Veralto Q3 2026 Earnings Release - VERALTO CORP

My name is Erica, and I will be your conference operator this morning. At this time, I would like to welcome everyone to Veralto Corporation's third quarter 2026 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 ask a question during that time, simply press the star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star, then the no. 2 on your phone keypad I will now turn the call over to Ryan Taylor, Vice President of Investor Relations. Please go ahead, Mr. Taylor. You may now begin. 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 investor section of our website later today under the heading events and presentations. A replay at this call will be until November 9th. Yesterday we issued our third quarter 2026 earnings news release, earnings presentation, prepared remarks and supplemental materials including information required by the SEC to adjusted or non-GAAP financial measures. These materials are available in the investor section of our website, beralto.com, under the heading quarterly earnings. Reconciliations of all non-GAP measures are also 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. results may differ materially from our forward-looking statements. These forward-thinking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-lifting statements except as required by law. And with that, I'll turn the call over to Jennifer. Thanks, Ryan. I want to start by thanking our 17,000 associates for delivering an outstanding third quarter. We continue to build on our track record of meeting or exceeding our financial commitments through rigorous execution in support of our customers. In Q3, total sales grew 7.5% year-over-year, adjusted EPS increased 19.2%, and we generated robust free cash flow of $304 million. We delivered 5.1% core sales growth, led by water quality at 6.4%, with PQI at 3.2%. Both segments accelerated core sales grow sequentially from Q2 to Q3. Broadly speaking, demand for our products and services remains healthy across both segments. Relative to the fourth quarter, we expect core sales growth of 5.5% to 6.5%, and approximately 5% growth from acquisitions, resulting in total sales growth. Of approximately 10% to 11%. Based on our third quarter performance, fourth quarter outlook, and early gains from our cost optimization program, we raised our full-year adjusted EPS guidance to $4.49 to $5.42 per share, representing 15% to 16% growth over the prior year. Our 2026 guidance includes benefits from our disciplined capital deployment. Year-to-date, we've deployed more than $1.65 billion across four strategic bolt-on acquisitions and the repurchase of 2.4% of our outstanding shares. Our most recent acquisition of Clean Water One expands our capabilities in water treatment solutions and I'm excited to welcome the Clean Water one associates to Veralto. With our strong balance sheet and robust cash generation, we have ample flexibility to act decisively on attractive new opportunities. This year's performance and disciplined capital deployment reflect the stronger Veralto that we have been architecting since our spin-off in 2023. As we mark our third anniversary as an independent public company, I'm proud of how much we've accomplished and even more excited about our future. Over the course of the first three years, we have simplified VES and bolstered our execution, accelerated innovation, and strengthened our portfolio through disciplined M&A. These actions have accelerated our core sales growth, driven consistent margin expansion, and double-digit adjusted EPS growth. I'm incredibly proud of what our team has accomplished. With a stronger foundation, talented team, and proven track record, we are excited about the opportunities ahead and confident in our ability to deliver sustainable long-term value for shareholders. That concludes my prepared remarks, and at this time, we will now take your questions. Thank you. As a reminder, if you would like to ask a question, it is the star and one on your touchtone telephone. If at any point you would want to ask your question, or if you'd like to remove yourself from the queue, please press star, then the number two. We do ask that you limit yourself to one question and one follow-up question. And we'll pause momentarily for all questions to queue. And we will take our first question from the line of Jeff Sprague with Vertical Research. Please go ahead. Hey, thank you. Good morning, everyone. Hey, Jennifer. Good morning. I was just kind of wondering. Hey, good morning. Hope you're doing well. You're not inherently a project-related business, but when I look at these kind of improving trends in industrial water, some of the digital workflow stuff, maybe some things going on on the muni side, I was just wondering if you could kind of comment on maybe the level of visibility or sort of confidence level in 2027. So maybe cheating here a little bit and trying to get an early 2027 preview from you. Yeah, thanks for the question, Jeff. You know, I think the way to think about our exposure here is, you know, we have a balanced portfolio in our water business between muni sales and industrial sales. In fact, 50% of our sales in water quality are into industrial applications. Insofar as your question around municipal spending, as a reminder, you know, 60% of our revenue sits in recurring revenue, given the razor blade business. We're essential to the customer's operations. But when we do have equipment that gets sold as CapEx, it's part of the normal operational CapEx cycle. And that is to say that these tend to be facility upgrades or optimizations as opposed to infrastructure investments, which are more prone to federal funding fluctuations. So we see strong demand really for our, you know, solutions here relative to both the operating side of the business, whether that's, you know, our recurring revenue-based model or project-based business, simply on the back of the secular drivers that we see, right? Recycle, reclaim, severe weather events, you know, water scarcity and so on. So we feel pretty good about ongoing demand here, and, you know, we'll keep you posted once we get to 2027. And maybe just one on PQI. On that side of the equation, is there some visibility on the CapEx side that's come into view or not at this point? Yeah, I mean, by and large, the PQIs side of that house is not a CapEx business. You know, these equipment purchases in terms of, you know, marking and coding or packaging and color tend to be, again, operational improvements to existing lines. Again, for our marking and coating business, we've got, you know, 60% of that business is recurring revenue-based, and we've got a huge install base there for continuing to upgrade as there our technology changes relative to substrates, packaging sizes, and so on. We see good pull-through in our digital workflow solutions and in packaging and color, which, as you know, we've continued to invest there by virtue of M&A. So, we see steady demand, and we feel confident about the future there. Yeah, and maybe, Jeff, I'll add one more thing, is as you look at the packaging and color business, on the digital workflow solution business that's growing nicely, there we have a pretty good visibility given those are SaaS contracts. So, as you know, we sign up the contracts and we're recognizing revenue over time. So we have pretty good feasibility on that side. And then the mock encoding, as Jennifer said, for us, the demand patterns have been pretty steady. Great. Thank you. I'll leave it there. Thanks, sir. Thank you, and we'll take our next question from William Grippen with Barclays. Please go ahead. Great. Thank you. I appreciate the opportunity here. My first question, you're flagging some early progress on cost saves here in the third quarter. I guess, you know, on top of that, small benefit here from tariffs. I was wondering if you could help us think about the margin cadence next year within that context. And I guess just maybe more specifically, just given the progress thus far on the cost saves, are you maybe seeing potentially more cost-out opportunity than you had initially laid out? Hey, thanks, Will. As you kind of look at the cost optimization program, at the beginning of the year, we had said that roughly half the savings by 2027 and then full run rate in 2028. That plan is still one to follow. Look, we've had some early successes and goods start out of the gate. So, we're going to see $10 to $15 million worth of savings in 2026. But for 2027, at this point, just model it the way we kind of guided earlier, roughly half the savings. We'll give more specifics as part of the 2027 guide on where we stand. Just keep in mind, right, that the savings are net of investments as well. So there's always a little bit of a variation on the timing, which we want to make sure that we properly dial into the 27 guide. So that's how you should think about the cost optimization program at this point on track with a nice early start in 2026 for us. Great, thanks. And my follow-up here, you know, in the release last night, you noted strong demand for municipals in Hawk. I was wondering if you could provide a bit more color on drivers there, whether it be replacement cycle, new product introductions within that business or new customer wins? And maybe, you know, how are you thinking about demand trends exiting the year? Yeah, I mean, I would say here on the muni side of water quality, we're really kind of firing on all cylinders here. And this is on the back of a three-year build relative to commercial architecture, VES discipline, new product development. And, you Know, as a reminder here. We're really on the OPEX side of our customers' operations as opposed to CAPEX. It's non-discretionary spend, right? This is regulated testing. So, customers are, you know, use our equipment to make sure that they stay within compliance. And I would say here throughout the last, you know,, year or so, our new product development flywheel has particularly taken hold and we see that across our our analytics business as well as our water treatment businesses so you know for municipalities you know hawk's got a brand new flagship spectrometer we've got new ammonia and phosphate analyzers and so we continue to see sort of great execution that's been bolstered by this uh increasing cadence of new product development launches. So, we feel good about our position here, and we would expect that to continue. Great. All right, Jennifer, Samira, thank you. Appreciate the time. Thank you. Thank you, we'll take our next question from Mike Halloran with Baird. Please go ahead. Hi, morning, everyone. Morning, Mike. Hey, thanks. So maybe just some thoughts on underlying trajectory in the short term here um you know certainly heard the answer to jeff's question just curious sounds like you know most of the pieces of your portfolio are tracking sequentially the right way um anything that you're seeing that deviated from seasonality as you work through the quarter but i i guess the question is there any areas of your portfolio that youre not seeing that positive trajectory or maybe put differently are there any very obvious flex points that you re thinking about in the portfolio as we position for for QE next year? Yeah, thanks for the question, Mike. Broadly speaking, all of our businesses are trending well in terms of growth and sequential acceleration. I would say we've seen some timing differences relative to kind of project timing, and that's affected pieces of our packaging and color hardware business to a lesser extent on the water side. And I would say, you know, projects tend to move around a little bit, but they generally come through. So, we haven't seen any, you now, indefinite delays or project cancellations, But timing sometimes is variable there. In the main, I would say, you know, by virtue of our large sort of recurring revenue business, things are pretty steady. Demand continues for the products and services that we have. We've got great secular drivers relative to data centers and feeder industries in power, semiconductor, and mining. Recycle reclaim is big on the muni side as, you know, water scarcity becomes a bigger issue. And I would say, you now, in the Food Safety Modernization Act, it's driving a lot of need for product reformulation, packaging changes, and so on. And so we see good demand there as well. So I think we feel pretty good about the outlook here in the fourth quarter and the fact that we believe that momentum will continue here into 2027. I appreciate that. And then just on the capital employment side, it's been an aggressive year and bounced with buybacks and M&As. So maybe a two-fold question. One, how are you thinking about the buyback intent in the short term? and obviously saw some of the ongoing repurchases in October. But then how do you think about the pipeline after having completed a fair number of acquisitions over the last 18 months or so? Yeah, hey, Mike, thanks for the question. As far as the buyback is concerned, look, if you add what we have done in October that we disclosed, we effectively done with $550 million of share repurchase out of the 750 program. Look, I mean, as we always said, we're going to be opportunistic, and if there's an opportunity in the marketplace where we think there's a disconnect between the intrinsic value and the market value, you should fully expect us to be using the authorization, so we'll continue on that path. As far as overall the pipelines are concerned, look, the pipelines are pretty active on the M&A side both, so as you're going to move forward, we expect to stay pretty balanced. There's no change in the overall capital allocation strategy appreciate it thank you thanks mike thanks mike thank you and we'll take our next question from nathan jones with stifel please go ahead good morning this is adam farley on for nathan um morning adam good morning uh maybe on chemical treatment within water quality um on the data center piece you know what is veraltho's overall exposure to data centers within water quality maybe where do you think that exposure can grow to over time and where in the data center construction timeline does a chemical treatment benefit yeah so overall as we've said previously um our total sales in the datacenters today remains small we will say that our data center growth continued to be very strong and in fact doubled in Q3, but that's obviously off of a small base. And the draw here is from both our treatment and our analytics businesses. We are, by virtue of our ChemTreat business, engaged early in those project builds and get requested to participate in helping to consult on water train and water treatment design so that customers can optimize both water utilization, power consumption. Those often are counterbalanced to one another. And so finding the balance between power efficient and water efficient design is something that every data center is working to solve for. So, we are involved early in the process. We have good installed base relative to utility water and increasingly have offerings and are really in the liquid side of direct-to-chip cooling as well. So good exposure here, small base of business, It's growing double digits, strong double digits. And we would expect that to continue for the foreseeable future. Yeah, I mean, Adam, as you can think about the data center business for us, especially on the treatment side, it's an annuity business for us. So, yes, the bill cycle, I get that question. But think of our business predominantly as more annuity business. So as these data centers come in and operate. That's a really helpful color. And then just staying on water quality, Can you write an update on your expectations for growth regionally? Do you expect North America to continue to lead growth maybe through next year? And then maybe what are you seeing out of China? Thank you. Just to clarify, the last point was what do we expect out of china? Yeah, and water quality. Yeah. Okay, water quality, yeah. So, you know, China continues to be lower in its muni spend, kind of still bumping along the bottom there. We're not accounting for or expecting any significant change there. But as a reminder, you Know, China represents about 6% of our sales. In Latin America, water was down modestly year over year, but higher sequentially throughout the quarters here. Underlying demand is strong, but timing of some of these projects has been delayed, and that's largely on the back of waiting for election results and so on. I would say, given the completion of the election here in Brazil, that uncertainty should clear here and we should start to see, you know, that demand start to increase. So, you Know, we continue to watch our high growth markets here. they have been relatively lower than their name would suggest, with good growth in the western markets of Europe and North America. But we continue to have good opportunities in Latin America, I would say, as well in India, parts of Southeast Asia. But China is definitely still not investing. Thank you for taking my questions. Thank you, and we'll take our next question from Andy Kapowitz with Citigroup. Please go ahead. Can you hear me? Yes, go ahead, yes. Andy, we can hear you. Hey, good morning, guys. So maybe we can just double-click into the re-acceleration organic growth you're seeing in PQI. Jennifer, you mentioned some project delays, but obviously your growth has been picking up, and you've continued to talk about acceleration and digital workflow solutions. So, what are the core customers telling you and, you know, given the economic environment is sort of mixed out there? Yeah, I mean, I think what we see here is, you Know, strong demand and bookings of our digital workflow solutions. You know, this is on the back of, you Now, the trace gain global vision acquisitions being integrated into the ESCO digital backbone. And as you know, we book revenue over the life of the contracts, which gives us good visibility and confidence in the sequential core growth acceleration. We continue to see steady demand in marketing and coding, right? There are some category changes within consumer product goods, but effectively, you know we see strong continued, you know, performance and uptake from our mid-market customers, that's going to continue to result in sequential core sales growth. And then I would say the other element here is Q4's got a relatively easy comp in our marketing and coding side of the business. So that's an element as well. And then finally, say that our sales recovery of our color measurement equipment and packaging and color, we would expect that to come back. And, you know, we see good commercial execution, good funnels. We exited Q3 with stronger service growth, and that gives us confidence here as we head into Q4. Very helpful, Jennifer. And then, Samir, can you give more color to what you're seeing maybe in price versus cost? I think you're modeling just operating margin to be down a bit in Q4 versus Q3, even excluding the tariff benefit in Q3. So, just maybe the puts and takes on sort of how you're thinking about margin in Q4? Yeah, Andy, as you look maybe at this for the margin first, if you look at the margin for Q4, yes, sequentially, you know, most of the impact that you see is really driven by the Clean Water 1 acquisition. Overall, for Q5 margins, you should fully expect the fall through to be 30% to 35%. So that's roughly 30 bps of a margin expansion on a year-over-year basis. cost optimization program. If you look at a guide that we've given for the full year, that adds another roughly 40 basis points to the OMX for Q4. So, that adds 70, and that 70 is mostly offset by Clean Water One acquisition. That's how we're going to model then. But as you know, in Q4, we do tend to make some investments to help support 27 strategic initiatives. So we've built in a fairly healthy amount of investment in Q4 tied to that. To the extent that those things come in light, of course, they'll be upside to the guidance. Appreciate all the color. Thanks, Andy. Thank you. And we'll take our next question from Jacob Levinson with Milius Research. Please go ahead. Hi. Good morning, everyone. Morning, Jake. Just to go back to Mike's question for a second on the M&A side of things, I know you folks have been pretty active here with a number of bolt-on deals, but can you just give us a sense of what that funnel looks like from here? Is it a lot of these smaller assets that are out there, or are there also some larger deals that you might be interested in as well? Yeah, I would say, Jake, that it's a mix. Both funnels or funnels on both sides of the house are healthy and full, lots of cultivation work underway. You know, I think what you've seen us do here in the first three years is, you know, build out our position in treatment, in the environmental business, in digital workflow solutions, all of which are expansions of our current positions but squarely within our wheelhouse. So, we feel good about the funnels. There are all kinds of assets in those funnels, there are large deals, there's small deals, there's technology deals, there's geographic expansion deals. And so, you know, we have a track record here of going after these strategic bolt-ons. I think we're well served by that. But again, we've got a variety of different types of assets in our funnel that will continue to work and, you know, bring those in under the very disciplined approach that we've taken thus far to increase long-term shareholder value. Okay, that's helpful. You made a comment in your slide deck on slide four that I'm not sure I'd seen before around modernized technology and upgraded facilities. I know you've done some work on the footprint, given everything with tariffs, but maybe you can just elaborate on what that really means. Yeah, I don't think it's, you know, unreasonable to think that some of our technologies might have atrophied in prior times, being a smaller portion of Danaher. And so this is just part and parcel to continuing to mine the shop here at Veralto and make sure that we are, you know, have modernized tech stack for all of our data systems to ensure that we ARE continuing to invest in technology. You know, one example would be, you know, robotic automation of our ChemKey lines at Hock, right? We will continue to modernize and upgrade manufacturing facilities, you know, our ability to utilize data in ways that are AI-friendly. And so this is just part and parcel to making sure that we are, you know, staying fit operationally, as we would say, and to make sure that we've got access to the latest and greatest tools to continue to be able to run the business well. Yeah, and Jake, like for those of you who've been to our Hawk manufacturing facility in the last 12 to 18 months and any of the tours, right, you've seen all the automation that we have done over there on the board manufacturing site. So those are the kind of examples where we are really upgrading our manufacturing footprint to beable to serve the customers more regionally and more effectively we'll hear in the U.S. Great. Appreciate the color. I'll pass it on. Thank you. Thanks, Dave. Thank You. And we'll take our next question from John McNulty with BMO Capital Markets. Yeah, good morning. Thanks for taking my question and congrats on some really solid results. So I wanted to dig into the water side and in particular water treatment and the UV treatment, just where you saw the double-digit growth. I guess, can you help us to think about, at least high level, how much price there was there? I think some of the players in the industry put out some blanketed-type pricing, and it looks like it was around mid-single-digits. I know you're a little more surgical, so maybe a little bit more detail or color around the pricing environment would be helpful. Yeah, John, thanks for the question. Look, the pricing over there is pretty much in line with what you're seeing overall, John. You know, we want to make sure that we're covering the inflation and the chemicals that's coming in the chemical treatment site. But those are very selective, you know, discussions with the customers to make sure that they're serving them well and making sure we're getting paid for the service that we are delivering. So there is nothing out of the normal overall. You know from our perspective, pricing is an important lever. At the same time, install base and having those contracts in place for the longer term is really key. As you know, as you kind of think about the water treatment, both on the ChemTreat side and the UV treatment side, having an install base really drives recurring revenue over the longer term. So we're always very mindful of that, how we're going to think of the price in the instruments versus the services versus consumables. Got it. Okay, no, that's helpful. And then also in the water side, you know you've made a couple of transactions, some very recent, some you've had a little duration on. I guess can you speak to the growth that you're seeing in those businesses? Are they seeing any incremental synergy benefits on the revenue side yet or not, and how you're thinking about that going forward? Yeah, maybe, John, I'll start with that. If you look at the acquisitions that we've done on the water side, the first one was in situ at the beginning of the year, really solid start. You've seen the expansion in the water site. If you Look at the M&A contribution line in the Water Quality, like very solidly contributing, that's where you see the impact of in situ. Overall, I would say on the synergy side of the commercial, we are well ahead of the plan, actually, that we used to underwrite the acquisition. So feeling really solid about the in situ. And you're going to start seeing that in the organic growth as we're going move into next year. I would see the aqua feedings acquisition that we did in Europe on the UV treatment side. Again, really solid execution and contribution that we're seeing over there. Alpha UV and clean water, just early days, right? Alpha UV, they've been there only less than a month. uh clean water has been there for less than a month with us so more to come on alpha uv and clean water as you're going to move into the year and we'll talk about the guide overall really pleased with the execution and the synergy especially the synergy part on both in situ as well as aqua fetus well the way to think about this is you know all of those assets that samir just mentioned are high single digit low double digit growers right and these the and it's by virtue of uh where they sit in the water treatment process um you know in situ certainly in the groundwater hydrology side of things as municipalities look for intelligence around what what water is coming into their plant is as uh as as influence um alpha uv you know our uv business at trojan's been a high single digit low double digit grower alpha gets us um you You know, really good position in India with, you know, good sales into sort of industrial applications. And Clean Water One has a leading set of technologies that really help in sort of the disinfection, odor control, and solids management side. So, again, these are all sort of technologies and product lines that sit in high-value areas that are structurally faster-growing than some other portions of the portfolio. Got it. Thanks very much for the caller. Thank you. And we'll take our next question from Robert Davies with Wolf Research. Morning. Thanks for taking my question. Ed, too. One was just on the cost optimization program. You'd obviously flashed out some early gains there, 10 to 15 million. But could you provide us a little bit more color exactly what you're doing, where the kind of main areas of focus is for that program? Thank you. And then the second question was just around the sort of non-recurring part of your business, the 40%, I guess, of water quality. What's going on there? Do you see any sort of slowdown, any kind of impact from higher interest rates, any more caution or down trading. That'd be great. Thank you. Thanks, Robert. I'll start with the cost optimization first. The cost optimization program is really focused around three activities. The first is the simplification of the business processes. Second is the functional transformations to optimize the cost. And then really looking at investments that we can do to improve the comparative positioning from the technology perspective or the process improvement perspective. So that's how really the activities in the cost optimization program are focused around. We've had a pretty nice start to the program early on. And as you're going to look at making the investments overall, we are still on plan to deliver roughly half of the savings by the end of 27 and the full run rate in 2028. So that is how you should think about the cost optimisation program. And relative to your question around, you know, the 40% of water quality that is a hardware or instrument base, you know, bear in mind that, you know, we've got hundreds of thousands of instruments from water quality sitting out in our installed base, and those will have a seven-year life on average. So ongoing sort of reoccurring revenue to upgrade hardware, move to modern technologies, as there are changes in, you know, the knowledge base of folks that sit in water treatment plants. There is a trend towards de-skilling of the labor, and, you know, we've made a concerted effort here to collapse workflows, simplify the technologies that are deployed, and so we feel good about the ongoing demand for new technology purchases and upgrading the existing installed base that's out there. Thank you very much. Thank you. And our next question comes from Andrew Buscadillo with BNP Paribas. Please go ahead. Hey, good morning, everyone. Good morning, Andrew. I'm just wondering if you can kind of set us up into 27 on margins here. And I know you're going to want to probably give guidance for next year. But, you know, I think your margins are really starting to accelerate. It's a stark contrast to kind of what else we're seeing this earnings season where costs and inflationary pressures are starting to sting some companies. But you guys have navigated that quite well. But before we – just looking out to 27, are you cautious on costs creeping in in any sort of business? Are you seeing any challenges on the horizon or that have crept up in the last three months in terms of inflationary pressure? Yeah, and kind of what's your view on just price, cost, and the ability to continue this margin acceleration into 27? Yeah, Andrew, thanks for the question. Let's start with the raw material costs and the price side first. You know, if you're going to look at this year, look, we are seeing inflation, right? We are seeing the inflation in some of the materials that are tied to or which are oil derivatives. You know, you've got to start looking at some of the transportation costs, you know, memory prices, of course. As you know we are an instrumentation company, so we do have some exposure over there. So we are seeing those price increases, but a really solid VES-driven execution and the partnership between our procurement teams and the business teams to help offset that. So at this point, as the results demonstrate, both in Q3 and also as you look at the guide for Q4, We believe we are well positioned at least in 2026 to make sure we offset that and drive the margins. Now, as we kind of move into 2027, look, we will enter talk in more detail in February. But overall, I think it's fair to expect that, look. We will have 30% to 35% of a fall through, and that's close to 30-ish pips on the margin side. Cost optimization, of course, if you do the run rate, roughly $35 million cost saves. Now, we look at 15 already this year, right? So that's going to be a little bit of an upside on the cost optimization side, on the margin side. But we are going to have a couple of headwinds as well on the market side as we move into 2027. We got a little benefit from tariffs, so that's not going to there next year. And then some of the dilution from the Clean Water One acquisition. So they've got lots of puts and takes. More details to come in February. Okay. Yeah, thanks for that. Yeah, and I wanted to ask on Clean WaterOne. And I think this deal, what's interesting to me was it's kind of a perfect set with Trojan. And there seems to be some real synergies, like real near-term synergies where you might even get some accretion in 27, it sounds like, on bottom line. Would that be a bid to do this deal or where it's like a kind of cost savings margin ramp type deal? or is it like a missing link to your kind of technology portfolio that you think you had to have? Yeah, I think we're most attracted to the leading technologies that are brought with the acquisition. You know, this bolsters our technology portfolio relative to treatment, and it expands our penetration into higher growth water treatment applications. They've got a terrific, you know, 25,000 instrument install base there, equipment install base with deep applications expertise. We do see commercial synergies with Trojan and their UV treatment solutions. I think, you know, the first order of business, obviously, is don't break what we bought. So we will bring them in in a customary way relative to other acquisitions and focus on making sure that they're firing on all cylinders as we look for those opportunities to bring synergies together with TroJan. Yeah, and Andrew, to your point regarding the accretion, right, the point that I made earlier is on the margin it might be a little dilutive, but from the EPS perspective, we expect it to be flat or slightly accretive, as you said. Nice, yeah. All right, thank you, guys. Thanks, Andrew. Thank you. And we'll take our next question from Jeff Revy with RBC Capital Markets. Please go ahead. Thank you, good morning, everyone. My first question is on PQI. And so the high-growth markets there grew 4.7% with strength in China and Latin America. I think that's a notable reversal from the declines earlier this year. I mean, what changed, and is this recovery broad-based or concentrated in specific products? Yeah, you know, I think one of the things that we see here with our high-growth market exposure in PQIs QI is, you know, we see good growth in China as manufacturing has come online and industrial output increases there, particularly relative to our coding and marketing business. You know, anywhere in the world, we've seen growing middle class that leads to more sort of consumption. We see that in India, see it in parts of Southeast Asia, and we've seen, you know, relatively good uptake as well in Latin America for our products and services. So, you know, I think the secular drivers that are around sort of industrial manufacturing, you know, growing middle class in terms of consumption for products that you'd see in our packaging and color side, you know, in terms of brand development, as well as coding and marking, is something that we continue to see as well. So, good position here in high-growth markets, and we would expect that to just continue. Got it. Okay. And maybe just to double-click on PQI in the fourth quarter, I think you said you expect a meaningful acceleration in the digital workflow solutions. Can you just help us calibrate what meaningful means? Is this driven by bookings and ACV already in hand, or is there an element of pipeline conversion that needs to occur, or ist this an easy comp? yeah jeff um yeah thanks i when we say it's meaningful really when you kind of look at the guidance right we said five or six and a half pqi will be closer to to the high end of the range right of a q4 guide um you know what's driving it you know uh it's really as jennifer said earlier on the call right it's the digital workflow solution is going to be the biggest piece uh there we have the bookings um and be recognizing revenue over time so uh i've been you're going to look at a three-month period. We have a pretty solid visibility on that. The PQ on the market encoding side, it's going to be a steady demand, so a little bit of comp helps for us. And last, the element that's giving us the confidence on the guide in Q4 is really the recovery in the color and measurement instrument. As you know, that business has been down for almost four quarters. We saw some recovery in Q3, and as we exited the Q3 the order books look good, good commercial execution, that is giving us a confidence. So, really, it's not dependent on one factor or the other. It's really a combination of those three factors, which is giving us a confident as we're going to think about the core growth for PQI in Q4. Appreciate it. Thanks, Jeff. Thank you. And we'll take our next question from Steve Volkman with Jeffery. Please go ahead. Good morning. This is James for Steve. Thanks for taking questions here. I guess I wanted to touch on water quality here a bit. Data center, obviously, is still small, but that has doubled. And you kind of talked about chemical processing, food and bed, power and mining, all growing double digits here. So are these kind of new site wind-driven that are going to build an annuity going forward, or are those more so kind of recurring op-eds work? And how should we think about sizing up this fast-growing market exposure? I know data centers is small, but if we have to combine everything, how big are those? Yeah, so we don't disclose our sales by vertical market segment. Rest assured, when these are of size that require us to declare, you'll see it in print. But the way to think about our play in data centers is very much, you know, driven by the recurring revenue side of things. So for our chemtree business, obviously there is a consultative opportunity early on when the plant is being designed. But the reality is, is where we really gain traction and start to accelerate is when those data centers come online. So there's green fields, there's brown fields, there's expansion of existing data centers. The technology within a data center will be upgraded every five to six years. So over a life of a 30-year data center, you've got five to six opportunities really to play a role in how they upgrade and optimize. But the reality is is, you know, we've got to play in utility water, and then certainly when those data centers come online, you now, they're operating 24-7, and that's an opportunity for us to continue to have, you know good penetration of our chemical solutions and services that go into everything from utility water to direct-to-chip cooling as well. So I think the drivers here are pretty durable in terms of how we think about this going forward with every data center that comes online and increasing opportunity for us to gain market share. Awesome. Thanks for the caller. I guess following up on that, I mean, you kind of talked about increasingly offering into kind of the liquid side of direct-To-Chip cooling here. And that kind of sounds like a different role from utility water chemistry. So what are you actually selling there? Is it like fluid chemistry, monitoring, filtration? And is the content per site kind of richer than like the traditional kind of cooling water site? Yeah, there it's going to be. Look, it's gonna be fluid and the service is going to tie to it. You've seen us announce a partnership with Dow as well, right on the glycol site. So it's a combination of things around that and the services that go along with it. All right, thanks for taking questions here. Thank you, and we'll take our next question from Josh Spector with UBS. Please go ahead. Hey, guys, this is James Cannon on for Josh. Hey, James. I just wanted to dig into the regional trends in PQI again. To me, the Europe numbers seem to lag a bit versus to us, it seemed like the end consumer trends seem a bit more stable region to region. Can you just unpack what you're seeing there and how you expect that to trend going forward? So, yeah, the low single-digit growth in packaging and color in Western Europe, what we see there is marking and coding flat. We do see solid growth in consumables, but modestly lower sales in equipment. And that's largely on the back of some timing around customer spend. We do see solid growth in Western Europe for marketing and coding during the first half of the year, and we do expect, you know, certainly to see some growth here in the fourth quarter. Great. Thank you very much. Thank you. And we'll take our final question from Joe Giordano from TD Cowan. Please go ahead. Yes, thanks for taking my question. So the acceleration at PQI here into 4Q, I just want to kind of understand how representative of that of the true underlying conditions as we go into next year. Like is that a good exit rate to be building? I know you don't want to give guidance here, but is there anything in that kind of six and a half that's a little bit one-timey, a little big comps, or should we kind of think about that's truly the pace of growth across that portfolio now. Yeah, thanks, Joe, for the question. Yeah, but look, I won't draw a straight line from that. Needless to say, in 2027, at this point, we'll talk about that in February. But if you're going to look at the buildup to the core growth in Q4 for PQI, right, mark encoding is kind of steady, so that should kind of flow into 2027 at this point based on everything that we know on the digital workflow solution side that is you know driven by the underlying demand and the trace gains global vision and you know core escrow product lines that that should expect that will grow but on the color measurement side comp is helping right if you recall you know we started seeing the weakness in the second half of last year so q3 q4 were pretty weak in the color management side so that will normalize over time But, you know, we'll talk about more in detail in February, Joe, but there are some elements which are kind of helping from a comp perspective here too. Yeah, okay. And then just on the water quality broadly, I'd say, like, as we've gone through the earning season, most of the commentary across water has been utilities kind of a little bit constrained on spend and project delays, and I fully appreciate the nature of your business is not into these projects and you're not doing water meters and stuff like that. But ultimately, if these utilities are facing kind of budgetary constraints to some extent, does that ultimately, like, roll over to you guys on some sort of lag to a lesser extent? Like, how should we think about the issues that they're seeing in one part of their spend ultimately impacting, like the totality of the spend? yeah i mean you know obviously you know the vast majority of our our sales uh in water are are opex instead of capex where they are capex you know they tend to be on the operating side of of uh technology upgrades or facility improvements as opposed to infrastructure where government funding and federal funding is is more material but look you know we represent a a low relative cost of the entire operating environment where critical workflows are essential. The cost of failure to the customer is high, and they're not going to take a chance on choosing not to fund water treatment operations. So our sales here are really durable, 60% recurring revenue, the other 40% is really around sort of upgrades and, you know, reoccurring revenue relative to equipment that, you know, needs to be replaced over time. So, again, we see this as being pretty durable on an ongoing basis, and we are very minimally exposed to sort of federal funding fluctuation. So we like where we sit, and, you know, we continue to have good momentum here. Thank you, guys. Thanks, Joe. This is Ryan Taylor with Viralto. We just wanted to thank everybody for joining the call. That ends the question and answer portion of the call, and we really appreciate the engagement, and we wish everyone well, and we will talk to you next quarter. We would like to thank everyone for their participation. Please feel free to disconnect at any time. Thank you for watching.