Veralto Corporation

Q4 2025 Earnings Call — February 4, 2026

Analyst Dean Dre (RBC Capital Markets): Good morning, everyone. Since we're at the start of the year, I think it's a good place to get synced with the water sector macro. Just what's your expectations on Muni CapEx? And just related, any differences in demand trends from your municipal customers versus the industrial, broadly industrial, commercial, power, electrical, semiconductor, and so forth? So just start us there, if you could, please.

Executive Name (Title): Yeah, thanks for the question, Dean. You know, what we see in the water quality markets is really steady demand, and I would say that we see that both across muni and industrial markets. Relative to your capex question, you know, we are relatively insulated from fluctuations in capex funding cycles. As you know, 60% of our business is recurring revenue. We fit in the high end of the value chain where we are integral to the operation of the customer's process. They can choose not to use us, but the cost of failure or the risk of failure for them is going to be high. So highly sticky business needed to continue to deliver clean water. And so, you know, we feel good about, you know, our position there. Relative to the demand between muni and industrial, we see pretty good opportunities on both sides. You know, every year we always see some fluctuations in which industrials are up or down. Currently we're seeing strong, you know, read through here in the industrial markets that really support data centers. So data centers themselves, precursors, which would include semiconductor mining and power as well. So strong growth, as we had mentioned in our prepared remarks relative to those industrials. And then on the mini side, government funding continues to flow. So feel good about demand in both cases. And I think we're well set up here in 2026.

Analyst Dean Dre (RBC Capital Markets): That's really helpful. And then just a quick follow-up. It's come up in a number of calls across the sector regarding DRAM. Given across both of your businesses in the level of automation, are you seeing any pinches in supply or pricing? And could you size that for us if you could?

Executive Name (Title): Yeah, Dean, just a minute. I'll take that one. No, our exposure actually in dollar terms is very small to the DRAM site. So as we kind of looked at it and sized it, we don't expect it to be a material at this point.

Analyst Andy Kaplowitz (Citigroup): Good morning, everyone.

Executive Name (Title): Good morning, Andy.

Analyst Andy Kaplowitz (Citigroup): So you made this one for Samir. Your guidance is 50 basis points of margin expansion X in situ, which is, I think, right in your incremental margin algorithm. But maybe you could give us some more color, either the puts and takes you're seeing, because I think you'll be lapping tariff-related headwind, I think you said in the past, like Q2. But, you know, being asked the question on inflation, it's out there, you know, in different areas, and there are investments that you're making in situ. Is that kind of front-end loaded? Any more color would be helpful.

Executive Name (Title): Yeah, Andy, if you're going to look at the core business, you know, we are guiding towards 50 basis points of modern expansion. You know, a big chunk of that is actually, you know, pricing is driving it. And as you mentioned, some of the headwinds from the tariff-related friction that we had in 2025, those things will start rolling off. We're going to start seeing the impact of that in the second half of 2026 as we kind of look at it and model then. That's really offset by some of the investments that we continue to drive. You heard from Jennifer a little bit earlier about this investments in making the services that we're trying to expand that part of the business and also just on the sales side as we continue to increase feet on the ground as you're going to think about the sales side. So it's really the algorithm for the core business is steady as for the long-term value creation algorithm. So there's no changes over there. We feel pretty confident on that side. Institute really great acquisition for us as we kind of get through some of the initial calls, especially in the first half of the year to integrate and some of the cost tied to the realization of the synergies. Those are the kind of things that are driving the upfront impact and on a net year basis, that's going to be 25 basis points. So those are some of the puts and takes as you're going to think about the modern expansion.

Analyst Andy Kaplowitz (Citigroup): Scott, that's helpful. And Jennifer, you mentioned data centers are strong. I know in the past you've said it's still a relatively small part of the world, but we've seen a wave of data center orders here over the last couple of quarters for a lot of industrial companies. Could we see the data center wave be sort of meaningful for you guys in growth in 26, or is it still too small? Maybe you could elaborate on sort of your TAM and sort of what's going on there for you guys.

Executive Name (Title): Yeah, Andy, we don't size our markets publicly, and I would say that our sales into data centers are still relatively small. We wouldn't expect to see a meaningful contribution this year, although the aggregation of power generation, cooling towers, mining, semiconductor, right, it does start to add up. If you kind of include all of the ancillary vertical markets that go with it. But data centers specifically, again, small base of business, growing double digits, but not going to be a meaningful contributor to core growth this year.

Analyst William Griffin (Barclays): Thanks. Good morning and I appreciate the time. My first question here just was hoping to drill down into PQI a little bit and perhaps specifically what you're seeing in that business as it pertains to this kind of high protein boom that we're seeing. Could that really start to be a volume driver within PQI and just any color that would be helpful?

Executive Name (Title): Yeah, thanks for the question. You know, our CPG markets tend to be holding up really well. They're stable. We're not seeing any changes in demand patterns. Good linearity across the four quarters. And, you know, within that, we've got solid demand across some of our new product innovations. UV laser, we've seen some good interest there. Relative to changes in terms of food products and package size and so on. Look, anytime changes get made to what is being produced, it's generally a nice pickup for us, right? So the secular drivers around the proliferation of brands, the proliferation of SKUs, changes in package size, even regulatory influences, right? Those are all positive drivers for our business there. So we absolutely feel good about, you know, changes to packaged foods to support changes in dietary requirements. And so on. So I think on the coding and marketing side, that's a volume game for us. So the more packages, the more coding and marketing equipment and consumables that get sold into that space. So as far as protein-intensive consumer packaged goods goes, I think we're well-positioned to capitalize on that.

Analyst William Griffin (Barclays): Got it. Appreciate that. And then just one specifically on geographic performance in 4Q. If we're doing the math right, it looks like Western Europe may have actually been down year on year in terms of core growth. Do you have any color or commentary on the drivers there?

Executive Name (Title): Yeah. If you're going to look at Western Europe, really, Will, that's driven by the impact of the three days if you start looking on a year-over-year basis. As if you recall we saw pretty solid growth in the Q1 across the regions especially in the western Europe as well because we had three extra shipping days that's really kind of driving the euro year comp as you can look at the western Europe. There's nothing otherwise on that so on a full year basis we feel pretty good if you kind of look at the growth in the western Europe really great execution by the team on the water quality and the PQI site. Our recurring revenue business is really what drives that, right? So 60% of the business being recurring revenue is going to have a pretty big impact when you've got base fluctuation. You only see that in the first quarter and the fourth quarter last year.

Analyst John McNulty (BMO Capital Markets): Yeah, good morning. Thanks for taking my question. Maybe just digging into the guide a little bit. You're looking for mid to high single-digit EPS growth, and yet your growth overall on the top line is kind of in line with what you've seen over the last couple of years when you put up double-digit EPS growth. I guess, is there anything that gives you some pause either in the end markets or on the cost side that has you forecasting EPS growth that's a little bit more modest than what you've seen over the last couple of years?

Executive Name (Title): Yeah, John, thanks for that question. Look, as you kind of look at the guide overall, maybe just, John, start from the top of the P&L. You know, from the core growth perspective, we expect to be in the little bit single digit as we kind of came out of the year. I think it just makes sense for us to be prudent at the there's still some moving parts from the macro perspective but underlying demands are pretty good and very very solid so we feel pretty confident on the demand side but as you can move further down, we'll have the margin expansion of roughly 25 basis points including the impact of the in-situ acquisition that really boils down to EPS growth in the, you know, mid to high single digits. You know, there's nothing material, John, anything on the cost side. So we'll have the top-line growth, the margin expansion that's ultimately coming down. It's really the only other impact I would say on the EPS side is from the in-situ perspective. It's going to be accretive to the earnings, operating earnings from $0.02 per share, but then in the $0.04 dilution from the lack of interest income because of the cash being used. So that's kind of baked into the EPS as well. So that's as you do your math.

Analyst John McNulty (BMO Capital Markets): Got it. Fair enough. And then just a question on the data center opportunity and the market. I think recently it became more clear that there is an opportunity for warmer water cooling as opposed to refrigerated water cooling. Can you help us to think about if that changes the game for Reralto at all in terms of how they target and maybe benefit from the data center growth as we look forward?

Executive Name (Title): This is a great question, John. You know, liquid cooling tends to increase the need for Veralta solutions because it's really a smaller volume of water focused on high purity fluids. And these need to be monitored along with ensuring sort of continuous chemical control and monitoring. So it doesn't really matter in terms of what the temperature of that water is. And even though in these cases where it's a closed-loop system, liquid cooling using less water, it's more valuable you can think of it as more valuable water right so there's precision dosing to present prevent corrosion and biofouling that supports our chemtreat business. You've got continuous monitoring of ultra low-range organics such as toc that benefits our hawk business and then you've got high purity disinfection needs there which benefits our trojan business. So you know, we do get this question from time to time, and it's really not a function of the temperature of the water. It's the fact that water is used at all. And the lower the volume of water you use, the higher the need to have precision control over that water to make sure that that process is running well and not creating problems and other kinds of quality risks for the data centers themselves. So that's the way to think about it.

Analyst Jacob Levinson (Milius Research): Hi, good morning, everyone.

Executive Name (Title): Good morning, Jake.

Analyst Jacob Levinson (Milius Research): You folks have done a couple of interesting bolt-on deals the last two years, and now you've got a new buyback authorization, and the balance sheet's in a pretty nice spot here. But maybe you can just speak to your confidence and maybe getting some more deals across the goal line in 26 and any color around just the activity levels that are happening behind the scenes here.

Executive Name (Title): Yeah, thanks for the question, Jake. We feel good about the level of activity we've got right now in our M&A pursuits. We've got full funnels both on water quality and PQI and continue to work on a number of different opportunities, which we do believe are actionable. That said, we're going to hold true to our discipline here in terms of making sure that we like the market, that we've got a top-tier asset, and that we can get it at the right valuation. There's a lot about that that we don't control, and timing tends to be a little bit episodic. But we are excited about what we have in the funnel, do believe that we will be continuing on our M&A journey this year. And, you know, relative to share buybacks, that just gives us another lever here in terms of the way to return value to shareholders should we see a period here where, you know, we're going to be a little bit lighter in M&A. But I would say even with that program in place, it takes nothing away from our ability to transact on our aspirations here relative to M&A.

Analyst Jacob Levinson (Milius Research): Okay. That makes sense. And just another one quickly on NC2. That seems like a pretty interesting asset. And I'm just trying to get a sense of what the integration plan might look like. I'd have to imagine it's maybe a bit subscale, and a lot of these private assets tend to need some help operationally or maybe just need to be larger. So maybe you can speak to where the low-hanging fruit is or the biggest opportunities that you see.

Executive Name (Title): Yeah, great question. We're really excited about the in-situ acquisition and certainly have plans to realize synergies on both the top line and the bottom line. I would say right out of the gate, we're most excited about the top line synergies, to be honest. We've got a good opportunity to accelerate growth. And

as a reminder, in-situ has grown 8% over the last decade.

We believe we can get that to low double digits here with the combination of the aught portfolio. The thing that's so attractive about this is that they are complementary product portfolios. So in situ is strong in water quality, so that would be the analytics measurements in environmental water, and ought is strong in water quantity, which would be level and flow. And together, the product portfolio really snaps together like Lego pieces. So, you know, the combined product portfolio is going to give us strength going for complementary channels, right, and Fichu is predominantly a North American company. And so we've got the opportunity to leverage channels outside the US, including Europe, Latin America and Asia. And then certainly to your point, Jake, they're going to benefit from, you know, the VES tools, whether that's those being deployed on the factory floor for improved operating efficiency or those deployed for our commercial efforts in helping them, you know, really grow faster. You know, we're going to also look to the cost synergy side of things.

We will move in parallel with our top line synergy activity here, and these would fall into things that you typically expect. So, you know, VES on the factory floor, improving operating efficiency. We're going to have opportunities to leverage global supply chain in our procurement teams through purchase price variance and insourcing activities, and then just globalizing or optimizing the global resources. So a number of things there. The teams will be busy and running at breakneck pace, but I think we're really excited about the possibilities here.

Analyst Ryan Connors (North Coast Research): Good morning. Thanks for taking my question. I wanted to talk a little bit about the water segment. It seems like the growth has been there generally. Obviously, you've got some great secular themes behind that, but it does seem like the growth has been more price-driven and that the volume growth has been a little more tepid. So can you just unpack for us, what's it going to take in your mind to kind of unlock the volume growth in water, given that you do have such compelling big-picture themes behind it?

Executive Name (Title): Hey, Ryan, this is Amir. Yeah, as you kind of look at the water side, you're absolutely right. You know, we feel... You know, really excited about the opportunity that's in front of us. The steady demand drivers, both the muni and industrial side, you know, continue. Overall, if you're going to unpack between industrial and the muni side, the muni side actually has been doing really well. You'll notice some of those things on the pricing side. But the underlying volumes have been pretty good as well. Industrial side, I would say, you know, it's – when you start looking at things like the data center ecosystem, as Jennifer said earlier, those kind of industries, be it semiconductor power, all the ancillary systems around the data centers they're kind of helping us drive on the volume as well as you kind of look at our filings you know you'll see a little bit of commentary around the chemical treatment side which is the chem trade and the uv side those businesses are growing sort of solidly in the mid single mid single digit plus kind of a range and the mini business is a little slower grower but it's a steady rock solid as you know.

That's the given the stickiness of that business in the market. So overall as you can start, you know, look long term Ryan be in a really really solid place now 2025 just with a three-day dynamic that moved between cuban q1 and q4 has makes the numbers look a little bit hard but otherwise if you open a full year basis, you know we're doing really well.

Analyst Ryan Connors (North Coast Research): Got it. Okay. And then switching gears over to PQI, also some great big-picture themes there, especially with the combination now of ESCO and trace gains. But can you talk about how exactly you monetize that demand? Is it more subscriber licenses and existing accounts? Is it adding new accounts? Is it higher pricing for existing users? Just curious if you can give us some more color on better understanding how you actually monetize convert that demand into revenue and earnings.

Executive Name (Title): Yeah, so our ESCO and TraceGains, you know, businesses together are growing really well in the software space. As you mentioned on the back of some secular growth drivers relative to, you know, digitized workflows across food and beverage and things to that effect. You know, these are SaaS-based businesses, right? So we've got recurring revenue in terms of the mechanics behind that. I would say, you know, one of the things that was so attractive about TraceGains is that they had a leading position in mid-market brands. ESCO largely has the enterprise brands. And so the cross-pollination of the two allows, you know, the TraceGain channel to bring ESCO into mid-market and the ESCO channel to bring trace gains into enterprise accounts. So there is a fair number of new accounts, new business that we see there, and the fastest growing sector is mid-market. But we also see product expansion happening. So, you know, WebCenter Go is kind of the backbone of ESCO. We've now integrated the TraceGains AI offering into that backbone through a product called Comply AI. That allows for automated, you know, AI verification of copied print in packaged goods. And as we mentioned in the prepared remarks, helps reduce, you know, errors, transcription errors, costly product recalls, and so on. So it's both menu expansion and it's new customers.

Analyst Nathan Jones (Stifel): Good morning, everyone.

Executive Name (Title): Good morning, Nathan.

Analyst Nathan Jones (Stifel): I guess I'll start with a fairly basic question out of the guidance. You know, low to mid-single digits is a pretty wide range. Can you talk about what will get you to the low end of that range, what will get you to the high end of that range? And then the 50 basis points core margin expansion, would that change if you were at the low end or at the high end, but you do 50 basis points on low single-digit growth, and maybe you get a little bit better than that if you get to mid-single-digit growth? Just any color you could give us on, you know, the width of that range.

Executive Name (Title): Yeah, Nathan, thanks for that question. As you kind of look at the top line from a core growth perspective, low single-digit to mid-single-digit range, really, as we kind of come out of the year, the demand, I mean, like, patents are pretty good. Frankly, Q1 out of the gate, the order patents are looking pretty good as well. So we feel pretty good about the business, but there's still – uh things on the macro side you know you always have to keep an eye on and it's just the beginning of the year so we just wanted to have a guide that's a little prudent and a little judicious

at this time overall we feel pretty good about the business.

As it kind of pertains to its impact on the margin side you're absolutely right you know given the fall through and the leverage you would expect in the system as we're going to move up that should help us. But we do have flexibility to modulate on the cost side as well, right, depending on whether we are trending on the low side or the high side. So I think it's good at this point to model in 20 basis points on the core side. But more to come as you're going to give the Q1 guide.

Analyst Nathan Jones (Stifel): And I guess my follow-up question on supply chain moves and some of the regionalization of footprint, Jennifer, that you talked about in your opening comments. Maybe a little bit more color around what's been done there. I know some of that was kind of a tariff avoidance kind of things. So might be okay regardless of tariffs. Is there incremental profitability that drops through from that that contributes to margin expansion and that maybe, you know, offsets some price that maybe you don't take? Or just kind of thinking about your ability to keep that improvement in cost effects?

Executive Name (Title): Yeah, I mean, principally, we initiated, you know, regionalization of our manufacturing lines and sort of regionalize our supply chain to certainly deal with the tariff environment that we were facing last year.

As a reminder, these are all no-regret moves because we're effectively a light assembly house, right? There's no big capital monuments to replicate or move.

And so it's fairly straightforward to kit up these lines and move them within, you know, a six- to nine-month kind of timeframe. Insofar as what kinds of moves happened, our video jet business had a fairly large China manufacturing footprint. We've diversified that footprint into the UK, into Europe. You know, we de-risked our Trojan business in Canada by adding footprint into an existing or expanding footprint in an existing location here in the U.S. We've had some, you know, Hawk product lines that have been diversified as well. So, you know, all told, there were you know, close to a dozen line moves there to really get us set up for any kind of trade environment that we would be facing going forward that would be more restrictive, you know, given sort of the geopolitical dynamics. You know, the things that we're working through now here are, you know, to make sure that, you know, we're not encountering any absorption issues, right? We got to make sure that those new line moves are, you know, up and running to full capacity and that we're operating efficiently there. So there's a little bit more work to do there. But again, these are no regret moves.

And to the extent that, you know, trade relationships continue to change, you know, we just had one you know, yesterday between the U.S. and India that became favorable for us, right? So we're going to continue to be, you know, flexible and nimble and agile in how we approach, you know, the geopolitical tariff trade environment, and I think VES does a great job of serving us well here.

Analyst Brad Hewitt (Wolf Research): Hey, good morning. Thanks for squeezing me in here.

Executive Name (Title): Hey, Brad.

Analyst Brad Hewitt (Wolf Research): Just curious in terms of what you're assuming for the price contribution to growth in 2026, both consolidated and by segment, and how much of that is carryover versus incremental pricing?

Executive Name (Title): Yeah, thanks, Brad, for that. Yeah, if you're going to look at the pricing that we have modeled into the guidance in 2026, you know, historical range is 100 to 200 basis points. You should expect us to be towards the high end of the range this year. Part of it is carryover, as you said, from the pricing actions that we initiated, but we are implementing price increases on top of that as well, just as part of the regular cadence. So that will put us closer to 200 range, basis points range.

Analyst Brad Hewitt (Wolf Research): Okay, great. And then as we think about organic growth phasing throughout the year, is it fair to assume organic growth accelerates each quarter through the year and then key four, given the easy comp, you're kind of comfortably in the mid-single digit zone?

Executive Name (Title): Absolutely, Brad. As you're going to think about this thing, you know, interesting thing is as you're going to look at the sequential sort of buildup of the revenue toward the quarter, it's pretty much in line with the historical averages, right, 24% of the total revenue in Q1. If you look at overall, just because of the three-day impact, the comps will be a little bit of a headwind in the first half of the year, but they become favorable in the second half from that three-day map. But otherwise, underlying demand patterns, there's no changes.

Executive Name (Title): Thanks, Brad. This is Ryan Taylor. We appreciate everybody joining the call today. We appreciate you sticking with us a little bit past the bottom of the hour here. As usual, I'll be around for follow-up questions over the next days and weeks. Should you have any, just reach out to me. And thanks again for joining our four-quarter call. This brings us to the end of Geraldo Corporation's fourth quarter 2025 conference call. We appreciate your time and participation. You may now disconnect.

Q3 2025 Earnings Call — October 29, 2025

the back of covering for some anticipated tariff activity. But both price and volume on water has been equally balanced, which is pretty fantastic in the environment that we're in. Pricing going forward is going to look a lot like our frame that we have talked about in prior calls relative to 100 to 200 basis points of contribution in the growth number coming from price. But having said that, you know, we believe we're going to be in a strong position here to deliver price in the fourth quarter. Okay, fair enough. And then maybe just with regard to your cash flow. So you did incredibly well in 3Q, looks like a solid outlook for 4Q. The cash is definitely starting to build on the balance sheet.

Your leverage is pretty anemic at this point, I guess. do you see opportunities that you think in the next six to nine months you may be able to to actually get across the finish line when it comes to m a i know these are hard to time but um but your your capital efficiency seems like it's starting to maybe drift a little bit lower just given how successful you've been with the cash you've been building up so maybe a little bit of color on that yeah thanks john for that uh you know first on the cash side and the free cash flow side really proud of all the execution of the teams across our businesses uh as you kind of think about the quality of the earnings working capital management and that kind of flowing into the free cash flow so really great execution is really driving uh the cash generation and ultimately as you said uh cash is accumulating nicely on the balance sheet now our intention is to deploy that capital uh to create long-term value um as you heard from us in the past local pipelines are pretty active we are very um actively looking at the number of opportunities but we're going to stay disciplined um you know you know us you're going to stay uh true to our framework of market company evaluation so some more to come uh but but as we're going to think about uh our cash we'll look at all the opportunities to deploy it to create value for the shareholders got it thanks very much for the call thanks john thank you we'll go next now to will grippen at barclays Good morning. Thanks for the time here. Just one quick one for me, another one on M&A. I know it's still early, but I would be curious if you have any updates on your recent investment in Emerald Ventures and maybe how some of those early discussions or opportunities being presented to you are looking. Yeah, we remain excited about our partnership with Emerald. And, you know, they are vetting a number of technologies in partnership with us that address treatment, monitoring, and emerging contaminants. It's steady as she goes here. We continue to work with them on vetting and looking at opportunities there. And we'll let you know when we have something to report. Appreciate it. Thanks, everybody. Thank you. We'll go next now to Nathan Jones with Stifel. Good morning, everyone. Good morning, Nathan. I guess first question, Jennifer, six months ago when tariffs had just been announced, you were pretty excited about the potential for Veralto to use the disruption uh from paris to gain market share i'm wondering if six months later you can maybe talk about any opportunities that the teams have taken advantage of um and you know how that's played out relative to expectations over the last six months yeah i think we're fortunate enough to really get ahead of this relative to our three-pronged strategy of uh strategic pricing supply chain and procurement changes and product line shifts um the product line shifts that we've made are really no regret moves right so moving product lines closer where customers are uh offsetting tariff impact uh is is something that we have been nimble in executing ves has helped support do that um you know certainly if you look at price volume balance here it would suggest on the volume side that we're holding up well with regard to being able to continue to penetrate markets regionally. where localization provides good strategic competitive advantage for us. So as you well know, we've got a warehouse now here in North America for our Trojan business. It's headquartered out of Canada. They continue to have great opportunities here in the U.S. And so all of these sort of initiatives that we've taken here have gone the way we thought them to, and we're seeing good opportunity to be closer to our customers and serve them locally. Thanks for that. I guess my follow-up is going to be PQI and North America. I mean, it's 3.3% of price in PQI, a regime that's obviously skewed to North America, given the tariff environment. So there's pretty heavy pricing in PQI there. Maybe you could just talk a little bit more about any opportunities there are for non-price mitigation actions in PQI. I guess the tariff impact was a little bit higher than I expected. And then does that present opportunity to maybe mitigate some of the tariff impacts, keep some of the price and have that drop through to margins as we move into 2026? Thanks. Yeah, I would say relative to PQI in North America, we are seeing great balance between price and volume within our marketing and coding segment. And that is, you know, largely on the back of VideoJet products launched last year in terms of new CIJ and laser products, including secondary packaging products that actually tie to the Food Safety Act that I spoke about earlier. Um, so we're, we're, uh, we're, we're confident in terms of the ongoing, uh, sort of demand and stability of these, these products. And I think what we're seeing here in North America is those products that were newly launched last year are really starting to gain traction. So great execution by our commercial teams. And, um, we will, uh, we will continue to monitor the environment as we go forward. Thank you for taking the questions. Thanks, Nathan. We'll go next now to Jacob Levinson at Milius Research. Good morning, everyone. Morning, Jake. Just tacking on Andy's question earlier on the data center side of things, is there any way you could frame for us the content intensity or the opportunity that you would have at Chemtree or Trojan relative to some of those other types of non-res facilities that they operate in. I'm just trying to get a sense of how a data center would compare to, say, a power plant or a chemical plant. I'm sure they all use a lot of water, but it's not entirely clear which ones would be more intensive for what you sell. Yeah, thanks for the question, Jake. I think the way to think about this is our commercial teams are really skilled at pivoting where the opportunities are in any given quarter or year. We are seeing double digit growth in data centers and in applications closely tied to data centers. We don't publicly disclose you know sales by vertical market but we can say that we feel very good about our current position and our opportunity to continue to to grow uh double digits in these areas going forward yeah and jake the other way to think about also is that you're going to think about the applications within the data center there are multiple touch points where our services kind of get into. Think about the data center. Some of the key issues are around reducing the water and power consumption both. So we play a part in both sides of the equation. And also the other part of the data centers is to really think about the uptime, right? Maintaining uptime is critical in the data center infrastructure. We all kind of learned based on some of the news that you've seen in the last couple of weeks. So as you're going to think about minimizing corrosion, scaling, biological growth, there are tons of applications you're going to think about and expertise that is needed in making sure the data centers maintain their uptime. And our chem team plays a phenomenal role in helping our customers achieve that. Okay, that's helpful. And just one quick one in trace scans. It sounds like that's been working out nicely for you. Maybe you can just help us understand the puts and takes. On the deal, as we come up, I think we've had it now for almost a year now. And I think part of the thesis, at least, was that there was an opportunity maybe to pull in some of your traditional products into that smaller midsize CPG segment. So any color there would be helpful. yeah we are uh incredibly happy with uh trace gains performance and the integration here has gone well they are now at their first year anniversary and so um their growth rate greater than 20 which has been in line with with expectations we'll go into the core growth calculus going forward in terms of of opportunity there um both trace gains and esco have been working together to integrate the digital backbone here that will create a single source of truth for all stakeholders in both the packaging and the product development workflow. So all of that is on track. We do believe that the CPG market is early in its digitization journey, but there continue to be strong regulatory and consumer safety drivers there making an attractive place for us. So TraceGames is doing great, strong grower for us on track. We continue to invest in building out that business, but they are growth accretive to the profile. Appreciate the color. Thank you. I'll pass it on. Thanks, Jake. Thank you. We'll go next now to Brian Lee with Goldman Sachs. Hey, good morning, everyone. Thanks for taking my questions. Just a couple more follow-ups. I know we've talked a lot about margins and PQI, but if we think about the cadence, it seems like we're two quarters ahead into tariffs hitting margins in this segment. So do we maybe not really fully lap the tariff impact until 2Q of 26? And is that kind of the way to think about when, from a modeling perspective, we start to see PQI margins start to expand again when you think about pricing and pqi is that i mean i would assume it's the biggest lever but are the increases enough to get back to kind of recapture the 100 200 basis points of margin of crime you've been seeing here to end the year or do you need productivity gains mix other factors to help there as well just any sense on the puts it takes there thank you Yeah, right. A lot of questions went back there. So let's go one by one, right? First, I think your instinct is right as we're going to think about when we start lapping up the impact from the tariff side, from all the actions perspective, you're going to start seeing in the second quarter. I think that's a good way to think about that impact. But overall, as you're going to think about the margin expansion, look, price is one of the impacts. We look at price versus the raw material cost, and that, you know, we call it the PPV, kind of that expansion all the time. That is definitely one of the factors that we're going to move into next year. But productivity is part of it, right? As we're going to think about the volumes that are coming through, they should be falling through at 30% to 35% kind of a range. That itself should give us 25% to 50% kind of a margin expansion as you're going to start looking at things moving forward. But there are some one-off things, as we talked about, the tariffs and the actions and the costs that come with mitigating those. Some of those one-off things like that should be offsetting next year as well. So lots of moving parts, but we feel really good about where the business is, the new products that come in, the acceptance we're seeing from the customers and the volume gain that you've seen. So really positive as we think about our opportunity to expand the margins. to continue to expand the margins, I should say. So you're going to see us in February talking about that in more detail. Okay. I appreciate all the color. I want to pass it on. Thank you. Thanks, Brian. Thank you. We'll go next now to Sari Boroditsky at Jefferies. Good morning. This is James for Sari. Thanks for taking your questions. So I wanted to look at some region for water quality. I think high growth markets underperform other regions over the past few quarters, but it outperformed this quarter. So what are key factors driving growth in these regions, and how do you see this trajectory going forward for the next several quarters? Yeah, I mean, I think we've had good, strong growth really contributing from our high growth markets. Certainly, you know, China is no longer a drag here for us. First time in several quarters that we've seen growth from both of our segments there in China, and the team's doing a great job to execute commercially. We see continued strong growth here in Latin America, and I would say there's real upside and double-digit growth that we're seeing also from India and the Middle East. India, on the back of a rapidly growing middle class economy, lots of infrastructure development there and so on india still is a relatively small part of our overall enterprise as a percent of sales but rapidly growing and we've got a team on the ground there who's who's driving some some great execution both for for water quality and for pqi in the middle east Everyone knows that they have considerable challenges with water and energy utilization and so on and so forth. So there's great opportunities there as they look to you know, drive, recycle, reclaim water, you know, if they focus on how to make the water that they do have last longer, recycle more of it and so on. So we think the secular drivers here for our high growth markets are going to continue to remain strong. And certainly the focus that we've had on executing commercially in those target regions has gone well. Got it. Great caller and great to hear that. And kind of moving on to recurring revenue, it kind of grew strongly by high single digit in the quarter. Can you kind of discuss the drivers behind this growth and do you expect recurring revenue to continue to outpace equipment sales growth going forward? yeah i mean i i think you've got to look at the relationship between equipment and uh consumables or recurring revenue over the cycle um they're going to be you know modest um you know changes and which is the faster grower but i would say in the main uh we've got strong growth from both right now as uh you know in the case of of um PQI on our coating and marking business, strong printer placements, and the inks and solvents and consumables to go with them. Same thing that we see on the water side, great instrument placement, as well as the consumables that go with them. So we've got a very sticky business, as you probably know, with regard to consumables and their relationship to the hardware that they support. I would also say we're starting to see some higher contributions from our software-based businesses. So if you look at our packaging color side, where you're starting to see our SAS and annual revenue start clocking in here with both TraceGains and ESCO, those are starting to be meaningful contributors as well. Now, the only one more point I would add is as you're going to think about our instrument business as well, right, I mean, there's a finite life, and that is a reoccurring business as well. So as you're going to think about the growth from the growth perspective, so that's a nice add-on as we're going to continue to move forward. Great. Thanks for taking questions. Thank you. We'll go next now to Bobby Zolper of Raymond James. Thanks. Good morning. Were there any questions relevant? Good morning. How are you? Were there any variances relative to your expectations in water quality pricing? No, I think, look, pricing in general has been, as you recall, when the tariff environment started earlier this year, we said we're going to be very strategic with respect to pricing versus one-off items being added tied to tariffs. So we work very closely with our customers to make sure ultimately the goal here is to create value through a combination of price and volume. And that's kind of reflected as you're going to think about the overall core growth, both in the water quality and PQI side as well. So we saw a lot of higher pricing in PQI versus water, but ultimately it's a combination of both that creates long-term value, price and volume. Okay, understood. Thank you. And what are your thoughts on the attractiveness of water metering as a platform? I mean, I would say, you know, we look at the entire value stream of where water is used, analyzed, and consumed. You know, metering is part of that value chain. We actually are in the metering business today with mag meters in our micrometer business. Smaller overall portion of our revenue profile, but we're actively in metering today. Understood. Thank you. Thank you. We'll go next now to Andrew Krill of Deutsche Bank. Hi, thanks. Good morning, everyone. I don't think this was explicitly touched on, but for 4Q, just was hoping you could get some segment level color on margin expectations, maybe sequentially is the best way to do that. And also anything on core growth for the fourth quarter by segment that I said, I think both around 5% for the full year, but just wondering if any big differences for 4Q. Thanks. Thanks, Andrew. The two distinct questions over there. So let me start with the margins first. For the fourth quarter, we expect the margins in aggregate to be around 30 basis points. Both segments should be driving the year-over-year expansion in the margin side. You're going to see that. Water quality is driven by continued discipline execution. Frankly, they've done a phenomenal job in the first nine months, and we expect that to continue in Q4. PQI should start benefiting from the reduced tariff-related costs and some of the operating efficiencies that we've been driving. So you're going to see that, but PQI should be on a year-over-year basis up as well. But in aggregate, we should be in the 30 basis points, kind of a zip code on the margin side. As for the core growth, again, as you know, we don't give guidance by segment, but both segments are lined up pretty nicely and should be contributing to the growth that we've made out. And Andrew, as you know, we said core growth around low single digits, but just to highlight and reiterate what we said in the prepared remarks, we do have three less shipping days, so if we perform off of that, the core growth across the portfolio is in the solid mid-single digits range. Very helpful. And then going back to cash conversion, again, very impressive in the quarter. Could you expand a little on what went well? And as we look forward, I think in the past, you said 1Q and 3Q often go below 100% conversion. as you do your cash interest payments just is there a chance maybe like you can hold the line more consistently going forward or should we still be expecting you know a more normal outcome of below 100 in 1q and 3q thanks Yeah, and you've got to look at the free cash flow. I think it makes sense to look at it on an annual basis because interest payments are always going to be heavy in Q1. There's always a variable comp in Q1 payout as well. And then Q3, you're going to have a heavy interest payment as well. That's just... architecture of how the our capital structure is um it's less about the business underlying businesses when you look at andrew the cash flow generation is very consistent very strong high quality earnings so um so i think that's the way to look at it great thank you thanks andrew thank you thanks andrew and thanks for everyone uh that joined us on the call today this is ryan taylor um This concludes the Q&A portion of our call. We appreciate everybody's engagement and joining on the call today, and we look forward to talking to you next time. Thank you. Thank you, Mr. Taylor. Again, ladies and gentlemen, that will conclude Veralta Corporation's third quarter 2025 earnings conference call. Again, thanks so much for joining us, everyone, and we wish you all a great day. Goodbye.