Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Donaldson second quarter fiscal year 25 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Sarika Dogwell, Senior Director, Investor Relations and ESG. You may begin.

Good morning. Thank you for joining Donaldson's second quarter fiscal 2025 earnings conference call. With me today are Todd Carpenter, Chairman, President, and CEO, and Brad Povol's Chief Financial Officer. This morning, Todd and Brad will provide a summary of our second quarter performance and our updated outlook for fiscal 2025. During today's call, we will discuss non-GAAP or adjusted results. For second quarter 2025, non-GAAP results exclude pre-tax restructuring charges of $2.2 million related to footprint optimization and cost reduction initiatives. as well as $4.4 million of business development charges. A reconciliation of GAAP to non-GAAP metrics is provided within the schedules attached to this morning's press release. Additionally, please keep in mind that any forward-looking statements made during this call are subject to risks and uncertainties which are described in our press release and SEC filing. With that, I will now turn the call over to Todd.

Thanks, Sharka. Good morning, everyone. I am proud of what the Donaldson team accomplished this quarter through resilience and dedication. We delivered for our stakeholders. Total sales increased in constant currency and earnings rose at a faster pace, reflecting overall margin improvement. We executed on what was in our control in light of macro headwinds. Our team navigated a choppy operating environment and with the benefits of our diversified portfolio of businesses delivered higher sales in key higher margin businesses. We diligently managed costs and pricing and exercised strong expense discipline while still investing for the future. Now, some highlights from each of our segments. In all three segments, sales were impacted by weak end market conditions, including in agriculture, transportation, industrial gases, dust collection, and bioprocessing. In spite of that backdrop, in mobile solutions, sales grew in constant currency, driven by solid aftermarket performance, where we continue to gain share. Our recently opened distribution center in Olive Branch, Mississippi, is allowing us to deliver products with speed and reliability, and our fill rates remain at almost 100%. We are also planning ahead and ensuring we are well positioned to address all future engine adoption scenarios with our alternative power solutions. In January, we announced a partnership with Daimler Truck North America on their hydrogen fuel cell project. Donaldson's advanced air filter technology will be featured in the next generation Freightliner Super Truck 2, solidifying our position at the forefront of hydrogen fuel cell innovation in industrial solutions our aerospace and defense business is outperforming our expectations demand for new equipment in commercial aerospace has been at record levels and defense orders and quoting activity are very strong overall we continue to build our industrial business through our create connect replace service business model the number of connected machines and customer facilities is growing and both metrics were up double digits in the quarter our services businesses are performing well and our most recent acquisition easy flow which expanded our capabilities and presence in the southeast United States is outpacing our sales expectations in life sciences pre-tax profit margin improved sequentially and year over year. The cost reduction actions we implemented last quarter are taking hold, and we are now leveraging, with higher sales, a more focused cost structure. We are working to grow our high-margin legacy businesses, such as Distrive and Food and Beverage, and scale our acquired businesses. In bioprocessing, early-stage capital spending is still constrained however our therapy pipeline remains solid and we look forward to continuing to expand our presence now i'll cover some consolidated company highlights sales of 870 million dollars decreased one percent year over year driven by a 170 basis point negative impact from currency translation excluding currency sales increased one percent with a pricing benefit of approximately 1%. Adjusted EPS in the quarter was $0.83, up roughly 3% versus prior year. Margins remained strong, including operating margin, which expanded year over year as a result of expense discipline. Our global operations teams, in several cases working through supply chain challenges, delivered on our backlogs. We've maintained strong on-time delivery rates and focused on serving our customers. Importantly, while we tightly managed our expenses in the quarter, we did invest for the future, ensuring we maintain our leadership position in technology-led filtration. Capital expenditures included investments in capacity expansion and new products and technologies. R&D investments continued across all segments. We are committed to leveraging our robust free cash flow generation and strong balance sheet to continue targeted strategic investments, both organic and inorganic. Now I'll provide some detail on second quarter sales. In mobile solutions, total sales were $548 million, down 1% versus 2024. for. Excluding currency, sales grew 1%. Aftermarket sales of $442 million were up 4% year-over-year, driven by low double-digit growth in the OE channel. OE demand was particularly strong this quarter, and independent channel sales declined low single digits, but were roughly flat on a constant currency basis. Importantly, independent channel sales strengthened as the quarter progressed. With respect to first-fit sales, off-road sales of $80 million were down 13% due to ongoing weakness in the agriculture market. On-road sales of $25 million declined 24%, driven by an exit from non-strategic product sales and a decrease in global truck production.

Now on China.

Mobile Solutions China sales increased 1% with aftermarket sales offsetting first-bit softness. Macro weakness continues in the region, however, we do believe we are near trough levels. We are also encouraged by market trends in off-road, including a recent large OEM program win and what we believe is a structural shift towards larger and more sophisticated equipment which bodes well for our technology-led products. Turning to the industrial solutions and life sciences segments. Industrial sales decreased four percent to two hundred and fifty four million dollars. Industrial filtration solutions or IFS sales decreased eight percent to two hundred in eight million dollars driven by slower investments in capex-based businesses and power generation project timing aerospace and defense sales growth of 19 partially offset ifs weakness life sciences sales of 69 million dollars grew nine percent compared with the prior year due to ongoing strength in disk drive overall i'm encouraged by the results we were able to deliver this quarter, and confident in our ability to achieve record earnings in fiscal 2025. Now I will turn it over to Brad, who will provide more details on the financials. Brad?

Thanks, Todd. Good morning, everyone. Second quarter results reflect a team effort. Across the company, Donalds and colleagues banded together to prioritize opportunities and control level we can, all while keeping an eye on the future by pushing forward our strategic initiatives. As I walk through some key points from the quarter, please keep in mind my profit comments will exclude the impact from the charges Sarka referenced earlier. At a high level, second quarter total sales were down about 1% versus 2024. Currency was a headwind of approximately 2%, and pricing was a 1% benefit. Disciplined expense control drove operating margin up 40 basis points, and EPS of $0.83 was 3% above last year. Gross margin of 35.2% was flat to the prior year, with an unfavorable sales mix being fully upset by select input cost inflation. Operating expenses or rate of sales was 20%, compared with 20.4% a year ago, with this strong leverage driving operating margin up 40 basis points to 15.2%. In terms of segment profitability, Mobile Solutions' pre-tax profit margin was 17.4%, down 60 basis points year-over-year, driven primarily by an unfavorable sales mix and expense deleveraging. Similarly, expense deleveraging on softer sales brought the industrial solutions pre-tax margin down 190 basis points to 16.1%. As we mentioned last quarter, we expect industrial pre-tax profit margins to improve throughout the year, supported by the execution of our projects and backlog and leverage on higher sales. Life Sciences had a pre-tax loss of approximately $500,000 in the quarter, which is less than 1% as a rate of sales and significantly better than the prior year performance. The margin improvement was driven by cost optimization actions taken earlier this fiscal year, which were related to prioritization efforts, and we also benefited from leverage on higher sales. Now, our updated fiscal 25 outlook. First on sales, we are forecasting full year total sales to be flat to up 4% versus the prior guidance of a 2% to 6% increase. Half of the change comes from an FX headwind, which is disproportionately weighted to the second half of the fiscal year. We also factored in the impact from softer than expected end markets, particularly in agriculture and some of our industrial and life sciences project-based businesses. We continue to expect a pricing benefit of approximately one percent. For mobile solutions, we're forecasting sales down one percent to up three percent, 100 basis points below our previous expectation, driven by ongoing weakness in the agriculture market. As such, the only change we made to our mobile solutions forecast is an off-road, where sales are now projected to be down mid-single digits versus our previous guidance of a low single digit increase. Our on-road forecast is unchanged at a low double digit decrease due to a decline in global truck production. We continue to project growth in aftermarket with sales up low single digits stemming from strong demand in the OEM channel and market share gains in the independent channel. In industrial solution, sales are projected to increase between 1% and 5% versus an increase of 4% to 8% in our previous guidance. IFS sales are forecast to grow low single digits, down from our prior high single-digit expectation as market conditions have weakened and capital spending on new equipment in areas such as dust collection has slowed. Aerospace and defense sales are projected to increase in the high single digits, up from our previous flat guidance as robust and market conditions continue. For Life Sciences, we now project sales will increase in the high single-digit range compared with a low double-digit increase previously. Growth in our larger businesses, disc drive and food and beverage, is partially offset by ongoing weakness in bioprocessing. With respect to Life Sciences' profitability, we continue to expect we'll be break-even for the full year, reflecting modest profitability in the second half. On a consolidated profit basis, we plan to more than offset sales pressure with disciplined expense management. As such, we are increasing the midpoint of our operating margin guidance range by 20 basis points, bringing the full year forecast between 15.6% and 16%. The midpoint of this range is 15.8%, which is up 40 basis points from last year and clearly demonstrates our focus on expanding our margin profile. In terms of adjusted EPS, we are tightening our guidance range to between $3.60 and $3.68 per share. The midpoint of this range is in line with our previous guidance and represents a 6% year-over-year increase. Before moving to the cash flow forecast, I want to touch on the topic of tariffs. The situation is dynamic and there is still a high level of uncertainty and ambiguity regarding global tariff policy. Because of that, our guidance does not include any adjustments related to newly announced tariffs, but I want to stress that we are prepared to act. I'll talk more about our plans in a moment, but first I want to make a couple points about how our operating structure creates some natural hedging. To start with, the U.S. is a net exporter of products. Next, we have often talked about our region to support region manufacturing and distribution network. What that means is that about 75% of goods produced in a certain region stay in that region. Given these organic hedges, our biggest exposure to incremental tariffs is more limited to goods we ship from Mexico to the U.S. If specific tariffs are enacted, we have plans to mitigate those impacts through a combination of supply chain and price adjustments, including the application of surcharges. We will certainly quantify any meaningful impact if we see that emerge. Now, on to the balance sheet and cash flow outlook. Our capital expenditures are forecast between $85 million and $100 million, with the majority tilted towards growth initiatives, including capacity expansion, new product development, and technology projects. Cash conversion is expected to be in the range of 85% to 95%, on par with historical averages, And we project cash conversion in the second half will be higher than the first half due to normal seasonality and a reduction in working capital, namely inventory, as we continue to work down our backlogs. Lastly, on capital deployment, our priorities are unchanged. First, we invest. We are growing Donaldson Company organically through capital investments and inorganically through strategic M&A with a focus mainly on life sciences and industrial services. We pay dividends. Our membership in the S&P High Yield Dividend Aristocrat Index is important to us and we intend to maintain our status. Calendar 2024 marked Donaldson's 69th consecutive year of paying a quarterly cash dividend and the 29th year in a row of annual dividend increases. Finally, we repurchase shares. We expect to repurchase between 2% and 3% of our outstanding shares this year, consistent with prior guidance and slightly above our average over the last several years of about 2%. In closing, the outcome of our team's effort this quarter was strong margin performance, a higher full-year margin projection, and an earnings forecast that remains at a record level. We recognize the work is not done, but I am confident that the Donaldson team is prepared to deliver. Now I'll turn the call back to Todd.

Thanks, Brad. When we held our investor day in April of 2023, we laid out our long-term strategic vision and fiscal 2026 financial targets. The close of this second quarter marks the halfway point to our three-year journey. Despite difficult conditions in many of our end markets, we have delivered on our expectations through the hard work and commitment of the Donaldson team, executing our strategy while making timely, tactical adjustments along the way. As the leader in technology-led filtration, we have and continue to position ourselves to consistently create value for our shareholders through market share gains in many key businesses and through record earnings results. We intend to remain on this trajectory by continually evolving to meet the needs of our expansive and diversified customer base. Our earnings combined with our robust balance sheet allow for continued focused investments in growth initiatives as we build on our success. Across all three segments, our R&D and CapEx investments are aimed at driving sales and efficient execution. Our M&A pipeline is robust and strategically focused. Finally, I want to thank our talented employees for helping us build our future. I'm proud of the work they do, and I'm impressed by their unwavering dedication. With that, I will now turn the call back to the operator to open the line for questions.

Thank you. we will now begin the question and answer session if you would like to ask a question please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again press star one thank you our first question comes from the line of brian blair with oppenheimer please go ahead thank you morning everyone good morning uh todd you you called out a recent win in China that's perhaps reflective of a structural shift that works in Donaldson's favor.

I found that comment very intriguing. It would be great to hear more about the noted win and, more importantly, the implications of that and what the decided shift transition could mean for Donaldson going forward.

It's just a continuation of technology wins for us within the overall sector of China. Remember, we've been talking for a number of quarters of really bringing our technology-based platform, proprietary razors to sell razor blades across that particular sector. And we have done that. This particular one happened to be in the liquid sector in hydraulics specifically for tractors. And so you see us now getting traction within that in a type of an application in addition to the momentum that we have on air-based applications.

Appreciate that, Keller. And a level-setting question within life sciences, if we were to simplify the segment to disk drive, food and dev, bioprocessing and other, or even just bioprocessing and legacy applications, What is the split of profitability at this point? The impetus here is trying to gauge as you gain scale, you have top line inflection in bioprocessing, what that's going to mean on a run rate basis when that business is on the trajectory that your team is targeting.

So the way to think about that is if you take the traditional businesses that we had, they're all profitable. Remember that the acquisitions that we did were pre-revenue largely. And so consequently, obviously, those have headwinds, really mixing down the overall current profitability of the segment. as we continue to push those new products out, which we fully expect to happen here within the next year of 12 months or so, you'll start to see some of those new products come out and we gain traction. That will only lift the overall sector even more positively.

Brian, this is Brad. I'll just add a point and reference back to my remarks to remember in first quarter, we did some restructuring and that was all about prioritization within these specific businesses. As Todd mentioned, we have a project pipeline that we're working on to bring some of these items from pre-revenue to revenue. And so the teams have done really good work to try and sharpen the pencil on where are we really going to invest. And that's giving us some momentum and life sciences profitability as well.

Understood. Appreciate the color.

Your next question comes from the line of Rob Mason with Baird. Please go ahead.

Yes, good morning all. The first question is around the mobile solution, just the aftermarket in general. There's a couple of quarters now we've seen a meaningful divergence between the OED channel and the independent channel, and I was just curious what better explains that, if that's just focus from the OEDs on their parts business or share gains, what have you. um that's one and then the second question still in aftermarket is i know you didn't change the outlook there but um it doesn't look like you know for the second half there's much in the way of normal seasonality built into the guidance and i'm just curious if that if that's conservatism or if that's you know reflecting you know somewhat underlying uh weaker demand or how

you how you're viewing that yeah sure so um when you look at our aftermarket business what ended up happening here within quarter is a little bit of a shift in the behavior between the independent and the oe channel the oe channel clearly has some more focus from the oes on their on their parts-based businesses as you as you call out you know we click we clearly see that and we see that in a little bit more demand from that side on the independent channel which is if i remind you it is about 60% of the overall business. That felt a little bit more of a pullback, a little bit more cautious tone. And, you know, net net, we were up. Now that's kind of some interesting adjustments for us that we see in the behavior changes. However, you know, the story remains for us as share gains and how we continue to execute really, really well. Our fill rates are near 100% of when the customer wants the product we're doing very well with within that channel servicing that channel and we're very happy overall with where we are now we didn't we didn't change the guide but we didn't change the guide because you know one basically offsets the other and and so that that it felt about a push understood uh and just you know as a follow-up the um you just talked Todd, just around the visibility in IFS, understand that can be lumpier with the projects that move around, and you did pull the guide down there, but how are you, I guess, risk adjusting for those projects in the second half of the year, and are those biased either to PowerGen, which my impression is maybe those could be larger, or the dust collection business yeah so power gen is is clearly the larger based projects uh and they move from quarter to quarter um based upon site availability uh etc we did see movement on power generation it it um it is about half that represents about half of um of the down in the quarter if you will year over year um but those move out um and so so consequently that revenue will come but in the quarter, it's clearly a notable headwind. Our part generation business remains very strong. We expect it to remain strong at minimum for another year, year and a half. We have that much visibility. So very, very positive things. That's not really the story here for us in the change of the guide because we're still very bullish on power generation. The story really for us is in our capital-based project businesses that are more related to manufacturing. Specifically, we saw some movements within what we would say is the automotive arenas of that particular business where projects really hold back, and you could say that's more related to an electrification type of a situation, so battery manufacturing, electric car manufacturing, those kind of activities certainly evaded in the quarter more than we had expected. All other industries feel pretty good. Quotes remain still at a good level. But that meaningful shift is really more further indication that this electrification phenomenon is clearly not going to happen as quickly as many had hoped. And you see that over also in our vehicle electrification programs, supporting automotive for specifically electric cars in venting-based applications, where that also felt a lot of pullback. So electrification really in the automotive sector really explains a lot of that. And, you know, we did not see that meaningful shift forthcoming, but it certainly happened with it accordingly.

I see. Very good. I'll turn it back. Thank you.

Your next question comes from the line of Brian Drabb with William Blair. Please go ahead.

Good morning. I think that you touched on this somewhat, but can you just further elaborate on the IFS segment? You know, the average about $210 million a quarter in the first half of the year. And then is this project-based business? Is that what's driving this big step up to, you know, the guidance implies going to more like 250 million a quarter in the second half.

Yeah, so it's clearly project based. And again, Brian, so the power generation business really saw timing move. It explains about half of the reduction in this quarter. But those project based businesses for power generation move. They just moved into the next quarter, the third or fourth quarter.

And in fact, we in the company within power generation, we did not change uh our our annual guide for that business at all okay so that's all that's that's the power generator that's all power generation um okay thanks the call is actually cutting in in and out a little bit so i'm not catching everything so sorry if i asked something that was uh if i'm repeating a question on the aerospace and on the aerospace and defense side And can you talk a little bit about where the particular strength is there, you know, more on the aerospace, more on the defense side, and just kind of give us a little more granularity there? Thank you.

Yeah, so it's both. And what, you know, we have good strength in both pieces of the business. what we had factored in when we gave our original guide this year is supply chain problems and difficulties within supply chain that we had expected. Keeping in mind that if we were to try to requalify a new supplier for a particular part in that business, that could take as much as a year or a year and a half or two. And so we had expected that kind of a situation to give us headwinds and therefore flat. The supplier, of course, that we do have has actually improved performance to a little bit of our surprise, but through some fantastic work of hard work of our people here working with that supplier. And so consequently, that's why it's up. You know, the backlog has always been there and the orders have always been there. It was more of a reflection of the supply chain, and with us now knocking down some of those supply chain hurdles, that's what you're seeing in the guide.

Okay. Thanks very much.

Your next question comes from the line of Lawrence Alexander with Jeffries. Please go ahead.

Good morning. Just a question about the dynamics you're seeing in off-road, I guess two parts. One, two, what degree are the auto OEMs talking about if there are tariffs that it triggers a de-stock cycle, or do they see sort of a bit of a pre-buy to get ahead of it? So you can just give a sense for kind of, do you see kind of the initial impact, kind of which way it swings? But then secondly, when you think about your overall outlook adjustment for this year, How much of that do you think is lost demand as opposed to pent-up demand that comes back in 2026?

Yeah, so let me take the first one. Within the off-road sector, we have not had pre-buys. We have not had any of those kind of activities out of our customers as a result of any of the tariff type of activities. that's you know remember some of those off-road markets like ag are really difficult for them you know to see them taking out inventory right now would be kind of an interesting move as they try to try to really work down the inventory that's out in the channel so so we'll see we'll keep an eye on that we don't really see that happening it's a bit more frankly at the macro business as usual across that that base relative to manufacturing and delivering for them i would say that the one uh change uh that maybe has happened or or accelerated in the behavior is asking uh our you know specifically always asking us our um capability of building their products outside the united states as brad said in his um in his uh script that um you know we we are a net exporter from the U.S., and so to the extent that OEs will want to have us rotate and build it more closely to their factories rather than have it in U.S. and export it, you know, we have received questions regarding that. That's the only behavioral change, really. And then the second question is just around, to what degree do you see kind of a slightly softer near-term outlook being kind of a sign of pent-up demand for next year or is it just kind of you know we're resetting the level right right um you know that that's really tough to say because you know we we're really being driven by the end marks nobody's nobody is behaving differently as a result of the uncertainties that are clearly being introduced uh into the business markets if you will And so to suggest that that people are holding back or pulling forward, that's not what we're seeing at all. Now, that's not to suggest that it won't happen. But, you know, for us, that's that's not the macro that we see.

And for our guide, we're taking and taking what we know and we apply that within within today's guidance. thank you your next question comes from the line of angel castillo with morgan stanley please go ahead hi good morning um this is actually stefan diaz sitting in for angel thanks for taking my question um maybe if we could dig back into uh mobile solutions after market growth uh would you be able to parse out um share gains versus market growth and then maybe What sort of line of sight do you have into share gains continuing into your fiscal 26?

So, you know, at the macro, you know, we have internal models to really track us against competition, et cetera. The benefit for us is we have factual data, even though our quarters may be very different, et cetera. You know, we have factual data that we can track, and that specifically tells us we are winning share gains, and we have won share gains, you know, quarter after quarter after quarter. And so we're really very, very proud of our engine aftermarket team and what's taking place out there, and we expect those share gains to continue looking forward. great thanks and then um i believe last quarter you mentioned some capex projects being pushed out within life sciences um can we have an update there like has there been any step change you know in either bringing projects back forward or maybe pushed out even further thanks yeah so remembering life sciences specifically in the bio processing you have an upstream process and you have a downstream process. And those larger projects are in the upstream process, specifically with bioreactors and activities like that. Last year, we had very large projects, you know, five, six, seven million dollar projects that were in flight. Those have now shipped, giving us tougher comps as we look ahead within life sciences in the second half. And this is the reason why our commentary says that it's it's certainly more guarded in that industry because those projects have not been replaced and large life sciences companies are are not uh kicking up the multiple million dollar capex based projects um and specifically our solaris business uh tells us that so um we've not seen um you know green shoots in that area at this point but um um you know we'll we'll continue to continue to uh press forward and and uh you know manage our business uh appropriately great thanks for the call i'll turn it over your next question comes from the line of

nathan jones with stiefel please go ahead yeah good morning this is adam farley on for nathan good morning i wanted to start on hey good morning guys i wanted to start on uh operating margins within mobile. How should we think about margins for the remainder of the year? I think in the quarter, called out a little bit of a mixed headwind, but with aftermarket growth, how should we think about margins?

Adam, this is Brad. All three segments pick up from here at this point, if you look second half versus first half. Some of it comes with the natural leveraging on sales. And then some of it comes with the quality of the work that the teams have done around the company to be smart about where we're pulling out expenses. Just a side note on that. There isn't a mandate that says take X percent out. It's teams reflecting what they need in certain regions or in certain businesses and then prioritizing that. So I think that's where you'll see this tick up. Again, it's across the company.

All right. Thanks for that, Brad. Turning back to industrial and your connected solutions, are you seeing any changes there on the adoption rate, just given some of the – I don't know, it sounds like there might be some deceleration in industrial markets?

Yeah, so we are. We've actually picked up our overall connectivity. So, for example, year-to-day growth in connected machines alone is 30% so far through the first six months. And in facilities, so remembering a facility can have multiple machines, is 29%. So, we're getting a broad adoption across the customer base, as well as customers often put more than one machine on base. I can tell you a story that happened within the quarter that was very fun. And one particular customer, I won't mention my name, but they contracted to hook up all 60 collectors on their site, a very large manufacturing site, after they hooked the very first one and ran it for a while. So we're really starting to get a name out there now, gather momentum, and looking to continue the pace quickly to hook them up. Keep in mind that each time we hook those up, what we have seen is an increase in really customer relationships, the depth of that relationship, and more importantly, an increase in parts and replacement parts sales. So we're really proud of the efforts. We think we have really the best connected product out there, and we'll continue to push forward that strategy.

Thank you for taking my questions.

If you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Brian Drabb with William Blair. Please go ahead.

Hi, I just want to ask one follow-up question. I was wondering, Todd, if you could talk about, you know, irrespective of what's happening in the life sciences market and the challenges there, how is the development of the technology going, just kind of the pipeline that you're developing for when the market improves, you know, within bioprocessing, therapeutics, the bioreactor products that you're developing? Just how is the technology development going? Thanks.

Yeah. So, Brian, what we did, as Brad mentioned earlier, is, you know, we had a very broad agenda of products that we had in flight, all kind of fun ideas. And clearly the market said, hey, you better focus. And so that's what we did do as a corporation. But those that we focused on, it's coming really nice. We really are pretty happy with the disruptive-based technologies that we have going forward. Still some time ahead of us before we bring those out to the market, but for example, we have some in testing right now. So we're not, it's not years away. I would say it's quarters away and we've made significant process.

Okay. Thanks very much.

Your next question comes from the line of rob mason with baird please go ahead yes thanks for taking the follow-up uh brad you may have addressed this uh just a moment ago with your commentary around margins but just maybe to put a finer point on it the um sounds like for the second half of the year it looks like your guide is kind of implies about a you know 50 basis points or so of uh year-over-year margin expansion you're saying that we will see both gross margin expansion and opex leverage um on in the second half first versus second yes now again the opex leverage i'm sorry brad you

broke up for me a little bit yeah the first half is it will improve in the second half from the first half and then i i and i want to say operating expense leverage is a more meaningful contributor to that okay because yeah you know your sgna in the second quarter was kind of unseasonably you know low um does that carry forward or are there just some adjustments in the in the second quarter specifically no we we expect we expect that to carry forward so we've we've got lower head count year over year we've got a real focus on any sort of discretionary activities Again, it's really broad-based. This is about the whole company sort of rallying around, you know, we have this unexpected FX headwind, for example, that we have to address, and we're pulling down where it makes sense and prioritizing.

Thank you.

That concludes our question and answer session, and I will now turn the conference back over to Todd Carpenter for closing comments.

That concludes the call today. Thanks to everyone who participated. We look forward to reporting our third quarter fiscal 2025 results in June. Have a great day. Goodbye.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.