Veralto Corporation

Please stand by, your program is about to begin. If you need audio assistance during today's program, please press star zero. My name is Margo and I'll be your conference operator this morning. At this time, I'd like to welcome everyone to Veralto's Corporation fourth quarter 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be 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 Rahan, 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 also be available until February 19th. Yesterday, we issued our fourth quarter and full year 2024 news release, earnings presentation, and supplemental materials, including information required by the SEC and relating to adjusted or non-GAAP financial measures. In addition, we also issued our 2025 full year and first quarter guidance. 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 also provided in the appendix of the webcast slides. And that's otherwise noted, all references to variances are on a year-over-year basis. During the call, we'll 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 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.

Thank you, Ryan, and thank you all for joining our call today. I'll begin with a look back at our 2024 accomplishments, followed by a recap of our fourth quarter performance. Samir will then take you through a detailed analysis of our Q4 results and 2025 guidance. Reflecting on 2024, I'm proud of our team for their strong execution in our first full year as a public company to grow our business, strengthen our portfolio, and deliver attractive value creation for all stakeholders. In doing so, three notable accomplishments stand out. First, we delivered on our financial commitments. Second, we increased our growth investments. And third, we demonstrated a disciplined approach to capital allocation, executing strategic actions to improve our portfolio and increase our dividend in conjunction with our earnings growth. Let me expand on each of these. Beginning with our financial performance for the year, we delivered core sales growth, adjusted operating profit margin expansion, and adjusted earnings per share growth above our initial guidance. This outcome demonstrates the durability of our businesses, fortified by the Veralto Enterprise System. Our simplification of VES and focus on leveraging high-impact tools drove sales growth and margin expansion throughout the year. Our results reflect the benefits gained from our team's engagement in focused Kaizen events and leverage of VES growth tools to enhance commercial architecture, improve funnel management, and increase lead generation. Our VES focus combined with increased investments in sales, marketing, and R&D enabled us to capitalize on strengthening demand as the year progressed. This resulted in steady sequential improvement in volume growth, partly attributable to new customer wins and increased market penetration. Across both segments, we delivered mid single digit core sales growth in the second half of 2024. On the strength of this growth and strong underlying margin expansion, we accelerated investments to drive future value creation. Specifically, we expanded our direct sales force, augmented our marketing efforts, and accelerated innovation in verticals and regions with high return opportunities. We enhanced our talent through new hires and internal development programs, and we increased our investment in innovation with our full year R&D expense up 40 basis points year over year to about 5% of sales. Our focus on innovation led to several new product and technology launches across our businesses throughout 2024. PQI led the way with digital offerings in packaging and color and a steady cadence of next-gen technology launches in marking and coding. VideoJet has now launched more than a dozen new products over the past two years. Its latest breakthrough, the 7920 UV laser marking system, launched in the fourth quarter. This laser enhances usability, adaptability, and consistency in coating operations and was met with immediate enthusiasm and demand from customers. We shipped our first unit shortly after the product launched in November and continue to see strong demands here in Q1. The UV laser is optimized for high-quality, permanent coating onto lighter-weight, flexible films made from monomaterial plastics. These flexible films are among the fastest growing substrates in the packaging industry due to their high levels of recyclability, further supporting our customer sustainability goals. We are excited about this new UV laser technology, along with many other products and solutions we brought to the market last year. In addition to delivering our financial commitments and increasing our growth investments, our third key accomplishment last year was executing disciplined capital allocation. In 2024, we took steps to improve our portfolio across both segments. This activity ramped in the fourth quarter as we acquired TraceGains, our first acquisition of size, invested a minority stake in Axiom Water Technologies, and signed an agreement to sell Advanced Vision Technology, or AVT, a print inspection product line in our PQI segment with approximately $40 million in annual sales. As we talked about on our Q3 call, TraceGains was acquired early in the fourth quarter. It is a leading provider of cloud-based software solutions that enable connected data and digital workflow management for consumer brands. TraceGain's digital solutions help customers innovate new recipes faster and significantly reduces time to market for new products. Additionally, it helps increase transparency to ingredient inputs for food and beverage safety. The acquisition of TraceGains in combination with our ESCO business strategically expands our digital offering and provides us the opportunity to deliver greater value to consumer brands as they digitize critical workflows with connected data across new product development, compliance, and packaging. The integration of TraceGains is going well. Our integration team is executing on all fronts. The customer response has been very positive, and the team at TraceGains has quickly embraced VES. TraceGains' fourth quarter core sales growth exceeded 20% year over year, and importantly, we are on track with our growth investments. Late in the fourth quarter, ESCO entered into an agreement to sell its AVT product line. This sale is expected to be completed in the first quarter of 2025. This divestiture is another example of our stewardship of the portfolio. With ESCO's focus on providing source-to-shelf digital workflow solutions for our CPG customers, we believe new ownership of AVT will provide the necessary focus to drive its growth and innovation. In combination, acquiring trace gains and divesting ABT enhances our packaging and color portfolio. Both deals are immediately accretive to PQI's core growth rate, gross margin, and recurring revenue. In water quality, we have also taken actions to improve our portfolio. As previously discussed, since Viralta's spinoff, we have strategically exited three product lines that were not aligned with our long-term value creation strategy. In the fourth quarter, we made a minority investment in Axene, a provider of electrochemical oxidation technology used to destroy contaminants in water, including PFAS. Our water quality team has a long proven track record of developing and commercializing technologies that help customers detect and destroy emerging contaminants. A key part of our growth strategy in water quality is developing fit for purpose solutions to help our customers meet complex challenges. We believe Accine's electrochemical oxidation technology provides a promising solution for difficult to treat organic contaminants and that our commercial partnership with Accine will accelerate technology adoption over time. Overall, we are pleased with the progress we made in curating our portfolio in 2024. Moving forward, we expect acquisition growth to be a key value creation lever The pipelines for both segments are full and active, and we continue to be disciplined in our approach to capital allocation. Looking now at 2025, we are starting off the year with an improved portfolio, positive trends in our end markets, and a stronger financial position. Demand across our key end markets has strengthened compared to this time last year, highlighted by strong demand for industrial water treatment in North America and improved demand in consumer packaged goods markets globally. For the full year 2025, we are targeting low to mid single-digit core sales growth with strong incremental margins, solid earnings growth, and strong cash generation. and we believe the durability of our businesses, fortified by the Veralto Enterprise System, are competitive advantages that enable us to consistently grow and improve, even in dynamic macro environments. Looking at our financial results for the full year 2024, total sales grew 3.4% year-over-year to just under $5.2 billion, an all-time high. We delivered 3.7% core sales growth with 80 points of adjusted operating profit margin expansion. And adjusted earnings per share grew 11% to $3.54 per share. Notably, we exceeded our initial guidance on all three of these metrics. And we generated $820 million of free cash flow, further strengthening our financial position. We ended the year with $1.1 billion of cash on hand and net leverage at 1.2 times. Overall, I'm pleased with the growth and margin expansion we delivered in 2024. Every operating company across both segments contributed core sales growth with positive volumes. Our water quality team delivered 3.9% core sales growth with 50 basis points of adjusted operating profit margin expansion. They set all-time highs with annual sales of over $3 billion and adjusted operating profit margin of 25%. And our PQI team delivered 3.3% core sales growth with 160 basis points of adjusted operating profit margin expansion. They also reached all-time highs with over $2 million in sales and adjusted operating profit margin of 27%. I'm proud of our teams across the world for their strong commercial and operational execution in support of our customers. We capped off a strong 2024 with solid fourth quarter results. Core sales grew 4.6%, led by volume growth, with both segments growing core sales by more than 4%. Adjusted earnings per share grew 9% year over year to $0.95. And free cash flow generation was strong at $263 million in the fourth quarter, further strengthening our financial positions. Looking at core sales growth by geography and end market for the fourth quarter, growth across the enterprise was broad-based across key verticals and regions, and our commercial teams executed well, leveraging our VES growth tools and investments made earlier in the year. North America and Western Europe, which comprise about 70% of our total sales, grew nearly 6%, and high-growth markets grew low single digits year over year. In North America, core sales grew 5.8% within both segments. In water quality, we continue to capitalize on strong demand for our chemical water treatment solutions, which grew high single digits in North America. From an industrial and market perspective, this growth was broad-based with the strongest growth in food and beverage, chemical processing, and power generation. We also continue to see strong growth for Trojan's UV systems at municipalities in North America, primarily related to water reuse. Veralto continues to benefit from strong secular drivers in water conservation, reclamation, and reuse as we help our customers achieve their sustainability goals. Over the long term, we expect these secular trends to drive continued growth opportunities given the scarcity of water today coupled with more frequent severe weather events and increasing water usage from industry, such as data centers, which consume large quantities of water for cooling. It also includes traditional industries ranging from power generation to food and beverage processing. Both our water treatment and analytics businesses are poised to benefit from increased industrial activity in North America. At PQI, core sales in North America also grew 5.8% in Q4 with mid-single-digit growth in both packaging and color and marking and coding. PQI's growth in North America was largely driven by strong growth in equipment sales. This reflects a combination of improving end market demand from CPG customers and market penetration from our strategic initiatives. Specifically in North America, VideoJet focused on new customer wins, differentiated new product launches, and VES-driven commercial excellence. In Western Europe, we saw continued momentum with core sales growth of 5.8% year-over-year, led by 7.3% growth in water quality sales and 4.4% growth in PQI. The sales growth in Western Europe was largely driven by strong commercial execution by our water analytics team. Additionally, we drove growth across PQI in both our marketing and coding and packaging and color businesses. In high growth markets, core sales increased 1.5% in the fourth quarter, led by Latin America and India. In China, PQI continued to drive solid year-over-year core sales growth. However, similar to our third quarter performance, PQI's growth in China was offset by lower sales and water quality. This is primarily due to ongoing soft demand for water analytics and a lower level of UV system installations for chip processing, which were exceptionally strong in the fourth quarter of 2023. Total company sales into China in Q4 were in line with our quarterly average for the year. We continue to view demand for our products in China as stable at low levels and do not expect China's sales to grow in 2025. Overall, we delivered solid fourth quarter financial results on the back of strong commercial execution while continuing to invest in future value creation. At this time, I'll turn the call over to Sameer to provide details on our fourth quarter results and 2025 guidance.