Q2 2024 Veralto Corp Earnings Call

[inaudible]

Please stand by; your program is about to begin. If you need assistance on today's conference, please press star zero.

Leo: Please stand by; your program is about to begin. If you need assistance during today's conference, please press star zero. My name is Leo, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's second quarter 2024 conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: Please stand by. Your program is about to begin. If you need assistance on today's conference, please press star zero.

Leo: My name is Leo, and I will be your conference operator this morning.

Leo: At this time, I would like to welcome everyone to Veralto Corporation's second quarter 2024 conference call. All lines have been placed on mute to prevent any background noise.

Leo: My name is Leo, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's second quarter 2024 conference call. All lines have been placed on mute to prevent any background noise.

Leo: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two on your telephone keypad.

Speaker Change: After the speaker's remarks, there will be a question and answer session.

Speaker Change: If you would like to ask a question during that time, simply press star then the number 1 on your telephone keypad.

Speaker Change: If you would like to withdraw your question, please press star, then the number 2 on your telephone keypad.

Ryan Taylor: I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference.

Leo: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number 2 on your telephone keypad. I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference. Good morning, everyone.

Speaker Change: And now I'll turn the call over to Ryan Taylor, Vice President of Investor Relations. Mr. Taylor, you may begin your conference.

Ryan Taylor: Good morning, everyone, and thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Sameer Ralhan, our Senior Vice President and Chief Financial Officer. Today's call is simultaneously being a webcast. A replay of the webcast will be available on the Investor section of our website later today, under the heading Events and Presentations. A replay of this call will be available until August 9th.

Ryan Taylor: Thanks for joining us on the call. With me today are Jennifer Honeycutt, our president and chief executive officer, and Sameer Ralhan, our senior vice president and chief financial officer. Today's call is a Simultaneous Sleeping Webcast. A replay of the webcast will be available on the investor section of our website later today under the heading Events and Presentations. A replay of this call will be available until August 9th.

Ryan Taylor: Good morning everyone and thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Sameer Ralhan, our Senior Vice President and Chief Financial Officer.

Speaker Change: Today's call is simultaneously being webcast. A replay of the webcast will be available on the investors section of our website later today under the heading events and presentations.

Speaker Change: A replay of this call will be available until August 9th.

Ryan Taylor: Before we begin, I'd like to highlight a few recent disclosures. On July 24th, we issued our 2024 Sustainability Report. That report can be viewed on our main website, under Sustainability, or on our Investor website, under Corporate Governance.

Ryan Taylor: Before we begin, I'd like to highlight a few recent disclosures. On July 24th, we issued our 2024 Sustainability Report. That report can be viewed on our main website under sustainability or on our investor website under corporate governance.

Speaker Change: Before we begin, I'd like to highlight a few recent disclosures.

Speaker Change: On July 24th, we issued our 2024 Sustainability Report.

Speaker Change: That report can be viewed on our main website under sustainability or on our investor website under corporate governance.

Ryan Taylor: Yesterday, we issued our second quarter news release, earnings presentation, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. Additionally, our Form 10-Q was filed yesterday. These materials are available in the Investor section of our website, under the heading Quarterly Earnings. Reconciliation of all non-GAAP measures is provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis.

Ryan Taylor: Yesterday, we issued our second quarter news release, earnings presentation, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures. Additionally, our Form 10-Q was filed yesterday. These materials are available in the investor section of our website under the heading quarterly earnings. Reconciliations of all non-GAAP measures are provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis.

Speaker Change: Yesterday, we issued our second quarter news release, earnings presentation, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures.

Speaker Change: Additionally, our Form 10-Q was filed yesterday.

Speaker Change: These materials are available in the investor section of our website.

Speaker Change: Under the heading Quarterly Earnings.

Speaker Change: Reconciliations of all non- GAAP measures are provided in the appendix of the webcast slides.

Speaker Change: Unless otherwise noted, all references to variances are on a year-over-year basis.

Ryan Taylor: During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results may differ materially from forward-looking statements. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

Ryan Taylor: During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filing. Actual results may differ materially from forward-looking statements. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements except as required by law. With that, I'll turn the call over to Jennifer.

Speaker Change: During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

Speaker Change: These four looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings.

Speaker Change: Actual results may differ materially from forward-looking statements.

Speaker Change: These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements except as required by law.

Jennifer Honeycutt: With that, I'll turn the call over to Jennifer. Thank you, Ryan, and thank you all for joining our call today. I want to start this call by recognizing the engine behind our strong second-quarter results are more than 16,000 associates around the world. They're strong execution in support of our customers drove our growth and improved profitability during the quarter. Nine months into our journey as an independent company, we are hitting our stride and delivering winning outcomes for our stakeholders. A key catalyst has been increased rigor in deploying the Veralto Enterprise System. As I've shared before, the ES is a key competitive advantage for Veralto.

Jennifer L. Honeycutt: Thank you, Ryan, and thank you all for joining our call today. I want to start this call by recognizing the engine behind our strong second quarter results are more than 16,000 associates around the world. Their strong execution in support of our customers drove our growth and improved profitability during the quarter. Nine months into our journey as an independent company, we are hitting our stride and delivering winning outcomes for our stakeholders. A key catalyst has been increased rigor in deploying the Veralto enterprise system.

Speaker Change: With that, I'll turn the call over to Jennifer.

Jennifer L. Honeycutt: Thank you, Ryan, and thank you all for joining our call today.

Jennifer L. Honeycutt: I want to start this call by recognizing the engine behind our strong second quarter results, our more than 16,000 associates around the world.

Jennifer L. Honeycutt: Their strong execution in support of our customers drove our growth and improved profitability during the quarter.

Jennifer L. Honeycutt: Nine months into our journey as an independent company, we are hitting our stride and delivering winning outcomes for our stakeholders.

Jennifer L. Honeycutt: A key catalyst has been increased rigor in deploying the Veralto Enterprise System.

Jennifer L. Honeycutt: As I've shared before, VES is a key competitive advantage for Veralto. It drives continuous improvement, accelerates innovation, and enables us to win in our market. Every day, at all levels of our enterprise, our teams leverage VES to solve problems rapidly and drive sustainable improvement.

Jennifer L. Honeycutt: As I've shared before, VES is a key competitive advantage for Veralto.

Jennifer Honeycutt: It drives continuous improvement, accelerates innovation, and enables us to win in our markets. Every day at all levels of our enterprise, our teams leverage the ES to solve problems rapidly and drive sustainable improvements. Our increased rigor in deploying the ES has helped drive growth, expand margins, and ensure that we deliver on commitments. Our second quarter results demonstrate the benefit of this increased rigor while also highlighting the durability of our businesses. We delivered core sales growth across both segments, led by better than expected positive volume and price increases in line with historical levels. We expanded margins at both segments through strong operating leverage, improved productivity, and cost optimization.

Jennifer L. Honeycutt: It drives continuous improvement, accelerates innovation, and enables us to win in our markets.

Jennifer L. Honeycutt: Every day, at all levels of our enterprise, our teams leverage VES to solve problems rapidly and drive sustainable improvements.

Jennifer L. Honeycutt: Our increased rigor in deploying VES has helped drive growth, expand margins, and ensure that we deliver on commitment. Our second quarter results demonstrate the benefits of this increased rigor while also highlighting the durability of our businesses. We delivered core sales growth across both segments, led by better than expected positive volume and price increases in line with historical levels. We expanded margins at both segments through strong operating leverage, improved productivity, and cost optimization.

Jennifer L. Honeycutt: Our increased rigor in deploying VES has helped drive growth, expand margins, and ensure that we deliver on commitments.

Jennifer L. Honeycutt: Our second quarter results demonstrate the benefits of this increased rigor while also highlighting the durability of our businesses.

Jennifer L. Honeycutt: We delivered core sales growth across both segments, led by better-than-expected positive volume and price increases in line with historical levels.

Jennifer L. Honeycutt: We expanded margins at both segments through strong operating leverage, improved productivity, and cost optimization.

Jennifer Honeycutt: Based on our strong execution in the second quarter, and an incrementally more positive view of our end markets, we have raised our full year adjusted EPS guidance. From an end market perspective, we are capitalizing on secular growth drivers across our industrial and municipal markets in water quality. In water analytics, our commercial initiatives are accelerating volume growth and market penetration, particularly in consumables. And in water treatment, we continue to see strong growth driven by our customers' water conservation, reclaim, and reuse initiatives. On that front, Chemtree was recently recognized as Industrial Supplies and Services Supplier of the Year by one of the largest global beverage companies.

Jennifer L. Honeycutt: Based on our strong execution in the second quarter and an incrementally more positive view of our end markets, we have raised our full year adjusted EPS guidance. From an end market perspective, we are capitalizing on secular growth drivers across our industrial and municipal markets in water quality. In water analytics, our commercial initiatives are accelerating volume growth and market penetration, particularly in consumables. And in water treatment, we continue to see strong growth driven by our customers' water conservation, reclaim, and reuse initiatives.

Jennifer L. Honeycutt: Based on our strong execution in the second quarter and an incrementally more positive view of our end markets, we have raised our full year adjusted EPS guidance.

Jennifer L. Honeycutt: From an end market perspective, we are capitalizing on secular growth drivers across our industrial and municipal markets in water quality.

Jennifer L. Honeycutt: In Water Analytics, our commercial initiatives are accelerating volume growth and market penetration, particularly in consumables.

Jennifer L. Honeycutt: And in water treatment, we continue to see strong growth driven by our customers' water conservation, reclaim, and reuse initiatives.

Jennifer L. Honeycutt: On that front, Chemtree was recently recognized as Industrial Supplies and Services Supplier of the Year by one of the largest global beverage companies. Chemtree is playing an integral role in helping this customer achieve its sustainability targets through wastewater projects that support the reclamation of hundreds of millions of gallons of water annually.

Jennifer L. Honeycutt: On that front, Chemtree was recently recognized as Industrial Supplies and Services Supplier of the Year by one of the largest global beverage companies.

Jennifer Honeycutt: Chemtree is playing an integral role in helping this customer achieve its sustainability targets through wastewater projects that support the reclamation of hundreds of millions of gallons of water annually. In PQI, we are encouraged by ongoing recovery and consumer package goods markets and improve sentiment from brand owners and packaging converters. In our marketing and coding business, recurring revenue grew mid single digits for the fourth consecutive quarter. Notably, sales of marketing and coding equipment accelerated during the quarter and grew on a year-over-year basis with good traction on new product launches. One of those new products is Video Jets 2380 large character inkjet printer, which launched in early April and is off to an impressive start.

Chemtreat: Chemtreat is playing an integral role in helping this customer achieve its sustainability targets through wastewater projects that support the reclamation of hundreds of millions of gallons of water annually.

Jennifer L. Honeycutt: In PQI, we are encouraged by the ongoing recovery in consumer packaged goods markets and improved sentiment from brand owners and packaging converters. In our marketing and coding business, recurring revenue grew mid-single digits for the fourth consecutive quarter. Notably, sales of marking and coding equipment accelerated during the quarter and grew on a year-over-year basis with good traction on new product launches. One of those new products is VideoJet's 2380 large-character inkjet printer, which launched in early April and is off to an impressive start. This printer is designed for use on sustainable packaging materials such as corrugated cardboard and other porous materials.

Speaker Change: In PQI, we are encouraged by ongoing recovery in consumer packaged goods markets and improved sentiment from brand owners and packaging converters.

Speaker Change: In our marketing and coding business, recurring revenue grew mid-single digits for the fourth consecutive quarter.

Speaker Change: Notably, sales of marking and coding equipment accelerated during the quarter and grew on a year-over-year basis with good traction on new product launches.

Speaker Change: One of those new products is Videojet's 2380 large-character inkjet printer, which launched in early April and is off to an impressive start.

Jennifer Honeycutt: This printer is designed for use on sustainable packaging materials such as corrugated cardboard and other porous materials. 2nd quarter sales of the 2380 printer exceeded our expectations, and we continue to build momentum through a robust sales funnel. In our packaging and color business, 2nd quarter bookings were strong, driven in part by the success of new software launches unveiled at recent trade shows and industry events. At the Druba trade show, our Esco, Pantone, and X-Rite teams jointly showcase their latest innovations and highlighted our seamless packaging workflow software and hardware solutions. At the event, Esco unveiled its S2 platform, a multi-tenant cloud native platform that provides cloud computing, data sharing, and artificial intelligence.

Speaker Change: This printer is designed for use on sustainable packaging materials such as corrugated cardboard and other porous materials.

Jennifer L. Honeycutt: Second quarter sales of the 2380 printer exceeded our expectations, and we continue to build momentum through a robust sales funnel. In our packaging and color business, second quarter bookings were strong, driven in part by the success of new software launches unveiled at recent trade shows and industry events. At the Drupa trade show, our ESCO, Pantone, and X-Rite teams jointly showcased their latest innovations and highlighted our seamless packaging workflow software and hardware solutions. At the event, ESCO unveiled its S2 platform, a multi-tenant cloud-native platform that provides cloud computing, data sharing, and artificial intelligence.

Speaker Change: Second quarter sales of the 2380 printer exceeded our expectations and we continue to build momentum through a robust sales funnel.

Speaker Change: In our packaging and color business, second quarter bookings were strong, driven in part by the success of new software launches unveiled at recent trade shows and industry events.

Speaker Change: At the Drupa trade show, our ESCO, Pantone, and X-Rite teams jointly showcased their latest innovations and highlighted our seamless packaging workflow software and hardware solutions.

Speaker Change: At the event, ESCO unveiled its S2 Platform, a multi-tenant, cloud-native platform that provides cloud computing, data sharing, and artificial intelligence.

Jennifer Honeycutt: All Esco applications connect to this platform, giving all key stakeholders in the value chain access to live data and identical information wherever they are in the world. This integrated ecosystem will empower customers to compress workflows, harness cloud technology and artificial intelligence to accelerate speed to market with vital integrated color accuracy. This new technology helps our customers save time, reduce waste, and ensure brand fidelity. These workflow improvements help our customers minimize the environmental impact across their supply chains and achieve their sustainability objectives while providing safe foods and trusted essential goods to their customers. This is a great example of the alignment between our product innovation and our purpose.

Jennifer L. Honeycutt: All ESCO applications connect to this platform, giving all key stakeholders in the value chain access to live data and identical information wherever they are in the world. This integrated ecosystem will empower customers to compress workflows, harness cloud technology, and artificial intelligence to accelerate speed to market with vital integrated color accuracy. This new technology helps our customers save time, reduce waste, and ensure brand fidelity. These workflow improvements help our customers minimize the environmental impact across their supply chains and achieve their sustainability objectives while providing safe foods and trusted essential goods to their customers.

Speaker Change: All ESCO applications connect to this platform, giving all key stakeholders in the value chain access to live data and identical information wherever they are in the world.

Speaker Change: This integrated ecosystem will empower customers to compress workflows, harness cloud technology, and artificial intelligence to accelerate speed to market with vital integrated color accuracy.

Speaker Change: This new technology helps our customers save time, reduce waste, and ensure brand fidelity.

Speaker Change: These workflow improvements help our customers minimize the environmental impact across their supply chains and achieve their sustainability objectives while providing safe foods and trusted essential goods to their customers.

Jennifer L. Honeycutt: This is a great example of the alignment between our product innovation and our purpose. Our work at Veralto is inspired by our unifying purpose, safeguarding the world's most vital resources. We live in a world with big challenges, and Veralto plays a significant role in solving many of them.

Speaker Change: This is a great example of the alignment between our product innovation and our purpose.

Jennifer Honeycutt: Our working barralto is inspired by our unifying purpose: safeguarding the world's most vital resources. We live in a world with big challenges, and barralto plays a significant role in solving many of them. Helping customers and share clean water, safe foods, and trusted essential goods for billions of people across the globe motivates all of us at Barralto each and every day. It inspires our associates who are drawn to Barralto because of the role our products and solutions play in helping preserve the planet, how we care for and invest in our people, and our efforts to minimize the environmental impact of our own operations.

Viralto: Our work at Veralto is inspired by our unifying purpose, safeguarding the world's most vital resources.

Viralto: We live in a world with big challenges and Veralto plays a significant role in solving many of them.

Speaker Change: Helping customers ensure clean water, safe foods, and trusted essential goods for billions of people across the globe motivates all of us at Veralto each and every day.

Jennifer L. Honeycutt: Helping customers ensure clean water, safe food, and trusted essential goods for billions of people across the globe motivates all of us at Veralto each and every day. It inspires our associates, who are drawn to Veralto because of the role our products and solutions play in helping preserve the planet, how we care for and invest in our people, and our efforts to minimize the environmental impact of our own operations. It's easy to be inspired by the work that we do at Veralto. In 2023, our team helped ensure 3.4 billion people around the world had access to clean water for daily use.

Speaker Change: It inspires our associates who are drawn to Veralto because of the role our products and solutions play in helping preserve the planet.

Speaker Change: How we care for and invest in our people, and our efforts to minimize the environmental impact of our own operations.

Jennifer Honeycutt: And it's easy to be inspired by the work that we do at Barralto. In 2023, our team helped ensure 3.4 billion people around the world had access to clean water for daily use, treat and recycle 13 trillion gallons of water, save 81 billion gallons of water, and ensure product authenticity and safety by helping customers mark and code over 10 billion products every day. In addition to these positives and enduring contributions, I want to highlight two important commitments featured in this year's Sustainability Report. First, in support of our commitment to minimize the environmental impact of our own operations, we disclosed our 2023 SCOPE 1 and SCOPE 2 greenhouse gas emissions and committed to a 54.6 percent reduction goal by. Second, in support of our commitment to drive a responsible supply chain, we set an initial target to have 40% of our supplier base certified through the ICOVATIS program.

Speaker Change: And it's easy to be inspired by the work that we do at Veralto. In 2023, our team helped ensure 3.4 billion people around the world had access to clean water for daily use.

Jennifer L. Honeycutt: Treat and recycle 13 Trillion Gallons of Water, Save 81 Billion Gallons of Water, and Ensure Product Authenticity and Safety by Helping Customers Mark and Code Over 10 Billion Products Every Day. In addition to these positive and enduring contributions, I want to highlight two important commitments featured in this year's sustainability report. First, in support of our commitment to minimize the environmental impact of our own operations, we disclosed our 2023 Scope 1 and Scope 2 greenhouse gas emissions and committed to a 54.6% reduction goal by 2033.

Speaker Change: Treat and Recycle 13 Trillion Gallons of Water, Save 81 Billion Gallons of Water, and Ensure Product Authenticity and Safety by Helping Customers Mark and Code Over 10 Billion Products Every Day.

Jennifer L. Honeycutt: Second, in support of our commitment to drive a responsible supply chain, we set an initial target to have 40% of our supplier base certified through the ECOVATUS program. Ecovatus is one of the leading sustainability rating agencies and will help us measure, assess, and improve the impact of our supply chain on the world.

Speaker Change: In addition to these positive and enduring contributions, I want to highlight two important commitments featured in this year's Sustainability Report.

Speaker Change: First, in support of our commitment to minimize the environmental impact of our own operations, we disclosed our 2023 Scope 1 and Scope 2 greenhouse gas emissions

Speaker Change: and committed to a 54.6% reduction goal by 2033.

Speaker Change: Second, in support of our commitment to drive a responsible supply chain, we set an initial target to have 40% of our supplier base certified through the EcoVadas program.

Jennifer Honeycutt: ICOVATIS is one of the leading sustainability rating agencies and will help us measure, assess, and improve the impact of our supply chain on the world. The role our products play in preserving the planet and the targets we have committed to achieve embody the culture and are made possible by our people. Our people are the most important part of our strategy, and we invest heavily to recruit, develop, and retain the most talented and diverse team possible.

Speaker Change: Ecovatis is one of the leading sustainability rating agencies and will help us measure, assess, and improve the impact of our supply chain on the world.

Jennifer L. Honeycutt: The role our products play in preserving the planet and the targets we have committed to achieve embody the culture and are made possible by our people. Our people are the most important part of our strategy, and we invest heavily to recruit, develop, and retain the most talented and diverse team possible. Our 2024 Sustainability Report, published earlier this week, contains more details about our commitment and ability to deliver positive, enduring impact and drive sustainable outcomes for the benefit of humanity. Now, turning to our Q2 financial results. Before getting into the details, it's important to highlight a key underlying strength of Veralto, and that is the durability of our businesses.

Speaker Change: The role our products play in preserving the planet and the targets we have committed to achieve embody the culture and are made possible by our people.

Speaker Change: Our people are the most important part of our strategy, and we invest heavily to recruit, develop, and retain the most talented and diverse team possible.

Jennifer Honeycutt: Our 2024 Sustainability Report published earlier this week contains more details about our commitment and ability to deliver positive, enduring impact and drive sustainable outcomes for the benefit of humanity.

Speaker Change: Our 2024 Sustainability Report, published earlier this week, contains more details about our commitment and ability to deliver positive, enduring impact and drive sustainable outcomes for the benefit of humanity.

Jennifer Honeycutt: Now turning to our Q2 financial results. Before getting into the details, it's important to highlight a key underlying strength of Veralto, and that is the durability of our businesses. Approximately 85% of our sales are related to water, food, and essential goods. These are large, attractive markets with steady growth driven by strong secular trends. Our customers in these markets have an essential need for our products and solutions to support critical aspects of their daily operations, where the risk of failure is high. Our durability is further bolstered by a razor razor blade model, which drives a high level of recurring revenue further catalyzed by the ES.

Speaker Change: Now turning to our Q2 financial results.

Speaker Change: Before getting into the details, it's important to highlight a key underlying strength of Veralto, and that is the durability of our businesses.

Jennifer L. Honeycutt: Approximately 85% of our sales are related to water, food, and essential goods. These are large, attractive markets with steady growth driven by strong secular trends. Our customers in these markets have an essential need for our products and solutions to support critical aspects of their daily operations where the risk of failure is high. Our durability is further bolstered by a razor razor blade model which drives a high level of recurring revenue further catalyzed by VES. The CEO Kaizen events we kicked off in Q1 are a strong proof point.

Speaker Change: Approximately 85% of our sales are related to water, food, and essential goods. These are large attractive markets with steady growth driven by strong secular trends.

Speaker Change: Our customers in these markets have an essential need for our products and solutions to support critical aspects of their daily operations where the risk of failure is high.

Speaker Change: Our durability is further bolstered by a razor razor blade model which drives a high level of recurring revenue further catalyzed by VES.

Jennifer Honeycutt: The CEO Kaizen events we kicked off in Q1 are a strong proof point. These events, which focus on value accretive growth, have already had a positive impact on our 2024 performance, evident in our second quarter results. On a consolidated basis, we exceeded our guidance on all fronts with 3.8% core sales growth and 24% adjusted operating profit margin. Adjusted earnings per share with 85 cents, up 6% year-over-year and 5 cents above the high end of our guidance range. And we generated 240 million dollars of free cash flow, further strengthening our financial position. Looking at core sales growth by geography in the second quarter, sales in North America and high-growth markets grew in the mid-single digits, and sales into Western Europe were essentially flat.

Speaker Change: The CEO Kaizen events we kicked off in Q1 are a strong proof point.

Jennifer L. Honeycutt: These events, which focus on value-accretive growth, have already had a positive impact on our 2024 performance, evident in our second quarter results. On a consolidated basis, we exceeded our guidance on all fronts with 3.8% core sales growth and 24% adjusted operating profit margin. Adjusted earnings per share was $0.85, up 6% year over year and $0.05 above the high end of our guidance range. Additionally, we generated $240 million of free cash flow, further strengthening our financial position.

Speaker Change: These events, which focus on value accretive growth, have already had a positive impact on our 2024 performance, evident in our second quarter results.

Speaker Change: On a consolidated basis, we exceeded our guidance on all fronts with 3.8% core sales growth and 24% adjusted operating profit margin.

Speaker Change: Adjusted earnings per share was $0.85, up 6% year-over-year, and $0.05 above the high end of our guidance range.

Speaker Change: And we generated $240 million of free cash flow, further strengthening our financial position.

Jennifer L. Honeycutt: Looking at core sales growth by geography in the second quarter, sales in North America and high growth markets grew in the mid-single digits, and sails into Western Europe were essentially flat. In North America, core sales grew over 5%, driven by both segments. In water quality, we continue to capitalize on strong demand for our water treatment solutions, which grew in high single digits in North America. This growth was broad-based across most industrial verticals, with the strongest growth in food and beverage, mining, and power generation.

Speaker Change: Looking at core sales growth by geography in the second quarter, sales into North America and high growth markets grew in the mid-single digits and sales into Western Europe were essentially flat.

Jennifer Honeycutt: In North America, core sales grew over 5% driven by both segments. In water quality, we continued to capitalize on strong demand for water treatment solutions, which grew high single digits in North America. This growth was broad-based across most industrial verticals, with the strongest growth in food and beverage, mining, and power generation. We also continue to see strong growth for UV systems at municipalities in North America. In water treatment, we're partnering with customers to help them achieve their sustainability goals related to water conservation, reclamation, and reuse. Our water treatment businesses are also well positioned in North America to support ensuring or reshoring activity, including tech operations such as semiconductor and data centers.

Speaker Change: In North America, core sales grew over 5% driven by both segments.

Speaker Change: In water quality, we continue to capitalize on strong demand for our water treatment solutions, which grew high single digits in North America.

Speaker Change: This growth was broad-based across most industrial verticals, with the strongest growth in food and beverage, mining, and power generation.

Jennifer L. Honeycutt: We also continue to see strong growth for UV systems at municipalities in North America, and in Water Treatment, we're partnering with customers to help them achieve their sustainability goals related to water conservation, reclamation, and reuse. Our water treatment businesses are also well positioned in North America to support on-shoring or re-shoring activity, including tech operations such as semiconductor fabs and data centers. Relative to North America, our PQI segment grew 3.5% in Q2. Packaging and color grew mid-single digits, with marking and coding up low single digits.

Speaker Change: We also continue to see strong growth for UV systems at municipalities in North America.

Speaker Change: In Water Treatment, we're partnering with customers to help them achieve their sustainability goals related to water conservation, reclamation, and reuse.

Speaker Change: Our water treatment businesses are also well positioned in North America to support onshoring or reshoring activity, including tech operations such as semiconductor fabs and data centers.

Jennifer Honeycutt: Relative to North America, our PQI segment grew 3.5% in Q2. Packaging and color grew mid-single digits, with marking and coding up low single digits. In high growth markets, core sales grew by more than 4%. We continue to see strong growth in Latin America and India. And in China, core sales grew low single digits year over year. In Western Europe, core sales were essentially flat year over year, including a 50 basis point headwind related to the strategic portfolio actions in our water quality segment that we mentioned on prior earnings calls. Excluding this headwind, core sales into Western Europe were up modestly.

Speaker Change: Relative to North America, our PQI segment grew 3.5% in Q2.

Speaker Change: Packaging and color grew mid-single digits, with marking and coding up low-single digits.

Jennifer L. Honeycutt: In high growth markets, core sales grew by more than 4%. We continue to see strong growth in Latin America and India. And in China, core sales grew low single digits year over year.

Speaker Change: In high-growth markets, core sales grew by more than 4%.

Speaker Change: We continue to see strong growth in Latin America and India. And in China, core sales grew low single digits year over year.

Jennifer L. Honeycutt: In Western Europe, core sales were essentially flat year over year, including a 50 basis point headwind related to the strategic portfolio actions in our water quality segment that we mentioned on prior earnings calls. Excluding this headwind, core sales into Western Europe were up modestly. At this time, I'll turn the call over to Sameer to provide more details on our Q2 performance and our guidance. Thanks, Jennifer, and good morning, everyone.

Speaker Change: In Western Europe , core sales were essentially flat year over year, including 50 basis point headwind related to the strategic portfolio actions in our water quality segment that we mentioned on prior earnings calls.

Speaker Change: Excluding this headwind, core sales into Western Europe were up modestly.

Sameer Ralhan: At this time, I'll turn the call over to Sameer to provide more details on our Q2 performance and our guidance. Thanks, Jennifer, and good morning, everyone. I'll begin with our consolidated results for the second quarter on slide 8. Net sales grew 2.8% on a year-over-year basis to about 1.29 billion dollars. Core sales grew 3.8%. Currency was an 80 basis points headwind, or approximately 10 million dollars. And the small divestiture of saltness was a modest headwind. Our core growth in this quarter was balanced with both volume and price increases driving our growth. Price contributed 2% growth in this quarter, in line with our expectations and historical levels.

Speaker Change: At this time, I'll turn the call over to Sameer to provide more details on our Q2 performance and our guidance.

Sameer Ralhan: I'll begin with our consolidated results for the second quarter on slide 8. Net sales grew 2.8% on a year-over-year basis to about $1.29 billion, and core sales grew 3.8%. Currency was an 80 basis points headwind, or approximately $10 million. And the small divestiture of saltness was a modest headwind.

Sameer Ralhan: Thanks, Jennifer, and good morning, everyone.

Sameer Ralhan: I'll begin with our consolidated results for the second quarter on slide 8.

Sameer Ralhan: Net sales grew 2.8% on a year-over-year basis to about $1.29 billion.

Speaker Change: Core sales grew 3.8%.

Speaker Change: Currency was an 80 basis points headwind, or approximately $10 million.

Speaker Change: And a small divestiture of saltness was a modest headwind.

Sameer Ralhan: Our core growth in this quarter was balanced, with both volume and price increases driving our growth. Price contributed 2% of growth in this quarter, in line with our expectations and historical levels. Volume grew 1.8%, with positive volume growth across both water quality and PQI. This marks the first quarter since the second quarter of 2022 in which volume grew across both segments. Our recurring revenue grew mid-single digits year-over-year and comprised 62% of our total sales. We expanded margins at both segments through strong operational leverage, improved productivity, and cost optimization. Gross profit increased 7% year-over-year to $774 million.

Speaker Change: Our core growth in this quarter was balanced, with both volume and price increases driving our growth.

Speaker Change: Price contributed 2% growth in this quarter, in line with our expectations and historical levels.

Sameer Ralhan: Volume grew 1.8% with positive volume growth across both water quality and PQI. This marks the first quarter since the second quarter of 2022 in which volume grew across both segments. Our recurring revenue grew mid-single digits year over year and comprised 62% of our total sales. We expanded margins at both segments through strong operational leverage, improved productivity, and cost optimization. Growth profit increased 7% year over year to 774 million dollars. Growth profit margin improved 230 basis points year over year to 60%, reflecting the benefits of pricing as well as improved productivity and reduced material costs. Adjusted operating profit increased 5% year over year, and adjusted operating profit margin expanded 70 basis points to 24%.

Speaker Change: Volume grew 1.8%.

Speaker Change: with positive volume growth across both water quality and PQI.

Speaker Change: This marks the first quarter since the second quarter of 2022 in which volume grew across both segments.

Speaker Change: Our recurring revenue grew mid-single digits year-over-year and comprised 62% of our total sales.

Speaker Change: We expanded margins at both segments through strong operational leverage, improved productivity, and cost optimization.

Speaker Change: Gross profit increased 7% year-over-year to $774 million.

Sameer Ralhan: Gross profit margin improved 230 basis points year-over-year to 60 percent, reflecting the benefits of pricing as well as improved productivity and reduced material costs. Adjusted operating profit increased 5% year over year, and the adjusted operating profit margin expanded 70 basis points to 24%. We delivered strong margin expansion while investing in our sales and marketing efforts to drive future growth. We also increased our R&D investment, with R&D as a percent of sales increasing 20 basis points over the prior year period.

Speaker Change: Gross profit margin improved 230 basis points year-over-year to 60% reflecting the benefits of pricing as well as improved productivity and reduced material costs.

Speaker Change: Adjusted operating profit increased 5% year-over-year and adjusted operating profit margin expanded 70 basis points to 24%.

Sameer Ralhan: We delivered strong modern expansion while investing in our sales and marketing efforts to drive future growth. We also increased our R&D investments, with our NDS percent of sales increasing 20 basis points over the prior year period. These investments are aligned with our strategic growth plans, and we expect to continue to fund ongoing growth investments. Looking at EPS for second quarter, adjusted earnings per share grew 6% year over year to 85 cents.

Speaker Change: We delivered strong margin expansion while investing in our sales and marketing efforts to drive future growth.

Speaker Change: We also increased our R&D investments.

Speaker Change: With R&D as percent of sales, increasing 20 basis points over the prior year period.

Sameer Ralhan: These investments are aligned with our strategic growth plans, and we expect to continue to fund ongoing growth investments. Looking at EPS for the second quarter, adjusted earnings per share grew 6% year-over-year to $0.85, and free cash flow was $240 million, down from the prior year, primarily due to standalone public company costs and cash tax payments, which were not incurred in the prior year period.

Speaker Change: These investments are aligned with our strategic growth plans, and we expect to continue to fund ongoing growth investments.

Speaker Change: Looking at EPS for second quarter, adjusted earnings per share grew 6% year-over-year to $0.85.

Sameer Ralhan: And free cash was $240 million, down from the prior year, primarily due to standalone public company costs and cash tax payments, which were not incurred in the prior year period.

Speaker Change: And free cash flow was $240 million down from the prior year, primarily due to stand-alone public company costs and cash tax payments, which were not incurred in the prior year period.

Sameer Ralhan: Moving on, I'll cover the segment highlights, starting with water quality on slide 9. Our water quality segment delivered $777 million of sales, up 2.8% on a year-over-year basis. Currency was an 80 basis points headband, and the divestiture of saltness had 40 basis points impact versus the prior year period. In addition to this divestiture, small product lines that were strategically exited in the fourth quarter of 2023 resulted in approximately 80 basis points headband to core growth for the water quality segment in the second quarter. Despite this headwind, core sales grew 4% year over year; pricing contributed 2.4% and volume growth contributed 1.6% to year over year core sales growth.

Sameer Ralhan: Moving on, I'll cover the segment highlights, starting with water quality on slide 9. Our water quality segment delivered $777 million in sales, up 2.8% on a year-over-year basis. Currency was an 80 basis points headwind, and the divestiture of saltness had 40 basis points impact versus a prior year period. In addition to this divestiture, small product lines that were strategically exited in the fourth quarter of 2023 resulted in approximately 80 basis points headwind to core growth for the water quality segment in the second quarter.

Speaker Change: Moving on, I'll cover the segment highlights, starting with water quality on slide 9.

Speaker Change: Our water quality segment delivered $777 million of sales, up 2.8% on a year-over-year basis.

Speaker Change: Currency was an 80 basis points headwind and the divestiture of saltness had 40 basis points impact versus a prior year period.

Speaker Change: In addition to this divestiture, small product lines that were strategically exited in the fourth quarter of 2023 resulted in approximately 80 basis points headwind to core growth for the water quality segment in the second quarter.

Sameer Ralhan: Despite this headwind, core sales grew 4% year over year. Pricing contributed 2.4%, and volume growth contributed 1.6% to year-over-year core sales growth. Our volume growth was driven by strong demand for water treatment solutions in our industrial end markets and UV treatment systems in municipal end markets. We also saw growth in sales of lab instrumentation, reagents, and chemistries to municipalities. Recurring sales across the water quality segment grew mid-

Speaker Change: Despite this headwind, core sales grew 4% year-over-year.

Speaker Change: Pricing contributed 2.4% and volume growth contributed 1.6% to year-over-year core sales growth.

Sameer Ralhan: Our volume growth was driven by strong demand for water treatment solutions in our industrial markets and UV treatment systems in municipal markets. We also saw growth in sales of lab instrumentation, reagents, and chemistries to municipalities. Recurring sales across the water quality segment grew mid single digits. Adjusted operating profit increased 5.5% year over year to $192 million, and adjusted operating profit margin increased 70 basis points to 24.7%. The increase in profitability and margin reflects strong pricing execution, leverage on volume growth, and improved productivity. To a lesser extent, our adjusted operating profit margin also benefited from a favorable sales mix this quarter.

Speaker Change: Our volume growth was driven by strong demand for water treatment solutions in our industrial end markets and UV treatment systems in municipal end markets.

Speaker Change: We also saw growth in sales of lab instrumentation, reagents, and chemistries to municipalities.

Speaker Change: Recurring sales across the water quality segment grew mid-single digits.

Sameer Ralhan: Adjusted operating profit increased 5.5% year-over-year to $192 million, and Adjusted Operating Profit Margin increased 70 basis points to 24.7%. The increase in profitability and margin reflects strong pricing execution, leverage on volume growth, and improved productivity. To a lesser extent, our adjusted operating profit margin also benefited from a favorable sales mix this quarter. Moving to the next page.

Speaker Change: Adjusted operating profit increased 5.5% year-over-year to $192 million.

Speaker Change: And adjusted operating profit margin increased 70 basis points to 24.7%.

Speaker Change: The increase in profitability and margin reflects strong pricing execution, leverage on volume growth, and improved productivity.

Speaker Change: To a lesser extent, our adjusted operating profit margin also benefited from a favorable sales mix this quarter.

Sameer Ralhan: Moving to the next page, our PQI segment delivered sales of $511 million in the second quarter, up 2.7% year over year. Currency was a 70 basis points headwind. Core sales grew 3.4%. Positive volume contributed 2% growth, and price increases contributed 1.4% to the year-over-year core sales growth. PQI's recurring sales grew mid-single digits year over year for the fourth consecutive quarter, with growth across the portfolio. Recurring revenue increased to 63% of PQI sales mix in the second quarter of this year. Breaking this down by business, core sales growth in a marking and coding business was inline with the segment, driven by growth in both consumables and equipment.

Sameer Ralhan: Our PQI segment delivered sales of $511 million in the second quarter, up 2.7% year over year, while currency was a 70 basis points advance. Core sales grew 3.4%, positive volume contributed 2% growth, and price increases contributed 1.4% to the year-over-year core sales growth. PQI's recurring sales grew mid-single digits year-over-year for the fourth consecutive quarter, with growth across the portfolio. Recurring revenue increased to 63% of PQI's sales mix in the second quarter of this year, although breaking this down by business. Core sales growth in a marking and coding business was in line with the segment, driven by growth in both consumables and equipment.

Speaker Change: Moving to the next page, our PQI segment delivered sales of $511 million in the second quarter, up 2.7% year-over-year.

Speaker Change: Currency was a 70 basis points advance.

Speaker Change: Core sales grew 3.4 percent.

Speaker Change: Positive volume contributed 2% growth and price increases contributed 1.4% to the year-over-year core sales growth.

Speaker Change: PQI's recurring sales grew mid-single digits year-over-year for the fourth consecutive quarter, with growth across the portfolio.

Speaker Change: Recurring revenue increased to 63% of PQI sales max in the second quarter of this year.

Speaker Change: Breaking this down by business, core sales growth in our marking and coding business was in line with the segment.

Sameer Ralhan: This growth was driven by both CPG and industrial end markets. In a packaging and color business, core sales grew about 3% year or year, led by growth in recurring software and subscription revenue. PQI's adjusted operating profit was $141 million in the second quarter, resulting in an adjusted operating profit margin of 27.6%. That represents 100 basis points improvement in adjusted operating profit margin over the prior year period. This was another quarter of margin improvement for PQI, driven by the strong operating leverage, particularly on the recurring revenue growth and productivity improvements.

Sameer Ralhan: This growth was driven by both the CPG and industrial end markets. In the packaging and color business, core sales grew about 3% year-over-year, led by growth in recurring software and subscription revenue. PQI's adjusted operating profit was $141 million in the second quarter, resulting in an adjusted operating profit margin of 27.6%.

Speaker Change: Driven by growth in both consumables and equipment.

Speaker Change: This growth was driven by both CPG and industrial end markets.

Speaker Change: In a packaging and color business, core sales grew about 3% year-over-year, led by growth in recurring software and subscription revenue.

Sameer Ralhan: That represents a 100 basis points improvement in adjusted operating profit margin over the prior year period. This was another quarter of margin improvement for PQI, driven by strong operating leverage, particularly on recurring revenue growth and productivity improvement. Turning now to the balance sheet and cash flow. In the second quarter, we generated $251 million of cash from operations and invested $11 million in capital expenditures. Pre-cash flow was $240 million in the quarter, or 118% conversion of gap net income. As of June 28, Gross Debt was... $2.6 billion. And cash on hand was just over $1 billion. Net debt was $1.6 billion, resulting in net leverage of 1.3 times.

Speaker Change: PQI's adjusted operating profit was $141 million in the second quarter, resulting in an adjusted operating profit margin of 27.6%.

Speaker Change: That represents a hundred basis points improvement in adjusted operating profit margin over the prior year period.

Speaker Change: This was another quarter of margin improvement for PQI, driven by the strong operating leverage, particularly on the recurring revenue growth and productivity improvements.

Sameer Ralhan: Turning now to a balance sheet and cash flow. In the second quarter, we generated $251 million of cash from operations and invested $11 million in capital expenditures. Precatchable was $240 million in the quarter, or 118% conversion of GAAP net income. As of June 28, growth debt was $2.6 billion, and cash on hand was just over $1 billion. Net debt was $1.6 billion, resulting in net leverage of 1.3 times. In summary, our financial position is strong. We have flexibility in how we deploy capital to create long-term shareholder value, with the bias towards M&A.

Speaker Change: Turning now to a balance sheet and cash flow.

Speaker Change: In the second quarter, we generated $251 million of cash from operations.

Speaker Change: and invested $11 million in capital expenditures.

Speaker Change: Pre-cash flow was $240 million in the quarter, or 118% conversion of GAAP net income.

Speaker Change: As of June 28, gross debt was $2.6 billion, and cash on hand was just over $1 billion.

Speaker Change: Net debt was 1.6 billion dollars, resulting in net leverage of 1.3 times.

Sameer Ralhan: In summary, our financial position is strong, and we have flexibility in how we deploy capital to create long-term shareholder value with a bias towards M&A. Turning now to our guidance for 2024, beginning with our updated expectations for the fall year. We increase our full-year guidance to reflect our strong second quarter execution and an incrementally positive view of our end market. For core sales growth, our target remains low single digits.

Speaker Change: In summary, our financial position is strong. We have flexibility in how we deploy capital to create long-term shareholder value with a bias towards M&A.

Sameer Ralhan: Turning now to our guidance for 2024. Beginning with our updated expectations for the full year. We increase our full year guidance to reflect our strong second quarter execution and incrementally positive view of our end markets. For core sales growth, our target remains low single digits. However, we are trending towards the high end of low single digits. Through the first half of 2024, core sales growth was 2.8%. For the second half, we are targeting core sales growth in the low-to-mid single digits range, similar to what we achieved in the second quarter. Looking at adjusted operating profit margin for the full year.

Sameer Ralhan: However, we are trending towards the high end of the low single-digits. Through the first half of 2024, core sales growth was 2.8%. For the second half, we are targeting core sales growth in the low to mid single digits range, similar to what we achieved in the second quarter. Looking at adjusted operating profit margin for the full year, we now expect to deliver approximately 75 basis points of margin expansion year over year, which would put our full year adjusted operating profit margin at about 24%. This implies an incremental margin or fall through of around 50%. For Adjusted EPS, we raised our Foulier Guidance Range to $3.37 to $3.45 per share.

Speaker Change: Turning now to our guidance for 2024.

Speaker Change: Beginning with our updated expectations for the full year.

Speaker Change: We increase our full year guidance to reflect our strong second quarter execution and incrementally positive view of our end markets.

Speaker Change: For core sales growth, our target remains low single digits. However, we are trending towards the high end of low single digits.

Speaker Change: Through the first half of 2024, core sales growth was 2.8 percent.

Speaker Change: For the second half, we are targeting core sales growth in the low to mid single digits range, similar to what we achieved in the second quarter.

Sameer Ralhan: We now expect to deliver approximately 75 basis points margin expansion year over year. Which would put our full year adjusted operating profit margin at about 24%. This implies an incremental margin or fall through of around 50%. For adjusted EPS, we raise the full year guidance range to $3.37 to $3.45 per share. At the midpoint, this represents 7% growth year over year and is 11 cents, or about 3.5% higher than a previous guidance. and a guidance for a free cash look conversion remains in the range of 100 to 110 percent of GAAP net income.

Speaker Change: Looking at adjusted operating profit margin for the full year, we now expect to deliver approximately 75 basis points margin expansion year-over-year, which would put our full-year adjusted operating profit margin at about 24%.

Speaker Change: This implies an incremental margin, or fall through, of around 50 percent.

Speaker Change: For adjusted EPS, we raised our full year guidance range to $3.37 to $3.45 per share.

Sameer Ralhan: At the midpoint, this represents 7% growth year over year and is 11 cents, or about three and a half percent higher than previous guidance. And our guidance for free cash flow conversion remains in the range of 100 to 110% of gap netting. Looking at guidance for Q3, we are targeting core sales growth in the low to mid-single digits on a year-over-year basis. At the midpoint of our Q3 guidance, we are modeling a core growth rate similar to the second quarter. We expect an adjusted operating profit margin of approximately 23.5% in the third quarter.

Speaker Change: At the midpoint, this represents 7% growth year-over-year and is 11 cents or about 3.5% higher than our previous guidance.

Speaker Change: And our guidance for free cash flow conversion remains in the range of 100 to 110% of gap net income.

Sameer Ralhan: Working at a guidance for Q3, we are targeting core sales growth in the low to mid-single digits on a year-to-year basis. At the midpoint of a Q3 guidance, we are modeling a core growth rate similar to second quarter. We expect adjusted operating profit margin of approximately 23.5 percent in the third quarter. This represents 100 basis points of improvement in a adjusted operating profit margin on a year-to-year basis. And a Q3 2024 guidance for adjusted EPS is 82 to 86 cents per share. At the midpoint, that represents double-digit year-to-year growth.

Speaker Change: Looking at a guidance for Q3, we are targeting core sales growth in the low to mid single digits on a year-over-year basis.

Speaker Change: At the midpoint of our Q3 guidance, we are modeling a core growth rate similar to second quarter.

Speaker Change: We expect adjusted operating profit margin of approximately 23.5% in the third quarter.

Sameer Ralhan: This represents 100 Basis Points of Improvement in Adjusted Operating Profit Margin on a Year-over-Year Basis. And our Q3 2024 guidance for adjusted EPS is $0.82 to $0.86 per share. At the midpoint, that represents double-digit year-over-year growth. With that, I'll hand the call back to Jennifer for closing remarks. Thanks, Sameer.

Speaker Change: This represents 100 basis points of improvement in adjusted operating profit margin on a year-over-year basis.

Speaker Change: And our Q3 2024 guidance for adjusted EPS is $0.82 to $0.86 per share.

Speaker Change: At the midpoint, that represents double-digit year-over-year growth.

Jennifer Honeycutt: With that, I'll hand the call back to Jennifer for closing remarks. Thanks, Sameer. In summary, we are executing well across the company with greater focus and rigor using VES. And we are capitalizing on the secular growth drivers in our key end markets. We delivered a strong second quarter across the board with core sales growth approaching mid-single digits, continued margin expansion, and strong cash generation. Based on the strength of our execution and positive view of our end markets, we raised our full year 2024 adjusted EPS guidance.

Speaker Change: With that, I'll hand the call back to Jennifer for closing remarks.

Jennifer L. Honeycutt: In summary, we are executing well across the company with greater focus and rigor using VES, and we are capitalizing on the secular growth drivers in our key end markets. We delivered a strong second quarter across the board, with core sales growth approaching mid-single digits, continued margin expansion, and strong cash generation. Based on the strength of our execution and a positive view of our end markets, we raised our full year 2024 adjusted EPS guidance.

Jennifer L. Honeycutt: Thanks, Sameer.

Jennifer L. Honeycutt: In summary, we are executing well across the company with greater focus and rigor using VES.

Jennifer L. Honeycutt: And we are capitalizing on the secular growth drivers in our key end markets.

Speaker Change: We delivered a strong second quarter across the board, with core sales growth approaching mid-single digits, continued margin expansion, and strong cash generation.

Speaker Change: Based on the strength of our execution and positive view of our end markets, we raised our full year 2024 Adjusted EPS Guidance.

Jennifer Honeycutt: As we look longer term, we remain committed to creating values through steady, durable sales growth, continuous improvement, and disciplined capital allocation.

Jennifer L. Honeycutt: As we look longer term, we remain committed to creating value through steady, durable sales growth, continuous improvement, and disciplined capital allocation. That concludes our prepared remarks, and at this time, we are happy to take your questions. At this time, if you would like to ask a question, please press star one on your telephone keypad. To withdraw yourself from the queue, you may press star two.

Speaker Change: As we look longer term, we remain committed to creating value through steady, durable sales growth, continuous improvement, and disciplined capital allocation.

Leo: That concludes our prepared remarks. And at this time, we are happy to take your questions. At this time, if you would like to ask a question, please press star one now on your telephone keypad. To withdraw yourself from the queue, you may press star two. Please limit yourself to one question and one follow-up. Thank you.

Speaker Change: That concludes our prepared remarks, and at this time, we are happy to take your questions.

Speaker Change: At this time, if you would like to ask a question, please press star 1 now on your telephone keypad. To withdraw yourself from the queue, you may press star 2. Please limit yourself to one question and one follow-up. Thank you.

Scott Davis: We'll take our first question from Scott Davis, Amelia's research. Hey, good morning, Jennifer, Sameer, and Ryan. Good morning, Scott. I've got to ask, good morning. I've got to ask about growth margins just because I've been so incredibly strong.

Leo: Please limit yourself to one question and one follow-up. Thank you. We'll take our first question from Scott Davis of Melius Research. Hey, good morning Jennifer, Sameer, and Ryan. Good morning, Scott. I have got to ask you something.

Speaker Change: We'll take our first question from Scott Davis of Melius Research.

Scott Reed Davis: Good morning, Jennifer, Sameer, and Ryan.

Scott Reed Davis: Good morning. I got to ask about margin, just because they've been so incredibly strong. Is 60 the new normal, or is that just more of kind of a shorter-term impact? And second, maybe...

Scott Reed Davis: Good morning, Scott. I've got to ask, good morning, I've got to ask about gross margins just because they've been so incredibly strong. Is A, I guess, is 60 the new normal or is that just more of kind of a shorter term impact? And second, maybe, I heard the word price

Scott Davis: It is, hey, I guess it's 60, the new normal or is that just more of kind of a shorter term impact? And second, maybe I heard the word price in the context of pricing power more on this quarter and last one too, than we would have thought in the past. Are you finding there's just more pricing power in your markets? Maybe then you thought you had before, and that's driving that 60% growth margin. Is that a fair take away?

Scott Reed Davis: I heard the word price more this quarter and last one than we would have thought in the past. And are you finding there's just more pricing power in your markets maybe than you thought you had before and that's driving that 60% gross margin? Is that a fair takeaway?

Speaker Change: in the context of pricing power more on this quarter and last one too than we would have thought in the past. And are you finding there's just more pricing power in your markets maybe than you thought you had before and that's driving that 60% gross margin? Is that a fair takeaway?

Unknown Executive: Yeah, Scott, let me just touch on the margin, and then I'll have Jennifer just talk about the price. On the gross margin side, you know, it's really been the increased rigor on VES really driving the execution side. Frankly, it's been lots of singles and doubles that are driving the margin here.

Sameer Ralhan: Yeah, Scott, let me just touch on the margin, and then I'll have Jennifer just talk about the price. On the growth margin side, it's really been really in the increased rigot on VES, really driving the execution side. Frankly, it's been lots of singles and doubles that are driving the margin here. And also, as you see, we are benefiting a little bit from the recurring revenue here, right? The mix is more towards consumables to the spares, which is impacting and helping us on the margin. The packaging and color business, as you know, that tends to be on the software side with a little higher margin, so that's helping us.

Speaker Change: Yeah, Scott, let me just touch on the margin, and then I'll have Jennifer just talk about the price. On the gross margin side,

Speaker Change: You know, it's really been really, in the increased rigor on VES, really driving the execution side. Frankly, it's been lots of singles and doubles that are driving the margin here.

Unknown Executive: And also, as you see, we are benefiting a little bit from the recurring revenue here, right? The mixed revenue is more towards consumables and spares, which is impacting and helping us on the margin. The packaging and color business, as you know, that tends to be on the software side with a little higher margin.

Jennifer L. Honeycutt: And also, as you see, you know, we are benefiting a little bit from the recurring revenue here, right? The mixed is more towards consumables to the spares, which is impacting and helping us on the margin.

Jennifer L. Honeycutt: The packaging and color business, as you know, that tends to be on the software side with a little higher margin. So that's helping us. So those things are helping us. I would say, you know, you should expect the gross margins to come in a little bit as the growth rate.

Unknown Executive: So that's helping us. So those things are helping us. I would say, you know, you should expect the gross margins to come in a little bit as the growth rate, you know, equilibrates between the equipment and consumables over time. But, you know, we feel really good about 60%.

Sameer Ralhan: So those things are helping us.

Sameer Ralhan: I would say, you should expect the growth margins to come in a little bit as the growth rate, you know, equilibrates between the equipment and consumables over time. But, you know, we feel really good about 60%, but I think once the transition happens, it'll be more in the high 50, 50, or 59% of the range.

Unknown Executive: But I think once the transition happens, we'll be more in the, you know, high 50, 58, 59% of our range. Yeah, and I think, Scott, what you're seeing relative to price is our ability to sort of hold the value of our products in terms of commercial excellence related to VES. So the teams commercially are executing well around the world, but we have seen price normalized to historical levels, which we believe sit in the range of 100 to 200 bps. Okay, fair enough.

Jennifer L. Honeycutt: you know, equilibrates between the equipment and consumables over time. But, you know, we feel really good about 60%, but I think once the transition happens, we'll be more in the high 50, 58, 59% of our range.

Jennifer Honeycutt: Yeah, and I think Scott, what you're seeing relative to price is our ability to sort of hold the value of our products in terms of commercial excellence related to VES. So the teams commercially are executing well around the world, but we have seen price normalized to historical levels, which we believe sit in the range of 100 to 200 bits.

Jennifer L. Honeycutt: Yeah, and I think, Scott, what you're seeing relative to price.

Jennifer L. Honeycutt: is

Scott Reed Davis: Our ability to sort of hold the value.

Scott Reed Davis: of our products in terms of commercial excellence related to VES. So the teams commercially are executing well around the world, but we have seen price normalized to historical levels, which we believe fit in the range of 100 to 200 bps.

Scott Davis: Okay, fair enough.

Scott Reed Davis: I just I, I feel obligated to ask about M&A. I know these things are lumpy and it's hard to kind of talk about them, but any update on maybe your pipeline, your enthusiasm about the assets that are out there? Yeah, we remain pretty committed to our M&A approach. We've got really robust funnels for both PQI and water quality.

Sameer Ralhan: I just, I feel obligated to ask about M&A. I know these things are lumpy, and it's hard to kind of talk about it, but any update on maybe your pipeline, your enthusiasm about the assets that are out there. Yeah, we remain pretty convicted about our M&A approach. We've got really robust funnels for both PQI and water quality. We're looking at a lot of assets, and we're actively engaged in our market activity here, but consistent with what we said on prior calls, we're really going to stay close to our heritage and the disciplined capital allocation around market company and valuation.

Speaker Change: Okay, fair enough. I just, I feel obligated to ask about M&A. I know these things are lumpy and it's hard to kind of talk about it, but any update on maybe your pipeline, your enthusiasm about the assets that are out there?

Unknown Executive: We're looking at a lot of assets, and we're actively engaged in our market activity here, but consistent with what we've said on prior calls, we're really going to stay close to our heritage and the disciplined capital allocation around market companies and valuation.

Speaker Change: Yeah, we remain pretty convicted about our M&A approach. We've got really robust funnels for both PQI and water quality. We're looking at a lot of assets and we're actively engaged in our market activity here.

Speaker Change: But consistent with what we've said on prior calls, we're really going to stay close to our heritage and the discipline capital allocation around market company and valuation.

Sameer Ralhan: So we obviously like businesses that have similar operating models and secular durability, financial profiles that look like us and certainly businesses where we think VES can add value. So we're active here. We're excited about the space.

Unknown Executive: We obviously like businesses that have similar operating models and secular durability, financial profiles that look like us, and certainly businesses where we think VES can add value. So we're active here. We're excited about the space. We're working hard kind of on both sides of the fence, and more to come. Best of luck, and congratulations on the first two quarters of the year.

Speaker Change: We obviously like businesses that have similar operating models and secular durability.

Speaker Change: financial profiles that look like us and certainly businesses where we think VES can add value. So we're active here. We're excited about the space. We're working hard kind of on both sides of the fence and more to come.

Sameer Ralhan: We're working hard, gone on both sides of the fence, and more to come.

Scott Davis: That's a lot. Congrats on the first two quarters here of the year. Thanks, Scott.

Speaker Change: Best of luck. Congrats on the first two quarters here of the year.

Dean Dre: We'll take our next question from Dean Dre of RBC Capital Markets. Good morning, everyone. Good morning.

Scott Reed Davis: Thanks, Scott. We'll take our next question from Deane Dray of RBC Capital Markets. Thank you. Good morning, everyone.

Speaker Change: Thanks, guys.

Speaker Change: We'll take our next question from Deane Dray of RBC Capital Markets.

Deane Michael Dray: Good morning. Hey, I'll echo Scott's comments. That's a clean quarter, kind of hard to find anything to quibble about. So, maybe I'll start with product quality. Your primary competitor had some similar results yesterday in terms of a strong aftermarket, but it looks like your printer sales are stronger. I know the 2380 sounds like that was a boost.

Dean Dre: Hey, I'll ask Scott's comments. That's a clean quarter; kind of hard to find anything to quibble about. So maybe I'll start with product quality. Your primary competitor had some similar results yesterday in terms of strong aftermarket, but looks like your printer sales are stronger. I know that 2380 sounds like that was a boost. Just can you comment on the mix and the go forward, especially with the recovery expected and the consumer packaging goods. Yeah, thanks for the question, Dean. You know, our PQI businesses in the main are performing well. I think you see that both in terms of our marketing and coding businesses.

Deane Michael Dray: Thank you. Good morning, everyone.

Deane Michael Dray: Good morning. Hey, I'll echo Scott's comments.

Deane Michael Dray: That's a clean quarter, kind of hard to find anything to quibble about, so maybe I'll start with product quality. Your primary competitor had some similar results.

Deane Michael Dray: yesterday in terms of strong aftermarket but looks like your printer sales are stronger. I know that 2380 sounds like that was a boost. Just can you comment on the mix?

Speaker Change: and the go forward, especially with the recovery expected in the consumer packaging goods.

Deane Michael Dray: Just can you comment on the mix and the go forward, especially with the recovery expected in consumer packaging goods? Yeah, thanks for the question, Deane. You know, our PQI businesses are, in the main, performing well. I think you see that both in terms of our marketing and coding businesses, and you also see it on our color and packaging side. We're not really going to comment really on our competitors' activity.

Deane: Yeah, thanks for the question, Deane.

Speaker Change: You know, our PQI businesses in the main are performing well. I think you see that both in terms of our marketing and coding businesses. You also see it on our color and packaging side.

Jennifer Honeycutt: You also see it on our color and packaging side. We're not going to comment really on competitors' activity, but what we can say is, you know, our marketing and coding businesses are performing well, and I think in line with the recovery of the consumer package goods market. So we see, you know, this fourth consecutive quarter of mid single-digit recurring revenue growth. And we also see as you as you rightly point out, you know, Q2 marking the return of growth in equipment sales. And so this follows a nominal recovery that we see when we're coming out of a down cycle, where consumables and, by way of inks and solvents and spare parts and so on, recover before equipment does.

Speaker Change: We're not going to comment really on on competitors activity but what we can say is

Jennifer L. Honeycutt: But what we can say is, you know, our marketing and coding businesses are performing well, and I think in line with the recovery of the consumer packaged goods market. So we see this fourth consecutive quarter of mid single-digit recurring revenue growth. And we also see, as you rightly point out, Q2 marking the return of growth in equipment sales. And so this follows a nominal recovery that we see when we're coming out of a down cycle, where consumables and, by way of, inks and solvents and spare parts and so on recover before equipment does.

Speaker Change: You know, our marketing and coding businesses are performing well, and I think in line with the recovery of the consumer packaged goods market. So, we see, you know, this fourth consecutive quarter of mid-single digit recurring revenue growth.

Speaker Change: And we also see, as you rightly point out,

Speaker Change: Q2 marking the return of growth in equipment sales. And so this follows a nominal recovery that we see when we're coming out of a down cycle where consumables and by way of inks and solvents and spare parts and so on recover before equipment does.

Jennifer L. Honeycutt: We're excited about the funnel that we have for equipment, and certainly, as we talk to our CPG customers, their sentiment is more positive in terms of the future outlook. From a packaging and color standpoint, we've just finished the Drupa trade show where we got a lot of positive responses in terms of the products being launched there, mostly around our S2 native cloud digital integrated solutions. This really helps reduce time to market for the brands. It also helps mistake-proof relative the information that they're passing around between their functional departments. So funnels are healthy on both sides.

Jennifer Honeycutt: We're excited about the funnel that we have for equipment. And certainly, as we talk to our CPG customers, their sentiment is more positive in terms of the future outlook.

Speaker Change: We're excited about the funnel that we have for equipment and certainly as we talk to our CPG customers, their sentiment is more positive in terms of the future outlook.

Jennifer Honeycutt: Mark. From a packaging color standpoint, we've just finished the Drupal Trade Show, where we got a lot of positive response in terms of the products being launched there. Mostly around our S2 native cloud digital integrated solutions. This really helps reduce time to market for the brands. It also helps mistake-proof relative to the information that they're passing around between their functional departments. So, funnels are healthy on both sides. The market recovery in terms of CPG itself is a little bit lumpy. We do see mixed results across various CPG categories, but certainly we're encouraged by the market indicators.

Speaker Change: From a packaging and color standpoint, we've just finished the Drupa trade show where we got a lot of

Speaker Change: positive response in terms of the products being launched there mostly around our S2

Speaker Change: Native Cloud Digital Integrated Solutions. This really helps reduce time to market for the brands. It also helps

Speaker Change: Misteak proof relative the information that they're passing around between their functional Departments, so funnels are healthy on both sides The market recovery in terms of CPG itself is a little bit lumpy we do see mixed results across various ceeking categories

Jennifer L. Honeycutt: The market recovery in terms of CPG is a little bit lumpy. We do see mixed results across various CPG categories, but certainly, we're encouraged by the market indicators. And I think our teams are executing well with recent product launches, and our new product innovations really are gaining momentum. It's all very helpful. And just a geographic question for both businesses.

Jennifer Honeycutt: And I think our teams are executing well with recent product launches, and our new product innovations really are gaining momentum. It's all very helpful.

Speaker Change: But certainly, we're encouraged by the market indicators and I think our teams are executing well with recent product launches and our new product innovations really are gaining momentum.

Dean Dre: And just a geographic question for both businesses, what was the sense of demand in China and the outlook?

Speaker Change: It's all very helpful. And just a geographic question for both businesses. What was the sense of demand in China and the outlook

Deane Michael Dray: What is the sense of demand in China and the outlook? The expectation is that you all have a very defensive type of mix there, but will you feel any of the ongoing pressures in the economy over the next couple of quarters? Yeah, I think our view of China hasn't materially changed from quarter to quarter. I think, you know, we believe that China is stabilized related to the end markets, but we don't expect to see any meaningful recovery in China this year.

Jennifer Honeycutt: The expectation is that you all have a very defensive type of mix there, but will you feel any of the ongoing pressures in the economy over the next couple of quarters? Yeah, I think being our view of China hasn't materially changed from quarter to quarter. I think we believe that China is stabilized related to the end markets, but we don't expect to see any meaningful recovery in China this year. I think for state-owned or state-sponsored municipalities, funding is still extraordinarily tight, so we're not seeing much money flow there. I think long-term China is anticipated to improve.

Speaker Change: The expectation is that you all have a very defensive type of mix there, but will you feel any of the ongoing pressures in the economy, you know, over the next couple of quarters?

Speaker Change: Yeah, I think, Deane, our view of China hasn't materially changed from quarter to quarter. I think

Speaker Change: You know, we believe that China is stabilized related to the end markets.

Deane Michael Dray: I think for state-owned or state-sponsored municipalities, funding is still extraordinarily tight, so we're not seeing much money flow there. But I think long term, China is anticipated to improve. They've got a large and aging population.

Speaker Change: But we don't expect to see any meaningful recovery in China this year. I think for state-owned or state-sponsored municipalities funding is still extraordinarily tight, so we're not seeing much money flow there.

Speaker Change: I think long-term, you know, China is anticipated to improve. They've got a large and aging population. Those folks are going to require clean water, safe food, and trusted medicines.

Jennifer L. Honeycutt: Those folks are going to require clean water, safe food, and trusted medicines. But, you know, our China team has stepped up to the challenge here in this slower growth macro. And, you know, we continue to ensure that we have a China business that's creating incremental value for Veralto. And then, Dean, from a guide perspective, effectively, assume China will be sequentially flat, right?

Sameer Ralhan: They've got a large and aging population. Those folks are going to require clean water, safe food, and trusted medicines. But our China team has stepped up to the challenge here in the slower growth macro. And we continue to ensure that we have a China business that's creating incremental value for RALTO. And then Dean from a guide perspective, effectively, the China will be sequentially flat, right? So, as you know, we are down quite a bit in Q3 and Q4, so you're going to see a little bit of an uptake on a year-over-year basis as we're going to get into the second half, but sequentially it's effectively flat.

Speaker Change: But, you know, our China team has stepped up to the challenge here in this slower growth macro. And, you know, we continue to ensure that we have a China business that's creating incremental value for Veralto.

Speaker Change: And then, Deane, from a guide perspective, effectively, assume China will be sequentially flat, right? So, as you know, we were down quite a bit in the Q3 and Q4, so you're going to see a little bit of an uptake on year-over-year basis as we kind of get into the second half, but sequentially, it's effectively flat.

Sameer Ralhan: So, as you know, we were down quite a bit in Q3 and Q4. So you're going to see a little bit of an uptake on a year over year basis as we kind of get into the second half. But sequentially, it's effectively flat.

Dean Dre: That's real helpful.

Dean Dre: Thank you.

Andy: We'll take our next question from Andy. Good morning, everyone. Good morning, Andy. Jennifer, Vermeer, you raised your revenue, guys, by 100 million for 24. I think versus last quarter's forecast. So maybe just give us a little more color into what markets are better than you expected. I know you just talked about video jet equipment; you know, starting to accelerate. What are you baking now, baking now, for the second half of that improvement? And then in water quality, is it more that water treatment is driving continues from momentum, or are you seeing more improvement in water analytics?

Deane Michael Dray: That's really helpful, thank you. We'll take our next question from Andy Kaplowitz of City. Good morning, everyone. Good morning, Andy.

Dean Dre: That's real helpful. Thank you.

Speaker Change: We'll take our next question from Andy Kaplowitz of Citigroup.

Andrew Alec Kaplowitz: Jennifer, Sameer, you raised your revenue guidance by $100 million for 24, I think, versus last quarter's forecast. So maybe just give us a little more color into what markets are better than you expected. I know you just talked about video jet equipment, you know, starting to accelerate. What are you baking now for the second half of that improvement?

Andrew Alec Kaplowitz: Good morning, everyone.

Andrew Alec Kaplowitz: Good morning, Andy.

Andrew Alec Kaplowitz: Jennifer, Sameer, you raised your revenue guidance by $100 million for 24, I think, versus last quarter's forecast. So, maybe just give us a little more color into what markets are better than you expected. I know you just talked about video jet equipment, you know, starting to accelerate. What are you baking now for the second half of that improvement? And then in water quality, is it more that water treatment is driving continued strong momentum, or are you seeing more improvement in water analytics?

Jennifer L. Honeycutt: And then in water quality, is it more that water treatment is driving continued strong momentum, or are you seeing more improvement in water analytics? Yeah, I mean, I think we see strength across the board, really. We benefit, I think, from a couple of areas here. One is just the markets that we're in, and the quality of the products we bring to market being part of the essential nature of customer operations.

Jennifer Honeycutt: Yeah, I mean, I think we see a strength across the board, really. We benefit, I think, from a couple of areas here.

Speaker Change: Yeah, I mean, I think we see strength across the board, really. We, we benefit, I think, from a couple of areas here. One is just the markets that we're in and the quality of the products we bring to market being part of the essential nature of customer operations.

Jennifer Honeycutt: One is just the markets that we're in and the quality of the products we bring to market being part of the essential nature of customer operations. I think the deployment of BES and the increased focus that we have is standalone company continues to help us execute well commercially. From a macro standpoint on where the demand is occurring, you know, water and municipalities, particularly in the US and Europe, continued to execute on project backlog in terms of improvements to their respective plants and their run rate business is steady. We do see some nice pockets of growth coming for our water treatment businesses and see some tailwind and some benefits from things like chip sacks, terms of build out there, data centers which are requiring an extensive amount of water in their cooling towers.

Jennifer L. Honeycutt: I think the deployment of BES and the increased focus that we have as a standalone company continues to help us execute well commercially. From a macro standpoint on where the demand is occurring, water municipalities, particularly in the US and Europe, continue to execute on Project Backlog in terms of improvements to their respective plants, and their run rate business is steady. We do see some nice pockets of growth coming for our water treatment businesses and see some tailwind and some benefit from things like chip sacks in terms of build out there, data centers which are acquiring an extensive amount of water in their cooling towers, and those kinds of two markets really benefit our Chemtreat and our Trojan businesses respectively. So we're seeing good sort of solid steady robust demand for both water treatment and water quality. Very helpful.

Speaker Change: I think the deployment of BES and the increased focus that we have as a stand-alone company continues to help us execute well commercially.

Speaker Change: From a macro standpoint on where the demand is occurring, you know, water municipalities, particularly in the U.S. and Europe , continue to execute on Project Backlog in terms of

Speaker Change: Improvements to their respective plants.

Speaker Change: and their run rate business is steady. We do see some nice pockets of growth coming for our.

Speaker Change: water treatment businesses and see some tailwind and some benefit from things like

Speaker Change: Chipsack

Speaker Change: In terms of build out there, data centers, which are requiring an extensive amount of water in their cooling towers.

Jennifer Honeycutt: And those kind of two markets really benefit our Chem Treat and our Trojan businesses respectively. So we're seeing good, sort of solid, steady, robust demand really for both water treatment and water quality.

Speaker Change: And those kind of two markets really benefit our chemtreat and our Trojan businesses, respectively. So we're seeing good, sort of solid, steady, robust demand, really, for both water treatment and water quality.

Andy: Very helpful.

Andrew Alec Kaplowitz: And then, Jennifer, just going back to M&A, like, I know timing is always difficult, but would you expect to get something done this year? And then under what conditions would you do a larger deal where you may potentially raise money? Yeah, I. I think you are right that M&A is clearly episodic. You know, we can't guarantee the intersection of when we will see market company and valuation come together. As we've mentioned in the past, we're going to stay disciplined to that approach. We have to like the market, right? It's got to be adjacent or near adjacent to where we play.

Jennifer Honeycutt: Jennifer, just going back to M&A, I know timing is always difficult, but would you expect to get something done this year? And then under what conditions would you do a larger deal where you may potentially raise equity? Yeah, I think you are right that M&A is clearly episodic. You know, we can't guarantee, you know, the intersection of when we will see market company and valuation come together. As we've mentioned in the past, we're going to stay disciplined to that approach. We have to like the market, right? It's got to be adjacent or near adjacent to where we play.

Jennifer L. Honeycutt: Very helpful. And Jennifer, just going back to M&A, like, I know timing is always difficult, but would you expect to get something done this year? And then under what conditions would you do a larger deal where you may potentially raise equity?

Jennifer L. Honeycutt: Yeah, I.

Speaker Change: I think you are right that M&A is clearly episodic. You know, we can't guarantee

Jennifer L. Honeycutt: You know, the intersection of when we will see market company and valuation come together. As we've mentioned in the past, we're going to stay disciplined to that approach.

Jennifer L. Honeycutt: We have to like the market, right? It's gotta be adjacent or near adjacent to where we play. The company's gotta be a strong company that has secular drivers that we value under the umbrella of safeguarding the world's most vital resources, and we gotta be able to get it at the right price.

Jennifer L. Honeycutt: The company has got to be, you know, a strong company that has secular drivers that we value under the umbrella of safeguarding the world's most vital resources. And we have to be able to get it at the right price. I think right now, valuations are still a little bit inflated. So, you know, we're looking at the intersection here, but we have to fundamentally get to all three of those variables.

Jennifer Honeycutt: The company's got to be, you know, a strong company that has secular drivers that we value under the umbrella of safeguarding the world's most vital resources. And we got to be able to get it the right price. I think right now, valuations are still a little bit inflated. So, you know, we're looking at the intersection here, but we've got to fundamentally get to all three of those variables. And all I can say is we're working hard in this area.

Jennifer L. Honeycutt: I think right now valuations are still a little bit inflated.

Jennifer L. Honeycutt: So, you know, we're looking at.

Andrew Alec Kaplowitz: at the intersection here. But we got to we got to fundamentally get to all three of those variables. And all I can say is where we're working hard in this area. And Andy is going to look, think about the equity side. It is just one of the components of how we think about funding any transaction. You know, the main thing is value creation, right? Anything that's

Sameer Ralhan: And all I can say is we're working hard in this area. And Andy, I'm just going to think about the equity side. It is just one of the components of how we think about funding any transaction. You know, the main thing is value creation, right? Anything that can ultimately help us create long-term value. We'll look at all forms of funding, as we have kind of talked about in the past. The main thing for us, as you're going to think of any kind of funding, is maintaining investment-grade balance sheets. That's sacrosanct for us. Appreciate the color, guys.

Sameer Ralhan: And Andy, it's going to look. Think about the equity side. It's just one of the components of how we think about funding and transaction. You know, the main thing is value creation, right? Anything that can ultimately help us create a long-term value, we'll look at all forms of funding as we're going to talk in the past. Main thing for us as we can think of any kind of funding is maintaining investment and good balance sheet. That's excellent for us.

Speaker Change: and ultimately help us create long-term value. We'll look at all forms of funding as we have kind of talked in the past. Main thing for us, as you're gonna think of any kind of funding is maintaining investment-grade balance sheet. That's the second thing for us.

Andy: Appreciate the color, guys.

John Mcnulty: We'll take our next question from John McNulty of BMO Capital Markets. Yeah, thanks for taking my question. Maybe one on the free cash flow side. Obviously, you're a really strong quarter for you there. And hitting kind of conversion levels that are above what you're certainly looking for for the year. I guess can you help us to think about what drove that? And if that, you know, if we see more things that you can kind of ring out from whether it's a working capital side to kind of keep that level elevated for the next couple of quarters, how should we be thinking about that?

Andrew Alec Kaplowitz: We'll take our next question from John McNulty of BMO Capital Markets. Yeah, thanks for taking my question. Maybe one on the free cash flow side, obviously, a really strong quarter for you there, and hitting kind of conversion levels that are above what you're certainly looking for for the year. Can you help us to think about what drove that? And if we see more things that you can kind of wring out from whether it's a working capital side to kind of keep that level elevated for the next couple of quarters, how should we be thinking about that? Yeah, John, you know, thanks for that.

Speaker Change: Appreciate the color, guys.

Speaker Change: We'll take our next question from John McNulty of BMO Capital Markets.

John Mcnulty: Yeah, thanks for taking my question. Maybe one on the free cash flow side, obviously a really strong quarter for you there and hitting kind of conversion levels that are above what you're certainly looking for for the year, I guess.

Speaker Change: Can you help us to think about what drove that and if that, you know, if we see more things that you can kind of wring out from whether it's a working capital side to kind of keep that level elevated for the next couple of quarters, how should we be thinking about

Sameer Ralhan: Yeah, John. You know, thanks for that. You know, as you're going to look at the free cash flow conversion, you know, quarter to quarter, it can vary. As you know, we have, you know, the bond payments that come in the first and the third quarter. So that gets, in fact, timing of the cash payments. So I would say when you look at the free cash flow, cash flow conversion, really look at it in front of a full year basis. Overall, you know, given the strength that we're seeing in the business, the execution, we feel pretty good about delivering 100 to 110% free cash flow conversion.

John Patrick McNulty: You know, as you're going to look at the free cash flow conversion, you know, quarter to quarter, it can vary. As you know, we have bond payments that come in the first and third quarter. So that impacts the timing of the cash payments.

Speaker Change: Yeah, John , you know, thanks for that. You know, if you're going to look at the free cash flow conversion, you know, quarter to quarter, it can vary. As you know, we have, you know, the bond payments that come in the first and the third quarter. So that gets impacts.

Speaker Change: [inaudible]

John Mcnulty: That's of gap netting. I got it. Fair enough.

Sameer Ralhan: So I would say when you look at free cash flow and cash flow conversion, really look at it on a full year basis. Overall, you know, given the strength that we're seeing in the business, the execution, we feel pretty good about delivering 100 to 110% free cash flow conversion that's off gap netting. Okay. Fair enough.

Sameer Ralhan: And then just a question on SGNA took a reasonable jump up somewhere in the 7.5% kind of range. I guess can you help us to think about how much of that is just general labor inflationary type trends versus the corporate side where look now you're a public company versus investment for growth. I guess how should we be thinking about the various buckets there? Yeah, I think it's, let's take it into buckets. Right. One is first on the business side, as we kind of told you right to the beginning of the year. We will be we are investing in the sales and marketing side to really drive the growth of the business.

Speaker Change: Got it. Fair enough. And then just a question on SG&A, took a reasonable jump up somewhere in the 7.5% kind of range. I guess, can you help us to think about how much of that is just general labor inflationary type trends versus the corporate side where now you're a public company versus investment for growth? I guess, how should we be thinking about the various buckets there?

John Patrick McNulty: And then just a question on SG&A, which took a reasonable jump up somewhere in the seven and a half percent kind of range. I guess, can you help us to think about how much of that is just general labor inflationary type trends versus the corporate side where, look, now you're a public company versus investment for growth? I guess, how should we be thinking about the various buckets?

Speaker Change: Yeah, I think it's, let's take it in two buckets, right? One is first on the business side, as we kind of told you right at the beginning of the year, we will be, we are investing in the sales and marketing side to really drive the growth of the business. And you've seen that kind of really coming through or flowing through the numbers in the first and second quarter.

Sameer Ralhan: And you've seen that kind of really coming through or flowing through the numbers in the first and second quarter. John, you know, inflation is there a little bit. I think just like everybody else, there's nothing outside. But it's these are really heads that are added more on the sales and marketing side to drive the growth. And you started seeing a lot of the impact and more than the 20% 25% that you're going to see. So I would say on the business side, we are more or less in a normalized state. So to speak, and a CNN is a percent of revenues on the corporate side. You know, we were very judicious in how we bring the coffin.

Sameer Ralhan: Yeah, you know, I think it's, let's take it in two buckets, right? One is on the business side. As we kind of told you right at the beginning of the year, we would be, or we are investing in the sales and marketing side to really drive the growth of the business. And you've seen that kind of coming through or flowing through the numbers in the first and second quarter.

Speaker Change: John , you know, inflation is there a little bit. I think just like everybody else, there's nothing outsized, but these are really heads that are added more on the sales and marketing side to drive the growth, and you start seeing a little bit of the impact and more in the 2025 that you're going to see.

Sameer Ralhan: John, you know, inflation is there a little bit, I think, just like everybody else, there's nothing outsized, but these are really heads that are added more on the sales and marketing side to drive the growth. And you started seeing a little bit of the impact, and more than 2025 that you're going to see. So I would say on the business side, we are more or less in a normalized state, so to speak, and SCNA is a percent of revenues. On the corporate side, you know, we were very judicious in how we brought in costs.

Speaker Change: So, I would say on the business side, we are more or less in a normalized state, so to speak, and SCNA is a percent of revenues. On the corporate side, you know, we were very judicious in how we bring the costs in, you know. So, what you're going to see is more of a run rate.

John Patrick McNulty: You know, so what you're going to see is more of a run rate view of corporate expenses in the second half of the year. So there's going to be a little uptake in the second half versus the first year that you're going to see on the corporate side. But that should normalize in the second half, so nothing extraordinary on that front. Thanks very much for the call. We'll take our next question from Mike Halloran of Baird. Morning, everyone.

Sameer Ralhan: You know, so what you're going to see is more of a run rate view of the corporate expenses in the second half of the year. Today's going to be a little uptake in the second half versus the first year that you're going to see on the corporate side. But that's, but that should normalize in the second half. So nothing, nothing extraordinary on that front.

Speaker Change: [inaudible]

John Mcnulty: Right. Thanks very much for the color.

Mike Halleran: We'll take our next question from Mike Halleran of Bayard. Hey, morning, everyone.

Speaker Change: Great, thanks very much for the call.

Speaker Change: We'll take our next question from Mike Halloran of Baird.

Mike Halleran: What am I? So just a few talks of the product rational rationalization side of things, some issues you're doing there. You know, maybe just how far along I do think you are in that journey in general. And most of the areas been identified already, or do you think that there's more to come on that side of things? Yeah, I think Mike, what you've seen us do here is just pruning around the edges. Right. And, you know, this is actually part of standard work that we do day in and day out and managing the portfolio of the businesses.

Michael Patrick Halloran: Good morning, everyone.

Michael Patrick Halloran: So just some thoughts on the product rationalization side of things, some of the issues you're dealing with there. You know, maybe just how far along do you think you are in that journey in general? Have most of the areas been identified already? Or do you think that there's more to come on that?

Michael Patrick Halloran: [inaudible]

Michael Patrick Halloran: So just some thoughts on the product rationalization side of things, some of the issues you're doing there.

Michael Patrick Halloran: You know, maybe just how far along do you think you are in that journey in general? Have most of the areas been identified already? Or do you think that there's more to come on that side of things?

Michael Patrick Halloran: Yeah, I think Mike, what you've seen us do here is just pruning around the edges, right? And, you know, this is actually part of the standard work that we do day in and day out, and managing the portfolio of the businesses. It's, it's not, it's not something that we look at on an episodic basis.

Michael Patrick Halloran: Yeah, I think, Mike, what you've seen us do here is just pruning around the edges, right?

Jennifer L. Honeycutt: We're looking at this all the time. You know, so I would say when we see opportunities for continued portfolio evolution to get us a stronger portfolio focused on higher areas of growth with higher margins and recurring revenue. You know, anything that falls materially far away from that profile is something that we'll take action on. So we feel good about the portfolio we have today. We'll continue to prune around the edges as and when we see that it's appropriate to do so, so it makes sense. And then just to follow up on Gandhi's question earlier.

Speaker Change: This is actually part of standard work that we do day in and day out in managing the portfolio of the businesses. It's not a...

Jennifer Honeycutt: It's not. It's not something that we look at on an episodic basis. We're looking at this all the time. You know, so I would say when we see opportunities for continued portfolio evolution to get us a stronger portfolio focused in the higher areas of growth with higher margin and recurring revenue. You know, anything that falls materially far away from that profile is something that we'll take action on. So we feel good about the portfolio we have today. We'll continue to prune around the edges as and when we see that it's appropriate to do so. Make sense.

Michael Patrick Halloran: It's not something that we look at on an episodic basis. We're looking at this all the time. You know, so I would say when we see opportunities for continued portfolio evolution to get us

Michael Patrick Halloran: A Stronger Portfolio Focused in the Higher Areas of Growth with Higher Margin and Recurring Revenue.

Michael Patrick Halloran: Anything that falls materially far away from that profile is something that we'll take action on. So, we feel good about the portfolio we have today. We'll continue to prune around the edges as and when we see that it's appropriate to do so.

Jennifer Honeycutt: And then just to follow up on I think Andy's question earlier, you know, when you think about the greater confidence going in the back half of the year, has anything actually changed? Or is this just about starting to see the momentum into this year, first quarter? And he's actually having materialized like gives you extra confidence. In other words, has there been a really change in your thinking about how these end markets were going to grow? Progress. Well, I think we've come out of a pretty, you know, tumultuous several years following the impact of the pandemic, Mike.

Michael Patrick Halloran: You know, when you think about the greater confidence going into the back half of the year, has anything actually changed? Or is this just about starting to see the momentum into this year, the first quarter, and is actually having a materialized that gives you extra confidence? In other words, has there been really any change in your thinking about how these end markets are going to progress? Well, I think we've come out of a pretty, you know, tumultuous several years following the impact of the pandemic, Mike, and we saw a lot of whiplash, right, in terms of price and volume and demand cycles and consumer spending and what they were spending on and so on.

Michael Patrick Halloran: Make sense. And then just to follow up on, I think, Andy's question earlier, you know, when you think about the greater confidence going in the back half of the year, has anything actually changed?

Speaker Change: Is this just about starting to see the momentum into this year, first quarter, and is actually having it materialize that gives you extra confidence? In other words, has there really been any change in your thinking about how these end markets are going to progress?

Speaker Change: Well, I think we've come out of a pretty...

Speaker Change: tumultuous several years following the impact of the pandemic, Mike, and we saw a lot of

Jennifer Honeycutt: And, and we saw a lot of whiplash, right, in terms of price and volume and demand cycles and consumer spending and what they were spending on, and so on. I would say that our confidence is built more as a function of an enduring steady state for our water quality businesses driven by the secular drivers that we've talked about and an incrementally improving macro here for consumer products, goods, markets. 85% of our revenue goes into water, food, and pharmaceuticals, and provided that those markets are our steady or improving, we're going to see that benefits. Appreciate it.

Speaker Change: of whiplash, right, in terms of price and volume and demand cycles and consumer spending and what they were spending on and so on.

Michael Patrick Halloran: I would say that our confidence is built more as a function of an enduring steady state for our water quality businesses, driven by the secular drivers that we've talked about and an incrementally improving macro here for consumer products, goods, and markets. Eighty-five percent of our revenue goes into water, food, and pharmaceuticals. And provided that those markets are steady or improving, we're going to see that benefit.

Speaker Change: I would say that our confidence is built more as a function of an enduring steady state.

Speaker Change: for our water quality businesses.

Speaker Change: driven by the secular drivers that we've talked about and an incrementally improving macro here for consumer products, goods.

Speaker Change: Markets.

Speaker Change: 85% of our revenue goes into water, food, and pharmaceuticals, and provided that those markets are steady or improving, we're going to see that benefit.

Mike Halleran: Thank you. Thanks, Mike.

Speaker Change: Appreciate it. Thank you.

Brian Lee: Our next question is from Brian Lee of Goldman Sachs. Hey, everyone. Good morning. Thanks for taking the questions. I get one for us. One, hey, Sameer. Good morning. Sameer, or maybe Jennifer, you mentioned during your prepared remarks some, some favorable mix, I think, in the water quality segment that might have helped margin. Can you elaborate any on that? And is that something that either you can quantify or, as you think about the next quarter, is that expected to persist?

Michael Patrick Halloran: Thank you. Thanks, Mike. Our next question is from Brian Lee of Goldman Sachs. Hey everyone, good morning.

Speaker Change: Thanks, Mike.

Speaker Change: Our next question is from Brian Lee of Goldman Sachs.

Brian K. Lee: Thanks for taking the question. Sameer, or maybe Jennifer, you mentioned during your prepared remarks some favorable mix I think in the water quality segment that might have helped margins. Can you elaborate on that, and is that something that either you can quantify, or, as you think about the next few quarters, is that expected to persist? Hey, Brian, yeah, I'll take that one.

Brian K. Lee: Hey everyone, good morning. Thanks for taking the questions.

Brian K. Lee: I guess one in front is one.

Brian K. Lee: Hey Sameer, good morning. Sameer, or maybe Jennifer, you mentioned during your prepared remarks some favorable mix I think in the water quality segment that might have helped margins.

Speaker Change: Can you elaborate any on that and is that something that either you can quantify or as you think about the next few quarters, is that expected to persist?

Sameer Ralhan: Hey, Brian, yeah, I'll take that one. The mix comment is really around consumables. We've seen in a good amount of consumable optic that's driving it. As you've seen, the recurring revenue is almost at 62% right now, and that is predominantly mix and a little bit of spares and some of the fast software side, but predominantly consumables. You know, if you recall and go back into the history when things are more normalized, that tends to be in the high fifties, right? So that kind of helps you dimensionize. Now that transition as the volume comes back on the printer side in PQI, instrumentation side on the water quality side, it's going to be a multi-quarter journey, as we're going to move.

Sameer Ralhan: The mixed comment is really around consumables. We've seen a good amount of an uptick in consumables that's driving it. As you've seen, our recurring revenue is almost at 62 percent right now, and that is predominantly mixed, with a little bit of spares and some of the fast software side, but predominantly consumables. You know, if you recall and go back into history, when things were more normalized, that tends to be in the high 50s.

Speaker Change: Hey Brian , yeah, I'll take that one. The mixed comment is really around consumables. We've seen a good amount of consumable uptick that's driving it. As you've seen, our recurring revenue is

Brian K. Lee: Almost at 62% right now, and that is predominantly mixed and a little bit of spares and some of the SaaS software side, but predominantly consumables. You know, if you recall and go back into the history, when things are more normalized, that tends to be in the high 50s.

Brian K. Lee: Right. So that kind of helps you dimensionalize the transition as the volume comes back on the printer side in PQI, and the instrumentation side on the water quality side. It's going to be a multi-quarter journey as we move. So you're not going to see a big variation quarter to quarter. But that's really, you know, 62 percent versus high 50s is a way to dimensionalize the change over time. All right, fair enough. That's helpful.

Brian K. Lee: [inaudible]

Brian K. Lee: [inaudible]

Jennifer Honeycutt: So you're not going to see a big variation quarter to quarter, but that's certainly 62% versus high fifties as a way to dimensionize the change over time. All right. Fair enough. That's helpful. And then I know you're talking about improving end markets kind of across the board. Jennifer made some comments around the strong backlog trends in water quality. Can you maybe talk a bit more specifically around? I think you had comments in the release about strong bookings and packaging and color. You know, our understanding is that that's more of a short-cycle business. So where's the visibility?

Brian K. Lee: And then I know, you know, you're talking about improving and markets kind of across the board. Jennifer made some comments around the strong backlog trends and water quality. Can you maybe talk a bit more specifically about, I think you had comments in the release about strong bookings and packaging in color. You know, our understanding is that that's more of a short cycle business. So where's the visibility?

Brian K. Lee: Alright, fair enough, that's helpful. And then, I know, you know, you're talking about improving end markets kind of across the board. You know, Jennifer made some comments around the strong backlog trends in water quality.

Speaker Change: Can you maybe talk a bit more specifically around I think you

Speaker Change: had comments in the release about strong bookings and packaging and color. Our understanding is that that's more of a short cycle business. So where's the visibility? Are those the areas where you're seeing trends improving as well? Just any commentary on the short cycle side of your business. Thank you guys.

Jennifer Honeycutt: Are those the areas where you're seeing trends improving as well? Just kind of any commentary on the short cycle side of your business? Thank you, guys. Yeah.

Jennifer L. Honeycutt: Are those the areas where you're seeing trends improving as well? Just kind of any commentary on the short cycle side of your business. Thank you guys. Yeah, relative to packaging and color, you know, as we mentioned, we've just concluded our Drupal trade show. That's a trade show that runs once every four years, and given the pandemic, this is the first time that show has been held in eight years.

Jennifer Honeycutt: Relic is a packaging and color. You know, as we mentioned, we've just concluded our drip of trade show. That's a trade show that runs once every four years and, given the pandemic. This is the first time that show has been conducted in eight years. So there were some really good kind of pen-up demand that we saw there. But I think, you know, our solutions and particularly those around innovation that we're providing and the S2 cloud native digital integration of the workflow has got the attention of a lot of brand owners because they are under pressure to compress their development cycles and ensure the integrity of the information that they're working with, which is every user of that system access to the same information.

Speaker Change: Yeah, relative to packaging and color, you know, as we mentioned, we've just concluded our Drupal trade show. That's a trade show that runs once every four years. And given the pandemic, this is the first time that show has been conducted in eight years.

Jennifer L. Honeycutt: So there was some really good kind of pent-up demand that we saw there. But I think, you know, our solutions and, particularly those around innovation that we're providing in the S2 cloud native digital integration of the workflow have got the attention of a lot of brand owners because they are under pressure to compress their development cycles and ensure the integrity of the information that they're working with, which gives every user of that system access to the same information.

Speaker Change: So there was some really good kind of pent-up demand that we saw there.

Speaker Change: But I think...

Speaker Change: You know, our solutions, and particularly those around innovation that we're providing and the

Speaker Change: S2 Cloud Native, Digital Integration of the Workflow,

Speaker Change: has got the attention of a lot of brand owners because they are under pressure to compress their development cycles and ensure the integrity of the information that they're working with, which gives every user of that system access to the same information.

Jennifer L. Honeycutt: So we had a great showing there. You know, the teams, all three teams in terms of ESCO, Pantone, and Xrite really did a great job there, and I think the, you know, outside of the enthusiasm generated by Drupal, the recovery of the CPG market will lend itself to new product releases and new product innovations from brand owners. So they are getting ready.

Jennifer Honeycutt: So we had a great showing there; you know, the teams, all three teams in terms of Esco, Pantone, and X-Rite really did a great job there. And I think the, you know, outside of the enthusiasm generated in Drupal, the recovery of the CPG markets will lend itself to new product releases and new product innovations from brand owners. So they are getting ready. They have a number of projects that they're considering in terms of new product releases and so on and so forth. And so this is the front end of that. And I think we're well positioned to be able to help them with their solutions.

Speaker Change: So we had a great showing there, you know, the teams, all three teams in terms of ESCO, Pantone, and X-Rite.

Speaker Change: really did it, did a great job there and I think

Speaker Change: The, you know, outside of the enthusiasm generated in DRUPA, the recovery of the CPG markets

Speaker Change: will lend itself to new product releases and new product innovations from brand owners. So they are getting ready. They have a number of projects that they're considering in terms of new product releases and so on and so forth. And so this is the front end of that.

Brian K. Lee: They have a number of projects that they're considering in terms of new product releases and so on and so forth. And so this is the front end of that. And I think we're well positioned to be able to help them with their solution. I appreciate the call; I'll pass it on.

Speaker Change: and I think we're well positioned to be able to help them with their solutions.

Brian Lee: I appreciate the call. I'll pass it on.

Speaker Change: Okay, I appreciate the call. I'll pass it on.

Brad Hewitt: We'll move next to Brad Hewitt of Wolf Research. Hey, good morning, guys. Thanks for taking my question.

Bradley Thomas Hewitt: We'll move next to Brad Hewitt of Wolf Research. Hey, good morning, guys. Thanks for taking my call. Good morning, Brad.

Speaker Change: We'll move next to Brad Hewitt of Wolf Research.

Brad Hewitt: Mark Brad. So I guess one of the start on the margin side of things. So your guidance implies about a 50 basis points step down in margins and Q3 versus Q2. Despite the fact that revenue, I think, should be flat, slightly up sequentially. And then also your trade joke Spencer should step down quarter of a quarter. So just curious if you can talk about kind of the drivers of the sequential margin. Yeah, Brian, this severe effectively really two things here. The first one is the mixed comment that we made earlier. You know, our mixes pretty rich and consumables, and recurring revenue right now.

Brad Hewitt: Hey, good morning guys. Thanks for taking my question.

Bradley Thomas Hewitt: So I guess one of the first things to start on the margin side of things, your guidance implies about a 50 basis point step down in margins in Q3 versus Q2, despite the fact that revenue, I think, should be flat to slightly up sequentially, and then also your trade show expenses should step down quarter over quarter. So just curious if you can talk about that, kind of the drivers of the sequential margin. Yeah, Brian, this is Sameer.

Brad Hewitt: Morning, Brad.

Brad Hewitt: So I guess one of the start on the margin side of things.

Speaker Change: So your guidance implies about a 50 basis points step down in margins in Q3 versus Q2.

Speaker Change: Despite the fact that revenue I think should be flat to slightly up sequentially, and then also your trade show expenses should step down quarter over quarter. So, just curious if you can talk about kind of the drivers of the sequential margin pressure there.

Sameer Ralhan: Effectively, there are really two things here. The first one is the mixed comment that we made earlier. You know, our mix is pretty rich in consumables and recurring revenue right now. And we have started seeing some good, encouraging signs on the equipment side. We said in the second quarter that we finally saw positive revenue growth on the equipment side. So we modeled in sort of decent equipment growth in this in the Q3 and second half of the year. So mixed impact is what's kind of flowing through here.

Speaker Change: Yeah, Brian , this is Sameer. Effectively, really two things here. The first one is the mixed comment that we made earlier. You know, our mix is pretty rich in consumables and recurring revenue right now. We have started seeing some good encouraging signs on the equipment side. We said in the second quarter, you know, we finally saw positive.

Sameer Ralhan: We have started seeing some good encouraging signs on the equipment side. We said in the second quarter, you know, we finally see so positive. You know, revenue growth on the equipment site to be modeled and sort of decent equipment growth in this in the Q3 and second half of the year. So it makes impact is what's kind of flowing through here. And the other one I would say is really on the corporate side. As you kind of get into the second half of the year, we are going to be getting more towards the run rate expenses on the corporate corporate expenses.

Speaker Change: [inaudible]

Bradley Thomas Hewitt: And the other one I would say is really on the corporate side. As you kind of get into the second half of the year, we are going to be getting more towards the run rate expenses on the corporate expenses side, as well. So it's really those two things that are impacting the margin. Okay, that's helpful.

Sameer Ralhan: So that's impacting the margin side as well. So it's really those two things that are impacting the margin.

Sameer Ralhan: Okay, that's helpful. And then I guess going back to the long-term incremental margins framework of 30 to 35%. I know that that includes kind of some reinvestment in the business, but just given the strong execution on the yes since it's been as well as the implied 50% of criminal margins this year. Despite volume growth kind of in the one to two percent zone. Does that give you confidence and perhaps something more like 40% plus incremental is going forward over the median term? Yeah, no thanks for that. Look, I mean, it's first of all really cool to us, to all our teams, all our 16,000 people that are really helping drive this kind of fall through that you're saying, right?

Bradley Thomas Hewitt: And then I guess going back to the long-term incremental margin framework of 30 to 35%. I know that includes some reinvestment in the business. But just given the strong execution on VS since the span, as well as the implied 50% incremental margins, despite volume growth kind of in the 1 to 2% zone, does that give you confidence and perhaps something more like 40% plus incrementals going forward over the medium term? Yeah, no, thanks for that.

Brian K. Lee: Okay, that's helpful. And then I guess going back to the long-term incremental margin framework of 30 to 35 percent, I know that includes kind of some reinvestment in the business.

Speaker Change: But just given the strong execution on VES since the spin, as well as the implied 50% incremental margins this year, despite volume growth kind of in the 1 to 2% zone, does that give you confidence and perhaps something more like 40% plus incrementals going forward over the medium term?

Sameer Ralhan: Look, I mean, first of all, really kudos to all our teams, all our 16,000 people that are really helping drive this kind of fall through that we're seeing, right? Really proud of what we've been able to achieve this year. But, you know, as you're going to think about 30 to 35% is really on the order for the longer term, right? We do want to incorporate in that long-term value creation algorithm a healthy investment mix from the sales side and from the R&D side.

Speaker Change: Yeah, no, no, thanks for that. Look, I mean, it's first of all, really kudos to all our teams, all our 16,000 people that are really helping drive this kind of fall through that we're seeing, right? Really proud of what we've been able to achieve this year. But, you know, as you're going to think about 30 to 35% is really on the over the longer term.

Sameer Ralhan: Really proud of what we've been able to achieve this year. But you know, as you're going to think about 30 to 35% is really on the longer term, right? We do want to incorporate in that long term value creation algorithm a healthy investment mix from the sales side, from R&D side. So I think from a long term value framework perspective, I think still 30 to 35% of the right way to look at it. But I think, and in the near term, really good performance and execution of the teams is driving a fall through close to 50%.

Speaker Change: We do want to incorporate in that long-term value creation algorithm a healthy investment mix from the sales side, from R&D side. So I think from a long-term value framework perspective, I think still 30 to 35% is the right way to look at it. But I think in the near term, really good performance and execution of the teams is driving a fall through close to 50%.

Sameer Ralhan: So, from a long-term value framework perspective, I think still 30 to 35% is the right way to look at it. But I think, and in the near term, really good performance and execution of the teams is driving a fall through close to 50%. Great, thanks. We'll take our next question from Nathan Jones of Stiefel. Good morning, everyone. Good morning, Nathan.

Sameer Ralhan: Great.

Nathan Jones: Thanks, Mayor. We'll take our next question from Nathan Jones of Steve. Good morning, everyone. Good morning, Nathan. I guess I'll follow up on that last question. You guys have made it pretty clear that you intend to continue to invest in growth here.

Sameer Ralhan: Thanks Sameer.

Speaker Change: We'll take our next question from Nathan Jones of Stiefel.

Nathan Hardie Jones: I guess I'll follow up on that last question. You guys have made it pretty clear that you intend to continue to invest in growth here. Can you talk about what you think the growth rates will be for investment in commercial resources, investment in sales, investment in R&D, kind of over the next several years rather than just any one year to the next? No, I think as you're going to think about the long term, Nathan, these investments should be supportive of the mid-single digit growth framework. Right?

Nathan Hardie Jones: Morning, everyone.

Nathan Hardie Jones: Morning, Nathan. I guess I'll follow up on that last question. You guys have made it pretty clear that you intend to continue to invest in growth here.

Nathan Jones: Can you talk about what you think the growth rates will be in kind of investment in commercial resources, investment sales, investment in R&D, kind of over the next several years, rather than just any one year to the next? No, I think as you're going to think about long term, Nathan, these investments should be supportive of the mid-cycle digital growth framework, right? And that is 4 to 6% kind of a range, as we kind of talked about. So, as when we think about that mid-cycle digital growth framework, we do reflect the incremental contribution coming from these investments on the sales and marketing side as well as on the R&D side, right?

Nathan Hardie Jones: Can you talk about what you think the growth rates will be in kind of investment in commercial resources, investment in sales, investment in R&D, kind of over the next several years rather than, you know, just any one year to the next?

Speaker Change: No, I think as you're going to think about long term, Nathan, these investments should be supportive of the mid single digit growth framework.

Sameer Ralhan: And that is a four to six percent kind of range, as we kind of talked about. So when we think about that mid-single digit growth framework, we do reflect the incremental contribution coming from these investments on the sales and marketing side, as well as on the R&D side.

Speaker Change: [inaudible]

Speaker Change: So as when we think about that mid-single digit growth framework.

Speaker Change: We do reflect the incremental contribution coming from these investments on the sales and marketing side, as well as on the R&D side. This is a technology-heavy business, as you're going to think about in the commercial execution business. So those investments are key as we think about long-term, sustainable value creation.

Nathan Hardie Jones: This is a technology-heavy business, as you're going to think about in the commercial execution business, so those investments are key as we kind of think about long-term sustainable value creation. So would you be looking at kind of that same mid-single-digit growth in those investments as revenue? Yeah. Yeah, yeah. Okay, look, the other question kind of depends, right? Just to make sure, Nathan, right?

Nathan Jones: This is a technology-heavy business as you kind of think about in the commercial execution business. So those investments are key as we kind of think about long-term sustainable value creation. Do you would be looking at kind of that time mid-sing with DigiGuardian as investments as revenue? Yeah, yeah, yeah. Okay, the other question kind of depends, right? Just to make sure, Nathan, right? It, on average, right? This is a cumulative thing that we're looking at. Of course, the new investment should be incrementally driving higher growth from their side, but there's some things fall out of the portfolio, too.

Speaker Change: So you would be looking at kind of that same mid single digit growth in those investments as revenue?

Sameer Ralhan: On average, right, this is a cumulative thing that we're looking at. Of course, the new investment should be incrementally driving higher growth from their site, but there are some things falling out of the portfolio, too. The other question I wanted to ask was about the recycle, reuse, reclaim market driver.

Speaker Change: Yeah. Yeah. Okay. Kind of depends, right? Just to make sure, Nathan, right? On average, right? This is a cumulative thing that we're looking at. Of course, the new investment should be incrementally driving higher growth from their side, but there's some things fall out of the portfolio too.

Nathan Jones: Got it.

Jennifer Honeycutt: The other question I want to ask was on the recycle reuse. Re-claim market driver, I think that is likely to be a pretty considerable driver of investment from industrial water users. Some hoping you could talk a little bit more about wherever also plays, kind of how much of your revenue that makes up, where you think it could go to over the next five to 10 year kind of timeframe, long term growth rate you're expecting out of that, just because I think that's going to be a pretty good driver incremental demand. Yeah, thanks for the question, Nathan.

Speaker Change: Got it. The other question I wanted to ask was on the recycle, reuse, reclaim market driver. I think that is likely to be a pretty considerable driver of investment from industrial water users.

Nathan Hardie Jones: I think that is likely to be a pretty considerable driver of investment from industrial water users, so I'm hoping you could talk a little bit more about that. Webber also plays kind of how much of your revenue that makes up where you think it could go over the next, you know, five to 10 year kind of timeframe, the long-term growth rate you're expecting out of that just because I think that's going to be a pretty good driver of incremental demand. Yeah, thanks for the question, Nathan.

Speaker Change: So I'm hoping you could talk a little bit more about where Veralto plays, kind of how much of your revenue that makes up, where you think it could go to over the next, you know, five to 10 year kind of time frame, long term growth rate you're expecting out of that just because I think that's going to be a pretty good driver of incremental demand.

Jennifer L. Honeycutt: We do see great demand here for recycling, reclaiming, and reuse. The businesses most impacted by that certainly are our Trojan business, who is well positioned there to help customers with their sustainability initiatives in this space. Chemtree also has a role here.

Jennifer Honeycutt: We do see great demand here in recycle, reclaim, and reuse. The business is most impacted by that certainly is our Trojan business, who is well positioned there to help customers with their sustainability initiatives in this space. Chemtree also has a play here, and certainly, if you're going to be moving water around, you're going to have to test it as well, so it does create some opportunity for our analytics businesses. But the primary beneficiary really of this opportunity would be our Trojan business. And frankly, we see this space growing probably mid to high single digits for the foreseeable future.

Speaker Change: Yeah, thanks for the question, Nathan. We do see great demand here in recycle, reclaim, and reuse. The businesses most impacted by that certainly is our Trojan business.

Speaker Change: who is well positioned there to help customers with their sustainability initiatives in this space. Chemtree also has a play here, and certainly if you're going to be moving water around, you're going to have to test it as well. So it does create some opportunity.

Jennifer L. Honeycutt: And certainly, if you're going to be moving water around, you're going to have to test it as well. So it does create some opportunity for our analytics businesses. But the primary beneficiary really of this opportunity would be our Trojan business. And frankly, we see this space growing probably at mid to high single digits for the foreseeable future. Lots of industries are under pressure to achieve their sustainability targets, and we're well positioned with solutions to help them.

Speaker Change: for our analytics businesses. But the primary beneficiary really of this opportunity would be our Trojan business.

Speaker Change: And frankly, we see this space growing probably mid to high single digits for the foreseeable future. Lots of industries are under pressure to achieve their sustainability targets, and we're well positioned with solutions to help them.

Jennifer Honeycutt: Lots of industries are under pressure to achieve their sustainability targets, and we're well positioned with solutions to help them.

Andrew Krill: Great, thanks for taking my questions. Our next question is from Andrew Krill of Deutsche Bank. Morning, Andrew. Thanks. Good morning, everyone.

Nathan Hardie Jones: Great, thanks for taking my question. Our next question is from Andrew Krill of Deutsche Bank. Morning, Andrew. Thanks. Good morning, everyone.

Speaker Change: Great, thanks for taking my questions.

Speaker Change: Our next question is from Andrew Krill of Deutsche Bank.

Andrew Jon Krill: I want to circle back on margins again from a little bit more of a medium-term perspective. I know there's been a lot of discussion just that the company has meaningfully more opportunities to improve margins than might be appreciated by investors. Just can you update us on any of the findings you've had since you've been on that and whether you would consider explicitly quantifying those at any point? And then would you also say, is there more opportunity in one segment versus the other? Or do you think it's kind of similar?

Andrew Krill: I want to sort of back on Mars again, so a little bit more of the medium-term perspective. I know a lot. There's been a lot of discussion just back. The company has meaningfully more opportunities to improve margins than might be improved appreciated by investors. Just to update us, any of like the findings you've had since the spin on that and whether you would consider explicitly quantifying those at any point. And then would you also say, is there more opportunity in one segment versus the other, or you think it's kind of similar. Yeah, Andrew, thanks for that.

Andrew: Morning, Andrew.

Andrew Jon Krill: Thanks. Good morning, everyone. I want to circle back on mortgage again from a little bit more of the medium-term perspective. I know there's been a lot of discussion just that the company has meaningfully more opportunities to improve margins than might be appreciated by investors. Just can you update us on any of the findings you've had since the start?

Andrew Jon Krill: [inaudible]

Andrew Jon Krill: Yeah, Andrew, thanks for that. As you're going to look at, you know, the opportunities for margin expansion, right, you know, this is the work that the teams have been doing on the procurement side really are folks on the front lines, on the shop floor, on the factory optimization. So these are lots of singles and doubles. As I said earlier on the call, it's not one or two factors that are driving this margin expansion. And that, frankly, really is the beauty of the Kaizen culture, right?

Sameer Ralhan: You know, as you're going to look at, you know, the opportunities on the modern expansion, right? You know, this is the work that the teams have been doing on the procurement side really are forced on the front lines and the shop floor on the factory optimization. So there are lots of singles in double. As I said earlier on the call, it's not one or two, you know, factors that are driving this margin expansion. And that, frankly, really is the beauty of the kinds and culture, right? That's where you're going to see the margin contribution coming in.

Andrew Jon Krill: Yeah, Andrew, thanks for that. You know, as you're going to look at, you know, the opportunities on the margin expansion, right, you know, this is,

Andrew Jon Krill: The work that the teams have been doing on the procurement side really are folks on the front lines, on the shop floor, on the factory optimization, so these are lots of singles and doubles. As I said earlier on the call, it's not one or two factors that are driving this margin expansion. And that frankly really is the beauty of the Kaizen culture, right? That's where you're going to see...

Sameer Ralhan: That's where you're going to see the margin contribution coming in. Those efforts that the teams have been doing and the execution that is happening are giving us the confidence to really up the bar on the margin expansion for the full year. Instead of 50 to 75 basis points, what we've said, raised the guidance to 75 basis points of margin expansion for the full year this year. So that should get the full year pretty close to 24% on the operating earnings margin. Okay, great.

Sameer Ralhan: Those efforts really that the teams have been doing an execution that is happening is giving us a confidence to really up the bar on the margin expansion for the full year. Or we have instead of 50 to 75 basis points, what we've said raise the guidance to 75 basis point margin expansion for the full year this year. So that should get the full year pretty much close to 24% on the operating earnings margin. So that's where you're going to get the full year.

Andrew Jon Krill: The margin contribution coming in.

Andrew Jon Krill: Those efforts really that the teams have been doing and execution that is happening is giving us the confidence to really up the bar on the margin expansion for the full year.

Speaker Change: Thank you.

Andrew Krill: Okay, great for your helpful.

Andrew Jon Krill: Very helpful. And then can you give us an update on the situation in Argentina and maybe just how much, if you will, you have left in your guidance for the full year? And then, depending on how that shakes out the rest of the year, how that could help or hurt PQI margins in the back half? Yeah, very brief, right?

Andrew Krill: And then can you give us an update on the situation in Argentina and maybe just how much contingency, if you will, you have left in your guidance for the full year, and then I guess, depending on how that shakes out the rest of the year, how that could help or hurt PQI margins in the back-ass. Thanks. Yeah, let me brief, right. Andrew, as you're going to look at Argentina, as we said at the Q1 call, we did the Bluetooth swap to really insulate any impact on the historical cash that really drove the impact last year.

Speaker Change: Okay, great. Very helpful. And then, can you give us an update on the situation in Argentina and maybe just how much contingency, if you will, you have left in your guidance for the full year? And then, I guess, depending on how that shakes out the rest of the year, how that could help or hurt PQI margins in the back half? Thanks.

Andrew Jon Krill: And Andrew, as you're going to look at Argentina, as we said on the Q1 call, we did the blue chip swap to really insulate any impact on the historical cash that really drove the impact last year. But as you're going to move into this year, effectively, our exposure is much smaller, and that's reflected in the guide. Great, thank you.

Speaker Change: Yeah, very brief, right? And Andrew, as you're going to look at Argentina, as we said at the Q1 call, we did the blue chip swap to really insulate any impact on the historical cash that really drove the impact last year. But as you're going to move into this year, effectively, our exposure is much smaller, and that's reflected in the guide.

Sameer Ralhan: But as you're going to move into them this year, effectively, exposure is much smaller, and that's reflected in the guide. Okay, great.

Sameer Ralhan: Thank you.

Andrew Buscaglia: We'll take our next question from Andrew Buscaglia of BNP. Hi, Andrew. Hey, good morning, everyone. Morning.

Andrew Jon Krill: We'll take our next question from Andrew Buscaglia of BNP. Good morning, Andrew. Hey, good morning. Good morning, everyone.

Andrew Jon Krill: Okay, great. Thank you.

Andrew Jon Krill: We'll take our next question from Andrew Buscaglia of BNP.

Andrew Edouard Buscaglia: I'm just looking at your guidance and trying to map out the ranges and looking at the high end. I'm wondering what's contemplating or what informs the high end of your guidance because it's difficult to get there. So you either need cells to accelerate for some reason, or maybe you have some extra margin expansion in your back pocket.

Sameer Ralhan: I guess of those two, what's behind that high end is my question. Yeah, thanks for that. It really comes down to how you're going to think about the CPG markets, right? CPG markets are evolving, and they're gradually becoming positive, but it's a pretty fast changing view that we're seeing. So I think as you're going to look at the guidance range, one of the big drivers is how we think about the CPG markets and the impact they'll have on the PQI top line. I would say if there's one thing I can say, that that's one of the key things. And then on the margin side, right?

Andrew Buscaglia: Just looking at your guidance and trying to map out the ranges and looking at the high end and wondering what's contemplating or what informs the high end of your guidance, because it's difficult to get there. So you either need cells to accelerate for some reason, or maybe you have some extra margin expansion in your back pocket. I guess of those two or, you know, what's behind that high end is my question. Yeah, thanks. Thanks for that. It really comes down to how you're going to think about the CPG markets, right? CPG markets are evolving, incrementally becoming positive, but it's a pretty, pretty fast changing view that we're seeing.

Andrew Jon Krill: Good morning, Andrew. Hey, good morning. Good morning, everyone.

Andrew Jon Krill: Morning.

Andrew Edouard Buscaglia: Just looking at your guidance and trying to map out.

Speaker Change: the ranges and looking at the high end, I'm wondering what's contemplating or what informs the high end of your guidance?

Speaker Change: It's difficult to get there, so you either need cells to accelerate.

Speaker Change: [inaudible]

Speaker Change: Yeah, thanks for that. It really comes down to how you're going to think about the CPG markets, right? CPG markets are...

Speaker Change: [inaudible]

Sameer Ralhan: So I think, as you can look at the guidance range. One of the big drivers is how we're going to think about the CPG markets and the impact they'll have on the PQI top line. I would say if there's one thing I can say that that's one of the key things. And then on the margin side, right? It's always, you know, raw material prices are material of contribution we always look at, you know, we believe we have baked in, you know, pretty proven view here. So any benefit from that will be more annuling towards the high end of the range.

Speaker Change: On the PQI top line. I would say if there's one thing I can say that that's one of the one of the key things. And then on the margin side, right? I mean, there's always, you know, raw material price versus raw material.

Andrew Edouard Buscaglia: I mean, there's always raw material price versus raw material contribution we always look at. I believe we have baked in a pretty prudent view here. So any benefit from that will be more enuring towards the high end of the range. Okay, that's helpful.

Speaker Change: Contribution we always look at. You know, we believe we have baked in, you know, pretty prudent view here, so any benefit from that will be more inuring towards the high end of the range.

Andrew Buscaglia: Okay, that's helpful.

Andrew Edouard Buscaglia: And yeah, I wanted to ask any update on, you know, the PFAS regulation opportunity, you know, in terms of whether, you know, anything new around your discussions with customers or, you know, I know you guys were talking about product development, just what's the latest there? Yeah, we continue to be interested in the space. But, as you know, this is an incredibly difficult and complex problem to solve.

Jennifer Honeycutt: And yeah, I wanted to ask any update on, you know, if the PFAS, PFAS regulation opportunity, you know, in terms of whether, you know, anything new around your discussions with customers or, you know, I know you're talking about product development. This looks the way it's there. Yeah, we continue to be interested in space, but as you know, this is an incredibly difficult and complex problem to solve. We believe that we're well positioned given our 70 year history at Hawk for democratizing tests and analytics in our long track record at Track record at Trojan for developing treatment solutions.

Speaker Change: Okay, that's helpful.

Speaker Change: And, yeah, I wanted to ask...

Speaker Change: Any update on, you know, the PFAS regulation opportunity, you know, in terms of whether, you know, anything new around your discussions with customers or, you know, I know you guys were talking about product development. Just what's the latest there?

Jennifer L. Honeycutt: We believe that we're well-positioned, given our 70-year history at HAWQ for democratizing tests and analytics and our long track record at Trojans for developing treatment solutions. So we continue to invest in this space and stay focused there. But, you know, real fit-for-purpose solutions that are focused on, you know, at-site or in-line testing and at-site real-time destruction of PFAS are going to be the remaining difficult problems to solve.

Speaker Change #100: Yeah, we continue to be interested in the space, but as you know, this is an incredibly difficult and complex problem to solve.

Speaker Change #101: We believe that we're well-positioned given our 70-year history at HAWQ for democratizing tests and analytics in our long track record at Trojans.

Jennifer Honeycutt: So we continue to invest in the space and stay focused there. But, you know, real fit for purpose solutions that are focused on, you know, at-site or in-line testing and at-site, real-time destruction of PFAS are going to be remaining difficult problems to solve. But we're focused on creating winning outcomes for our customers that have fit for purpose solution. So still a few years away here, but we are, we are interested in the space as we are with sort of all of the micro contaminants that they come into the regulation frame.

Speaker Change #101: for Developing Treatment Solutions. So we continue to invest in this space and stay focused there.

Jennifer L. Honeycutt: But we're focused on creating winning outcomes for our customers that have fit-for-purpose solutions. So still a few years away here, but we are interested in the space as we are with sort of all of the micro-contaminants that come into the regulatory framework. Okay. All right. Thank you. We'll take our next question from Joe Giordano of TD Cowen. Morning, guys. Good morning.

Speaker Change #101: But, you know, real fit-for-purpose solutions that are focused on

Speaker Change #102: You know, at-site or in-line testing and at-site real-time destruction of PFAS are going to be remaining difficult problems to solve.

Speaker Change #102: but we're focused on creating winning outcomes for our customers that have fit for purpose solutions.

Speaker Change #102: Still a few years away here, but we are interested in the space as we are with sort of all of the micro-contaminants that come into the regulation frame.

Andrew Buscaglia: Okay, all right, thank you.

Joe Giordano: We'll take our next question from Joe Giordano of TD Cowan.

Speaker Change #102: Okay. All right. Thank you.

Speaker Change #102: We'll take our next question from Joe Giordano of TD Cowen.

Joe Giordano: Good morning, guys. Good morning. Thanks for taking my question. You know, I was interested in the industrial growth commentary. It's just we're not hearing that in a lot of places, right? Industrial data is pretty bad, and most companies we're seeing orders decline. So it's interesting and good to see that there. Can you kind of what's driving that? Is it new project ramps? Is it like, is it optimization at existing facilities? Like what's the nature of this kind of growth area? It does seem somewhat unique.

Joseph Craig Giordano: Thanks for taking my question. Uh, I was interested in the industrial growth commentary, where it's just we're not hearing that in a lot of places, right? Industrial data is pretty bad, and most companies are seeing orders decline. So it was interesting and good to see that there. Can you kind of explain what's driving that? Is it new project ramps?

Joe Giordano: I was interested in the industrial growth commentary, it's just we're not hearing that in a lot of places, right? The industrial data is pretty bad and most companies we're seeing orders decline. So it was interesting and good to see that there. Can you kind of, what's driving that? Is it new project ramps? Is it like... Yeah. Yeah.

Joe Giordano: Is it optimization at existing facilities, like what's the nature of this kind of growth here? It does seem somewhat unique.

Jennifer Honeycutt: Yeah, I think what you're seeing here is that there's really three things that differentiate us from other industrials. We plan to end markets with really attractive and kind of non-optional secular growth drivers, right? So when you've got a business that's 85% of our sales and food, water, and pharma, these are not elective. You know, areas of testing, right? So these are really durable markets, and as a consequence, the way our businesses has been built are durable and turned 60% of our recurring revenue, or 60% of our revenue, is kind of in this recurring revenue space.

Jennifer L. Honeycutt: Is it optimization at existing facilities, like what's the nature of this kind of growth there? It does seem somewhat. Yeah, I think what you're seeing here is that there are really three things that differentiate us from other industrials. We play in the end markets with really attractive and kind of non-optional secular growth drivers, right? So when you've got a business that's 85 percent of our sales and it's food, water, and pharmaceuticals, these are not elective areas of testing, right?

Speaker Change #104: Yeah, I think what you're seeing here is that there's really three things that differentiate us from other industrials.

Speaker Change #105: We play in the end markets with really attractive and kind of non-optional secular growth drivers, right? So when you've got a business that's 85% of our sales and it's food, water, and pharma,

Speaker Change #105: It's these are not elective

Jennifer L. Honeycutt: So these are really durable markets, and as a consequence, the way our businesses have been built is durable in turn. Sixty percent of our recurring revenue, or 60 percent of our revenue, is kind of in this recurring revenue space. It's a razor, razor blade business model with high-margin consumables. And these products and services that are deployed for our customers are essential parts of their operation. So if they choose not to use our products, or they choose not to treat and measure, measure and monitor, and so on, the cost of failure to them is high because we're really tied to product quality and public health.

Speaker Change #105: you know, areas of testing, right. So these are really durable markets. And as a consequence, the way our businesses have been built,

Speaker Change #105: are durable in turn. 60% of our recurring revenue, or 60% of our revenue is kind of in this recurring revenue space. It's a razor, razor blade business model with high margin consumables.

Jennifer Honeycutt: It's a razor-razor blade business model with high-margin consumables, and these products and services that are deployed for our customers are our essential parts of their operation. So if they choose not to use our products or they choose not to treat and measure and monitor and so on, the cost of failure to them is high because we're really tied to sort of product quality and public health.

Speaker Change #105: And these products and services that are deployed for our customers are

Speaker Change #105: are essential parts of their operation. So if they choose not to use our products or they choose not to treat and measure and monitor and so on, the cost of failure to them is high.

Jennifer Honeycutt: So the last thing I would say is, you know, BES provides a competitive advantage for us really in terms of differentiating us relative to talent, growth, and continuous improvement.

Joseph Craig Giordano: So the last thing I would say is that BES provides a competitive advantage for us really in terms of differentiating us relative to talent growth and continuous improvement. And then, just last for me on the margins. We touched on this a bunch, but with gross margins at 60, it's, it's excellent. You know, if I look at the spread between gross margins and EBITDA, 30% in SG&A seems a little high for your newer company, but long term, what's a real realistic level that that should normalize?

Speaker Change #105: because we're really tied to sort of product quality and public health. So the last thing I would say is, you know, BES provides a competitive advantage for us really in terms of differentiating us relative to talent growth and continuous improvement.

Sameer Ralhan: And then just last for me on the margins that we touched on this a bunch, but you know, with gross margins at 60, it's excellent. You know, if I look at the spread between gross margins and EBITDA, you know, 30% in SNA seems a little high. Like your newer company, like long term, what's like a real realistic level that that should normalize out at? Yeah, so I'll take that one. It's really the sales and marketing, right? If you know, just to take you back effectively, you know, when you look at a P&L, it's really aligned with how we create value in the business.

Speaker Change #107: And then just last for me on the margins that we touched on this a bunch, but it grows margins at 60. It's excellent.

Speaker Change #110: You know, if I look at the spread between gross margins and EBITDA, you know, 30% in SG&A seems a little high, like your newer company, like long term, what's like a real realistic level that that should normalize out at?

Sameer Ralhan: Yeah, Joe. I'll take that one. It's really sales and marketing, right? If you know, just to take you back, effectively, when you look at a P&L, it really aligns with how we create value. And in the business, it's more driven by investments in R&D; it's a technology-driven business, and then on the commercial side, right? The secret sauce, what we believe, and our competitive strength is a direct business model that effectively does result in the sales and marketing that you impact that you see in the numbers.

Speaker Change #109: Yeah, Joe, I'll take that one. It's really the sales and marketing, right? If you, you know, just to take you back, effectively, you know, when you look at a P&L, it really aligns with how we create value in the business.

Sameer Ralhan: It's more driven by investments in R&D. It's a technology-driven business and then on the commercial side, right? The secrets also what we believe and our competitive strength is a direct business model that effectively does result in the sales and marketing that use impact. That you see in the numbers. Overall, you know, we feel really good about our business model. That is more direct, and it really tries a competitive advantage in the marketplace.

Speaker Change #106: It's more driven by investments in R&D, it's a technology-driven business, and then on the commercial side. The secret sauce, what we believe, and our competitive strength, is a direct business model.

Joseph Craig Giordano: Overall, you know, we feel really good about our business model that is more direct, and it really drives a competitive advantage in the marketplace. Thanks, guys. And this does conclude our question and answer session. I'd be happy to return the conference to Ryan Taylor for his closing comment. Thank you, Leo. And thanks to everybody that joined us on the call today. We really appreciate your engagement and the discussion. Feel free to reach out to me if you have any more questions.

Speaker Change #106: That effectively does result in the sales and marketing impact that you see in the numbers. Overall, you know, we feel really good about our business model that is more direct and it really drives a competitive advantage in the marketplace.

Ryan Taylor: And this does conclude our question-and-answer session.

Speaker Change #108: Thanks guys.

Ryan Taylor: I'd be happy to return the conference to Ryan Taylor for closing comments. Thank you, Leo, and thanks for everybody that joined us on the call today. We really appreciate your engagement and the discussion.

Speaker Change #108: And this does conclude our question and answer session. I'd be happy to return the conference to Ryan Taylor for closing comments.

Ryan Taylor: Thank you, Leo, and thanks for everybody that joined us on the call today. We really appreciate your engagement and the discussion. Feel free to reach out to me if you have any more follow-ups. Thanks again for joining us, and we'll talk to you next quarter.

Ryan Taylor: Feel free to reach out to me if you have any more follow-ups. Thanks again for joining us, and we'll talk to you next quarter.

Leo: This does conclude today's conference. You may now disconnect your lines, and everyone have a great day. Thank you.

Ryan Taylor: Thanks again for joining us, and we'll talk to you next quarter. This does conclude today's conference. You may now disconnect your lines, and everyone have a great day. [inaudible] A. J. R. R. A. J. R. R. A. J. R. R. Scott Davis, Jeffrey Sprague, Michael Halloran, Andrew Krill, Ryan Taylor, Jeffrey Sprague, [inaudible] .. [inaudible]

Speaker Change #111: This does conclude today's conference. You may now disconnect your lines. And everyone, have a great day.

Speaker Change #111: [inaudible]