Jeff Reeve

Jeff Reeve inquired about Watts Water Technologies' go-to-market strategy for data centers, specifically whether sales are through distribution, directly to liquid cooling OEMs, or upstream with hyperscalers, and the level of customization in their solutions.

Answer

President and CEO Bob Pagano explained that Watts leverages all channels, including distribution, and works with general contractors across the value chain. He noted that most products are standardized, but they are increasingly working on more technical, finite solutions as confidence grows.

Jeff Reeve asked about Watts Water Technologies' go-to-market model in data centers, specifically if they sell through distribution, directly to liquid cooling OEMs, or engage upstream with hyperscalers, and the extent of customization versus standardization in their solutions. He also inquired about the potential for Nexa or digital monitoring solutions in data centers as deployments scale, and the long-term opportunity.

Answer

President and CEO Bob Pagano explained that Watts leverages all channels for data centers, including distribution, general contractors, and the entire value chain, depending on the product. He noted that most products are standardized, but they are increasingly working on more technical, finite solutions as confidence grows. Regarding Nexa and digital monitoring in data centers, Bob Pagano stated it's a long-run opportunity, as data centers currently use their own systems. However, Watts is leveraging some of its smart and connected products where it makes sense, indicating it's still in early innings.

Jeff Reeve acknowledged the strong free cash flow generation and significant working capital lift, asking for details on its drivers and expectations for free cash flow in the next quarter.

Answer

Scott Cottrill, CFO of Advanced Drainage Systems, attributed the strong working capital performance to effective management across receivables, inventory, and accounts payable, leading to a reduced cash conversion cycle. He highlighted improved demand and S&OP processes, customer service investments, and efficient inventory management as key contributors.