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 fourth quarter and full year 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 Sameer Lalhan, 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 Investor section of our website later today under the heading Events and Presentations. A replay of the call will be available until February 21st, 2024. Before we begin, I'd like to point out that yesterday we issued our fourth quarter news release, earnings presentation, and supplemental materials, including information required by the SEC Regulation G relating to any adjusted or non-GAAP financial measures. These materials are available in the investor section of our website, www.viralt.com, under the heading quarterly earnings. Reconciliations of adjusted figures and all non-GAAP measures are provided in the appendix of the webcast slides. Unless otherwise noted, all references to variances are on a year-over-year basis. 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. Good morning, everyone, and thank you for joining our call today. 2023 was a historic year for Veralto as we successfully executed our separation from Danaher and delivered a record level of sales, high single-digit earnings growth, and strong free cash flow in a dynamic macro environment. From a segment perspective, our teams in water quality achieved a record level of sales and operating profit despite headwinds in China. And in product quality and innovation, our teams held sales and profitability flat year over year despite headwinds from consumer packaged goods demand and the Argentine peso. I'm proud of our team for their resilient effort to grow and improve our business while supporting our customers and helping to ensure the safety of water, food, and medicine supply chains across the world. We finished 2023 with a strong fourth quarter, delivering core sales growth in both segments, solid operating margin expansion, and robust free cash flow generation. From a segment perspective, we saw continued growth across industrial markets in water quality and early signs of stabilization in consumer packaged goods markets and product quality and innovation. As we begin 2024, we are in a strong financial position and are cautiously optimistic about the near-term trends in our end markets. Over the long term, we remain focused on compounding earnings and cash flow through steady core sales growth, continuous operating improvement, and value accretive acquisitions that yield attractive returns. Our team is tremendously excited about the significant opportunities to create future value for shareholders while also having an enduring positive impact on our world through our unifying purpose of safeguarding the world's most vital resources. We are unwavering in these commitments and confident in our ability to achieve them collectively. Looking at our full year 2023 results, Sales grew 3.1% year-over-year to more than $5 billion, an all-time high. Core sales grew 2.6% following two consecutive years of 8% core growth, and we delivered 50 basis points of adjusted operating margin expansion. Adjusted EPS grew 7% year over year, and free cash flow generation remained strong with free cash flow conversion at 109%. We ended the year at a strong financial position with more than $760 million of cash on hand and net leverage of 1.5 times. Overall, I'm pleased with the steady growth and improvement we delivered in 2023 despite headwinds from lower volumes in consumer packaged goods markets, a slower economy in China, and the devaluation of the Argentine peso. In addition to delivering solid financial performance, during 2023, we bolstered our leadership talent, realigned our commercial teams, and continued to optimize our portfolio and launch several new technology solutions. Over the past year, we increased the rigor around our innovation process and have started to see early benefits. A great example to highlight is VideoJet, our marketing and coding business, which launched seven new products in 2023 to fortify and expand its leading technology position. These launches included differentiated technology in both our continuous inkjet and laser offerings. in inkjet video jet launched the new 1580c which prints pigmented color codes without increased maintenance enabling superior uptime while delivering crisp high quality contrast codes and in laser VideoJet launched its 3350, which features our new smart focus technology, allowing increased flexibility for seamless product changeovers with no manual intervention. These new products demonstrate our innovation focus on solving customer problems, and we are excited about their growth potential. Turning now to our financial results for Q4. We delivered 1.7% core sales growth year over year with 50 points of adjusted operating margin expansion and 9% adjusted EPS growth. Core growth of 1.7% exceeded the top end of our guidance due to strong execution by our teams in both segments and better than anticipated demand, particularly in food and beverage consumer packaged goods markets where volume started to turn positive. We are encouraged by the signs of stabilization we saw in the latter part of 2023. It's important to recognize that we are still in the early stages of recovery here. We are cautiously optimistic about the CPG markets at the outset of 2024 and remain prudent in our expectation of steady sequential improvement in demand as this year progresses. Q4 sales into China were also better than anticipated, down only 3% year over year and up 7% sequentially. A nice recovery from Q3 to Q4. Versus the prior year period, both segments delivered poor sales growth through continued strong price execution and, to a lesser extent, volume growth in our water treatment solutions, particularly for industrial applications. Adjusted operating profit grew 5%, and margins expanded 50 basis points to 23.8%. We delivered strong underlying margin expansion through price execution, cost optimization, and improved operating performance driven by the Veralto Enterprise System. Adjusted EPS was 87 cents per share in the fourth quarter, 3 cents above the high end of our guidance range. Adjusted EBITDA was $316 million for 24.5% of sales. And we generated $241 million of free cash flow at just over 120% conversion. Our Q4 financial performance reflects our ability to navigate a dynamic macro environment and is a testament to delivering results and meeting our commitments through the Veralto Enterprise System. Looking now at core sales growth by geography for the fourth quarter, we grew about 5% year over year in North America and over 2% in high growth markets, more than offsetting a 2% decline in Western Europe. In North America, we continue to see strong growth in water quality highlighted by our water treatment businesses. Chemtree grew sales in the high single digits with broad-based growth across industrial end markets and continued new customer wins. And at Trojan, we continue to see growth in North America driven primarily by demand from municipal customers for our UV systems focused on waste water discharge regulations and contaminant destruction in drinking water. Trojan also continued to see steady growth in its ARIA filter product line, serving industrial customers in North America. This is a great example of renewed strategy and strong execution driving value-accretive growth. In PQI, core sales in North America were flat as modest growth in marketing and coding was offset by a decrease in sales of packaging and color hardware equipment. In Western Europe, we also saw moderate declines in sales of packaging and colored hardware equipment. Demand for water analytics and treatment was steady in Western Europe across both municipal and industrial customers. Fourth quarter sales into high growth markets were up 2% year over year as most single digit growth in Latin America and strong double digit growth in the Middle East and India offset a 3% decline in China. For the full year, we delivered growth across the three regions led by 4% growth in North America and 2.5% growth in Western Europe. These two regions represent more than two-thirds of our total sales. Sales in the high-growth markets were up 1% in 2023, with strong growth in Latin America, the Middle East, and India, more than offsetting a high single-digit decline in core sales year-over-year in China. That concludes my opening remarks, and at this time, I'll turn the call over to Sameer for a detailed review of our fourth quarter financial performance.