Market Overview - Mid-cap stocks advanced in Q3, with the Russell Midcap Index returning 5.3%, driven by monetary policy shifts and stabilizing earnings [2] - Value stocks outperformed growth stocks, with the Russell Midcap Value Index returning 6.2% compared to 2.8% for the Russell Midcap Growth Index [2] Policy and Sentiment - Investor sentiment improved due to the passage of the One Big Beautiful Bill and progress on trade agreements, reducing policy uncertainty [3] - Earnings estimates stabilized, particularly in technology and AI sectors, despite some economic segments remaining weak [3] Portfolio Performance - The ClearBridge Mid Cap Strategy outperformed its benchmark, with strong stock selection in consumer staples and health care [4] - Performance Food Group and Casey's General Stores were key contributors, benefiting from strategic initiatives and strong execution [4] Sector Contributions - Health care was a significant driver of outperformance, with companies like argenx and Alnylam Pharmaceuticals showing strong results [5] - AppLovin's stock rallied due to excitement around its new e-commerce business, indicating potential for cash flow growth [6] Challenges - Stock selection in consumer discretionary and materials sectors posed challenges, with Chewy and Crown Holdings underperforming [7][8] New Positions - A new position was initiated in QXO, a building materials distribution platform, expected to consolidate the industry and improve efficiency [9] - Bio-Techne was also added to the portfolio, capitalizing on recent weakness and offering durable revenue streams [10] Exits - The position in ATS Corporation was exited due to leadership changes raising concerns about future performance [11] Outlook - The outlook for mid-cap equities remains constructive, with expectations for selective stock picking amid potential volatility [13] - The focus will be on businesses with competitive advantages and resilient cash flows [14] Portfolio Highlights - The ClearBridge Mid Cap Strategy saw contributions from 10 of 11 sectors, with IT and industrials being the largest contributors [16] - Stock selection in consumer staples, IT, and health care sectors positively impacted performance, while consumer discretionary and materials sectors detracted [17]

Financial Data and Key Metrics Changes - Revenue for the first quarter totaled $625 million, up 17% year over year, exceeding the high end of guidance [7][14] - Earnings per share (EPS) came in at $1.60, up 29% compared to the prior year [7][17] - Gross margins were 39.8%, an increase of 140 basis points year over year [16] - Adjusted EBITDA margins improved to 16.6%, up 80 basis points year over year [7][17] - Free cash flow for the trailing twelve months was $220 million, representing 9% of total revenue [20][22] Business Line Data and Key Metrics Changes - Automation Solutions revenue grew 16% year over year, with orders up 22% [14][18] - Smart Infrastructure Solutions revenue increased by 17% year over year, with orders up 13% [19] - Broadband revenue was up year over year, driven by a 9% organic growth in fiber [19] Market Data and Key Metrics Changes - Organic growth for the overall business was 11%, with The Americas showing 14% organic growth [8][14] - Orders were up 18% year over year, with a book-to-bill ratio of 1.05 [8][14] Company Strategy and Development Direction - The company is focused on solutions transformation, which is expected to drive future growth opportunities [7][10] - There is a strategic emphasis on acquisitions that support the solutions transformation and returning capital to shareholders through buybacks [9][10] - The company aims to bridge the gap between industrial and enterprise applications, enhancing customer relationships and driving repeat business [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth driven by trends such as reindustrialization, digitization, and automation [27][30] - There is an expectation of continued uncertainty in the near term due to trade policy, but a positive long-term outlook remains [27][28] - Signs of recovery in global manufacturing PMIs were noted, indicating potential for broader industrial recovery [29] Other Important Information - The company has a strong balance sheet with a cash position of $259 million and a net debt to EBITDA ratio of 2.0 times [20] - The next debt maturity is not until 2027, with all debt fixed at an average rate of 3.5% [22] Q&A Session Summary Question: Comments on reshoring interest among manufacturers - Management noted increased confidence among large customers regarding reshoring manufacturing capacity to the US, with a growing interest in IT and OT convergence solutions [36][38] Question: Insights on book-to-bill in Smart Infrastructure - Smart Buildings orders were up about 8%, while Broadband orders were up 18%, indicating stronger performance in the broadband segment [40][41] Question: Quantifying discussions on reshoring - Management indicated that discussions related to reshoring have increased significantly, with a portion of the sales funnel related to these solutions in the high teens percentage [49] Question: Demand pull forward observations - No significant demand pull forward was observed, but there is increased interest and discussions about potential quick deployments [51] Question: Exposure to tariffs and sourcing changes - The largest exposure is to Mexico, with most products having exemptions under USMCA, and efforts are being made to adjust sourcing from China [57][58] Question: Margin performance between segments - Strong performance in Industrial Solutions was noted, while Smart Infrastructure experienced a sequential step down due to revenue leverage impacts [62][64] Question: Free cash flow management - The focus remains on improving supply chain management and inventory turns, with a goal to increase free cash flow margin closer to 10% [73]

Financial Data and Key Metrics Changes - Revenue for the first quarter totaled $625 million, up 17% year over year, exceeding the high end of guidance [7][14] - Earnings per share (EPS) came in at $1.60, up 29% compared to the prior year [7][17] - Gross margins were 39.8%, an increase of 40 basis points year over year, marking the highest since the strategic transformation began in 2020 [7][16] - Adjusted EBITDA margins improved to 16.6%, up 80 basis points year over year [7][17] - Free cash flow for the trailing twelve months was $220 million, representing 9% of total revenue [9][20] Business Line Data and Key Metrics Changes - Automation Solutions revenue grew 16% year over year, with orders up 22% [14][18] - Smart Infrastructure Solutions revenue increased by 17% year over year, with orders up 13% [14][19] - Broadband revenue was up year over year, driven by a 9% organic growth in fiber [19] Market Data and Key Metrics Changes - Organic growth for the overall business was 11%, with The Americas leading at 14% [8][14] - Orders were up 18% year over year, with a book-to-bill ratio of 1.05 [8][14] Company Strategy and Development Direction - The company is focused on a solutions transformation that enhances customer relationships and drives repeat business [10][12] - There is a strategic emphasis on acquisitions that support the solutions transformation and returning capital to shareholders through buybacks [9][10] - The company aims to bridge the gap between industrial and enterprise applications, leveraging its broad product portfolio [12][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth driven by trends such as reindustrialization, digitization, and automation [27][30] - There is an expectation of continued uncertainty in the near term due to trade policy, but a positive long-term outlook remains [27][28] - Signs of recovery in global manufacturing PMIs were noted, indicating potential for broader industrial recovery [29][30] Other Important Information - The company has a strong balance sheet with a cash position of $259 million and a net debt to EBITDA ratio of 2.0 times [20] - The next debt maturity is not until 2027, with all debt fixed at an average rate of 3.5% [22] Q&A Session Summary Question: Comments on reshoring interest among manufacturers - Management noted increased confidence among large customers regarding reshoring manufacturing to the US, with discussions around long-term plans and IT/OT convergence [36][38] Question: Insights on book-to-bill in Smart Infrastructure - Smart Buildings orders were up about 8%, while Broadband orders were up 18%, indicating stronger performance in Broadband [40][41] Question: Demand pull forward and its impact - Management has not seen significant demand pull forward but noted increased interest and discussions from customers about deploying solutions [51][52] Question: Exposure to tariffs and sourcing strategies - The largest exposure is to Mexico, with most products having exemptions under USMCA, and no manufacturing in China for the US market [57][58] Question: Long-term EPS growth targets - The company is still targeting a 10% to 12% EPS CAGR but did not provide further updates on the $8 EPS goal for 2025 [59][60] Question: Margin performance between segments - Strong performance in Industrial Solutions was noted, while Smart Infrastructure experienced a sequential drop due to revenue leverage [62][64] Question: Free cash flow management - The focus remains on improving supply chain management and inventory turns, with a goal to increase free cash flow margin closer to 10% [74][75]

Financial Data and Key Metrics Changes - Revenue for the first quarter totaled $625 million, up 17% year over year, exceeding the high end of guidance [7][14] - Earnings per share (EPS) came in at $1.60, up 29% compared to the prior year [7][14] - Gross margins were 39.8%, an increase of 40 basis points year over year, marking the highest since the strategic transformation began in 2020 [7][15] - Adjusted EBITDA margins improved to 16.6%, up 80 basis points year over year [7][14] Business Line Data and Key Metrics Changes - Automation Solutions revenue increased by 16% year over year, with orders up 22% [14][17] - Smart Infrastructure Solutions revenue grew by 17% year over year, with orders up 13% [14][18] - Organic growth for the overall business was 11%, with The Americas leading at 14% [8][14] Market Data and Key Metrics Changes - Orders were up 18% year over year, with a book-to-bill ratio of 1.05 [8][14] - The Americas and APAC regions showed strong growth, while EMEA was the slowest growing region but still achieved organic growth [17][18] - Broadband revenue increased year over year, driven by a 9% organic growth in fiber [19] Company Strategy and Development Direction - The company is focused on solutions transformation, which is expected to drive future growth opportunities [7][10] - There is a strategic emphasis on reshoring and IT/OT convergence, with increased interest from customers in investing in these areas [38][39] - The company aims to maintain a disciplined capital allocation strategy, targeting acquisitions and share repurchases [9][20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about long-term growth driven by trends such as reindustrialization, digitization, and automation [27][31] - There is an expectation of continued uncertainty in the near term due to trade policy, but a positive long-term outlook remains [28][29] - Signs of recovery in global manufacturing PMIs were noted, indicating potential for broader industrial recovery [30] Other Important Information - The company generated strong free cash flow of $220 million, representing 9% of total revenue [9][20] - The balance sheet remains strong, with a net debt to EBITDA ratio of 2.0 times [20] - The next debt maturity is not until 2027, with all debt fixed at an average rate of 3.5% [22] Q&A Session Summary Question: Comments on reshoring interest among manufacturers - Management noted increased confidence among large customers regarding reshoring manufacturing to the US, with discussions around long-term plans [36][38] Question: Insights on book-to-bill in smart infrastructure - Smart Buildings orders were up about 8%, while Broadband orders were up 18%, indicating stronger performance in broadband [40][41] Question: Quantifying discussions on reshoring - Management indicated that discussions around reshoring have increased significantly, with a sales funnel growth in the high teens [47][50] Question: Demand pull forward observations - No significant demand pull forward was observed, but there is increased interest and discussions from customers about future deployments [51][52] Question: Exposure to tariffs and sourcing changes - The largest exposure is to Mexico, with most products having exemptions under USMCA, and efforts are ongoing to adjust sourcing from China [56][57] Question: Long-term EPS growth target - The company reiterated its target of 10% to 12% EPS CAGR but did not provide updates on the specific $8 EPS goal for 2025 [58][59] Question: Margin performance between segments - Strong performance in Industrial Solutions was noted, while Smart Infrastructure experienced a sequential drop due to seasonal impacts [61][63] Question: Learnings from combined sales force - The transition to autonomous systems is seen as a multi-step journey, with customers increasingly seeking digitization and integration of IT and OT [66][68] Question: Free cash flow management - The focus remains on improving supply chain efficiency and managing working capital to enhance free cash flow margins [71][73]