# Veralto (VLTO) Financial Model

Free Excel 3-statement financial model and company analysis for Veralto.

- Canonical: https://finamodel.com/companies/veralto
- Industry: Industrial Equipment
- Downloadable model: Yes
- Excel download: https://finamodel.com/company-models/VLTO.xlsx

## Model Purpose

This model provides a comprehensive equity valuation and cash flow forecast for Veralto Corporation, enabling an equity research analyst to assess the company's organic growth trajectory, margin expansion potential under the Veralto Enterprise System, and capital allocation capacity following its 2023 spin-off from Danaher.

## Company Overview

Veralto Corporation is a global provider of essential technology solutions focused on safeguarding water, food, and consumer goods. Spun off from Danaher Corporation in September 2023, the company operates through a highly resilient, asset-light business model characterised by a high proportion of recurring revenue from consumables, software, and services.

- **Water Quality (WQ) (60.3% of 2025 revenue):** Provides precision instrumentation, advanced treatment technologies, and software to municipal and industrial customers (key brands include Hach, ChemTreat, and Trojan Technologies).
- **Product Quality & Innovation (PQI) (39.7% of 2025 revenue):** Delivers packaging, colour management, and product identification solutions to consumer packaged goods and industrial markets (key brands include Videojet, Esko, X-Rite, and Pantone).
- **Key Geographies:** Global footprint with significant exposure to developed markets (North America and Western Europe) and a growing presence in high-growth emerging markets.
- **Business Model:** Asset-light, "razor-and-blade" model where installed equipment drives highly profitable, recurring aftermarket sales (recurring revenue represents approximately 61% of total sales).
- **Competitive Position:** Market leader in niche, highly regulated end markets with high switching costs and strong brand equity.
- **Recent Major Events:** Separated from Danaher in September 2023; initiated a $750 million share repurchase programme in late 2025; completed bolt-on acquisitions including TraceGains, AQUAFIDES, and In-Situ.

## Revenue Deep Dive



### Water Quality (WQ)

- **Segment Name:** Water Quality
- **Revenue Driver Formula:** (Installed Equipment Base x Replacement/Upgrade Rate x Average Selling Price) + (Installed Equipment Base x Consumables/Service Attach Rate)
- **Historical Growth Rate:** 4% to 6% core sales CAGR.
- **Key Growth Levers and Headwinds:** Driven by tightening global water regulations, municipal infrastructure upgrades, and industrial water reuse initiatives. Headwinds include municipal funding delays and cyclical industrial capital expenditure slowdowns.
- **Pricing Dynamics:** High pricing power due to the mission-critical nature of water testing and treatment; contracts often include inflation-linked price escalators.
- **Revenue Recognition:** Equipment recognised upfront upon delivery; software and service contracts recognised rateably over the contract term.
- **Seasonality:** Modestly stronger in the fourth quarter due to municipal budget flush cycles.

### Product Quality & Innovation (PQI)

- **Segment Name:** Product Quality & Innovation
- **Revenue Driver Formula:** (New Printer/Equipment Placements x Unit Price) + (Active Installed Base x Ink/Consumables Usage Rate) + (Software Subscriptions x ARPU)
- **Historical Growth Rate:** 3% to 5% core sales CAGR.
- **Key Growth Levers and Headwinds:** Benefiting from supply chain traceability mandates, food safety regulations, and packaging digitisation. Headwinds include consumer packaged goods volume weakness and foreign exchange volatility.
- **Pricing Dynamics:** Strong pricing discipline supported by proprietary consumables (e.g., specific inks required for Videojet printers) and embedded software ecosystems.
- **Revenue Recognition:** Hardware recognised at a point in time; SaaS and maintenance revenues deferred and recognised over time.
- **Seasonality:** Relatively balanced, with slight weighting towards the second half of the year aligning with retail and packaging production ramps.

## Cost Structure



### Variable Costs / COGS

- **Line-by-line breakdown:** Direct materials (electronic components, chemicals, plastics), direct manufacturing labour, overhead, and freight.
- **Gross Margin Range:** 57% to 59% historically (reflecting the high mix of proprietary consumables and software).
- **Key Input Costs:** Electronic components, specialty chemicals, and logistics.
- **How COGS scales:** Highly scalable. The recurring revenue streams (software and consumables) carry significantly higher gross margins than equipment sales, driving gross margin expansion as the installed base matures.

### Operating Expenses

- **R&D:** Approximately 4% to 5% of revenue, focused on digital solutions, sensor technology, and sustainable packaging software.
- **SG&A:** Approximately 28% to 30% of revenue. Heavily weighted towards a direct sales and service force, which is a key competitive moat.
- **Depreciation & Amortisation:** D&A is heavily skewed towards amortisation of acquired intangibles from the legacy Danaher acquisition spree.
- **Stock-Based Compensation:** Approximately 1% to 1.5% of revenue.
- **Restructuring:** Occasional footprint consolidation charges, though generally small relative to revenue.

### Margin Profile

- **Gross Margin:** 57% to 59%.
- **EBITDA Margin:** 26% to 28%.
- **Operating Margin:** Reported operating margin of 22.6% to 23.2%; Adjusted operating margin of 24.0% to 24.6%.
- **Margin Trend:** Expanding steadily (approximately 20 to 30 basis points annually) driven by the Veralto Enterprise System (VES) continuous improvement initiatives and positive mix shift towards software and consumables.

## Balance Sheet Structure

- **Total Assets:** Approximately $7.7 billion (as of 2025).
- **Key Asset Categories:** Dominated by Goodwill and Intangible Assets generated from historical acquisitions made while part of Danaher.
- **Goodwill & Intangibles:** Represents over 60% of total assets.
- **Working Capital Profile:**
  - **Days Sales Outstanding (DSO):** 55 to 65 days.
  - **Days Inventory Outstanding (DIO):** 60 to 75 days.
  - **Days Payable Outstanding (DPO):** 65 to 80 days.
  - **Net Working Capital:** Structurally low or negative as a percentage of revenue, allowing the company to generate cash as it grows.
- **PP&E:** Very light (approximately $400 million to $500 million). The business is assembly-focused rather than heavy manufacturing.
- **Right-of-use Assets:** Moderate, primarily related to leased office and light assembly space.

## Capital Expenditure & Investment

- **Capex as % of Revenue:** 1.0% to 1.5% (e.g., $63 million on $5.5 billion sales in 2025).
- **Maintenance vs. Growth:** Roughly 60% maintenance (tooling, IT) and 40% growth (new product lines, software development).
- **Capitalised Software:** Modest but growing as the company shifts towards digital solutions (e.g., Esko and TraceGains).
- **M&A Pattern:** Serial bolt-on acquirer. Management uses free cash flow to acquire complementary technologies (e.g., In-Situ for water analytics) rather than pursuing transformational, high-risk mega-deals.

## Debt & Capital Structure

- **Total Debt:** Approximately $2.67 billion (as of 2025).
- **Debt/EBITDA Ratio:** Gross leverage sits comfortably below 2.0x, providing significant dry powder for M&A.
- **Credit Rating:** Investment grade profile.
- **Key Debt Instruments:** Senior unsecured notes issued at the time of the spin-off and a revolving credit facility.
- **Interest Rate Profile:** Predominantly fixed-rate bonds with staggered maturities.
- **Share Repurchase Programme:** Highly active; a $750 million authorisation was announced in late 2025.
- **Dividend Policy:** Growing dividend (increased by 18% in late 2025), though the absolute yield remains modest as capital is prioritised for M&A and buybacks.

## Cash Flow Characteristics

- **Operating Cash Flow Conversion:** Exceptional. OCF routinely exceeds 110% of Net Income ($1.077 billion OCF vs $940 million Net Income in 2025).
- **Free Cash Flow Margin:** 18% to 19% of revenue ($1.014 billion FCF on $5.5 billion sales).
- **Major Non-Cash Items:** High amortisation of intangibles depresses GAAP net income relative to cash flow.
- **Working Capital Impact:** Efficient working capital management via VES acts as a mild source of cash during normal operations.
- **Capex Intensity:** Extremely low, driving the minimal bridge between OCF and FCF.

## Sheet Structure

1. **Control & Scenarios:** Scenario toggles (Base, Bull, Bear) for core sales growth, margin expansion, and capital allocation (M&A vs buybacks).
2. **Assumptions:** Hardcoded historical data and forward-looking drivers (segment growth, pricing, cost ratios, tax rates).
3. **Revenue Build:** Segment-level build for Water Quality and Product Quality & Innovation, splitting out assumed equipment vs recurring revenue.
4. **Income Statement:** Consolidated P&L down to GAAP Net Income and Adjusted Net Income (excluding amortisation and restructuring).
5. **Balance Sheet:** Standard assets, liabilities, and equity. Must include specific lines for Goodwill, Acquired Intangibles, and Spin-off related equity accounts.
6. **Cash Flow Statement:** Indirect method starting from Net Income, highlighting the massive D&A add-back and low capex deduction.
7. **Working Capital Schedule:** DSO, DIO, DPO calculations and the resulting change in net working capital.
8. **Depreciation & Amortisation Schedule:** Waterfall for existing PP&E/Intangibles and new additions.
9. **Debt & Interest Schedule:** Tranche-by-tranche debt build, mandatory repayments, and interest expense calculation.
10. **Shareholders Equity & Returns:** Share count roll-forward including the $750 million buyback programme and dividend payouts.
11. **DCF Valuation:** Unlevered free cash flow build, WACC calculation, and terminal value using a perpetuity growth method.

## Key Financial Relationships

1. `Water Quality Revenue = Prior Year WQ Revenue x (1 + WQ Core Growth Rate + WQ M&A Impact + FX Impact)`
2. `PQI Revenue = Prior Year PQI Revenue x (1 + PQI Core Growth Rate + PQI M&A Impact + FX Impact)`
3. `Consolidated Sales = Water Quality Revenue + PQI Revenue`
4. `Adjusted Operating Profit = Consolidated Sales x Adjusted Operating Margin (target 24.5% to 25.0%)`
5. `GAAP Operating Profit = Adjusted Operating Profit - Amortisation of Acquired Intangibles - Restructuring Costs`
6. `Free Cash Flow = Operating Cash Flow - Capital Expenditures`
7. `FCF Conversion = Free Cash Flow / Adjusted Net Income`
8. `Interest Expense = Average Total Debt x Weighted Average Interest Rate`
9. `Ending Shares Outstanding = Beginning Shares Outstanding - (Share Repurchase Spend / Average Share Price)`
10. `Dividends Paid = Ending Shares Outstanding x Annual Dividend Per Share`

## Cross-Sheet Dependencies

- The **Revenue Build** feeds the top line of the **Income Statement** and drives the activity-based metrics in the **Working Capital Schedule**.
- The **Working Capital Schedule** calculates the change in NWC, which feeds directly into the **Cash Flow Statement**.
- The **Cash Flow Statement** determines the cash available for debt paydown or share repurchases, feeding the **Debt & Interest Schedule** and **Shareholders Equity & Returns** sheet.
- The **Debt & Interest Schedule** calculates interest expense, which loops back to the **Income Statement** (creating a minor circularity that requires an iterative calculation or a switch to break the loop).
- The **Income Statement** generates Net Income, which is the starting point for the **Cash Flow Statement** and feeds Retained Earnings on the **Balance Sheet**.

## Sign Convention

- **Income Statement:** Revenues are positive. Expenses (COGS, SG&A, R&D, Interest, Taxes) are positive numbers subtracted in subtotal formulas.
- **Balance Sheet:** Assets are positive. Liabilities and Equity are positive.
- **Cash Flow Statement:** Net Income is positive. Cash inflows (e.g., depreciation add-back, increase in payables) are positive. Cash outflows (e.g., capex, dividends, share repurchases, increase in receivables) are negative.

## Things Most Likely to Go Wrong

- **Spin-Off Comparability:** Historical data prior to September 2023 is based on carve-out financials from Danaher. These include corporate allocations that do not perfectly match Veralto's standalone public company costs.
- **Amortisation Distortion:** Veralto carries heavy amortisation from legacy Danaher deals. Failing to add this back will severely understate the company's true cash-generating power and adjusted earnings.
- **FX Volatility:** With significant international exposure, foreign currency translation can swing reported revenue by 2% to 4% year-over-year. The model must separate core growth from FX impacts.
- **Working Capital Swings:** Because NWC is structurally low, small changes in inventory or receivables can cause disproportionate percentage swings in operating cash flow.
- **M&A Modelling:** The company relies on bolt-on M&A for 1% to 2% of annual growth. If the model assumes zero M&A, it will under-forecast revenue or over-forecast cash accumulation.
- **Share Count Reduction:** Ignoring the aggressive $750 million share repurchase programme will result in understated EPS forecasts.
- **Capex Assumptions:** Applying a standard industrial capex assumption (e.g., 4% of sales) will ruin the FCF forecast. Veralto is extremely asset-light (capex is roughly 1.1% of sales).
- **Tax Rate Nuances:** The GAAP effective tax rate fluctuates based on the geographic mix of earnings and discrete tax items related to the spin-off.

## Validation Checks

- "Free Cash Flow Conversion (FCF / Net Income) must exceed 100%; flag if it drops below this threshold."
- "Capital Expenditures as a percentage of sales should remain between 1.0% and 1.5%."
- "Adjusted Operating Margin should be in the 24.0% to 25.5% range; flag if outside this band."
- "Total Assets must equal Total Liabilities plus Shareholders Equity in every forecast period."
- "Gross Debt to EBITDA should remain below 2.5x based on management's conservative balance sheet policy."
- "Recurring revenue (implied by segment builds) should represent approximately 60% of total consolidated sales."
- "Effective tax rate should normalise around 21% to 23%."

## Key Assumptions (Default Values)

| Assumption | Default Value | Unit | Rationale |
|---|---|---|---|
| WQ Core Revenue Growth | 4.5 | % | Midpoint of management's long-term target and recent historical performance |
| PQI Core Revenue Growth | 3.5 | % | Reflects steady demand in packaging and product identification markets |
| Gross Margin | 58.5 | % | Blended average based on high mix of recurring software and consumables |
| SG&A as % of Revenue | 29.0 | % | Consistent with historical run-rate to support direct sales model |
| R&D as % of Revenue | 4.5 | % | Required to maintain technology leadership in testing and digital solutions |
| Adjusted Operating Margin | 24.5 | % | Aligns with 2025 reported adjusted operating margin |
| Capex as % of Revenue | 1.1 | % | Based on 2025 actuals ($63M on $5.5B sales) |
| Days Sales Outstanding (DSO) | 60 | Days | Calculated from recent balance sheet receivables |
| Days Inventory Outstanding (DIO) | 65 | Days | Calculated from recent balance sheet inventory |
| Days Payable Outstanding (DPO) | 70 | Days | Calculated from recent balance sheet payables |
| Effective Tax Rate | 22.0 | % | Standard corporate rate blended with international exposure |
| Average Interest Rate on Debt | 4.5 | % | Blended rate on senior unsecured notes and credit facilities |
| Annual Share Repurchases | 250 | $M | Assumes the $750M authorisation is deployed evenly over 3 years |
| WACC | 8.0 | % | Reflects low beta, defensive end markets, and investment-grade debt |
| Terminal Growth Rate | 2.5 | % | Aligns with long-term global GDP and inflation expectations |

## Data Sources & Benchmarks

- **Filings:** SEC EDGAR (Form 10-K, Form 10-Q, Form 8-K) and the Veralto Investor Relations website.
- **Key Peers:** Xylem (XYL), IDEX Corporation (IEX), Agilent Technologies (A), Mettler-Toledo (MTD), and Roper Technologies (ROP).
- **Industry Data:** Global Water Intelligence (for municipal water trends), packaging industry reports (for PQI end-market demand).
- **Consensus Estimates:** FactSet or Bloomberg for forward-looking analyst estimates on core growth and adjusted EPS.

## Sources

- Veralto Corporation Form 10-K for the fiscal year ended December 31, 2024.
- Veralto Q4 and Full Year 2025 Earnings Release and Investor Presentation.
- Veralto 2025 Proxy Statement.
- Finviz Financial Data and News for Veralto (VLTO).
- Stock Titan: Veralto posts $5.5B sales, $1B+ free cash flow.

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## Frequently asked questions

### What does Veralto Corporation do?

Veralto Corporation is a global provider of essential technology solutions focused on safeguarding water, food, and consumer goods. The company operates through two main segments: Water Quality and Product Quality & Innovation, offering precision instrumentation, advanced treatment technologies, and product identification solutions.

### How does Veralto generate its revenue?

Veralto employs an asset-light, "razor-and-blade" business model, where the sale of installed equipment drives highly profitable, recurring aftermarket sales. A high proportion of its revenue comes from consumables, software, and services across its Water Quality and Product Quality & Innovation segments.

### What is Veralto's capital expenditure strategy?

Veralto maintains a very light capital expenditure profile, with capex typically ranging from 1.0% to 1.5% of revenue. This capital is roughly 60% for maintenance (tooling, IT) and 40% for growth initiatives like new product lines and software development.

### What are the key considerations for valuing Veralto Corporation?

Key considerations for valuing Veralto include assessing its organic growth trajectory, potential for margin expansion under the Veralto Enterprise System, and its capital allocation capacity. The company's asset-light model and high recurring revenue profile are also important factors for valuation.

### Can I download an Excel financial model for Veralto?

Based on the provided information, there is no downloadable Excel financial model available. This model description outlines the purpose and scope of an equity valuation and cash flow forecast for Veralto Corporation.

### How does Veralto's balance sheet structure impact its cash flow?

Veralto's balance sheet is characterized by a structurally low or negative net working capital as a percentage of revenue, which allows the company to generate cash as it grows. Its asset-light model also means very light property, plant, and equipment, further contributing to efficient cash generation.

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