David Ridley-Lane

David Ridley-Lane asked for clarification on the timing of the current surge in orders, specifically whether manufacturing activity has significantly kicked in.

Answer

President and CEO Satish Dhanasekaran explained that 2025 was a year of building momentum, and the current experience is broad-based demand across all businesses and regions. While manufacturing is becoming important for AI customers, the strength is also seen in aerospace and defense, wireless, and EISG businesses.

David Ridley-Lane asked for clarification on the sudden surge in orders, specifically if manufacturing activity was the primary driver behind the current strong performance.

Answer

Satish Dhanasekaran, President and CEO, clarified that the current strong performance is due to broad-based demand across all Keysight's businesses and regions, not solely manufacturing. While manufacturing is becoming important for AI, the aerospace and defense, wireless, and EISG businesses also showed strong growth, indicating a widespread momentum.

David Ridley-Lane asked for clarification on Keysight's commentary about achieving 10%+ EPS growth even with dilution, seeking parameters on the expected mild dilution. He also inquired if the core organic revenue growth commentary aligns with historical 40%+ incremental margins, and how to factor in M&A synergy benefits versus core incrementals for the full fiscal year.

Answer

CFO Neil Dougherty characterized the expected EPS dilution as 'mild,' suggesting it could be thought of as low single digits on a percentage basis. He affirmed that 40% incremental margins remain the right way to think about Keysight's core business, noting that the company came close to this while absorbing tariffs in the second half of the year. He added that acquired businesses, initially operating at lower profit levels, are expected to achieve accretive operating margins post-integration through the $100 million synergy capture.

David Ridley-Lane sought clarification on the expectation of 10+% EPS growth for FY2026, even with mild dilution from acquisitions, asking for parameters on the extent of this dilution. He also questioned if the core organic revenue growth commentary aligned with historical 40%+ incremental margins, and how the M&A synergy benefit would factor into the overall fiscal year's incremental margins.

Answer

Neil Dougherty, CFO, characterized the acquisition-related EPS dilution as 'mild,' suggesting it would be in the 'low single digits' on a percentage basis. He confirmed that 40% incremental margins remain the right way to think about the core business, noting that Keysight came close to this in the past year despite absorbing tariffs. He explained that the acquired businesses initially operated at significantly lower profit levels than Keysight, but the $100 million synergy capture is expected to drive significant profitability improvement over the 12-18 month integration period, leading to operating margin accretion post-integration.

David Ridley-Lane of Bank of America sought clarification on the total annual tariff impact and the net effect baked into the Q4 guidance. He also asked for color on the potential size of the pending acquisitions from Synopsys and Ansys.

Answer

CFO Neil Dougherty confirmed the new annual tariff exposure is $150 million to $175 million and that the net dollar impact in Q4 will be only slightly larger than Q3 as mitigation efforts ramp up. CEO Satish Dhanasekaran commented that the acquisitions are a strong strategic fit but deferred questions on size and timing to Synopsys pending regulatory closure.

David Ridley-Lane asked for an update on the performance of the acquired ESI group and its progress toward margin targets. He also inquired about the two pending acquisitions from the Ansys-Synopsys deal, their contingency, and their potential scale.

Answer

CFO Neil Dougherty stated that the ESI acquisition remains on track with synergy targets, though upsells to auto customers were soft, offset by new traction in aerospace and industrial markets. He confirmed the two pending acquisitions are contingent on the Synopsys-Ansys transaction closing but did not provide a size for the deals.

David Ridley-Lane inquired about the opportunity to insource filtration media at Koch Filter, seeking to understand the potential for gross margin synergies given Koch's historical reliance on third-party media. He also asked for more color on the First Fit markets, specifically any signs of rebound or life in the off-highway segments.

Answer

CEO Steph Disher outlined the initial six-month focus on integrating Koch Filter, noting that procurement synergies have already been identified and are being pursued. She emphasized the greater long-term opportunity in innovation by combining Atmus's in-house media design and manufacturing capabilities with Koch's market expertise to create new products. For First Fit markets, Ms. Disher stated that off-highway markets are largely expected to be flat year-over-year, with the First Fit business primarily influenced by on-highway trends, and off-highway impacts more visible in the aftermarket, which is also seen as reasonably flat.

David Ridley-Lane asked about the opportunity to insource filtration media at Koch Filter post-acquisition to achieve gross margin synergies. He also followed up on any signs of rebound or life in the off-highway markets.

Answer

Steph Disher, CEO, stated that the initial six months post-acquisition are focused on integration, with procurement synergies already being pursued. She highlighted that combining Atmus's in-house media design and manufacturing with Koch's market expertise presents a greater opportunity for innovation and future product development. For off-highway markets, Ms. Disher indicated they are expected to be largely flat year-over-year, with more impact seen in the aftermarket businesses.

David Ridley-Lane of Bank of America asked for the key drivers behind the significant sequential revenue growth in Q2, which surpassed historical averages, and questioned if the company was price-cost positive during the quarter.

Answer

CEO Steph Disher attributed the outperformance to several factors, primarily over 4% in share gains driven by a catch-up from Q1 and pre-buy activity. She also cited effective pricing actions to counter tariffs, noting the team's success in securing USMCA exemptions to mitigate costs. Disher confirmed that the company was approximately price-cost neutral for the quarter and aims to maintain that neutrality for the full year.

David Ridley-Lane, on for Andrew Obin, asked if contract structures have changed to allow for faster tariff-related price pass-throughs compared to the supply chain crisis, and if the tariff situation could create a competitive advantage for market share gains.

Answer

CEO Stephanie Disher explained that unlike during the supply chain crisis, Atmus has already taken immediate pricing action on tariffs for its aftermarket business, outside the usual semi-annual cycle, to reduce lag. On the competitive front, she stated that she does not expect the tariff situation to create a significant relative advantage or disadvantage, as the impacts are likely to be similar across the industry in aggregate.

David Ridley-Lane, on for Andrew Obin, asked if the recent restructuring costs were structural or temporary and inquired about the expected payback period. He also requested clarification on the 2025 revenue growth guidance for the aftermarket and first-fit segments.

Answer

CEO Steph Disher characterized the restructuring as structural, especially in China, while allowing for reinvestment in the U.S. as markets recover. CFO Jack Kienzler noted the payback would be longer than a year, as savings will fund growth initiatives. He then clarified the 2025 market outlook: aftermarket flat to up 3% and first-fit down 0% to 10% globally.

David Ridley-Lane, on for Andrew Obin, asked for more details on the organic expansion into industrial filtration and sought to confirm the math that 2025 revenue would be two points lower without the prior-year destocking benefit.

Answer

CEO Stephanie Disher clarified that organic industrial filtration launches are not for material short-term revenue but to build the 'innovation flywheel,' with M&A remaining the primary growth strategy. She confirmed the 2% destocking benefit from 2024 will not repeat but stressed that the overall market outlook for 2025 remains the largest variable, especially after the significant market headwinds experienced in 2024.

David Ridley-Lane asked about the book-to-bill ratio in Q4 2025 and confirmed the Matco Expo timing for Q2 2026. He also inquired about the dynamics of payment terminals in gas stations, specifically if Vontier's hardware is below average to win recurring revenue, and if a GVR fueling dispenser can be purchased in the U.S. without Invenco hardware.

Answer

Anshooman Aga (CFO, Vontier) reported orders were up low single digits, with book-to-bill just under one for the year, confirming Matco Expo sales in Q2 2026 (bookings in Q1). Mark Morelli (CEO, Vontier) added the timing change was for customer convenience and will not change again. Anshooman Aga clarified Vontier's FlexPay 6 hardware are good margin products, not below average, and emphasized the significant advantages of their unified payment solution and NFX for loyalty, media, and transaction speed. Morelli stressed that customers prioritize lifecycle costs and complexity management. Anshooman Aga confirmed that in the U.S., there is no option to buy a dispenser without Vontier's integrated payment.

David Ridley-Lane asked for the book-to-bill ratio for the quarter and confirmation on the Matco Expo timing for Q2 2026. He also inquired about Vontier's payment terminals, questioning if the hardware is below average but enables winning high-margin recurring revenue, or if it's a good margin product, especially given merchant acquirers sometimes give away terminals.

Answer

CFO Anshooman Aga reported that orders were up low single digits, with a book-to-bill ratio just under one for the year. He confirmed Matco Expo sales would be in Q2, with bookings starting in late Q1, and CEO Mark Morelli added that the Q2 timing is preferred by franchisees for better weather. Anshooman Aga clarified that Vontier's FlexPay 6 hardware is a good margin product, not below average, and that free hardware from processors often comes with higher transaction fees, which Vontier's larger customers typically avoid. Both executives emphasized the significant advantages of Vontier's unified payment solution, including connectivity, loyalty, media integration, and lifecycle cost management, which are critical for customers.

David Ridley-Lane, on behalf of Bank of America, questioned the potential customer benefits from the accelerated depreciation provision in the 'Big Beautiful Bill' and asked about the sustainability of the mid-teens growth in the underground tank business. He also requested the book-to-bill ratio for the quarter.

Answer

CFO Anshooman Aga explained that while the bill directly benefits Vontier's free cash flow, any customer benefit from accelerated depreciation would likely materialize next year due to project and permit cycles. CEO Mark Morelli added that the underground tank upgrade cycle is still in its 'early innings' and represents a tailwind for some time, supported by new product innovations. Aga concluded by stating the book-to-bill ratio was 'just about one' in the quarter.

David Ridley-Lane, on for Andrew Obin, asked about the future trajectory of R&D expense as a percentage of revenue, given the growing software mix. He also sought confirmation that the 2025 guidance for normal incrementals implies that significant mix headwinds are now in the past.

Answer

CEO Mark Morelli stated that R&D as a percentage of sales is not expected to increase and should drift down over time as recent investments pay off. CFO Anshooman Aga confirmed that the mix headwinds are primarily seasonal quarter-to-quarter variations and that the full-year mix is expected to be normal, supporting the standard incremental margin outlook.

David Ridley-Lane, on for Andrew Obin, questioned the revenue recognition timeline for the large India tender, the potential carryover benefit from 2024 cost-cutting into 2025, and whether the Matco bad debt reserves would be lapped next year.

Answer

CFO Anshooman Aga clarified that of the $70 million India tender, about $25 million was booked in Q3 for revenue recognition over the next 12 months. He stated that approximately $8 million of the $12 million in 2024 cost savings is permanent and will carry into 2025. Aga also confirmed that the company will lap the difficult bad debt compare in 2025, as the portfolio's performance has stabilized.

David Ridley-Lane, on for Andrew Obin, asked if Vontier is observing any customer hesitancy or slowdowns in capital planning for site modernizations within Environmental & Fueling Solutions. He also inquired about the progress of the Invenco sales pipeline with large, unconverted customers.

Answer

President and CEO Mark Morelli stated that customers are moving 'full speed ahead' with projects, citing the historical resilience of the convenience store market during economic downturns. He emphasized that channel checks show no signs of demand drop-off. Regarding Invenco, Morelli described the sales cycle as long but noted that conversations are progressing well, with existing successful deployments serving as strong proof points that are helping to drive more pilots and engagement with potential new customers.

David Ridley-Lane, on behalf of Andrew Obin, asked about Dover's exposure to the natural gas power generation sector, specifically if it supplies components for large turbines, small turbines, and reciprocating engines, and its participation in recent capacity expansions by equipment providers. He also sought clarification on a 'price cost' comment for the Clean Energy & Fueling segment in Q4.

Answer

CEO Richard Tobin confirmed Dover's involvement across all mentioned natural gas power generation applications, noting that the large turbine business is front-running the market, and significant follow-on CapEx for gas delivery is expected in H2 2026. CFO Christopher Woenker clarified that the Q4 price-cost comment for Clean Energy & Fueling was a 'timing catch-up' between price realization and cost.

David Ridley-Lane, on behalf of Andrew Obin, asked about Dover's exposure to the natural gas power generation side, specifically if it supplies components for large turbines, small turbines, and reciprocating engines, and its participation in recent capacity expansions by equipment providers. He also sought clarification on a "price cost" comment related to the Clean Energy & Fueling segment in Q4.

Answer

CEO Richard Tobin confirmed exposure to large turbines, midstream, and reciprocating compressors, noting the large turbine business is front-running the market and significant follow-on CapEx for natural gas delivery is expected in H2 2026. CFO Christopher Woenker clarified that the Q4 price-cost comment for Clean Energy & Fueling was a timing catch-up between price realization and cost.

David Ridley-Lane requested orders growth figures for the process and hybrid, discrete, and safety and productivity segments for the quarter, along with an outlook for Q1 orders. He also questioned the lower core operational margin expansion guidance for fiscal 2026 compared to 2025, despite faster revenue growth and synergies.

Answer

CFO Michael Baughman provided orders growth: mid-single digits for process hybrid, high-single digits for discrete (driven by Test & Measurement), and flat to low-single digits for Safety & Productivity, expecting good momentum into Q1. He explained that the 2026 margin expansion includes a 40 basis point drag from renewals, with core operations contributing about 60 basis points, consistent with historical performance.

David Ridley-Lane requested the orders growth breakdown for process and hybrid, discrete, and safety and productivity segments in the fourth quarter, along with an outlook for first-quarter orders. He also questioned the lower projected margin expansion for fiscal 2026 compared to 2025, considering faster revenue growth and synergy benefits.

Answer

Michael Baughman (EVP and CFO) and Ram Krishnan (EVP and COO) reported mid-single-digit orders for process/hybrid, high-single digits for discrete (driven by Test and Measurement), and flat to low-single digits for safety and productivity, expecting good momentum into Q1. Michael Baughman explained that the 2026 margin expansion includes a 40 basis point drag from software renewals, with core operations continuing to drive 60 basis points of improvement, consistent with prior years.

David Ridley-Lane from Bank of America asked about order trends in the Test and Measurement segment for 2024 and 2025. He also questioned the strategic timing of launching a cost-cutting initiative if there are signs of a cyclical upturn in the business.

Answer

CFO Neill Reynolds clarified that while Test and Measurement orders were down year-over-year, they stabilized sequentially in Q2, with bookings matching revenues. President and CEO Tami Newcombe explained the cost-cutting initiative is not cyclically driven but is a direct structural response to offset stranded costs resulting from an $80 million services business that remained with Fortive after the spin-off.

David Ridley-Lane from Bank of America inquired about the typical level of recurring revenue that follows a large emergency response project, the company's appetite for a larger opportunistic acquisition, and the progress of its PFAS treatment business within the landfill end market.

Answer

President & CEO Vijay Manthripragada explained that response projects are excellent cross-selling opportunities, and the subsequent monitoring and remediation work has a recurrence profile similar to the core business, with over 96% client retention. He stated that while the company will always be opportunistic, a large transaction is not imminent as the priority is demonstrating strong organic performance. He confirmed that Montrose is active in the landfill market for PFAS and that its serviceable market has grown as its patented technology now addresses a broader range of water contaminants.

David Ridley-Lane from Bank of America asked about the typical recurring revenue generated from large emergency response events, the company's openness to a large opportunistic acquisition, and the significance of the PFAS treatment opportunity in landfill sites.

Answer

President & CEO Vijay Manthripragada explained that response projects are strong cross-sell opportunities, and the resulting follow-on work exhibits the same high client retention (96%+) as the core business. He stated that while the company is always opportunistic, a large acquisition is not imminent as the focus is on demonstrating organic performance. He confirmed that landfills are a key and growing part of the PFAS opportunity, and Montrose's expanding patent portfolio now addresses broader water treatment needs, increasing its total addressable market.

David Ridley-Lane, on for Andrew Obin, questioned the unusually strong Q1 performance of the Measurement and Analysis segment, which typically sees seasonality. He also asked if PFAS-related revenue growth was additive to overall organic growth and its future outlook, and whether the company has seen project delays in the Remediation and Reuse segment due to macro uncertainty.

Answer

Vijay Manthripragada, President and CEO, explained that the Measurement & Analysis segment's strong performance was partly due to a catch-up in activity following a 'wait-and-see' period during the 2024 election. He confirmed that PFAS revenue growth was additive to the company's overall organic growth and expects this trend to continue, bolstered by recent EPA policy announcements. He also stated that the company is not seeing project delays in its Remediation and Reuse segment from macro uncertainty, as the nature of the work is less exposed to economic fluctuations.

David Ridley-Lane, on behalf of Andrew Obin, asked about employee retention trends and whether there has been an uptick in the poaching of field sales representatives. He also requested quantification of the newly mentioned cost-out initiatives.

Answer

CEO Mark Witkowski asserted that employee retention remains "extremely high" and the best in the industry, with no significant change in competitive poaching. CFO Robyn Bradbury clarified that SG&A initiatives are focused on reallocating resources to high-growth areas and realizing M&A synergies, rather than a substantial new cost-out program.

David Ridley-Lane, on for Andrew Obin, asked for the revenue percentage from multifamily construction and sought clarification on whether the full $50 million revenue impact from Q2 weather was recovered in Q3.

Answer

CFO Mark Witkowski confirmed that multifamily is less than 5% of sales and is included in the non-residential category. Regarding the weather impact, he stated that while Q3 saw a significant rebound that got them back on trend, it's difficult to quantify an exact catch-up, but a majority of the delayed work was likely achieved in the quarter.

David Ridley-Lane, on for Andrew Obin, sought confirmation that no major cost-cutting actions are planned beyond normal variable compensation adjustments and asked about the expected pace of share repurchases.

Answer

CFO Mark Witkowski confirmed no significant cost reductions are planned, as the company is investing for long-term growth and views recent weakness as temporary. He stated that with strong expected cash flow, the company has capacity for M&A and growth, and would likely accelerate the pace of share repurchases from Q2 levels if conditions are attractive.

Asked about the reasons for the sequential decline in Q1 subscription revenue guidance, whether the flat full-year guidance is conservative given positive metrics, and if there's a willingness to invest in the sales force.

Answer

Marje Armstrong explained the Q1 decline is due to seasonal churn patterns. She confirmed the full-year guidance is appropriately conservative but expects a return to positive growth. She also affirmed their commitment to investing in client-facing organizations like the sales force.

David Ridley-Lane, on behalf of Andrew Obin, questioned the factors causing the sequential decline in Q1 subscription revenue guidance. He also asked if the flat full-year guidance was conservative given the 99% net retention and growing bookings, and whether there was a willingness to invest in the sales force similar to product development.

Answer

CFO Marje Armstrong explained that the Q1 sequential decline is a seasonal pattern, as churn is typically highest in Q1 due to renewal volumes, though she expects year-over-year improvement. She confirmed the full-year guidance is appropriately conservative but noted the high end of Q1 guidance implies a return to growth. She also affirmed a strong commitment to investing in all client-facing organizations, including the commercial sales team.

David Ridley-Lane, on for Andrew Obin, asked about the strongest areas of new bookings within the product portfolio. He also sought confirmation that the company remains on track to achieve normalized churn rates by the start of fiscal year 2026.

Answer

Chief Commercial Officer Greg Randolph highlighted logistics and global trade as areas with strong demand and competitive differentiation, citing significant new logo wins. He specifically mentioned the unique value proposition of combining transportation management, last-mile parcel, and visibility solutions. On churn, Randolph confirmed they are tracking towards normalized levels by the start of FY26, while adding that the ultimate goal is to reach best-in-class levels, which will be a longer-term effort.

David Ridley-Lane of Bank of America inquired about the order timing for large, multi-location hyperscaler campuses, asking if Vertiv receives a single large order upfront or if orders are phased in over time as buildings are deployed.

Answer

CEO Giordano Albertazzi explained that while Vertiv gains visibility into the entire campus program, purchase orders are typically placed for individual buildings as they are being deployed. He noted this provides longer-term visibility even if the POs are staggered, and the specific timing varies by customer.