Veralto Corporation

My name is Shelby and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's third quarter 2023 earnings results conference call. 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. 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. Mr. Taylor, you may begin your conference.

Good morning, everyone. Thanks for joining us on the call. With me today are Jennifer Honeycutt, our President and Chief Executive Officer, and Samir Rohan, 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 and will remain available until our next quarterly call. A replay of this call will be available until November 10, 2023. Before we begin, I'd like to point out that yesterday we issued our third quarter news release, earnings presentation, and supplemental materials, including information required by SEC Regulation G relating to any adjusted or non-GAAP financial measures. These materials are available in the investor section of our website, www.virualto.com, under the adding quarterly earnings. As it relates to non-GAAP measures, I want to highlight that we are presenting adjusted operating profit and adjusted EBITDA on a standalone basis, including incremental standalone costs as estimated by management for all periods. We are also presenting adjusted diluted earnings per share, including incremental standalone costs and interest expense related to our new capital structure. Reconciliations of adjusted figures and all non-GAAP measures are provided in the appendix of the webcast slides. Unless otherwise noted, All financial metrics relate to the third quarter of 2023, and all references to 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. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our most recent SEC filings. Actual results may differ materially from any forward-looking statements that we make today. 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.

Thank you, Ryan, and good morning, everyone. We appreciate you joining us for Veralto's first earnings call as an independent, publicly traded company. The third quarter 2023 marks a significant milestone for Veralto as we successfully completed our separation from Danaher. We accomplished this in just over 12 months from the time of announcement, a truly remarkable achievement. During the third quarter, we filed our Form 10 issued our 2022 sustainability report, and hosted our first investor event. At that event, we described key attributes that differentiate Geraldo along with our framework to create long-term shareholder value and our disciplined approach to strategic capital allocation. I'm proud of our team for their extraordinary effort related to the separation while also driving solid operating execution in support of our customers. Through the first nine months of this year, we delivered core sales growth of 3%, expanded adjusted operating profit margin by 50 basis points, and converted 105% of net income into free cash flow. we ended the third quarter in a strong financial position with over $425 million of cash on hand and net leverage below two times. Given our financial position and strong free cash flow profile, I'm pleased to share with you that we expect to announce a quarterly dividend of $0.09 per share in Q4 2023. We are off to a great start as a public company, and there is positive energy throughout Veralto. Our team is tremendously excited about the significant opportunities in front of us to create value for shareholders. Before we dive into the results of the quarter, I'll open with a brief overview of Veralto for those who may be new to our story. Beralto is a global leader in water and product quality, essential technology solutions, and a proven track record of solving some of the most complex challenges we face as a society. Our annual sales are approximately $5 billion, and we are organized in two reporting segments, water quality and product quality and innovation, or PQI for short. Our water quality segment represents about 60% of total sales and is positioned at the high end of the value continuum with leading brands in water analytics and water treatment. Our PQI segment represents about 40% of sales and is a leader in marketing and coding technology as well as packaging design and color solutions. Across both segments, our key brands are leaders in their respective industries with long track records of innovation, commercial excellence, and continuous improvement. Our global team is more than 16,000 strong, and we serve over 225,000 customers by leveraging our scientific expertise and innovative technologies to help our customers solve complex challenges. Our technologies and services play an integral role in our customers' operations and are typically used in production environments where the cost of failure is high. Approximately 85% of our sales are tied to water, food, and medicine. We help our customers ensure drinking water is pure, foods and beverages are authentic, and medicine is safe to consume. Turning now to Q3, our team delivered a solid quarter in a dynamic macro environment as we continued to face headwinds from broad weakness in China and lower demand for consumer packaged goods. Pricing remained favorable, but continues to moderate towards historical levels, both sequentially and year over year, as supply chains normalize and inflation slows. Additionally, we are proactively improving the efficiency of our cost structure while maintaining a healthy cadence of R&D and growth investments. In the third quarter this year, we delivered $1.25 billion in sales, of which 59% were recurring. Core sales growth was 1%, following 11% core growth in Q3 2022, bringing our two-year core growth stack to 6% in line with our historical mid-single-digit growth rate. Adjusted operating profit margin, including incremental standalone costs, was 22.4%, and adjusted EPS was $0.75 per share. Adjusted EBITDA was $290 million, or 23.1% of sales. and we generated over $230 million of free cash flow, or 113% of debt income. This performance reflects our ability to navigate a dynamic macro environment and is a testament to delivering results with the Veralto Enterprise System. Looking now at core sales by geography, on a combined basis, core sales grew 3.5% in North America, and 2.5% in Western Europe. In high-growth regions, core sales declined 5% due predominantly to weakness in China, where our core sales declined in the high teens. In North America, our growth was led by water quality and highlighted by strong growth across our water treatment businesses with modest growth in water analytics. In water treatment, sales volumes at both Chemtreat and Trojan increased year over year. Chemtreat saw steady growth across industrial end markets and continued to win new customers through technical expertise and strong commercial execution. At Trojan, we saw good penetration of our UV systems at municipalities, along with strong growth from our mobile rental program at Aria Filtra the former Paul Water brand. For PQI, core sales in North America declined 2.5% as modest growth in marketing and coding was more than offset by a decrease in sales of packaging hardware and color equipment. In Western Europe, quality delivered 5.5% core sales growth with PQI flat. In water, core sales growth was led by HAWC's analytical instruments and consumables, with Germany and France contributing the highest growth. At PQI, marking and coding sales were flat, and modest growth in packaging design software was offset by lower sales of color equipment. When we look at high growth markets, modest growth in Latin America India and Eastern Europe was more than offset by the sharp decline of sales into China. In China, core sales for water quality were down high teens with PQI core sales down more than 20% year over year. These declines reflect broad weakness in China's economy. Looking ahead, We anticipate ongoing weakness in China and lower year-over-year volumes in global consumer packaged goods to persist. Despite these near-term headwinds, we remain confident in the attractive secular growth drivers for both water quality and PQI and our ability to grow core sales in the mid-single digits over the long term. At this point, I'll turn the call over to Sameer for a detailed review of our third quarter financial performance.