pnr-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

			For the Quarterly Period Ended March 31, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-11625


Pentair plc

(Exact name of registrant as specified in its charter)

Ireland

98-1141328

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Regal House, 70 London Road,

Twickenham,

London,

TW13QS

United Kingdom

(Address of principal executive offices)

Registrant’s telephone number, including area code: 44-74-9421-6154

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, nominal value $0.01 per share	PNR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting
company

☐

Emerging growth
company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On March 31, 2024, 166,024,623 shares of registrant’s common stock were outstanding.

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Pentair plc and Subsidiaries


		Page

PART I FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Operations and Comprehensive Income	3

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Cash Flows	5

	Condensed Consolidated Statements of Changes in Equity	6

	Notes to Condensed Consolidated Financial Statements	7

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	30

ITEM 4.	Controls and Procedures	30

PART II OTHER INFORMATION

ITEM 1.	Legal Proceedings	31

ITEM 1A.	Risk Factors	31

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

ITEM 5.	Other Information	32

ITEM 6.	Exhibits	33

	Signatures	34

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PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Pentair plc and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited)


	Three months ended
In millions, except per-share data		March 31, 2024		March 31, 2023
Net sales		$	1,017.2	$	1,028.6
Cost of goods sold		627.1		646.8
Gross profit		390.1		381.8
Selling, general and administrative expenses		185.2		173.3
Research and development expenses		24.1		24.9

Operating income		180.8		183.6
Other expense



Net interest expense		27.3		32.4
Other expense		0.1		0.7
Income from continuing operations before income taxes		153.4		150.5
Provision for income taxes		19.9		22.0
Net income from continuing operations		133.5		128.5
(Loss) income from discontinued operations, net of tax		(0.2)		1.2

Net income		$	133.3	$	129.7

Comprehensive income, net of tax
Net income		$	133.3	$	129.7
Changes in cumulative translation adjustment		(21.7)		12.1

Changes in market value of derivative financial instruments, net of tax		22.7		(7.2)
Comprehensive income		$	134.3	$	134.6
Earnings per ordinary share
Basic
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Basic earnings per ordinary share		$	0.80	$	0.79
Diluted
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Diluted earnings per ordinary share		$	0.80	$	0.79
Weighted average ordinary shares outstanding
Basic		165.7		164.8
Diluted		167.2		165.8

See accompanying notes to condensed consolidated financial statements.

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Pentair plc and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


	March 31, 2024		December 31, 2023
In millions, except per-share data
Assets
Current assets
Cash and cash equivalents	$	109.1	$	170.3
Accounts receivable, net of allowances of $12.0 and $11.2, respectively	807.4		561.7
Inventories	675.1		677.7
Other current assets	157.0		159.3

Total current assets	1,748.6		1,569.0
Property, plant and equipment, net	363.1		362.0
Other assets
Goodwill	3,255.8		3,274.6
Intangibles, net	1,026.2		1,042.4
Other non-current assets	345.0		315.3

Total other assets	4,627.0		4,632.3
Total assets	$	6,738.7	$	6,563.3
Liabilities and Equity
Current liabilities

Accounts payable	$	308.8	$	278.9
Employee compensation and benefits	96.0		125.4
Other current liabilities	514.5		545.3

Total current liabilities	919.3		949.6
Other liabilities
Long-term debt	2,084.3		1,988.3
Pension and other post-retirement compensation and benefits	73.1		73.6
Deferred tax liabilities	39.0		40.0
Other non-current liabilities	295.8		294.7

Total liabilities	3,411.5		3,346.2
Commitments and contingencies (Note 15)
Equity
Ordinary shares $0.01 par value, 426.0 authorized, 166.0 and 165.3 issued at March 31, 2024 and December 31, 2023, respectively	1.7		1.7

Additional paid-in capital	1,607.6		1,593.6
Retained earnings	1,961.3		1,866.2
Accumulated other comprehensive loss	(243.4)		(244.4)
Total equity	3,327.2		3,217.1
Total liabilities and equity	$	6,738.7	$	6,563.3

See accompanying notes to condensed consolidated financial statements.

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Pentair plc and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three months ended
In millions	March 31, 2024		March 31, 2023
Operating activities
Net income	$	133.3	$	129.7
Loss (income) from discontinued operations, net of tax	0.2		(1.2)

Adjustments to reconcile net income from continuing operations to net cash provided by (used for) operating activities
Equity income of unconsolidated subsidiaries	(0.9)		(0.2)
Depreciation	14.9		14.7
Amortization	13.5		13.8
Deferred income taxes	4.8		(14.0)

Share-based compensation	7.9		7.2
Asset impairment and write-offs	0.8		4.1





Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable	(249.5)		(184.8)
Inventories	(3.2)		6.0
Other current assets	(11.8)		(17.4)
Accounts payable	33.0		(24.9)
Employee compensation and benefits	(28.3)		(12.8)
Other current liabilities	(28.1)		(28.7)
Other non-current assets and liabilities	6.0		1.9
Net cash used for operating activities of continuing operations	(107.4)		(106.6)
Net cash used for operating activities of discontinued operations	(0.2)		—
Net cash used for operating activities	(107.6)		(106.6)
Investing activities
Capital expenditures	(19.3)		(16.6)
Proceeds from sale of property and equipment	—		0.2

Acquisitions, net of cash acquired	—		0.2



Net cash used for investing activities	(19.3)		(16.2)
Financing activities

Net borrowings of revolving long-term debt	101.4		173.6

Repayments of long-term debt	(6.3)		—


Shares issued to employees, net of shares withheld	6.1		(4.1)

Dividends paid	(38.0)		(36.2)



Net cash provided by financing activities	63.2		133.3

Effect of exchange rate changes on cash and cash equivalents	2.5		(0.2)
Change in cash and cash equivalents	(61.2)		10.3
Cash and cash equivalents, beginning of period	170.3		108.9
Cash and cash equivalents, end of period	$	109.1	$	119.2

See accompanying notes to condensed consolidated financial statements.

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Pentair plc and Subsidiaries

Condensed Consolidated Statements of Changes in Equity (Unaudited)


In millions	Ordinary shares			Additional paid-in capital	Retained earnings		Accumulated other comprehensive (loss) income				Total
	Number	Amount
Balance - December 31, 2023	165.3	$	1.7		$	1,593.6	$	1,866.2	$	(244.4)		$	3,217.1
Net income	—	—			—		133.3		—			133.3
Other comprehensive income, net of tax	—	—			—		—		1.0			1.0
Dividends declared, $0.23 per share	—	—			—		(38.2)		—			(38.2)

Exercise of options, net of shares tendered for payment	0.4	—			15.2		—		—			15.2
Issuance of restricted shares, net of cancellations	0.4	—			(4.0)		—		—			(4.0)
Shares surrendered by employees to pay taxes	(0.1)	—			(5.1)		—		—			(5.1)
Share-based compensation	—	—			7.9		—		—			7.9
Balance - March 31, 2024	166.0	$	1.7		$	1,607.6	$	1,961.3	$	(243.4)		$	3,327.2


In millions	Ordinary shares			Additional paid-in capital		Retained earnings		Accumulated other comprehensive (loss) income		Total
	Number	Amount
Balance - December 31, 2022	164.5	$	1.7	$	1,554.9	$	1,390.5	$	(239.0)	$	2,708.1
Net income	—	—		—		129.7		—		129.7

Other comprehensive income, net of tax	—	—		—		—		4.9		4.9
Dividends declared, $0.22 per share	—	—		—		(36.3)		—		(36.3)

Exercise of options, net of shares tendered for payment	0.1	—		2.5		—		—		2.5
Issuance of restricted shares, net of cancellations	0.5	—		(2.3)		—		—		(2.3)
Shares surrendered by employees to pay taxes	(0.1)	—		(4.3)		—		—		(4.3)
Share-based compensation	—	—		7.2		—		—		7.2
Balance - March 31, 2023	165.0	$	1.7	$	1,558.0	$	1,483.9	$	(234.1)	$	2,809.5

See accompanying notes to condensed consolidated financial statements.

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Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

1.Basis of Presentation and Responsibility for Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements of Pentair plc and its subsidiaries (“we,” “us,” “our,” “Pentair,” or the “Company”) have been prepared following the requirements of the United States (“U.S.”) Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America (“GAAP”) can be condensed or omitted.

We are responsible for the unaudited condensed consolidated financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.

Our fiscal year ends on December 31. We report our interim quarterly periods on a calendar quarter basis.

Recent U.S. Securities and Exchange Commission (“SEC”) final rules

In March 2024, the SEC issued the final rules under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. In April 2024, the SEC voluntarily stayed the new rules as a result of pending legal challenges. These rules, if adopted, will require registrants to disclose certain climate-related information, including Scope 1 and Scope 2 greenhouse gas emissions and other climate-related topics, in registration statements and annual reports, when material. Disclosure requirements, absent the results of pending legal challenges, will begin phasing in with our annual reporting for the year ending December 31, 2025. We are currently evaluating the impact the rules will have on our disclosures.

2.Revenue

We disaggregate our revenue from contracts with customers by segment, geographic location and vertical market, as we believe these best depict how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. Refer to Note 14 for revenue disaggregated by segment.

Geographic net sales information, based on geographic destination of the sale, was as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
U.S.		$	705.2	$	715.8
Western Europe		131.6		127.8
Developing (1)		122.7		121.1
Other Developed (2)		57.7		63.9
Consolidated net sales		$	1,017.2	$	1,028.6


(1) Developing includes China, Eastern Europe, Latin America, the Middle East and Southeast Asia.
(2) Other Developed includes Australia, Canada and Japan.

Vertical market net sales information was as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Residential		$	543.2	$	566.4
Commercial		273.6		273.3
Industrial		200.4		188.9
Consolidated net sales		$	1,017.2	$	1,028.6

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Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

Performance obligations

As of March 31, 2024, we had $103.8 million of remaining performance obligations on contracts with an original expected duration of one year or more. We expect to recognize the majority of our remaining performance obligations on these contracts within the next 12 to 18 months.

Contract assets and liabilities

Contract assets and liabilities consisted of the following:


In millions	March 31, 2024		December 31, 2023		$ Change		% Change
Contract assets	$	69.9	$	70.8	$	(0.9)	(1.3)	%
Contract liabilities	46.8		53.7		(6.9)		(12.8)	%
Net contract assets	$	23.1	$	17.1	$	6.0	35.1	%

The $6.0 million increase in net contract assets from December 31, 2023 to March 31, 2024 was primarily the result of timing of milestone payments. Approximately 60% of our contract liabilities at December 31, 2023 were recognized in revenue in the first quarter of 2024.

3. Share Plans

Total share-based compensation expense for the three months ended March 31, 2024 and 2023 was as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Restricted stock units		$	3.8	$	3.7
Stock options		1.4		1.1
Performance share units		2.7		2.4
Total share-based compensation expense		$	7.9	$	7.2

In the first quarter of 2024, we issued our annual share-based compensation grants under the Pentair plc 2020 Share and Incentive Plan to eligible employees. The total number of awards issued was approximately 0.5 million, of which 0.2 million were restricted stock units (“RSUs”), 0.2 million were stock options and 0.1 million were performance share units (“PSUs”). The weighted-average grant date fair value of the RSUs, stock options and PSUs issued was $75.70, $25.10 and $71.83, respectively.

We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:


	2024 Annual Grant
Risk-free interest rate	4.44	%
Expected dividend yield	1.43	%
Expected share price volatility	30.90	%
Expected term (years)	6.5

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected. We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.

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Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

4. Restructuring and Transformation Program

In 2021, we launched and committed resources to a program designed to accelerate growth and drive margin expansion through transformation of our business model to drive operational excellence, reduce complexity and streamline our processes (the “Transformation Program”). The Transformation Program is structured in multiple phases and is expected to empower us to work more efficiently and optimize our business to better serve our customers while meeting our financial objectives.

During the three months ended March 31, 2024, we initiated and continued execution of our Transformation Program as well as certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. Restructuring and Transformation Program initiatives included a reduction in hourly and salaried headcount of approximately 100 employees during the three months ended March 31, 2024.

Restructuring and transformation-related costs included within Cost of goods sold and Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income included the following:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Restructuring Initiatives
Severance and related costs		$	4.0	$	2.5

Other restructuring costs and related adjustments (1)		1.0		0.6
Total restructuring costs		5.0		3.1
Transformation Program
Severance and related costs		0.4		1.9
Other transformation costs (2)		16.6		6.6
Total transformation costs		17.0		8.5
Total restructuring and transformation costs		$	22.0	$	11.6
(1) Other restructuring costs and related adjustments primarily consist of certain accruals, various contract termination costs, asset impairments and inventory write-offs associated with business and product line exits.
(2) Other transformation costs primarily consist of professional services and project management related costs.

Restructuring and transformation costs by reportable segment were as follows:


	Three months ended
In millions		March 31, 2024		March 31, 2023
Flow		$	2.6	$	0.4
Water Solutions		0.6		1.5
Pool		3.7		3.3
Other		15.1		6.4
Consolidated		$	22.0	$	11.6

Activity related to accrued severance and related costs recorded in Other current liabilities in the Condensed Consolidated Balance Sheets is summarized as follows for the three months ended March 31, 2024:


In millions	March 31, 2024
Beginning balance	$	13.4

Costs incurred	4.4
Cash payments and other	(3.1)
Ending balance	$	14.7

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Pentair plc and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

5. Earnings Per Share

Basic and diluted earnings per share were calculated as follows:


	Three months ended
In millions, except per-share data		March 31, 2024		March 31, 2023
Net income		$	133.3	$	129.7
Net income from continuing operations		$	133.5	$	128.5
Weighted average ordinary shares outstanding
Basic		165.7		164.8
Dilutive impact of stock options, restricted stock units and performance share units		1.5		1.0
Diluted		167.2		165.8
Earnings per ordinary share
Basic
Continuing operations		$	0.80	$	0.78
Discontinued operations		—		0.01
Basic earnings per ordinary share		$	0.80	$	0.79
Diluted
Continuing operations

SEC Form 10-Q filed by Pentair plc.