Q2 2025 Veralto Corp Earnings Call

And I will be your conference operator this morning.

At this time I would like to welcome everyone to her all to corporations second quarter 2025 conference call.

To all locations on hold, we appreciate your patience and please continue to stand by.

All lines have been placed on mute to prevent any background noise.

After the Speakers' 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.

I will now turn the call over to Ryan Taylor, Vice President of Investor Relations.

Sameer Ralhan: Over the long term, our goal is to continue to create shareholder value with a bias towards M&A. As Jennifer mentioned, we have an attractive pipeline of opportunities in both water quality and PQI.

Mr. Taylor you May begin your conference.

Good morning, everyone. Thanks for joining us on the goal.

With me today are Jennifer <unk>, our president and Chief Executive Officer, and Samir <unk>.

Sameer Ralhan: Turning now to our guidance. Yesterday, we raised 2025 four-year adjusted EPS guidance to $3.72 per share to $3.80 per share, up from our prior guidance of $3.60 per share to $3.70 per share. Our underlying assumptions have been updated to reflect steady demand driven by secular growth drivers in our end markets, our most recent assessment of trade policies, and currency translation.

Our senior Vice President and Chief Financial Officer.

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.

A replay of this call will be available until August 7th.

Yesterday, we issued our second quarter 2025 news release earnings presentation and supplemental materials.

Including information required by the SEC relating to adjusted or non-GAAP financial measures.

Sameer Ralhan: Considering the progress we continue to make on our countermeasures and the current state of tariffs, we expect a neutral net impact from tariffs on our 2025 earnings per share. Our core sales growth of 2025 is now expected to be mid-single digits, up from our prior target of low to mid-single digits. Furthermore, we now expect currency translation to be about a 1% tailwind to a full year sales growth. Acquisition growth is expected to be modestly positive as sales contributions from Preyskins and Aquafetus are offset by the impact of AVT divestiture.

These materials are available in the investors section of our website Www Dot Toronto Dot com under.

Under the heading quarterly earnings.

Reconciliations of all non-GAAP measures are also provided in the appendix of the webcast slides.

Unless otherwise noted all references the variances are on a year over year basis.

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.

Sameer Ralhan: Our full-year target for adjusted operating profit margin expansion remains flat to up 50 basis points a year, or approximately 25 basis points expansion at the midpoint. We continue to believe this is prudent given the dynamic macroeconomic landscape. And we maintained our guidance for free cash flow conversion in the range of 90 to 100% of gap net income.

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 our 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.

And with that I'll turn the call over to Jennifer.

Sameer Ralhan: Looking now at our third quarter guidance, we expect core sales to grow in the mid-single-digit range.

Thank you Ryan and thank you all for joining our second quarter earnings call today.

Sameer Ralhan: And our Q3 2025 guidance for adjusted DPS is $0.91 per share to $0.95 per share.

At <unk>, our focus on creating shareholder value includes delivering steady predictable growth quarter over quarter year after year.

Sameer Ralhan: That concludes my prepared remarks.

Jennifer Honeycutt: At this point, I'll turn the call over to Jennifer for closing remarks. Thanks, Sameer. In summary, we had a strong first half of 2025 and are navigating a dynamic macroeconomic environment with confidence. Given the essential need for our technology solutions, our durable business model, and the secular growth drivers across our end markets, we maintain a favorable outlook for our financial performance this year. We will continue to leverage the power of the Veralto enterprise system to drive continuous improvement and bolster our agility. Our financial position strengthened in the quarter, and we continue to evaluate opportunities to create shareholder value within our disciplined capital allocation framework.

The ability to drive consistent predictable growth is a hallmark of the volatile operating companies and demonstrates the durability of our business model catalyzed by rigorous application of the we're also enterprise system.

As part of this approach we focus on the critical few and utilize visual daily management to drive consistent efficient execution.

Please stand by your program is about to begin.

This helps ensure we are supporting our customers growth and operating objectives.

My name is Angela and I will be your conference operator this morning.

Enabling more efficient workflows in their daily operations.

at this time, I would like to welcome everyone to veralta corporations second quarter 2025 conference call

It also helps us meet our financial commitments and achieve both our short and long term objectives.

All lines have been placed on mute to prevent any background noise.

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

The second quarter of 2025 marks our fourth consecutive quarter of mid single digit core sales growth.

Jennifer Honeycutt: We are excited about the bright future ahead for Veralto, its associates, 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.

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

Over that time, we increased adjusted earnings per share by nearly 13%.

If you would like to withdraw your question, please press star. Then the number 2 on your telephone keypad.

I want to take a moment and commend our team of 17000 associates around the world for delivering a strong performance over the past year, particularly considering the dynamic macro environment geopolitical landscape and fluid trade policies.

I will now turn the call over to Ryan Taylor, Vice President of Investor Relations.

Jennifer Honeycutt: That concludes our prepared remarks and at this time we are happy to take your questions.

Mr. Taylor you may begin your conference.

Ryan Taylor: Thanks, Jennifer.

Good morning, everyone. Thanks for joining us on the call.

Ryan Taylor: This is Ryan Taylor. Before we jump into Q&A, for transparency, I just want to point out that our geographic core sales growth on slide five excludes the impact from acquisitions, divestitures, and management estimates for currency translation. It is not adjusted, however, for intercompany sales, returns, or allowances.

This includes standout performance by our procurement and supply chain teams factory operation as well as outstanding execution by our commercial teams.

Vice president and Chief Financial Officer.

Today's call is simultaneously being webcast, a replay of the webcast will be available on the investor section of our website later today.

Our commercial teams have spearheaded our growth by leveraging deep domain expertise in applying V. S grow tools, such as funnel management lead generation and sales productivity.

Ryan Taylor: At this time, we'll go right into our normal portion of Q&A. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star one to ask a question.

Under The Heading events and presentations.

A replay of this call will be available until August 7th.

We are benefiting from investments made last year to improve our commercial architecture innovation and sales and marketing efforts.

Yesterday, we issued our second-quarter 2025 news release, earnings presentation, and supplemental materials.

Including information required by the SEC relating to adjusted or non-gaap financial measures.

Deane Dray: We'll take our first question from Deane Dray with RBC Capital Markets. Your line is open. Please go ahead. And Mr. Deane Dray, your line is open. Please go ahead with your question. And once more, Mr. Dray, your line is open. Please go ahead with your question.

Through the first half of 2025, we have met or exceeded our financial commitments and delivered mid single digit core sales growth expanded adjusted operating profit margin and double digit adjusted earnings per share growth.

These materials are available in the investor section of our website, www.video-editor-software.com.

Under The Heading quarterly earnings.

This level of performance is a testament to the focused efforts of our global team, our durable business model and secular growth drivers across our end markets.

Reconciliations of all non-gaap measures are also provided in the appendix of the webcast slides.

unless otherwise noted, all references to variances are on a year-over-year basis,

Based on our first half performance stable demand across our end markets and our current assessment of macroeconomic conditions. We raised our full year adjusted earnings per share guidance range to $3 72 to.

Ryan Taylor: And hearing no response from this line, we will move on.

During the call, we will make 4 looking statements within the meaning of the federal Securities laws, including statements regarding events, or developments that we believe or anticipate will, or may our in the future.

Andy Kaplowitz: We'll go next to Andy Kapowicz with Citigroup. Your line is open, please go ahead. Good morning, everyone. Morning, Andy. Morning.

The $3 80 per share.

These 4 looking statements are subject to a number of risks and uncertainties including those set forth in our SEC filings.

Additionally, our first half free cash flow generation further strengthened our financial position, giving us increased flexibility as we evaluate capital allocation opportunities to fuel long term shareholder value.

Jennifer Honeycutt: Jennifer, can you give us more color regarding the environment you're seeing in core water quality growth, maybe by region? It doesn't really seem like you're feeling any changes from the U.S. fiscal environment. I mean, Europe continues to outperform with a lot of their own self-help, as you talked about. How long can that continue? And maybe China, you know, still seems weak, but offset by other high growth markets. Any more color would be helpful. Yeah, thanks for the question, Andy. I mean, I think in the main, our businesses are fairly resilient on the water quality side to fluctuations in government funding.

Actual results May differ materially from our forward-looking statements.

These 4 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.

As we have previously stated our capital allocation bias is towards acquisitions, including investments that augments, our R&D and innovation efforts.

And with that, I'll turn the call over to Jennifer.

Thank you, Ryan, and thank you all for joining. Our second quarter earnings call today.

Our pipeline of opportunities is comprised of a mosaic of target and we continue to make progress even as we remain highly disciplined in our execution.

At the alto, our focus on creating shareholder value includes delivering, steady predictable growth quarter over quarter year after year.

Last week, we announced a 20 million euro commitment to invest in Emerald technology ventures global water fun too to support investments in emerging technology oriented businesses.

Jennifer Honeycutt: And that's largely because we sit on the high end of the value chain here, where our products and services are integral to the operating environment of the customer. So some of the, you know, secular drivers that we see right now are really focused, as we mentioned in the prepared Merarchs around water reuse. We see that both in municipal and industrial sectors really driven by water scarcity, regulatory pressure and sustainability goals. So on the industrial side, you know, they're going to be motivated here by rising water costs, which are pushing water intensive industries to adopt reuse solutions.

Emerald global presence and deep sector expertise is expected to provide our water quality team with early insight into emerging water focused ventures, making it a strong strategic partner to augment our innovation and technology development efforts.

The ability to drive consistent predictable growth is a Hallmark of the veral operating companies and demonstrates the durability of our business model. Catalyzed by rigorous application of the veral enterprise system.

As part of this approach, we focus on the critical few and utilize visual daily management to drive consistent efficient execution.

This move strengthens our ability to identify and scale solution that aligns closely with our customers needs and addressing critical water challenges worldwide.

This helps ensure we are supporting our customers' growth and operating objectives while enabling more efficient workflows in their daily operations.

It also helps us meet our financial commitments and Achieve both our short and long-term objectives.

Andy Kaplowitz: And on the muni side, you see secular trends of urbanization and climate resiliency, which are driving providers to pursue more wastewater treatment, including more progressive solutions such as potable reuse. So for water quality, you know, we've reflected this in our year to date results, strong growth, both in analytics and UV treatment solutions in the applications and growing subsectors such as data centers and power generation within industrial markets. So, again, pretty robust performance there by our water team, really based on those secular drivers. Can you guys still hear me? Because I'm getting a little bit of interference.

As for the quarter itself, we delivered a strong second quarter led by outstanding commercial execution and steady broad based customer demand.

Quarter of 2025 marks, our fourth consecutive quarter of mid single digit core sales growth.

Looking at our second quarter results in detail and building off our strong start to the year, we delivered four 8% core sales growth and just under 10% adjusted EPS growth.

Over that time, we increase adjusted earnings per share by nearly 13%.

As I mentioned this marks our fourth consecutive quarter of mid single digit core sales growth consistent with our long term growth algorithm.

I want to take a moment and commend our team of 17,000 Associates around the world for delivering a strong performance over the past year, particularly considering the dynamic, macro environment, geopolitical landscape and fluid trade policies.

Our commercial teams continue to drive outstanding execution to deliver growth through new customer wins and increased market penetration, while also capitalizing on steady demand across our key markets.

This includes standout performance by our procurement and supply chain teams, factory operations, as well as outstanding execution by our commercial teams.

Ryan Taylor: Hello. Sorry, Andy. We had a little bit of a breakup here. Can you ask the question again? Yeah, no, I got I think it's clear now.

Our core sales growth was broad based across both segments with water quality, delivering 5% core sales growth and PQ I four 6% core sales growth.

Andy Kaplowitz: So just on PQI, obviously, margins down in Q2 a bit, despite core revenue growth.

Our commercial teams have spearheaded our growth by leveraging deep domain expertise and applying best growth tools, such as funnel management, lead generation, and sales productivity.

Andy Kaplowitz: Can you walk us through how much of the compression was due to sort of tariffs? And, you know, I think we'll catch up. Does that happen in Q3?

<unk> ongoing positive trends in consumer packaged goods markets supported growth across all key product categories in our marking and coding business.

We are benefiting from Investments made last year to improve. Our commercial architecture, Innovation and sales and marketing efforts.

Andy Kaplowitz: How much was acquisition related cost pressure?

Andy Kaplowitz: Like how to think about margins and PQI moving forward?

Sameer Ralhan: Hey, Andy, this is Sameer. Yeah, if you look at the margin side, it's roughly 200 basis points on a year-over-year basis. Impact is really driven by three factors. Impact is roughly one-third each. The first one is from the acquisitions and divestitures activity, and that's primarily driven by trace gains. Trace gains continues to grow at 20 percent. We want to make sure we fuel the growth of the high margin business, as you know, this is 80 percent gross margin. So we continue to invest in that. So roughly one-third of the impact is driven by that. The second one is the timing difference, as you just kind of just talked about, between the impact of pricing actions and the tariff headwinds.

And across our digital workflow solution in packaging and color.

through the first half of 2025, we have met or exceeded our financial commitments and delivered mid single-digit, core sales growth expanded, adjusted operating profit margins and double digit, adjusted earnings per share growth

In our marking and coding business Q2 marked our fifth consecutive quarter with year over year growth in both consumables and equipment.

This level of performance is a testament to the focused efforts of our global team, our durable business model, and secular growth drivers across our end markets.

And water quality, we saw robust mid single digit growth across both water treatment solutions and water analytics.

Moving on to margin performance adjusted operating profit margin came in at 23, 7% in line with our underlying guidance assumptions.

Sameer Ralhan: And the last one, I would say, is the investments net of productivity. As you know, in PQI, it was a little more heavier lift as you kind of think about the supply chain moves and the manufacturing line changes you're doing. Whenever you do that, there's always a little bit of a duplication of the cost, and there are some growth investments in there as well. So that's one-third. So it's really one-third, one-third, one-third. The impact of these, as we move through the second half of the year, should gradually phase out. You know, a chunk of it should phase out in Q3 and then Q4.

Based on our first half performance stable demand across our end markets and our current assessment of macroeconomic conditions. We raised our full year, adjusted earnings per share guidance range to $3.72 to $3.80, per share,

Adjusted earnings per share grew nine 4% year over year to 93.

Five.

The high end of our guidance, primarily due to better than expected sales volumes.

Looking at core sales growth by geography, and end market growth was broad based across key verticals and regions with mid single digit growth across North America, Western Europe and high growth market.

Andy Kaplowitz: Appreciate the call, I guess.

As we have previously stated our Capital allocation bias is towards Acquisitions, including Investments, that augments, our R&D and Innovation efforts.

Core sales growth in Western Europe, with six 3% led by continued double digit growth in water quality.

John Mcnulty: We'll take our next question from John McNulty with BMO Capital Markets. Your line is open. Please go ahead. Yeah, thanks for taking my question. I guess just the first one in terms of volumes, I think, in the first quarter, there was some concern, there was a little bit of pre buying, it looks like that really didn't play out the way that we thought it's actually just solid core growth. I guess, is that a fair characterization? Do you see any risks around, you know, around the timing of tariffs as we look in the second half?

Our pipeline of opportunities is comprised of a mosaic of targets and we continue to make progress, even as we remain highly disciplined in our execution.

In North America core sales grew five 6% with both segments generating core sales growth above 5%.

And sales into high growth markets were up just over 6% year over year with high single digit growth in <unk> and mid single digit growth in water quality.

Last week, we announced a €20 million commitment to invest in Emerald Technology Ventures Global Water Fund 2 to support investments in emerging technology-oriented businesses.

Jennifer Honeycutt: And how are you thinking about kind of general core growth in the second Thanks for the question, John. Yeah, we've we've done a deep dive here to to sleuth whether we've got any pre buying here in our customer base, and we really just don't see much of that. We do see read through on demand. And as you know, 75% of our sales are direct to end users. So we've got great visibility in terms of reading through to the end customer there. I would say, you know, core volume remains strong, really around the secular growth drivers.

Taking a closer look in western Europe water quality grew 11, 4%.

Emerald's global presence and deep sector expertise are expected to provide our water quality team with early insights into emerging water-focused ventures, making it a strong strategic partner to augment our innovation and technology development efforts.

This growth was once again led by our water analytics team in Western Europe and reflects the changes we made to our commercial architecture and sales leadership in Europe last year.

This move strengthens our ability to identify and scale solutions that align closely with our customers' needs in addressing critical water challenges worldwide.

These changes have contributed to rigorous lead generation funnel management and V S catalyzed commercial execution.

As for the quarter itself, we delivered a strong second, quarter led by outstanding commercial execution and steady broad-based customer demand.

And in Pizza lie sales into Western Europe.

We're up two 1% led by growth in consumables and continuous inkjet, marking and coding systems.

Jennifer Honeycutt: They, if they continue to drive our end markets, Q3 orders are after good sort start, there's really nothing unusual about the order patterns that we've seen thus far in the quarter. And, you know, again, we really operate in that critical to operation segment, where 80% of the revenue is really tied to food, water and essential goods. And John, just one thing to add, as you kind of think about the volume from a guide perspective, our guide, as you know, we upped the core sales growth guide. That does reflect the confidence that we have as we look at the growth from the volume side as well.

Moving to North America core sales growth was led by water quality with five 7% growth.

Looking at our second-quarter results in detail and building off our strong start to the year, we delivered 4.8% core sales growth and just under 10% adjusted EPS growth.

We continue to capitalize on solid demand for our chemical treatment solutions, where core sales grew mid single digits year over year.

As I mentioned, this marks our fourth consecutive quarter of mid-single-digit core sales growth, consistent with our long-term growth algorithm.

Our chemical treatment growth was broad based across several industries with the strongest growth in chemical processing and data centers.

We continue to see ongoing traction with new customers at existing data centers and are well positioned to capitalize on the build out of new data centers, the majority of which will consume large quantities of water.

Our commercial teams continue to drive outstanding execution to deliver growth through new customer wins and increased market penetration, while also capitalizing on steady demand across our key markets.

John Mcnulty: You know, definitely pricing is an element, but the volume confidence on the growth side is reflected in the upping of the guide as well. Got it. Okay, no, fair enough.

Sameer Ralhan: And then maybe just to follow up on pre-cash flow, you know, looking at the first half, so not even just the strong quarter, and you're up 36% year over year, it looks like you're pulling pretty hard on some of these working capital levers and pre-cash drivers. How should we be thinking about that going forward? Are there more levers to pull? And then in terms of that flexibility, I know you're pretty anxious or excited about potential opportunities with regard to M&A. I guess, can you give us an update on the M&A market?

Our core sales growth was broad-based, across both segments with water, quality delivering, 5% core, sales growth, and pqi 4.6%, core sales growth.

Taking a broader view the infrastructure being built to support growth in technology and artificial intelligence will further strain water capacity.

We believe our portfolio of water analytics and water treatment solutions is well positioned to support this trend and serve customers as new data centers semiconductor fab and power generation facilities come online.

In PQI ongoing positive trends in consumer packaged goods markets supported growth across all key product categories. In our marketing and coding business, and across our digital workflow solutions in packaging and color.

In our marking and coding business. Q2 marked our fifth consecutive quarter with year-over-year growth in both consumables and equipment.

In Trojans UV systems business, we continue to see growth in North America, driven by good momentum within the municipalities primarily related to water reuse.

Sameer Ralhan: Yeah, I'll start with the free cash flow and Jennifer can jump in from the M&A side. I'll look on the free cash flow side, really strong operating earnings, Andy, sorry, John, that's kind of really driving it. And then the working capital management has been pretty prudent. Some of the stuff is driven by some of the CapEx and their investments, their timing as well. From an overall year perspective, as you know, in Q1 and Q3, we do have interest payments, cash interest payments, so that does impact the free cash flow. Q2 and Q4 tend to be heavier on the free cash flow side.

In water quality, we saw robust mid single-digit growth across both Water Treatment Solutions and water Analytics.

In Q2, Trojan secured a significant order for a large scale UV treatment system that will be part of a water reclamation project on Chicago's North shore.

Moving on to margin performance, adjusted operating profit. Margin came in at 23.7% in line with our underlying guidance, assumption

This award will be supported by the manufacturing expansion, we completed in Michigan earlier, this year and demonstrates our ability to deliver large scale UV systems that meet U S build America buy America criteria.

Adjusted earnings per share, grew 9.4% year-over-year to 93 cents.

Sameer Ralhan: Year-to-date, John, you're running a little over 100% at this point from a conversion perspective, but if you look at the full year, at this point, we still feel very good about 90 to 100%, but that's going to year Q3 develops a little bit more of an update, but at this point, this model is from 90 to 100% conversion side.

5 cents above the high end of our guidance primarily due to better than expected sales volumes.

It also highlights Trojans differentiated revolutionary UV, Cigna technology, which eliminates the risk of bacteria and pathogens in wastewater, while also reducing energy consumption and simplifying operations for our customers.

Looking at core sales growth by geography and end. Markets growth was broad-based across key verticals and regions with mid single-digit growth across North America Western Europe and high growth markets.

Jennifer Honeycutt: Yeah, John, in just respect to your kind of M&A pipeline question, pipelines for both PQI and water quality are active full and, you know, have a mosaic of targets within them. We remain disciplined in our approach in terms of making sure that we identify attractive markets, top tier companies within those markets, and that we can get them at a fair and reasonable valuation. We continue to like targets with a similar operating model to ours and the durability of secular drivers that I spoke about previously, where VES can really drive growth and margin expansion for us.

Core sales growth in Western Europe was 6.3%, led by continued double-digit growth in water quality.

Both the public health and economic benefits of water conservation reclamation and reuse continue to provide opportunities for us to expand our business and support our customers' objectives to conserve water and efficiently manage its usage.

In North America, core sales. Grew 5.6% with both segments, generating core sales growth above 5%.

We also continued to benefit from positive market trends across PQ I in North America during the second quarter with core sales growth above 5% year over year.

And sales into high growth markets were up just over 6% year-over-year with high single digit growth in pqi and mid single digit growth. In water quality.

Taking a closer look in Western Europe, water, quality grew 11.4%.

Jennifer Honeycutt: So, current market valuations in the main, I think, remain a little bit elevated, but we continue to actively monitor opportunities, and our objective is to maintain an investment balance sheet here, right? So, Got it.

This was primarily driven by high single digit growth in consumable and double digit growth in software.

Demand from CPG customers continues to support steady growth for our marking and coding products and services and our packaging and color software.

This growth was once again led by our water analytics team in Western Europe and reflects the changes we made to our commercial architecture and sales leadership in Europe last year.

Mike Halloran: Thanks very much for the caller.

We also continued to drive growth and pizza why through strategic initiatives and commercial excellence.

These changes have contributed to rigorously generation, funnel management and vests, catalyzed commercial execution.

Mike Halloran: You bet.

Mike Halloran: We'll go next to Mike Halloran with Baird, your line is open, please go ahead. Good morning, everyone. More time.

And high growth markets core sales grew six 1% highlighted by strong growth in Latin America and India.

And in pqi, sales into Western Europe were up 2.1%, but by growth in consumables and continuous inkjet marking and coding systems.

Mike Halloran: So just a couple things here, just could you help and I know Sameer touched on a little bit with PQI and using Andy's question, but maybe just help with the timing of the pricing. When that started being implemented, what pricing looks like in the back half of the year versus the front half of the year? And I suppose, you know, you talked about a third, a third, a third, that 60 basis points that seems to be more the chair of timing. Is that caught in the back half of the year functionally to see kind of a sequential improvement in the back half of the year?

Overall, we delivered another strong quarter of growth with every one of our operating companies contributing to our Q2 results.

At this time I'll turn the call over to Samir for a detailed review of our financial results and an update on our guidance.

We continue to capitalize on solid demand for our Chemical Treatment Solutions, where core sales grew mid-single digits year-over-year.

Thanks, Jennifer and good morning, everyone.

I'll begin with our consolidated results for the second quarter.

Growth was broad-based across several Industries with the strongest growth in chemical processing and data centers.

Total sales grew six 4% on a year over year basis to $1 $37 billion.

Mike Halloran: It doesn't seem like it's embedded in guidance, but it seems like the remarks that you're making imply that there should be some sort of uptick in the back half versus 2Q because of the timing of all those things. So maybe you can just wrap that all together for me. I'd be appreciative. Thanks, Mike.

<unk> was 150 basis points or about $20 million tailwind year over year.

We continue to see ongoing traction with new customers at existing data centers and are well positioned to capitalize on the buildout of new data centers, the majority of which will consume large quantities of water.

Here.

Acquisitions net of divestitures contributed 10 basis points of growth primarily from trace games.

Sameer Ralhan: I'll start off on that. You know, on the pricing side, pricing was one of the elements of the countermeasures, right, as you know, we are making supply chain changes and line changes as well as part of this whole process to mitigate the tariffs and mitigate any impact for 2025. I would say by segment by segment, you're seeing it faster in water quality. And in PQI, just given how the contractual nature of the transactions work, it's going to come more in the second half of Q3 and Q4. But for the full year, we fully expect to be off to the impact.

Taking a broader view, the infrastructure being built to support growth in technology and artificial intelligence will further strain water capacity.

Core sales grew four 8% led by broad based volume gains across both segments.

Price contributed one 7% built in the quarter in line with our expectations.

Our recurring revenue grew mid single digits year over year and comprised 61% of our total sales.

we believe our portfolio of water analytics and Water Treatment Solutions is well positioned to support this trend and serve customers as new data centers semiconductor Fabs and power generation facilities come online

Gross profit increased 6% year over year to $822 million.

Gross profit margin was 60%.

In Trojan's UV Systems business, we continue to see growth in North America, driven by good momentum within municipalities, primarily related to water reuse.

Adjusted operating profit increased 5% year over year with adjusted operating profit margin coming in at 23, 7%.

Versus the prior year period strong margin expansion in our water quality segment was offset by near term margin pressure in <unk> and corporate expense.

in Q2 Trojan secured, a significant order for a large-scale UV treatment system that will be part of a Water Reclamation project on Chicago's Northshore

Looking at EPS for second quarter.

Earnings per share grew nine 4% year over year to 93 per share.

This award will be supported by the manufacturing expansion. We completed in Michigan earlier this year. And demonstrates, our ability to deliver large scale, UV systems that meet us build America buy America criteria.

As compared to our guidance adjusted EPS came in stronger primarily due to higher sales volumes at both segments.

Looking at cash flow in the second quarter, we generated $323 million of free cash flow, an increase of $53 million year over year.

Sameer Ralhan: Okay, and so, so, so to send to the margin piece, sequentially, there should be an uptick into the back half of the year as the pricing timing comes in. And given kind of the moving pieces around the cost side associated with all that or the cost piece of it come through and kind of mitigate the benefit sequentially such that it's pretty stable. Yeah, from a dollar basis, yes, you're going to start picking up right on a percent basis. Mike, Q3 is going to be like Q2, maybe a little bit off, but really like more like a Q2.

It also highlights Trojan's differentiated revolutionary UV Cigna technology which eliminates the risk of bacteria and pathogens in Wastewater while also reducing energy consumption and simplifying operations for our customers,

Here.

I'll cover the segment results, starting with water quality on the next page.

Our water quality segment delivered $825 million in sales up six 2% on a year over year basis.

Both the public health and economic benefits of water, conservation, Reclamation, and reuse. Continue to provide opportunities for us to expand our business and support our customers objectives to conserve water and efficiently, manage its usage.

Currency was 110 basis points tailwind.

And the acquisition of fossil free this contributed 10 basis points of sales growth.

Core sales grew 5% year over year.

We also continue to benefit from positive market trends across pqi in North America. During the second quarter with core sales growth above 5% year-over-year,

Increased volume drove 360 basis points of growth with pricing contributing 140 basis points of growth.

Mike Halloran: And then Q4, of course, you're going to start seeing the full run rate impact. So that should be meaningfully better than Q3. Okay, great. Thank you. Appreciate it. Thanks, bye.

This was primarily driven by high single-digit growth in consumables and double-digit growth in software.

Water quality volume growth was driven by strong demand for water analytics at municipalities water treatment solutions, and our industrial end markets and UV treatment installations.

Deane Dray: We'll go next to Deane Dray with RBC Capital Markets. Your line is open. Please go ahead. Thank you. Good morning, everyone. You guys hear me okay this time? Yeah, good morning, Deane. I promise you it wasn't user error on my part, but either way, here we are.

Demand from cpg, customers continues to support steady growth for our marketing and coding products and services and our packaging and color software.

Water quality is equipment sales grew about 10% for the recurring sales growth steady at about 4% year over year.

We also continue to drive growth in Peak UI through strategic initiatives and commercial excellence.

Adjusted operating profit increased 11, 5% over the prior year period to $214 million.

Deane Dray: Hey, I was interested that you made a reference that you had made some investments in Trace Game. So, you know, are you adding salespeople? Just, you know, what kind of investments and what kind of returns do you expect? Yeah, thanks for the question, Deane. Trace Games continues to be a great performer for us, continuing to clock well over 20% growth in that business. And the investments we're making really are mostly commercially oriented headcount. So sales feed on the street, going to reach to more regions, particularly as we work with the synergy between both Trace Games and ESCO, where ESCO's got a strong position in enterprise accounts and can pull Trace Games up to those accounts.

In high growth markets, core sales, grew 6.1% highlighted by strong growth in Latin America and India.

And adjusted operating profit margin was 25, 9% up 120 basis points versus the prior year.

Overall, we delivered another strong quarter of growth, with every one of our operating companies contributing to our Q2 results.

Overall, it was a very strong quarter for water quality.

We expect to see steady growth over the balance of this year given our products are critical to our customers' ongoing operations and generate a high level of recurring sales.

At this time, I'll turn the call over to Samir for a detailed review of our financial results and an update on our guidance.

Thanks Jennifer and good morning, everyone.

Moving to our <unk> segment on the next page.

I'll begin with our consolidated results for the second quarter.

Sales in our <unk> segment grew six 8% year over year to $546 million in the second quarter.

Total sales grew 6.4% on a year-over-year basis to 1.37 billion.

Currency was a 220 basis points tailwind.

Currency was 150 basis. Points are about 20 million dollars Tailwind year-over-year.

Contribution to sales from the acquisition of <unk> gains was offset by the impact of the <unk> divestiture, which was completed in Q1 2025.

As.

Jennifer Honeycutt: And Trace Games has got a strong position in sort of mid-market accounts, pulling ESCO into those opportunities as well. So some R&D investment to accelerate new product development, as well as sales investment. And it's an investment that we feel strong about, just based on making sure that they have a fast start. And we expect them to continue to be good contributors to our growth and into 2026, contributing to profitability as well. That's all good to hear.

Core sales grew four 6%.

Core, sales grew 4.8% led by broad-based volume gains across both segments.

Volume growth was two 4% the price increases contributing to 2% core sales growth.

Price contributed 1.7% growth in the quarter in line with our expectations.

<unk> core sales growth was driven by both recurring revenue and equipment shipments.

Our recurring Revenue, grew mid single digits here over a year and comprised, 61% of our total sales.

Recurring revenue grew high single digits year over year.

Gross profit, increased 6%. Year-over-year to 822 million.

Led by consumables and software.

Equipment sales were up just over 3%.

Gross profit margin was 60%.

Jennifer Honeycutt: And then just a question on the data center opportunity. You know, it is truly the fastest growing vertical for the industrials. I'm not surprised, given the water use, how critically important it is to have the water quality at the right standards.

With steady growth across marketing and coding and packaging and color solutions.

Adjusted operating profit increased 5% year-over-year, with adjusted operating profit margin coming in at 23.7%.

And the packaging and color businesses, we continued to see strong double digit sales growth in <unk> software solutions.

Additionally, core sales growth for trace games continues to exceed 20% year over year and the integration is on track.

Jennifer Honeycutt: Can you just talk about your go to market approach? Is is there an opportunity to have a modular offering? Or is it more of a type of one off testing? Just very interested in your approach here in this market. Yeah, thank you. You broke up a little bit, Deane. Am I coming through clearly? Yes. Okay, great. I think I got the gist of your question really around data centers and how we're approaching data centers to capture that fast growing market. You know, data centers for us is really a strong play for chemtry. So data centers in the main use incredibly large volumes of water and certainly require an incredible amount of energy.

Corporate expense.

We continue to invest in trace games to scale the business and further penetrate the market.

Looking at DPS for second quarter, adjusted earnings per share, grew 9.4% year-over-year to 93 cents per share.

The secular growth drivers for trace games ingredient supplier network is strong and we continue to be encouraged by its future potential.

As compared to our guidance, adjusted EPS came in stronger, primarily due to higher sales volumes at both segments.

<unk> adjusted operating profit was $140 million in the second quarter.

Looking at cash flow in the second quarter, we generated $323 million of free cash flow, an increase of $83 million year over year.

About flat to the prior year period.

Resulting in adjusted operating profit margin of 25, 6%.

I'll cover the segment results, starting with water quality on the next page.

The year over year changes Ptos profitability reflects the impact from our acquisition investments and the tariff related costs incurred in advance of targeted price increases.

Our water quality segment. Delivered 8255 million in sales up 6.2% on a year-over-year basis.

currency was 110 basis points, Tailwind

Jennifer Honeycutt: The water usage there is in fact you know, basically flows through or over heat exchangers to basically cool for the power generation cycle, right? And so those assets are subject to corrosion, they're subject to biological fouling and so on. And so chemtry's got a big play here, growing very strong with respect to being able to provide solutions to protect those assets with their chemical offering. And as you know, chemtry is entirely a direct to end user sales approach. And given the deep domain expertise, they're really able to capture that opportunity in terms of their ability to sort of understand the applications, the pain points of the customer and innovate solutions that help solve for some of those problems. Thank you.

This includes costs related to product line shifts that are improving our ability to serve customers in all the regions.

And the acquisition of AquaFed contributed 10 basis points of sales growth.

Core sales, grew 5% year-over-year.

Additionally, we continue to invest in our sales and marketing efforts to drive market penetration and fuel future growth.

Increase volume drove 360 basis points of growth with pricing contributing 140 basis points of growth.

Turning now to our balance sheet and cash flow in.

In the second quarter regenerated $339 million of cash from operations.

We invested $16 million in capital expenditures.

Water quality is volume growth was driven by a strong demand for water analytics. Add municipalities Water Treatment Solutions in our industrial, land markets and UV treatment installations

As a result free cash flow was $323 million in the quarter.

Water quality equipment sales grew about 10%, with steady growth in cutting-edge sales at about 4% year-over-year.

At the end of the second quarter gross debt was $2 7 billion and cash on hand was over one 5 billion.

Increase of 11.5% over the prior period to $214 million.

Net debt was $1 $1 billion, resulting in net leverage just under one times.

Our financial position is very strong and provides us with the flexibility to be opportunistic in how we deploy capital to create long term shareholder value.

Adjusted operating profit margin was 25.9%, up 120 basis points versus the prior year.

Overall, it was a very strong quarter for water quality.

Having said that we will remain prudent and disciplined in our approach to capital allocation as we navigate this current economic environment.

Jacob Levinson: You're welcome. We'll go next to Jacob Levinson with Melius Research. Your line is open, please go ahead. Hey, good morning, everyone. Good morning, Dave.

We expect to see steady growth over the balance of this year. Given our products are critical to our customers ongoing operations and generate a high level of recurring sales.

Over the long term our goal is to continue to create shareholder value with a bias towards M&A.

Moving to a PQI segment on the next page.

Jennifer Honeycutt: When you talk to your CPG customers and looking at their CapEx spending plans this year, has there been any real shift or change as a result of all this tariffs and the trade uncertainty? And even if that means they're reallocating their budgets within different geographies to localized capacity or whatever the case might be, it doesn't seem like there's been any change in trajectory around equipment sales and product quality, but just curious what your conversations with them are like these days. Yeah, thanks for the question, Jake. We really see the CPG demand sort of stable and steady as she goes.

As Dennis mentioned, we have an attractive pipeline of opportunities in both water quality and <unk>.

Sales in a pqi segment, grew 6.8% year-over-year to 546 million in the second quarter.

Turning now to our guidance.

Currency was a 220 basis point tailwind.

Yesterday, we released our 2025 full year adjusted EPS guidance to $3 72 per share to $3 80 per share.

Up from our prior guidance of $3 60 per share to $3 70 per share.

Contribution to sales from the acquisition of Trace. Gains was offset by the impact of the avt destitute, which was completed in q1 2025.

For sales grew 4.6%.

Our underlying assumptions have been updated to reflect steady demand driven by secular growth drivers in our end markets. Our most recent assessment of trade policies and currency translation.

Volume growth was 2.4%, but price increases contributed 2.2% to core sales growth.

Pqis core. Sales growth was driven by both recurring, revenue and Equipment shipments.

Considering the progress we continue to make on our countermeasures and the current set of tariffs, we expect a neutral net impact from tariffs on a 2025 earnings per share.

Jennifer Honeycutt: And that's, you know, kind of irrespective of region. I think they are navigating, you know, the environment with with care relative to their price increases. You know, I think they're dealing with an environment that's pretty consumer sensitive, particularly given sort of the post pandemic inflationary environment. And so they're being cautious. We see really solid demand, stable demand for both equipment and consumables, right? This means, you know, over five quarters of continued growth here, that, you know, our customers continue to retool their lines to upgrade their lines, make sure that they're running efficiently. We don't yet see sort of new lines being built or greenfield facilities being built.

Recurring Revenue, grew High, single digits year-over-year, led by consumables and software.

Our core sales growth of 2025 is not expected to be mid single digits up from our prior target of low to mid single digits.

Equipment sales were up just over 3%, with steady growth across marketing coding, and packaging and Color Solutions.

Furthermore, we now expect currency translation to be about a 1% tailwind to our full year sales growth.

In the packaging and color businesses. We continue to see strong double-digit sales growth in escos software Solutions.

Acquisition growth is expected to be modestly positive as sales contributions from <unk> and <unk> are offset by the impact of <unk> divestiture.

Additionally core sales growth for trade scans continues to exceed 20% year-over-year and the integration is on track.

We continue to invest in, Trace gains to scale the business and further penetrate the market.

Our full year target for adjusted operating profit margin expansion remains flat to up 50 basis points year over year on approximately 55 basis points expansion at the midpoint.

The secular growth drivers for Trace Gains ingredients supply network are strong, and we continue to be encouraged by its future potential.

Jennifer Honeycutt: But, you know, certainly as the tariff environment motivates, you know, regionalization or reshoring activity, we're poised to be able to capitalize on that.

We continue to believe this is prudent given the dynamic macroeconomic landscape.

PQI's adjusted operating profit was $140 million in the second quarter.

About flat to the prior period.

And we maintained our guidance of free cash flow conversion in the range of 90% to 100% of GAAP net income.

Resulting in an adjusted operating profit margin of 25.6%.

Jacob Levinson: Okay, that's helpful, Culler.

Yeah.

Looking now at our third quarter guidance, we expect coaches to grow in the mid single digit range.

Jennifer Honeycutt: And just switching gears to China. I think it's been a market that seems to have had challenges from pretty much the day that you folks became an independent public company. Is there any, I mean, is that a market in water, I guess, specifically, that's just bouncing along the bottom at this point? And really, it's just going to take time for... for the structural issues with funding and the municipalities to work itself out before you can get a real recovery there. I think that's largely the right way to think about it, Jake. You know, our China sales in the first half were flat to last year, a little bit tail of two cities where PQI is showing increasing strength and strong sales, particularly on the coating and marking side and selectively within packaging and color.

In Q3 2025 guidance for adjusted EPS is <unk> 91 per share to 95 cents per share.

The year-over-year change in pqs profitability. Reflects the impact from our acquisition Investments and the Tariff related costs. Incurred in advance of targeted price increases.

That concludes my prepared remarks at this point I'll turn the call over to Jennifer for closing remarks.

This includes costs related to product line, shifts that are improving our ability to serve customers in all the regions.

Thanks, Samir in summary, we had a strong first half of 2025 and are navigating a dynamic macroeconomic environment with confidence.

additionally, we continue to invest in a sales and marketing efforts to drive Market, penetration and fuel future growth

Turning now to our balance sheet and cash flow.

Given the essential need for our technology solutions, our durable business model and the secular growth drivers across our end markets, we maintain our favorable outlook for our financial performance this year.

In the second quarter, we generated 339 million of cash from operations.

We invested 16 million dollars in capital expenditures.

As a result free cash flow was 323 million in the quarter.

We will continue to leverage the power of the <unk> enterprise system to drive continuous improvement and bolster our agility.

Our financial position strengthened in the quarter and we continue to evaluate opportunities to create shareholder value within our disciplined capital allocation framework.

Jennifer Honeycutt: Water quality sales have been lower there. One of the things we're dealing with here is a comp year over year relative to UV installations from Trojan, which were strong in Q2 of 2024. That was those were shipped to support chip processing. So water, you know, in the main is bouncing along the bottom. Teams doing a great job of executing there where they can find opportunity. But, you know, China in the main has become a more mature market and we're navigating that accordingly. So we're really not building any recovery further in China into our second half guidance.

Net. That was 1.1 billion. Resulting in net leverage, just under 1 times.

We are excited about the bright future ahead for her also its associates and the opportunities in front of us to help customers solve some of the world's biggest challenges and delivering clean water safe food and trusted essential goods.

Our financial position is very strong and provides us with the flexibility to be opportunistic in how we deploy capital to create long-term shareholder value.

having said that we will remain prudent and disciplined in our approach to Capital allocation, as we navigate this current economic environment,

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

Over the long term, our goal is to continue to create shareholder value with a bias toward.

Thanks, Jennifer This is Ryan Taylor before we jump into Q&A.

For transparency I, just want to point out that our geographic core sales growth on slide five excludes the impact from acquisitions divestitures and management estimates for currency translation.

Jennifer Honeycutt: But, you know, we believe the team is executing well within the opportunities available there.

It is not adjusted however for intercompany sales returns or allowances.

Jacob Levinson: Great. Thank you, Jennifer.

Ryan Taylor: I'll pass it on.

Ryan Taylor: Good luck. Thank you.

At this time, we'll go right into our normal portion of Q&A.

Nathan Jones: We'll go next to Nathan Jones with Stiefel. Your line is open, please go ahead. Good morning, everyone. Jennifer, last quarter, I asked you about the disruption that was coming on from trade policy, and you were pretty excited about the opportunity from a competitive standpoint that could present themselves to Veralto. So maybe with a quarter under your belt and at least a little bit more clarity on what that trade policy outlook might be, can you update us on your thoughts around where you believe Veralto is competitively advantaged and and how you're going about? taking advantage of that to gain market share.

At this time, if you would like to ask a question. Please press star one on your telephone keypad.

May remove yourself from the queue at any time by pressing star two.

Once again that is star one to ask a question.

We'll take our first question from Deane Dray with RBC capital markets. Your line is open. Please go ahead.

And Mr. <unk>. Your line is open. Please go ahead with your question.

And once more Mr. Jay Your line is open. Please go ahead with your question.

Jennifer Honeycutt: Yeah, I, I think, um, You know, one of the things we see here is really the strong execution of the teams relative to applying the Veralto enterprise system, right? We've invested a fair amount relative to our commercial execution, funnel management, lead generation, product launch excellence, growth room, and commercial architecture. So we're really positioned well, I think, with respect to sort of anything that comes through on trade policy. Fluctuations in trade largely don't have a significant impact on us, apart from sort of the tariff adjustments that we've been making relative to line, shifting line manufacturing and the like.

And hearing no response from this finally, we'll move on.

We'll go next to Andrew Kaplowitz with Citigroup.

Your line is open. Please go ahead.

Good morning, everyone.

Good morning, Andy.

Jennifer can you give us some more color regarding the environment youre seeing in core wall water quality growth, maybe by region and it doesn't really seem like youre feeling any changes from the U S fiscal environment in Europe continues to outperform with a lot of your own self help as you talk about how long can that continue and it will be in China.

It still seems we put an offset by other high growth markets anymore color would be helpful.

Yeah. Thanks for the question, Andy I mean, I think in the main.

Our businesses are fairly resilient on the water quality side to fluctuations in government funding.

Sameer Ralhan: But, you know, if we think about trade relative to some of the, like, things to that effect, we think that's, you know, going to provide incrementally a tailwind for us as ingredients change and the like. So, not a huge impact from trade changes, but we're using BES to really sort of position ourselves well to respond dynamically in the markets that we're in.

And that's largely because we sit on the high end of the value chain here, where our products and services are integral to the operating environment of the customer.

So some of the.

Secular drivers that we see right now are really focused as we mentioned in the prepared remarks around water reuse.

We see that both in municipal and industrial sectors really driven by water scarcity regulatory pressure and sustainability goals.

Sameer Ralhan: And Nathan, maybe I can just add one more thing is, as you kind of think about how you're positioned to take advantage is really by having the, you know, region for region kind of manufacturing. And a great proof point is what Jennifer mentioned earlier in the prepared remarks is the project in Chicago, right? By making the investment in Michigan, being able to provide products which is more compliant with, you know, build America, buy America, those kinds of things really help us position well from a competitive perspective. So, to think about things like that, that can really help us position to take advantage of the trade policy.

So on the industrial side.

Gonna be motivated hereby ryzen water costs.

Which are pushing water intensive industries to adopt reuse solutions and on the Muni side, you see secular trends of urbanization and climate resiliency, which are driving providers to consider more wastewater treatment, including more progressive solutions, such as potable reuse.

So for water quality.

<unk> and our year to date results.

Strong growth both in analytics and UV treatment solutions in many applications and growing sub sectors, such as data centers and power generation within industrial market, So again pretty pretty robust.

Jennifer Honeycutt: It's my follow up question, then I'm gonna ask you about the UK specifically, there's obviously been a lot of news about the water utility picture in the UK recently. Can you talk about how you view that as an opportunity for increased spending by water utility in the UK and your ability to take advantage of that? Yeah, I think we're well positioned whenever we see these kinds of episodes, regardless of geography. Again, 75% of our sales are direct to customer. And so, you know, we're able to sort of not only identify those opportunities, but capitalize on them locally.

Performance there by our water team.

Really based on those secular drivers.

You guys still hear me, because I'm getting a little bit of interference.

Hello, sorry, Andy we had a little bit of a break up here can you ask the question again.

Yes, no I got it I think it's clear now.

On <unk>, obviously margins down in Q2, a bit despite core revenue growth can you walk us through how much of the compression was due to sort of tariff and.

Andrew Buscaglia: So we're well positioned to take advantage of that. And we will do so. Okay, thanks for taking my question.

Pricing will catch up because that happening in Q3, how much was acquisition related cost pressure like how to think about margins and PQ on moving forward.

Andrew Buscaglia: We'll go next to Andrew Buscaglia with BNP Paribas, your line is open, please go ahead. Take a party, everyone. Morning.

Hey, Andy to three and if you look at the module side, it's roughly 200 basis points on a year over year basis impact is really driven by three factors impact is roughly one third each.

Andrew Buscaglia: I just want to ask on the recycle, reuse opportunity with data centers. First off, are you are you selling directly to these hyperscalers? Are you selling to customers that sell to the hyperscalers? And then I'm wondering why, you know, this is the spending there has been going on for some time. Why do you think you're just sort of starting to see that now? Great question. The So there's two ways to think about this. One is sales of product and services into existing data centers. Right. And so we see good growth there, both in the accounts that we currently are in as well as new accounts, or rather existing accounts that perhaps we're not in.

The first one is from the acquisitions and divestitures activity and Thats, primarily driven by <unk> gains briefing continues to grow at 20% we want to make sure you're fueled the growth of this high margin business as you know this is.

80% gross margin. So we continue to invest in that so roughly one third of the impact was driven by bad.

The second one is the timing difference is you're just going to just talked about the impact of pricing actions in the tariff headwinds and the last one I would say the investments net of productivity as you know <unk> was a little more heavier lift that you're going to think about the supply chain moves.

On the factoring line changes you're doing.

You do that is dollar global duplication of costs and some growth investments in there as well so thats one so it's really one third one third one third.

The impact of these as you move through the second half of the year should gradually phase out.

Jennifer Honeycutt: And that's on the back of really solid execution on behalf of the Chemtree team. I think relative to your second question, you know, data centers for us in terms of the business is still a relatively small portion of our overall business, but certainly rapidly growing. And so as that continues to grow, it becomes a bigger lens for us to focus on and think about. So that's how we would see it. Okay, and then are you able to quantify what portion of your growth this quarter came from that or any way to like kind of quantify?

Non profit should result in Q3, and then Q4.

I appreciate the color guys.

Thanks, Andy.

We'll take our next question from John Mcnulty with BMO capital markets. Your line is open. Please go ahead.

Yes. Thanks for taking my question I guess, just the first one in terms of volumes I think in the first quarter. There was some concern there was a little bit of pre buying it looks like that really didn't play out the way you thought it was actually just solid core growth I guess is that a fair characterization characterization do you see any risks around.

Around the timing of tariffs as we look into the second half and how are you thinking about kind of general core growth in the second half.

Andrew Buscaglia: You know, a percentage of sales that this could be longer term for you. No, I think, Andrew, at this point, it's still a small number, as Jennifer said, as a total part of the business, so we don't disclose that, but as it continues to grow, of course, more details will come. Okay, thank you. Thanks, Andrew.

Thanks for the question John Yeah, we've we've done a deep dive here too to fluids, whether we've got any pre buying here in our customer base and we really just don't see much of that.

We do see read through on demand and as you know.

Brian Lee: We'll go next to Brian Lee with Goldman Sachs. Your line is open. Please go ahead. Hey, good morning, everyone. Thanks for taking the question. Hi, good morning.

75% of our sales are direct to end users. So we've got great visibility in terms of reading through to <unk>.

The end customer there.

Sameer Ralhan: Most of mine have been covered, but I wanted to ask maybe two quick sort of modeling-oriented questions. One, Sameer, going back to the kind of the margin view for the rest of the year, that it sounded like the pricing tailwinds are gonna hit a bit more in 4Q than you have the better sales growth view for the year. So, I mean, it would imply maybe more of a margin uplift into year-end versus what you're forecasting. So maybe some of the puts and takes in the year-end for margins, are you expecting increased investment into 4Q like last year, or is there anything else just maybe offsetting potentially higher margin expansion potential into the year-end?

I would say you know core volume remains strong really around the secular growth drivers as they.

If they continue to drive our end markets Q3 orders are off to a good start start theres really nothing unusual about the order patterns that we've seen thus far in the quarter and you.

You know again, we really operate in that critical to operations segment, where 80% of the <unk>.

Revenue is really tied to food water and essential goods.

And John just one thing to add is it going to think about the volume from a guide perspective, our guidance again.

The core sales growth guidance does reflect the confidence that we have as we.

Look at the growth on the volume side as well definitely pricing is an element, but the volume our confidence on the growth rate is reflected in the upping of the guide as well.

Sameer Ralhan: Yeah, Brian, thanks for the question. As you're going to look at the margin side, right, our approach is very similar on the guidance front that we had in Q2. Overall, given all the moving pieces still on the tariff side, and things are getting to a better place, by the way, they're doing it every day now, but things are still fluid. So we just wanted to be a little conservative and maintain a full year margin guide from either flat to 50 basis points, effectively 20 bits to the middle, the midpoint. So you're right, look at this point, they're going to see a bigger improvement in Q4.

Got it Okay fair enough and then maybe just a follow up on free cash flow.

Looking at the first half or not even just the strong quarter and you're up 36% year over year.

It looks like you are pulling pretty hard on some of these working capital levers and free cash drivers.

How should we be thinking about that going forward are there more levers to pull and then in terms of that flexibility I know, you're you're pretty anxious or or excited about potential opportunities with regard to M&A I guess can you give us an update on the M&A markets.

Sameer Ralhan: In that, we have built in some assumptions, as we kind of laid out last year, right, that look, Q4 is a time and we look at once we're done with the strategy, once we're done with the budget, so we have the resources that are lined up along with the strategy to execute in 2026. So yeah, to the extent that we end up taking some actions, we build some of that into the guidance process.

Yes.

I'll start with the free cash flow and then if I can jump in from the M&A side look on the free cash flow side really.

Strong operating earnings Andy Sorry, John Thats kind of really driving it and then the working capital management has been pretty prudent.

Brian Lee: All right, fair enough. And then I know you guys called out China, kind of spoke to sort of the headwind you continue to see there. I think across most GEOs, you saw strength, but in Western Europe, PQI, I thought that was maybe a bit weaker than anticipated. Can you kind of speak to what you saw in the quarter? Is there anything going on in that particular end market and GEO? And any views on kind of what the trend line could look like there for the rest of the year?

Some of the stuff is driven by some of the Capex similar investments in their timing as well from an overall year perspective as you know in Q1 and Q3, we do have interest payments. So the cash interest payments so that it doesn't impact the free cash flow Q2, and Q4 tend to be heavier on the free cash flow side.

Year to date, John Youre running a little over 100% at this point from a conversion perspective, but if you look at the full year.

At this point, we still feel very good about 90% to 100% how bid ask them a year ago.

Jennifer Honeycutt: Thank you. Yeah, thanks for the question, Brian. You know, Western Europe, certainly we continue to see steady growth in consumables and continuous inkjet marketing and coding systems. You know, Q2 for PQI, down sequentially from Q1, mostly related to timing of new equipment sales. Looking at the data, there's really nothing concerning here. I will say that year to date growth for PQI in Europe is up 6%. And certainly with our direct sales force, we're going to continue to monitor and adjust accordingly.

<unk> developed a little bit about more and.

More of an update but.

At this point this model it from 90% to 100% conversion looks like.

Yeah, John and just respect here kind of M&A pipeline question.

Pipelines for both <unk> and water quality, our active full end.

Have a mosaic of targets within them, we remain disciplined in our approach in terms of making sure that we are.

Identify attractive market top tier companies within those markets and that we can get them at a fair and reasonable valuation.

We continue to like targets with a similar operating model to ours and the durability of the secular drivers that I spoke about previously.

Ryan Taylor: Alright, thanks a lot. You bet.

Where <unk> can really drive growth and margin expansion for us so.

Andrew Krill: We'll go next to Andrew Krill with Deutsche Bank. Your line is open, please go ahead. Hi, thanks. Good morning, everyone.

Current market valuations in the main I think remain a little bit elevated, but we continue to actively monitor opportunities.

Jennifer Honeycutt: I want to ask a question on Western Europe. Actually, more positive side is water quality at 11% growth in Europe, two quarters in a row. Impressive. So just give us some more sense of the opportunity there. You know, I think you said the investments are paying off, but like, are you taking share? And maybe like, how long could this type of growth persist? Or do you think, you know, we could add a little bit of moderation in the back half of this year? Thanks. Yeah, thanks for the question. You know, certainly our water business continues to have really great growth there in Europe.

And our objective is to maintain.

And investment grade balance sheet here right. So.

Got it thanks very much for the color.

You bet.

We'll go next to Mike Halloran with Baird. Your line is open. Please go ahead.

Hey, good morning, everyone.

Morning, Mike.

So just a couple of things here just could you help me understand you touched on a little bit with PQ I'm not losing.

It was <unk> question, but maybe just help with the timing of the pricing.

When that started being implemented what pricing looks like in the back half of the year versus front half of the year.

Jennifer Honeycutt: And I think what we see as a demarcation, relative to the US, for instance, is that Europe tends to have a stronger focus on water reuse and investing there. So we see, you know, good, good, strong municipal growth there as they talk about water reuse and reclaim and so on. You know, and we mentioned before that on the back of some of the structural changes we made in sales team relative to commercial architecture, and really getting back to basics in terms of commercial execution, through using BES. I think we're just seeing the team execute really well there, both with focus and rigor in using the tool set.

And I suppose you know you talked about a third a third a third that 60 basis points.

Seems to be part more of a tier of timing.

Is that the court in the back half of the year functionally to see kind of a sequential improvement in the back half of the year. It doesn't seem like it's embedded in guidance, but it seems like the remarks that youre, making imply that there should be some sort of uptick in the back half was two two because of the timing of all those things. So maybe if you can just wrap it all together for me would be approved.

Got it.

Thanks, Mike I'll start off on that.

On the pricing side, the pricing was one of the elements of the countermeasures where it goes.

On making supply chain.

Supply chain changes underlying changes as well as part of this whole process to mitigate the tunnels and mitigate any impact for 2025.

Jennifer Honeycutt: You know, we'll see how things continue to progress here. We've got a positive outlook in terms of ongoing demand and have built that into the guide accordingly. And Andrew, one thing you see, I'm going to look at it, it ties back to the comment that Nathan as well made, right, on the UK side. So overall, as you can think of, the investments are happening to build good, some secular growth drivers. And we're making investments as well, as you noticed, right, we bought Occopedes over there, added to the portfolio. So we continue to make the right investments in Europe so that we can sustain the growth.

Pricing actions.

It might have been as we said earlier, we've been very selective very targeted working very closely with our customers to make sure.

We are helping them in their operation site pollution, both of the growth plate as well.

So the impact that you've seen this in the second quarter is limited and it's almost like a month kind of an impact. So you sell a pricing update a little bit to one 7%.

We didn't.

A replay of the backlog we work very collaboratively with the customer. So we went for a price increases which are more from a structure in place a structure in nature and expect them to continue into the second half we will start seeing the run rate impact in the in Q3 and Q4, there should be little bit of an uplift from bank, you're right, Mike as we kind of move into the into Q3 and even more in Q4.

Jennifer Honeycutt: Okay, great. Thank you. That was very helpful. And then just on July, you mentioned that orders are going well, kind of consistent with what you would expect. And wanted to ask, you know, with it seems like trade deals across the globe are being made, the handshakes are happening, just any sign of that is like helping with customer confidence as we go into the back half of the year? Thanks. I think it's largely reducing confusion, right? And I think, you know, customers You know, they're not necessarily changing their demand patterns over that, right? We remain sort of essential to the daily operations of all of our customers, you know, just in terms of being critical to, you know, demonstrating clean water, safe food and trusted essential goods, that's going to continue.

For I would say by a segment by segment are you seeing it faster in water quality and in <unk>, just given how the contractual nature of the transactions work.

It's going to come more in the second half of Q3 and Q4.

But for the full year, we fully expect to offset the impact.

Okay and so the so so so just sent to the margin piece sequential there should be an uptick into the back half of the year pricing timing comes in.

And given kind of the moving pieces around the cost side associated with all of that or just the cost piece of it come through and kind of mitigate the sequential use upset its pretty stable.

Ryan Taylor: But I do think there's less, you know, agitation or concern relative to making sure and having things settle down a little bit, which will read through, I think, in confidence. But for our businesses, it's really steady as she goes. Chris, thank you. This is Ryan again. Thanks, Andrew. And thanks for everybody that joined the call. We appreciate the interest and engagement.

Yeah from a dollar basis, yes, you're going to start picking up right on a percent basis. Mike Q3 is going to be like Q2 may be low blow up really like more like a Q2 and in Q4 of course, you're going to start seeing the full full run rate impact so that should be.

Meaningfully better than Q3.

Okay, great. Thank you I appreciate it.

Thanks, Mike.

We'll go next to Deane Dray with RBC capital markets. Your line is open. Please go ahead.

Thank you and good morning, everyone you guys hear me Okay. This time.

Ryan Taylor: At this time, we do need to end the call. We know we have some analysts in the queue that didn't get a chance to ask questions. We'll circle back with you next time around. And as always, I'll be available throughout the day and in the next few days to answer any follow up questions.

Yeah, Good morning, David.

I promise you it wasn't user error on my part but.

Bob.

I was interested that you made a reference that you had made some investments and trace game. So.

Angela: Thanks again for joining our 2-2 call and we'll talk to you next time. This does conclude today's program. Thank you for your participation. You may disconnect at any time. have a great day. Kjersti Jaakko.

Are you, adding salespeople.

What kind of investments and what kind of returns you are expecting.

Yeah. Thanks for the question Dean Tracings continues to be a great performer for us continuing to clock well over 20% growth in that business.

And the investments, we're making really are.

Mostly commercially oriented head count so sales feet on the street going to.

Two more.

Regions.

Particularly as we work with the synergy between both Tres gains in ESCO, where <unk> got a strong position in enterprise accounts and can pull trace gains after those accounts and trace gains has got a strong position in sort of mid market accounts pulling.

ESCO into those opportunities as well so.

R&D investment to accelerate new product development as well as the sales investment.

And it's an investment that we feel strong about just based on making sure that they have a fast start.

And we expect them to continue to be good contributors to our growth into 2026 contributing to profitability as well.

That's all good to hear and then just a question on the data center opportunity.

It is truly the fastest growing vertical for the industrials not surprised given the water use how critically important is to have the water quality.

At the right standards could you just talk about your go to market approach is is there an opportunity to have a modular offering.

Or is it more of type of one off testing.

Just very interested in your approach share in this market.

Yeah. Thank you you broke up a little bit Dean am I coming through clearly.

Yes, okay great.

I think I got the gist of your question really around data centers and how we're approaching data centers to capture that fast growing market.

Data centers for US is really a strong play for chemistry. So datacenters in the main use incredibly large volumes of water and certainly require an incredible amount of energy the water usage. There is in fact.

You know basically flows through our over heat exchangers to basically cool.

For the power generation cycle, right and so those assets are subject to corrosion.

Subject to biological filing and so on and so Ken.

<unk> got a big play here growing very strong with respect to.

Being able to provide solutions to protect those assets with their chemical offering.

And as you know can treat is entirely a direct to end user.

Sales approach.

And given the deep domain expertise, they're really able to capture that opportunity.

In terms of their ability to sort of understand the applications.

The pain points of the customer and innovate solutions that help solve for some of those problems.

Thank you.

You're welcome.

We'll go next to Checkup Robinson with Melius Research. Your line is open. Please go ahead.

Hi, good morning, everyone.

Good morning, Jay.

When you talk to your CPG customers.

Looking at the Capex front end clients or has there been any real.

Any real shift or change as a result of all the tariffs and the trade uncertainty.

Yes.

Yes.

Okay.

Their budgets and different geographies to world class capacity or whatever the case.

Okay.

Change your trajectory around equipment sales and product quality, but just curious where you are your conversations with them are large reserves.

Yes. Thanks for the question Jake we really see the CPG demand sort of stable and steady as she goes and thats.

You know kind of irrespective of region.

I think they are navigating the environment with with care relative to their price increases.

I think theyre dealing with an environment, that's pretty consumer sensitive.

Really given sort of the post pandemic inflationary environment, and so theyre being cautious we see.

Really solid demand stable demand for both equipment and consumables right. This means you know over five quarters of continued growth here.

Our customers continue to retool their lines to upgrade their lines make sure that theyre running efficiently we do.

Don't yet see sort of new lines being built or greenfield facilities being built but.

Certainly as the tariff environment motivates.

Regionalization or re shoring activity, we're poised to be able to capitalize on that.

Okay. That's helpful color understood switching gears to China.

It's been a market with some sort of.

So pretty much the daily you folks.

And then independent public company.

Is there any other market in water.

Specifically, that's just bouncing along the bottom at this point unrelenting, it's just going to take time for <unk>.

For the structural issues with refinery invest dollars to work itself out before you can get a real recovery there.

I think that's largely the right way to think about it Jake our China sales in the first half were flat to last year.

Little bit tale of two cities, where <unk> is showing.

Increasing strength and strong sales, particularly.

On the coding and marketing side and selectively within packaging and color water quality sales you know have been lower there.

One of the things we're dealing with here is a comp year over year relative to you the installations from Trojan, which were strong.

In Q2 of 2020 form that was those were shipped to support chip processing.

So water you know what I mean.

As bouncing along the bottom teams doing a great job of executing there where they can find opportunity.

But.

China in and the main has become a more mature market and we're navigating that accordingly, so we're really not building any recovery further in China into our second half guidance.

But.

We believe the team is executing well within the opportunities available there.

Great. Thank you Jennifer good luck.

Thank you.

We'll go next to Nathan Jones with Stifel. Your line is open. Please go ahead.

Good morning, everyone.

Good morning, Jennifer Jennifer last quarter I asked you about the disruption that was coming on from trade policy and Youre pretty excited about the opportunity from a competitive standpoint that could present themselves.

<unk>, maybe wait a quarter on your belt and at least a little bit more clarity on what that.

That trade policy outlook might be can you update us on your thoughts around.

You belabor, all ties competitively advantaged and how youre going about.

Taking advantage of that to gain market share.

Yeah I think.

You know one of the things we see here is really the strong execution of the teams relative to applying the <unk>.

<unk> enterprise system right. We've we've invested a fair amount relative to our commercial execution funnel management lead generation product launch excellence growth rooms, and commercial architecture.

So a.

We're really positioned well I think with respect to sort of anything that comes through on trade policy.

Fluctuations in in in in trade.

Largely don't have a significant impact on us apart from sort of the tariff adjustments that we've been making relative to lying shifting line.

Factoring in the like.

But you know if we think about trade relative to some of the.

Mike Mohan on things to that effect, we think that you know going to provide incrementally a tailwind for us as our ingredients change and the like so not a huge impact from trade.

Changes.

But we're using.

Using ves to really sort of position ourselves well to respond dynamically in the markets that we're in.

Maybe can I just add one other thing is as you kind of think about how we are positioned to take advantage is really by having to region for region kind of manufacturing and a great. A great proof point is is what Jennifer mentioned earlier in the prepared remarks.

The project in Chicago, right by making the investment in Michigan, and being able to provide products, which are more compliant with build America buy America, those kind of things really help us position well from a competitive perspective, so to think about things things like that.

That that can really help us position to take advantage of their trade policies.

I guess my follow up question, then I'm going to ask you about the U K specifically, there's obviously been a lot of news about.

The water utility picture in the U K recently can you talk about how you view that as an opportunity for.

For increased spending by water utilities in your card your ability to take advantage of that.

Yeah, I think we're well positioned whenever we see these kinds of episodes, regardless of geography again, 75% of our sales are direct to customer.

And so we're able to sort of not only identify those opportunities, but capitalize on them locally.

So where are.

Where are we are.

Well positioned to take advantage of that and we are we will do so.

Okay. Thanks for taking my question.

We'll go next to Andrew Buscaglia with BNP Paribas. Your line is open. Please go ahead.

Hey, good morning, everyone.

Good morning.

That's why I ask on the.

Recycle reuse opportunity with data centers.

First off are you are you selling directly to these hyperscale or is or are you selling to customers that sell to the hyper scholars and then I'm wondering why this is the spending there has been going on for some time. What do you think you are just sort of starting to see that now.

Great question.

B.

So there's two ways to think about this one is a sales of product and services into existing data center.

Right and so we see good growth there both into accounts that we currently are.

And as well as new accounts.

Or rather existing accounts that perhaps we're not in.

And that's on the back of really solid execution on behalf of the country team I.

I think relative to your second question, you know data centers for us in terms of.

The business is still a relatively small portion.

A portion of our overall business, but certainly rapidly growing and so as that continues to grow it's it becomes a bigger lens.

For us to focus on and think about so.

That's a.

That's how we would see it.

Okay, and then are you able to quantify what.

A portion of your growth this quarter came from that or or any way to kind of quantify.

You know a percentage of sales that this could be longer term for you.

So I think Andrew at this point, it's still a small number of Jenifer said is it all part of the business. So we don't disclose that but as it continues to grow of course more details.

Okay. Thank you.

Thanks, Andrew.

We'll go next to Brian Lee with Goldman Sachs. Your line is open. Please go ahead.

Hey, good morning, everyone. Thanks for taking the question.

Hi, good morning.

Most of mine have been covered but I wanted to ask maybe two quick.

Modeling oriented questions wanted something.

Going back to the kind of the margin to be for the for the rest of the year there.

It sounded like pricing tailwind are going to hit a bit on <unk>. Then you have the better sales growth for the year. So I mean, it would imply maybe more of a margin uplift into year end versus what's your.

What you're forecasting so maybe some of the puts and takes in the year and for margins are you expecting increase investment in Torquay like last year.

Is there anything else, just maybe offsetting potentially higher margin expansion potential.

Zero.

Yes, Brian Thanks for the question as you look at the margin side right out approaches very similar on the guidance front that we had in Q2.

Overall, given all the moving pieces still on the tariff side and things are getting to a better place by the way there with everyday.

The things are so fluid. So we just wanted to be a little conservative and maintain our full year.

Margin guide from zero.

Flat to 50 basis points, so effectively a bit to the middle.

The midpoint, so you're right look at this point, but you can see a bigger improvement in Q4.

And that we have built in some assumptions as we kind of laid out last year right that Q4 at a time when we look at once you're done with the strategy. Once we're done with the budget. So we have the resources that are lined up along with the strategy to execute in 2026.

Yes to the extent that we end up taking some actions we.

Some of that into the guidance process.

Alright fair enough and then.

You guys called out China kind of spoke to sort of the.

That headwind do you continue to see there I think across most chose you saw strength, but in western Europe PQ I thought that was maybe a bit weaker than anticipated can you kind of speak to what you saw in the quarter is there anything going on in that particular end market and deal.

And any views on kind of what.

What the trend line could look like there for the rest of the year. Thank you.

Yeah. Thanks for the question Brian.

Western Europe, certainly we continue to see steady growth in consumables and continuous inkjet, marking and coding systems.

Q2.

For PQ I are down sequentially from Q1, mostly related to timing of new equipment sales.

Looking at the data, there's really nothing concerning here.

I will say that year to date growth for <unk> in Europe is up 6% and certainly with our direct sales force, we're going to continue to monitor and adjust accordingly.

Alright, Thanks, a lot.

You bet.

Yeah.

We'll go next to Andrew Krill with Deutsche Bank. Your line is open. Please go ahead.

Hi, Thanks, Good morning, everyone I wanted to ask another question on Western Europe actually sorry.

More positive.

Water quality at 11% growth.

Two quarters in a row, it's impressive.

The bar for the opportunity there.

I know you said the investments are paying off but like are you taking share in.

And maybe like how long could this type of growth persist or do you think we could add a little bit of moderating sharing in the back half of this year. Thanks.

Yeah. Thanks for the question are you know certainly our water business continues to have really great growth there in Europe.

And I think what we see as the demarcation relative to the U S. For instance is that Europe tends to have a stronger focus on a lot of reuse and investing there.

Hey, good strong municipal.

They're as they think about water reuse and reclaim and so on.

We mentioned before that on the back of some of the structural changes we made in sales team relative to commercial architecture, and really getting back to basics in terms of commercial execution through using the yes.

We're just seeing the team execute really well there.

Both with focus and rigor and using the tool set.

We'll see how things continue to progress here.

We've got a positive outlook in terms of ongoing demand and have built that into the guide accordingly.

And Andrew one thing you'll see is taking a look at it.

But back to the comment that Nathan as well to me it's right on the UK side. So overall is going to think of the investments are happening to the courts on our secular growth drivers and making the investments themselves as youll notice.

<unk> added to the portfolio. So we continue to make the right investments in Europe.

Can sustain the growth.

Okay, great. Thank you that's very helpful. And then just on July.

Mentioning but orders are growing well what kind of consistent with what you would expect and I wanted to ask it seems like train deals across the globe.

The handshakes are happening just any sign that that is helping with customer confidence as we go into the back half of the year. Thanks.

I think it's largely reducing confusion right and I think.

You know kind of customers.

You know, they're not necessarily changing their demand patterns over that right. We remain sort of essential to the daily operations of all of our customers.

Just in terms of being.

Critical to two demonstrating.

Demonstrating claim.

Clean water safe food and trusted essential goods.

That's going to continue but I do think there is less.

Adaptation or concern.

Relative to making sure and having things settle down a little bit, which which will read through I think in confidence but.

For our business is it's it's really steady as she goes.

Great. Thank you.

This is Ryan again, thanks, Andrew and thanks for everybody that joined the call. We appreciate the interest and engagement.

At this time, we do need to end the call. When we have some analysts in the queue that didn't get a chance to ask questions. We'll circle back with you next time around and as always I'll be available throughout the day and in the next few days to answer any follow up questions. Thanks again for joining our Q2 call and we'll talk to you next time.

Okay.

This does conclude today's program.

You for your participation.

Disconnect at anytime.

Oh.

Hum.

Yes.

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