Conference Transcript - RAL 2026-05-28

Joe, Analyst — Host

We're industrials here at TD. As you all know, Extel is open and live, and we appreciate your support. If you think we've earned it, we will be cross-referencing. Lunch does not get delivered unless you guys vote, so just keep that in the back of your head. Excited to have Rowling here with us. We have Neil and Nathan. If anyone has questions as we go, feel free to raise your hand. I'll stop. I assume that won't happen, so we'll just go. Guys, thanks a lot for being here. Appreciate the time. Let's just get right into it. Pretty uneventful first two quarters, right, out of the gate? So we've had two very different quarters in terms of the reaction, in terms of what was said. Maybe let's compare now what you're seeing to when you reported 4Q, and what have been the biggest changes.

Tammy Newcomb, CEO

Yeah, thanks. Thanks, Joe, for having us here. Perfect to be here and talk to everyone today. Yeah, so I think we have seen an inflection in business versus where we were and one thing i think about is you know we're only uh three quarters old now as a public company so uh you know it's clearly we're seeing you know some changes as we start to manage through this i think we can talk about this you know changes in what's happened since spin even um you know as the world has changed a lot since then you know in our exposure to areas and hardware in um in inflection and test and measurement and defense you know have clearly been you know a positive for us as we've as we've spun out As you go back to kind of Q4 where we stood, I think even going back to, you know, kind of that December quarter, you know, book-to-bills in the business were kind of closer to one-to-one, even in test and measurement. And I think as we saw things change in power electronics where we're very strong and started to pick up in Q1 in test and measurement, that's been a positive for us. We talked about book-to-bill going between 1.1 and 1.2, you know, in the quarter. And a lot of that was, you know, in kind of the mid to later part of the quarter as you started to see that inflection. So I think that's been the biggest thing. But overall, I think it's been relatively broad-based within the business. We see both test and measurement stronger. We see defense. We've talked about a billion dollars of backlog now in our defense business. So I think overall very solid, but clearly the inflection in test and measurement has been probably the biggest driver since if you go back and look at where we were 90 days ago.

Joe, Analyst — Host

How much of that snuck up on you versus like, look, I know guidance is one thing. You're speaking externally, but we saw a lot of competitors starting to see stuff happen and talk about orders growing. And at the time when you reported 4Q, you said booked a bill around. But did it feel like this might be something that was coming, but maybe we're not ready to talk about it yet?

Tammy Newcomb, CEO

Look, I think when you go back at that time frame, and we talked about it last quarter, we were seeing the sales funnels start to build. So that would naturally start to translate into better ordering activity. But we hadn't seen those funnels translate into actual orders. So while there were positive signs out there, I would say as you got into 1Q, I wouldn't say they were strong enough yet to say, hey, we can really count on that to kind of guide and say we're starting to see that turn. But clearly what you saw is those sales funnels continued, and I think they built even stronger throughout the quarter. And then those funnels started translating into real orders, that ordering activity picked up in Q1. And I think that's what gave us the confidence then to say let's take the guidance up and let's think about a stronger growth rate, not just for Q1 and Q2, but for the year.

Joe, Analyst — Host

Yep. So we're almost in June now. I'm not going to try to pin you down for new guides, but like have those trends, those are probably pretty durable. Has that kind of stayed through the quarter at this point?

Tammy Newcomb, CEO

Look, I think demand remains healthy. I think it's been healthy in Q1. I think that healthy demand kind of continues. We feel good about what we kind of guided going into the quarter. And I think what we see is still supportive of that.

Joe, Analyst — Host

if I told you, now let's talk top line, like if I told you you end up doing better than your guide for that year, like what would have been the likely driver of that? Which market?

Tammy Newcomb, CEO

Look, I think that we talked about a couple of things in terms of the growth rate, you know, for the year. I think we talked about five to 8% for the year, which is actually would mark a little bit of a lower growth rate in the second half. You know, obviously with geopolitical events and things like that, we're a little bit cautious on the second half just to see how things are, are there going to be supply issues or other things that, you know, come out of that. So we've been a little bit cautious on that. But if you break down the business more, we talked about higher growth at the high end of our kind of guidance for test and measurement. We talked about, you know, sensors and safety systems, still nice growth, maybe towards the lower end of that range, though, but good growth for the year. But the other piece of that that I don't think we talked a lot about is from an industrial perspective. You know, everyone's seen the PMI pickup. It's been a couple of, you know, cold years, so to speak, from an industrial perspective. We did return to growth in sensors and safety systems in the industrial portion of the business. And so, look, if that continued to pick up, you know, that could be a tailwind for us as you get into the second half of the year. But, again, we don't want to get ahead of ourselves. We'd like to see some more experience in that, you know, over the next, you know, quarter plus. And if that continues, then that could be an opportunity for us. But we're going to continue to remain, you know, prudent until we start to see, you know, stickiness in terms of that type of activity.

Joe, Analyst — Host

Yeah, and that's fair. I think I might push you on it seems unlikely that, like, a test of measurement or defense or grid would, like, reverse any near term. But, like, I understand the prudence of a second half kind of view here.

Neil Reynolds, CFO

One thing I'd jump in real quick, Joe, is, you know, we get asked, are you seeing evidence of pre-buy or inventory build or some of these other pieces? And the answer is no, we haven't. And we've been, you know, asking our sales leaders and our distributors, are we seeing evidence of that? And the answer so far is no. You know, but there's a big portion of the business, about 70% of the business is short cycle. And so we only have about 90 to 120 days of visibility. And so I think that's where there's some prudence that's built in as we look out more than a quarter out that, you know, we're still cautious until we actually see the orders for it continue to come in.

Joe, Analyst — Host

So just if you look back over the last two, maybe I'll ask both of you this. Like, what lessons kind of came out of that from a communication standpoint? Just, I mean, some of these moves are violent, some of the largest I've seen. So how would you maybe have done that differently if you had a

Tammy Newcomb, CEO

second go at it? Yeah, that's a really good question, John. I'm sure that's on other people's minds. So I think, first of all, let me just say this. If you think about Ralliant, what we pride ourselves on is being a company that's based on our business system, the Ralliant business system, and we think about driving continuous improvement every day. This is very important to us and our culture, and that's in everything, including our communication. So as we think about how do we think about that going forward. I think one thing to think about is just being very direct in terms of the communication around how we think about the guidance, how do we think about things over multiple periods. So even if you look at what's out there right now, we talked about, if you even look at street numbers going forward, we talked about 2027 timeframe. We gave a framework. As Nathan said, we don't have that much visibility. I think defense has a nice backlog, but the rest of the business doesn't. We talked about a framework in 2027 plus of being that 5% or so growth rate as a framework to help guide where the margin improvements may come from but i think it'd be unlikely that we would guide above that until we got better visibility kind of going forward so those are the type of things we just want to be forward and leaning and ensure that we are uh clear and transparent on you know going forward and is it fair to say if you if you say

Joe, Analyst — Host

something like that at this point about 2027 you know given that you don't want to overextend yourself you'd have to see some sort of like negative change to think that in the in the underlying markets to kind of be below. Yeah. Yeah. And I think, I think we, I think,

Tammy Newcomb, CEO

and that's a little bit of a learning, I think, is we're a new company and looking at the cycles in terms of seasonality and other elements of the business. Like I said, we have a nice backlog, billion dollars in defense. Most of the business that was Nathan had said is probably 90 to 100 days of visibility. We do see good growth in defense. We do see good visibility, although maybe not the backlog in utilities, but we have good visibility to the ordering with our customers. So we do see some nice growth rates there and probably something that's got some legs in it. But because of the visibility, we have to be, I'd say, prudent around what we have from a backlog perspective in order to give longer-term benefits.

Joe, Analyst — Host

All right, so let's talk about test and measurement a little bit. I think the common belief, at least with investors, is that under prior ownership, this business had been a little bit starved for capital. How do you respond to that, first of all? Like, do you agree with that? And what's your assessment of the business?

Tammy Newcomb, CEO

Look, I think that when you think about how the business was invested in previously, it was invested probably for a lower growth rate. We talked about 3% organic coming out of the investor day when we spun. So I think about that's probably how the business was invested in. I don't think that was under or over. I think there was just an intentional investment at those levels. I think as you look forward, I think it's really all about focus. Now, how do I think about that? I think about it as like competitiveness, like driving competitiveness in the business. So if you take test and measurement, for example, this is a business where we have high exposure to power electronics. We're expanding out beyond that now. I think you think about AI and workflows and semiconductor workflows and other areas, data centers and whatnot. There are opportunities for us, but it's about driving competitiveness in the products. We talked about some of the product releases. I think there was the MP5000 modular system that we put out recently that can be used in a lot of applications. So releasing products, making sure they're very competitive, but also ensuring we're increasing the velocity and R&D in these businesses like test and measurement become very, very competitive. So I think going forward, it's really just a focus. And I'll also say that from an investment perspective, we think about having capital compete within the business. Tammy and I have, I think, very good visibility to incremental investments in the business. We'll balance margins with investment, and we've got pretty clean visibility and a framework in how we think about those things going forward. So I would say, look, you know, it was invested for what it was before, and I think we just have a different focus, but really balancing margins and capital allocation as we think about doing that going forward.

Neil Reynolds, CFO

One tactical point, Joe, is that we've tried to help people better understand the level of investment that goes into each side of the business because it's quite different. That on the test and measurement side, you know, R&D investments, mid-teens, high-teens in some years, percent of revenue that goes into the test and measurement side. And then whereas on the sensor and safety system segment, it's more in line with industrial peers, so more low single-digit percent of revenue that goes into R&D. So the test and measurement business has actually had more investment than what people are looking at the total company R&D level. Test and measurement is actually skewed higher in terms of where that investment is coming in.

Joe, Analyst — Host

So what has been the R&D focus at test and measurement now, and how do you kind of weigh, to your point on margins, you're doing a lot of research-oriented work. like you almost have to guess correctly on the products that you need as to what your customers may want in the future so like how are you weighing you know we need to make a we need to make a bigger investment in order to position ourselves and how do you how do you mitigate that

Tammy Newcomb, CEO

risk well first of all obviously i think nathan's exactly right though i think there is a there is a reasonable amount of investment that goes in from an r d perspective into the business so i think the question and competitively you could you know benchmark that as well as being a kind of a reasonable level of investment there can be some incremental investments on top of that for things like you're talking about, you know, Joe, where you think about, you know, is there an application or something where we really feel strongly that we need to go drive incremental investment? And so I think we manage that really well. But I'll go back to what I said originally. I think it's about competitiveness. And we really have to think about in each of those, both segments, but as you talk about test and measurement, you know, what are those end applications where we have to compete? And I think step one for us is being great at power electronics. This is something that, you know, the test and measurement business has been very good at over the years. And then we think about expanding out beyond that and we talked about that a little bit I think you know on the earnings cause you think about electrification you think about that at the edge AI applications other app you know workflow applications validation systems making sure that we have like the full you know capability as we start to compete but balancing that with efficiency in R&D like you know leveraging tools that exist today and bringing that into the into the system so we can be even more efficient by bringing out products even faster so So I think that's a little bit of the focus change, too, that I think that we're driving is really pushing on our competitiveness on one hand and then improving our R&D velocity on the other side. So those are the areas I think we're really focused on.

Joe, Analyst — Host

How do you benchmark yourself in that framework against your biggest competitors? I know you have an edge in power electronics. Where do you think you have a gap? What's involved in trying to fill that gap?

Tammy Newcomb, CEO

I think it's, look, I think if you look at the segment and test of measurement, I think we have, like I said, I think our precision instruments that we bring to the market today are, you know, are very, very competitive. I think we're very strong in these areas. If you think about that both in power electronics and battery testing, I think about in, we talk about communications as a segment for the business, but a lot of that is, I think the significant majority of that is military government type applications for next generation research. we also sell directly to you know semiconductor customers as you start to see that power electronics transition happen but I think we can build on that going forward to think about like I mentioned before you think about you know AI workflows and new AI type of testing applications that are leveraged in these areas or expanding beyond that into you know workflows or validation where you know we can certainly play a role and expand beyond kind of our core base which we've been good at you know for many many years and what happens if if

Joe, Analyst — Host

EV investment feels like an inevitability to me globally. But as that starts to pick up again, you have EA in there. What can that look like if some of these larger markets that have been pressure start to come back?

Tammy Newcomb, CEO

I think if you look at, for instance, battery testing, I think that's what's gone on. And certainly with us, as EV hasn't panned out exactly like everyone kind of anticipated going into that kind of last cycle, we've kind of pivoted towards other opportunities in power electronics and batteries specifically. And where that leaves us with EA is like, this is a very good business for us. I think it's got very nice growth rates. It has very nice margin. I think they've been able to make the pivot over to other areas like batteries and, you know, in data centers or battery power systems and things like that outside of EVs. And clearly, look, over time, if EVs come back, then that's an opportunity for us. But I think the business has gone through the transition, and we're starting to see nice growth in the battery testing area right now.

Joe, Analyst — Host

So as we start to get into more normal volumes here and probably a pretty decent runway here for growth, how do we think about the multi-year margin opportunity at that business?

Tammy Newcomb, CEO

I think if you look at the overall business and that specifically, I think there is good margin opportunity. I think that particularly is running at very solid margins today, I think even above the segment average for those products. So I think it's in good shape. Maybe not what we expected overall, maybe when it was underwritten originally, but as a business, I think it's performing very and very nicely. And like I said, I think the team's gone through a great transition. As you step back and just think about the margins overall, obviously, we announced an enterprise productivity program at the company level. And I think all of those things will affect margins in various places. So I think there'll be some tailwinds from that as well.

Joe, Analyst — Host

What can you do broadly for T&M to smooth the cyclicality? Just, you know, even in a normal year, you're having huge declines in one queue from fourth quarter, and it's just, you know, volume driven. But is there anything you can do to make that a little smoother ride?

Tammy Newcomb, CEO

I think it goes back to exactly what we said. I think there's naturally, I think that business or market is going to have some level of cyclicality or seasonality in the business. But how do we think about it going forward? I think it goes back to competitiveness. How can we create great products with high level of velocity of getting them out into the marketplace and invest in those things? And I think the other piece of that is you just kind of talked about it in terms of the battery testing business that we have. If that can drive a different cycle, expand out into different areas like workflows or validation that makes sense for us, then those are areas that I think if we compete better, then you kind of have a better baseline and kind of a better bottom to the business through cycle. So I think focusing on that competitiveness for us is absolutely number one.

Joe, Analyst — Host

Let's shift over to defense. You recently got an investment announcement from DoD to increase capacity at PacSci. Where are you running on that business now? Are you full out on capacity right now?

Tammy Newcomb, CEO

Well, one thing I think, one is, yes, we talked about the billion dollars plus the backlog. We did get a reward recently, which we're thrilled about. But think about that as capacity growth for kind of 2028 and beyond, like facilities expansion over time, which I think that we'll need. If you look at where the business is today with a significant amount of backlog, clearly the execution is a big part of this. But this is where we go back to the business system. So look at RBS. We have legacy teams who are very good practitioners of the business system driving Kaizen and Lean within the facilities that we have. So a lot of the growth that you're seeing today, I think if you look back at Defense, we've grown double-digit for kind of a number of years now. I think we posted 20% growth here in Q1. And a lot of that's off the back of execution within the facilities we had and leveraging RBS. Now, we're investing into the business as well for that. You think about industrial engineering resources to drive more lean process in the business and drive performance. Think about by diversifying our supply base. We have a strategic sourcing team that we've put in place to think about diversification there and readiness for build in terms of how we bring on capacity. So I think in the meantime, it's a lot of self-help on driving performance, but you've seen that's what we've been doing the last several years. That's been off of the back of a team that's very, very good and very, very focused on driving lean process and driving capacity expansion until we start bringing on additional capacity through some of those awards that you talked about.

Joe, Analyst — Host

So how should we think about a $1 billion backlog for a business that's, I don't know, give or take $350 or something, $400-ish now? Should we think about that as being delivered over two years?

Tammy Newcomb, CEO

Yeah, two to three years, I think, of getting delivered. No, I don't think that's the end of the ordering that's going to happen there for sure. But I think the backlog, you can think about that over the next couple of years.

Joe, Analyst — Host

And you have the capacity as currently situated?

Tammy Newcomb, CEO

I think it's still an execution story. So I think we have to go and execute within what we've got and continue to build out and leverage the investments that we've been making to make that happen. And then as you get out beyond 27 into 28 plus, then you have to start thinking about different facilities that we'll bring online to support that capacity. I think there's a limitation eventually. I think physically as to what we can go execute on. But it's obviously a very exciting time for the business to be able to support that level of capacity expansion and growth.

Joe, Analyst — Host

I think it's going to be important for both of you guys on the messaging on this. So it is margin dilutive. How do we think about what this does if we have this type of growth here over the next couple of years? How much of this is cost plus? How much is it just so that we're all kind of aligned on this?

Tammy Newcomb, CEO

Yeah, really good question. So I think if you look at the defense business, so let's focus on the – we talked about low to mid-20s margin over time with the inclusion of the productivity program. Breaking that down, we see sensors and safety systems more in that kind of mid to high-20s EBITDA kind of zone over time. The defense products run at the – I would say more towards the company average, which is like we guided this year about 20%. And then within those products, you're going to see more and more of the defense business go to TINA compliance, which basically means there's guardrails around the margins that we would achieve in that business over time. So what you'd expect then is that not only will it be a bit of a mixed headwind because it's lower overall, but you'll see some transition within the business as well. Now, that being said, those are still very good margins, I think, competitively and at a high growth rate. You'll see, I think, still very, very solid margins in the business. So what does that mean going forward? I think it's what we have baked into that mid to high 20s is a double-digit growth rate for defense. Obviously, if it went higher than that, you'd see a little bit of a drag with a higher growth rate, which I think will still be good dollars for us as we think about that going forward. But right now, what we've baked in is kind of a double-digit growth rate, some degradation of the margins, but that's baked into the incrementals that we communicated. But we want to be clear about that. I think as we're bringing on capacity right now and executing that, there's going to be some variation as some of these programs flip over to compliance from a margin perspective. There's going to be some change in the absorption rate in factories that are bringing on a lot of capacity. So I would expect some variability probably in the profitability moving forward. Somewhat of a drag, but at a higher growth rate as you think about this over multiple years.

Joe, Analyst — Host

Is it fair to think like the fastest parts of defense may be more like a mid-teenish EBITDA multiple margin?

Tammy Newcomb, CEO

You can think about closer to the company level and maybe going a little bit below that.

Neil Reynolds, CFO

and one thing a proof point of this is you know we talked about incremental margin framework for the next few years and we said 2026 think baseline incremental margin 35 to 40 percent add in our productivity program gets you to 45 to 50 percent total company whereas 27 28 we said baseline incremental margin more 30 to 35 percent so about five points lower than what we're expecting in 26 is because 26 we're expecting higher growth from test and measurement and that test and measurement growth moderating a little bit in 27 and 28, whereas more contribution, or I would say continuous contribution from the defense business. And so just highlighting that there's a pretty broad spectrum of incremental margins between test and measurement and the defense business. So where that growth comes from really matters in terms of the margin trickle down that it

Joe, Analyst — Host

So that was an interesting framework when you put that out. When you come up with that, how bottoms up is that? Are you building that out of, okay, here's our expected growth of this piece of defense, and what are we going to make? Because it's easy to kind of say 35 to 40 and then shift it down 500 bits, but how granular was that analysis?

Tammy Newcomb, CEO

I think a pretty solid buildup from the team. It's not just like I think the bottoms-up buildup, but you have to look at the various corner cases that can happen. I think that what that's led us to is say, look, these are the guardrails around what we think are a reasonable framework. But we also want to include with that really transparent communication around some of the variability that can happen around it, depending on what the various scenarios are. And I think what Nathan talked about was exactly right. I think as you look at 2026, you see a buildup of, okay, you're probably looking at, you know, 45% or so, I think, fall through. If you look at the 20% or so midpoint EBITDA, you know, margins we talked about this year. The mix of that will change. I think the natural fall through going forward, it's not changed. I think it's about 30% to 35%. That includes some mixed degradation, includes some investment back into the business. Naturally, I think we'd want to be a little bit higher than that, but we've judged it back a bit because of those headwinds we think are in there. And then separately, we add on the productivity program, which gets us closer to that 50% fall through. So we've looked at a lot of different corner cases, but I think what's really important is to ensure that we have that transparent communication around what makes up those pieces because obviously things can change as time goes on.

Joe, Analyst — Host

So if we think about Qualitrol and Grid, what's the backlog visibility look like there right now?

Tammy Newcomb, CEO

As you look at utilities, and you mentioned Qualitrol, I think from a orders perspective, I think in Q1 we had a record orders quarter. The growth rate wasn't as high as you'd normally expect. I think that's timing on shipments is kind of what we talked about. But as you start to look forward, I think the visibility is strong. I think we kind of play in two components there. One, you kind of think about smart sensors on transformers that ship. There's a long backlog of these, so I think that provides good visibility. It's not a backlog business, per se, just because the ordering pattern is closer to when the actual transformer ship. But about half of those products are more or less half you can think about as project-based. So if someone's doing a refurbishment of a power plant or a transmission area, you would think about we would do project work with them as well. So I would say good visibility to both what's shipping for new projects, but also in terms of some of the solutions project work that we're doing with people.

Joe, Analyst — Host

It just seems like that's a business that should be growing above trend for, like, several years here. What's standing in the way of that? Is there capacity constraints here?

Tammy Newcomb, CEO

I think the growth rate would say that we have, similarly, we have to drive, you know, capacity expansion and execution in terms of doing that. But it's the same playbook. I think, you know, we leverage RBS. I think the team's very good at this in terms of, you know, in terms of executing. I think in Q1, you know, we likely built, you know, some backlog there. I don't normally do that, but we did see some backlog built in the business. The growth rate we've taken up from, we talked, I think, at Investor Day, mid-single-plus kind of digit growth in utilities, and now we're thinking it's high single-digit. Even with the lower growth rate in the first half this year, I think, as you get into the back half of the year and get into next year, we'd anticipate some of that capacity work we're executing on in alignment with the strong demand that we're seeing to pick up. And that's all kind of built into what we talked about and seeing that kind of 5%-ish growth rate as you get into 2027.

Joe, Analyst — Host

Good problem, but you have multiple businesses running really hard right now. so what do you need to do from like a supply chain standpoint to make sure you have have what you need and and how are you balancing you know paying extra to get stuff versus maintaining margins and

Tammy Newcomb, CEO

keeping up with demand yeah you know look I think this is this is something that falls right into the RBS kind of playbook and something that you know it's it's really nice to see and work with teams that have that level of focus on you know operational execution I've said it so many times as I come into this business, we have just really, really, really strong operating discipline, leveraging the RBS. And I think this is an area in supply chain that we talk about and think about just about every day. And as you start to think about supply chain security, that's all part of that, diversifying our supply base, looking at in-country, for-country type supply, managing through these things. You also saw our inventory was a little bit higher in Q1, and we're just going to go out and ensure that we have raw material supply for the build-outs that we want to do. Now, I think this is also, as you look forward, that can be challenging right it's always in that one area that you that you get surprised by and we're trying to limit the amount of risk that we have and ensuring that we've got the right capability from a supply-based perspective bring on the reasonable amounts of inventory to support potential you know growth out not just the second half of this year but into 2027 and ensure we're positioned to do that and that's what that's what we're focusing on and that's what we're

Joe, Analyst — Host

prioritizing you you mentioned rbs a couple times i'm interested in both of your takes just because you're you're both coming from the outside you know like so dana her business system becomes for the business system becomes reliant business system what is the ability to like challenge this thing like when you have new people coming in like is this the the ideal framework could we do this differently could we do this better like to me from an outsider who's never been any of those companies sometimes it almost gets annoying the conversation around these things because it's just a thing that's existed forever and we keep saying in different word you know different letters around it, but how much does this really get challenged and optimized for this iteration of this company?

Tammy Newcomb, CEO

I think that's a great question. I think what a lot of people probably think is that we're taking RBS, we're more focused on hardware businesses. You can go back to its legacy. This is where it was built and it was meant for, which is great, but that's not actually how it's approached internally. I think there is a lot of challenge on it. I think we've just done a refresh of all the RBS tools. We have new leadership who's thinking about how do we implement and combine AI with our RBS tool sets. So we're always thinking forward in terms of implementation of new programs and projects. So I think the discipline that's associated with it, I'm super impressed by. I think it's actually great to be working with teams with that level of operating rigor. But I think that's also been challenged by some of the team that Tammy's brought in around how do we modernize it with new tools, but also embedding AI into that. And there's been a lot of workshop and a lot of workshops and a lot of work put into modernizing those tools for what we're looking at today so we've got a couple

Joe, Analyst — Host

minutes less maybe we just touch on capital allocation quickly sure you know you talked about a hundred hundred million accelerated repurchase program you have 500 out there I think is the total how should we think about how how how opportunistic do you want to be versus how you know consistent do you want to be on the on those programs and how do you weigh that versus M&A yeah

Tammy Newcomb, CEO

look I think our capital allocation priorities have not changed so I think number one it's organic investments and thinking about how do we improve our growth rates and profitable growth through organic we talked about that we have a I think a very disciplined capital allocation program for organic investments about how we think about capital competing across the portfolio for incremental investments and should we get the best return for shareholders as we think about those investments and that doesn't change as you move down to returning capital shareholders number two and then looking at M&A number three Now, you talked about the shareholder piece. I think it was important that we said, look, that's number two. We have to be clear and direct on what we're going to go do there. So I think the accelerated share repurchase program we put in place gets us to about, I think, roughly 50% of free cash flow for the year. So we want to kind of be clear with that. That also leaves, what do you do with the other 50%? So I do think that at the right return, where we've got great ROIC, where we believe we can execute tuck-in acquisitions, that's something we would think about doing and talking between those two things. As it relates to the share repurchase, I wouldn't think of this as programmatic going forward. I think of that as a target over time of approximately 50%, and then we'll balance that with Tuck and M&A. So I don't think it's different than what we've said, but being a new company, we wanted to be clear with that as we kind of get out of the gate here with our capital allocation.

Joe, Analyst — Host

Fair to think of some modest baseline, though, right?

Tammy Newcomb, CEO

Yeah, I think that's a good way to frame it going forward, yes.

Joe, Analyst — Host

I just got 40 seconds left, so any questions from the audience? We can take it. If not, I think we'll probably just leave it there. Thank you guys. Appreciate it.