Hello, thank you for standing by, and welcome to the A. O. Smith third quarter 2022 earnings 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 star one one on your telephone. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker today, Helen Gurholt. Please go ahead. Thank you, Josh. Good morning, and welcome to the A. O. Smith third quarter conference call. I'm Helen Gurholt, Vice President, Investor Relations and Financial Planning and Analysis. Joining me today are Kevin Wheeler, Chairman and Chief Executive Officer, and Chuck Lauber, Chief Financial Officer. In order to provide improved transparency into the operating results of our business, we provided 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, as well as legal judgment income and terminated acquisition-related 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. I'm on slide four in our third quarter results. As we announced on October 13th, we saw our customers reduce their North America residential water heater inventory levels, particularly in the wholesale distribution channel. This inventory destock activity was larger than we expected going into the third quarter. Based on market data, we believe this destock was industry-wide. As a result of the destock, our third quarter sales decreased 4% year-over-year due to lower residential water heater volumes, which more than offset our 2021 inflation-related pricing actions, incremental sales from our acquisition of Giant Factories late last year, as well as commercial water heater and boiler growth in North America. Our Rest of World segment sales decreased 13% year-over-year as COVID-related lockdown headwinds persisted in China. Despite lower volumes, our China business achieved margin growth of 40 basis points in the quarter. The acquisition of Giant Factories added $25 million in quarterly sales and $0.01 to EPS. We are pleased with the performance of the team, and our integration is on track. We saw quarter-over-quarter improvement in our supply chain, which led to higher commercial water heater and boiler volumes. Please turn to slide five. Our global A. O. Smith team delivered third quarter 2022 adjusted EPS of $0.69, a 15% decrease that was driven in part by a 4% decrease in sales compared to the third quarter of 2021, as well as higher costs associated with production inefficiency and higher cost materials. I commend the global A. O. Smith team for meeting the many challenges we faced in the third quarter and taking the necessary steps to right size our production and meet current demands to improve efficiencies going forward. Excluding the impact of Giant, North America water heater sales decreased 9% in the third quarter of 2022 due to greater than expected residential water heater destocking activity that more than offset pricing actions implemented in 2021 in response to rising material and logistics costs. The residential industry experienced greater than average growth in 2020 and in 2021. We began to see softness in our orders toward the end of the second quarter and into the third quarter as our customers began to destock their inventories in response to our lead times returning to pre-pandemic levels. However, this destocking activity was prolonged and deeper than we originally expected. We have seen an increase in our orders in October, and while we expect higher residential water heater volumes in the fourth quarter compared to the third quarter, we do not expect volumes to be as robust as the fourth quarter of 2021. We again saw quarter-over-quarter improvements in our commercial gas water heater shipments as supply chain constraints continued to ease in the third quarter. Our North America boiler sales grew 27% in the quarter, mainly driven by previously announced price increases to offset higher material and transportation costs and higher volumes. We continued to see improvement in our supply chain in the third quarter, which allowed us to reduce lead times and begin to reduce our backlog. Our strategy to focus on innovation and decarbonization contributed to strong demand for our high efficiency condensing boilers. North America water treatment sales grew over 4% in the third quarter, primarily due to pricing actions taken to offset higher input costs. Our water treatment business was also impacted in the quarter by customer destocking in the professional channels. In line with expectations, sales in China decreased 10% in local currency compared to the third quarter of 2021, primarily due to the continued impact of COVID-19 related lockdowns. Our team in China continued to effectively manage discretionary spend in the quarter. In the fourth quarter, we forecast that consumer demand will be down approximately 15% compared to last year. Please turn to slide six. As I mentioned on our January call, one of our key strategic priorities in 2022 is to innovate and expand our decarb portfolio, including heat pump technology. In the third quarter, we launched our best-in-class Voltex AL residential heat pump water heater. The Voltex AL has industry-leading energy efficiency and provides peace of mind with new integrated leak protection technology. The Voltex AL also has zero clearance design and versatile top and side water connections to ease installation for contractors. We believe the new Voltex AL is a market-leading product that puts us in a strong position to capitalize on the decarbonization and electrification megatrends. I'll now turn the call over to Chuck, who will provide more details on our third quarter performance. Thank you, Kevin, and good morning, everyone. I'm on slide seven. Third quarter sales in the North America segment were $653 million, a 1% decrease compared with 2021. Pricing actions, largely on water heaters, were more than offset by lower volumes of residential water heaters. Sales in the quarter also benefited from higher volumes of commercial water heaters and boilers. Giant, acquired in October 2021, added $25 million to North America sales. North America adjusted segment earnings of $133 million decreased 11% compared with the same period of 2021. The earnings benefit of inflation-related price increases was more than offset by lower residential water heater volumes and related production inefficiencies, as well as higher material and freight costs. Adjusted segment operating margin of 20.4% declined compared with 2021 operating margin, primarily due to the headwinds I mentioned and acquisition of Giant, which has lower margins than our overall legacy water heater business. Adjusted segment earnings and adjusted segment margin excluded a pre-tax gain of $11.5 million due to a judgment obtained against a competitor related to the infringement of one of our patents, and pre-tax non-operating pension expenses of $2.6 million. Moving to slide eight. Rest of World segment sales of $230 million decreased 13% year-over-year. Lower sales volumes were primarily driven by consumer demand headwinds in China related to COVID-19 related restrictions. Currency translation unfavorably impacted segment sales by approximately $16 million, $12 million of which impacted China sales. Sales in India grew 16% in local currency in the third quarter of 2022 on strong demand for our water heating and water treating products. We view India as a long-term growth opportunity given its attractive growth characteristics and changes in demographics. Rest of the World segment earnings of $22 million decreased 19% compared to segment earnings in the third quarter of 2021. In China, the impact of lower volumes was partially offset by lower selling and advertising expenses. Rest of the World segment margin of 9.5% was down 70 basis points from the same period last year, primarily due to the negative effects of foreign currency translation, as well as higher advertising expenses to promote new products in India, partially offset by improvement in China operating margin. Cash flow from operations and free cash flow of $215 million and $164 million, respectively, during the first nine months of 2022, decreased compared to the first nine months of 2021 due to lower customer deposits in China, higher incentive accruals from 2021 due to record sales and earnings and greater cash outlays in 2022 for increased levels of safety stock on higher cost inventory that more than offset lower accounts receivable balances. Cash flow from operations and free cash flow reported today are each $34 million higher than the preliminary cash flows reported on October 13 as a result of separately reporting the impact of foreign currency exchange impacts on working capital. Our cash balance totaled $417 million at the end of September, and our net cash position was $129 million. Our leverage ratio was 14%, as measured by total debt to total capital. Our strong annual free cash flow and solid balance sheet allow us to continue to focus on capital allocation priorities and return cash to shareholders. Earlier this month, our board approved a 7% increase in our quarterly dividend rate to $0.30 per share. We repurchased 4.5 million shares of common stock in the first nine months of 2022, for a total of $282 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. The strength of our balance sheet allows us to pursue strategic acquisitions even in times of economic uncertainty. As a result of our activities to identify water heating and water treating assets that meet our financial metrics, we recognize corporate expenses of $4.3 million related to costs associated with the terminated acquisition. These costs were excluded from adjusted earnings and adjusted earnings per share. The strength of our balance sheet allows us to maintain our strong track record of delivering returns to shareholders. This has been done through both our dividend that we have increased for 30 consecutive years, as well as share repurchases that have totaled $650 million since the beginning of 2021. Please turn to slide 11 in our 2022 full year earnings guidance and outlook. We maintain our 2022 outlook that we updated in conjunction with our October 13 press release, with an expected earnings per share range of $1.29-$1.39 per share, and our adjusted earnings per share range of $3.05-$3.15 per share. Our outlook is based on a number of key assumptions including no further significant surges of COVID-19 cases in the U.S., and that COVID-19 related restrictions in China remain approximately at the levels that they are today, and do not significantly impact our operations, our employees, customers, or suppliers. Steel indices began to stabilize at the end of 2021 and have moderated through the current year. Our guidance assumes that average steel prices in the fourth quarter will be approximately 15% lower than the third quarter of this year. We continue to see elevated non-steel materials and transportation costs. We saw continued improvement in our supply chain in the quarter, however, challenges still persist. We remain in close contact with our suppliers and logistics providers to troubleshoot, manage, and resolve bottlenecks, but the environment remains unpredictable. We continue to see the benefit from multiple 2021 price increases compounding to approximately 50% for water heaters. We expect to generate free cash flow of approximately $400 million-$425 million. For the year, CapEx is expected to be approximately $70 million-$75 million. Adjusted 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 $400 million worth of shares of our common stock, resulting in outstanding average diluted shares of $156 million for 2022. Based on these assumptions, the midpoint of our adjusted EPS range represents an increase of 5% compared to 2021. I'll now turn the call over, back over to Kevin, who will provide more color on our key metrics and top line growth outlook and segment expectations for 2022, staying on slide 11. Kevin? Okay. Thank you, Chuck. We project revenue growth for 2022 of 5%-7%, which is lower than our outlook in July as a result of softer than expected demand in residential water heating. Our sales assumptions include, after 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 12%-13% from last year as customers right-size their inventories and industry demand normalizes. We continue to project that commercial gas water heater industry shipments will be flat to slightly down for the year. However, we revised our full year outlook for the commercial water heater industry to be down approximately 15%, primarily due to continued weakness in the electric product greater than 55 gal. COVID-19 related restrictions in China played out as we expected in the quarter, and we expect continued headwinds for the remainder of the year. Therefore, we project our sales in China to be flat to slightly down in local currency compared to last year as a result of the economic headwinds we are experiencing from COVID-related restrictions. Due to our strong backlog and stable order rates, we maintain our full year boiler sales growth projection of 25%, driven by increased pricing in response to higher input costs and higher demand for our energy efficient products. We project North America water treatment sales growth inclusive of acquisitions to be approximately 10% in 2022 as we continue to execute our water treatment business strategy. Based on these factors, along with the full impact of our 2021 price increases, we expect North America segment margin to be approximately 21.5%, and Rest of World segment margin to be approximately 10%. Please turn to slide 12. The residential water heater industry adjustment that we experienced in the third quarter was disruptive. We have taken action to right-size our production. We project lower steel costs, which we expect to lead to sequential improvement and profitability in the fourth quarter. Our company has a long history of a proven ability to navigate and innovate through all economic cycles. We believe A. O. Smith is a compelling investment with our premium brands and leading share positions in our major product categories, combined with exciting growth opportunities in North America water treatment business, as well as in China and India. We estimate replacement demand represents approximately 80%-85% of U.S. water heater and boiler volumes. Our strong balance sheet and free cash flow generation allow us to continue investing for the long term in ourselves and through acquisitions. We are focused on meeting the needs of our customers. Our portfolio of strong brands, combined with investing in technology to drive innovation and new product development, further enhance our market leadership. I'm confident in our ability to effectively manage the complex macro environment and capitalize on opportunities while continuing to execute our strategic objectives. That concludes our prepared remarks, and we are now available for questions. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from Matt Summerville with D.A. Davidson. You may proceed. Thanks. A couple of questions. When do you guys expect price capture to peak for A. O. Smith in North America? To that point, have you seen any impact as of yet from price fade associated with steel indices retreating off highs? Yeah, I mean, let me address that. For the quarter, you can see what we've presented on our walk forward that, you know, our pricing so far, which just as a reminder, is fully in at the beginning of January. We're anniversary-ing our last price announcement coming up here on November. Pricing has been into the market for a while. In the quarter, you can see we're covering costs, well covering costs, plus our margin. We have seen steel costs moderate a bit. Over time, we typically see some fade on pricing as costs moderate. I wanna just kinda remind everybody, though, that it's not just steel costs that we have as part of our pricing portfolio, it's also material costs. We've seen a broader basket of costs go up over time, and those costs have been pretty resilient. You know, with the lower volumes as we came into the third quarter, we're carrying a little extra inventory. We're a little bit more, you know, safety stock than typical. Some of that is at a bit higher cost, including higher steel costs as we're working through, you know, buying steel a little bit in advance of some of the volumes. You know, we'll see an improvement in the fourth quarter, we expect on margin. Part of that is related to the price-cost relationship. As we exit the year, you know, we expect to be working through the inventory as we exit the year, but we probably still have a little bit of carryover inventory going into next year. Okay. Maybe I was wondering if you guys could talk a little bit about the M&A transaction you were maybe looking at and ended up walking away from, maybe a little bit of detail around the nature, the size, and maybe ultimately why that transaction was not consummated. Thank you. Yeah, we're bound by an NDA to not get into any details on that transaction. I would say, you know, from a process perspective, you know, it followed our normal diligence process. We look at, from a diligence perspective, strategic fit, we look at kind of the financial metrics. You know, due to the nature of the amount that we got to, you know, we got pretty far along in the process, but we're really not able to get into any details around that specific transaction. Yeah. I probably may just make a couple more comments. I mean, we've talked about our M&A activity being pretty robust and the pipeline being, you know, fairly strong. Again, we always start with our core, water treatment, water heaters, and boilers. We also have, you know, some adjacencies that we believe are meaningful to our business that we could leverage our markets and channels and customers and so forth. That activity still remains. I guess the biggest takeaway, I would say, is we went through that process we're talking about, but we remained financially disciplined, and it's something we've always said that we were gonna continue to do as a company through our M&A process. Understood. Thank you. Thanks, Matt. Thank you. One moment for questions. Our next question comes from Susan Maklari with Goldman Sachs. You may proceed. Thank you. Good morning, everyone. Good morning. Good morning. I just wanted to follow up on the pricing commentary. Can you just talk a little bit about how we should think about the cadence of some of the price costs flowing through, just given all the different moving parts that you are seeing in there? Can you talk a little bit about the longer-term stability of some of the pricing and how we should be thinking about that coming through the business over time? Yeah, I mean, the cadence is as we kinda look at the price-cost relationship, we entered the first quarter with our highest cost, and pricing was not quite fully in the market. We kind of rolled through the year, and I would say, you know, the relationship becomes a little better each quarter, though we're pressured on non-steel costs as we went into the second and third quarter. We see some relief on steel as we go third to fourth quarter, and so we do expect better margins in the fourth quarter on that cost-price relationship. As we exit the year, you know, we're gonna have to see where all the other material costs head into next year. As we exit the year, we feel pretty good about our price-cost relationship and margins. Okay. Following up, can you talk a little bit about the deceleration in water treatment there? You talked about some destocking that's going on in the quarter. Can you give just some more color on where those inventories are and how you're thinking about that going forward? Yeah, I would say, you know, you look at that, our water treatment business has been going, it was the first to grow through the pandemic and has done quite well over the last couple of years. I think it's grown somewhere in the neighborhood of +40%. The comment we made regarding some professional destocking, that just really comes out of our wholesale channel and our professional dealer channel. I would remind everybody on the call that our professional dealers have had 10 consecutive quarters of growth, really strong growth. They faced similar but not as abrupt as our water heating, some inventory build, and we're starting to see some of that bleed off in the third quarter, and we expect to see a little bit more as we exit the fourth quarter as well. Overall, our business on the wholesale water quality dealer side is doing well. Our direct consumer is doing well, retail, and we have a couple of pockets, our export and private label that are behind. This is probably just an adjustment as we get back to some normal levels of cadence in our water treatment business. Overall, the business is doing well and has introduced some new products. We'll continue to do that as we go forward. We still see double-digit growth in the near to midterm. Okay, great. Thank you for the color. Good luck. Thanks. Thank you. One moment for questions. Our next question comes from Michael Halloran with Baird. You may proceed. Hey, good morning, everyone. Thanks for taking the questions. Good morning, Mike. On the resi side of things, North America water heaters, just thoughts on how long you think the destocking takes. Do you think it's mostly run its course here? any thoughts for where you think the industry volumes kind of settle in at on a unit volume basis? Yeah, sure. Hey, Mike, let me just touch on that. One, we talked about it in our prepared remarks that it was deeper than we thought, as we go forward. I mean, we saw June, July and August, some pretty good corrections. As you step back and you look at it there, I think the key driver has been our lead times have come back to pre-pandemic levels where we can be counted on, you know, for on-time deliveries. There's some pressure on our wholesalers, particularly on inventory, the cost of inventory, and probably wanting to exit maybe this year a bit conservative. Overall, you know, I look at it, our orders have rebounded in October to a reasonable level, and it appears that we've just normalized back to an appropriate level and that destock was really necessary as we, you know, kind of adjust to what is more of a normal level of orders and of sales. You step back and you look at our three segments. The replacement side of the business is resilient, continues to do that. Renovation and proactive replacement still elevated, but probably gonna come down. We've seen, you know, a bit of a slowness in the new construction residential part of the business, but that's probably just an adjustment to interest rates, but nothing like we saw in, you know, back in 2008 and 2009, those type of levels. Yeah, I look at this, I think we're in a reset right now. We probably have had all the destocking or most of it in Q3, a little bit maybe left in Q4, and we should exit the year at the right levels as a water heater industry. Yeah, just a couple of metrics around that, Mike, let me just add to that. I mean, we've got the industry kind of going up a bit 6%-7% in Q4 compared to Q3. As Kevin said, we've seen orders rebound a bit, so we've got a little bit uptick in the industry. Then if you look at that fourth quarter, you know, we're down, the industry will be down probably 20% from last year, which was an all-time high from when we've been tracking it. If you go back to fourth quarters, and I'll say, you know, the five years pre-pandemic, so 2019 back, it is, you know, it's only a couple percent down from those years. It really feels as when we exit the year, we're getting more into a normal range for the full year, for full year industry numbers. Okay. That's super helpful. Then, on the China side of things, you know, maybe talk to the resilience of the performance there. Obviously the margin levels are coming in kinda quite nicely sequentially relative to what is a tough demand environment. Feels like you guys are holding in really well on that side. Maybe talk to the inventory levels, what the channel partners are saying, and how you think the share, and your relative share is progressing in the market. Seems like it's doing pretty well right now. Yeah. I mean, I'll start with share. We feel that we're right in where we've been. We haven't gained or lost. We're kinda still in that same, you know, leadership position and in the mix. You know, we are pleased with the quarter. We were down about 10%. Right in line with what we expected. Very pleased with managing SG&A. So yeah, you know, being down that 10% in local currency and still being at about a 10% operating margin, real pleased with that at that level. Team is managing that well. Very steady performance. As we kinda walk forward into the fourth quarter, we've got the fourth quarter up about 20% compared to third quarter. You know, that's down a bit to last year, because last year, if you recall, we had a really robust fourth quarter. A little bit of currency headwind will hit us, but that's, you know, that's just gonna happen. Then SG&A, we're gonna be spending more SG&A in the fourth quarter. Even though volumes go up, we're gonna have a little improvement on the downside, but we really do wanna lean into some advertising and selling as we exit the year. You know, we feel pretty good about the cadence of the business and how, you know, our channel inventories are right in line. If you recall, we added to inventory in, you know, in the first quarter because of some concerns around pandemic and restrictions. That number hasn't changed. It's been steady through the year. We expect to exit the year steady, and that's in that four to six weeks timeframe. Hey, Mike, I'll maybe just add a couple more things which help us on the margin. Our new products have done quite well, even in this difficult environment. We've introduced products in all our core categories and in the premium sector. What's been very positive is that premium sector continues to grow. Now, albeit it's smaller just because of it being down a little bit, but our premium customers can navigate through these difficult challenges better than some. I'm really happy about our store productivity. We've taken a lot of actions there over the last couple years, and that's holding up well, which is really relevant to how our spend is being executed. Overall, the business and the environment that it's in today, each part of it is doing as well as we can and we can expect it, and we'll continue to manage it, and we expect to do that through the fourth quarter, and we'll see what 2023 has in store for us. Great. Really appreciate all the help. Thanks. Thanks, Mike. Thank you. One moment for questions. Our next question comes from Nathan Jones with Stifel. You may proceed. Good morning, everyone. Good morning, Nathan. Good morning. Starting with residential water heater volumes, you guys have been pretty consistent over the years talking about that, you know, residential water heater volumes being a 1.5%-2% volume growth market. 2020 was up 8%, 2021 was up 8%, and you're looking at, you know, down 12% or 13% this year, which would probably get you back pretty close to that trend line. Do we have to pay back some of the demand pull forward? New construction's probably lower in 2023 than 2022. I'm wondering if, like, 2023 baseline expectations for volume might be flat to down 5%, or do you—does your experience tell you it'll be better or worse than that? Well, I would tell you that, let me start. We haven't really calculated that, but, as far as being able to have to pay some of that back, this kind of goes back to the 2008, 2009 when, you know, there was a deep drop and everybody thought there was a cliff. We did a lot of work on that. This is an 8% gain over the last couple years. That's about $1.3 million, I think, in units. But again, as you look at it's gonna be over $120-$125 million houses out there. We estimate that each house has 1.2 heaters, believe it or not, out there. It's a base of $150 million. We really don't see these type of one-offs having a longer term payback effect, just regardless, you know, from replacement and the type of work that would be done on renovation. We talked a little bit about housing. We'll let that play out a little bit. That's probably gonna be a little bit down. The overall increase, I think, is gonna feather out over the next five to 25 years, which is the length of life of our water heaters. Really no meaningful downturn that we could see anywhere in the near term or even in the long term. Would flat to down a little bit be a reasonable expectation for volumes next year? We'll see how we execute Q4, and we'll let you know in January. Fair enough. I want to follow up with my question on the commercial business. You've obviously had very strong demand there, but you've talked about lead times coming down, and being able to clear some of the backlog. Does that present, you know, a potential issue where you might see some destocking in the commercial channels ahead, similar to what you've seen in residential in the back half of this year? This is Kevin again. I would tell you yes and no, but it's. I'm gonna break that up a little bit. On the gas side of the business, our commercial gas high efficiency's doing well. We talk to that being flat to down, and that's tracking really well. Our backlogs are clearing up, and all the feedback we have is our customers are not overstocked when it comes to commercial gas water heaters. The negative part about the commercial industry this year is really all in that greater than 55 gal electric. That's a semi-commercial water heater, if you will, because it also goes into large residential and smaller commercial. If you look at what's been happening, all the decline this year is on that greater than 55 gal, just virtually almost all of it. If you go back to 2021, almost all of the increase was the greater than 55-gal electric. It appears to me that the industry, again, you're gonna hear us say normalize probably more than once, but it appears that the overall commercial industry is normalizing to a more of a traditional level. Don't think you'll see the destocking that we have. I think it's already occurring with the greater than 55 gal, and it'll be at the appropriate levels as we exit. Q4 of 2022. Thanks for taking my questions. Thank you. One moment for questions. Our next question comes from David MacGregor with Longbow Research. You may proceed. Morning, David. If your line is on mute, please unmute David MacGregor. Sorry about that. Technologically challenged. Good morning to everyone. Sorry about that. I wanted to just go back to the topic of pricing, if I could. You talked about the impact of your anniversary and your five increases in 2021 at the end of this year. I'm thinking about 2023, and I realize you'll have more to say on that in January. Just as you, from a planning standpoint, think forward, you know, it would appear that we're heading into a stagflationary environment here. I'm just wondering how you think about your opportunity to take further price actions in a softening demand environment. Yeah, I mean, we're not gonna comment on forward pricing at all, you know, just due to the competitive nature of this environment. Is it possible to just address the question sort of theoretically in terms of pricing power or your ability or how confident you are in your ability to do something rather than specifics? Yeah, I would go back to how we've addressed this in the past. Historically, when we need to take pricing action, we've been able to do that, given the appropriate amount of time to manage through that. Historically, we've been able to be successful at it. If that was to occur, I think you just go back to the various times that we've taken those actions. Historically, I think it's appropriate that when needed, we have a track record of being able to execute. You talked about steel prices coming back, but could you talk about non-steel cost inflation and where you think that level may be? Yeah, I mean, if you kind of walk the year forward, you know, we had in our outlook projections of non-steel costs going up throughout the year, and that completely realized that. You know, the non-steel cost of, you know, foam, packaging, transportation and freight being a very large one, all sort of materialized. We really haven't seen relief on those. You know, as we go forward, we would hope and expect that we would see relief on those, but right now they've been pretty resilient. Okay. My second question, it really gets back to capital allocation. I'm just wondering, you know, you've articulated a fairly definitive sort of set of priorities around capital allocation. I'm just wondering how those priorities may change in a recessionary environment and to what extent maybe share repurchases become an increasing sort of priority for use of cash under those conditions. Yeah. We've been pretty strong on our share repurchases over the past couple of years, and $650 million over kind of, you know, 2021 through nine months in 2022. You know, prioritization will not change. You know, we're gonna invest in ourselves. We're gonna make sure we protect our dividends and continue the increasing dividend rate. You know, acquisitions will remain a priority, and then we'll look at repurchase kind of as the final opportunity there. We do think we're entering into an environment as we go forward, where we're in a great position with our strong balance sheet to be able to look at acquisitions. We feel, you know, we certainly feel that we're in a good position for acquisitions going forward. I'd say, you know, from our priorities probably haven't really changed. They've been pretty much on track. Okay. Thanks very much. Good luck. Yep. Thanks, Dave. Thank you. One moment for questions. Our next question comes from Damian Karas with UBS. You may proceed. Hey, good morning, everyone. Good morning. Morning. I was wondering if you could maybe elaborate on how much cost actions you've taken in response to the softening of, you know, volumes in the North American residential market? Are those, you know, right sizing and cost actions you've taken more structural in nature or, you know, somewhat more temporary? Yeah, I mean, let me try to explain kind of the cost actions. I mean, the actions are really, I would say rebalancing and aligning our manufacturing facilities to line up with what we see now as lower volumes. When we were going through the quarter, we expected volumes to come back quite handily, you know, in the fourth quarter and as we exited the third quarter, which as we mentioned, did not come back. There was a bit of hiring churn to make sure we could meet demand. We're always going to make sure we're in a position from a labor perspective and component perspective to meet demand. There was a bit of churn there. As we exited the quarter, I'd say the rebalancing on the labor side, we expect less churn on labor. We're in a good position. First half of the year, if you look back on demand, getting product out the door was a bit of a challenge. We're in a better position on preventative maintenance. All the components that make the plants run more smoothly, we're just set up a lot better going into the fourth quarter. I mean, to quantify that, I mean, probably think about operating. I mean, certainly you've got the volume piece, which clearly drops to the bottom line on a margin perspective. Just from an efficiency perspective, we think of it in terms of, you know, incrementally the fourth quarter from a plant efficiency being, you know, in that $5 million range better for the quarter. Okay, great. That's helpful. Just a follow-up on some of the pricing questions. No, I appreciate your comments on, right, the track record you have with respect to, you know, pricing power and past inflationary, and then subsequently, you know, raw materials deflationary cycles. I'm just curious though, if you're getting any customer pushback on price, just given, you know, the magnitude of the, you know, 50% price increases and that sort of being unprecedented. You know, is kind of the customer conversation any different than in some of these past cycles? I would tell you, right now, probably not much different. You know, I always fall back on, when it comes to pricing and doing business with our customers globally, quite frankly, our job is to make sure that we keep them competitive. That's our number one job in the market, make sure the pricing that we have and the programs that we have, allow our customers to grow and compete. Those conversations probably haven't changed, quite frankly, because Chuck's mentioned it a few times now. Steel used to be the major component we always talked about because it moved a lot. The rest of the business kind of stayed relatively stable. That's really flipped. There's still price pressures out there. There's still cost pressures out there. It's not just for A. O. Smith. It goes down to our distributors as well, who ship products to customers and of course buy other materials. There's not a great deal of change in our conversations, which, I think is a good thing for the industry, and we'll continue to stay close to our customers and make sure that they stay competitive. Understood. Thanks for the color. Thanks. Thank you. One moment for questions. Our next question comes from Andrew Kaplowitz with Citigroup. You may proceed. Good morning, everyone. Morning, Andrew. Your boiler business, and specifically commercial condensing boilers, seems to be quite resilient. Maybe you could talk about the backlog you have there and what kind of visibility you have moving forward. Obviously, you'll have more difficult comparisons going into 2023 in that segment, but seems like energy efficiency is really driving that demand. Yeah, I would tell you that the boiler market and the commercial market, particularly around that part of the business has been still quite active. We're still seeing strong demand out of hospitality, institutional, and that continues. A big indicator is quoting, and quoting still remains active throughout it. More importantly, our industry just doesn't have the inventory in it yet. It's still a bit light. Overall, the business is great. We had two record months in Q3, where our supply chain was improving and allowed us to produce and ship at record, you know, levels. At the end, order rates have remained solid. You know, the industry is resilient, but it tends to be 12-18 months behind residential anyway, historically. But overall, they're doing well. Our backlog is still elevated, 2x-3x where it's been in the past. You know, we're starting to work that down, which is good, and our production is starting to increase. Overall, the business has been great. We feel really good about Q4. Quite frankly, you know, it's been much more resilient than we anticipated at the start of the year. That's helpful. If I could ask you a question on your residential water heater business in maybe a slightly different way. You said that you've got the industry up 6%-7% in Q4 versus Q3. You mentioned volumes have been recovering in October. You know, we keep seeing sort of increasing pressure on the consumer. Mortgage rates are going up. How much visibility do you have just into the quarter itself? You've said in the past you can see inventories, but it's a little harder to see inventories in channel. What kind of visibility do you have into sort of the near term? It really depends on the channel and where in the country. Let's talk U.S. because I think that's where you're going. We have reasonable visibility into our retail segment, and we have, you know, I would say moderate visibility on the wholesale side of the business. It's still a pretty fragmented market with national players, regional players, but you have a lot of, you know, local companies as well. Visibility, we don't have a great view to this. We do talk to the customers and so forth. Overall, I go back to the 80%-85% replacement. That model hasn't changed. Destocking, you know, was an issue, but the replacement business is still there. It will continue to be there. People are still going to proactively, you know, replace water heaters and so forth. You know, business looks about what we thought. We're glad to see October's orders improve, which gives us a high confidence that the destocking has mostly been done. That's how we've kind of framed the fourth quarter. I think it was really important Chuck mentioned that the fourth quarter is gonna be down 'cause you're just coming off a very difficult comp. You know, through the first month, we think we're starting to get back that normalization that we talked about. Just a commentary on how we think about housing. You know, you're correct. I mean, there's mortgage rate increases, there's some pressure on housing and new construction. You know, for us, you know, it's really completions and there's a bit of a lag when people start the construction process and then put in the water heater and finish out the construction process. Some of the lag should help us carry through the year on housing. You know, we're gonna really look at that number as we enter 2023 on the housing side. It's helpful, guys. Yep, thanks. Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. Our next question comes from Jeff Hammond with KeyBanc Capital Markets. You may proceed. Hey, guys. Good morning. Morning, Jeff. Good morning. Lots been covered here. I just wanna hit on, kinda what feedback you're getting or how you're thinking about kinda this IRA impact around, you know, heat pump water heaters. Just, you know, you mentioned kinda the new product introduction. Just maybe level set us on how you think about market share in that space relative to kinda your traditional water heater market share. Okay. I'll touch on the IRA. I still think there's no downside to the IRA for us. It really comes down to when it finally gets finalized and what it's gonna help us with regards to maybe some incentives to move to higher efficiency, you know, products and so forth. You know, on the heat pump side of the business, we're doing well on the heat pump side. Our growth rate is mid double digits, okay? It continues to grow, but it's coming off a relatively small base. A way to think about it is heat pumps probably is 2% of the market, but it's going to grow, and it's gonna continue to grow. That's why we invested in the Voltex AL that we just talked about. It's still relatively small. It's gonna need some incentives to drive that and some regulatory action. I don't see any downside to the IRA. I see us in really good position going forward. Overall, long term, I think heat pump's gonna be a primary product for us, but it's gonna take some time because they're costly and they're you know, when you do a replacement from an emergency side of the business, it's a little bit difficult to do a change from a regular water heater to a heat pump. On the renovation side, the proactive side, there's a much better chance. Long term, heat pump's gonna be one of our leading technologies at A. O. Smith. Okay, thanks so much. Thank you. I would now like to turn the call back over to Helen Gurholt for any further remarks. Thank you, Josh. Thank you everyone for joining us today. Let me conclude by reminding you that our global A. O. Smith team delivered solid execution in the third 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 two conferences in the fourth quarter, Baird on November 8th and Oppenheimer on December 14th. Thank you and have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect.