James

James Ko questioned whether the project pacing dynamic extending into H1 2026 was new or expected, and the level of confidence in project conversion to revenue in H2 2026. He also asked how much of the high single-digit organic growth outlook is supported by awarded but not executed projects versus broader funnel opportunities.

Answer

Ken Bockhorst, Chairman, President, and CEO, acknowledged some variability, with certain H2 projects initially expected in H1, but reiterated confidence in the 5-year horizon. Dan Weltzien, CFO, clarified that project slides are not funding-related but due to contracting and deployment phases. Ken emphasized that H2 projects are "known, awarded, not started." Ken explained the 5-year outlook is based on a comprehensive funnel of activities, underpinned by 85% replacement orders and strong software CAGR.

James Ko asked if the project pacing dynamic extending into H1 2026 was expected or new, and about the confidence in revenue conversion for H2 2026. He also questioned how much of the high single-digit organic growth outlook over the 4-5 year horizon is supported by awarded but not yet executed projects versus broader funnel opportunities.

Answer

Ken Bockhorst, Chairman, President and CEO, acknowledged some variability, noting that some H2 projects were initially expected in H1, but expressed strong confidence in the five-year horizon. Dan Weltzien, CFO, clarified that project delays are typically due to contracting and deployment phases, not funding issues. Ken Bockhorst emphasized that the H2 projects are known, awarded, and not yet started. He explained that the five-year outlook is based on a comprehensive funnel of activities, including consulting, RFPs, in-flight projects, and awarded-not-started projects, underpinned by 85% replacement orders and a 28% CAGR in software growth.

James, on behalf of Saree Broditsky, inquired about the fire service outlook for 2026, considering pent-up demand and the clearing of near-term headwinds, and asked about the confidence and potential risks associated with the early 2026 NFPA approval timing.

Answer

Steve Blanco, President and CEO, stated that 2026 fire service demand is expected to be consistent with 2025, with anticipated improvements in international markets, and expressed optimism for significant growth in 2027-2029. He also conveyed high confidence in the NFPA approval being issued no later than early 2026, acknowledging it's a government agency decision.

James, on behalf of Saree Boroditsky from Jefferies, inquired about the key factors driving the outperformance of water quality in high-growth markets this quarter, after underperforming in previous quarters, and the expected trajectory for these regions. James also asked about the drivers behind the strong high-single-digit recurring revenue growth and whether it is expected to continue outpacing equipment sales growth.

Answer

Jennifer Honeycutt, President and CEO, attributed strong high-growth market performance to China no longer being a drag, continued growth in Latin America, and double-digit growth from India and the Middle East, driven by a growing middle class, infrastructure development, and water/energy challenges. Regarding recurring revenue, Ms. Honeycutt noted strong growth from both equipment placements (printers, instruments) and their associated consumables, as well as increasing contributions from SaaS and annual revenue in software-based businesses like TraceGains and Esko. Sameer Ralhan, SVP and CFO, added that instrument business's finite life also contributes to recurring revenue.