on-site inventory program, or OSIs, couples real-time inventory with efficient replenishment and a continuously learning supply chain. We offer the most unique solutions in the industry and have grown our OSIs from zero to 650 as customers learn how having a wide range of products on their site refilled at the right time, for them to pull as their job requires, can lead to winning more business. For customers that order products from us for their daily business, we have built technology solutions to give them 24/7 visibility with our integrated customer portal, simplifying order placement, viewing invoices, and payments through one single platform. And our ability to help customers win means we work with them on the site during the job planning process to go beyond transactional support and offer value-added services including delivery, on-site support, training, design, and assembly services.

How we win with our customers is by assessing their wider needs to ensure we bring the right solutions at the right time. We have grown our business and value to the markets we serve through a program we call cross pollination. As we see customer needs in areas like wastewater or water treatment, we have pulled on our expertise and products within Franklin and partnered with industry leaders to attend the markets that are growing faster. And we are doing it with the efficient service and leading technology platforms we are known for. Being part of the wider Franklin team has allowed us to think about data more strategically from end to end through manufacturing and to our suppliers. Our technology and data to close the last mile, realize operational efficiencies, and to provide the best-in-class customer experience both externally and internally is truly a differentiator.

Our distribution segment has grown by adding products, service, technology solutions, and customers. We believe our current progress to grow margins will have the same success, and as we have grown organically and inorganically, we are now realizing the benefits of streamlining our process, leveraging our spends, and creating an efficient footprint. Our margin expansion focus brings with it solutions to better serve through technology and data that benefit all of our partners. Last year, we expanded our margins over 200 basis points, and we improved again in Q1. We feel that growing volume, creating more value to our customers, and margin expansion can work seamlessly together. With that, we will now turn the call back over to Andrew for questions before a few closing thoughts.

Andrew?

Operator: Thank you. Please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment, please. First question comes from the line of Michael Halloran with Baird.

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Michael Halloran: Hey, everybody. Good morning.

Joseph Ruzynski: Morning, Mike.

Michael Halloran: So, when I look at the guide and I look at the trends for the remainder of the year, it seems like a pretty prudent approach to guidance. Sequentials seem maybe a little below normal as we work through the rest of the year. Maybe just help me understand what is embedded in guidance from a revenue progression perspective. Is this a conservative thought process given what we do not know? And any nuances by end markets as we think through the rest of the year that you think we should know?

Joseph Ruzynski: Good question, Mike. I think what we do not know is obviously what we do not know. We see the quarters on a standalone basis to be positive top and bottom line here through the next three. You are going to see from a sequential standpoint that normal performance, which is obviously a bit more muted given the growing seasons and the weather in Q1 and Q4. But our outlook for Q2 looks robust and looks on track. I think the parts that we do not know, and Jennifer alluded to those in the call, are obviously we have talked before about India and the Middle East and some of these green shoots that we see in some fast growth regions. We are trying to temper some of those expectations, but the underlying business is solid.

We feel the market demand is steady. We made a couple comments there on book-to-bill and backlog here as we came into Q2, and it looks on track. So from what we can see, the underlying business looks healthy. Some of those unknowns in terms of ag prices, freight impact from Middle East conflict, some of the new customers that we have been fostering that are affected by those fuel prices or that disruption, those are really some of the unknowns. But the rest of the business read out largely as we expected, and it trends that way here as we go into Q2.

Michael Halloran: And maybe something comparable on the margin side of things. Obviously, the energy systems margins in particular were robust in the quarter, and that seems to be even with some of the international mix in there. How should I think about the margin progression through the year? Are you assuming a step down? I understand there are variances quarter to quarter there. And anything in the water side as well that you think should be relevant as we are thinking forward?

Joseph Ruzynski: I will give just a couple comments, and I will let Jennifer add. Energy had a great first quarter. We talked about the timing and expecting sequential improvement and year-over-year improvement here as we got into Q1. Q2 is a little bit of a blip for us where we got price out in front of tariffs, so that comp will look a little bit challenged, but Q2 last year was a high amount. The underlying margins, we expect to be strong even with the nice growth that we are seeing around the world for that business, which just shows the underlying strength. If there are headwinds that come from the Middle East conflict and some of the questions about oil and gas, it is a slight tailwind for sure here in the U.S. in that space, and we expect to continue to see that.

I think from a distribution standpoint, there definitely were some mixed challenges. It performed as we expected, but some of their faster growing business, we are still working on upstream leverage. We are still working on a couple different things there. But again, good expansion. We expect them to expand; you are going to see that increase here as we get to the mid-quarters of the year. So on track there from a volume expansion standpoint. And then from a water standpoint, we have a number of things we are working on. Jennifer referenced restructuring. Clearly, as we are building factories and there is some work that we are doing there—some adds and some consolidations—we expect that to normalize. There is a little bit of inefficiency that we saw here in Q1.

Some of those efficiencies that we are bringing into that business is to continue to work on post-acquisition synergies and barns. You see a portion of that sit in Latin America. But also new factories starting up; there is always a little bit of a problem there exactly. We can see that improvement from a year-over-year standpoint.

Jennifer Wolfenbarger: I mentioned in my prior reports that [inaudible] taken back into the first quarter. [inaudible] cleared up either in 2026 [inaudible] opportunities. Uh-huh. And the investment from the [inaudible] would expect to see this. We feel the impact of it to change sort of the [inaudible] for ’25 gives you [inaudible] price time for us to [inaudible] they are very, very cold because they are just emergent business.

Operator: Thank you. Your next question comes from the line of Bryan Blair with Oppenheimer.

Bryan Blair: Thank you. Good morning, everyone.

Joseph Ruzynski: Morning, Bryan.

Bryan Blair: I apologize if I missed this detail. I have had some technical difficulty. But what was volume and price contribution in Q1? And if we assume your team is trending toward the high end of the revenue guide—that seems realistic for the time being—what should we think about in terms of full-year volume and price contribution? And how different is that by segment?

Joseph Ruzynski: Good question. The performance on volume and price was nicely balanced for us in Q1. If you look at the sales growth, volume was just under 30% and price was just over 30%, with acquisition and FX kind of rounding out those other two as you have seen. From a volume standpoint, we have done a lot of work in terms of leading indicators. You have heard us talk about this the last few quarters: innovation, new products—we like to highlight this—how we are finding those markets that are growing faster. Sometimes it is hard to predict where and when that volume will hit. That being said, Q1 read out largely as we expected. Price is going to be a comparable spread at the higher level here in Q2 as we put some of those price increases in. But we expect volume and price to be fairly balanced throughout the year. So that is at a higher level. Jennifer, if you want to comment at the segment level.

Jennifer Wolfenbarger: I would say the caveat there is we continue to see inflation in various pockets, and we will continue to be very disciplined in our price strategy as we see those commodity inflation pressures come through, whether it be on the plastic side or copper. We are going to take the opportunity to pass that through from a price perspective as we have done historically. So I think, Bryan, just last comment: that volume line is one that we are watching closely.

Joseph Ruzynski: We are investing in R&D. We are investing in new products. We have been talking about this—channel expansion, making sure that we are out serving in terms of the end market. So we like that as an indicator and a start to the year, that volume number.

Bryan Blair: Understood. I appreciate the detail. And, Joseph, you offered a pretty good segue there. In terms of innovation and new product development, I just wanted to level set a bit. What time frame of new product intros do you roll into any vitality calculation? And the $160 million in new revenue by year three, is that a 2026 to 2028 reference? Or in general, what you are targeting on a rolling basis, and then how should we, given current visibility, think about the contribution to water and energy segment growth?

Joseph Ruzynski: It is a 2026 to 2028 number, but I would tell you this: we are looking to add to that. We think that there is more that we can do, and we will continue to refresh that number and that outlook. We generally are using a three-year vitality—so products launched in the last three years, contribution to new product revenue. Really, what our team likes is this idea of new product revenue, so we normalize for cannibalization of course, but this is a big focus for us. And when we look at our end markets, that opportunity is going to increase. It is going to increase for two reasons. One is we have acquired some companies. Our ability to add technology onto that and bring those to new markets helps us from a new product to new region.

The other is some of those faster growing markets that we reference, like the data center market, and we look at energy infrastructure. Those opportunities for us to launch new products and bring those to market, we think, will help us to accelerate that. So I think the outlook for new products continues to be positive. We are excited about VersaBoost; we just discussed that today. And these are bigger numbers. Our effort has been shrink the funnel but more volume and scale for fewer launches, and then really to pay attention to doing those successfully. And as a last quick comment on those, our expectation is new products are accretive. So it helps us in a number of ways.

Operator: Thank you. Our next question comes from the line of Ryan Connors with Northcoast Research.

Ryan Connors: Great. Thanks for taking my question. And, like Bryan, I also had some—you were breaking up for a little while there—so hopefully I am not asking something that has already been covered. But I want to touch on dewatering for a bit. You mentioned Australia strong, but if I heard you right, Jennifer, you were mentioning actually softness in dewatering, and specifically mine dewatering. I was a little surprised by that. I mean, I know that we have got kind of a mining CapEx cycle kicking off, expect to see some strength in that large dewatering piece. So can you just unpack that dewatering piece? What is going on in Australia, and then why we are not seeing more of that elsewhere?

Joseph Ruzynski: I will just make a quick comment. Global dewatering is a great story for us, Ryan. I think Jennifer’s comment was the timing of orders in North America pointed to a year-over-year that was flattish to slightly down. But globally, this is a real healthy space. Australia is a very healthy space. Rest of the world dewatering for us is up 30-plus points. So a smaller base, but we are quickly seeing that global business for dewatering outpace, and we think it will be as big or even bigger than what we have in the U.S. Just to start, the comment was really on U.S. and Canada.

Jennifer Wolfenbarger: And we did see some timing impact, and that was more on the fleet piece of dewatering, not necessarily the mining side. Our outlook overall for dewatering for the full year is still growth expected across the globe, including U.S. and Canada. A little bit of timing on the fleet side in Q1 was really what my comment was meant to convey.

Ryan Connors: Okay. Yeah. That clears it up nicely. Thank you. And then I wanted to follow up on the question earlier on energy and the margin specifically. It is pretty remarkable. If you look at the quick calculation, energy contributing 13% of revenue and more than a third of operating income. So two questions on that. Thinking big picture and longer term, are we going to top out here, just big picture on margins for energy long term, or is there any scenario where we could actually get north of this kind of pretty amazing low-to-mid 30s type of range? And then strategically, Joseph, how do you think about the fact that a segment that is relatively small in the mix on a revenue basis is becoming such a huge contributor to the bottom line? Just curious what your strategic thoughts are on that.

Joseph Ruzynski: I would answer it two ways. I view it as we are okay with that right now. Here are a couple things that have contributed to their income and expansion. One is when we look at transformation, 80/20, and some of the good productivity work that we have in front of us still at Franklin, I would say that energy business, because they really went into the post-COVID hangover with some thoughtfulness, and the leaders there did a great job of really reinforcing that we can operate and operate healthy even when volumes are slightly off. It is a great template and a group blueprint, and we expect you are going to see that read out in the other segments. We have seen it in pockets of distribution and water treatment as we have talked about.

Water has a great opportunity there. So I am okay with it as it sits today. You are going to see a better balance, though, out two or three years in terms of margin expansion in the other parts of the business. The other question in terms of is there a high end or a limit to what we see from an energy margin standpoint: I would tell you we are confident in performance at that level. But a few things that have really contributed to their growth, and these are parts of their business that are growing faster, are as they are investing in sensing technology and critical asset monitoring in the grid space. Those are helpful from a mix standpoint. So as their higher margin business becomes a bigger part of just that energy segment, even if we look at growth around the world, even if we look at some of the growth that is maybe lower margin, that is going to outpace it and at least keep us in a real healthy band there in the mid-30s as Jennifer talked about.

In terms of what is that opportunity, I would say this: we are working on midterm guidance, and we will share that during our Investor Day. We have not announced the time yet, but stay tuned for that. We still see opportunity to expand further just based on smarter technology from a mix perspective and then, again, a business that has done a great job from a productivity execution here these last few years.

Ryan Connors: Got it. Okay. Very helpful. Thank you for that. And then last one from me on kind of a big picture question. Hearing more and more about AI being leveraged in the industrial landscape for pricing specifically—sort of algorithmic pricing strategies for industrial companies, and particularly for industrial distribution. So curious, given your comments there on the distribution business, Joseph: is that something that you are using anywhere in the company, but specific to distribution? Just curious whether that is something you are doing.

Joseph Ruzynski: We have a fairly dynamic pricing approach in distribution. I would say it is not embedded with AI where we sit today. We are fortunate to have really intimate business owners. Our regional presidents in that business are looking at competition, the weather, and input costs on a real-time basis and essentially allow us to stay well in front of that. There is more we can do. We have got a lot of great work done in terms of simplifying part numbers. We have got rationalization, and so we can see the same number from coast to coast now. This took us a couple years. We have a great ERP system. And I would tell you we hear the same thing, and we see the same opportunity you mentioned, which is AI can help us take that to the next level to be smart about pricing.

We have really done some good work this last couple years. Pricing is one of those elements that has helped them to lift that margin, and we expect to see further margin expansion throughout the year based on smarter dynamic pricing.

Operator: And our next question comes from the line of Walter Liptak with Seaport Research.

Walter Liptak: Hi. Thanks, guys. Good morning.

Joseph Ruzynski: Good morning.

Walter Liptak: Some of the comments were breaking up on my end as well. I wanted to ask about the new products that you guys called out—the $160 million. I wonder if you could review for us the data center products, like where your run rate is currently, and what is the expected growth that you think you would be at three years out within that $160 million?

Joseph Ruzynski: What we will do is share what part of that commercial and industrial space is data centers here as we get into our Q2 earnings. But I think we have mentioned this before: it is a sub-$50 million business for all products for us today. Where our focus is right now, Walt, is it is simply the fastest growing space for pumps, motors, and drives, not only in the U.S., but around the world. Given our application expertise and the fact that we have built supply chain expertise, that has really been a key focus for us right now—to serve. There is a great set of CDU manufacturers around the world and here in the U.S. that have done a great job putting a space together. We like our ability to respond with speed and velocity.

Our first production line—we have been doing this kind of embedded in parts of our business—but a stand-alone production line is going up right now in our big facility here in the U.S. And what we will do is share that outlook in terms of how we see order trends and our expectation in terms of volume growth here as we get into Q3. It is an exciting space. It is a fast-moving space for anyone that follows that market. I think the trends here the last couple years point to a next good three to five years in that space from what we can see, and we will be ready for it.

Walter Liptak: Great. And in the first quarter, the water segment had better-than-expected organic growth. Was part of that from data center-related products?

Joseph Ruzynski: A small part—not material. I would tell you a couple things that really read out well. One is just our traditional business in residential and ag in the groundwater space had a nice first quarter of both volume and price. We talked about this in our Q4 call where we saw a little bit of a pullback in terms of channel inventory in that RSS or that surface pumping business. That has bounced back nicely. So we made a comment on where we touch HVAC or some of the specific residential markets—those had a nice recovery, not just a sequential recovery, but year-over-year showed some strength. So surface pumping overall was strong in that RSS space. And then, again, that global dewatering business was up for us about 10% even with the blip in North America due to some fleet timing.

What is interesting about Q1 there is the consistent strength across those product segments. We are obviously watching places like ag, but it is a more normal year. We do not talk a ton about weather here, but it is a more normal year, so it looks solid. And then the rest of the business, again, a blend of new products, new markets, new customers. They seem to be gaining some traction.

Jennifer Wolfenbarger: And I must add a comment regionally. We also performed very nicely across regions. We touched on Australia, which posted really strong growth in the quarter. We started to see some recovery in Mexico—smaller piece of our business, but good to see that. That was depressed in the last couple of quarters. I touched on [inaudible].

Walter Liptak: Okay. Thanks. You broke up a little bit there at the end again. And then the last one for me: the energy segment growth was good this quarter, but it seems like it was driven more on the international side. For 2026, I think some of your competitors are calling out a pretty strong retail fueling market, both U.S. and international. What are you seeing in the marketplace?

Joseph Ruzynski: We see the outlook for the U.S., starting there, as good and healthy. Backlog looks healthy. What we are seeing—and I think I have mentioned this before, Walt—is we can see a little further in that business than other parts of our business. If you look at the aged backlog, it points through the summer. Build season looks robust. Globally, that business—the leader, Jay, and his team—have done a really nice job building further opportunities in places like India and the Middle East. Those we are watching a little more closely. We had a good quarter in Q1 in some of those areas where we see faster growth. It looks like Q2 is going to be a little bit slower just based on the global dynamic and how that touches fuel price and some of that investment.

Other than that, we are still helping out with infrastructure, so if there is a need for that real time, we do. But the U.S. looks great. It is still the biggest part of our market, and the international prospects are still healthy. If and when the Middle East settles down, our view is out two or three years we have some really nice growth opportunities. The timing of those may be off slightly here this year.

Walter Liptak: Okay. Thanks for pointing that out.

Operator: Thank you. And our next question comes from the line of Matt Summerville with D.A. Davidson.

Analyst: Hi. This is PJ Haliburon on for Matt Summerville. I was just wondering if you are seeing any impact from the updated Section 232 tariffs. Thank you.

Joseph Ruzynski: Good question. The updated tariffs really had a fairly neutral impact to us—our business, our products. We did a complete review of that when it was announced earlier in April. In general, no major change there. The tariff news that has come out the last few months for us has been neutral to slightly positive just given the position of our product and where we manufacture it. We are largely an in-region, for-region manufacturer, so that has helped us a little bit to create some stability. We still are doing a little bit of work—including the 232s—of resetting our supply chain, but we expect to see some good progress and to finish some of that work up here over the next few quarters. The latest announcement had a largely neutral impact to us.

Operator: I will now hand the call back over to CEO, Joseph Ruzynski, for any closing remarks.

Joseph Ruzynski: Thanks, Andrew. Our first quarter was a great start to the year. Our execution for strategy transformation and serving our customers every day was strong. Our growth engine is fueled by serving faster growing markets, innovation, and channel expansion. The leading indicators show us we are working on the right areas. Our productivity path is on the right trajectory with pockets of strength and some great opportunities to accelerate. We are confident in 2026. Despite global challenges and risks, our strategy will give us the avenues to add customers, serve new markets, and increase our productivity throughout the year. We are confident in our strategy. We like the businesses that we are in. Thanks, everyone, and have a great week.

Operator: Ladies and gentlemen, thank you for participating. This does conclude today’s program, and you may now disconnect.

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