Ladies and gentlemen, thank you for standing by and welcome to the Q4 2020 Pentair Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to your speaker today, Mr. Jim Lucas. Thank you. Please go ahead.

Thanks, James, and welcome to Pentair's fourth quarter 2020 earnings conference call. We're glad you could join. I am Jim Lucas, Senior Vice President, Treasurer and Investor Relations. With me today is John Stauch, our President and Chief Executive Officer; and Bob Fishman, our Chief Financial Officer. On today's call, we will provide details on our fourth quarter and full year 2020 performance, as well as our first quarter and full year 2021 outlook, as outlined in this morning's press release. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties such as the risks outlined in Pentair's most recent Form 10-Q, Form 10-K and today's press release. Forward-looking statements included herein are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by a presentation, which can be found in the Investor Relations section of Pentair's website. We will reference these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation. We will be sure to reserve time for questions and answers after our prepared remarks. I would like to please request that you limit your questions to one and a follow-up in order to ensure that everyone has an opportunity to ask their questions. I will now turn the call over to John.

Thank you, Jim, and good morning, everyone. Please turn to Slide number 4 titled Executive Summary. I would first like to say how proud I am of the entire Pentair organization and the contributions everyone made to help deliver on our commitments to all of our stakeholders in a uniquely challenging year. Our teams navigated this unprecedented environment and I believe that our company will emerge stronger as a result. I would also like to take this opportunity to thank all of our global channel partners and suppliers for their patience and efforts in working with us and our consumers to meet our commitments despite the effects of the ongoing pandemic. We are pleased to deliver 2% sales growth and 5% adjusted EPS growth for the year. We generated over 500 million in free cash flow and we turned over $275 million to our shareholders through dividends and buybacks. While navigating these uncertain environment and making sure our employees and customers were safe as possible, we continue to invest in our top growth priorities through digital transformation, innovation and technology. During the year, we successfully launched both the Pentair Home and Pentair Dealer Apps. We also launched a brand redesigned the pentair.com website allowing for better cross-functional use and microsite enablement based on the feedback on how people want to interface with us. We also were able to fill out our management team by hiring Bob, as our new CFO; Mario as the new leader for Consumer Solutions; Steve, as our Chief Supply Chain Officer; and appointing Jerome Pedretti as our IFT segment leader. We have been busy building out capabilities throughout the organization, including adding over 100 IoT engineers in 2020 to drive connected solutions for consumers and for our OEM customers. We introduced new products like fresh point…

Thank you, John. Please turn to Slide 5 labeled, Q4 2020 Pentair Performance. During the fourth quarter we delivered sales growth of 5% and core sales growth of 3%. On a core basis, Consumer Solutions was up 8%, while Industrial & Flow Technologies declined 3%. I will discuss the details for each segment on the subsequent slides. Segment income was flat while adjusted EPS increased 3%. Our tax rate was 14%, while net interest came in at $5 million. Price improved from the third quarter. Productivity did not read-out in the quarter due to the fact that we paid bonuses this year and we continue to see some of our facilities disrupted with higher absenteeism due to COVID. Please turn to Slide 6 labeled Full Year 2020 Pentair Performance. Given the unusual timing of 2020 by quarter we thought it would be helpful to look at the full year results to better appreciate the progress we were able to make in these challenging times. For the full year, core sales increased 1%, with Consumer Solutions growing 7% and Industrial & Flow Technologies declining 6%. Segment income was flat for the year, while adjusted EPS grew 5%. Price and productivity mostly offset inflation. But as we highlighted in the third quarter, the robust growth in pool led to higher-than-usual rebate activity that lowered price. We expect price and productivity to offset inflation going forward. Given the challenges that we faced in 2020, we were very pleased to deliver overall growth while still investing for the future. Please turn to Slide 7, labeled Q4 2020 Consumer Solutions performance. Momentum for Consumer Solutions in the third quarter carried over into the fourth quarter. For the quarter, sales grew 10%, segment income increased 9%, and return on sales was essentially flat. Considering the challenges…

Thank you, Bob. Please turn to Slide 11, labeled 2021 Execution Expectations. Our focus for 2021 does not change from last year as we are focused on delivering on our core while continuing to build out our future. As we enter 2021, our residential businesses remain strong, and we are encouraged to see ongoing signs of stabilization in our commercial businesses. Although we have not yet seen indicators of year-over-year growth, we are expecting recovery likely in the tail end of 2021. We believe that our smaller exposure to industrial capital spending will remain hindered for now. We have a long successful history of price realization across the majority of our portfolio. We will monitor closely the rapidly evolving inflation environment and respond accordingly. We are also pacing our growth investments and have the ability to modulate as needed, but we prefer to remain on offense and build on the momentum of the past two years. We recognize that we have opportunities to address our cost structure, particularly within IFT, and we plan to act as appropriate. We discussed last year the G&A benchmarking efforts we undertook and identified that we have room for improvement. We are well underway in terms of our G&A efforts and are looking closely at our overall global enablement structure. Our goal is to deliver transformation plans that we expect will drive significant ROS expansion by 2024 while funding our strategic growth initiatives. As we look to the future, our priorities are unchanged around growing both our pool and water treatment businesses. We have identified growing interest in our sustainable gas solutions business. I look forward to updating all of you in the future as we believe this business has exciting growth opportunities ahead. We believe that pool has a long runway of continued growth.…

[Operator Instructions] And our first question comes from the line of Mike Halloran with Baird. Go ahead please. Your line is open.

So couple things here first, can you just help I also had a couple comments that Bob made on a whole and how that tracks for this year around inflation price cost? The commentary was price cost positive expectations this year, but not a lot of channel-fill even though there were some rebates last year inflation kind of hits you in the fourth quarter a little bit? And just give some context on how you think that balances out through the year and then what the pricing environment looks like for you as we sit here today?

I'll take the first part, I'll have Bob comment the second. It still like 18 I think inflation wise where we're seeing a lot of the commodities that we buy, hitting record levels, right. I mean if you think about its simple context just take a pump. The copper goes into a motor, gets wound copper is up it goes into a metal housing. Metal is at all time highs and that goes into a corrugated box that gets shipped to a customer right. All three of those are seeing record inflation levels primarily being driven by what we think is a spike the China recovery and demand, Mike. So I think inflation is high. I think as we enter this guidance and look at next year. We think we're balanced between the price, we think we can realize from the channel and where we are on the inflation pressures as we head into next year. If we need to do more, I think there is an opportunity to do so. Because I think the inflation that's hitting us will also impact the whole entire industry. Bob I don't know if you want to add anything.

I'll just add that price was challenged in Q3 and Q4, we did see higher rebates that miss that masks some of that price gains and the planning assumptions for the year or that price and productivity offset inflation. And then to John's point as circumstances change we will need to work on the different levers that are at our disposal.

That makes lot of sense. And then maybe just talk a little bit about the supply chain on the pool side? How you’re thinking about visibility as we go into the front part of the year backlog levels channel fill, things like that and any reason to think that whether besides that a normal sequential pattern is a reasonable thought process moving through the year?

No, I mean I think you're thinking about the right way. I think we've got our supply chain in our plant capacity to a level. Now we're shipping at rates that are helping us catch up in a more rapid pace and clearly the demand remains strong. But we're able to meet that demand. And I think right now, pending any other COVID disruptions which we're hopeful we're getting through most of those, we feel good that your assumptions are accurate, Mike.

Our next question comes from the line of Andy Kaplowitz with Citigroup. Go ahead please. Your line is open.

John, Bob you’ve obviously - can you talk about the significant leadership change at the company. We know you've got a plan to get G&A out as do you think about 2021 maybe sort of talk about what's in the guidance. And it's interesting you talked about maybe getting out of several product lines and C&I and industrial filtration. So, how much could sort of the productivity in the self-help help you in terms of your margin in 2021?

Yes, so Andy I don't think we've made any decisions to exit any parts of our portfolio. I think we've got certainly areas of the portfolio that can do better. But when I step back and we looked at the G&A transformation, I believe it's more than a G&A transformation. I think what we learned for 2020 the way we sell globally, the way we interact with our customers a lot of the virtual capability that was brought in and how we work with our channel partners. The demand to have a more consumer-enabled and have that be an effortless process through ordering on the Internet that's a shift. And we think we have an opportunity to take a look at our global cost structure and to think about where we should put the work. And where is the right person doing the right work at. And there is an opportunity across the portfolio to drive significant margin expansion for that same in operations and sourcing. I mean we have factories that are at record capacity levels and we have other factories that are under capacitized right now. So all of that is and what we are going to have transformation plan. In 2021, I think it’s more planning the efforts to get after it and then I think we're confident in 2022 and beyond. We start to realize the benefits of all those effort.

And then I think you mentioned some improvement in orders within industrial filtration and turning backlog. So have you seen in general your customers start to revisit their budgets, you talked about still tough environment in capital spending, but maybe is that starting to turn you mentioned China, couple quarters in a row - a little bit better there. So in general, what are you seeing in some of those CapEx businesses?

Yes, so what we saw in 2020 for many of those businesses were down double-digits. And so the good news as we look into the 2021 plan is those businesses we're planning to be roughly flat. So stabilization for those businesses some growing backlog in certain cases and some signs of increased demand. So I would consider 2021 is being a stabilization year and potentially some upside if things improve.

Thanks guys.

Thank you.

Our next question comes from the line of Steve Tusa with JPMorgan. Go ahead please. Your line is open.

Good. So - throughout 2018 I mean, I'm not sure that was like that memorable year for your stock. And I think that there was some difference in the timing of seeing that inflation, if I recall, I mean you guys got I think like a point of price back then. But then in 2019 you obviously got a lot more price and I think the realization of the inflation kind of hit you mid season in 2018. So maybe just talk about like the differences in timing between now in 2018? Because it seems to be kind of like a slow moving train that you can see from a mile away and perhaps react to it. And then what are you assuming for price, are you assuming a point, are you assuming 1.5 like what, what exactly is the kind of price assumption in the numbers?

Yes, so first of all, Steve thank you for letting me clarify them - not looking for 2018 stock performance efforts, but if you recall 2018 started to experience significant tariffs that were put into place. And we made some decisions there to weigh it out and to go on cycle with a lot of our price increases. In retrospect I think we learned that might end up in the right playbook to use. What I was referring to is the 2018 levels of inflation feel like that. And I do think we're out in front of the price increases because it was a slow moving train. What I'm also saying that if we need to do more, we would do more Steve. Because I don't think we want to take that position again that we did throughout the 2018, which may despite catch up all year long if you recall.

Right and so, what is the price assumption?

And so for the question, again, the price and productivity offsetting inflation the assumption for prices back to the historical levels of around two points.

Two points, okay got it. I mean in 2019 you guys got I think like 2.5% of price. So I mean this is not that level is not, certainly not unprecedented in an inflationary time, am I correct?

No, it’s more normalized and I think when you look at 2018 and 2019 together it felt more normalized, but it was very disruptive from timing perspective as you mentioned.

Yes, okay that makes lot of sense. And then just lastly on this variable speed transition, how are you embedding that in guidance. And what are you assuming for, just remind us of kind of like what the profile is on that as you know every point of that conversion goes to variable speed kind of what that does from a revenue per unit and margin perspective?

Yes, so I mean - think about it is maybe 1.5 times the product price or sales price. Steve, when we sell at variable speed versus when we sell a single speed and not that the margins any better, but the margin dollars are much better. I think it's a slower conversion. I think we did made progress picked up about five points in the last couple quarters. And as we mentioned moving from 60.85 I think more of that is towards the tail end of 2021 and into 2022. As the channel reacts and begins to buy that for us, but I do think that's out there is a nice transition that will benefit us and its energy efficiency to. And so these are better pumps they last longer. I think is better value for all the customers that buy them.

One last question for you just on balance sheet, you guys are now at 1.3 times you’ve clearly, you're generating very strong free cash flow in a downturn like kind of eye-popping strong there. So clearly, you can kind of defend yourselves when volumes go down, and when you have a volatile environment? Another residential name like Linux is trading at a substantial premium to you guys, they have bought back basically 30% of the earnings growth in the last five years has been driven by buyback. And they do it in kind of a programmatic way. Why would this kind of free cash flow yield and with your balance sheet you could buy back 20% of the float programmatically over the next two to three years? Why not - be more aggressive on the buyback side. I mean what are you waiting for to come along on acquisitions to not at least be more aggressive in programmatic about the buyback given how cheap your stock is?

Well, I think we certainly have options, Steve. And I think we're going to look at all those options to create the best return. Right now, I think we are actively looking in the three areas I said within the M&A side, but those M&A deals are going to have, to have the right returns to be able to lean into them. And if we feel the stock is a better purchase, we'll make the deal on the stock. So I think we've got flexibility, and we're going to continue to maintain that flexibility. And I feel confident we're going to choose the right one that adds most value over time.

At this point, we have $150 million of share buyback built into the forecast, and so our typical starting point for the year. And then to continue to be opportunistic based on the circumstances.

Our next question comes from the line of Joe Giordano with Cowen. Go ahead please. Your line is open.

We kind of touched around this a lot with the transition to variable speed. But how do you think about like the cadence of the year? Do you - is there maybe more of like a pre-buy than seasonal? Is there more like activity in the 2Q than like - than seasonal because of like a pre-buy ahead of a regulatory change? And does 3Q kind of see the offset to that? Is there maybe a little bit of like a shift in the order patterns this year?

Yes. Q2 and Q3 would be the heat of the pool season for our customers. And yes, we would expect to make significant progress during that time frame. I'm just cautioning, even though there's regulations that go in mid-season, I just don't think we're going to go all the way to the end point this year. And I think it's going to be opportunities for people to work through existing inventory supplies and work through the channel. We're spending all of our marketing efforts, helping people convince that - trying to convince the end consumer that now is the time to buy the better product. And so I think we're going to make progress, as you said, in the pool season. And I think the tail of that will fall into next year's pool season.

I'd say the good news from my perspective is, you know, built into our guidance of up 3% to 5% is a pool business that's growing roughly mid-single-digit-plus after a year where pool saw 17% growth. So the natural demand continues. Could it be better? Potentially. But not a bad place to be after seeing such significant growth in 2020.

Yes. Certainly not. And Bob, just on the tax rate, if we move into an environment where the U.S., U.S. tax law changes, how protected are you given your domicile? How protected do you think the overall rate is?

We would - We would see a little bit of headwind in that situation, but significantly less than our competitors would see. So overall, we like our tax profile.

Perfect. And then last for me. Just, John, you talked about sustainable gas a lot over the last couple of quarters that's something you're focused on. Can you scope that out a little bit, like what exactly are you selling into that market? How large is the business for you now? And where you think that can go?

Yes. So real quickly, we benefit from significant demand in Europe because Europe has really leaned into the environmental impact a lot stronger than we have in the United States. And most of our customers are in the beverage industries or the processing industries. And there's an opportunity to capture the off gases and turn them back into either energy, which produces value for them or to throwing them back into the process in the form of food-grade CO2. So it's a business that has substantial legs to it. What we're starting to see is an environmental movement globally. And certainly, our current administration is leaning in to try to do things that are going to help our greenhouse gases over time. So we see an opportunity outside of Europe now, and we want to make sure we've got the sales force, the engineering capability and move more to a standard product offering that's more of a plug-and-play with global partners that can help promote what we do. So we're very encouraged by the order trends and the projects that we've received outside of the traditional spaces. And that gives us excitement that with just a little bit more investment, we can certainly accelerate the outcomes.

How big is that business now for you?

Roughly $90 million in total.

Our next question comes from the line of Deane Dray with RBC Capital Markets. Go ahead please. Your line is open.

Can we get an update on the launch of the Home and Dealer apps for pool? You know, any color in terms of how many users, the level of engagement, are you seeing online ordering? Any updates would be appreciated.

Yes. I appreciate that, Deane. There's soft launches on both, and we moved to more hard launches here as we head into Q2. So the experience rate has been good without giving the actual quantification numbers. And really, what you need is the app, and then you need some smart products to connect to it, which is why we're spending time promoting the salt sensor and also the Easy Flow under sink application, as well as other POU units that we expect come from the Rocean acquisition, combined with our technology team. So the app is designed to do two things. It's to provide a better consumer experience, to be able to understand salt sensor levels retroactively on installed base. The new valve connects to it on pre-installs. And then it also gives you an understanding of what's coming through your water and your flow rates and your - you need to change your filters. But the more exciting aspect is connecting with dealers. So when a, an end consumer needs a service on any product they have or they're interested in learning more, we would have our dealers in that app as well and be able to connect the consumer with the dealer to help curate the experience for the individual. So very excited about the early stages of that, and its connection to Alexa, connection to Google Home, connection to Apple Home, all those other features. And so we're very excited, Deane.

Great to hear. So we'll be watching that for the full launch. And then second question is, could you provide some more color on that growth you're seeing in China? You said the second quarter of growth. How does that look for the commercial side versus the residential side?

Yes. So candidly, residential is up more significantly. I mean commercial is back in China, but they're still experiencing a little lesser demand on the openings of restaurants and stores as people are still cautious about the pandemic. So they're back and they're open, and it's growing. But it's not growing at the same rate that the residential water filtration is growing at this stage, Deane.

And then just the last one for me. Can you comment on the product lines that you exited in commercial. Just any color there, especially on the - if you could size it.

Yes. These are really small products...

Yes, those were small product lines. And just an example of us reducing complexity and driving cost out, but again, small product lines in terms of the C&I portfolio.

SKU reductions more than anything, Deane.

That's good to hear. I appreciate that. I mean it's - it's walking away from unprofitable businesses. It's always the right decision. So I like seeing that. Thanks.

Thank you.

Our next question comes from the line of Saree Boroditsky with Jefferies. Go ahead please. Your line is open.

Thanks for taking my question. Could you update us on what you're seeing on the foodservice side? And should you start to see that improve as more restaurants open and need to change their cartridges?

Yes. So I'll take the first part, and Bob will give you the second. Yes, we saw a steep decline, significant double-digit decline in Q2 when the pandemic hit. And we've seen a modest recovery off of that deep decline into Q3 and in Q4. We're sort of in that flattish range now. And that basically has restaurants open at roughly half capacity or quarter capacity depending on where they're living. The piece that we have not yet seen the recovery on is really the hospitality side of the hotel industry. And we're expecting that, as we said in our prepared comments, probably to the tail end of 2021. That would be a really big help to that business. The, obviously, replacement of cartridges are continuing, probably at a slower rate because the usage is slightly slower. And our portfolio is skewed more to some of the faster service and to the drive-through coffee shops. So we do get a little bit better than the overall restaurant average.

Then you talked about opportunities to lower G&A spending by, I think, 150 to 200 basis points over time. Could you talk through any improvements you're looking for in 2021? And then what's driving that improvement?

Yes. We're going to get a little bit of leverage in 2021. That's about it, keeping the existing cost base and growing on top of it. What we're really looking to do is, how do we think of our centers of excellence and where do they best serve the business unit, the segment and the enterprise. Within that construct, how do we get the best resources, the point of impact. And that's globally, right? I mean we've all learned that some of our people are now able to work virtually or work from home. And we don't need all - the necessarily facilities we have. But at the same time, we want to create workspaces and collaboration centers for our businesses to work with customers and work with dealers on. So with this is going to be a fairly sizable transformation. I think in 2021 as I said not expecting a lot other than the planning elements of this. And then we expect significant contributions in 2022 and beyond, beyond G&A even as the sales and marketing resources also get more effective and efficient.

Yes and I would just add, we're really rallying around that theme of right work in the right place. And to John's point where should that work to be done closest to the customer at the product line, is it at the business unit level, the segment or the enterprise and then what is that work. So if I pick my own area of FP&A as an example I have big businesses like pool that probably drive their own kind of FP&A piece. But then I have other businesses that would benefit from an efficiency and effectiveness perspective of having a shared approach or center of excellence approach, it goes to data analytics as well. So those are the types of things that we're thinking through.

Our next question comes from the line of Julian Mitchell with Barclays. Go ahead please. Your line is open.

Maybe just a first question on the assumptions and the guidance for the pool business, some of the consumer-facing businesses we cover guiding for double-digit declines in the second half. Heard your guidance about mid-single for the year for pool, but maybe help us understand first half versus second half dynamics?

Yes, I'll take that one and then, John if you want to add. It was important for us to specify mid single-digit plus as our guidance for the pool business embedded in our overall guidance. We continue to see strong momentum as we enter the first quarter, a good natural demand. So as the year plays out, we expect obviously stronger growth as we have a weaker comparison in the first half, but still strong business in the back half as we bump up against those bigger compare. So overall, I think we're optimistic about the growth in the pool business and that will certainly help free cash flow as well.

But are you assuming the pool business is up or flat or down in the second half year-on-year?

Right now, we would say that we're at high historic levels, but generally flattish to modestly down in Q3 and Q4. That's at the mid-single digit level, if we get that mid-single digit plus, we would expect that we could be producing modest growth in the back half of the year. I think the more important piece that we want to make sure we convey is. Our quarters last year represented a softer Q2 as the orders came through the distribution channel. We were not yet producing those. So we had pretty sizable Q3 and Q4 as we're catching up and this year, if you think about the demand and the way we're meeting in Q1 and Q2 will have stronger year-over-year comparisons there. As we assess where the market is going, as we start to think beyond this pool year and the next pool year we'll have a better understanding as we exit Q2 what the back half of the year looks like.

Thank you. And then my follow-up would just be around the segment margin assumptions. So it looks like segment margins might be up a few 10s of basis points this year. Maybe just help clarify that. And then also, again how do we think about the first half versus second half in terms of the margin expansion potential? Understand the volume leverage is a bigger tailwind in the first half and in the second half, because of the comp, but maybe give us any color around the inflation headwind and how that's falling first half versus second half?

Yes Julian I promise the first part of my answer here is not to filibuster. But I want to make sure we describe that one of the reasons we're setting up these three strategic growth investments two are in Consumer Solutions and one is in IFT. It’s really a disproportionately fund those with investments to drive the future. What we're going to do a better job on this sharing with you as we go forward is the value of the core. Meaning - to take a look at the core performance absent those incremental investments, we're getting the drop through as you would expect. We're getting the price and productivity offset inflation. The volumes coming through - a nice flow-through rate and then we're taking the opportunity to build out a services organization and residential in Consumer Solutions build out the front-end capability in pool. And then also make sure we put the investment ahead of the likely growth opportunities in SGS and there is pretty substantial investment there in those three things which drawdown those margins for both of those two segments. Absent that, I think we're pretty balanced then more normal year. And so, we'll do a better job highlighting throughout 2021 how we're doing in the core and then how these investments are starting to roll through.

There is no rest of the question.

Was there a second part to the question?

I guess it was really around that - is the margin expansion sort of steady through the year or do you see a bigger first half increase because of volume leverage and then the second half sort of rolls over because of the top-line comp and more inflation coming in?

Yes.

That was really…?

Just I would say yes you're right, it's more in the first half and its lesser contribution in the second half, because of the - not so much the inflation, but the investments.

Our next question comes from the line of Jeff Hammond with KeyBanc Capital Markets. Go ahead please. Your line is open.

I think you mentioned the supply chain stabilizing from your standpoint in pools. Can you just talk about where do you see inventory levels in the channel, is there is still need for destock or restock sorry?

Yes, we're catching up and yes.

Okay. And then just on the first quarter guidance, can you maybe give us a little more color about how you're thinking in either the segments or some of the businesses that are driving that higher growth rate?

Yes, the guidance we gave was that 7% to 12%. And so again think of Consumer Solutions with pool driving significant growth in Q1 and think of the - IFT business has been roughly flat in those numbers.

Our next question comes from the line of Nathan Jones with Stifel. Go ahead please. Your line is open.

I'm going to follow-up here on some of the strategic investments that you're talking about - they're starting to make I guess ramping up in the second half. Can you give us any color on kind of what the incremental level of increased investment is in 2021? And how you're planning for that to, I don't know whether it increases in 2022 in 2023. Are we continuing to ramp up the level of investment, when do you think we kind of we'll hit a plateau and maybe that becomes less of a drag on the margin increases?

Yes, I'll start with the investments that we see 2021 to 2020 that we want to make is more than a point of overall Pentair revenue kind of frame that out a little bit, Nathan. This is uniquely different capability than we have today. This is about building out our water treatment brand that people recognize so that they can come in and work with Pentair to help curate their water experience. This is about customer experience capability more consumer-related, so that we can quickly get consumers the dealer help and/or the technical support that they need to fix their particular challenges. So it's capability we don't have today. It's capability we think will add a lot of value. And then, and also it's about pretty more trucks on the road as far as the services in residential. The paybacks are enormous from an IRR perspective of a two year intervals. But the breakeven point is roughly a year when you put the sales team in place and you put the dealers in a geography and you wait for the return on the accrual of the annuity base there. So that's the type of investment we're making and we pace it a little bit more in 2020 then we would have liked. And we really want to accelerate it if we can here in 2021. And so, it can be modulated but that's an example of what it is and the likely levels a bit.

And for all of these investments what we're building strong business cases and return on investments, holding the teams accountable, because it's a significant investment for us and we want to make sure we get the type of numbers John just talked about in terms of return.

And if you don't need to modulate those investments we get back to kind of a more normal business environment through 2021? Would you anticipate ramping those investments up again in 2022 or are you kind of going to be at a level that you need to be at for strategic investments?

I think we would think that would be a new normal level with may be slightly more Nathan, but what we would then start to see is the benefit of what we think the Pentair transformation efforts would be as far as ROS expansion that would fund that and maybe give us a little more ROS structure.

Got it. That's great color. Thank you very much.

Yes, big picture from my perspective is that even with those strategic investments, our view is that with the Pentair transformation return on sales expansion will be significant by 2024.

Our next question comes from the line of Rob Wertheimer with Melius Research. Go ahead please. Your line is open.

Hi, good morning and thanks for all the clarity, this is a minor one?

Hi, Rob thanks, for the book by the way I’m mostly through it. So thank you.

Excellent, excellent hope you like it. So just to help me I guess maybe our apps a little bit newer, but with the pricing dynamic in pool and the rebates. You obviously had very strong sales and I understand that sort of generates higher rebates, how does that sort of reset next year if we continue to have strong sales, you retain more of the pricing, as rebate level stay similar. And maybe just explain that dynamic and I'm all set? Thank you.

Yes, I think more simply that the rebate structure resets off that higher base. So its goodness for the P&L in 2021.

Okay, perfect, perfect the environment obviously pretty strong. I mean, yes, [indiscernible] I mentioned, which I think it's true, you can get a contractor to do any kind of homework. I mean how far out is your visibility do you think on consumer demand heading into the summer. I know a lot of folks couldn’t get stuck on that one of two last summer and I'll stop there? Thanks.

Yes, we have strong confidence through what I would call this pool season Rob. And the real question mark, which we'll get through as we get more into the summer is how does that lead into the next pool season we start to see that at the end of Q2 and Q3 for the next buying season. And that's as Bob was talking mid-single digits plus, the plus is that we actually see upside in the 2022 pool season versus the 2021, which all indications are that demand is likely to continue, which is not ready to say that yet.

Okay, thank you.

Also I want to be in a chapter in your book on a positive side in the next version in addition, so I'm going to work hard at that I think.

You guys got a lot underway, which is awesome.

Our next question comes from the line of Bryan Blair with Oppenheimer. Go ahead please. Your line is open.

I know we're late in Q&A I'll just ask one. I was hoping you could update us a little more on total water management and how that's influencing your commercial trends stabilization. It's good to see there, you are clearly outperforming the market. I know that's early stage, but is that initiatives significantly accelerating into 2021 and could that be more needle moving as we look to the back half into 2022?

Yes, so let me explain quickly what it is, I mean in the commercial office water space many of the units that people buy and purchase are actually at least a rented to the maintenance groups that install them. So their monthly contract services, since we deal on the foodservice side with larger restaurant towards or franchises or chains, the more profitable ones just purchase the product from us and then do that replacement cartridges as they go along. But there is a huge opportunity to attack the smaller restaurants or the smaller franchises with more of the leasing model and that's what that is about. And yes, the uptick in the early going is a really nice proof of concept that shows that is a business model that people are interested in and has good returns for us and it's a good four way into having the right equipment for the restaurant. So we're encouraged. Obviously, we had to do that during COVID year, but made good progress last year and we expect to continue to expand as we go forward.

Our next question comes from the line of Scott Graham with Rosenblatt Securities. Go ahead please. Your line is open.

I do have a question, I'd like to go back and revisit the prepared comments on the G&A, where I wasn't quite sure you're meaning. John in the G&A, because I thought last quarter, we were talking about with the new management team in place, there has been identification of G&A reduction opportunities, some 150 to - 200 basis points per year the next three years. Are we on track for that this year?

Yes, I mean to get the not all of that savings, but we're on track to the longer term savings per G&A absolutely. So I want to compliment my by leaders who lead G&A. But as we started to work through this and COVID started to emerge. We are realizing some efficiencies we thought we could bring to the sales and marketing and the operation side as well. So I may be slowed the process down maybe 30 to 60 days Scott to make it a more enterprise wide look at what we need to do to support the segments more thoughtfully. And drive a higher level of return because there is a demand for the newer types of technologies and more digital transformation needs we do, we have to serve our customer, and I wanted to make sure we weren't putting more of the old legacy costs in. At the same time we're going to add the new cost, and I think that ships can drive significant on transformation opportunity for Pentair. Bob, you want to add?

Yes, I would just add that as a significant owner of a big piece of the G&A. We are definitely on track in terms of the numbers that you mentioned, and we still see improvement here in 2021.

Thank you, that's very clear. The other question I had is about pools, the new pool build market in particular trying - just hoping you could base on what you're hearing from your distributors, anything that you're hearing from the contractors about - what new pool builds look like this year?

They are up. The pool permit data we have is partial for the states that we work and, but they're up anywhere from 20% to 25% in lot of those markets and regions. So that’s - I mean that's encouraging. And as you know, that's not the biggest part of our business, the biggest one is the aftermarket, but when you're putting your new pools you’re getting new pool pad and you're filling out that pool pad at least to further equipment in the aftermarket space down the road. So all encouraging data right now Scott.

John to that end, if I may just tack this on to that, because I know that you're trying to look beyond your distribution channel and kind of like what rights and who is doing the installing. And - some of the work that you're doing in data analytics, are you finding ways strategically to get more content on the pad with the new pools, what are you doing there?

Yes so, I mean - just we believe our pool channel is the right channel, and these are professionals that we work with for many, many years, and we want to continue to work through them and with them. But when we sell into the channel, we don't know where the end product went unless it's an automated product that someone downloads an app, which we said is only about 15% of consumers today. So what we also know is that consumers out there are just trying to get something repaired or replaced. And right now, what is happening is these contractors or these dealers are really busy. So they're not always able to get to them. And so when I talk about getting more through the consumer, A) its helping them understand what they should be expecting in their pool pad as you mentioned, but B) if they just need some service, how much you can call Pentair and we can get your service technician out. And it will be through our channel because we want to continue to honor it, but we want to make sure that you're getting served within the timeframe that you needed to be, that's what we're really talking about, and I'm really excited by that Scott.

And ladies and gentlemen, this concludes the Q&A portion of today's call, I'd like to turn the call back over to John.

Thank you, James. And thank you for joining us today. We continue to believe that Pentair has a strong foundation and portfolio business to build upon. We have a strong purpose, mission and the vision focused on delivering smart sustainable solutions that empower our customers to make the most of life's essential resources. We believe that we are in attractive spaces that are expanding. We are a leader in the pool industry and our global Water Treatment business is helping us become an even more integral player to the global Residential and Commercial segments. We believe we have the right enterprise strategy businesses, talent and culture, from our win right values to our Pentair Integrated Management System and through our win strategies we are enabling all of our employees to continuously improve. Finally, we continue to prioritize providing superior customer experiences and delivering more predictable and consistent results. Thank you for your continued interest. James, you can conclude the call.

Ladies and gentlemen, this concludes today's conference call. We thank you for your participation. You may now disconnect.