Greetings. Welcome to the Ecolab First Quarter 2025 Earnings Release Conference Call. At this time, all participants are in listen-only mode. The question-and-answer session will follow today's formal presentation. If anyone should require operative assistance, please dial star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, it is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations. Mr. Hedberg, you may now begin.

Thank you. Hello, everyone. and welcome to Ecolab's first quarter conference call. With me today are Christoph Beck, Ecolab's chairman and our CFO. And the slides referencing the quarter results are available on Ecolab's website at Ecolab.com slash investor. Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements and actual results could differ materially from those projected.

Factors that could cause actual results to differ are described under the risk factor section in our most recent form we also refer you to the supplement thank you so much Andy and welcome to everyone on the call of another strong quarter of double digit earnings growth thanks to our team's focus on delivering best-in-class outcomes for our customers no matter what this is the collab at its best demonstrating the strength of our team our proven operating model and the breadth and health of our superior performance reflected solid 3% growth in organic sales and strong 12% growth in EPS as we continue to significantly outpace soft end markets. This was driven by our team's ability to achieve attractive market share gains through our One Ecolab Growth Initiative technologies drove 190 basis point income margin. And this marks another important step in executing on our objective of delivering a 20% operating income margin by 2027. While looking ahead, the complexity of the global operating environment is increasing with softer end market demand and rapid changes in international trade policies. With external conditions changing, we are naturally making proactive adjustments to our near-term delivery path. But importantly, our overall expectations for earnings this year remain unchanged. At the same time, we're continuing to make smart investments in our growth engines to fuel our top line, expand our margins, and build our future. So let me spend a few minutes on each topic to share what we are seeing and explain why I believe we're well positioned to deliver strong near and long-term performance. First on demand, we saw end market trends soften a bit, particularly in the heavy industrial markets, as customer production rates in some industries have eased. We've outperformed these trends because the technologies and services we provide to our customers are absolutely critical to their operations as they leverage our latest breakthrough of innovations. And additionally, we also helped them significantly reduce their total operating costs, which they need now more than ever. And this led to a very strong new business in the first quarter. These were broad-based wins across our businesses and markets around the world, showing that our value proposition continues to resonate with customers. When demand has stabilized over the past few weeks, we expect it to remain soft for the remainder of the year. As such, we remain on offer, fully focused on generating new business and on installing our strong existing new business pipeline to continue to outgrow our markets and, as always to gain share now regarding the rapidly changing global trade environment we're much better positioned than most but we're not completely immune a robust and agile global supply chain is a true competitive advantage that sets us apart in the marketplace and as we've demonstrated for decades we dare for our customers when they need us the most no matter what we will never ever let them down through our local for local model we've strategically positioned ourselves so that more than 90 of our sales are produced close to our customers allowing us to effectively navigate challenges like this with quite a high level of confidence we're therefore leveraging the strength of ecolab to mitigate the impact of the 10 global baseline tariff it's greater than 10% and 145% tar replaced on China are having broader impact on the cost of some raw materials, packaging and some equipment. Even though we don't import much from China, we expect the annualized impact from tariffs and increased local supplier costs due to higher onshoring demand to be a few hundred million dollars. To mitigate this impact, we recently announced 5% trade surcharge for all customers in the United States only. This surcharge leverages the tools and capabilities we built a few years ago to ensure we can reliably supply customers while also delivering value to them that exceeds the total price increase, so it's a win-win situation. So we expect the benefit from the trade surcharge to build over the coming month, with full implementation beginning in third quarter. As a result, we anticipate organic sales growth in the second quarter to be similar to slightly better than the first quarter as we accelerate in the second half. While we focus on executing well to overcome the challenging near-term operating environment, we're also continuing to invest in our long-term growth engines, including life sciences, pest intelligence, global high-tech, and Ecolab Digital. Each of these engines are at different stages of development that all are performing very well with attractive long-term growth and margin potential. Life Sciences, which is now a standalone segment, grew organic sales mid-single digits and delivered organic operating income growth of more than 30%. With this, our bioforma business grew sales double digits, driving attractive share gains as we leverage our investments in breakthrough innovation, global capabilities, and capacity expansion. Further investment in this attractive business will continue to have a near-term impact on operating income margins. However, we firmly believe this positions life sciences very well to accelerate its long-term growth and deliver operating income margins closer. Our test elimination business continues its rapid deployment of best intelligence. Ecolab's proprietary digital solution that provides real-time insight into pest activity for customers across the enterprises. This program is growing extremely fast, and we're able to deliver even better pest-free outcomes for customers with enhanced service capability. As mentioned during prior calls, we're investing heavily in this program, which has impacted growth and operating income growth near term. We begin annualizing these initial investments pretty soon and as a result we expect operating income margin for this segment to get back closer to 20 percent in the second quarter. We expect this program to fuel continued attractive sales growth and even further margin expansion as it's deployed over the next few years. In global high-tech water, business continues to perform exceptionally well as we deploy breakthrough innovation to a significant and expanding market. Global high-tech sales growth accelerated to nearly 30 percent, leveraging our leading innovation and global capabilities to develop water circularity for microelectronics production, as we call FABs, and high-performance cooling for data centers. And finally, as promised, this quarter we began reporting top-line performance for Ecolab Digital. This includes least revenue from technology hardware like 3D Tracer and software subscriptions like water quality intelligence. In the first quarter, Ecolab Digital grew sales 12% to $80 million or $320 million on an annualized basis, driven by extremely strong growth in subscription revenue. We expect this growth rate to accelerate throughout the rest of the year and beyond, as we expand our digital offerings across our customer base and across Ecolab businesses to capture more of this multi-billion dollar high-margin growth opportunity. As these growth engines continue to scale, we expect they will increasingly impact Ecolab sales growth and operating income margins in the years to come. So in closing, we're clearly planning to win and we're very well positioned to navigate this complex external operating environment. And I'm confident that the best of Ecolab is still ahead of us. Our unique capability to deliver innovative solutions that help our customers achieve best-in-class outcomes, enhance operational performance, and conserve natural resources like water and energy are needed now more than ever. Our strong and resilient free cash flow, combined with an extremely healthy balance sheet with over a billion in cash and a 1.8 times net debt to adjusted EBITDA ratio, puts us in a unique position of strength to take advantage of both organic and inorganic growth opportunities. This, in turn, allows us to deliver even greater value to customers and attractive returns for shareholders. I'm confident we are well positioned to deliver another strong in 2025 and beyond. So thanks again for your continued trust and investment in Ecolab. I look forward to your question.

Thanks, Christophe. That concludes our follow-up.

Thank you. We'll now be conducting a question and answer session. We ask you to please limit yourself to one question so others will have a chance to participate. If you have additional questions, please rejoin the Q&A queue. To ask a question at this time, you may press star 1 from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please for your poll for questions. Thank you, and our first question is from the line of Tim Mulrooney with William Blair. Please just use your questions.

Hi, this is Luke McFadden on for Tim Mulroney. Thanks for taking our questions. So I know you've talked about sourcing more than 90% of your raw materials regionally. So on the surface, it sounds like you're pretty well insulated from the trade war in any given region. But if we take, for example, the U.S., where you have many companies scrambling to onshore as much of their supply chains as possible and as fast as possible, is this having any kind of a second derivative impact on your domestically sourced materials? And just maybe as a follow-up, I was hoping you could just level set us on where you expect pricing to ultimately shake out in 2025 after taking into consideration the recent surcharge. Thanks.

Hey, thank you, Luke. Good to hear you. Well, first, as you said, we're in a very fortunate situation with our local for local strategy where 92% of what we sell is produced locally. We didn't do that for tariffs because it's something that we've built over years, mostly to secure supply to our customers, to have it at most optimized costs, and it helped us for FX, and now it's helping us, unfortunately, by Mesa itself, for tariffs. So that's a very good place to be for our customers and our company. That's also helping us to mitigate the 10% that we're kind of expected for 2025. So we feel good about the overall plan that we had so far for 2025. Obviously, there are the two small exceptions, if I may say. You mentioned both of them, Luke. On one hand, so China and the move from many companies, as you said, to source in the U.S. So talking about China, we don't buy much from them because 99% of what we see, but we still China. But when you apply a 145% tariff on top of this trade surcharge, we'll apply only in the U.S. and the commitment, the value we provide to them in a typical win-win. Ultimately, chain and procurement teams could deliver. And if I look for remote with everything we know now, think about what's happening on the market.

Thank you. Our next question is from the line of Manav Patniak with Barclays. Please receive your question.

Thank you. Christophe, you know, in mid-March, we had already started talking about, you know, seeing weakness in the demand environment broadly.

And I was just wondering, you know, if you could give us an update since then have things gotten worse what did that happen kind of in advance of what people fear just just some flavor there and and in terms of how we should think of that translating into the volume assumptions for the rest of the year it's a good question uh manas in in uh february so the second half of of february so we saw that that dip um in demand especially in the heavier industries um that we're serving and keep going down in the weeks to come. And if I look back since we talked, well, it dipped, but it kind of stabilized at that lower level since then, which I take as a reasonably good news, but I don't take that as a given for the rest of the year. We're going to keep softening in the months to come. It's not going to be a straight line because of the events happening out there. So as a team, in a typically collab fashion, it's to focus on offense, it's to play to win, it's to focus on new business, the new business in the first quarter, kind of generating...

Our next question is from the line of Ashish Sabhadra with RBC Capital Markets.

Please receive your question. well thanks for taking my question i just wanted to focus on the institutional and specialty segment um i was just wondering if you could talk about the demand trends there what you're seeing from a foot traffic perspective and as you continue to drive the digital solution how you can help offset some of the weakness we might see from a foot traffic or occupancy perspective thanks Yeah, great question, Ashish.

Thank you. Generally, our INS business is doing really, really well, and it keeps on that trajectory. It's about gaining shares the right way by helping our customers, well, produce more meals and serve more guests while reducing the cost of labor. And it's important. So when we look at the overall number of INS, we know that we have healthcare on percentage point in a very good place.

Our next question is from the line of John McMelty with BMO Capital Markets. Please receive your question.

Yeah, good afternoon. Thanks for taking my question.

So you've been pushing the Ecolab One initiative pretty hard. i guess can you help us to think about the growth that the business saw for those roughly 35 accounts say verse the core just so we can get a better feel for for for the volume trends there in this in this kind of new big push initiative thank you john um it's the one eco lab uh initiative actually which uh you're right is uh focused on on growth so i i'll be careful not to disclose too much numbers, but our focused accounts are progressing very well because if I remember or remind you a little bit, the broader picture, Juan Icollab is to increase our share of the 55 billion penetration opportunity that we have, mostly with our corporate accounts, and we started focusing on our top 35 that are doing really well. how do we approach them it's this best-in-class approach it's basically so for each of those customers understand what is their best operating unit that they have around the world in terms of product outcome cost performance environmental impact and then drive that performance across their own network we translate that obviously um in a dollar tvd total value delivered and we give our sales are a few years to get there as well. That's the journey. So we are early on that journey, John. Customers are very interested in that.

The next question is from the line of David Begleiter with Deutsche Bank. Please receive your question.

Thank you. Christoph, you announced a surcharge back in 2022 for energy. Can you remind us of the success of that surcharge? How much did you realize versus what you announced, and would you expect a similar or higher realization on this surcharge this time around?

So the good news is that in 2022, that was the first time we were doing a surcharge like that. Honestly, I knew that the team would get something done. I didn't know how quick and how much we would truly get, and it worked out really well. As we all remember, everything stuck as well, got converted into structural pricing, driven by as well, all in that win-win approach between customers and shareholders, ultimately here. So we had this 8% surcharge back then. At the highest, it went up to 5% surcharge. Then it got converted into structural price. So you lost track a little bit of what was the net. But it worked out very well, actually, here. So we'll see how it works on this one. It's the same platform. It's the same approach. It's on one country, as mentioned, so just in the U.S., at least for now. We'll see what happens.

We'll turn the line of Vincent Andrews with Morgan Stanley. Please receive your questions.

Thank you. Last quarter in PEST, you had some safety issues which had a profitability or negative profitability impact to them. And the comments today said that those metrics are getting back in the right direction. So I'm just curious, in the first quarter, were there still sort of adverse costs associated with that? And is there any adverse costs still expected in the guidance for the back half?

Yeah, there were some, as I mentioned, actually, so last quarter. So it doesn't happen, obviously, on a calendar basis. But generally are getting behind us. And for me, that was mostly a human issue. I knew that it would be kind of short to midterm, but happy that our safety dramatically in pest elimination we've installed in most vehicles now, so dashcans that are looking at where the vehicles are going and how is the driver behaving dramatically, so much so. My remarks as well.

Thank you. Our next question is from the line of Patrick Cunningham with Citi. Please receive your question.

Hi, good afternoon. Very helpful disclosure on the digital sales. You mentioned an accelerating growth rate throughout the year and over the coming years. What sort of growth rates and margin accretion are you anticipating? And can you unpack this anticipated growth between software subscriptions versus hardware sales?

Yeah, so a few questions, Patrick, so in your question here so we're going to learn together um reporting uh on that so we're not disclosing margin uh of of that yet because we need to do it the right way there's a lot of accounting and obviously for that we're going to get there as soon as we're ready to do it so but as you can imagine it's it's very high because you have almost no digital to your question um on hardware versus software, hardware needs to be installed because it's AI-ish machines, it's pest intelligence devices, it's 3D Tracer, and so on. So that grows nicely, but at a much lower growth rate than software and monetizing. As you know, most of what we do in digital today, well, has been done for at least one that we have.

Our next question is from the line of Chris parkinson with wolf research please receive your question good afternoon um chris if you hit on a few of your kind of your growth engines but you know when you cross over pest elimination light water with data center um as well as kind of the the green shoots for the recovery and life sciences and biopharma you know in the intermediate term what are you the most enthusiastic about and are there any of those three that you you know think you're going to further evolve your go-to-market strategy to further solidify yourself as kind of the go-to in any of those substrates. Thank you.

Thanks, Chris. I love and hate that question because you're asking me which kid I love the most. That's a bit of a hard one. They're all very well positioned, but if I have to pick one, it would be data centers cooling, where we have not only a huge opportunity, but we have cooling expertise that no one else has. We have fluid monitoring capabilities that no one else has. So we're bringing the three components of data center cooling so nicely together between cooling tower using those.

The next question comes from the line of Shlomo Rosenbaum with Stiefel. Please receive your question. Hi, thank you very much.

Just, Christophe, Can you talk a little bit about PEST and when you expect it to get growth to accelerate back to what we've been seeing, kind of the upper single digit range? You talked about the margin getting better next quarter, but I want to ask a little bit about the revenue growth. And then I know it's a two-parter, you just wanted one, but you mentioned something about agentic AI and using that. If you don't mind expanding on exactly where you're using that within the company. Thank you.

Thank you so much. I'm going to pass the second question on agentic. to Scott, who is becoming an expert in that area by the day, maybe first on pest elimination. First, we're growing 5%, which is kind of a good problem to have, to you poor. And so we want to see that business or get back to the high single type as well. I feel really good in getting towards that probably sometime during the second half of the year. and certainly so in 26 and beyond because we are building so the most advanced form that's out there we have all the capabilities all the cloud platform all the ai capabilities we have 1500 people so that are working on digital technology in our company well it's hard to beat uh obviously so in our industry so not where exactly i'd like to be so With the 5% today, the team doesn't like it either, but we know why we dare. It's because of all the transformation work that we're doing, but we know as well at the same time that that's going to pay dividends, getting at the higher second half of the, maybe Scott?

Yeah, absolutely, Shlomo. Yeah, as Christophe said, we're using, helping those in OneEcolab, but starting with building a foundation that we'll be able to use across the enterprise, but within OneEcolab, because It's very focused on the customers and the field. That's the processes that we're starting with, the process, and closest to the sales team. So, thank you.

Our next question comes in the line of John Roberts with Mizuho. Please receive your question.

Thank you. Your dispensing equipment, whether it's a dishwasher or a 3D Tracer machine, is bundled into your pricing. Is the surcharge primarily around covering the cost related to the dispensing equipment?

Oh, John, that's one component because some of it comes from China, but we have also chemistry that's coming from China. We have packaging that's sometimes coming from China. So it's pretty broad based. But as mentioned, John, we're talking about 100 million that we're importing from China. So for a 16 billion company, it's not exactly huge. But when you add 145% surcharge, obviously, so you get too many for a number. And then you have everybody else that is localizing sourcing of everything they buy in the U.S. right now, which is driving a riveting from what's in China.

Our next question is from the line of Steve Byrne with Bank of America. Please receive your question. Mr. Byrne, you're live for a question.

Sorry about that. But just another couple of questions on the surcharge, is there any particular linkage in this, you know, like, you know, it's not a natural gas or like your prior one? Is there the potential that it could be reversed if there was some resolution in tariffs? and or do you think you could convert this into more of a structural price increase rather quickly? And just one more comment, Christoph, you mentioned that you demonstrate value in your price increases. Do you have to generate or demonstrate an incremental 5% value to your customers associated with this surcharge? Yeah.

So, Steve, a few elements to unpack your question here. So first on the value piece, this is what we call total value delivered, which we document and align and agree with customers. We've done that for years. So this is a very well-practiced process on how much we help them save any environmental impact as well. And in many cases, we even measure that on a real-time basis this is something we know extremely well how to do and we sit together with customer when we look at a price increase like the trade surcharge not a big number and usually we're between one to three percent of we're talking about fairly small the practice that we get on we haven't heard the tarry from china is uh on kind of almost every product uh coming from there with a few on-shoring in the U.S. And the last is not the perfect science.

The next question is from the line of Mike Harrison with Seaport Research. Please receive your question.

Hi, good afternoon. I have kind of a higher-level question here associated with the guidance. So you maintained your full-year EPS guidance, but if I look at what's happened with the dollar, FX has really swung from being a headwind when you initially issued this guidance a few months ago. to being a tailwind probably in the rest of the year. So should we think of the guidance and maintaining guidance as some FX tailwind or FX good guys offset by lower underlying market expectations? Or have your underlying market expectations not really changed that much?

And maybe the currency is something that could potentially give you upside in the rest of the year thank you and let scott make a few comments here but what i'd say is that we will deliver the same promise the same expectations the quarter by quarter uh and for the full year but the path to get there has been different um we've seen it in the first quarter and will be different uh in the quarters to come depending on what we know as we've been discussing so on that goal and what we don't know that we'll have so to trigger new actions as well so in the months to come so same delivery different path the fx component is is one of them but it's a complicated equation this is not the name of the game it's one of the many drivers that we have or can deal with yeah sure mike as christophe said there's a lot of variables very dynamic environment specific to the FX in Q1 as we expected.

That was the headwind as we disclosed about 4% to EPS. And although more recently FX has improved, it's a volatile, dynamic environment. And so we're going in this with a very clear view and believe that FX is still going to be a headwind for the full year, although maybe a bit better than we originally expected.

Questions from the line of Jeff with JP Morgan. Please receive your question.

Thanks very much. I think I have a two-part question. Your global water business year-over-year was down a little bit in operating income in the quarter. Why was that? Revenues grew year-over-year. I think you had positive of pricing. Secondly, when you look at the water business, you know, a lot of the water business is propylene derivatives. And, you know, maybe propylene derivatives are down 20% year over year. Chlorine is down. Ethylene is down. Oil is down. When you, and if you look your cost of goods sold, your cost of goods sold overall is down 3%. When you go to your customers and you say that you want a surcharge, do they resist at all or do they feel that it's amply justified in the current environment?

So Jeff, two different questions here, again for the price of one so the the first one so the the water oi operating income for the for the first quarter that the simple answer is it was europe and it was because of last year we had a 200 increase in operating income in europe in year on year that's the seeing a second part of your question. Our DPC market, everything we buy, Jeff, of the 10,000 raw materials and packaging that we're buying out there, well, they're up. They're not down. Everything together, then you have, which is why I agree that we're seeing, we're discussing. I remind you that they're coming up.

Our next question is in the line of Lawrence and Alexander with Jeffries. Please proceed for your question. So good afternoon.

Could you speak a little bit about how a shift in the u.s to aggressive deregulation would either create opportunities or headwinds for your institutional and pest businesses on a secular basis well the short answer here uh is we haven't seen anything yet um in terms of impact of deregulation on on any business i hope we're going to see that because this is a very important focus that we expect from the industry and that's been promised by the administration as well at the same time this is something that we should see as well in our downstream business well this is hard to see right now. So I remain hopeful that that's going to help industry in the U.S. in the month and quarter to come. But so far, we haven't.

The next question comes from the line of Jason Haas with Wells Fargo. Please receive your question.

Hey, good afternoon, and thanks for taking my question. I was curious if you could talk about what trends you're seeing in the life sciences segment and if you expect that growth to accelerate through this year. Thanks.

Yes, Jason. We've been building that business for a few years. We've been growing not as fast as competition. So we're good about our delivery, but not as good as we're building capability. We're getting to the plate market is a margin that we have to look at and targeting.

Thank you. Our next question is from the line of Josh Spector with UBS. Please receive your question.

Hi, good afternoon. I had a question just on SG&A. You've done a good job controlling that, and you actually brought it down in the quarter. I guess I thought the SG&A as a percentage of sales would decline over time as you grew SG&A slower than sales, but you actually brought that down. So I was curious, one, what do you expect SG&A dollars to grow or decline for this year? And then, two, are you pulling any additional levers with SG&A already to help, you know, achieve your goals for this year?

Hey, thank you, Josh. I'm going to pass that question to Scott, who has become a PhD.

Good question, Josh. As Christoph mentioned before, the Q1 SG&A was a bit better than we had expected coming into the quarter and really helped by the OneEcoLab program, which is going very well. and that helped deliver that 30 basis point of leverage that we had year over year and that was net of what we talked about coming in the year the continued growth investments that we'd be making and we expect to continue that as we did the last few years as you think back to we had 2017 we're at a 29 ratio and we brought that down to 27 last year and continue to expect as we've guided earlier that we will deliver on this 20 to 30 basis points for the full year probably at the lower end of range as we continue to make these growth investments, but also deliver on the incremental savings from OneEcolab that is going quite well. Although I will say not every quarter will be created equal. And then as we go long term, we expect with the OneEcolab program, with the digital capabilities to be able to deliver FGNA leverage beyond our historical 20 to 30 basis lengths annually.

Our next question comes from the line of Kevin McCarthy with Vertical Research partners. Please proceed with your questions.

Yes, thank you and good morning. I'm curious, Christoph, as to whether or not your thoughts on capital deployment have changed at all with the external environment being so volatile. Still early in earnings season, but we've seen some other chemical companies throttle back on CapEx. Are you still tracking towards 7% of sales there? And might you be any more aggressive or conservative in evaluating M&A opportunities, for example?

So the headline here, Kevin, is no change, but as well. Yeah, Kevin, good morning.

Yeah, as Christoph said, no change to the long-term capital allocation priorities. As we've always said, we're going to continue to increase the dividend, invest in the business. And the balance sheet is in a really, really healthy position entering the year. As we've talked, net leverage, Christoph mentioned is opening is down to 1.8%, so below our long-term target of around two times. You know, we also repurchased about 140 million of shares. You probably saw it disclosed in the first quarter. That was on top of the $1 billion we did last year. And again, all buybacks in the future are going to be dependent upon those investment opportunities, including the M&A pipeline, which is very robust.

But, you know, the biggest thing is this strong balance sheet provides us a lot of optionality, particularly in an environment like this, right, to take advantage of both organic and inorganic opportunities to invest to add to that uh it's a moment where we need to play to win um with the environment that we are in with the capabilities we have with the momentum we have the balance sheet we have as mentioned by scott uh for me it's time to gain share it's time to innovate uh it's time to invest in the business in in our future and that's exactly what we're doing.

Thank you. Our next question is from the line of Andy Whitten with Robert W. Baird. Please receive their questions.

Yeah, great. Thanks for taking my question. I guess I have two questions here. Christoph, in your answer previously on the life sciences segment, you talked about how you still see a view towards 30% segment margins there and that underlying the investments that you've made in the, I think in the physical plant there, the capital base for that business. I mean, you're running in the mid 20s. So Sol's is suggestive of you just kind of need some operating leverage to run through that business. So the question, I guess, on this one is, is what do you think the approximate revenue level needs to be in life sciences to deliver something on that order of magnitude? Obviously, we're not looking for specifically, but just trying to see what you're thinking to it takes to achieve that level of margin. And then my second question would be a quick one for Scott, just talking about the free cash flow outlook. Obviously, the first quarter comp from last year on free cash flow is a really tough comp. This quarter feels more seasonally normal. But I'm just wondering if you feel like the inventory cycle, given the tariffs and the trade risks that are out there, do you need to infuse more working capital into the business this year to be able to deliver certainty of supply for your customers? Or do you still think that your normal cash flow targets as a percentage of net income apply here in 2025? Thanks.

Thank you, Andy. So I'll let Scott answer the second part of your question first, and then I'll talk about life science.

Yeah, Andy, as you said, our Q1, although year over year was down, the Q1 was in line with our expectations and our historical progression, the quarterly progression throughout the year. The Q1 was really comparing to a very strong comp last year which was unusually high just due to timing of cash payments but feel very good about with this strong earnings growth of 12 to 15 to be able to deliver our free cash flow conversion of this 90 which is that we guided for the year so that's the the second part of the question the the first part obviously very different on life science uh in the so the The investments that we're making are long-term investments.

The plant extension in the UK on biotech, it's building a new one. It's also deploying EBS, our SAP platform, as well in their long-term investments.

Our next question is from the line of N. Andrzej Costanza with Berenberg. Please receive your question.

Hey, hello. I wanted to ask how important is early stage research for your life science business? Do you expect that this business may be impacted by cuts in the federal budget, in subsidies?

I actually know how it's going to be. So far, it seems to be impacting mostly exactly where we're focusing and with it, the market out there. So generally, one way to summarize, delivering During 2025, keep in mind, it's the path to get there, a difficult world.

Thank you. Mr. Hedberg, there are no further questions at this time. I'd like to turn the floor back over to you for closing remarks. Ladies and gentlemen, today's conference has concluded. You may now disconnect your lines at this time. Have a wonderful day.