Robert Mason

Robert Mason asked about the expected 25%+ growth for Paragon in 2026, an acceleration from its low-teens growth at acquisition, inquiring about the reasons for this acceleration and its implications for the broader Mirion nuclear power business. He also asked how the active NRC life extension activity for the existing reactor fleet manifests for Mirion in terms of orders, whether it's already in backlog or part of the future pipeline.

Answer

Brian Schopfer, CFO and Medical Group President, attributed Paragon's accelerated growth to strong order growth in 2025 and expansion into the DOE landscape. Thomas Logan, CEO and Chairman, described the strategic implications as profound, expecting increased wallet share from the installed base, stronger engagement with SMRs, and innovation cascading into the operating fleet and utility-scale reactors. Logan stated that life extensions, uprates, and modernization are critical for the global fleet, contributing to the 11% nuclear power growth in 2025, with content from previously decommissioned plants continuing to evolve.

Robert Mason inquired about the acceleration of Paragon's expected growth to 25% in 2026 from low teens previously, and the strategic implications of this growth for Mirion's broader nuclear power business. He also asked how life extension activity for existing nuclear reactors manifests in Mirion's orders and pipeline.

Answer

CFO Brian Schopfer attributed Paragon's accelerated growth to strong 2025 order growth and market expansion into the DOE landscape. CEO Thomas Logan described the profound strategic implications of Paragon, including increased wallet share from the installed base, enhanced SMR community engagement, and driving innovation across the industry. Thomas Logan also noted that life extensions, uprates, and modernization needs for the global fleet are already informing nuclear power growth and will continue to build.

Robert Mason of Robert W. Baird & Co. asked for quantification of the nuclear plant life extension opportunity, clarification on whether the Westinghouse partnership represents a share gain, and an update on procurement savings initiatives for margin expansion.

Answer

CEO Tom Logan explained that life extension opportunities are significant but vary too much by reactor to provide a single metric, though they often trigger major modernization CapEx. He confirmed the Westinghouse partnership is '100% accurate' as a share gain opportunity in a previously underrepresented fleet. CFO Brian Schopfer and CEO Tom Logan both discussed margin levers, reiterating the 30% target and highlighting contributions from the accretive CertRec acquisition, a new variabilization partnership with Cognizant, and a growing focus on AI for both internal efficiencies and customer-facing solutions.

Robert Mason inquired about the developing China tariff situation, including potential exemptions, the composition of the $300-$400 million project pipeline, and Mirion's business exposure to Japan's nuclear reactor restarts.

Answer

CEO Tom Logan explained that the primary tariff exposure comes from U.S.-made medical equipment sold to China, but noted that certain product classifications may be exempt, which would significantly mitigate the impact. Regarding the large project pipeline, he stated it's a global mix of government and commercial projects and they are not yet seeing significant delays from government procurement dynamics. He also clarified that Mirion's exposure to Japan's nuclear industry is currently minimal, representing under 2% of total revenue, but is viewed as a significant upside opportunity.

Robert Mason asked for color on free cash flow expectations for the year, and the implications of achieving GAAP profitability and growth on cash flow, particularly from a tax standpoint. He also requested elaboration on improvements in floor loading, specifically if it involves new automation technology developed by Symbotic.

Answer

CFO Izzy Martins suggested that the Q1 free cash flow amount is a good starting point for expectations, noting that Q3 and Q4 of the previous year had timing differences, and anticipates improvements as EBITDA grows. CEO Rick Cohen explained that Symbotic is developing technology to pre-sequence entire trailers (e.g., 2,600 cases) for small order deliveries (e.g., restaurants, liquor distributors), a capability that also applies to e-commerce for sequencing totes for customer delivery or pickup.

Robert Mason asked for color on the free cash flow outlook for the year, especially with the transition to GAAP profitability and its implications for cash flow from a tax standpoint. He also requested elaboration on the improvements in floor loading and the automation technology involved.

Answer

CFO Izzy Martins suggested that the Q1 free cash flow figure is a good starting point for expectations, noting that prior quarters had timing differences. She indicated that as EBITDA improves, free cash flow should follow. CEO Rick Cohen elaborated on floor loading, explaining that Symbotic is developing technology to pre-sequence entire trailers (e.g., 2,600 cases) for small order deliveries, which is highly valuable for liquor distributors, restaurant suppliers, and beverage companies, and has applications for e-commerce customer delivery or pickup.

Robert Mason from Robert W. Baird & Co inquired about the ASR (Advanced Systems and Robotics) business, asking if its development revenues were up sequentially, what they contributed, and if the current level represents a steady run-rate. He also asked how revenue would be classified once prototype builds begin.

Answer

CFO Carol Hibbard confirmed that ASR revenue was up sequentially, contributing in the high single-digit percentage range to total revenue in Q3. She noted this level would be maintained for the next couple of quarters as they begin ordering equipment for the prototypes. She also clarified that all revenue from this business, including development and future builds, is classified within the Systems segment.

Robert Mason of Baird asked for a bridge of the backlog from Q1 to Q2, specifically about any additions beyond the ASR contract. He also questioned what was driving the 15% larger size of some new Phase 1 deployments.

Answer

CFO Carol Hibbard confirmed the only major addition to the backlog was the development contract for the ASR business, with the change from Q1 reflecting that addition offset by quarterly revenue recognized. She clarified that the larger size of some recent Phase 1 systems was purely due to the nature of those specific sites and should not be inferred as a trend for all future Phase 1 deployments.

Robert Mason asked about the potential for gross margin to scale from the Q1 level throughout fiscal '25 and sought clarification on the responsibilities of the newly added leadership role for 'transformation initiatives'.

Answer

CFO Carol Hibbard stated that the Q4/Q1 gross margin level is likely for the first half of fiscal '25, with a focus on schedule and cost improvements to drive expansion in the second half. CEO Richard Cohen explained the new transformation leader is focused on accelerating new product development and helping prioritize the most valuable R&D projects.

Robert Mason asked about the process business, specifically how the R&D-exposed research areas are expected to perform through 2026, and if they have a chance to be flat or slightly up.

Answer

Chairman and CEO David Zapico confirmed that he expects the research business to have the potential to grow in 2026. He noted that past 'dysfunction' in U.S. Department of Energy (DOE) funding has resolved, and there's significant research activity in areas like nuclear and new materials. Additionally, pricing disconnects caused by initial tariffs in 2025 have been worked through, removing a past impediment to growth.

Robert Mason followed up on the process business, noting that industrial segments seem to be leading growth, and asked about expectations for the research and R&D exposed areas through the year, specifically if they have a chance to be flat or even turn positive in 2026.

Answer

Chairman and CEO David Zapico confirmed that he believes AMETEK's research business has the potential to grow in 2026. He attributed past issues in 2025 to U.S. government dysfunction (now resolved) and initial tariff-related pricing disconnects (now worked through). Mr. Zapico highlighted ongoing nuclear and materials research, and the CAMECA business, as areas of strength.

Robert Mason of Robert W. Baird & Co. asked for more detail on the strength in the labs business internationally versus the U.S. and requested a geographic outlook for 2025.

Answer

Executive David Zapico specified that the strong international lab demand is particularly healthy in Asia. Looking at 2024, he noted international growth was about 2% while the U.S. declined, largely due to the automation business. For 2025, he expects balanced growth across all regions, with the U.S. returning to growth and continued strength in Europe and Asia.

Robert Mason inquired about the timing of project conclusions, specifically if the full impact was seen in Q4 2025, and how the sequential increase in operating days in Q1 2026 might influence dynamics, also asking if more projects concluded in Q3 versus Q4.

Answer

Ken Bockhorst, Chairman, President and CEO, explained that project timing is inherently uneven due to various project sizes. He noted that Q2 2025 discussions anticipated lower growth in H2 2025 due to project pacing and fewer Q4 working days. He expects H1 2026 to show lower growth, followed by higher growth in H2 2026, driven by confidence in awarded projects.

Robert Mason inquired about the full impact of concluding projects in Q4 2025 and how the sequential rise in operating days in Q1 2026 might influence the first part of the year, seeking clarity on project conclusion timing between Q3 and Q4.

Answer

Ken Bockhorst, Chairman, President, and CEO, explained that project timing is inherently uneven, and the lower growth in the second half of 2025 was anticipated. He projected 2026 to show an inverse pattern, with lower growth in the first half and higher growth in the second half, driven by confidence in awarded projects.

Robert Mason followed up on expectations for sequential decline in the core business, asking if anything changed regarding project timing for Q4 and how customer decision-making timelines have evolved amidst federal funding noise.

Answer

Ken Bockhorst, Chairman, President and CEO, clarified that the company signaled unevenness rather than a decline, attributing Q4's lower activity to fewer operating days. He stated that federal funding noise is more external, and utility customers continue to find budgets for advanced metering infrastructure projects.

Robert Mason inquired about the rationale behind the increased gross profit margin range, specifically asking if anything changed in the quarter regarding tariff cost pressures or supplier repositioning that provided better insulation.

Answer

CFO Bob Wrocklage explained that the timing was influenced by a lack of new tariff-related news and consistent above-target performance, which endorsed the structural mix benefit. He expects the new range to be enduring. Robert Mason also followed up on sequential core business decline, project timing, customer decision-making, and federal funding noise. CEO Ken Bockhorst clarified that a sequential decline was not signaled, but rather inherent unevenness. He noted Q4 has fewer operating days and stated that federal funding noise is external, with customers still finding budgets for AMI projects due to labor challenges and technology adoption.

Robert Mason of Robert W. Baird & Co. inquired about the Smart Cover acquisition, asking if its strong Q2 sales were due to seasonality or underlying growth. He also asked about its EPS dilution and whether potential copper tariffs could accelerate the adoption of solid-state meters over mechanical ones.

Answer

Chairman, President & CEO Kenneth Bockhorst expressed strong satisfaction with the Smart Cover integration and market reception. SVP & CFO Robert Wrocklage added that the sales performance is driven by market positioning, not seasonality, and confirmed the acquisition is EPS dilutive in year one as expected. Regarding meters, Mr. Bockhorst noted that Badger Meter has a strong ultrasonic offering but that mechanical meters still have tangible benefits for many utilities.

Robert Mason of Robert W. Baird & Co. inquired about the Smart Cover acquisition, asking if its strong Q2 sales were due to seasonality or underlying growth and what its EPS impact was. He also questioned if potential copper tariffs could shift customer adoption from mechanical to solid-state meters.

Answer

Chairman, President & CEO Kenneth Bockhorst stated the company is very pleased with Smart Cover's performance and market reception. SVP & CFO Robert Wrocklage added that its growth is driven by market adoption in a greenfield opportunity, not seasonality, and confirmed the acquisition was dilutive to EPS as expected in year one. Regarding meters, Mr. Bockhorst noted that Badger Meter has a strong ultrasonic offering but that mechanical meters remain popular for tangible reasons, positioning the company well regardless of cost shifts.

Robert Mason asked if price increases have already been announced, how multi-year AMI contracts are structured to handle inflation, and for the reason behind the sequential increase in accounts receivable.

Answer

CEO Kenneth Bockhorst stated that price increase notifications are 'forthcoming' as they prudently assess the situation. CFO Robert Wrocklage explained that the company now pushes back more aggressively on multi-year price holds, a lesson from prior inflation. He attributed the rise in receivables to the SmartCover acquisition and normal sales timing.

Robert Mason from Baird asked about the primary demand drivers for the newly acquired SmartCover, the proportion of its revenue that is recurring, and the factors behind Badger Meter's significant inventory reduction in the fourth quarter.

Answer

Chairman, President and CEO Kenneth Bockhorst explained that SmartCover's demand is driven by the same macro trends as the core business, including regulation, labor availability, and extreme weather, noting the market is in its early stages. CFO Robert Wrocklage specified that about one-third of SmartCover's revenue is recurring software and maintenance, with another 20% from durable aftermarket services. Regarding inventory, Bockhorst credited the reduction to continuous improvement initiatives, while Wrocklage confirmed it was the result of multi-quarter efforts to reach an optimal level.

Robert Mason of Robert W. Baird & Co. inquired about the status of the order backlog, the drivers behind the strong SaaS revenue growth, and whether recent hurricanes could create incremental demand for leak detection products.

Answer

Chairman, President and CEO Kenneth Bockhorst noted the backlog remains very positive with no meaningful change from the prior quarter. CFO Robert Wrocklage explained that SaaS growth is primarily driven by the 100% attachment rate to new ORION Cellular hardware units. Mr. Bockhorst added that events like hurricanes highlight the necessity and value of their entire portfolio, including leak detection and resilient cellular communications.

Robert Mason of Robert W. Baird & Co. asked why Keysight's semiconductor business is seeing strong growth amid broader semi-cap volatility and how the shift toward production test in the wireline business affects visibility.

Answer

CEO Satish Dhanasekaran attributed the semiconductor strength to the company's focus on wafer-level test, which benefits from sovereign initiatives, advanced nodes, HBM, and silicon photonics. Regarding wireline, he noted that while manufacturing exposure has increased, the business remains R&D-oriented, and visibility has actually improved due to a broadening customer base.

Robert Mason inquired about the demand-side impact on the general electronics business from supply chain realignments. He also asked for clarification on the Q3 tariff impact, specifically if it would be double the Q2 amount.

Answer

CEO Satish Dhanasekaran noted that while the manufacturing part of general electronics is weak in China, the company is in early-stage conversations with customers looking to diversify their manufacturing footprints. CFO Neil Dougherty confirmed the Q3 tariff impact would be more than double the Q2 impact, as Q2 only included about three weeks of tariffs.

Robert Mason asked about the demand impact on the general electronics business from ongoing supply chain realignments and sought to clarify if the Q3 tariff impact would be roughly double that of Q2.

Answer

CEO Satish Dhanasekaran noted that while the manufacturing side of general electronics in China remains weak, they are seeing new opportunities from customers looking to diversify their manufacturing footprints. CFO Neil Dougherty confirmed the Q3 tariff impact would be 'more than a doubling' of the Q2 amount, as it will affect the full quarter, although some mitigation actions are already underway.

Robert Mason inquired about the semiconductor business, asking if strong parametric test orders are building backlog and what the visibility is for revenue conversion. He also asked about business trends in China amid geopolitical volatility.

Answer

CFO Neil Dougherty confirmed that some backlog has been built in parametric test, but revenue conversion is relatively short as orders are typically shippable within six months. CEO Satish Dhanasekaran stated that business in China remains strong, and the company has adapted to trade restrictions by pivoting to transactable customers and supporting their global manufacturing relocations.

Robert Mason from Baird sought clarity on the fiscal 2025 revenue outlook, asking if all major verticals are expected to grow. He also asked about the impact of higher ESI revenue on Q1 gross margins and the expected trajectory for operating expenses.

Answer

Executive Satish Dhanasekaran clarified that the base case for 5% revenue growth does not assume all segments will inflect simultaneously, as the Communications Solutions Group (CSG) has returned to order growth while the Electronic Industrial Solutions Group (EISG) has not. Executive Neil Dougherty confirmed a sequential Q1 gross margin uplift from ESI revenue and noted that Q1 OpEx will increase due to annual salary administration and the reactivation of variable pay programs.

Robert Mason of Robert W. Baird & Co. asked for clarification on the updated pricing outlook, specifically how tariff adjustments would impact price realization for the remainder of the year, and inquired about the M&A environment for industrial filtration.

Answer

CEO Steph Disher explained that the change in the pricing guide was primarily due to revised tariff expectations on goods from China, reiterating the company's goal to remain price-cost neutral. CFO Jack Kienzler provided the quarterly cadence of the tariff pricing impact. Regarding M&A, Disher affirmed that the company remains committed to its inorganic growth strategy, is actively reviewing a robust pipeline of targets, and will maintain a disciplined approach to acquisitions.

Robert Mason asked for clarification on whether the full-year revenue guidance remains near the midpoint despite various changes, and questioned if there have been any new developments supporting the company's market share gain expectations.

Answer

CEO Stephanie Disher confirmed the revenue outlook still shakes out near the midpoint, as new tariff-related pricing is offsetting market softness. Regarding market share, she stated that while the company remains confident in its guidance, the slowing pace of customer decision-making in the current environment presents a challenge they are closely monitoring.

Robert Mason sought more detail on the 2025 revenue cadence, questioning the degree to which the year would be weighted towards the second half compared to historical patterns. He also asked about the potential for the new NanoNet media technology to create opportunities in new industrial markets.

Answer

CEO Steph Disher confirmed a shift to a second-half weighted year due to depressed first-fit markets and FX headwinds in H1, with an aftermarket recovery also expected later. Regarding NanoNet, she described it as a key technology that provides future optionality for industrial filtration and enhances current products with more compact designs, but it is not tied to an immediate new market revenue stream.

Robert Mason inquired about the potential impact of the first-fit downturn on typical Q1 seasonality and requested a breakdown of the higher-than-expected onetime separation costs.

Answer

CEO Stephanie Disher stated that while typical seasonality is expected, the first-fit market downturn will create pressure in the first half of 2025, and highlighted selling days as a key driver for the aftermarket-heavy business. CFO Jack Kienzler specified that of the $9 million in Q3 onetime costs, $5 million was in cost of sales and $4 million in SG&A, attributing the increase to IT system cutover delays and the now-completed separation of the Mexican facility.

Questioned the performance of the SMB market within AECO and whether the go-to-market strategy is being adjusted for it. Also asked if there's an opportunity to accelerate growth in the surveying market given labor shortages.

Answer

Management confirmed that the SMB market in AECO remained a source of strength in Q2, driven by healthy backlogs and the market being underserved. Trimble is adapting its go-to-market with more digital and inside sales motions. For surveying, they see a significant growth opportunity by making technology easier for non-surveyors to use and by innovating in areas like mobile mapping and 3D reality capture (SLAM), which can 'bend the growth profile upward'.

Robert Mason asked for a deeper analysis of the Field Systems' impressive 25% ARR growth, its specific drivers, and whether this rate should be expected to moderate. He also inquired about Trimble's positioning in Germany ahead of potential infrastructure spending.

Answer

CEO Robert Painter explained the 25% ARR growth was an intentional result of business model transitions, driven by offerings like 'WorksPlus' and 'Catalyst' positioning-as-a-service. He confirmed growth would moderate in the second half due to lapping effects, in line with guidance. In Germany, he highlighted strong execution by local partners and new product features tailored to European needs, noting that infrastructure talk is already boosting market optimism.

Asked for details on the drivers of the 25% ARR growth in Field Systems and about the company's positioning in Germany to capitalize on potential infrastructure investment.

Answer

The executive stated the Field Systems ARR growth is intentional, driven by strong execution and the newness of the business model transition; growth will moderate due to lapping effects. Key growth areas include 'WorksPlus' and 'Catalyst' services. In Germany, Trimble is well-positioned with a strong local partner and relevant products, and the talk of an infrastructure bill is already boosting optimism.

Robert Mason of Robert W. Baird & Co. Incorporated asked for a breakdown of the impressive 25% ARR growth in Field Systems and inquired about Trimble's positioning to benefit from Germany's potential infrastructure plan.

Answer

Executive Robert Painter explained that the Field Systems ARR growth was driven by intentional business model shifts to subscription offerings like 'Works Plus' and 'Catalyst'. He noted growth will moderate in the second half due to lapping effects. Regarding Germany, he expressed optimism, citing strong local partnerships and products tailored to European needs, adding that even the discussion of an infrastructure bill has boosted market confidence.

Robert Mason of Baird asked for a reconciliation of margin performance between Field Systems and Transportation, given their different growth profiles, and requested more geographic color on Asia-Pacific and Europe.

Answer

CFO Phil Sawarynski explained that Field Systems' margins benefited from a favorable pricing change with its CAT JV, which offset channel investments. Conversely, Transportation's margins were flat due to significant FX headwinds on the profitable, euro-denominated Transporeon business. CEO Robert Painter added that in Asia-Pacific, India is performing well while China and Japan are challenged.

Robert Mason of Robert W. Baird & Co. asked for more detail on the technology package for the warehouse automation win, whether additional capacity is needed for the ramp, and how the mixed semiconductor market outlook impacts the second-half guide.

Answer

Chair and CEO Matthijs Glastra confirmed the warehouse automation solution includes both sensing and servo drive capabilities and noted that the Novanta Growth System is being used to expand capacity efficiently. CFO Robert Buckley stated that semiconductor market risks are factored into guidance. While volumes are not yet at desired levels, Novanta is shipping early units and is well-positioned as a sole-source supplier with increased content per unit for the eventual market ramp.

Robert Mason asked for clarification on the purpose of the $20 million in cost savings, inquiring if it was to offset sourcing tariffs. He also questioned the company's manufacturing regionalization strategy, its associated CapEx, and the current state of the semiconductor market, particularly EUV.

Answer

CFO Robert Buckley clarified that the cost savings are to mitigate lost profitability from deferred revenue to China, not sourcing tariffs, which are largely under control. CEO Matthijs Glastra added that the company is accelerating its 'in-region for region' manufacturing strategy, which was already planned. Regarding semiconductors, Glastra stated that the EUV product ramp remains on track and that the broader semiconductor equipment market is still 'modestly up and positive,' with green shoots still visible.

Robert Mason of Baird asked about the expected quarterly cadence of the $50 million in incremental new product revenue for 2025. He also inquired about the sustainability of the recovery in short-cycle businesses and management's comfort level with leverage for potential M&A.

Answer

Chair and CEO Matthijs Glastra and CFO Robert Buckley explained that the new product revenue will build throughout the year, with Buckley specifying it would reach high single-digit millions by Q3 and low double-digit millions by Q4. Buckley also confirmed that the recovery in short-cycle businesses is sustaining. Regarding M&A, Glastra expressed confidence in the pipeline while remaining disciplined on price, and Buckley reiterated a comfort level of staying below a 3x net leverage ratio, noting the current 1.4x ratio provides significant capacity.

Robert Mason of Baird asked for confirmation that the $50 million new product revenue target for 2025 remains intact and that no other projects were slipping into 2026. He also inquired about the cause of the high decremental gross margin in the Precision Medicine and Manufacturing segment and sought the rationale for management's confidence that the advanced industrial market is bottoming.

Answer

CEO Matthijs Glastra and CFO Robert Buckley confirmed the $50 million new product revenue goal for 2025 is unchanged, as better performance in some areas is offsetting the shift of the EUV/DUV launch into the second half of 2025. Buckley explained the high decremental margin was due to underutilization in a high-fixed-cost optics facility, and the company chose to retain capacity for the 2025 rebound. Glastra stated that confidence in an industrial bottom comes from seeing turnarounds in short-cycle businesses, which are leading indicators.

Robert Mason asked about the post-acquisition strategy for Elo, specifically whether Zebra intends to keep the Elo brand and if the deal provides an ability to tier products. He also questioned the drivers of the year-over-year decline in the Q3 EBITDA margin guidance, looking for factors beyond tariffs.

Answer

CEO Bill Burns stated the product overlap between Zebra and Elo is minimal, which is a strength of the acquisition, and noted they have been an OEM customer for some time. CFO Nathan Winters explained that excluding tariffs, the Q3 incremental margin is around 30%, in line with historical performance. He added that FX is a short-term headwind to EBITDA but should become a tailwind later if rates hold.

Robert Mason asked about the levers available to address the residual annualized tariff impact and questioned why service and software revenue was flat despite strong product sales.

Answer

CFO Nathan Winters stated the ultimate goal is to fully mitigate the tariff impact through a 'plethora of options' including production shifts and pricing, pending policy certainty. He explained that flat service revenue was due to the impact of lower 2023 hardware sales on the installed base and fewer days in the quarter, with improvement expected ahead.

Robert Mason asked if Zebra's promotional practices have changed during the recovery and whether data capture and printing are seeing accelerating momentum similar to mobile computing.

Answer

CEO William Burns stated there has been no meaningful change in the competitive landscape or promotional activity, attributing wins to Zebra's differentiated portfolio. He confirmed that Q3 saw broad-based growth not just in mobile computing but also across Data Capture Solutions (DCS) and Printing, with particular strength in mobile print and RFID.

Robert Mason from Robert W. Baird & Co. asked about the confidence in Invenco's reacceleration to mid-to-high single-digit growth in 2026 and whether this relies on converting current pilots. He also inquired about the strategic contribution of the recent small acquisition in the DRB space and the month-to-month sell-out trends at Matco.

Answer

CEO Mark Morelli explained that while the timing of large Invenco orders can be uneven quarter-to-quarter, the year-over-year traction is strong and encouraging. CFO Anshooman Aga added that growth is driven not just by NFX but also by the new FlexPay six payment terminal. Regarding the DRB acquisition, Morelli described it as a strategic bolt-on that adds a 'smart controller,' enhancing Vontier's position as the 'brains of the car wash.' Aga noted Matco's sell-out was down about 5% in H1, but July trends were better and distributor inventory levels have normalized.

Robert Mason of Robert W. Baird & Co. inquired about the drivers of the expected Q4 sequential growth in the Industrial Filtration Solutions (IFS) business. He also asked about visibility in the power generation market and the timeline for completing footprint optimization initiatives and mitigating tariff impacts.

Answer

CEO Tod Carpenter attributed the expected IFS growth to three factors: strong aftermarket performance driven by the connected strategy, growth in stationary hydraulics, and the shipment of power generation projects. He noted very long visibility in power gen, with customer discussions extending to fiscal 2028. CFO Brad Pogalz stated that footprint optimization costs should subside after the calendar year and that the company can offset the ratable tariff impact through pricing and supply chain actions.

Robert Mason questioned the growing divergence between the OED and independent channels in the Mobile Solutions aftermarket and asked about the visibility and risk adjustment for projects in the Industrial Filtration Solutions (IFS) business for the second half of the year.

Answer

CEO Tod Carpenter explained the aftermarket channel divergence was due to OEs increasing focus on their parts businesses while the independent channel showed more caution. He emphasized that Donaldson continues to gain share overall due to high service levels. For IFS, he noted that Power Gen project timing shifts revenue between quarters but the annual outlook is stable. The guidance reduction was driven by a pullback in capital projects related to automotive electrification, which was more pronounced than expected.

Robert Mason asked for confirmation of the expected 48-52 first-half/second-half revenue split for the fiscal year. He also questioned the seemingly conservative flat guidance for Aerospace & Defense given its strong start and inquired about the profit impact of the Medica acquisition on the Life Sciences segment.

Answer

CEO Tod Carpenter confirmed the revenue split is expected to be closer to 49-51 and reiterated that Q2 is historically the toughest quarter. For Aerospace & Defense, he explained the flat guidance reflects 'incredibly stubborn' supply chain constraints on key parts that are holding back seven-figure projects. CFO Brad Pogalz added that the business faces a very difficult comp in Q4. Regarding Medica, Pogalz stated its impact on Q1 profit was immaterial.

Robert Mason asked about the expected sales cadence for fiscal 2025, the performance of Mobile Solutions relative to the market, the trend of R&D spending against revised margin targets, and if restructuring benefits are included in the 2025 outlook.

Answer

CEO Tod Carpenter projected a fiscal 2025 sales split of approximately 49% in the first half and 51% in the second half, and confirmed that share gains in the off-road business are factored into the guide. He and CFO Scott Robinson reiterated a commitment to increasing R&D as a percent of sales. Scott Robinson clarified that benefits from the recent restructuring are not expected to materially impact fiscal 2025, with paybacks typically realized in subsequent years.

Robert Mason asked for a distinction in customer activity between the industrial and medical portions of the I&M segment. He also questioned if the segment's recent revenue decline was a function of older products ending their life cycle before new design wins could ramp.

Answer

CEO Stephen Kelley noted that medical customers are showing less enthusiasm due to uncertainties, while the industrial market is a mixed bag. He confirmed that a significant factor in the recent weakness is indeed a timing issue, where customers are exhausting existing inventory before ramping the new products from AE's all-time high design win pipeline.

Robert Mason from Baird asked if there were any distinctions between the underlying demand and design win conversion pace in the industrial versus medical markets. He also inquired about the company's manufacturing footprint in relation to potential tariffs, particularly concerning its facilities in Mexico and the exit from China.

Answer

CEO Stephen Kelley explained that while the commentary applies to both markets, medical revenue is more concentrated with large customers working through inventory, whereas the broad industrial market may recover slightly better. Regarding the footprint, Kelley confirmed the exit from China manufacturing by June 2025. He noted that the Mexicali facility represents less than 10% of revenue, with most shipments going to non-U.S. locations, and that the company has mitigation strategies, including shifting production if necessary. CFO Paul Oldham added that no tariff impact is currently baked into guidance.

Robert Mason of Baird inquired about the visibility into the 2025-2026 semiconductor product ramp, specifically how much is secured by existing design wins versus the pipeline, and also asked about the Q4 free cash flow outlook.

Answer

CEO Stephen Kelley explained that visibility is high, with over 250 units of new platforms (eVoS, eVerest, NavX) being shipped for qualification in 2024, driven by urgent customer demand for next-gen processes. CFO Paul Oldham projected that Q4 free cash flow would be higher than Q3, benefiting from increased income, improved working capital balance, and the absence of large one-time payments that occurred in the first half of the year.

Robert Mason asked about how tariff concerns affected customer project decision-making, whether the Q1 sales acceleration was concentrated in the Detection segment, and for a quantification of the transactional FX headwind on gross margin.

Answer

President and CEO Steven Blanco explained that project work, particularly in energy and petrochem, remained strong. He clarified that the accelerated shipments had a product mix similar to the overall business, even slightly heavier in Fire Service, not just Detection. Interim CFO Elyse Brody added that foreign exchange, primarily from Latin American currencies, was the most significant headwind on gross margin in Q1 and is expected to persist into Q2.

Robert Mason of Robert W. Baird & Co. asked about the drivers behind SG&A leverage, the resolution timing for specific customer order delays, and the underlying factors contributing to strong growth in portable gas detection.

Answer

SVP and CFO Lee McChesney explained that SG&A was managed through prioritization and benefited from lower Q3 volumes, with a healthy ratio expected to continue. President and CEO Steven Blanco added that over 90% of the U.S. Air Force order is expected to ship in Q4, though a European ballistic helmet order was pushed to 2025. Blanco attributed the strong portable detection growth to both market share gains and wallet share expansion via their connected MSA+ solutions.

Robert Mason of Robert W. Baird & Co. inquired about the speed at which Rockwell can implement tariff-related price increases and asked if repricing the existing order backlog is a new practice for its customers.

Answer

CEO Blake Moret stated that tariff-related price changes can be implemented 'immediately,' a capability enhanced by the fixed discount pricing structure adopted in recent years. He confirmed that repricing the backlog would generally be a new experience for customers. CFO Christian Rothe added that the company has been proactively communicating its terms and conditions regarding potential tariffs for several months.

Robert Mason of Robert W. Baird & Co. inquired about the 2025 outlook for the New Fortive (IOS and AHS) product businesses, asking if plans had evolved since October, particularly regarding China. He also asked about the impact of post-election government fund flows on relevant business segments.

Answer

President and CEO James Lico noted that software and healthcare are performing well, with Fluke showing a stronger year-end. He confirmed China is a headwind, especially in Q1 due to tough comps from last year's optimism. Regarding government funds, Lico stated they haven't seen any negative impact and that strength continues, with some large orders from prime contractors.

Robert Mason asked about the Automotive market, which he noted had taken an incremental step lower, inquiring about when it might bottom and what could catalyze a recovery. He also asked about the market uptake for Cognex's newer 3D vision products.

Answer

CEO Robert Willett described the automotive market as 'very weak' with no near-term recovery expected, citing customer pain from unrealized EV investments in the West and overcapacity in China. He noted that the new 3D vision product, which brings AI to 3D systems, is seeing good growth since its April launch and represents a significant future opportunity for the company's expanded sales force.