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 [Operator Instructions] After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] 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 Ralhan, 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 Investors 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 Investors 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. And with that, I'll turn the call over to Jennifer.

Thank you all for joining our call today. The first quarter of 2024 marks our second consecutive quarter of solid operating execution as a stand-alone 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 & 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. Sameer will cover that in more detail a bit…

Good morning, everyone. I will begin with our consolidated results for the first quarter on Slide 7. First quarter net sales grew 1.8% on a year-over-year basis to about $1.25 billion. Currency was a modest benefit, offset by the divestiture of Salsnes product line. Salsnes was a small commodity filter product line in our Water Quality segment that was divested in January. Core sales growth in Q1 was 1.8%. Price contributed approximately 2% growth in this quarter, in line with expectations. This aggregate price increase is also in line with historical levels. Volume was down a modest 40 basis points year-over-year. This was better than we expected, primarily due to higher sales volumes of consumables and both segments during the quarter. Gross profit increased 6% year-over-year to $747 million. Gross profit margin increased 220 basis points year-over-year to 60%, reflecting the benefits of pricing as well as improved productivity and reduced material costs. Adjusted operating profit increased 5% year-over-year. and adjusted operating profit margin expanded 90 basis points to 24.5%. We delivered strong margin expansion while investing in our sales and marketing efforts to drive future growth. We also increased our R&D investment to 4.8% of sales, up 20 basis points over the prior year period. These investments are aligned with our strategic growth plans and we expect to continue to fund ongoing growth investments. Looking at EPS for Q1. Adjusted earnings per share grew 8% year-over-year to $0.84, and free cash flow was $102 million, down from the prior year. This decline is primarily due to cash interest payments that we did not incur last year prior to our spin-off. Moving on, I will cover the segment highlights, starting with Water Quality on Slide 9. Our Water Quality segment delivered $749 million of sales, up 2.7% on a year-over-year…

In summary, as a stand-alone company, we have increased focus, discipline and accountability across all levels of the enterprise, which has elevated our level of execution. We are driving continuous improvement and investing in future growth as our end market environment gradually improves. We are off to a positive start in 2024 with solid growth and strong margin expansion in the first quarter. Our financial position remains strong and we continue to take a disciplined approach to capital deployment with our primary focus on strategic acquisitions with attractive returns. Looking ahead, we remain focused on driving commercial excellence, continuous improvement and disciplined capital allocation to create shareholder value while safeguarding the world's most vital resources. That concludes our prepared remarks. I want to thank you all again for joining our call. And at this time, we're happy to take your questions.

[Operator Instructions] We'll take our first question from Scott Davis with Melius Research.We'll take our first question from Scott Davis with Melius Research.

The 60% gross margin is a pretty incredible number when you really think about the mix of businesses you have. But should we think about this as kind of high watermark or would you think about it as more of a step up into a new level of entitlement? How do you guys think about it?

Maybe I'll take that one, Scott. Overall, as you got to look at margin perspective, some of it comes down deliver of a mix. I think it's still going to be in the 58% to 60% kind of ZIP code. As Jennifer mentioned on the call earlier, we saw good sort of a rebound in the consumables in both sides that really helps us on the margin side, both in the Water Quality and PQI side. But as kind of equipment starts coming back at the rest of the year and the second half of the year, we should be in that 58% to 60% kind of ZIP code.

And just following on a little bit to a comment you made, Jennifer, on increasing accountability. I understanding has always been that the Danaher business system always drove a pretty high level of accountability. How have you tweaked it to even raise that to a different level? And what kind of changes have you made when you think about just tightening things up for the assets that you have here?

Yes. I mean I think it's always challenging to provide an equal level of focus across a very, very large enterprise like Danaher has I think a smaller, more nimble $5 billion business, obviously, allows us to focus exclusively on these businesses, whereas there were many more factors sort of previously with the life sciences and diagnostics side in Danaher. And so some of the things that we've done here is we've just -- we've raised the level of not only expectation but visibility to how we're operating, the tools that we're using by way of VES, and we're really focusing on the critical few. Every business is a little bit different. Their evolutionary maturity is a little bit different. And as a result, we focus on using fit-for-purpose tools in our VES toolbox to make sure that we're elevating the level of performance of each of those businesses.

Congrats on the quarter. Good luck this year.

And we'll take our next question from Andy Kaplowitz with Citigroup.

Jennifer and Sameer, how are you feeling about the PQI recovery at this point? I know you mentioned North America and Western Europe, you continue to see signs of recovery. You talked about equipment demand coming back late in the quarter. Maybe you could elaborate on that equipment trend. Have you seen follow through in that food and beverage recovery that started, I think, in Q4? And how are you factoring in China-related growth in that segment for the rest of the year?

Yes. We're really encouraged by the PQI performance here in Q1, particularly around our consumable revenue stream or recurring revenue. Is this the third sequential quarter that we've seen mid-single-digit growth there. And with regard to sort of how those markets, particularly in food and beverage, recover from a downturn, we will always see the consumable revenue stream ramp first. And that's as a result of CPG customers coming back online that were previously mothballed they're getting those lines running, they're refurbishing equipment. And so we always see that leading our equipment growth. Now on the equipment side, we did see some nice pockets of growth relative to orders late in the first quarter. And so this is sequentially encouraging and very closely maps to the pattern of what we would have seen with consumables recovery first, followed by equipment recovery.

Andy, only other thing I would add from a guide perspective, we're building equipment recovery more in the second half, while the owners, as Jennifer mentioned, in March, were very encouraging, good discussions with the customers that those business teams are having but we're still cautious and we are building into anything on the equipment side in the second half than in the second quarter at this point.

Very helpful. And then maybe a similar question on the Water Quality side, Obviously, you've talked about strengthening industrial business for a while now. Maybe talk about the resilience of that. Are you seeing North American municipalities on the Hach side spend anymore? Is there -- do you see any risk of higher rates, maybe impacting that side of the spend?

Yes. So the nice thing about our business, Andy, is it's largely an OpEx-focused set of businesses. So interest rates, CapEx approval cycles we are minimally impacted by. And because we operate at the high end of the value continuum in terms of being integral to operating municipal water plants. We see steady spend there. And following the pandemic when municipalities were kind of in lock down relative to their levels of investment. They are starting to execute on their project backlog. And that means that as they execute on that activity. There will be more analytics and testing required for refurbishing plants and getting going on those improvements. So we continue to see good demand here that's continuing to recover municipalities. And we also have a variety of opportunities here in water reuse and recycling, reclaim activities as well. So we're encouraged by the muni markets that are starting to recover and look forward to continued execution there.

We'll take our next question from Jeff Sprague with Vertical Research Partners.

Hey Jennifer, just first on just kind of the M&A side of the equation. Obviously, a couple of quarters out of the box here probably kind of a solid year. So to think about it given the time line of the spin. Just wonder how the pipeline is coming together. Do you see things that are actionable. And do they lean towards one segment or the other?

Yes. This is everyone's favorite topic, I think. We are 207 days post spin, I think, today. So it's still early days here. But I have to say, we have a very, very robust process and a strong pipeline of activity, both in the Water Quality side, the PQI side with a number of opportunities that we're considering. We are going to stay disciplined here, consistent with our heritage and focus on making sure that we're going after the right markets, strong companies within those markets and making sure that they come at the right valuation. We continue to like businesses that have similar operating model, durability and financial profile to those that we have in the portfolio today. Businesses that can drive VES, or if they can utilize VES for continued improvements in growth in margin. And certainly, our bias towards M&A is an important catalyst here going forward. But we will continue to maintain the rigor and the discipline that we have inherited from our history. And as always, M&A is a little bit episodic. We do see more opportunities opening up relative to actionability as the year progresses. And so we are encouraged by that.

And then maybe unrelated and for Sameer. Given that maybe kind of the consumables versus equipment mix doesn't really shift a whole lot until we get into the second half of the year. Why is it that margins would be down sequentially Q1 to Q2 on sequentially higher revenues?

As we go from Q1 to Q2, Jeff, this is -- really ends up -- the first thing is the second quarter ends up being a seasonally heavier trade show activity quarter for us. So the operating expenses do go up seasonally just for us in Q2 and Q1. And that's kind of -- I would say, applies to both the segments. The other fact that is just some of the corporate spending. As we said at the beginning of the year in February, right, we just want to be very cautious and judicious as you bring in the corporate expenses, from a stand-alone company perspective. So some of that is just how we're pacing in and slowly in the second quarter, some of that just going to ramp up. And lastly, I would say, as Jennifer mentioned, we are investing on the SG&A side. And in Q1, we did make investments. We're going to start seeing more run rate impact as you move into the second quarter. So it's really a combination of those 3 things that's driving the sequential decline.

Does it bias towards one segment or the other?

No, it's pretty universal across the board.

We'll take our next question from Mike Halloran from Baird.

So following up on Jeffrey's question, as you became a stand-alone company, did you have to change processes lean in any way from an organizational perspective with incremental resources, whatever, to essentially build the muscle on the M&A side, obviously, a little bit less prioritized at Danaher? So is there anything that you've had to do to build that up more than what you had done when you came in here and centralization of resources. And then I guess the second part is how integrated is that with your R&D functionalities as we see here today?

So clearly, standing up -- a stand-alone company does require a corporate organization to support it. Previously, tax and treasury and all of those functions were taken care of for us. But with respect to sort of the M&A trajectory, we were very deliberate in bringing in top talent in our strategy and sustainability function and our corporate development function. Both of those individuals that sit on my staff have long-standing histories within Danaher building strategy and executing on M&A. Insofar as the muscle building within the operating companies themselves. We have upskilled the capability for our leadership within the operating companies to be able to performed strong due diligence, look at effective ways of integrating and so on. So we spent actually quite a bit of time here in both the ramp up to the spin and following the spin itself.

And the second one is just kind of putting the commentary together on the Water Quality and the PQI side as far as starting to see some green shoots in specific areas or recovery in specific areas. How much of that is embedded from here from a guidance perspective? Are we talking relatively normal sequentials, or is there an assumption for an improved backdrop as we get through the year and just had some context?

Hey Mike, yes, I'll take this one. Essentially, it's pretty kind of a gradual sequentially improving quarter-by-quarter that you just built into the guide at this point. As I said earlier, really what we're building is this point for -- in the near term is really more on the consumables side, still that trend slowly kind of building equipment side, it's really more in the second half of the year. So there's a little bit of a macro backdrop helping us some of the equipment side coming back, but it's going to be pretty moderate sequentially kind of going up, but on a year-over-year basis, as you can imagine, from the Q3, Q4 will be better. That's how the math works.

We'll take our next question from Deane Dray with RBC Capital Markets.

I appreciate all the color and specifics in the slides in your prepared remarks. I'd like to get a very specific question in Water Quality, if I could. So the new EPA regulations on PFAS, the 4 parts per trillion is really -- as that pushes the testing technology limits. And right now, it's still you have to use a prohibitively expensive mass spec, no utility really can afford that. So is the industry any closer, are you all any closer to what might be a more economical test because all this is going to be seeing incredible demand over as of now, as of 2 weeks ago.

Yes. Great question, Deane. We knew that the EPA was headed towards a 4 parts per trillion limit of detection here. So that's not fundamentally new news for us. What is new news there is the time line for compliance with [ Salsnes ] in 2027, but you are right that this is a phenomenally difficult and complex problem to solve in a fit-for-purpose way. Right now, the way to solve for this is water sample set to centralized lab, run through GC mass spec, answers come back, a couple of weeks later. In the meantime, the municipality has discharged tens, if not hundreds of thousands of gallons of water. We are investing in this area. We do believe we have a right to play here. Hach unit of itself has over a 70-year history of innovating in the analytics space. We've got a broad portfolio there. And certainly, on the water treatment side, particularly in UV applications, we've got great expertise there as well. But I would say this is a long game here with solutions that are not imminent, but we're probably still a couple of years out here in terms of identifying and developing fit-for-purpose technology that addresses both detection and destruction. We think that winning is going to require both. And right now, the analytical test options, as you say, are not fit for purpose in terms of being at plant. And frankly, destruction technology is not readily available either. There are products out there, granular activated carbon being one of them that can capture PFAS but what happens when you refresh those resin beds, you're just moving the PFAS to some other place like a landfill. So it's going to be a long journey here, but we are investing in a number of organic activities and are open to inorganic options as well.

That's really helpful. And I fully appreciate that time line that you've suggested that's everything that we've heard as well. There's a question between wanting something and there's a demand -- industry demand versus the practicality given the complexity of the molecules. But I really appreciate the color. And I'm so glad to hear you mention destruction as well because that's an opportunity. And then just for a follow-up question, and I'll echo Scott's comments about that 60% threshold on gross margin and how big a deal that is. And I remember when Danaher hit that level as well. And just one of the ways that you might be able to boost that further I know your business model is a direct to customer on the -- overall and especially on the Hach consumables where you just would think there'd be more of a distribution angle to this, which would lower that cost of getting the reagents to the customers. Just where does that stand? Is that a nonstarter? Or is that something you've explored? I know in some countries, you will use distributors just because it's not practical to have direct, but just where does that stand?

Yes. I mean I think you're right, Deane. We do and will use distribution for our analytics businesses in certain countries. They tend to be areas where we don't have critical mass in terms of staffing up the full capability of selling direct. We think it's actually a good thing to sell direct. And it's part of what I would consider to be the secret sauce because we have that long-standing technological applications knowledge. And it's that customer intimacy and the insight to their processes, their process control, their analytics needs, they're unmet, that the problems that have yet to be solved that give us great insight and creates the flywheel of feedback loop from our sales and service organization to our new product development organizations that help us continue to innovate and evolve the product portfolio to solve unmet customer needs. So we are not inclined to sort of steer away, if you will, from our direct sales model just from a margin benefit standpoint. We think there's lots of opportunity by virtue of applying VES, and working on mix. The teams are doing a great job here in delivering margin as a result of just good operating and execution, right? The factories are running better, procurement teams are pushing back on inflationary pressures, and we're doing far fewer spot buys. So we had a number of other levers that we can pull relative to margin without compromising the secret sauce of customer intimacy.

We'll take our next question from Andrew Krill with Deutsche Bank.

I wanted to ask on -- going back to price and price costs more specifically. Just can you give us an update on what you're assuming there? I think we've heard from several companies like transportation, labor, certain raws all continue to be pretty inflationary. So is the guide assuming you can stay price cost positive, like on a margin basis or just dollars? And anything there would be really helpful. And if there's any big difference by the segments?

Andrew, I'll take that one. Essentially, from a price, from a guide perspective and the future look perspective, we're modeling in price in line with historical norms. So it's 100 to 200 basis points. This quarter, of course, as things are rolling off, we came in a little bit towards the high end of that range. But I think from an outlook perspective on the guide perspective, 100 to 200 basis points is a good way to model. On the raw materials and the material side, look, I think it's a pretty broad mix of kind of things that we buy all the way from semiconductor, some of the circuit boards down to stuff in plastics and think of those nature that's kind of tied to commodities. I would say the operating discipline and the VES really helping us kind of manage that, I think, has been a big differentiator. That's going to really reflected in Q1. And the question that Scott and Deane had us over the gross margin side. We saw a big uplift from that side as well. I think really, going forward, having the operating discipline, making sure we are doing less of the smart buy I would say, inflationary pressures are there. We are managing, managing them really well, but it's also about the operating discipline to make sure we are minimizing any smart buys, which can really have a big impact on the market side. So I would say pricing. We're doing the value in used pricing, and it's showing up in the market side for the price side, there's a lot of discipline that all starts all the way from operating discipline.

And then for a follow-up on free cash flow conversion, it's nice to see the conversion boosted for the year from 100% to 110%. Just any more insight into like what changed to give you cost through 1 quarter? And looking ahead, should we be maybe thinking of like 100% conversion as kind of a lower like legacy Danaher was very consistently over 100%.

Yes. Andrew, if you look at free cash flow conversion, right, just as a reminder, we do give the conversion on the basis of the GAAP metrics, right, not on any kind of adjusted metrics. So essentially, when you look at that, just add the amortization and the share compensation or the stock-based compensation, I think based on all that stuff, we should be a little bit on the 100%, a little over 100% but really going towards 100% to 110% range this quarter for the full year for us. That guidance is really driven by getting more conviction on the margin side. As Jennifer mentioned, our margin will be towards the high end on the 50 to 75 basis points that kind of flows down, that gave us a more conviction. And also, there's a noncash charge in there as well, right, this quarter that's flowing to the GAAP net income, which is tied to the sales divestiture. So that's kind of just from a math perspective, and adds to the cash flow conversion as well. But overall, it was better operating performance.

And we'll take our next question from Nathan Jones with Stifel.

I'm going to follow up on Deane's question on distribution, but I'm going to come at it from the PQI side because I would have thought there might actually be some more opportunities to leverage the distribution model and maybe reduce the cost to serve on the PQI side than on the water side, potentially maybe in lasers where there's not the same kind of consumable revenue or some of the smaller customers that maybe don't need thatkind of super high level of service from you guys. So any commentary you could make on maybe the potential from that side of the business to leverage distribution a bit more?

Yes. I mean I think it's probably the same answer as for water. I mean we do have distribution and we do consider use of distribution depending upon where we're selling in the world and what types of products are in the portfolio. This is something that we always consider in terms of when we when we decide to make investments and which product lines actually require a more significant level of applications, knowledge and insight. But I will tell you that like in water, there are pretty significant insights to be gained from understanding customer problems in a direct way for any kind of customer who's on the packaging and color side or on the marking and coding side. And it actually spurs a great deal of our innovation. You will recall from our fourth quarter call that Videojet launched 7 new products last year. They additionally launched another 2 in the first quarter, and these are on the back of innovations for direct to customer feedback. So I continue to be a little bit biased here towards our direct model because I do think it creates a customer intimacy required to have those untapped insights relative to some of the problems that they face. But we do use distribution, and we selectively consider that in the course of every strategic planning cycle.

I wanted to ask a follow-up on recycle and reuse in industrial markets, which is a market, I think, has significant growth potential over the next 5, 10, 20 years and would certainly be a market that's right in the bull's eye for a lot of your water quality business. So maybe some commentary on trends in industrial recycle and reuse markets, what you're seeing going on there and what the opportunities are for Veralto to play in those markets?

This is a great question, and absolutely. We see a great deal of activity, interest and growth potential in both recycle and reuse. And it's one that is pan-operating company, I would say, across our water quality businesses. So the intersection of ChemTreat, Trojan and Hach, can all play in that space. And in fact, do have conversations amongst themselves and amongst the sales folks in the field relative to solving those kinds of applications. But increasingly, by virtue of the importance of ESG amongst our customers. We do have them coming to us saying, "Look, my company has just said, I've got to use 25% less water and of the water that's not used in the process. They've got to recycle 50% of it, right? So can you help me with both reduction and recycling. And those are great -- those are sweet spots for us. We've got a great product portfolio that can be deployed to these applications. And so we continue to be excited about the space.

And we'll take our next question from Andrew Buscaglia with BNP Perles.

So I just wanted to check on the Water Quality side, you're talking about really strong industrial demand in your guide -- you did much better than your guidance. I'm wondering what changed, I'd say, from December, January to what transpired throughout the quarter? And then just the sustainability around that? What's driving that really?

Yes. I mean I think we still see pretty strong industrial output here, particularly in North America. I think as we mentioned in our prepared remarks, we do see food and beverage coming back, which across the portfolio is the largest continuous industrial segment that we play in. But likewise, chemical processing, mining and power generation all continue to be strong. We do see opportunities around the reshoring activity as well as the world becomes a little bit more fractured relative to its trade relationships, and so that's providing great opportunity, particularly with respect to microelectronics and the CHIPS Act and so on. So we do see a good macro environment here, particularly in North America for our industrial sector.

A lot of little things it sounds like. Yes, yes. And you got a lot of questions on M&A. Obviously, that's where a lot of interest lies. I'm wondering if you can comment on your margins, especially in Water Quality are quite high. How are you thinking about margins as you add M&A to your portfolio? Is there enough out there where you could see some accretion or generally long term, is this not really -- should we not expect those margins to stay where they are if you're adding deals?

Yes, Andrew, as we've kind of stated in the past, and when it comes down to M&A, it really -- we follow a very disciplined and rigorous approach around markets, companies and valuation with respect to the financial metrics, it really is a combination of multiple factors, right? We look at ROIC, we look at margin, what's are the things that we can add to the portfolio that can drive overall core growth and create synergies, how do we apply VES into the acquired businesses to really create the differentiated value. So it really comes down to the value creation potential and ultimately, that's based on a combination of all these different financial factors that we kind of look at as part of our rigorous process. So I wouldn't really focus on one metric versus the other. It really comes under the combination of all to see how they will create long-term value.

We'll take our next question from Brian Lee with Goldman Sachs.

Lots has been covered on the call. So maybe just a few follow-ups, I guess, on PQI. Can you remind us how far out does your visibility extend on the equipment backlog and then the recent strength you're seeing in bookings? And then also maybe remind us what are the mix implications? You kind of alluded to them, but mix implications for margins in PQI as you move through the year. And it does sound like equipment will grow relative to consumables, how should we think about that in the context of margins?

Yes. I mean, I think what we see here is visibility for equipment in the 60- to 90-day time frame, right? This is the short-cycle business. So a lot of our confidence around equipment here in the second half is a product of history, right, where we see cycles of food and beverage and consumer packaged goods sort of decline in recovery. We see typical patterns, which is pretty intuitive of the inks and solvents, spare parts, consumables recovering first as these lines are brought back online and then equipment following when funds are available to do line expansions, equipment upgrades and so on and so forth. So you do see in the guide that we've projected a rebalancing of kind of consumables and equipment here in the back half of the year. And so we've accounted for that.

And then just one on Water Quality. I think a couple of questions ago, you were talking, Jennifer, about the demand in water reuse, water recycling somewhat from an ESG footprint from a growing subset of your customers. I think there's also a growing subset of customers and industries here levered to power gen growth. We're seeing low growth on the grid in the U.S. especially. First time in a while really seeing some positive inflection. So can you kind of give us a sense of from your vantage point, the different technologies, product sets you have the microelectronics sector, how much of the mix it is? And then it seems like there's just incremental volume growth opportunities there. Maybe if you could just speak to that a little bit.

So the business that is -- benefits most from the CHIPS Act and microelectronics is Trojan that sells UV treatment systems in for high-purity -- ultra-high-purity water. That water has to be exceedingly pure given the manufacturing requirements for semiconductor wafer fab. But there are pockets of other equipment and analytics and so on that get sold into that space. But we've really seen some nice growth in our UV treatment business as a result of sort of the onshoring or reshoring of fabs here in North America as well as the ones that continue to be built in China.

And Brian, the only other thing I would add to that is as you're going to look at the bid activity that our teams are seeing, we're seeing a pretty healthy bid activity that's kind of tied to the reuse point that earlier Nathan had as well on the municipal side and then on the semi side on the -- for the UV treatment system. So the bid activity is actually pretty good on both sides. That kind of tie back into the Trojan business.

And it appears that we have no further questions at this time. I will now turn the call back over to Ryan Taylor for any additional or closing remarks.

Thanks, Shelby, and thanks, everybody, for joining us today. We really appreciate your time and engagement. As normal, I'll be available for follow-ups today and throughout the next coming days and weeks, should you want to talk, please reach out to me. And at this time, we'll conclude our call. Thank you so much again, and we'll join you next time.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.