Good day, and thank you for standing by. Welcome to the first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to Helen Gurholt. Ma'am, please go ahead. Thank you, Catherine. Good morning, and welcome to the A. O. Smith first quarter conference call. I'm Helen Gurholt, Vice President, Investor Relations and Financial Planning & Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauber, Chief Financial Officer. In order to provide improved transparency to our operating results, we provide non-GAAP measures. Free cash flow is defined as cash from operations, less capital expenditures. Adjusted earnings, adjusted earnings per share, adjusted segment earnings, and adjusted corporate expenses exclude the impact of non-operating, non-cash pension income and expenses. Reconciliations from GAAP measures to non-GAAP measures are provided in the appendix at the end of this presentation and on our website. A friendly reminder that some of our comments and answers during this conference call will be forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include matters that we described in this morning's press release, among others. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. We will be using slides as we move through today's call. You can access them on our website at investor.aosmith.com. I will now turn the call over to Kevin to begin our prepared remarks. Please turn to the next slide. Thank you, Helen, and good morning, everyone. Thank you for joining us today. I'm on slide four in our first quarter results. Our team performed extremely well throughout the quarter, despite a turbulent macro environment, and delivered strong sales and EPS performance. First quarter sales improved 27% year-over-year, driven by our 2021 inflation-related price increases and acquisition of the Giant Factories late last year and international volume growth. Excluding acquisitions, first quarter sales grew 23%. Rest of World segment performance was strong, with margins improving over 440 basis points year-over-year, driven by China improving its operating margins to over 11%. We delivered strong results despite supply chain challenges and component shortages throughout the quarter. Weather challenges and Omicron-related labor constraints impacted our North American production in the first half of the quarter. However, shipments improved sequentially in the second half of February and in March, especially our residential water heater production, where we saw supply chain improvement and as a result, improved our lead times to customers. The acquisition of Giant added $32 million to the quarter sales and $0.02 to EPS. We are pleased with the performance of the team and the integration is on track. Please turn to slide five. Our global A.O. Smith team delivered first quarter 2022 adjusted EPS of $0.77, a 31% increase that was driven in part by a 27% increase in sales compared with the first quarter of 2021. Our strong first quarter performance resulted from our team's outstanding operational and sales execution despite the challenging environment of component shortages, continued materials and transportation cost inflation, weather impacts, and surges in COVID-19. I continue to take pride in how my fellow A. O. Smith employees are working together to overcome these challenges to meet market demand and deliver for our valued customers. Excluding the impact of Giant Factories, North America water heater sales grew 28% in the first quarter of 2022 due to pricing actions implemented in 2021 in response to rising material and logistics costs. Our full year outlook of the residential water heater industry remains unchanged as demand continues to track to our expectations. Our full year outlook for the commercial water heater industry is to be flat to slightly down. The commercial industry started the year weaker than expected, primarily due to a regulatory change that temporarily impacted orders of large electric commercial products greater than 55-gallon. Our first quarter commercial sales were also impacted by component shortages for certain gas products. We have seen demand for our large electric product improving since early in the quarter, and we expect component availability to improve in the second quarter. Our North America boiler sales grew 24% in the quarter, primarily driven by price increases to offset higher material and transportation costs and demand for our energy-efficient products. We ended the quarter with a record backlog, largely composed of commercial condensing boilers, and April continues to generate strong order rates for these market-leading energy-efficient boilers, providing confidence in our outlook for the year. Our strategy to focus on innovation and decarbonization contributed to strong demand for our high-efficiency condensing boilers. North America water treatment sales grew 17% in the first quarter as we continue to pursue additional market share in this attractive market, with a total addressable market value that we estimate to be $2.6 billion. Taking an omni-channel approach, our strategy is to grow our market share through innovation, product development, and acquisition opportunities. Our independent water quality dealers continue to play an important role in our growth by outperforming the market and gaining market share. In China, sales increased 12% in local currency compared to the first quarter of 2021, primarily due to favorable mix as our new product offerings continued to be well-received, as well as higher sales of commercial water treatment products and replacement filters. During the first quarter, we proactively worked with our distributors to ship product into the market in advance of potential COVID-19 disruptions, which most recently is impacting transportation in certain regions. While our customers have ample inventory in place, our tracking of consumer demand in April across our portfolio and geographies is indicating a year-over-year reduction of 35%-40%. Our outlook assumes the COVID-19 related shutdowns in China subside during the second quarter of 2022. Despite the economic headwinds to our business in China, I'm very pleased with the quarterly performance of our China team, who are taking great steps to right-size the business, manage discretionary spend while investing in new product development. On slide six, please. I'd like to highlight two of our products in China that demonstrate our continued focus on innovation and product development. At the Red-Top Awards ceremony in Tianjin, China, A.O. Smith earned two of the coveted high-end appliance awards for the QuietFresh Range Hood and Soft Water Heating hot water boiler. Under the guidance of China Household Electrical Appliances Association, our products were among hundreds of products evaluated for the awards every year, with a focus on advanced technology, industrial design, market influence, energy conservation, environmental protection, and user experience. We take great pride in this recognition as yet another example of how our products set us apart as an innovative leader in the market. I'll now turn the call over to Chuck, who will provide more details on our first quarter performance. Thank you, Kevin. Good morning, everyone. I'm on slide seven. First quarter sales in North America segment rose to $730 million, a 32% increase compared to 2021. Pricing actions, largely on water heaters, represented approximately 89% of the increase. Sales in the quarter also benefited from higher volumes of boilers and water treatment products. However, the sales increases were partially offset by lower volumes of commercial water heaters. Giant, acquired on October 19, 2021, added $32 million to North America sales. North America adjusted segment earnings of $154 million increased 21% compared with the same period of 2021. The earnings benefit of inflation-related increases was partially offset by higher material and freight costs and lower commercial volumes. Adjusted segment operating margin of 21.1% declined compared with 2021. Margin performance sequentially improved each month through the quarter as COVID-19 related absenteeism and supply chain constraints eased through the quarter. North America operating margins exited the quarter at the top end of our full year margin outlook for North America. Moving to slide eight. Rest of the World segment sales of $256 million increased 15% year-over-year. Favorable mix from new product introductions in the premium segment of the market, particularly our slimline electric wall-hung water heaters and water treatment products that deliver hot and ambient filtered water, as well as higher sales of commercial water treatment products and water treatment filters contributed to sales gains. As Kevin noted, sales in the first quarter were positively impacted by proactive measures to distribute product into the market in advance of potential COVID-19 disruptions in China. India continues to perform well, and sales grew 36% in the first quarter compared to 2021. We view India as a long-term growth opportunity, given its attractive growth characteristics and changes in demographics. Rest of World segment earnings of $25 million increased significantly over segment earnings in the first quarter of 2021. In China, the benefits from favorable mix, higher volumes, and lower advertising and selling expenses drove Rest of World segment margin to 9.7%. Free cash flow of $4 million during the first quarter decreased from the first quarter of 2021 due to higher 2022 earnings that were more than offset by higher incentive payments due to record 2021 sales and earnings and higher cash outlays for higher levels of safety stock on higher cost inventory. Historically, we generate the majority of our cash in the second half of the year. Our cash balance totaled $579 million at the end of March, and our net cash position was $284 million. Our leverage ratio was 14% as measured by total debt to total capital. Our strong annual free cash flow and solid balance sheet enable us to focus on capital allocation priorities and return cash to shareholders. Earlier this month, our board approved our next quarterly dividend of $0.28 per share, which represents our 82nd consecutive year of dividend payments. We repurchased 1.5 million shares of common stock in the first quarter for a total of $108 million. Let's now turn to slide 10. In addition to returning capital to shareholders, we see opportunities for organic growth, innovation, and new product development across all of our product lines and geographies. We continue to target strategic acquisitions with a focus on water heating and water treating assets that meet our financial metrics of accretive to earnings in the first year and return our cost of capital in three years. We have a proven track record of developing innovative new technologies and making prudent and focused acquisitions to drive shareholder value. Please turn to slide 11 and our 2022 full year earnings guidance and outlook. We reaffirm our 2022 outlook with an expected EPS range of $1.56-$1.76 per share, and our adjusted EPS range of $3.35-$3.55 per share. Our outlook is based on a number of key assumptions, which include no further significant surges of COVID cases in the U.S., and that COVID-related shutdowns in China subside during the second quarter of 2022 and do not significantly impact our operations, our employees, customers or suppliers. Steel indices began to stabilize at the end of 2021, and steel fell briefly early in the first quarter of 2022. However, due to the international uncertainty on commodities availability and prices, in part due to the conflict in Ukraine, steel market prices have risen again in recent weeks. Our guidance assumes that steel pricing in 2022 on an annual basis will approximate steel market pricing as of mid-April. We continue to see increases in non-steel materials and transportation costs. Supply chain challenges persisted in the first quarter. We remain in close contact with suppliers and logistic providers to troubleshoot, manage, and resolve bottlenecks, but the environment remains unpredictable. Our outlook assumes we continue to see the benefit from multiple 2021 price increases compounding to approximately 50% for water heaters and continued resiliency and demand in North America for our water heating product categories, driven by replacement demand and new construction spending. As for other housekeeping assumptions, we expect to generate free cash flow of between $500 million and $525 million. For the year, CapEx should be between $75 million and $80 million. Corporate and other expenses are expected to be approximately $55 million. Our effective tax rate is estimated to be between 23.5%-24%. We expect to repurchase approximately $400 million worth of shares of our stock, resulting in outstanding diluted shares of 156 million at the end of 2022. Based on these assumptions, the midpoint of our adjusted EPS range represents an increase of 17% compared with 2021. I will now turn the call back over to Kevin, who will provide more color on our key markets and top-line growth outlook and segment expectations for 2022, all while staying on slide 11. Kevin? All right. Thank you, Chuck. We project revenue growth for 2022 of 14%-16%, which is lower than our outlook in January as a result of volume headwinds in China and a slower start to commercial water heating. Our sales assumptions include approximately 8% growth in each of the last two years, which is well above the historical average growth rate. We estimate U.S. residential water heater industry unit volumes will be down approximately 2% from last year as industry demand normalizes. While the commercial water heater industry demand has started the year slower than expected, our guidance assumes improvement in the remainder of the year, as we project the commercial industry volumes will be flat to slightly down compared to last year. We have reduced our sales growth projection in China from 5% growth in local currency to be flat compared to last year as a result of economic headwinds we are experiencing from COVID-related restrictions. We have increased our North America boiler sales growth projection from 10%- 18%-20% sales growth, driven by increased pricing in response to higher input costs. Our outlook for North America water treatment sales growth of 13%-14% for 2022 has not changed. Based on these factors, along with the full impact of our 2021 price increases, we expect our North America segment margin to be between 22.5% and 23%, and Rest of World segment margins to be approximately 9.5%-10%, or 50-100 basis points higher than 2021. Please turn to slide 12. 2022 continues to present challenges for our global teams, and we are meeting them head-on. We believe A. O. Smith is a compelling investment for numerous reasons. We have leading share position in our major product categories. We estimate replacement demand represents approximately 80%-85% of U.S. water heater and boiler volumes. We have a strong premium brand in China, a broad product offering in key product categories, extensive distribution, and a reputation for quality and innovation in that region. We have rationalized the cost structure of our China business, streamlined our stores in tier one and tier two cities, and strengthened and extended our product offering in both the premium and upper mid-price sectors of the markets we serve. We are well-positioned to maximize favorable demographics in China to enhance shareholder value. We continue to be very excited for the opportunity we see in our North America water treatment business. We have strong cash flow and balance sheet supporting our ability to continue to invest for the long term in automation, innovation, and new products, as well as acquisitions and return cash to shareholders. We remain focused on serving our customers and continuing to meet their needs. Our strong brands across the portfolio, combined with investing in technology to drive innovation and new product development, will further enhance our market leadership. We are confident in our ability to capitalize on opportunities as we continue to execute our strategy. With that, we conclude our prepared remarks, and we are now available for your questions. All right. Thank you, sir. As a reminder, to ask a question, you will need to press star one on your telephone keypad. To withdraw your question, you may press the pound key. Please stand by while we compile the Q&A roster. We have our first question from Matt Summerville of D.A. Davidson. You may ask your question. Thanks, morning. First, maybe could you guys comment on what you think the market actually did from a volume standpoint in the U.S. for resi and commercial water heaters in Q1, and how you feel you performed relative to the market, just given, you know, that you guys experienced some COVID absenteeism, et cetera. I would assume your competitors did as well, but if you could comment on that would be helpful. I have a follow-up. Yeah, Matt. This is Kevin. I'll comment on that. We believe the market's coming in on the residential side around that 2% range, +2%. Commercial will be down. I'm thinking somewhere in the 20% range. There are some reasons for that that we outlined with regards to a regulatory change. That's how we see the market coming in the first quarter in the U.S. How we did, we certainly got our fair share of both those markets. We performed. Again, we started out the year with a lot of COVID and weather. As we outlined in our remarks, the first month and a half were pretty tough. We had a really strong finish, particularly our residential teams did very well in the back half and particularly in March. We feel we did well, maybe, you know, maybe a bit better than the market. Overall, we certainly got our fair share of both the residential and the commercial business. Just a follow-up on China. I think you mentioned sales tracking down 30%-35% thus far in April. Is your guidance assuming Well, I guess what assumption do you think is most appropriate for us to be thinking about in Q2? Have you seen that 30%-35% start to improve, or is it getting worse? I guess I'm trying to think about how to frame up China, you know, for the second quarter specifically, you know, to get to the full year kind of flat. Okay. Yeah. Hey, Matt, it's Chuck. Yeah, China, so that 35%-40% down in China in consumer demand, just to kind of frame that's April. That's what we're seeing in April, which is sequentially worse than what we saw in the first quarter. The way we think about it is, and by the way, that sector of what we're measuring there is consumer. So that's about 75% of our business. The commercial side does not fall into that metric. It's more the consumer spend that we're referencing there. Haven't really seen a change to that. As you know, as we kind of look through the month of April, it's been fairly steady at that rate. In the first quarter, it was down in about the 10% range. Sequentially it was worse. The way we think about it, some pretty heavy lockdowns right now in April. Our assumption or our guidance is that that does subside as we go through the year. It does improve, as we get, you know, towards the end of the second quarter. Sequentially, maybe the third quarter looks something like the first quarter as far as consumer demand and then, you know, kind of gets more back to normal in the fourth quarter. Q2 will certainly be the lowest quarter of the year for us when you think sequentially. Q4, once again, as it normally is, should be the best quarter of the year in China. Got it. Thank you, guys. Yep. We have our next question from Scott Graham of Loop Capital Markets. You may ask your question. Morning, Scott. Hey, good morning. Thanks for taking my question, all. So I can understand some of the puts and takes here on your slide 11. Essentially, if we were to take out the adjustment for the pension, your guidance is just, it's necessarily just a little bit lower. I mean, that's just the math. Like, if you had to kinda say, you know, what are the larger swing factors in that, would you essentially say, you know, China and a slower start to the year in North America, or how would you frame that for us? Yeah. Scott, I'd say our guidance, our outlook on the adjusted EPS has not changed. We're kind of staying on track right on that. Kind of the puts and takes on that is, you know, certainly we're seeing the headwind in China, so we've got China where we were saying 5% up in local currency being roughly flat. You know, China for the first quarter it starts out pretty strong. First quarter, as we mentioned, we proactively put product into the channel. That is expected to stay in the channel for the majority of the year, just as kind of protection, make sure product is out there if there were any transportation interruptions. Also, discretionary spending in China ran pretty well. They're able to flex a bit better and be a little bit more nimble on spending, since they've taken some cost out and restructured the business, so that we expect that positive SG&A spending to be a lever we can pull going forward. On the volume side, it's really largely China offset by a bit of spend that China can do. In North America, when we look at North America, we improved our margins 25 basis points on North America. The way we're thinking about that is, you know, we're coming out of the quarter at about that run rate in March. When residential production, you know, kind of hits a better pace when we've got components, we can perform pretty well. You know, the puts and takes are, we got China, a little bit of headwind on sales. We got a little bit better margin in North America. Our backlog is still strong on the boiler side. Kevin mentioned kind of the boiler condensing product that's out there, larger product, good margin product. We've got a little bit of ground to make up on commercial water heating, so that should help our mix a bit. As you kind of go up throughout the year, we would expect that to be a bit of a help compared to Q1. You know, we've talked a lot in the past, and we've noted in our comments, the water heater pricing. If you take outside of water heaters in North America and think about kind of the pricing on other product categories, we've got announced price increases, and I'll just make the range 2%-12% out there that becomes effective as we go through the year that helps a bit on the margin side as we go kind of in the back half of the quarter. We still see commodity costs high. You know, we got a little relief on steel, but commodity costs made that up and increased. Our outlook, you know, really hasn't changed much on costs. We expected that to go up in our January outlook, and it has. You know, we're still seeing pressure on the cost side. I got it. Chuck, my apologies, I am now looking at the quarter ago presentation, and that pension adjustment is in there. Guidance doesn't change. Great. Thank you for that comprehensive response. That was awesome. Let me ask you a little bit about the supply chain and, you know, and I know that you're always, you know, kind of loath to comment on price cost. You know, your wording in North America suggests that you were kind of price-cost positive here. If you can confirm that, great. Secondly, you said the supply chain constraints are getting easier in North America. Can you explain that a little bit? Yeah. Let's talk about the supply chain first. It's stable. It has improved. We saw our residential components and so forth improve in the quarter. We also see some improvement coming in the second quarter on our commercial on particular components. But overall, it's been stable. It does improve, particularly on the material side. Components are still a bit unpredictable. It's getting better, but we still wake up every day and still at times we'll have issues that we have to work through. But again, our teams are working very closely with our suppliers. In fact, I think we know our suppliers better than we ever have now in the last couple of years. It is moving forward. We're gonna have these sporadic issues we have to deal with. I think that the key takeaway here is we just don't see any major disruptions. Before there's even a follow-up question, just wanna talk about Ukraine. We have no direct suppliers out of there, and we're seeing maybe some transportation issues, a small amount in Europe that we have to deal with. China, I think it's still a little early. We stay very close to China. Of course, we have a decent supply base there, particularly on some of our components. But nothing in the early term here that we see any issues with, and maybe some medium risks down the road. But again, no major disruptions in our supply chain that we can forecast at this time. Getting better and all factories are running well, and that's in China as well, just to follow up on that. We'll continue to work on some of our backlogs. We have large backlogs in boilers. We have large backlog in commercial water heating. We anticipate that second quarter we'll be able to make a dent in both of those, and they are certainly upsides for us as we go through the year, as Chuck mentioned. Again, thank you very much for your comprehensive answers, both of you. I'll get back in the queue. speakers, we have our next question from Susan Maklari of Goldman Sachs. You may ask your question. Thank you. Good morning, everyone. Good morning. Good morning. I guess just staying on commercial for a bit, can you talk a little bit more about the regulatory changes that came through? I know that you mentioned that you do expect that, you know, that'll incrementally sort of catch up as we move through the next couple of quarters. Can you just give some details on, you know, the relative changes that you're making there and how to think about some of those, you know, details? Yeah. Thank you for asking that question because I really think it needs some explanation. The regulatory change we're talking about was on the greater than 55-gallon electric. Without getting into the details, the change raised the kW and wattage and requires a different SKU. What happened though, our industry really did anticipate that going into effect. We were anticipating the old regulatory to be carried over and extended into the first part of this year. It wasn't. From our point of view, it caught the industry a bit flat-footed, not so much on the manufacturing side because we were all prepared, but I think from just understanding the regulatory change on the distribution side. If you look at it, we had to get out there and kind of update our customers of what the new SKUs would be and so forth. We saw January very slow, you know, where we're working through the regulatory change being implemented and getting to our customers. We saw February improve, and then when I can just speak from our point of view, March, our run rate on greater than 55 gallon commercial electrics was basically at our run rate from prior year. We look at this as kind of a temporary gap, if you will, that will close itself and more normalize as we get through the year. That it was just a situation where the industry had to kind of recover, but the fundamentals of the category, the fundamentals of the business are still there. That's why we're looking in the balance of the year for that to stabilize and normalize. That's a quick snapshot of what happened in that regulatory environment. Yeah. No, that's very helpful. I appreciate all that color. Then I guess, you know, on the residential side, with the water heaters, appreciating that this is a bit further removed from you, but any commentary on inventories in the channel and just where those kind of sit given all the moving parts that the industry and yourselves obviously faced in the first quarter? We don't have great view into the inventories in the channel. What I'm going to tell you is anecdotal industry experience, that type of thing. On the commercial side, we believe the inventory is still a bit light in the channel. That's indicated by our backlogs and just the activity that we're seeing there. Inventory commercially a bit light. We hope to make that up as we improve our production in the upcoming months and quarters. I'll just probably add on residential, we probably think is about where it needs to be. It may be even a bit heavy because I think people are hedging themselves, customers are hedging themselves in case any further disruption. That's our view. Again, residential probably where it needs to be, a little heavy. Commercial, still some room. We have, you know, take care of some production needs and get some products back into our customers' inventories. Okay, great. Thank you, and good luck with everything. Thank you. Our next question from Nathan Jones of Stifel. You may ask your question. Good morning, everyone. Good morning, Nathan. Good morning. I'll start off following up on the residential inventory there. Noted that it might be a bit heavy with safety stock. I think that's going to be one of the questions as we go forward is, are customers holding safety stock, and are they going to continue to hold that safety stock, you know, more permanently, or will it normalize, you know, as customers have more confidence in their supply chains? Just interested to hear your opinion on that and what you're thinking about the potential inventory levels, you know, more over the long term at your customers. Well, as I mentioned, I would agree with what you just said, quite frankly. I think, you know, as lead times come down and things normalize. Now when that is, I'm not gonna predict. You know, right now, yeah, there could be some, but again, lead times are gonna have to come down first. Things are gonna have to be a lot more stable. I don't think it's heavy stock building out there, safety stock than we think. It is a bit higher than maybe normal. My view, I probably most distributors whom I talk to will probably be a bit conservative in making sure they're gonna lean in on having product and inventory to service their customers, considering the last, you know, year or so that what they've gone through, what we've gone through. That's our view. Again, we can't predict what's gonna happen, you know, six, 12 months from now, but that's where we're at today. Thanks for that. Maybe I could just ask, where are your lead times today? Where were they, you know, last year or late 2020 when they were at their highest? What were they normally before COVID? Are you talking North America or U.S. right now? Yes. Yeah, North America. Okay. residential water heaters primarily. Lead times today are about 20 days. That's our goal and what historically we've targeted is 15. You look back in, you know, the tougher times are probably 2x that or more. We've just been able to bring those down, ramp up production, again, as materials and components became more available. On the commercial side, we target really the same type of lead times. Right now, our commercial lead times are elevated, at least 2x-3x. That's great color for me. Thank you very much for taking my questions. Thanks. Our next question from Andy Kaplowitz of Citigroup. You may ask your question. Good morning, everyone. Morning, Andy. Maybe just talk a little bit more on China. Can you give us an update into inventories in the channel? I know you said you put product in the channel, so how are you thinking about the channel itself, you know, given it was sort of coming off five-year lows? Maybe a little more color around your ability to drive self-help in China with new products, you know, growing into those tier three to tier six cities. I think you mentioned SG&A cost out. How much could all that other stuff sort of help you as you go through this uncertain period? Yeah. Channel inventory in China. We, you know, most of the sales increase for the quarter was putting channel into the inventory, or putting inventory into the channel. The level at the end of Q1 is about a month and a half. You know, that's not really out of line compared to. It was certainly higher than year-end, which was at kind of a five-year low. Felt it was prudent to do that, make sure we had channel inventory available in case there was transportation interruption. The way we're thinking about that in our outlook for the year is that, you know, most of that inventory will stay in the channel. We're not really bringing it back down to kind of the low level it was as we exited 2021. We expect it to stay there just due to the uncertainty in, you know, COVID potential interruption, even though our outlook projects it'll subside a bit as we go through the rest of the year. You know, kind of the levers in SG&A and, you know, the amount in the first quarter of SG&A discretionary spend that was mitigated, I guess, is, you know, in that $3 million-$4 million. We've taken out a large number of stores in tier one and tier two, over 1,000 from last year, and that reduces the cost, makes those stores more efficient, gives us a little more flexibility on how we spend SG&A. Those are kind of the inventory levels, the SG&A side. You know, the progress on tier three through six cities, tier four through six cities is on track. You know, the very low-cost model continues to have, you know, think of those again as more counter space than they are storefronts in the tier one and tier two cities. Largely on track, continue to add to those cities. Appreciate the color. Then maybe just a little more color into the strength you're seeing in terms of your North American boiler business. Obviously, you increased guidance there, but how much of the improved outlook is your customers really focusing on these commercial condensing boilers, given their energy efficiency focus in a higher natural gas price environment? Could you see further inflection if gas prices stay high? Well, again, this will be anecdotal. Again, we don't have any great data there, but it just would be natural as energy costs have gone up and a movement for decarbonization and reducing your footprint, that plays really well into our condensing boilers. We feel there has to be some impact to that. Certainly, the return on investment now on our condensing boilers today versus they were just months ago are significantly better. It's playing a role. I think we see that because of just the order rate that we have on our condensing boilers coming in. I mean, our backlog has been high, continues to be high. We're shipping doing quite well. That's why we raised the guidance. Activity in the institutional side, activity in the hospitality side, even still activity in the education side is good. Our quoting continues to be good. Overall, I think the market is maybe making up for lost time in the last couple of years of COVID. I do think there is a swing towards condensing high-end efficient products for, again, paybacks, but just as much for decarbonization. Appreciate the color. Speakers, our next question from Damian Karas of UBS. You may ask your question. Hi, good morning, everyone. Morning. Morning. Morning. Wanted to ask you about pricing. Based on guidance, it doesn't seem like you've taken any further price actions since 2021. You did mention. Some of the ongoing freight and other supply chain issues. Just wondering if there's, you know, anything else that you have executed or, you know, anything on the pricing front that, you know, is being planned at the moment? Yeah. Let me kind of frame our outlook on pricing or the way we were thinking about it. You know, back in January, we projected that kind of our other material costs would continue to go up, and they have. You know, our assumptions going forward in January were that they would, and we really have seen that play out on the other material costs. When we speak of that's kind of baked in already, and it hasn't changed our outlook much, although we, you know, continue to see the pressure on the other material costs, freights and logistics. The second part of that again, I'm sorry. Does that answer your question or was there a second piece? Yeah. Basically just was trying to get a sense if there's any. Oh. You know, pricing. We did have other pricing. When you just kind of park water heaters for a second, you know, and look at the rest of our businesses in North America, so water treatment, boilers, you know, we've got a range of price increases on different products and it's pretty broad range. You know, in that 2%-12% price increases that we've announced, beyond 2021 that are just coming into effect and will be effective in the back half of the year. It was needed for those other material costs going up. Some of those pricing actions we'll see as we go through the rest of the year. Okay. Got it. That's helpful. Could you maybe just elaborate on the weather impacts that you spoke of, maybe quantify that? I don't know, it just seems like, you know, these adverse weather events are a normal part of the business, thinking about you know, the various floods and tornadoes, other things that have happened over the last few years. Maybe you could just, you know, speak to what you experienced. Yeah, I'll touch on that. It wasn't any floods and tornadoes, but it really comes down to the cold weather, snow, you know, freezing rain, and it just impacted our plants in particular, Tennessee. Again, if you look at it, you know, you take a couple, three or four days off because of that just has a productivity issue for us going forward. That's part of it. We had that happen in Q1 of 2021. It just seemed to spill over to 2022. We managed through that. Really, you know, I would tell you the quarter, the real impact we had from a plant standpoint was we had COVID, and we mentioned that on our January call. We had absenteeism in our factories about 7%. It COVID-ed, and that again is significant amount of people that we had to overcome. Then again, as we got through January, people started to recover, get back to work. Got through February, got back on track. Weather is part of it, but I would tell you COVID was probably the bigger part. Understood. Thanks for the color. Best of luck. Thank you. Our next question from David MacGregor of Longbow Research. You may ask your question. Yes. Good morning, everyone. I guess I just want to go back and maybe try and create a little more clarity around the pricing. You had talked about 50% price increase in 2021. Can you just remind us what the carryover pricing benefit is? I realize there's been some additional pricing initiatives in 2022, but just how much of that 2021 50% carried over into 2022? Yeah. You know, it's roughly half on the water heating side. Okay. You get the benefit of that. I'm sorry, go ahead. Yeah, I guess it's 50/50, roughly. Right. You get the benefit of that, just to be clear, you get the benefit of that from the beginning of the calendar year through the year? It's largely in the beginning of the calendar year. Yeah. The last one was announced effective November fifteenth of 2021. So with lead times, you know, it may be a little spill over into January. For the most part, it's running pretty much effective. Okay, good. Thank you for that. Just on the North American operating margins, the 21.1%, how much of the 200 basis points decline was due to the lower commercial volumes? Yeah. For Q1, it's about 50 basis points. You know, when we kind of look at Q1, 50 basis points on commercial water heating. Yeah, it's about 50 basis points on Giant. You know, as we recall in the past, Giant's largely residential product, and so that's a little bit lower margin. When you add that, you know, that brought it down a bit. There's 100 basis points between the two. Good. Yeah, roughly. Thank you very much. Great. Thank you. Again, if you would like to ask a question, you may press star one on your touchtone phone. We have our next question from Jeff Hammond of KeyBanc. You may ask your question. Hey, guys. This is Mitch Moran for Jeff. Hey, Mitch. I was just. How are you, Mitch? Hey. I was just wondering if you could walk us through your current expectations of margin cadence through the year, given all the moving pieces, and if you still have your expectation of one quarter being the trough for margins in 2022. Thanks. Well, 2022, and just to split it, you know, rest of the world separately from North America and kind of mentioned earlier, you know, China Q2 is gonna be the, we believe in our outlook, the toughest quarter because of kind of where we're starting out in April. I would say kind of cadence would be, China would be, you know, a bit challenged in Q2, kind of start to normalize or really largely normalize in Q3, and then Q4 be the best quarter. North America, you know, if you think about kind of North America, we've got, you know, steel in the first quarter, just to remind everybody, steel was highest in the first quarter that we see throughout the outlook. A bit of the margin pressure on that 21.1% in North America is a little higher steel. That kinda rolls off slightly as we go into the next quarters, but as I was mentioning, other commodity costs and other costs sort of fill that gap. Margins for the back half of the year, you know, sequentially, you know, Q3 and Q4 are a little bit stronger, and that's typically where we have kind of the strength in our boiler business. You know, in the back half of the year, we kinda see the cadence of the year playing out fairly normal for the boiler side of the business, being kinda Q3, Q4 a little stronger than the first half. Okay, great. That's helpful. Then just on supply chain, I was wondering if you could give us some color on, you know, areas where you're seeing supply chain get better, and if there's any differences, you know, commercial versus residential and NA versus the rest of the world. Thanks. Yeah. Right now we see our supply chain on the residential side improving, and that's really on the material side of it. Commercially, we expect Q2 to improve. We do have some really nice line of sight right now into some of the components that have been, you know, causing us some production issues, and they look like they'll be resolved at least in Q2 as we go forward. You know, overall, again, I step back on our supply chain. It is unpredictable, but our team's managed it really well. In reaching out to the organizations and the companies that deliver to us, and then even our suppliers stepping up and doing the things they have. We're getting better because our suppliers are getting better. Again, we'll work through some of the Ukraine issues and so forth that we talked about, but overall, I don't see supply chain being an issue for our business as we go forward, particularly in the second quarter and just by kind of the view that I've had from our procurement and supply chain group. We've managed through most of those challenges. Again, anything's unpredictable. Things can always change, but we feel pretty good where we're at. We don't see any of the supply chain issues disrupting our production or causing any issues throughout the year. Okay, great. Thanks for taking my questions. Thank you. Speakers, there are no more questions in the queue. You may proceed. Thank you, Catherine, and thank you all for joining us today. Let me conclude by reminding you that our global A. O. Smith team delivered strong sales and earnings in the first quarter despite many challenges. We look forward to updating you on our progress in the quarters to come. In addition, please mark your calendars to join our presentations at six conferences in the second quarter. Oppenheimer on May fourth, Goldman Sachs on May tenth, KeyBanc on June first, Loop Capital on June second, William Blair on June seventh, and UBS on June 8th. Thank you and enjoy the rest of your day. This concludes today's conference call. Thank you all for joining. You may now disconnect.