Veralto 10-Q 2024-03-29

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 29, 2024

OR

For the transition period from to

Commission File Number: 001-41770

VERALTO CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 781-755-3655

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

The number of shares of common stock outstanding at April 17, 2024 was 246,846,767.

VERALTO CORPORATION

TABLE OF CONTENTS

FORM 10-Q

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide material information relevant to an assessment of the Company’s financial condition and results of operations, including an evaluation of the amounts and certainty of cash flows from operations and from outside sources. The MD&A is designed to focus specifically on material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be necessarily indicative of future operating results or of future financial condition. This includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that are reasonably likely based on management’s assessment to have a material impact on future operations. The Company’s MD&A is divided into six sections:

• Information Relating to Forward-Looking Statements;

• Basis of Presentation;

• Overview;

• Results of Operations;

• Liquidity and Capital Resources; and

• Critical Accounting Estimates.

You should read this discussion along with the Company’s MD&A and audited financial statements and Notes thereto as of and for the year ended December 31, 2023, included within the 2023 Annual Report on Form 10-K, and the unaudited financial statements and related Notes as of and for the three-month period ended March 29, 2024 included in this Quarterly Report on Form 10-Q (this “Report”).

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

Certain statements included or incorporated by reference in this Report, in other documents we file with or furnish to the Securities and Exchange Commission, in our press releases, webcasts, conference calls, materials delivered to shareholders and other communications, are “forward-looking statements” within the meaning of the U.S. federal securities laws. All statements other than historical factual information are forward-looking statements, including without limitation statements regarding: projections of revenue, expenses, profit, profit margins, pricing, tax rates, tax provisions, cash flows, pension and benefit obligations and funding requirements, our liquidity position or other projected financial measures; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, restructuring activities, new product and service developments, competitive strengths or market position, acquisitions and the integration thereof, divestitures, spin-offs, split-offs, initial public offerings, other securities offerings, or other distributions, strategic opportunities, stock repurchases, dividends and executive compensation; growth, declines and other trends in markets we sell into; new or modified laws, regulations and accounting pronouncements; future regulatory approvals and the timing and conditionality thereof; outstanding claims, legal proceedings, tax audits and assessments and other contingent liabilities; future foreign currency exchange rates and fluctuations in those rates; general economic and capital markets conditions; the anticipated timing of any of the foregoing; assumptions underlying any of the foregoing; and any other statements that address events or developments that Veralto intends or believes will or may occur in the future. Terminology such as “believe,” “anticipate,” “should,” “could,” “intend,” “will,” “plan,” “expect,” “estimate,” “project,” “target,” “may,” “possible,” “potential,” “forecast” and “positioned” and similar references to future periods are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words.

Forward-looking statements are based on assumptions and assessments made by our management in light of their experience and perceptions of historical trends, current conditions, expected future developments and other factors. Forward-looking statements are not guarantees of future performance and actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Important factors that in some cases have affected us in the past and that in the future could cause actual results to differ materially from those envisaged in the forward-looking statements include the following:

• Conditions in the global economy, including military conflicts, the particular markets we serve and the financial markets can adversely affect our business and financial statements.

• We face intense competition and if we are unable to compete effectively, we may experience decreased demand and decreased market share. Even if we compete effectively, we may be required to reduce the prices we charge.

• Our growth depends on the timely development and commercialization, and customer acceptance, of new and enhanced products and services based on technological innovation.

• Global economic, political, legal, compliance, social and business factors can negatively affect our business and financial statements.

• Our growth can also suffer if the markets into which we sell our products and services decline, do not grow as anticipated or experience cyclicality.

• Any inability to consummate acquisitions at our historical rate and appropriate prices, and to make appropriate investments that support our long-term strategy, could negatively impact our business.

• Our acquisition or divestiture of businesses, investments, joint ventures and other strategic relationships can negatively impact our business and financial statements.

• Significant disruptions in, or breaches in security of, our information technology (“IT”) systems or data or violations of data privacy laws can adversely affect our business and financial statements.

• Defects and unanticipated use or inadequate disclosure with respect to our products or services, or allegations thereof, can adversely affect our business and financial statements.

• If we suffer loss to our facilities, supply chains, distributions systems or information technology systems due to catastrophe or other events, our operations could be seriously harmed.

• Climate change, legal or regulatory measures to address climate change and any inability on our part to address stakeholder expectations related to climate change may negatively affect us.

• Our financial results are subject to fluctuations in the cost and availability of the supplies that we use in, and the labor we need for, our operations.

• Our success depends on our ability to recruit, retain and motivate talented employees representing diverse backgrounds, experiences and skill sets.

• Our restructuring actions can have long-term adverse effects on our business and financial statements.

• If we are unable to adequately protect our intellectual property, or if third parties infringe our intellectual property rights, we may suffer competitive injury or expend significant resources enforcing our rights. These risks are particularly pronounced in countries in which we do business that do not have levels of protection of intellectual property comparable to the United States.

• Third parties from time to time claim that we are infringing or misappropriating their intellectual property rights and we could suffer from significant litigation expenses, losses or licensing expenses or be prevented from selling products or services.

• Our outstanding debt has increased significantly as a result of our separation from Danaher, and we may incur additional debt in the future. Our existing and future indebtedness may limit our operations and our use of our cash flow and negatively impact our credit ratings; and any failure to comply with the covenants that apply to our indebtedness could adversely affect our business and financial statements.

• We may be required to recognize impairment charges for our goodwill and other intangible assets.

• Foreign currency exchange rates can adversely affect our financial statements.

• Changes in our tax rates or exposure to additional income tax liabilities or assessments could affect our earnings. In addition, audits by tax authorities could result in additional tax payments for prior periods.

• Changes in tax law relating to multinational corporations could adversely affect our tax position.

• Our businesses are subject to extensive regulation, failure to comply with those regulations could adversely affect our business and financial statements.

• We are subject to or otherwise responsible for a variety of litigation and other legal and regulatory proceedings in the course of our business that can adversely affect our business and financial statements.

• Our operations, products and services expose us to the risk of environmental, health and safety liabilities, costs and violations that could adversely affect our business and financial statements.

• Certain provisions in Veralto’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of Veralto, which could decrease the trading price of Veralto’s common stock.

• The forum selection provisions under Veralto’s amended and restated certificate of incorporation could discourage lawsuits against Veralto and Veralto’s directors, officers, employees and stockholders.

• If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.

• As an independent, public traded company, Veralto may not enjoy the same benefits that Veralto did as a part of Danaher.

• Potential indemnification liabilities to Danaher pursuant to the separation agreement could materially and adversely affect Veralto’s business and financial statements.

• In connection with the Separation, Danaher has agreed to indemnify Veralto for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure Veralto against the full amount of such liabilities, or that Danaher’s ability to satisfy its indemnification obligation will not be impaired in the future.

• If there is a determination that the separation and/or the distribution, together with certain related transactions, is taxable for U.S. federal income tax purposes, Danaher and its stockholders could incur significant U.S. federal income tax liabilities, and we could also incur significant liabilities.

• Veralto may be affected by significant restrictions, including on its ability to engage in certain corporate transactions for a two-year period after the distribution in order to avoid triggering significant tax-related liabilities.

• Certain of Veralto’s executive officers and directors may have actual or potential conflicts of interest because of their equity interest in Danaher. Also, certain of Danaher’s current directors and a current Danaher officer and a current Danaher employee have joined Veralto’s Board, which may create conflicts of interest or the appearance of conflicts of interest.

• Danaher may compete with Veralto.

• Veralto or Danaher may fail to perform under various transaction agreements that were executed as part of the Separation or Veralto may fail to have necessary systems and services in place when certain of the transaction agreements expire.

See “Item 1A. Risk Factors” in the 2023 Annual Report on Form 10-K for further discussion regarding reasons that actual results may differ materially from the results, developments and business decisions contemplated by our forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call, materials or other communication in which they are made. Except to the extent required by applicable law, we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events and developments or otherwise.

BASIS OF PRESENTATION

The accompanying Consolidated and Combined Condensed Financial Statements present the historical financial position of the Company, results of operations, changes in equity and cash flows in accordance with generally accepted accounting principles in the United States (“GAAP”). Prior to the Separation from Danaher on September 30, 2023, Veralto businesses were comprised of certain Danaher operating units. Veralto Corporation and the Veralto Businesses (including the periods prior to the Separation) are collectively referred to as “Veralto” or the “Company” herein.

The Combined Condensed Financial Statements for periods prior to the Separation were derived from Danaher’s Consolidated Condensed Financial Statements and accounting records and prepared in accordance with GAAP for the preparation of carved-out combined financial statements. Prior to the Separation, all revenues and costs as well as assets and liabilities directly associated with Veralto have been included in the Combined Condensed Financial Statements. Additionally, the Combined Condensed Financial Statements for periods prior to the Separation included allocations of certain general, administrative, sales and marketing expenses and cost of sales from Danaher’s corporate office and from other Danaher businesses to Veralto, and

allocations of related assets, liabilities, and the Former Parent’s investment, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had Veralto been operating independently of Danaher during the applicable periods. Accordingly, the Combined Condensed Financial Statements may not be indicative of Veralto’s results had the Company been a separate stand-alone entity throughout the periods presented. For further discussion of related party allocations prior to the Separation, including the method for such allocation, refer to Note 18 of the 2023 Annual Report on Form 10-K.

Following the Separation, the Consolidated Condensed Financial Statements include the accounts of Veralto and those of its wholly-owned subsidiaries and no longer include any allocations from Danaher.

OVERVIEW

Business Overview

The Company’s unifying purpose is Safeguarding the World’s Most Vital Resources. Our diverse group of leading operating companies provide essential technology solutions that monitor, enhance and protect key resources around the globe. The Company is committed to the advancement of public health and safety and believes it is positioned to support its customers as they address large global challenges including environmental resource sustainability, water scarcity, management of severe weather events and food and pharmaceutical security. For decades, the Company has used its scientific expertise and innovative technologies to address complex challenges our customers face across regulated industries - including municipal utilities, food and beverage, pharmaceutical and industrials - where the consequence of failure is high. Through its core offerings in water analytics, water treatment, marking and coding, and packaging and color, customers look to the Company’s solutions to help ensure the safety, quality, efficiency, and reliability of their products, processes, and people globally. The Company is headquartered in Waltham, Massachusetts with a workforce of approximately 16,000 associates strategically located in more than 45 countries.

As a result of the Company’s geographic and industry diversity, the Company faces a variety of opportunities and challenges, including rapid technological development in most of the Company’s served markets, the expansion and evolution of opportunities in high-growth markets, trends and costs associated with a global labor force, consolidation of the Company’s competitors and increasing regulation. The Company operates in a highly competitive business environment in most markets, and the Company’s long-term growth and profitability will depend in particular on its ability to identify, consummate and integrate appropriate acquisitions and identify and consummate appropriate investments and strategic partnerships, develop innovative and differentiated new products and services with higher gross profit margins, expand and improve the effectiveness of the Company’s sales force, continue to reduce costs and improve operating efficiency and quality, effectively address the demands of an increasingly regulated global environment and expand its business in high-growth geographies and high-growth market segments. The Company is making significant investments, organically and through acquisitions and investments, to address the rapid pace of technological change in its served markets and to globalize its manufacturing, research and development and customer-facing resources (particularly in high-growth markets) to be responsive to the Company’s customers throughout the world and improve the efficiency of the Company’s operations. The Company defines high-growth markets as developing markets of the world experiencing extended periods of accelerated growth in gross domestic product and infrastructure which include Eastern Europe, the Middle East, Africa, Latin America (including Mexico) and Asia (with the exception of Japan, Australia and New Zealand). The Company defines developed markets as all markets of the world that are not high-growth markets.

The Company operates through two segments – Water Quality (“WQ”) and Product Quality & Innovation (“PQI”). The Company’s businesses within these segments have strong globally recognized brands as a result of its leadership in served markets over several decades. Through WQ, the Company provides innovative products and services that improve the quality and reliability of water through leading brands including Hach, Trojan Technologies and ChemTreat. Through PQI, the Company enables customers to promote consumer trust in products and help enable product innovation through leading brands including Videojet, Linx, Esko, X-Rite and Pantone. The Company believes its leading positions result from the strength of our commercial organizations, our legacy of innovation, and our close and long-term connectivity to its customers and knowledge of their workflows, underpinned by our culture of continuous improvement. This has resulted in a large installed base of instruments that drive ongoing consumables and software sales to support the Company’s customers. As a result, the Company’s business generates recurring sales which represented approximately 61% of total sales during the three-month period ended March 29, 2024. The Company’s business model also supports a strong margin profile with limited capital expenditure requirements and has generated attractive cash flows. The Company believes these attributes allow it to deliver financial performance that is resilient across economic cycles.

We also believe that the Veralto Enterprise System (“VES”) provides the Company with a strong foundation for competitive differentiation. VES is a business management system that consists of a philosophy, processes and tools that guide what

Veralto does and measure how well Veralto executes, grounded in a culture of continuous improvement. The VES processes and tools are organized around the areas of Lean, Growth and Leadership, and are rooted in foundational tools known as the VES Fundamentals, which are relevant to every associate and business function. The VES Fundamentals are focused on core competencies such as using visual representations of processes to identify inefficiencies, defining and solving problems in a structured way, and continuously improving processes to drive consistent execution.

Veralto uses VES tools to improve our profitability and cash flows, which support our ability to expand our addressable market and improve our market position through investments in areas such as our commercial organization and research and development (“R&D”), including software and digital solutions. Our cash flows also support acquisitions to enhance our product capabilities and expansion into new and attractive markets, which we have successfully done through the acquisition of approximately 80 businesses over more than two decades.

Business Performance

During the first quarter of 2024, the Company’s overall revenues and core sales increased 1.8%. Currency exchange rates contributed 0.2% to the increase in sales and the impact of acquisitions, net of divestitures, decreased reported sales by 0.2%. For the definition of “core sales” refer to “—Results of Operations” below.

Geographically, the Company’s sales in the three-month period ended March 29, 2024 in developed markets increased year-over-year by 3.2% driven by increased sales of 4.7% in North America and 1.1% in Western Europe while sales in high-growth markets declined 2.0%, led by high single digit percentage sales declines in China.

For the same period, core sales in developed markets increased 1.7% driven by an increase in core sales of 3.4% in North America offset by a 1.2% decrease in Western Europe, while core sales in high-growth markets decreased 0.3% driven by a low single digit percentage core sales decline in China.

The Company’s net earnings for the three-month period ended March 29, 2024 totaled $184 million, compared to $225 million, for the three-month period ended March 31, 2023. The decrease in net earnings during the three-month period ended March 29, 2024 as compared to the comparable period in 2023 was driven by higher operating expenses, standalone public company costs, interest expense post Separation from Danaher, and a loss on a sale of a product line. Refer to “—Results of Operations” for further discussion of the year-over-year changes in net earnings for the three-month period ended March 29, 2024.

Outlook

Looking out over the balance of 2024, in our Water Quality Segment we continue to expect positive secular growth drivers across industrial markets particularly in North America, along with steady demand at municipalities. In our Product Quality and Innovation segment we expect to see steady, modest recovery in the consumer-packaged goods markets as the year progresses. In any end market environment, the Company leverages VES to drive growth and continuous improvement.

Our outlook for 2024 reflects our current visibility and expectations based on the current market environment and other factors. Our ability to meet our expectations are subject to numerous risks, including, but not limited to, those described in “Item 1A. Risk Factors” within our 2023 Annual Report on Form 10-K and those updated in Item “1A. Risk Factors” within this Report.

RESULTS OF OPERATIONS

Non-GAAP Measures

In this Report, references to the non-GAAP measures of core sales (also referred to as core revenues or sales/revenues from existing businesses) refer to sales from continuing operations calculated according to GAAP, but excluding sales from acquired businesses (as defined below) and the impact of currency translation.

References to sales or operating profit attributable to acquisitions or acquired businesses refer to sales or operating profit, as applicable, from acquired businesses recorded prior to the first anniversary of the acquisition less any sales and operating profit, during the applicable period, attributable to divested product lines not considered discontinued operations. The portion of revenue attributable to currency translation is calculated as the difference between the period-to-period change in revenue (excluding sales from acquired businesses (as defined above, as applicable)) and the period-to-period change in revenue (excluding sales from acquired businesses (as defined above, as applicable)) after applying current period foreign exchange rates to the prior year period.

Core sales growth should be considered in addition to, and not as a replacement for or superior to, sales growth, and may not be comparable to similarly titled measures reported by other companies. Management believes that reporting the non-GAAP financial measure of core sales growth provides useful information to investors by helping identify underlying growth trends in the Company’s business and facilitating comparisons of the Company’s revenue performance with its performance in prior and

future periods and to the Company’s peers. Management also uses core sales growth to measure the Company’s operating and financial performance and as one of the performance measures in the Company’s short-term incentive compensation program. The Company excludes the effect of currency translation from core sales because currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends, and excludes the effect of acquisitions and divestiture-related items because the nature, size, timing and number of acquisitions and divestitures can vary dramatically from period-to-period and between the Company and its peers, and can also obscure underlying business trends and make comparisons of long-term performance difficult.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure.

Sales Growth and Core Sales Growth

2024 Sales Compared to 2023

Total sales increased 1.8% during the three-month period ended March 29, 2024 compared to the three-month period ended March 31, 2023, respectively, primarily as a result of the increase in core sales due to the factors discussed below by segment. Currency exchange rates contributed 0.2% to the increase in sales and the impact of acquisitions, net of divestitures, decreased reported sales by 0.2% during the three-month period ended March 29, 2024. Price increases contributed 2.1% to sales growth on a year-over-year basis during the three-month period ended March 29, 2024, and are reflected as a component of core sales growth above.

Business Segments

Sales by business segment for each of the periods indicated were as follows ($ in millions):

For information regarding the Company’s sales by geographical region, refer to Note 3 to the accompanying Consolidated and Combined Condensed Financial Statements.

Cost of Sales and Gross Profit

Cost of sales decreased by $18 million or 3.5% during the three-month period ended March 29, 2024, as compared to the comparable period in 2023, due primarily to the impact of lower year-over-year material costs, impacts from foreign currency exchange rates, and improved productivity.

Gross profit margins increased 220 basis points on a year-over-year basis for the three-month period ended March 29, 2024, as compared to the comparable period in 2023. Gross profit margins were impacted by positive pricing actions and to a lesser extent lower material and improved productivity.

Operating Expenses

SG&A expenses as a percentage of sales increased 220 basis points for the three-month period ended March 29, 2024, as compared to the comparable period in 2023, driven primarily by the increase in the Company’s SG&A expenses exceeding the increase in the Company’s sales, resulting from continued investments in sales and marketing growth initiatives, as well as the costs to operate as a stand-alone company.

R&D expenses as a percentage of sales increased by 20 basis points during the three-month period ended March 29, 2024 as compared to the comparable period in 2023, driven by growth related R&D initiatives.

Operating Profit Performance

Operating profit margins decreased 30 basis points from 23.8% during the three-month period ended March 31, 2023 to 23.5% for the three-month period ended March 29, 2024.

First quarter 2024 vs. first quarter 2023 operating profit margin comparisons were unfavorably impacted by:

• Costs incurred as a result of the Separation from Danaher - 10 basis points

• The impact of incremental costs associated operating as a stand-alone company offset by higher 2024 core sales - 20 basis points

WATER QUALITY

The Company’s Water Quality segment provides proprietary precision instrumentation, consumables, software, services and advanced water treatment technologies to help measure, analyze and treat the world’s water in municipal, industrial, commercial, residential, research and natural resource applications.

Water Quality Selected Financial Data

Sales Growth and Core Sales Growth

Total segment sales increased 2.7% during the three-month period ended March 29, 2024 compared to the comparable period in 2023, primarily as a result of core sales growth driven by the factors discussed below. Geographically, sales growth was driven mostly 6.4% growth in North America, partially offset by a 2.9% decline in high-growth markets.

Price increases in the segment contributed 2.6% to sales growth on a year-over-year basis during the three-month period ended March 29, 2024, and are reflected as a component of the change in core sales growth.

Core sales in the Water Quality segment increased at 2.8% year-over-year during the three-month period ended March 29, 2024 compared to the comparable period of 2023. Geographically, core sales growth was driven by a 4.7% increase in North America offset by a 2.5% decrease in Western Europe and a 1.0% decrease in high-growth markets, driven by mid-single digit percentage core sales declines in China and Latin America.

The increase in core sales in the three-month period ended March 29, 2024 was driven by the chemical treatment solutions product line and, to a lesser extent, the analytical instrumentation and ultraviolet water disinfection product lines. Core sales in the chemical treatment solutions product line increased 5.0% year-over-year for the three-month period, as a result of increased core sales across most major end-markets. Year-over-year core sales in the analytical instrumentation product line increased 1.9% for the three-month period ended March 29, 2024, driven by all regions except Latin America. Core sales in the ultraviolet water disinfection product line increased by 3.2% for the three-month period, driven by demand in the municipal and residential end-markets.

Operating Profit Performance

Operating profit margins increased 120 basis points during the three-month period ended March 29, 2024 as compared to the comparable period in 2023.

First quarter 2024 vs. first quarter 2023 operating profit margin comparisons were favorably impacted by:

• The incremental accretive effect in 2024 of product line dispositions which did not qualify as discontinued operations - 10 basis points

• Higher first quarter 2024 core sales and incremental year-over-year cost savings associated with material costs, net of the impact of incremental year-over-year costs associated with labor and sales and marketing growth initiatives - 110 basis points

PRODUCT QUALITY & INNOVATION

The Company’s Product Quality & Innovation segment provides instruments, consumables, software and services for various marking and coding, traceability, printing, packaging design and quality management, packaging converting and color and appearance management applications for consumer packaged goods and industrial products.

Product Quality & Innovation Selected Financial Data

Sales Growth and Core Sales Growth

Total segment sales increased 0.4% during the three-month period ended March 29, 2024, primarily as a result of changes in core sales driven by the factors discussed below. Additionally, currency exchange rates increased reported sales 0.4%, while acquisitions, net of divestitures decreased reported sales by 0.2% for the three-month period ended March 29, 2024.

Geographically, sales increased 0.6% in North America and 2.0% in Western Europe mostly offset by a decline of 1.2% in the high-growth market during the three-month period ended March 29, 2024, as compared to the comparable period in 2023.

Price increases in the segment contributed 1.5% to sales growth on a year-over-year basis during the three-month period ended March 29, 2024, and are reflected as a component of the change in core sales growth.

Core sales in the Product Quality & Innovation segment were essentially flat during the three-month period ended March 29, 2024, as compared to the comparable period in 2023. Geographically, year-over-year core sales were flat in North America, Western Europe, and high-growth markets for the three-month period ended March 29, 2024. Core sales in the high-growth markets featured high-single digit percentage core sales increases in Latin America offset by high-single digits percentage core sales declines across the remaining countries within the high-growth regions.

From a product line perspective, core sales in the segment during the three-month period ended March 29, 2024 as compared to the comparable period in 2023 increased 3.3% within the packaging and color solutions business driven by increased capital spending across the consumer packaged goods and industrial end-markets offset by the marking and coding business, where core sales decreased 1.2% due to lower demand in the industrial and consumer packaged goods end-markets.

Operating Profit Performance

Operating profit margins decreased 40 basis points during the three-month period ended March 29, 2024 as compared to the comparable period in 2023.

First quarter 2024 vs. first quarter 2023 operating profit margin comparisons were unfavorably impacted by:

• The incremental net dilutive effect in 2024 of acquisitions - 10 basis points

• The impact of incremental R&D spending, sales and marketing growth initiatives, net of higher 2024 core sales - 30 basis points

OTHER INCOME (EXPENSE)

For a description of the Company’s other income (expense), net during the three-month period ended March 29, 2024 and March 31, 2023, refer to Note 6 to the accompanying Consolidated and Combined Condensed Financial Statements.

INTEREST COSTS AND FINANCING

For a discussion of the Company’s outstanding indebtedness, refer to Note 9 to the accompanying Consolidated and Combined Condensed Financial Statements.

Net interest expense of $28 million was recorded for the three-month period ended March 29, 2024, arising from our outstanding indebtedness, which was incurred in September 2023. Before the Separation, Veralto depended on Danaher for all of our working capital and financing requirements under Danaher’s centralized approach to cash management and financing of operations of its subsidiaries. As a result, with the exception of cash, cash equivalents and borrowings clearly associated with Veralto and related to the Separation, the Company recorded no interest expense in the Combined Condensed Financial Statements for periods prior to the Separation.

INCOME TAXES

General

Income tax expense and deferred tax assets and liabilities reflect management’s assessment of future taxes expected to be paid on items reflected in the Company’s Consolidated and Combined Condensed Financial Statements. The Company records the tax effect of discrete items and items that are reported net of their tax effects in the period in which they occur.

The Company’s effective tax rate can be impacted by changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of audits and examinations of previously filed tax returns (as discussed below), the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, changes in tax laws and regulations, and legislative policy changes (for example, any changes that may result from the OECD’s initiative on Base Erosion, Profit Shifting and Pillar 2). For a description of the tax treatment of earnings that are planned to be reinvested indefinitely outside the United States, refer to “Liquidity and Capital Resources” below.

The following table summarizes the Company’s effective tax rate:

Year-Over-Year Changes in the Tax Provision and Effective Tax Rate

The Company operates globally, including in certain jurisdictions with higher statutory tax rates than the U.S. Therefore, based on earnings mix, the impact of operating in such jurisdictions contributes to a higher effective tax rate compared to the U.S. federal statutory tax rate.

The effective tax rate for the three-month period ended March 29, 2024 differs from the U.S. federal statutory rate of 21.0% principally due to the geographic mix of earnings described above, the unfavorable impact of a non-deductible loss on the sale of a product line of $3 million , net discrete expense of $1 million related primarily to the tax impact of uncertain tax positions, partially offset by excess tax benefits from stock-based compensation. The net discrete expense increased the effective tax rate by 1.6% for the three-month period ended March 29, 2024.

The effective tax rate for the three-month period ended March 31, 2023 differs from the U.S. federal statutory rate of 21.0% principally due to the geographic mix of earnings described above, partially offset by net discrete benefits of $5 million related primarily to excess tax benefits from stock-based compensation and changes in estimates associated with prior period uncertain tax positions. The net discrete benefits reduced the effective tax rate by 1.7% for the three-month period ended March 31, 2023.

The Company conducts business globally, and Danaher filed numerous consolidated and separate income tax returns in the U.S. federal and state and non-U.S. jurisdictions. The non-U.S. countries in which the Company has a significant presence include Belgium, Brazil, Canada, China, Germany, Netherlands and the United Kingdom. Excluding these non-U.S. jurisdictions, the Company believes that a change in the statutory tax rate of any individual non-U.S. country would not have a material effect on the Company’s Consolidated and Combined Condensed Financial Statements given the geographic dispersion of the Company’s income.

The Company is routinely examined by various domestic and international taxing authorities. In connection with the Separation, the Company entered into certain agreements with Danaher, including a tax matters agreement. The tax matters agreement distinguishes between the treatment of tax matters for “Joint” filings compared to “Separate” filings prior to the Separation. “Joint” filings involve legal entities, such as those in the United States, that include operations from both Danaher and the Company. By contrast, “Separate” filings involve certain entities (primarily outside of the United States) that exclusively include either Danaher’s or the Company’s operations, respectively. In accordance with the tax matters agreement, Danaher is liable for and has indemnified the Company against all income tax liabilities involving “Joint” filings for periods prior to the Separation. The Company remains liable for certain pre-Separation income tax liabilities including those related to the Company’s “Separate” filings.

Pursuant to U.S. tax law, the Company expects to file its initial U.S. federal income tax return for the 2023 short tax year with the IRS during 2024. Therefore, the IRS has not yet begun an examination of the Company’s initial U.S. federal income tax return. The Company’s operations in certain U.S. states and foreign jurisdictions remain subject to routine examination.

The amount of income taxes the Company pays is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis. Based on these reviews, the results of discussions and resolutions of matters with certain tax authorities, tax rulings and court decisions and the expiration of statutes of limitations, reserves for contingent tax liabilities are accrued or adjusted, as necessary. For a discussion of risks related to these and other tax matters, refer to “Item 1A. Risk Factors”.

COMPREHENSIVE INCOME

In 2024, comprehensive income decreased $89 million for the three-month period ended March 29, 2024 as compared to the comparable period in 2023, primarily driven by increased losses from foreign currency translation adjustments and to a lesser extent higher net earnings in the prior year period. The Company recorded foreign currency translation losses of $36 million offset by an unrealized gain on their net investment hedge of $9 million for the three-month period ended March 29, 2024. The foreign currency translation losses were driven by the strengthening of the U.S. dollar against most major foreign currencies in the period, compared to gains of $21 million for the three-month period ended March 31, 2023, primarily driven by the weakening of the U.S. dollar against the euro in the period. Foreign currency translation adjustments reflect the gain or loss resulting from the impact of the change in currency exchange rates on the Company’s foreign operations as they are translated to the Company’s reporting currency, the U.S. dollar.

LIQUIDITY AND CAPITAL RESOURCES

Management assesses the Company’s liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company continues to generate substantial cash from operating activities and believes that its operating cash flow and other sources of liquidity will be sufficient to allow it to continue to invest in existing businesses, consummate strategic acquisitions, make interest payments on its outstanding indebtedness, and manage its capital structure on a short and long-term basis.

Overview of Cash Flows and Liquidity

Following is an overview of the Company’s cash flows and liquidity ($ in millions):

• Operating cash flows decreased $41 million, or 26%, during the three-month period ended March 29, 2024 as compared to the comparable period in 2023, primarily driven by cash interest payments of $57 million, cash tax payments of $32 million, and lower net income offset by changes in net working capital.

• Net cash used in investing activities increased $14 million for the three-month period ended March 29, 2024 as compared to the comparable period in 2023 and consisted of a $4 million increase in capital expenditures and $10 million increase in other investing activities.

• Net cash used in financing activities decreased $127 million for the three-month period ended March 29, 2024 as compared to the comparable period in 2023 as the Company no longer returns cash to the Former Parent.

Dividends

Aggregate cash payments for dividends on Company common stock during the three-month period ended March 29, 2024 were $22 million.

In the first quarter of 2024, the Company declared a regular quarterly dividend of $0.09 per share of Company common stock payable on April 30, 2024 to holders of record as of March 28, 2024.

Cash and Cash Requirements

As of March 29, 2024, the Company held $827 million of cash and cash equivalents that were on deposit with financial institutions or invested in highly liquid investment-grade debt instruments with a maturity of 90 days or less. Of the cash and cash equivalents, approximately $278 million was held within the United States and approximately $549 million was held outside of the United States. The Company will continue to have cash requirements to support general corporate purposes, which may include working capital needs, capital expenditures, acquisitions and investments, paying interest and servicing debt, paying taxes and any related interest or penalties, funding its restructuring activities and pension plans as required, paying dividends to shareholders, repurchasing shares of the Company’s common stock and supporting other business needs.

The Company generally intends to use available cash and internally generated funds to meet these cash requirements, but in the event that additional liquidity is required, the Company may also borrow under its commercial paper programs (if available) or borrow under the Company’s credit facility, enter into new credit facilities and either borrow directly thereunder or use such credit facilities to backstop additional borrowing capacity under its commercial paper programs (if available) and/or access the capital markets. The Company also may from time to time seek to access the capital markets to take advantage of favorable interest rate environments or other market conditions.

Repatriation of some cash held outside the United States may be restricted by local laws. Following enactment of the Tax Cuts and Jobs Act and the associated Transition Tax, in general, repatriation of cash to the United States can be completed with no material incremental U.S. tax; however, repatriation of cash could subject the Company to non-U.S. taxes on distributions. The cash that the Company’s non-U.S. subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. The income taxes, if any, applicable to such earnings including basis differences in Veralto’s foreign subsidiaries are not readily determinable. As of March 29, 2024, management believes that it has sufficient sources of liquidity to satisfy its cash needs, including its cash needs in the United States.

During 2024, the Company’s cash contribution requirements for its pension plans are expected to be $5 million. The ultimate amounts to be contributed depend upon, among other things, legal requirements, underlying asset returns, the plan’s funded status, the anticipated tax deductibility of the contribution, local practices, market conditions, interest rates and other factors.

Contractual Obligations

For a description of the Company’s lease obligations, commitments and litigation and contingencies, refer to Notes 8, 15 and 16 to the audited Consolidated and Combined Financial Statements included within the 2023 Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes to the Company’s critical accounting estimates as described in the 2023 Annual Report on Form 10-K.

Quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Instruments and Risk Management,” within the 2023 Annual Report on Form 10-K. There were no material changes during the quarter ended March 29, 2024 to this information as reported in the 2023 Annual Report on Form 10-K.

The Company’s management, with the participation of the Company’s President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, the Company’s President and Chief Executive Officer, and Senior Vice President and Chief Financial Officer, have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

For additional information regarding legal proceedings, refer to the section titled “Legal Proceedings” in the MD&A section of the Company’s 2023 Annual Report on Form 10-K.

There were no material changes during the quarter ended March 29, 2024 to the risk factors previously disclosed in the “Item 1A. Risk Factors” section of the 2023 Annual Report on Form 10-K.

Director and Officer Trading Arrangements

None of Veralto’s directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K) during the quarterly period covered by this Report.

(a)Exhibits:

• Indicates management contract or compensatory plan, contract or arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.