Larry Solow

Larry Solow asked about the ongoing sale processes, including the expected timeline, the level of interest from potential buyers, and how the processes are progressing. He also inquired about the industrial business outlook, specifically for Arnold and Altor, and the company's free cash flow assumptions for the year.

Answer

Elias Sabo, Partner and CEO, explained that while sale processes are inherently uncertain and details are limited, interest in CODI's highly marketable companies is strong from both financial and strategic buyers. He clarified that active work on divestitures began after the restatement in early January. Stephen Keller, Executive VP and CFO, added that the free cash flow assumption of $50 million-$100 million remains unchanged, with potential upside from Lugano-related recoveries. Elias Sabo further detailed that Arnold faces continued geopolitical risks and export controls from China, but has a 40% higher backlog and new Thailand facility capacity, expecting stronger growth in the back half of the year. Stephen Keller noted a more cautious outlook for Altor due to vaccine-related policies and tariffs impacting appliance purchases, though stabilization is expected in 2026.

Larry Solow asked about the progress of ongoing subsidiary sale processes, including the timeline and the level of interest from potential buyers. He also inquired about the 2026 outlook for industrial businesses, specifically Arnold's geopolitical risks and Altor's performance, and the company's free cash flow assumptions.

Answer

Elias Sabo (Partner and CEO, Compass Diversified) indicated that while sale processes are uncertain, work intensified after the January restatement, and interest in their marketable companies is strong from multiple bidders. He detailed Arnold's challenges with Chinese export controls but highlighted a 40% backlog increase and the ramping Thailand facility. Stephen Keller (Executive VP and CFO, Compass Diversified) noted a cautious outlook for Altor due to vaccine-related policies and appliance tariffs, expecting stabilization. Keller confirmed the free cash flow assumption of $50M-$100M, with potential upside from Lugano recoveries.

Larry Solow asked about the motivations behind the strategic hospital alliances, how the projected $14 million EBITDA contribution was calculated, the impact of wage inflationary pressures on the business, and the volume outlook for mature clinics in 2026.

Answer

Chris Reading, Chairman and CEO, explained that the $14 million projection assumes current volumes without additional facilities, noting that more facilities are planned. He detailed the hospital's motivations, including broader patient reach and strengthening their musculoskeletal product line. Carey Hendrickson, CFO, stated that the 2026 budget includes a normal inflationary number for salaries, with no exceptionally high pressure on wages. She also highlighted a 1.5% increase in mature clinic visits in Q4 2025, indicating building momentum. Chris Reading added that initiatives like front desk virtualization, AI documentation, and remote therapeutic monitoring will enhance efficiency, impact revenue and costs, and contribute to margin expansion.

Larry Solow asked about the strategic alliances with hospitals, specifically the motivation behind hospitals outsourcing physical therapy services, how the projected $14 million EBITDA contribution was calculated (current volumes vs. additional facilities), and the broader opportunities. He also inquired about wage inflationary pressures, any slowdown in PT volumes, the performance of mature clinics, and the overall volume outlook for 2026.

Answer

Chris Reading (Chairman and CEO, U.S. Physical Therapy) clarified that the $14 million figure assumes current volumes and does not include additional planned facilities. He explained that hospital motivations are multi-faceted, including broader patient reach, outstanding patient interaction and efficacy, and strengthening their musculoskeletal product line. Carey Hendrickson (CFO, U.S. Physical Therapy) noted that a normal inflationary number for salaries is budgeted for 2026, with no exceptionally high wage pressure. She highlighted a 1.5% increase in mature clinic visits in Q4 2025, building momentum for 2026. Chris Reading added that initiatives like front desk virtualization, AI documentation, and remote therapeutic monitoring will enhance efficiency, impact revenue and costs, and contribute to margin expansion from hospital relationships.

Larry Solow of CJS Securities asked if the strong growth in visits per day and cost efficiencies were largely driven by the closure of underperforming clinics in the prior year. He also inquired about the progress of cost-cutting initiatives, the performance of the large MetroPT acquisition, and requested a breakout of commercial pricing trends.

Answer

CEO Christopher Reading acknowledged that multiple factors, including efficiency initiatives, contributed to the strong results. CFO Carey Hendrickson added that the MetroPT acquisition, which averages higher visits per day, also lifted the company-wide metric. Hendrickson highlighted Metro's success, noting its net rate increased from ~$101 at acquisition to $107.50 in Q2, and provided a pricing breakout, stating commercial rates were up about 1-1.5% year-over-year.

Larry Solow inquired about the temporary nature of Electronic Technologies Group's (ETG) Q1 2026 margin pressure and the expectation for a rebound to the low to mid-twenties range for the year. He also asked for more details on the Axillon Aerospace acquisition (renamed Rockmart Fuel Containment), its size, typical multiples, and expected accretion, as well as the Flight Support Group's (FSG) strong 12% organic growth and any potential return to normal seasonality in Q1 compared to Q4.

Answer

Victor Mendelson, Co-Chairman and Co-CEO, confirmed that the ETG margin issue was temporary and heavily mix-related, with expectations for improvement as the year progresses, supported by exciting shipment schedules and growing orders/backlog. He described the Rockmart Fuel Containment acquisition as a very nice business, a supplier to Robertson Fuel Systems, with expected accretion in the first year and growth potential in the aftermarket. Eric Mendelson, Co-Chairman and Co-CEO, highlighted the FSG's 12% organic growth as outstanding, especially given high prior-year comps, noting that Q1 historically tends to be lighter.

Larry Solow with CJS Securities asked about the temporary nature of Electronic Technologies Group's (ETG) Q1 margin pressure, its impact on shares, and the expectation for margins to recover to the low to mid-twenties range for the year, supported by backlog. He also inquired about the Axillon Aerospace acquisition (renamed Rockmart Fuel Containment), its strategic fit, and expected accretion, and finally, the Flight Support Group's strong 12% organic growth, questioning if historical seasonal slowdowns might return.

Answer

Co-Chairman and Co-Chief Executive Officer Victor Mendelson confirmed expectations for ETG margins to bounce back, attributing the Q1 drop to a temporary, heavily mix-related 'perfect storm' of unfortunate shipment schedules across multiple subsidiaries. He expressed confidence in the recovery based on current shipment schedules and growing orders and backlog, advising to look at full-year performance for ETG. Regarding Axillon, Victor Mendelson described it as a nice business, a supplier to Robertson Fuel Systems, with expected growth and accretion in the first year. Co-Chairman and Co-Chief Executive Officer Eric Mendelson expressed pride in the Flight Support Group's 12% organic growth despite high prior-year comps, noting that Q1 historically has been lighter and that the results reflect strong performance without 'stuffing the channel.'

Larry Solow asked about the drivers behind the Flight Support Group's (FSG) accelerated organic growth, inquiring if it's due to market expansion, increased parts offerings, market share gains, or greater acceptance of HEICO's parts. He also asked Victor Mendelson for an outlook on the Electronic Technologies Group (ETG), particularly regarding end markets and the impact of the National Defense Authorization Act.

Answer

Eric Mendelson attributed FSG's strong organic growth to a rising tide in the industry, HEICO's value proposition, its decentralized and entrepreneurial structure, and competitors' price increases. Victor Mendelson projected mid- to low-single-digit organic growth for ETG in the next fiscal year, noting positive sentiment from subsidiary budget reviews.

Larry Solow asked about the key drivers behind the Flight Support Group's (FSG) accelerated organic growth, inquiring if it stems from market expansion, expanded parts offerings, market share gains, or increased acceptance of HEICO's parts. He also sought Victor Mendelson's general outlook on the Electronic Technologies Group (ETG), noting positive trends in most end markets, particularly defense.

Answer

Eric Mendelson attributed FSG's strong organic growth to a rising industry tide, HEICO's compelling value proposition, and its decentralized, entrepreneurial structure, further supported by competitors' price increases. Victor Mendelson projected mid- to low-single-digit organic growth for ETG in Fiscal 2026, expressing confidence in the segment's businesses.

Larry Solow inquired about the sustainability of the parts business's mid-teens growth, the acceleration of market share gains, interest in the defense aftermarket, and the timing of sales growth in ETG's defense segment.

Answer

Co-CEO Eric Mendelson confirmed accelerated market share gains and long-term optimism for the defense aftermarket. Co-CEO Victor Mendelson explained that ETG's slightly lower defense sales growth was against a tough prior-year comparison of over 20% growth and that the segment's backlog remains healthy.

Larry Solow inquired about the progress and expected timeline (e.g., six months, 12 months) for Lantheus's ongoing CEO search.

Answer

Mary Anne Heino (Executive Chairperson and Interim CEO, Lantheus) stated that the CEO search is progressing well, highlighting the attractive opportunity within the company and its proximity to the active Cambridge life sciences market. She acknowledged the narrow pool of candidates with radiopharmaceutical experience but expressed satisfaction with the quality of candidates met, viewing it as a testament to the growing importance of radiopharmaceuticals in life sciences.

Larry Solow inquired about the expected timeline for Lantheus' ongoing CEO search, asking if it would be a 6-month or 12-month process.

Answer

Mary Anne Heino (Executive Chairperson and Interim CEO) confirmed the CEO search is progressing well, highlighting the attractive opportunity and proximity to the active Cambridge life sciences market as advantages. She acknowledged the narrow pool of candidates with radiopharmaceutical CEO experience but expressed satisfaction with the candidates met, viewing it as a testament to the growing significance of radiopharmaceuticals in life sciences. She did not provide a specific timeline.

Larry Solow from CJS Securities asked for the proportion of Polarify business under contract versus non-contracted and sought clarity on whether Lantheus lost share even within its strategic agreements.

Answer

CEO Brian Markison confirmed the "vast majority" of business is contracted and that the company chose to walk away from some volumes where discounting demands were too aggressive. President Paul Blanchfield elaborated that while contracts leveled the MUC reimbursement field, a competitor's pricing forced renegotiations, some of which were accepted while others were declined to protect long-term value.

Larry Solow inquired about the reasons for Energy Recovery's Q4 2025 shortfall, the specifics of project delays impacting 2026 guidance, and the common themes behind these delays. He also asked about the company's OpEx and CO2 business cost savings, and the timeline for realizing the full benefits of the CO2 exit and manufacturing relocation.

Answer

President and CEO David Moon and CFO Joshua Ballard clarified that the Q4 shortfall was due to two projects shifting to 2026, and the 2026 guidance accounts for three large projects slipping into 2027, plus an additional buffer for other potential delays. Joshua Ballard explained that projects are larger and more susceptible to delays, especially in non-gulf countries, and noted fewer EPCs bidding on desalination projects. He confirmed that CO2 cuts contribute to OpEx savings, with further efficiencies expected, and that the full $7 million CO2 exit savings would be annualized, not fully realized in 2026.

Larry Solow asked for clarification on the Q4 2025 revenue shortfall, the 2026 guidance, and the specific projects causing delays. He also inquired about the common themes behind these project delays, the impact of cost savings on OpEx, and the full realization of savings from the CO2 business exit.

Answer

Joshua Ballard, Chief Financial Officer, confirmed the Q4 shortfall was due to two projects pushed to 2026 and clarified that the 2026 guidance assumes three specific projects slip into 2027, with an additional buffer for other potential delays. He explained that project delays are due to increasing project size, locations in newer desalination markets, a project-specific land issue, and fewer EPCs bidding, but emphasized no disruption in underlying demand. Ballard also noted that CO2 cuts contribute to OpEx reduction, with some additional room for savings, and that the full annualized $7 million CO2 savings would not be entirely realized in 2026.

Larry Solow followed up on the CO2 business, asking about the impact of delayed commercial agreements on confidence in adoption, the strategy of working with OEMs to reach large customers, and the visibility for desalination backlog building into 2026.

Answer

David Moon (President and CEO) confirmed that confidence in the CO2 product's value proposition remains strong despite the timing shift, with commercialization now expected in 2027 after another season of retailer testing in 2026. He explained that large retailers rely on OEMs for new technology adoption, necessitating a lockstep approach where OEMs like Hillphoenix promote the PXG to major customers. Regarding desalination, he noted that backlog for 2026 should start building, following a typical pattern of slower first half and heavy second half.

Larry Solow questioned Energy Recovery's confidence in CO2 adoption given the extended timeline, asking if the delay stems from OEMs needing customer validation for new technology and if the shift to a top-down OEM-to-customer strategy is impacting speed. He also inquired about the company's visibility for desalination backlog building into 2026.

Answer

President and CEO David Moon affirmed that confidence in CO2 adoption remains strong, despite commercialization likely shifting to 2027 after another testing season in 2026. He explained that large retailers rely on OEMs for new technology adoption, necessitating a lockstep approach where OEMs like Hillphoenix will promote the PXG to major customers for test stores in the first half of next year. Regarding desalination, David Moon stated that backlog for 2026 should begin building, following a pattern of a relatively slow first half and a heavy second half, consistent with previous years.

Larry Solow asked about the potential impact of cash retention for New Enviri on the Clean Earth cash payout range, Harsco Environmental's Q4 performance and steel production outlook, contract churn dynamics, and the financial specifics of Rail's ETO contracts for 2025 and 2026.

Answer

Nick Grasberger (CEO, Enviri) clarified that the cash payout is not necessarily trending to the lower end despite cash retention discussions. He also noted Harsco Environmental's strong Q4, stable overall steel production with European optimism, and positive margin impact from contract churn. Tom Vadaketh (CFO, Enviri) provided 2025 ETO financial figures for Rail and indicated continued significant cash use in 2026.

Larry Solow of CJS Securities asked if the reduced full-year outlook was driven entirely by the Rail segment, inquired about currency impacts, and sought clarification on Clean Earth's performance, including potential tariff effects and drivers of its quarterly margins.

Answer

SVP & CFO Tom Vadaketh confirmed the outlook reduction is entirely due to weakness in the Rail segment and noted that the negative foreign exchange impact for the year is less severe than initially anticipated. Chairman & CEO F. Nicholas Grasberger added that Clean Earth has seen no negative impact from tariffs and that its slightly softer quarterly margin was a temporary issue caused by higher disposal costs from partner outages and a less favorable project mix in the soil and dredge business. He affirmed the underlying business trends remain strong.

Larry Solow asked about the timing of margin improvement from consolidation initiatives, specifically when the benefits would be fully reflected in the run rate. He also questioned if the significant cash outlays for remediation and integration over the past three years, averaging over $100 million annually, would lead to free cash flow well north of $200 million in 18 months once these expenses cease. Additionally, he sought an update on competitive wins in systems and the confidence level regarding the refresh cycle of ICU Medical's own install base.

Answer

CEO Vivek Jain confirmed that benefits from manufacturing synergization and logistics consolidations are expected to be in the run rate by the end of 2026, annualizing into 2027, contributing to the targeted two points of margin improvement. He affirmed that the substantial cash outlays for remediation and integration are expected to materially decrease after Q2 2026, leading to improved free cash flow in the back half of the year. For systems, Jain noted sufficient contracts for competitive wins and ongoing activity. He expressed confidence in the refresh cycle for their install base, highlighting that customers who stayed committed to the core technology now have a better, modernized offering with Plum Duo, Solo, syringe, and CADD systems.

Larry Solow asked about the timing of margin improvement from consolidation initiatives, specifically if the benefits would be largely in the run rate by the end of the current year and annualize into the next. He also inquired about the cash outlay for remediation, integration, and restructuring, and if the company expects to generate well north of $200 million in free cash flow within 18 months, given the reduction in these expenses. Finally, he asked about the company's performance in capturing competitive business and the confidence level regarding the refresh cycle for its own in-house install base.

Answer

Vivek Jain (CEO and Chairman) confirmed that many benefits from manufacturing synergization and logistics consolidations are expected to be in the run rate by the end of the year and annualize into next year, contributing to the target gross margin. He acknowledged the significant past cash outlays for remediation, integration, and restructuring, stating that these expenses need to end, hopefully by mid-year, leading to a materially different free cash flow in the back half of the year. Regarding systems, Jain noted that the company has enough contracts for competitive wins and feels well-positioned for the refresh of its own install base, as customers who stayed committed to the technology now have a better, modernized offering with Plum Duo, Solo, Syringe, and CADD, all on the same software.

Larry Solow asked if the company is approaching an inflection point for PFAS revenue growth acceleration, given the strong operational and regulatory momentum. He also sought clarification on whether the $110 million three-year PFAS contract at Pearl Harbor is largely incremental and if it alone drives the 20% growth. Finally, he inquired about the potential for continued margin expansion, specifically if the Environmental Services segment could reach a 30% EBITDA margin by 2030.

Answer

Co-CEO Eric Gerstenberg believes they are getting closer to a PFAS inflection point, citing discussions with the U.S. Senate Committee on Environmental and Public Works about capacity and infrastructure, and the communication of clear regulatory parameters to the EPA and customers. EVP and CFO Eric Dugas clarified that the $110 million Pearl Harbor contract is not entirely incremental, as the company already performs work there, with an expected increase of $15 million-$30 million annually over the three-year period. Eric Dugas stated that 30% EBITDA margin is an internal target for the Environmental Services segment, exceeding Vision 2027 goals by two years, with a goal to expand margins by at least 30-50 basis points annually. Eric Gerstenberg set an aspirational goal of reaching 30% margins by 2030-2032. Co-CEO Mike Battles added that EBITDA margin is a key component of every manager's compensation, driving behavior.

Larry Solow asked if Clean Harbors is approaching an inflection point for accelerated PFAS revenue growth, given the strong regulatory and operational momentum. He also questioned if the three-year, $110 million Pearl Harbor contract alone would account for the projected 20% PFAS growth in 2026. Finally, he inquired about the long-term potential for EBITDA margin expansion, specifically if a 30% EBITDA margin by 2030 is an achievable target.

Answer

Co-CEO Eric Gerstenberg believes Clean Harbors is nearing an inflection point for PFAS, driven by increasing awareness, infrastructure capacity, and customer discipline, with regulatory thresholds being the greatest catalyst. CFO Eric Dugas clarified that the $110 million Pearl Harbor contract is an increase of $15-30 million annually over existing work, not entirely incremental. Eric Dugas, Eric Gerstenberg, and Mike Battles confirmed 30% EBITDA margin by 2030-2032 as an internal aspirational target, with continued expansion beyond that through efficiency, pricing, and technology.

Larry Solow sought further clarification on the Q3 guidance miss, specifically how the company's Q4 outlook accounts for the shortfalls in industrial and field services, and what factors provide confidence in meeting Q4 expectations despite these challenges. He also inquired about the acceleration of PFAS-related sales, asking if governmental legislation or acts like the National Defense Authorization Act are necessary to translate the growing pipeline into actual sales.

Answer

Eric Dugas (EVP and CFO) expressed confidence in Q4 due to strong technical services growth (12% revenue), increasing waste volumes from a diverse customer base, and continued margin expansion across businesses. Mike Battles (Co-CEO) added that all lines of business showed good year-over-year margin accretion, and the Q3 miss is viewed as temporary. Eric Gerstenberg (Co-CEO) stated that the EPA's published test results for PFAS incineration have significantly boosted market activity and pipeline growth, and he believes major regulatory changes are not necessary to drive continued and accelerated PFAS growth, though a Department of Defense moratorium lift would be an additional accelerator.

Larry Solow sought further clarification on the Q3 guidance miss, specifically how the company's Q4 outlook accounts for the industrial and field services shortfalls, and the confidence in a rebound. He also inquired about the PFAS business, asking what is needed for further acceleration in sales beyond internal progress, such as governmental legislation or the National Defense Authorization Act.

Answer

EVP and CFO Eric Dugas explained that Q4 confidence stems from strong growth in technical services, increased waste volumes from a diverse customer base, and continued margin expansion across businesses. He noted that industrial and field services are not forecasted for rapid improvement in Q4, but margin accretion is strong. Co-CEO Mike Battles emphasized that all lines of business showed good year-over-year margin accretion, and the Q3 miss is viewed as temporary. Co-CEO Eric Gerstenberg stated that PFAS market activity is extremely strong, especially after the EPA study publication, and the pipeline continues to grow 15-20% quarter-over-quarter. He believes significant regulatory changes are not necessary to drive accelerated growth, though a lifting of the Department of Defense moratorium would be an additional accelerator.

Asked about the impact of tariff uncertainty on projects and for an update on the PFAS opportunity, including the status of the EPA study and the impact of state-level actions.

Answer

Project growth is unrelated to tariffs and is driven by a strong, materializing pipeline. The PFAS incineration study was successful, and while awaiting the official EPA announcement (expected Q3), the market is already moving forward, and their PFAS business is growing.

Larry Solow asked for an update on the $100 million natural color conversion, specifically if the majority is expected in 2027, and if 2026 will be a 'cost year' where investments outweigh revenue benefits, leading to a potential margin decline in Colors before a rapid recovery in 2027. He also questioned macro-level industry adaptation on the supply side and the impact of increased interest expense on debt.

Answer

Paul Manning, Chairman, President, and CEO, clarified that the Color Group's EBITDA margin might dip by approximately 100 basis points in H1 2026 due to investments, but is expected to improve in H2, potentially ending the year down 50-100 basis points or flattish, remaining in the 23-25% range. He confirmed confidence in demand and noted increased growers, competition, and efficiencies in raw material supply. Manning emphasized the critical role of capital investment ($225M-$250M between 2025-2028) for processing. Tobin Tornehl, VP and CFO, confirmed that the projected $36 million interest expense for 2026 (up $6 million year-over-year) is primarily due to these investments and working capital, expecting the leverage ratio to remain below 3x by year-end.

Larry Solow asked for clarification on the timing of the $100 million natural color conversion, specifically if 2026 would be a cost-heavy year with limited revenue benefit, leading to a potential year-over-year margin decline in Colors before a rapid recovery in 2027. He also inquired about macro-level industry adaptations to natural color demand, such as increased crop cultivation, and asked Tobin Tornehl about the higher-than-expected interest expense for 2026, linking it to CapEx and working capital usage.

Answer

Paul Manning (Chairman, President, and CEO, Sensient Technologies Corporation) confirmed that Color Group's EBITDA margin might be down 50-100 basis points in the first half of 2026 due to investments, but expects improvement in the second half, remaining in the 23-25% range for the year. He noted increased competition and efficiencies in raw material growing, and emphasized the importance of capital investment in processing capacity, particularly in the Americas and Europe. Tobin Tornehl (VP and CFO, Sensient Technologies Corporation) explained that the increased interest expense of $6 million year-over-year, leading to a total of $36 million, is primarily due to elevated capital expenditures and working capital investments for natural color production, expecting the leverage ratio to remain below 3x by year-end.

Larry Solow of CJS Securities inquired about the supply chain and logistical preparations for the large-scale conversion to natural colors, the expected timing for a significant revenue increase from this trend, and the key drivers of the company's strong gross margin improvement in the quarter.

Answer

Chairman, President and CEO Paul Manning emphasized that supply chain is the single most critical factor, noting Sensient has been working on it for over 15 years through diversification, new source identification, and vertical integration. He confirmed that 2027 is a fair assumption for a significant revenue inflection point, driven by regulations like West Virginia's 2028 deadline. VP & CFO Tobin Tornell attributed the strong margin performance to volume growth, favorable product mix from new wins, and disciplined cost control, stating that pricing was immaterial.

Larry Solow inquired about Varex Imaging's high-level qualitative outlook for the remainder of fiscal year 2026, specifically regarding the current environment and the company's optimism across both medical and industrial segments. He also asked for an update on the India opportunity and its impact on the business, as well as clarification on the Q2 EPS guidance range.

Answer

President and CEO Sunny Sanyal expressed optimism, noting that medical segment headwinds from fiscal 2024 are now behind, with stable performance, global CT strength, and normal cyclical patterns in other modalities. He highlighted strong order pipelines in the industrial segment, particularly for photon counting in food inspection, non-destructive testing (NDT), and security. Sanyal also emphasized a positive shift in customer engagement at RSNA, focusing on innovation and design-in opportunities for both long-range and current products. Regarding India, Sanyal and CFO Sam Maheshwari confirmed the detector factory is producing and shipping globally, while the tubes factory is expected online in about 12 months. They noted strong customer resonance with the 'Made in India' strategy, despite current P&L burden from inventory ramp-up. Maheshwari clarified the Q2 EPS guidance range, attributing the lower end to a conservative 33% gross margin assumption compared to Q1's 33.6%.

Larry Solow asked about the overall optimistic outlook for both medical and industrial segments, the current market environment, and the progress and impact of the India manufacturing opportunity.

Answer

President and CEO Sunny Sanyal indicated that medical headwinds are behind, with stable performance, strong CT demand, and normal cyclical patterns in other modalities. He highlighted strong order pipelines in the industrial segment, particularly for photon counting in food inspection, NDT, and security. Sanyal also noted a significant shift in customer interactions at RSNA towards R&D. CFO Sam Maheshwari added that the India factory for detectors is operational and shipping globally, with the tubes factory expected online in about 12 months, currently representing a P&L burden but a strategic investment. Solow also inquired about the Q2 EPS guidance range, to which Maheshwari clarified it accounts for a potentially lower gross margin at the low end.

Larry Solow inquired about the implications of the Q1 guidance (flat to 8% growth) for the full fiscal year, seeking a high-level outlook. He also asked for clarification on the China market's outlook, given Varex's internal flat modeling versus customer expectations for growth, and the strong Industrial segment performance, particularly the gross margin, questioning if it was driven by unusual factors like service revenue mix.

Answer

President and CEO Sunny Sanyal indicated expectations for full-year revenue growth, with Medical (ex-China) and Industrial segments growing, while China is modeled as stable to flattish due to geopolitical uncertainties. He clarified that Q1 and Q3 have easier comps for FY2026, expecting gradual growth throughout the year. Sanyal attributed the strong Industrial gross margin in Q4 to a higher-than-usual proportion of service revenues from the Linux install base, noting this was not the norm but could be a long-term tailwind. He also followed up on cargo system orders, confirming some of the $55 million in orders have shipped, with more expected in 2026, and discussed the 100-150 basis point impact of tariffs on gross margin.

Larry Solow inquired about the implications of the Q1 FY2026 revenue guidance (flat to 8% growth) for the full fiscal year, seeking a high-level outlook. He also asked for clarification on the China market, where Varex assumes flat growth despite customer expectations for growth, noting difficulties due to increased shipping from China. Solow then questioned the strong Q4 industrial segment performance, particularly the high gross margins, asking if it was driven by standalone systems or service mix. He followed up on the $55 million in security screening orders, asking if the majority had not yet shipped and if more shipments are expected in FY2026 than in FY2025. Lastly, Solow asked about the current impact of tariffs on gross margin and how the India factory might mitigate this.

Answer

President and CEO Sunny Sanyal indicated solid demand and expected full-year revenue growth for FY2026, with both medical and industrial segments growing. He projected medical ex-China growth and a flattish China. Sanyal noted easier Q1 and Q3 FY2026 comps due to unusual patterns in FY2025, expecting normal gradual growth. For China, he confirmed modeling stable to slight growth (flattish) due to global customer supply chain changes and US-China uncertainties. Sanyal attributed the strong Q4 industrial gross margins to a higher-than-usual proportion of service revenues from the Linux install base, which are higher margin, clarifying that this is not the norm but expects long-term margins to return to 38-40% as hardware goes into service. He confirmed that some of the $55 million orders have shipped, with a lot still pending, and expects more shipments in FY2026 than in FY2025, noting a six-month cycle time from order to shipment. Sanyal stated tariffs impact gross margin by 100-150 basis points, and the India tubes factory (12+ months away) could help mitigate this.

Larry Solow from CJS Securities questioned the drivers for the Q4 revenue guidance, the reasons for a lower gross margin outlook despite revenue growth, and the high-level forecast for fiscal 2026 as OEM order patterns normalize.

Answer

CFO Shubham Maheshwari stated that Q4 growth is expected from both Medical and Industrial segments. He attributed the lower gross margin guidance primarily to the ongoing impact of tariffs (a 100-150 basis point headwind) and a product mix shift towards lower-margin cargo systems hardware. Maheshwari confirmed that inventory destocking is complete and anticipates fiscal 2026 will be a growth year, barring unforeseen external events.

Larry Solow asked about BrightSpring's visibility on growth rates for the next three to five years, specifically if the recent 25-30% growth levels are sustainable or if growth will normalize closer to low double digits, given the historical 15% CAGR. He also inquired if the home and community pharmacy bankruptcy was a drag on EBITDA this quarter or for the next couple of quarters.

Answer

CEO Jon Rousseau acknowledged the historical 15% CAGR and recent higher growth due to platform positioning and investments, but stated it's impossible to expect 25-30% growth for the next 4-5 years. He expects to grow well above the historical CAGR next year, aspiring to 20%+ growth in most businesses through quality, operational processes, and advocacy. He highlighted acceleration from integrated care, home-based primary care, and value-based contracting, alongside strategic growth and operational/technology investments. He clarified that the home and community pharmacy bankruptcy was not expected to be an EBITDA drag, only affecting year-over-year script comparisons, with strong growth in other pharmacy businesses and a robust customer pipeline.

Larry Solow asked about BrightSpring's visibility on 3-5 year growth, specifically the sustainability of rapid growth rates (25-30%) compared to the historical 15% CAGR and street estimates of low double-digit growth. He also inquired if the bankruptcy in home and community pharmacy would be a drag on EBITDA this quarter or the next couple.

Answer

CEO Jon Rousseau acknowledged the historical 15% CAGR and recent higher growth due to platform positioning and investments (AI team, new marketers, development teams). He stated it's impossible to predict 25-30% growth for the next 4-5 years but expects next year to be well above the historical CAGR. He outlined aspirations for most businesses (except personal care) to grow at or above 20% through quality, operational processes, and advocacy. Mr. Rousseau anticipates acceleration from integrated care (e.g., combined offerings in ALFs), primary care, and value-based contracting. He confirmed that the home and community pharmacy bankruptcy is not expected to be a drag on EBITDA, noting it was a non-event in Q2 and was only mentioned due to its impact on year-over-year script comparisons. He highlighted strong growth in other pharmacy businesses and significant automation and process innovation in home and community pharmacy.

Larry Solow of CJS Securities asked for an update on the progress of bundled services and value-based care contracts with ACOs, including the viability of the previously stated $100 million EBITDA target. He also inquired about the performance of the Haven Hospice acquisition.

Answer

CEO Jon Rousseau reported that the value-based care business is progressing well, is profitable, and is expected to become a more material contributor by 2026-2027; he also confirmed the $100 million five-year EBITDA target remains an internal goal. He cited the Haven Hospice acquisition as a prime example of their M&A success, noting it has moved from losing money to performing 'extremely well' and is on track to a 4x purchase multiple.

Larry Solow inquired about the strong gross margin performance in Q3 and whether it reflects an improving mix within HVP components towards higher-margin products like NovaPure.

Answer

CFO Bob McMahon confirmed that the strong gross margin was driven by the positive mix of HVP components, increased efficiency from past investments, higher average selling price (ASP) products, and focused efforts on reducing costs, scrap, and improving yields. He also mentioned building capabilities in sourcing and streamlining production.

Larry Solow of CJS Securities inquired about the strong gross margin performance in the quarter, specifically asking if there's an ongoing improvement in mix within HVP components towards higher-margin products like NovaPure.

Answer

CFO Bob McMahon confirmed that the strong gross margin, up 120 basis points year-on-year (or almost 300 basis points excluding the incentive fee), was driven by the proprietary HVP component business. He attributed this to the positive mix of higher-value products, increased factory efficiency from past investments, and efforts to drive down costs, improve scrap/yields, and optimize raw material input costs.

In a follow-up, Larry Solow of CJS Securities asked about the drivers behind the approximate 16% underlying increase in SG&A expenses during the quarter.

Answer

SVP & CFO Bernard Birkett responded that there were no specific, unusual items to call out and noted that foreign currency exchange rates, particularly the movement in the euro-dollar rate, had an impact on the reported figure.

Larry Solow asked for clarification on the Security division's flat organic growth in the second half of fiscal 2025, the current composition of the record $1.8 billion backlog with a focus on the reduced Mexico portion, and the reasons behind the significant sequential increase in accounts receivable and its implications for fiscal 2026 free cash flow.

Answer

EVP and CFO Alan Edrick explained the flat growth was due to a very difficult comparison with massive Mexico revenues in the prior year, noting the core security business ex-Mexico and acquisitions grew over 50% in Q4. He confirmed the backlog is now highly diversified away from Mexico. Regarding receivables, the increase was driven by a lack of collections from Mexico in Q4 combined with record, back-weighted revenues from other customers. Edrick projected free cash flow conversion could exceed 100% of net income in fiscal 2026 as these receivables are collected. CEO A. J. Mera added they are not concerned about Mexico's payments, citing it as a matter of bureaucratic timing.

Larry Solow of CJS Securities inquired about the high-level strategy for the iCAD acquisition, specifically whether the focus is on upselling RadNet's AI or creating a combined offering, and if the acquisition would reduce previously planned organic spending.

Answer

Howard Berger, Chairman, President & CEO, clarified the strategy is to blend iCAD's ProFound suite with RadNet's DeepHealth products into a more comprehensive solution for both domestic and international customers. Mark Stolper, EVP & CFO, confirmed that the iCAD acquisition provides infrastructure that RadNet had planned to build organically, and that updated Digital Health guidance in November will reflect these synergies.

Larry Solow of CJS Securities inquired about the high-level strategy for the iCAD acquisition, specifically whether the focus is on upselling RadNet's AI to iCAD's customer base or integrating iCAD's ProFound suite with RadNet's technology. He also asked if planned organic spending would be reduced due to the acquisition.

Answer

Howard Berger, Chairman, President & CEO, clarified that the iCAD and DeepHealth breast AI products are different and the teams are working to blend them into a comprehensive offering for both customer bases. He highlighted iCAD's international presence as a key benefit. Mark Stolper, EVP & CFO, confirmed that the iCAD acquisition provides infrastructure that reduces the need for some previously planned organic investment, and updated guidance will reflect this in Q3.

Larry Solow of CJS Securities, Inc. inquired about the primary drivers behind the raised sales guidance, asking if it was concentrated in a specific segment like Specialty Sports. He also questioned whether future top-line growth would depend more on macro improvements or company-specific product initiatives.

Answer

CEO Mike Dennison and CFO Dennis Schemm clarified that the guidance increase reflects broad-based outperformance in the first half, with the $50 million beat simply added to the full-year forecast. Mike Dennison emphasized that future growth is driven by their product roadmap and innovation, which allows them to outperform the market and positions the company as a 'coiled spring' for when the economy recovers.

Larry Solow of CJS Securities inquired about operating expense assumptions in the updated guidance, the revenue ramp and timeline for ZELSUSMI's peak sales target, and the current state of the M&A and business development pipeline.

Answer

CFO Tavo Espinoza noted a slight increase in operating expenses. CEO Todd Davis stated that ZELSUSMI revenue expectations are modest for the current year, viewing it as a long-term asset. SVP of Investments, Paul Hadden, described the business development pipeline as robust and confirmed the team is actively working to close additional deals.

Larry Solow asked if the TEG heparinized cartridge was driving competitive share gains in addition to upgrading the existing base. He also questioned the macro outlook for plasma, contrasting Haemonetics' view of flat collections with reports of double-digit volume gains from collectors like Grifols. Finally, he asked for color on the cadence of operating margin improvement throughout the year.

Answer

CEO Christopher Simon explained that the primary opportunity for TEG is driving broader adoption of viscoelastic testing rather than direct competitive capture, noting the U.S. market is only about 50% penetrated. On plasma, he attributed the discrepancy to a lag between collection and sales reporting, reiterating that actual collection volumes were seasonally flat in the quarter. Regarding margins, Simon projected a back-half weighted improvement, with the most significant jump from Q2 to Q3, and an overall EPS split of roughly 45% in the first half and 55% in the second half.

Larry Solow of CJS Securities inquired about the common factors behind recent order push-outs, their potential shift into 2026, and the company's long-term margin expansion outlook.

Answer

President Brad Williams clarified that the push-outs are due to a higher proportion of large opportunities in the sales funnel across body armor, duty gear, nuclear, and EOD, not budget cuts. He confirmed some orders are now expected in 2026 while others remain in the current year's guidance. CFO Blaine Browers added that long-term gross margins are expected to reach the mid-to-upper 40s, driven by the Cadre operating model, despite the slightly lower initial margin profile of recent acquisitions.

Larry Solow of CJS Securities asked for an update on the profitability and margin impact of the Fishers and Latina plants, and also inquired about the long-term margin recovery potential for the Engineering segment.

Answer

CFO Marco Dal Lago reported that the Latina plant is now gross profit positive while Fishers is not yet, though both are improving quarterly and remain dilutive to overall margins. For the Engineering segment, both Dal Lago and CEO Franco Stevanato expressed confidence in returning to historical profitability levels of 2022-2023 as legacy projects conclude.

Larry Solow questioned the persistent negative margins in the Asset-Light segment, asking if profitability is dependent on a macro recovery or if structural improvements can be made to achieve it in a challenging environment.

Answer

President Seth Runser expressed confidence in returning the segment to profitability regardless of the market. He outlined a multi-pronged strategy: improving account profitability, shifting the truckload mix towards more profitable SMB business, controlling costs, accelerating the growth of the profitable managed solutions business, and leveraging technology for further productivity gains.