Q4 2024 Veralto Corp Earnings Call
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Margo: My name is Margo and I'll be your conference operator. This morning at this time I'd like to welcome everyone to for Altice Corporation fourth quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question and answer session. If you'd like to ask a question during that time simply press Star then the number one on your telephone.
Speaker Change: Pat if you would like to withdraw your question. Please press Star then the number two 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.
Ryan Taylor: Good morning, everyone. Thanks for joining us on the call.
Speaker Change: With me today are Jennifer Honey cut our president and Chief Executive Officer, and Samir Raw Hunt, our senior Vice President and Chief Financial Officer.
Ryan Taylor: Today's call is simultaneously being webcast.
Ryan Taylor: A replay of the webcast will be available on the investors section of our website later today under the heading events and presentations.
Ryan Taylor: A replay of this call will also be available until February 19th.
Ryan Taylor: Yesterday, we issued our fourth quarter and full year 2024 news release earnings presentation, and supplemental materials, including information required by the SEC relating to adjusted or non-GAAP financial measures.
Ryan Taylor: In addition, we also issued our 2025 full year and first quarter guidance.
Ryan Taylor: These materials are available in the investors section of our website.
Ryan Taylor: Www dot for auto Dot com.
Ryan Taylor: Under the heading quarterly earnings.
Ryan Taylor: Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides.
Ryan Taylor: 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.
Ryan Taylor: These forward looking statements are subject to a number of risks and uncertainties.
Ryan Taylor: Getting those set forth in our SEC filings.
Ryan Taylor: Actual results may differ materially from our forward looking statements.
Ryan Taylor: These forward looking statements speak only as of the date. They are made and we do not assume any obligation to update any forward looking statements, except as required by law.
Jennifer Honeycut: And with that I'll turn the call over to Jennifer.
Jennifer Honeycut: Thank you Ryan and thank you all for joining our call today.
Jennifer Honeycut: I'll begin with a look back at our 2024 accomplishments followed by a recap of our fourth quarter performance Sameer.
Jennifer Honeycut: Zamir will then take you through a detailed analysis of our Q4 results and 2025 guidance.
Jennifer Honeycut: Reflecting on 2024 I'm proud of our team for their strong execution in our first full year as a public company to grow our business strengthen our portfolio and deliver attractive value creation for all stakeholders.
Jennifer Honeycut: In doing so three notable accomplishments stand out.
Jennifer Honeycut: First we delivered on our financial commitments.
Jennifer Honeycut: Second we increased our gross investments and third we demonstrated a disciplined approach to capital allocation.
Jennifer Honeycut: Executing strategic actions to improve our portfolio and increase our dividend in conjunction with our earnings growth.
Jennifer Honeycut: Let me expand on each of these.
Jennifer Honeycut: Beginning with our financial performance for the year, we delivered core sales growth adjusted operating profit margin expansion and adjusted earnings per share growth above our initial guidance.
Jennifer Honeycut: This outcome demonstrates the durability of our business is fortified by the Alto enterprise system.
Jennifer Honeycut: Our simplification of EES and focus on leveraging high impact tools drove sales growth and margin expansion throughout the year.
Jennifer Honeycut: Our results reflect the benefits gained from our team's engagement and focused kaizen events and leverage a V. E. S grows tools to enhance commercial architecture improved funnel management and increased lead generation.
Jennifer Honeycut: Our B E. S focus combined with increased investments in sales marketing and R&D enabled us to capitalize on strengthening demand as the year progressed.
Jennifer Honeycut: Yeah.
Jennifer Honeycut: This resulted in steady sequential improvement in volume growth, partly attributable to new customer wins and increased market penetration.
Jennifer Honeycut: Across both segments, we delivered mid single digit core sales growth in the second half of 2024.
Jennifer Honeycut: On the strength of this growth and strong underlying margin expansion, we accelerated investments to drive future value creation.
Jennifer Honeycut: Specifically, we expanded our direct sales force augmented our marketing efforts and accelerated innovation and verticals and regions with high return opportunities.
Jennifer Honeycut: We enhanced our talent through new hires and internal development programs, and we increased our investment and innovation with our full year R&D expense up 40 basis points year over year to about 5% of sales.
Jennifer Honeycut: Our focus on innovation led to several new product and technology launches across our businesses throughout 2024.
Jennifer Honeycut: PQ island away with digital offerings, and packaging and color and a steady cadence of Nextgen technology launches in marking and coding.
Jennifer Honeycut: Video jet has now launched more than a dozen new products over the past two years.
Jennifer Honeycut: Its latest breakthrough the 70 920, UV laser marking system launched in the fourth quarter.
Jennifer Honeycut: This laser enhances usability adaptability and consistency and coating operations and was met with immediate enthusiasm and demand from customers.
Jennifer Honeycut: We shipped our first units shortly after the product launched in November and continued to see strong demand here in Q1.
Jennifer Honeycut: The UV laser is optimized for high quality permanent coding bunch of lighter weight flexible films made from mono material plastics. These.
Jennifer Honeycut: These flexible films are among the fastest growing substrates in the packaging industry due to their high levels of Recyclability further supporting our customer sustainability goals.
Jennifer Honeycut: We are excited about this new UV laser technology, along with many other products and solutions, we brought to the market last year.
Jennifer Honeycut: In addition to delivering our financial commitments and increasing our growth investments our third key accomplishment last year was executing disciplined capital allocation.
Jennifer Honeycut: In 2024, we took steps to improve our portfolio across both segments.
Jennifer Honeycut: This activity ramped in the fourth quarter as we acquire trace gains our first acquisition of size.
Investing in minority stake in X gene water technologies.
Jennifer Honeycut: And signed an agreement to sell advanced Division technology, or a b T. A print inspection product line in our PQ <unk> segment with approximately $40 million in annual sales.
Jennifer Honeycut: As we talked about on our Q3 call trace games was acquired early in the fourth quarter.
Jennifer Honeycut: It is a leading provider of cloud based software solutions that enable connected data and digital workflow management for consumer brands.
Jennifer Honeycut: Trace games digital solutions help customers innovate, new recipes faster and significantly reduces time to market for new products.
Jennifer Honeycut: Additionally, it helps increase transparency to ingredient inputs for food and beverage safety.
Jennifer Honeycut: The acquisition of trace gains in combination with our ESCO business strategically expands our digital offering and provides us the opportunity to deliver greater value to consumer brands as they digitize critical workflows with connected data across new product development compliance and packaging.
Jennifer Honeycut: The integration of trace gains is going well our integration team is executing on all fronts. The customer response has been very positive and the team at Tres gains has quickly embraced the E S.
Jennifer Honeycut: Trace games fourth quarter core sales growth exceeded 20% year over year and importantly, we are on track with our growth investments.
Jennifer Honeycut: Late in the fourth quarter ESCO entered into an agreement to sell its AVG product line.
Jennifer Honeycut: This sale is expected to be completed in the first quarter of 2025.
Jennifer Honeycut: This divestiture is another example of our stewardship of the portfolio with.
Jennifer Honeycut: With <unk> focus on providing source the shelf digital workflow solutions for our CPG customers. We believe new ownership of ADT will provide the necessary focus to drive its growth and innovation.
Jennifer Honeycut: In combination acquiring trace gains and by investing a b T enhances our packaging and color portfolio.
Jennifer Honeycut: Both deals are immediately accretive to PQ is core growth rate gross margin and recurring revenue.
Jennifer Honeycut: And water quality, we have also taken actions to improve our portfolio as previously discussed since for Rialto spinoff, we have strategically exited three product lines that were not aligned with our long term value creation strategy.
Jennifer Honeycut: In the fourth quarter, we made a minority investment in <unk>, a provider of electrochemical oxidation technology used to destroy contaminants and water, including PFS.
Jennifer Honeycut: Our water quality team has a long proven track record of developing and commercializing technologies that help customers detect and destroy emerging contaminants.
Jennifer Honeycut: A key part of our growth strategy in water quality is developing fit for purpose solutions to help our customers meet complex challenges.
Jennifer Honeycut: We believe vaccines electrochemical oxidation technology provides a promising solution for difficult to treat organic contaminants and that our commercial partnership with axiom will accelerate technology adoption over time.
Overall, we are pleased with the progress we made in Curating our portfolio in 2024.
Jennifer Honeycut: Moving forward, we expect acquisition growth to be a key value creation lever.
Jennifer Honeycut: The pipelines for both segments are full and active.
Jennifer Honeycut: And we continue to be disciplined in our approach to capital allocation.
Jennifer Honeycut: Looking now at 2025, we are starting off the year with an improved portfolio positive trends in our end markets and a stronger financial position.
Jennifer Honeycut: Demand across our key end markets has strengthened compared to this time last year highlighted by strong demand for industrial water treatment in North America, and improved demand in consumer packaged goods markets globally.
Jennifer Honeycut: For the full year 2025, we are targeting low to mid single digit core sales growth with strong incremental margins solid earnings growth and strong cash generation.
Jennifer Honeycut: And we believe the durability of our business is fortified by the Burrito enterprise system are competitive advantages that enable us to consistently grow and improve even in dynamic macro environments.
Jennifer Honeycut: Looking at our financial results for the full year 2024 total sales grew three 4% year over year to just under $5.2 billion, an all time high.
Jennifer Honeycut: We delivered three 7% core sales growth with 80 points of adjusted operating profit margin expansion.
Jennifer Honeycut: And adjusted earnings per share grew 11% to $3 54 per share.
Jennifer Honeycut: Notably we exceeded our initial guidance on all three of these metrics.
Jennifer Honeycut: And we generated $820 million of free cash flow further strengthening our financial position.
Jennifer Honeycut: We ended the year with $1 $1 billion of cash on hand, and net leverage at one two times.
Jennifer Honeycut: Overall, I'm pleased with the growth and margin expansion, we delivered in 2020 for every operating company across both segments contributed core sales growth with positive volume.
Jennifer Honeycut: Our water quality team delivered three 9% core sales growth with 50 basis points of adjusted operating profit margin expansion.
Jennifer Honeycut: They set all time highs with annual sales of over $3 billion and adjusted operating profit margin of 25%.
Jennifer Honeycut: And our PQ I team delivered three 3% core sales growth with 160 basis points of adjusted operating profit margin expansion.
They also reached all time highs with over $2 billion in sales and adjusted operating profit margin of 27%.
Jennifer Honeycut: I'm proud of our teams across the world for their strong commercial and operational execution in support of our customers.
Jennifer Honeycut: We capped off a strong 2024 with solid fourth quarter results.
Jennifer Honeycut: Core sales grew four 6% led by volume growth with both segments growing core sales by more than 4%.
Jennifer Honeycut: Adjusted earnings per share grew 9% year over year to 95 cents.
Jennifer Honeycut: And free cash flow generation was strong at $263 million in the fourth quarter further strengthening our financial position.
Yes.
Jennifer Honeycut: Looking at core sales growth by geography, and end market for the fourth quarter growth across the enterprise was broad base across key verticals and regions and our commercial teams executed well leveraging our P. S growth tools and investments made earlier in the year.
Jennifer Honeycut: North America, and Western Europe, which comprise about 70% of our total sales grew nearly 6% and high growth markets grew low single digits year over year.
Jennifer Honeycut: In North America core sales grew five 8% within both segments.
Jennifer Honeycut: And water quality, we continue to capitalize on strong demand for our chemical water treatment solutions, which grew high single digits in North America.
Jennifer Honeycut: From an industrial end market perspective, this growth was broad based with the strongest growth in food and beverage chemical processing and power generation.
Jennifer Honeycut: We also continued to see strong growth for Trojans Ub systems at municipalities in North America, primarily related to water reuse.
Jennifer Honeycut: But we're also continues to benefit from strong secular drivers in water conservation reclamation and reuse as we help our customers achieve their sustainability goals.
Jennifer Honeycut: Okay.
Jennifer Honeycut: Over the long term, we expect these secular trends to drive continued growth opportunities given the scarcity of water today, coupled with more frequent and severe weather events and increasing water usage from industry, such as data centers, which consume large quantities of water for cooling.
Jennifer Honeycut: It also includes traditional industries, ranging from power generation to food and beverage processing.
Jennifer Honeycut: Both our water treatment and analytics businesses are poised to benefit from increased industrial activity in North America.
Jennifer Honeycut: Our PQ I core sales in North America also grew five 8% in Q4 with mid single digit growth in both packaging and color and marking and coding.
Jennifer Honeycut: [laughter] PQ is growth in North America was largely driven by strong growth in equipment sales.
Jennifer Honeycut: This reflects a combination of improving end market demand from CPG customers and market penetration from our strategic initiatives.
Jennifer Honeycut: Specifically in North America video jet focused on new customer wins differentiated new product launches and V S driven commercial excellence.
Jennifer Honeycut: In Western Europe, we saw continued momentum with core sales growth of five 8% year over year led by seven 3% growth in water quality sales and 4.4% growth in PQ I.
Jennifer Honeycut: The sales growth in Western Europe was largely driven by strong commercial execution by our water analytics team.
Jennifer Honeycut: Additionally, we drove growth across piece, you I, and both our marking and coding and packaging and color businesses.
Jennifer Honeycut: And high growth markets core sales increased one 5% in the fourth quarter led by Latin America and India.
Jennifer Honeycut: In China, <unk> continue to drive solid year over year core sales growth. However, similar to our third quarter performance PQ is growth in China was offset by lower sales in water quality.
Jennifer Honeycut: This is primarily due to ongoing soft demand for water analytics, and a lower level of UV system installations for chip processing, which were exceptionally strong in the fourth quarter of 2023.
Jennifer Honeycut: Total company sales into China in Q4 were in line with our quarterly average for the year.
Jennifer Honeycut: We continue to view demand for our products in China as stable at low levels and do not expect China sales to grow in 2025.
Jennifer Honeycut: Overall, we delivered solid fourth quarter financial results on the back of strong commercial execution, while continuing to invest in future value creation.
Jennifer Honeycut: At this time I'll turn the call over to Sameer to provide details on our fourth quarter results and 2025 guidance.
Sameer: Thanks, Jennifer and good morning, everyone.
Sameer: I'll begin with our consolidated results for the fourth quarter.
Sameer: Total sales grew four 4% on year over year basis to over $1 $3 billion.
Sameer: Currency was a 50 basis points headwind year over year and acquisitions contributed 30 basis points of growth, primarily driven by Chris gains.
Sameer: Core sales grew four 6%.
Sameer: Our core sales growth was primarily driven by volume, which grew three 1% year over year.
Sameer: Price contributed 1.5% growth this quarter in line with historical levels.
Sameer: Our recurring revenue grew mid single digits year over year and comprised 59% of our total sales.
Sameer: The percentage of recurring revenue is in line with 2023 levels.
However, it is down sequentially.
Sameer: Primarily due to high single digit sequential growth in nonrecurring revenue, specifically water testing instrumentation, and marking and coding equipment.
Sameer: Gross profit increased 7% year over year to $801 million.
Sameer: Gross profit margin improved 170 basis points year over year to 59, 6%, primarily driven by pricing.
Sameer: Adjusted operating profit increased 5% year over year and adjusted operating profit margin was flat year over year at 23, 8%.
Sameer: As Jennifer mentioned in the fourth quarter, we continued to increase investments in our direct sales and marketing efforts on both a year over year and sequential basis.
Sameer: On a year over year basis, R&D as a percent of sales increased 70 basis points or $12 million to five 1%.
Sameer: In addition, our cost optimization investments in this quarter increased by about $7 million on sequential basis.
These investments are aligned with our strategic growth plans.
Sameer: Looking at EPS for Q4.
Sameer: Adjusted earnings per share grew 9% year over year to 95 cents per share.
Sameer: As compared to our guidance our adjusted EPS came in stronger primarily due to lower corporate expenses and a lower tax rate.
Sameer: These benefits more than offset a headwind from currency.
As compared to our guidance expectations.
Sameer: Strengthening of the U S dollar during the quarter resulted in about 2% on approximately $25 million headwind to sales.
Sameer: Primarily due to translation of foreign currencies.
Sameer: This led to a headwind of about $7 million to adjusted operating profit.
Sameer: <unk> to adjusted earnings per share as compared to our guidance assumptions.
Sameer: In the fourth quarter, we generated robust free cash flow of $263 million or 116% conversion of GAAP net income.
Sameer: Moving on I'll cover the segment highlights starting with water quality.
Sameer: Our water quality segment delivered $811 million of sales up three 7% on a year over year basis.
Sameer: Currency was a 60 basis points headwind.
Divestitures reduced total sales by 60 basis points versus the prior year period.
Sameer: Core sales grew four 9% year over year.
Sameer: Water quality core sales growth was led by volume, which grew three 3%.
Sameer: Pricing contributed one 6% growth year over year.
Sameer: Water quality is volume growth was driven by strong demand for water treatment solutions in our industrial end markets and UV treatment systems and municipal end markets.
Sameer: We also saw a good volume growth in sales of analytical instruments reagents and chemistries to municipalities.
Sameer: Recurring sales grew mid single digits and equipment growth was up low single digits year over year.
Sameer: Adjusted operating profit increased 2% year over year to $207 million.
Sameer: And adjusted operating profit margin was 25, 5%.
Sameer: Marketing water qualities highest quarterly margin performance this year.
Sameer: Moving to the next page.
Sameer: Sales in our PQ ice segment grew five 4% year over year to $534 million in the fourth quarter.
Sameer: Currency was a 30 basis points headwind.
Sameer: And acquisitions contributed one 6% growth in the quarter.
Sameer: Core sales grew four 1% with volume up two 9%.
Sameer: Price increases contributed one 3% to the year over year growth in core sales.
Sameer: Okay.
Sameer: <unk> recurring revenue grew high single digits year over year with positive momentum across the portfolio.
Sameer: PQ as equipment sales grew low single digits, primarily driven by marking and coding systems.
Sameer: On a sequential basis equipment sales were up mid single digits, driven largely by marking and coding equipment.
Sameer: Breaking this down by business.
Sameer: Marking and coding core sales grew mid single digits driven by growth in both consumables and equipment.
Sameer: The strongest growth was at food and beverage applications within our CPG customer base.
Sameer: In our packaging and color business core sales grew mid single digits year over year led by growth in both recurring software and subscription revenue.
Sameer: <unk> adjusted operating profit was $133 million in the fourth quarter up $10 million over the prior year period.
Sameer: Resulting in adjusted operating profit margin of 24, 9%.
Sameer: That represents a 60 basis points improvement in adjusted operating profit margin over the prior year period.
Sameer: The margin expansion was primarily due to favorable currency benefit.
Sameer: As the Argentine peso devaluation in Q4 2023 did not repeat.
Sameer: This benefit was partially offset by increased investments in sales marketing and R&D, along with a higher mix of equipment sales and dilution from the <unk> acquisition.
Sameer: For the full year PQ I delivered three 3% core sales growth and 160 basis points of adjusted operating profit margin expansion.
Sameer: Overall, it was a very good year for <unk> and we continue to see positive momentum in our commercial execution and end market environment as we enter 2025.
Sameer: Turning now to our balance sheet and cash flow.
Sameer: In Q4, we generated $285 million of cash from operations.
Sameer: We invested $22 million and capital expenditures.
Sameer: Free cash flow was $263 million in the quarter.
Sameer: Our 116% conversion of GAAP net income.
Sameer: At the end of the fourth quarter gross debt was $2 6 billion and cash on hand was $1.1 billion.
Sameer: Net debt was $1 $5 billion, resulting in net leverage of one two times.
Jennifer Honeycut: As Jennifer shared.
Jennifer Honeycut: Early in the fourth quarter, we acquired Chris gains at a gross purchase price of $350 million.
Jennifer Honeycut: The deal was funded with cash on hand.
Jennifer Honeycut: We also invested approximately $15 million to establish a minority interest in <unk> water technologies.
Jennifer Honeycut: Even after these investments.
Jennifer Honeycut: Actual position is strong and we continue to have flexibility in how we deploy capital.
Jennifer Honeycut: To that point in the fourth quarter, our board of directors approved a 22% increase in our quarterly dividend.
Jennifer Honeycut: This is consistent with our approach to increase the dividend as we grow our earnings.
Jennifer Honeycut: Over the long term however, our bias remains to create long term shareholder value through M&A.
We have an attractive pipeline of opportunities in both water quality and <unk>.
Jennifer Honeycut: We remain disciplined in our approach as we continue to deploy capital to create long term shareholder value.
Jennifer Honeycut: Turning now to our guidance for 2025.
Jennifer Honeycut: Beginning with our expectations for the full year.
Jennifer Honeycut: We are targeting core sales growth in the low to mid single digit range on a year over year basis.
Jennifer Honeycut: At the midpoint of our guidance, we are assuming core sales growth consistent with our full year 2024.
Jennifer Honeycut: This assumes pricing in the range of 100 to 200 basis points.
Jennifer Honeycut: System with our historical range.
Jennifer Honeycut: We expect net acquisitions and divestitures to be neutral to growth.
Jennifer Honeycut: As potential sales contribution from trace games is largely offset by the impact of the ADT divestiture.
Jennifer Honeycut: Our full year guidance assumes that currency rates as of December 31, 2024 prevail for the remainder of the year.
Jennifer Honeycut: Based on this assumption currency is approximately 2% headwind to total sales on a year over year basis.
Jennifer Honeycut: This falls through roughly in line with that of adjusted operating profit margin, resulting in operating profit dollar headwind of approximately $25 million.
Jennifer Honeycut: This represents an eight cents headwind to adjusted earnings per share.
Jennifer Honeycut: Our guidance assumes corporate expense at a full annual run rate between $100 million to $105 million.
Jennifer Honeycut: Looking at adjusted operating profit margin, we are targeting 25 to 50 basis points of improvement in 2025.
This assumes margin expansion at both segments and.
Jennifer Honeycut: And total company incremental margins around 40%.
Jennifer Honeycut: Our adjusted EPS guidance for the full year 2025 is in the range of $3 60 per share to $3.70 per share.
Jennifer Honeycut: This assumes an effective tax rate of approximately 23%.
Excluding the eight cents per share currency headwind on adjusted EPS guidance represents about 5% year over year growth at the midpoint and about 7% growth at the high end of the range.
Jennifer Honeycut: And we are targeting free cash flow conversion between 90% to 100% of GAAP net income.
Jennifer Honeycut: This assumes capex in the range of one to one 5% of sales and a modest working capital investment to support our growth.
Looking now at Q1 2025, we expect core sales to grow in low to mid single digit range across both segments.
Jennifer Honeycut: Currency translation is expected to be approximately 2% year over year headwind to sales.
Jennifer Honeycut: We anticipate adjusted operating profit margin in the range of 24% to 24.5%.
Jennifer Honeycut: And our Q1 2025 guidance for adjusted EPS is <unk> 84 to 88 cents per share.
Jennifer Honeycut: This assumes a <unk> <unk> currency headwind.
Jennifer Honeycut: That concludes my prepared remarks at.
Jennifer Honeycut: At this point I'll turn the call back over to Jennifer for closing remarks.
Jennifer Honeycut: Thanks, Samir in summary, we capped off a strong first year as a public company in 2024, we delivered on our commitments invested in our future and improved our portfolio.
Jennifer Honeycut: We enter 2025 with a more positive outlook on our end markets and momentum throughout the enterprise.
Jennifer Honeycut: Longer term, we are confident that the essential need for our technology solutions and the strong thematic growth drivers across our end markets will provide steady durable growth.
Jennifer Honeycut: And we will continue to leverage the power of the we're also enterprise system to drive continuous improvement and bolster our agility through a dynamic macro environments.
Jennifer Honeycut: Our financial position remains strong and we continue to evaluate additional strategic opportunities within our disciplined capital allocation framework of market company and valuation.
Jennifer Honeycut: We are excited about the bright future ahead for alto and the opportunities in front of us to help customers solve some of the world's biggest challenges in delivering clean water safe food and trusted essential goods.
Jennifer Honeycut: That concludes our prepared remarks and at this time, we're happy to take your questions.
Speaker Change: Thank you and at this time, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one for a question. We will take our very first question from Andy Kaplowitz from Citigroup. Please go ahead.
Jennifer Honeycut: Hi, Good morning. This is.
Speaker Change: Hello, Bob on behalf of any tablet.
Jennifer Honeycut: And Italia.
Speaker Change: First question is I want to ask.
Speaker Change: Great gallon or give more color into how youre thinking about your segments in terms of margin expansion today, both grown that 25 to 50, that's range and do you have to trade schemes weighing you down a bit more on <unk>.
Speaker Change: Dana Italia. This Samir yeah, I think the as you're going to think about the margin expansion is very similar in fact I would figure consists can take a step back and look at our overall company guide and how the segments are going to contributing for both the segment you should look at the core growth in a very similar.
Speaker Change: Place for low single digits mid single digits and also from a margin expansion perspective pretty similar contribution coming from both the segments.
Speaker Change: Got it that's helpful. And then second question I wanted to ask I'm, just curious about the progression of DDR what specific initiatives have you implemented to drive cost efficiencies and enhance margin and how has it been evolving since you went public where do you see the most opportunity for further margin expansion in 2000 2025.
Speaker Change: And how are you balancing the increase in growth investments with the goal of improving margin performance.
Speaker Change: Thanks for the question Italia I think we feel very good about how we have honed our V S toolset.
Speaker Change: Certainly we had a big push in 2024 really to drive growth and commercial execution, but we also drove considerable amounts of margin expansion and just good factory disciplined so.
Speaker Change: The things that we did in bringing the ves toolset over from Danaher post spin we're to really narrow the focus and drive.
Speaker Change: A greater depth of application and competency in the use of those tools. There are five to six tools that sit in our fundamentals and those fundamentals are irrelevant to everyone.
Speaker Change: Whether you're sitting a function are you sitting in operating company.
Speaker Change: And so we feel good about both our.
Speaker Change: Deployment, there for a commercial applications accelerated new product development and factory focused optimization.
Speaker Change: Okay.
Speaker Change: Alright Thats helpful. Thank you so much.
Speaker Change: Our next question comes from Deane Dray with RBC capital markets. Please go ahead.
Deane Dray: Thank you good morning, everyone. Good morning, Hey.
Deane Dray: You all know I've covered danaher for so many years, so whenever I hear about growth investments done at year end, that's really right out of the Danaher playbook, because it's a good sign youre getting youre doing it from a position of strength there as a way to jump start the new year.
Deane Dray: So I'm, assuming that applies to your wall and if I look at the margin.
Deane Dray: Couple of quarters sequentially down a bit.
Speaker Change: Is it fair to say it but that's the impact of the growth investments you have can you size that impact and anything about the benefits and am I thinking about it the right way.
Deane Dray: Yeah. Thanks, Deane as you know some of US here in the room have.
Speaker Change: Spent nearly a lifetime at danaher.
Deane Dray: The playbook there is very familiar I think it's right.
Deane Dray: We took the opportunity here on the back of strong growth to continue to reinvest in the business in areas that we think will set us up for a good 2025.
Deane Dray: So that's spot on and maybe I'll turn it over to Samir to talk about the rest of your question. Thanks, Jennifer Yeah. Deane. If you are going to look at the sequential margin right. The first one is really creates gains roughly 70 basis points dilutive to the margins.
Deane Dray: Margins right, but it really sets up really well in 2025 about you're going to look at driving the growth in <unk>. The.
Speaker Change: The second one is actually a great is it going to think about the hep net equipment sales coming back so the mix of the equipment and PQ I.
Speaker Change: It was little higher similar to the water quality as well again as the install base grows as you know our future recurring revenue growth. So it's a great to have that and lots of the point that you kind of a mid teen really as you think about the investments in R&D commercial cost optimization. These things are all as you outlined very intentional very deliberate actions.
Speaker Change: To make sure that'd be hit the ground running in 2025.
Speaker Change: So I think as Jennifer also said playbook is very similar without our focus is long term value creation, and if you kind of zoom out for a full year 2025, we delivered 80 basis points.
Speaker Change: The full year.
Speaker Change: While ramping up as a full year in the first full year as a public company, while investing in sales and marketing while investing in R&D all of those things really positioning us really well is it going to start 2025.
Speaker Change: We feel good about the margin expansion.
Speaker Change: That's really helpful.
Speaker Change: I appreciate it all those specifics and the second question.
Speaker Change: Mike I might be tempted to ask about trace games, because that's kind of the marquee first deal, but I'm actually more interested in talking about the investment and axiom.
Speaker Change: This electrochemical oxidation technology, it looks really promising we've spoken with vaccine before they are established and it looks like it could have good application for onsite P. Fast destruction, because they are already proven the technology and other complex molecules.
Speaker Change: Look it's still early I get that.
Speaker Change: I'm most it most interested in the strategy here of using M&A as a proxy for R&D because you can make a really smart investment for $15 million with cigna potentially significant pay off down the road does your final have more.
Speaker Change: Candidates and vast Mccannon thats like this because yes.
Speaker Change: <unk>, that's a great way to be spending your capital.
Deane Dray: Yes, thanks for the question Dean.
Deane Dray: Look I, we have a number of different levels levers to pull relative to capital allocation and we look at all sorts of modalities there to create long term shareholder value I think we feel good about our level of investment in X gene.
Deane Dray: Just relative to.
Deane Dray: Proving out the technology, making sure that it matures in the right way relative to the markets that we served.
Deane Dray: And we've got a very competent and capable of science and technology team that's constantly canvassing the market for good opportunities to engage with other partners be that in a minority investment or be that outright acquisition. So I think everything's on the table there.
Deane Dray: Really appreciate it thank you.
Speaker Change: And our next question comes from Mike Halloran with Baird. Please go ahead.
Hey, good morning, everyone.
Speaker Change: Good morning, Mike.
Speaker Change: So.
Speaker Change: Let's just start with the end markets and kind of a loose thought.
Speaker Change: What's changed as we sit here today versus the last time, we talked exiting <unk> earnings it sounds like Youre pretty constructive coming into the year is just it's been a continuation of the trends you are seeing then or is there anything new that you think has developed over this period of time.
Speaker Change: I think it's largely a continuation of what we've seen Mike.
Speaker Change: You've talked a lot about the strength in our industrial water business is given the number of very thirsty industries Datacenters power generation and so on that that continues we're seeing good steady growth in analytics as well.
Speaker Change: Particularly in the U S and Europe on the back of the secular drivers that.
Speaker Change: Require clean water for a for the population that they serve.
Speaker Change: And then I think on that on the PQ I side, we see the continued recovery in the strength of the CPG markets.
Speaker Change: We saw.
Speaker Change: Actually the sixth consecutive quarter of mid single digit to high single digit recurring revenue, we know that that recurring revenue always precedes sort of equipment growth.
Speaker Change: And now we've seen three consecutive quarters of year over year growth in equipment sales with in fact equipment sales coming in better than expected here in the fourth quarter. So.
Speaker Change: So we think we're set up well given the macro and we enter the year here with continued momentum.
Speaker Change: Great I appreciate that and then when you think about the foundation for the guide for the year I understand all the moving pieces here a lot of color.
Speaker Change: Just two quick questions related to that one is the cadence through the year expected to be kind of consistent with normal seasonality.
Speaker Change: <unk> is the assumption that things just kind of hold trend as we sit here today or is there any improvement or DSL assumed in what your end markets look like.
Speaker Change: Hey, Mike Yeah from the guide perspective, as you kind of look at the top line the growth side, that's going to be pretty consistent.
Speaker Change: As Jennifer just said right.
Speaker Change: From the CPG market's perspective from a water perspective, you're seeing some.
Speaker Change: Good trends.
Speaker Change: Really good about as we enter 2025 those trends are continuing.
Speaker Change: So overall from a seasonality perspective as you know we don't have a whole lot of seasonality maybe on the equipment side instrument side, we see a little more pull through in Q4 as people are kind of managing their budgets, but overall.
Speaker Change: But not a not a whole lot of seasonality in our business, so but coming into 2025, we feel pretty good about the trends continuing and Oh.
Speaker Change: And then the other.
Speaker Change: Numbers.
Speaker Change: Great really appreciate everyone. Thank you.
Speaker Change: Thanks, Mike we'll.
Speaker Change: We will take our next question from Nathan Jones from Stifel. Please go ahead.
Nathan Jones: Good morning, everyone.
Nathan Huckle: Good morning, Nathan Huckle questions I've got a couple of questions around margins.
Nathan Jones: Are.
Nathan Jones: And comparing to margin expansion and $24 25.
Nathan Jones: Ramped up R&D investments 40 basis points, then without that 2012 would have been up about 120 basis points in the guidance for 25 on similar revenue growth is 25 to 50. So maybe you can just give us some more color on where you got that extra margin expansion.
Nathan Jones: Maybe youre not anticipating in 2025.
Nathan Jones: I'll stop there.
Nathan Jones: Yeah, Hey, Nate and I'll start off with that is it going to look up from 24 to 25 right of course of the 'twenty for the margin expansion was pretty broad based really as Jennifer said, all the way from the factory floor down to the commercial operations and functions.
Nathan Jones: Did I get offset a little bit by trace gains in some of the investments that we continue to make as we move into 2025 from a price cost differential perspective, we still expect to be positive I mean, it was positive in 'twenty 'twenty four we expect that to continue R&D will be in a very similar level Nathan roughly 5% of the sales so that trend.
Nathan Jones: We expect to continue in 2025 and that sort of stuff is really some really targeted investments on the commercial side really the sales and marketing as we continue to drive the growth so.
Nathan Jones: So that's kind of like how it's kind of panning out the 25 to 50 basis points still going to be pretty much a pretty broad base across the board.
Speaker Change: Thanks for that and then I guess I'll ask one on incremental margins, Jennifer you talked about 40% incremental margins in 2025.
Nathan Jones: Yes, each year, that's probably a relatively.
Speaker Change: Small change at low to mid single digit growth.
Nathan Jones: I think originally when.
Speaker Change: When the business spun out you guys had talked about 30% to 35% incremental margins. Just wondering if you can comment on is that structurally high now or is it a one off this year.
Nathan Jones: And if it is structurally higher what's driven that.
Nathan Jones: Yeah, Nathan if you got to look at 30 to 35 right. That's a long term view, we expect to make the right investments in the sales or marketing R&D to continue to position the business for future growth as well right.
Nathan Jones: 2024.
Nathan Jones: Feel really good about what teams have been able to deliver we are north of 45 closer to 50% on the fall through for.
Nathan Jones: For 2024 given.
Nathan Jones: The kind of investment that we have laid out and have visibility into what we're going to be doing at 225, you feel pretty good about delivering 40% alright. So the Yo Yo Yo Yo depending on some of the investments that things will change, but I think if you think about the long term value creation frame frame 30 to $35 is a good one to keep.
Speaker Change: Great. Thanks for taking my questions.
Speaker Change: Thanks Nathan.
Speaker Change: Thank you and next we'll go to sorry, Palicki with Jefferies. Please go ahead.
Speaker Change: Oh. Good morning. This is James on for Thursday for taking my questions. This morning.
Speaker Change: Oh I wanted to kind of culture, Oh, good morning, I wanted to touch on the CPG market a little bit more I mean, you talked about continued quite gradual recovery paths here over the last several quarters. So can you provide a little more color on the recovery path like how far are we from like normalization in those industry like what percentage of your point.
Speaker Change: Revenue is still missing from the like loft like normal state of distribution market.
Speaker Change: Yeah, I mean, I think the way we look at the recovery of CPG market is.
Speaker Change: Mothballed manufacturing lines will be turned back on and those will require spare parts consumables.
Speaker Change: That then is followed by equipment upgrades.
Speaker Change: We are not yet at the point, where we're seeing.
Speaker Change: Line expansions per se and new build so that would be another sort of extension of the recovery.
Speaker Change: But you know given the fact that we've seen six consecutive quarters of mid to high single digit recurring revenue growth, which means those lines are coming back on in and using and consultant spare parts filters and so on and we've seen three consecutive quarters of year over year growth in equipment sales.
Speaker Change: Suggests that we're well into the recovery with the prospect of of new builds are still ahead of us should that happen.
Speaker Change: Got it great. Thanks for the color and I guess I wanted to understand though like portfolio optimization, where you makes you could put a little bit better here. So like how much are left to do here like what are some specifics that you can still do and how we will like this initiative affect the top line and potentially margin like in 2025.
Speaker Change: Yeah. The way we think about this is that every product line has to earn its right to be in the portfolio and I think as an independent enterprise.
Speaker Change: You know we are we are tasked with being good stewards of the portfolio in terms of making sure.
Speaker Change: That products that are part of the portfolio and services are you now at or better than the fleet average.
Speaker Change: And you know where we've got product lines that are below the fleet average in terms of core gross and operating profit will look to make changes. There now those changes may be you know additional investment to get them on the right track. It may be that we attenuate them over time and it may be that we divest them outright.
Speaker Change: But I think it's it's a safe to assume that we're always looking to improve our portfolio.
Speaker Change: And moving the portfolio towards.
Speaker Change: You know nominally higher growth rates and increasing margins.
Speaker Change: Great. Thanks for the color I'll leave it there.
Speaker Change: Thank you and we'll next go to Andrew Buscaglia with BNP. Please go ahead.
Andrew Buscaglia: Hi, good morning, everyone.
Speaker Change: Morning, Andrew.
Andrew Buscaglia: So I wanted to.
Andrew Buscaglia: I ask you a high level question.
Andrew Buscaglia: You guys had a great year and the stock.
Andrew Buscaglia: Also had a pretty good year, but it sort of broke down the stock that is towards the end of the year on concerns around the Trump administration would that mean for your your stock I think.
Andrew Buscaglia: And you've got you've got a couple of months to think about it now so I'm wondering.
Andrew Buscaglia: It was concerns around what it means for water quality, but then it kind of marked into is it good or bad for PQ <unk> and you can hear different arguments on both side I'm. Just wondering what are your latest thoughts for both segment under this administration.
Andrew Buscaglia: Yeah.
Andrew Buscaglia: Certainly operating in a fairly dynamic environment, but from a portfolio standpoint, 85% of our sales are tied to water food and essential goods.
Andrew Buscaglia: It's never been out of style to protect public health and safety.
Andrew Buscaglia: Regulations do help us do that but these are issues that are important to everyone. Regardless of the political affiliation. So I would say sort of on the on the water side.
Speaker Change: You know because we are endemic to the.
Speaker Change: Operation environment of of discharging clean water and cleaning up industrial water wastewater and so on I think we feel like that is still going to be a need as long as we've got.
Speaker Change: You know people on the planet, where theyre going to need clean clean water on the PQ I side, a lot of what we are focused on there is securing.
The inherent safety.
Speaker Change: The food supply chain right and.
Speaker Change: You know, we have a need to or consumer product brands have a need to ensure that what they are distributing to their consumers.
Speaker Change: You know that the ingredients.
Speaker Change: The formularies and so on are safe are traceable.
Speaker Change: And can.
Speaker Change: Can be recalled in the event that there is some sort of public health or safety issue. So.
Speaker Change: We think even in the current environment.
Speaker Change: You've got strength in both of these businesses these products and services not only provide essential public health and safety.
Speaker Change: Information, but but in many cases the.
Speaker Change: Products and services, we provide provide economic benefits to customers as well. So again. This is not a capex intensive set of businesses. We are focused on the daily operations and the essential need of our products and services. There are we believe going to remain.
Speaker Change: Yeah.
Speaker Change: Okay and.
Speaker Change: Maybe along those lines.
Speaker Change: With tariffs.
Speaker Change: As part of your guidance and imply some disruption around tariffs and can you comment around the latest your latest thoughts around China and Mexico.
Speaker Change: Radian terrified that might impact you.
Speaker Change: Yes, the guidance, we have not reflected any sort of a sustained impact from the tariffs look it's a very fluid and dynamic situation.
Speaker Change:
Speaker Change: But if you're going to step back we procure raw materials from globally, we have a global manufacturing footprint.
Speaker Change: And over the years through the supply chain disruptions and things that will happen, we feel pretty good about the changes that the operations have made over the last four or five years, so really position.
Speaker Change: And fortify our supply chain. So if you feel pretty good if you're keeping an eye on just like you guys on the things that are coming out, but overall, we feel pretty good.
Speaker Change: But if you say hey, there's a sustained level of tariff changes that's not baked into the guide.
Speaker Change: Okay alright, thank you.
Speaker Change: Thank you we will take on.
Speaker Change: We'll take our next question from Jonathan <unk> with BMO capital markets. Please go ahead.
Speaker Change: Yes, good morning, and thanks for taking my question, maybe just a couple on the on the water side. So you highlighted some of the growth that you were seeing were really in the food and beverage and then on the power side. Those strike me as relatively stable market. So it is the bulk of that.
Speaker Change: Share gain and if so I guess can you help us to understand kind of what drove that was it some of the investments you've been making in North America or there are the things that we should be thinking about.
Speaker Change: Yeah, I mean, I think we participate in a well diversified set of markets with respect to our water business and the two that you cite there are certainly.
Speaker Change: The strong growing industrial markets that we experienced in <unk>.
Speaker Change: 2024, but the reality is as is the shift over time, and we have a good agility and pivoting our sales force to where the growth is coming from you know generally we've been up year over year in most of our markets and we continue to feel good about.
Speaker Change: Industrial production and the need for our products and services, particularly as re shoring comes back to the U S.
Speaker Change: And so on.
Speaker Change: Got it fair enough and then maybe just one question on on the datacenter side.
Speaker Change: There's some growing excitement around directed chip cooling. There's also just an increase in general used I guess can you speak to whether you're agnostic as to how datacenters cool going forward and some of the some of the growth that youre seeing in terms of the opportunities from the data center side.
Speaker Change: Yeah, I mean, I think that the predominant focus here for US is is our water cooled applications right, but I would say that we have a very strong science and technology team on the ground. That's regularly canvassing the customer base to understand sort of pain points and technology changes I would say our mid <unk>.
Speaker Change: Single digit growth algorithm is really not tied to sort of single industry here.
Speaker Change: It's gonna be broad based and we believe that the growth in data centers and power generation actually needed to run those centers will continue to be a potential.
Speaker Change: It has potential to be a meaningful growth driver certainly throughout our treatment business.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, very much for the color.
Speaker Change: And next we're going to go to Andrew Krill with Deutsche Bank. Please go ahead.
Andrew Krill: Hi, Thanks, good morning, everyone.
Looking at free cash flow another guidance, 90% to 100% is a little below your medium term target of 100 and extra working capital was cited suggest should we be thinking that as kind of a one time 2025 of them and that in 2026, we get back to that 100% or so.
Andrew Krill: And are there any other factors you'd call out for this year on what's keeping you below a 100%.
Andrew Krill: Yeah, Hey, Andrew this if you're going to look at the free cash flow conversion. Yes, you know we had a pretty solid year in 2024 with a 98% conversion of GAAP net income as you're going to move into 2025, there's really two things because of which we have guided a little bit below and one of the reasons is on the capex side.
Andrew Krill: As you know historically, you've been at least for the last three four years, we've been a capex.
Andrew Krill: Capex is kind of like close to 1% of revenue we've got it towards one to one and a half that's again, mostly tied to some of the growth investments that you're making in in our auto physical asset base in 2025.
Andrew Krill: Some of it is just a good stewardship off the asset base. So if you kind of just looking at the Capex going to one to one 5% revenue and such.
Andrew Krill: In fact, the roughly 4% on the free cash flow conversion and the other ones that we have built in is give given the pretty dynamic world.
Andrew Krill: Macro that'd be a living and just from a working capital perspective would be modeling a little bit higher working capital just to support the business and manage all the supply chain things from the tariffs appears to me those are two really the two things as things normalize.
Andrew Krill: All my life post 2025 of course, we expect it to be back up.
Speaker Change: Okay that makes perfect sense and it's a good segue just following up on tariffs how do you size what you're sourcing.
Andrew Krill: Maybe for cause.
Andrew Krill: From China, Mexico, and Canada, and like with any of those would be a particular pain point.
Andrew Krill: In region for region sales I believe something like Trojan.
Andrew Krill: Has pretty meaningful cannot exposure, so just any help or quantification there would be great. Thank you.
Andrew Krill: Yeah. Thanks for the question Andrew.
Speaker Change: Yeah, we started several years ago full decade.
Speaker Change: Certainly to source raw materials and semi finished goods globally, we've got a diversified number of manufacturing locations and we've diversified our supply chain. Accordingly, I'm certainly ves provides us the tools to proactively deal with countermeasures for different scenarios.
Speaker Change: And obviously, we're focused on controlling what we control.
Speaker Change: Relative to our exposure our primary exposure in Canada is Trojan as you appropriately cited which is headquartered in Ontario.
Speaker Change: We have taken actions there to localize consumables and spare parts for Trojan in the U S.
Speaker Change: To derisk any supply chain direction disruption that we would see.
Speaker Change: It also gives us an opportunity to provide more agility and serving customers and I think the way to think about this is is all told Trojans annual sales to the U S or less than 5% of our total for auto sales annually. So we think we're well positioned to sort of weather. The storm here and we've got great. Yes on our side to respond with that.
Speaker Change: With agility and rigor.
Speaker Change: Great and just real quick on China, because I think it is.
Speaker Change: 78% of sales is a bit bigger than some peers.
Speaker Change: Fair, that's mostly in region for region without a bank.
Speaker Change: Export imbalance.
Speaker Change: Yeah, we've we've spent.
Speaker Change: Spent actually a longer period of time diversifying our supply chain around what we have in China. We have a good deal of in China for China, which certainly wouldn't be disrupted by any tariff changes.
Speaker Change: But again, we have spent the last several years diversifying that supply chain as well and think we're well positioned to be able to address any headwinds that we might see there.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: And we will take our last question from Brian Lee with Goldman Sachs.
Brian Lee: Hey, good morning, everyone. Thanks for squeezing me in.
Brian Lee: Just wanted to go back to a couple of margin questions I guess first off.
Brian Lee: On the <unk> side, the 350 basis point margin contraction sequentially I know.
Brian Lee: Part of that seems to be.
Brian Lee: The higher mix of equipment sales, when we kind of back into it it doesn't seem to explain the entire bridge can you kind of deconstruct the 350 basis points for us.
Brian Lee: Across different moving factors.
Brian Lee: Hey, Brian just some of your yeah.
Brian Lee: <unk> outlined earlier right. The first one of course is the trade scheme, that's almost 70 basis points dilutive to <unk> on a sequential basis.
Brian Lee: The next one.
Brian Lee: As we kind of talked about.
Brian Lee: Some of the cost optimization actions, we took in my prepared remarks, I highlighted $7 million higher on a sequential basis majority of that is in <unk>. That's 100, twentyish kind of a basis point, a little more than that for <unk> and I would say the third one is as you think about the R&D sequentially up as well because as you know tight.
Brian Lee: The investments, we are making to drive the future growth in the business on a sequential basis. The majority of the jump is actually tied to <unk> as well and then last one you added the higher mix of equipment sales, which again really help us expand the install base for future recurring revenue. So those are the four things heating add them up we get them.
Brian Lee: Kind of balance out the 300 basis points gap, but you laid out.
Speaker Change: Okay, that's great Super helpful and then I guess.
Speaker Change: Fair to assume some of those factors do spillover to the early part of the year I guess, if I look at the Q1 guide it.
Speaker Change: It implies margins are going to be down a few tens of bps year on year, despite the low single digit growth.
Speaker Change: I know some of that is FX, but then your full year guide implies margin growth through the year off of Q1 with the same FX assumptions. So maybe just kind of walk through the margin cadence what's happening in Q1 that either doesn't repeat through the rest of the year, what what margin gains are you seeing.
Speaker Change: Start to play out off of the back of Q1. Thank you.
Brian Lee: Yeah, No I think that's the kind of move from Q4 to Q Q1, Brian none of them have been on not a whole a lot of these things are spilling over right look R&D on a sequential basis and that should be consistent at a higher level.
Brian Lee: And I would say cost optimization stuff is theres nothing thats spilling over into Q1.
Brian Lee: Really as you can look at from.
Chris Gains: Anything that's moving from this year to next is Chris gains.
Chris Gains: It's going to be as we highlighted a little bit of dilutive upfront as we continue to drive it.
Chris Gains: With 20% growth business. So we have to make the right investments to make sure. We are capitalizing on that those investments will be and then they can be.
Chris Gains: Uh huh.
Chris Gains: The trends that we're seeing and the higher mix of equipment sales and PQ I continuous maybe a little bit of impact from that but nothing nothing.
Chris Gains: More than that that's kind of moving on or spilling over from Q4 to Q1.
Okay.
Speaker Change: Thank you and at this time I'll turn the call back over to Mr. Taylor for final remarks.
Ryan Taylor: Thanks, Margaret and thanks, everyone for joining us on the call. We appreciate the interest and engagement as usual we'll be around for follow up questions. Just reach out to me if you'd like to ask anything to follow up on the quarter or the guide for 2025.
Speaker Change: So much and that concludes our call we'll talk to you next time.
Speaker Change: Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.
Speaker Change: Okay.