Watts Water Technologies Reports Third Quarter 2019 Results and Announces the Purchase of Backflow Direct LLC

• Reported sales of $395 million, +1%

• Organic sales growth +2%, foreign exchange -1%

• GAAP and adjusted operating margin of 12.4% and 13.3%, respectively, both +40 basis points

• GAAP EPS of $0.94, +2%; adjusted EPS of $1.04, +5%

• Second half 2019 organic growth in line with previous outlook

• Purchased the assets of Backflow Direct LLC

*Performance relative to comparable third quarter ended September 30, 2018.

Watts Water Technologies, Inc. WTS today announced third quarter 2019 results.

Sales during the third quarter of $395 million increased 1% compared to the same period in 2018. Third quarter net income per diluted share (EPS) on a GAAP basis was $0.94 as compared to $0.92 for the same period last year. Adjusted for special items, third quarter EPS was $1.04 as compared to $0.99 for the same period last year. Both GAAP and adjusted EPS increases were attributable to higher prices, increased productivity and reduced non-operating expenses. GAAP EPS in the third quarter of 2019 was negatively impacted primarily by professional fees incurred to optimize and simplify our European legal structure and gain a deeper understanding of product/customer profitability by end market, as well as acquisition related costs. In 2018, GAAP EPS was impacted by restructuring charges. A summary of third quarter financial results is as follows:

(1) Special items and adjusted earnings per share represent non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP items please see the tables attached to this press release.

The Company also announced it completed the purchase of substantially all the assets of Backflow Direct LLC, based in Rancho Cordova, California. Backflow Direct specializes in the design and manufacture of backflow prevention valves used primarily in fire protection applications.

Chief Executive Officer, Robert J. Pagano Jr., noted, "We continued to drive solid operating results during the quarter. We delivered record third quarter sales, operating margin and EPS, on both a GAAP and adjusted basis. Operating margin continued to benefit from increased price and productivity initiatives. Our current 2019 second half organic sales growth expectations are in line with our August outlook. The acquisition of Backflow Direct will allow us to better meet the needs of our customers through a broader product offering and enhance our R&D efforts."

Financial Highlights

For a reconciliation of GAAP to non-GAAP items and a statement regarding the usefulness of these measures to investors and management in evaluating our operating performance, please see the tables attached to this press release.

Watts Water Technologies, Inc. will hold a live webcast of its conference call to discuss third quarter results for 2019 on Thursday, October 31, 2019, at 9:00 a.m. Eastern Time. This press release and the live webcast can be accessed by visiting the Investors section of the Company's website at www.wattswater.com. Following the webcast, an archived version of the call will be available at the same address until October 31, 2020.

Watts Water Technologies, Inc., through its subsidiaries, is a world leader in the manufacture of innovative products to control the efficiency, safety, and quality of water within residential, commercial, and institutional applications. Watts's expertise in a wide variety of water technologies enables it to be a comprehensive supplier to the water industry.

This Press Release includes "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, including statements relating to our 2019 organic sales growth outlook and anticipated free cash flow improvements. These forward-looking statements reflect our current views about future events. You should not rely on forward-looking statements because our actual results may differ materially from those predicted as a result of a number of potential risks and uncertainties. These potential risks and uncertainties include, but are not limited to: the effects of the 2017 Tax Act; the timing and expected impact of tariffs; the effectiveness, the timing and the expected savings associated with our restructuring and transformation programs and initiatives; current economic and financial conditions, which can affect the housing and construction markets where our products are sold, manufactured and marketed; shortages in and pricing of raw materials and supplies; our ability to compete effectively; changes in variable interest rates on our borrowings; failure to expand our markets through acquisitions; failure to successfully develop and introduce new product offerings or enhancements to existing products; failure to manufacture products that meet required performance and safety standards; foreign exchange rate fluctuations; cyclicality of industries where we market our products, such as plumbing and heating wholesalers and home improvement retailers; environmental compliance risks and costs; product liability risks and costs; changes in the status of current litigation; and other risks and uncertainties discussed under the heading "Item 1A. Risk Factors" and in Note 16 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC and our subsequent filings with the SEC. We undertake no duty to update the information contained in this Press Release, except as required by law.

Key Performance Indicators and Non-GAAP Measures

In this press release, we refer to non-GAAP financial measures (including adjusted operating income, adjusted operating margins, adjusted net income, adjusted earnings per share, organic sales, free cash flow, cash conversion rate of free cash flow to net income, and net debt to capitalization ratio) and provide a reconciliation of those non-GAAP financial measures to the corresponding financial measures contained in our consolidated financial statements prepared in accordance with GAAP. We believe that these financial measures enhance the overall understanding of our historical financial performance and give insight into our future prospects. Adjusted operating income, adjusted operating margins, adjusted net income and adjusted earnings per share eliminate certain expenses incurred in the periods presented that relate primarily to our global restructuring programs, professional fees incurred to optimize and simplify our European legal structure and gain a deeper understanding of product/customer profitability by end market, acquisition related costs and footprint optimization costs. Management then utilizes these adjusted financial measures to assess the run-rate of the Company's operations against those of comparable periods. Organic sales growth is a non-GAAP measure of sales growth excluding the impacts of foreign exchange, acquisitions and divestitures from period-over-period comparisons. Management believes reporting organic sales growth provides useful information to investors, potential investors and others, and allows for a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. Free cash flow, cash conversion rate of free cash flow to net income, and the net debt to capitalization ratio, which are adjusted to exclude certain cash inflows and outlays, and include only certain balance sheet accounts from the comparable GAAP measures, are an indication of our performance in cash flow generation and also provide an indication of the Company's relative balance sheet leverage to other industrial manufacturing companies. These non-GAAP financial measures are among the primary indicators management uses as a basis for evaluating our cash flow generation and our capitalization structure. In addition, free cash flow is used as a criterion to measure and pay certain compensation-based incentives. For these reasons, management believes these non-GAAP financial measures can be useful to investors, potential investors and others. The Company's non-GAAP financial measures may not be comparable to similarly titled measures reported by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial measures prepared in accordance with GAAP.