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 first quarter 2024 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 Wahan, our Senior Vice President and Chief Financial Officer. Today's call is simultaneously being webcast. The 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 this call will be available until May 8, 2024. Before we begin, I'd like to point out that yesterday we issued our first quarter news release, earnings presentation, and supplemental materials, including information required by the SEC relating to any adjusted or non-GAAP financial measures. These materials are available in the investor section of our website, www.veralto.com, under the heading quarterly earnings. Reconciliations of 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 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. With that, I'll turn the call over to Jennifer.

Thank you, Ryan, and thank you all for joining our call today. The first quarter of 2024 marks our second consecutive quarter of solid operating execution as a standalone company. We are driving steady, profitable growth and continuous improvement through greater focus and accountability using VES fundamentals, basic blocking and tackling. For Q1, we delivered 8% adjusted earnings growth year over year, driven by 2% core sales growth and 90 basis points of adjusted operating profit margin expansion. And we exceeded our guidance across the board. Our financial performance reflects our culture of continuous improvement and demonstrates our ability to deliver on commitments. From an end market perspective, we are seeing healthy trends across our key verticals. In our water quality segment, we continue to see positive secular growth drivers across industrial markets, particularly in North America, along with steady demand at municipalities. And in our product quality and innovation segment, we are seeing modest signs of recovery in consumer packaged goods markets. Most notably, PQI's recurring revenue grew mid-single digits year over year for the third consecutive quarter. Equipment bookings for marking and coding started to show signs of recovery late in the first quarter. and we continue to see encouraging trends at some of our large CPG customers led by food and beverage. Based on our first quarter results and improving market trends, we continue to expect our core sales growth rate to modestly improve sequentially throughout the year. Looking at our full-year guidance, we are on pace to deliver low single-digit core sales growth and are trending toward the high end of our adjusted operating margin range of 50 to 75 basis points of improvement over 2023. As a result, we have modestly increased our full-year adjusted EPS and free cash flow conversion guidance. Samir will cover that in more detail a bit later in the call. Confidence in our ability to deliver on commitments is, in large part, grounded in the Veralto Enterprise System, our proven system for driving growth, operational improvements, and leadership development. A core tenet of VES is continuous improvement, or Kaizen. During March, we completed Veralto's first CEO Kaizen Week as a standalone company. CEO Kaizen Week is a longstanding tradition of our enterprise system and personally one of my favorite weeks of the year. The purpose of this year's CEO Kaizen Week was to drive value accretive growth. For one week, we immersed 12 cross-functional teams at Gemba, where the real work happens, across six businesses in five countries. The Veralto executive team worked alongside associates in our operating companies to solve some of the most complex challenges and yield high-impact results. For example, this year's event included increasing customer engagement in North America and EMEA to drive incremental sales growth of Hox consumables. improving the customer buying experience at VideoJet to accelerate key growth initiatives, and using lean conversion tools for make-to-stock products at a Hawk distribution facility in North America to optimize efficiency, improve on-time delivery, and meet increasing customer demand. The benefits of any Kaizen Week include immediate solutions that are rapidly implemented and yield real-time results. Success is proven by sustaining these results, which we track following the Kaizen event. From a big picture perspective, this year's CEO Kaizen Week fortified our ability to deliver on our commitments to key stakeholders and reinforced that at Beralto, we are all practitioners of continuous improvement. Turning now to our financial results for the quarter. Core sales grew 1.8% year over year, led by price increases across both segments and modest volume growth in our water quality segment, led by our industrial water treatment businesses. Notably, both segments delivered recurring sales growth in the mid single digits year over year, increasing our percentage of recurring sales to 61% of total sales in the quarter. As compared to our guidance, we exceeded core sales growth expectations due to strong commercial execution and better than expected volume at both segments, particularly within consumables. On the margin front, we delivered 90 basis points of adjusted operating profit margin expansion, primarily through price execution productivity improvements, and cost optimization. Adjusted EPS was 84 cents per share, up 8% year-over-year, and 6 cents above the high end of our guidance range. And we generated over $100 million of free cash flow, further strengthening our financial position. Looking now at core sales growth by geography for the first quarter, Sales in North America grew over 3% year over year, with sales in high growth markets flat and sales in Western Europe down about 1%. In North America, we continue to see strong growth in our water treatment businesses across industrial verticals, including food and beverage, chemical processing, mining, and power generation. We also continued to see strong demand for municipal customers for UV treatment systems. In Western Europe, core sales were down modestly year over year, primarily due to timing of UV system projects and the strategic portfolio actions in our water quality segment that we mentioned in our Q4 earnings call. Apart from these two items, Core sales in Western Europe were steady year-over-year in both segments. In high-growth markets, core sales were essentially flat year-over-year as growth in Latin America and India was offset by low single-digit decline in China as anticipated. Despite the year-over-year headwind in Q1, we believe our end-market environment in China has stabilized. That concludes my opening remarks, and at this time, I'll turn the call over to Sameer for a detailed review of our first quarter financial performance.