Good morning, everyone. Welcome to day two of the 21st Annual Oppenheimer Industrial Growth Conference. Next up, we have the Franklin Electric team led by CEO Joe Ruzynski and CFO Jennifer Wolfenbarger. Good to see you both. Thank you for joining us this morning.
Thanks, Bryan. Good morning, everyone. Excited to talk here a little bit about Franklin this morning and, what we're doing, what we're excited about, and, a couple of comments on our performance. The standard safe harbor slide, just to make sure that if we get you excited about something, we're following all the right rules. For those that don't know, just at a glance, Franklin has been around a long time with a, with a great and storied history in the motor space. You know, over the last, you know, number of years, we've really focused on protecting the world's most critical resources. And we are a flow control company that really focuses on water and energy, and you're gonna learn just a little bit more about that today.
Our deep history in motors and drives really gives us the application expertise, the R&D focus to be able to look at, understand, and serve faster-growing markets, and I'll talk about some of those examples. Well-positioned. We have about now 7,000 employees around the world. We've been busy here the last couple of years. I joined as CEO just about two years ago, and we'll talk a little bit about that journey and kind of what our focus is now and looks like here over the next couple of years. A great set of products and technologies, leaders in the groundwater pumping system space. Really in terms of fluid movement, a number of great opportunities in front of us.
Franklin has a solid track record, has a very strong balance sheet, which, you know, if you look at our history, both from organic growth and inorganic opportunity, I think a nice story in terms of us being able to find those right opportunities, both to invest internally, but also to grow through acquisition. Over 30 years of dividend growth and a corporate strategy that's really focused on emerging trends, on technologies that we feel we can better serve than others. Maybe just to give you a few example, we usually share our value creation framework on our earnings call, and have kinda laid the groundwork for how we're gonna grow, which we start with, how we're gonna continue to improve that P&L, you know, throughout, where we're flowing capital.
What we like to end with is, this is a great company with a great culture, and our focus is really on bringing together the best team to solve these problems. Just a couple of things. We start with growth acceleration, and we think this has been a differentiator for us here over the past year or so, we're not out there just to grow our top line. We're out there to grow through volume, through new customers, and through innovation. We've really ramped up our focus as an example on innovation. There's a data point here we used in Q1 talking about $160 million of new revenue by year three, just based on products that we have launched here, year to date over the last couple of years.
Vitality is an important area for us, and you'll hear why. There's markets out there that we know we can serve, and we can bring our R&D, our service, and our products to bear. From a margin standpoint, we have a lot of really great opportunities from a transformation standpoint. We launched our transformation office, which we call the Value Acceleration Office, which is gonna look a little bit different than transformation efforts in maybe some of our peers and in this space, where that focus has been largely on, you know, from a historical standpoint, on 80/20, on sourcing and material and other things. Ours is really broken down into three areas where we have cross-segment or cross-functional initiatives where we wanna go fast and solve big problems. That's where it sits.
A third of that is supporting innovation and growth, 1/3 of that is supporting improving our working capital, 1/3 of that is delivering money to the bottom line. The bottom line piece of it, we think, you know, brings 100 basis points on an annual basis as we go forward. What we like to talk about, and we went through this in our Q1 earnings a bit, is efficiency and growth we feel can go hand in hand. Two proof points are in our distribution and water treatment business. Both grew 16%, 18% in Q1 as an example. You can look at last year, the efficiency and productivity that we brought in those businesses.
From an investment and a capital standpoint, we are acquisitive, but we wanna be smart about that. We have a healthy funnel and a great biz dev team to really focus on those areas that can not only close gaps but help us to go faster. Corporate development for us and strategy, full stop, is informed by the markets, and we are bringing our focus into those areas that we think can give us that differentiated growth. I mentioned, you know, we're also committed to returning that capital and that money to our investors, and we've been very consistent about that. Our strategy, and I've alluded to this, which is we wanna serve water and energy needs where they're most critical. We are a global company.
Our presence in South America, in Europe, in Asia, has helped us to really understand what are those needs, where they're emerging, and to be able to serve those. We've grown acquisitively over the years, Franklin Electric has had a historic global presence, and that's really helped us. How we bring that and make that meaningful is strong channels in the regions that we serve. We are an in region, for region manufacturer. The sources of our manufacturing are in good cost positions, but our ability to serve them and to touch our customers is by having, you know, that right to win, which includes channel customer intimacy, great products, and innovation in how we serve. We talk about an elevated customer experience here. This is very important to us.
We look at an elevated employee experience to us. We're sitting here in Fort Wayne, Indiana, today. In my two years here in Fort Wayne, you can really see that culture brought to bear as it comes to solving problems and serving our customers. Everything we do is informed by data, and I know most of our peers in good companies would be. What it does is it helps us to flow our time, effort, and energy. When we look at our markets, and you can see an example, we use You know, one of the questions that we get asked is, "How are you using AI?" Our strat cycle is short.
We've shrunk that from five years to three years with 18-month proof points, and what we're trying to find is where do we have application expertise that can serve markets that are growing faster. It's informed both organic and inorganic activity. It's informed our innovation funnel. But at the backbone and the baseline of that is informs our strategy, which are, you know, what are those markets that are growing faster than others, that we can help to normalize and move our attention to be able to serve those markets and do it in a more efficient way.
How that'll show up for us as you, as you go forward, and this has changed already in the last couple years, is if you look at the end markets that we play in, you know, we have a fairly significant exposure to groundwater from an application standpoint and the residential market from an end market standpoint. This is water treatment. This is fresh water. This is wastewater. Within those, you know, we see opportunities to shift and to change. The growth that you're seeing, for example, in areas like liquid cooling in the data center is a big opportunity for us.
Energy from an infrastructure standpoint and, you know, specifically here in the U.S. where there could be some tailwinds around the world, which I'm sure have been discussed today, some headwinds, excuse me, it provides some tailwinds for us here, in the U.S. where the majority of that market is served. You're gonna see this balance and normalize a bit here over the next couple years because we're looking for those opportunities to grow commercial and industrial, to grow some of that energy segment, and then to balance out some of our exposure to markets that are potentially a little bit more, you know, flat or mature. Just a couple comments on our three businesses.
Our Water segment is really focused on treating, supplying, movement, moving, and removing fluid and water in different applications. We talk about a couple example of those trends that we look for, urbanization in some of those faster-growing regions, computing power, which I know is a hot topic in our space today, increasing mineral demand, which, you know, based on a few acquisitions we've done the last couple years, has really led to, you know, our knowledge expanding on the OpEx side of those mines. Really, behind all of this is just how we serve our customer.
Franklin Electric, you can see a series of brands that are specific to some of the end markets that we serve in the regions, we bring them together, and one very common thread is how we serve our customer. It's premium product. You can see as it relates to higher inflation or pricing dynamics in the market, you know, this has been a big benefit. We have a strong channel. We have a strong brand. We see that as a big boost to us here as we go to market. Our distribution business, we go to market under a series of companies we call the Headwater Companies. This is largely a North American business, about $700 million.
We built this business, you know, over the past, you know, five, six, seven years, really starting out as wanting to do something different, to serve our customers better, to bring technology, not just great products, to what they need on a day-to-day basis. You know, we've launched industry, you know, new industry launches or new solutions and new technologies. You know, one example is our on-site inventory program, which I call out here, which basically puts the inventory owned, managed, and served by Franklin at the site of our end customer to be able then to pull the product when they need it. It's really critical for us because a big portion of our business, 75%+ in this, in this segment as an example, is replacement business.
When you need something, you need it now, and it helps us with how we fulfill inventory, how we distribute, how we get the right product there. The backbone of it is really technology. It's not only 24/7 visibility for our customers, but a one-stop shop for them to get what they need when they need it, and to know that it's gonna be there. In our energy segment, this business started out with our intimacy of pumps, motors, and drives, of course, but it has become one of our smartest business or smartest segments. We've moved from serving the infrastructure in terms of from an energy standpoint.
If you think of service stations, which are now basically mini malls, that also you can pump gas, we've gotten into control and monitoring and sensing in these spaces to be able to bring together the infrastructure at any different install where you can see it in a one-stop shop, from tank gauges to monitoring your the refrigerators to monitoring signage. Our solutions there, and we go to market kind of our core offering there is the EVO solution, has really become an area for us to help and to innovate for our end customers, you know, such as our OVERSITE technology, which helps them to do remote startups, so it saves time, saves energy, and helps them to run their business.
New products are a central theme for us. If you look at our strategy, we want to increase new products. We want the velocity to get those products to market to be faster. The most important thing, you can see the OVERSITE solution here in the upper right-hand corner, is we want to solve market problems. We want to understand what challenges our customers have to be able to serve and to solve those on a real-time basis. It's innovation that's informed by a market need. It's making sure that we understand what our right to win and what problem we're solving, it's doing it with velocity. My team here internally gets tired of me using that word of velocity, it's an important one for us. I mentioned EVO before.
EVO, we have some of the most sophisticated control sensing and monitoring solutions on the market. EVO ONE is an example where a lot of our customers may own one, two, or a couple within region service stations, and they have old and outdated technology. What they're looking for is not to replace one off or not to re-replace two sensing control items, but something that's a one-stop shop that's right-sized for their product. We launched this here just last year. We're finding a tremendous opportunity there to go and sell this and to do all of this thing, one price, one install, and to make it as easy as possible for them. On the water side, you know, we look at trends. Pressure boosting has been a big trend.
We talked about this a lot last year because if you look at the urbanization in some areas, or if you look at, you know, homes that need high performance, high pressure as you add different applications, be it water treatment or, you know, as houses get bigger. We've launched a series of products here. I think one thing that's unique about Franklin and why we like to talk about, you know, pressure boosting as an example, is we manufacture the drives, the pumps, the motors, and the way that we sell this product is in an easy, integrated, you know, works together beautifully. Installation is one of the easier parts about this, but the technology behind it is what's beautiful. We've launched some of these products here in the last year.
If you look forward here in the next couple of years, we've got a big focus on drives just full stop because we look at some of the newer applications, and liquid cooling is one of those. It's really about managing that pressure, doing it dynamically and doing it effectively. Our application expertise and our historical perspective here really helps us for some of those faster-growing areas. I'm gonna give Jennifer just a moment. I think we've got a few moments just to go through financial performance here, and I will scoot to the side and give her the screen.
Thank you. I'm just gonna provide a kind of a brief overview of our investment thesis from a financial perspective. Financial, Franklin Electric has demonstrated very strong financial performance the last several years. You can see on the page here, revenue CAGR of 11%, EPS CAGR of 14%, and a solid return on investment of invested capital of 15.3%, which is best in class in the industry. I'll provide a little bit more color on our 2025 performance and give a little bit of a color on our Q1 performance as well. We've a strong balance sheet and plenty of dry powder, and we'll continue to invest into our company into the future for growth.
We've proven good return on our investments in the last several years, and we've committed to continuing to return that growth to our shareholders. Our capital allocation strategy remains unchanged. We want to invest for internal growth. We did increase our capital spend in 2026 to record levels. We increased that by 20% year-over-year. We're gonna continue to invest in M&A and growth from that perspective. We're gonna continue to build upon that 30-year plus dividend and returning cash back to our shareholders through dividends and through share buybacks.
Just shifting to our Q3 performance, and I don't want to repeat everything that we shared in our Q1 earnings call, but we had great performance in the quarter across all three of the businesses, expanding and growing our sales on each of our three businesses and expanding margin on each of the three businesses. Happy to take any questions now at this time on the business, our financial performance, anything that might be on your mind.
All right. Thank you both. Very helpful walkthrough. I guess let's start with Q1. You know, a very strong start to the year. Maybe just offer a little more color on, you know, the tailwinds, the positives in the quarter, then frame for us, you know, the remaining watch items. You know, what tempers the outlook a little bit? 'Cause I would argue that given the strength of Q1 and run rate reads, you're leaning pretty conservative with, you know, reiterating guidance at this point, albeit early in the year, I accept that. I'm just curious how you walk through the puts and takes there.
Yeah, maybe I'll start there, Bryan, and then turn it over to Jennifer. Q1, here's a couple proof points and what gives us some confidence here as we get into Q2 and the remainder of the year. I think one is, and it's I started here, Jennifer started here, but it's when we look at organic growth, we're looking at volume. Price is a portion of it as well. If you look at our volume growth, for some of the initiatives, some of the innovation, but also some of the end markets, you know, we look at those proof points. Are we taking share? Are we finding new customers? Are we adding new channel, and are we bringing new products to market? Those definitely, you know, we've seen a good result there.
I think, you know, in terms of some of the outliers from what the street expected from us, energy had a bit of a stronger quarter. We said that, you know, from a sequential standpoint, that those margins would get back on track. We're happy with their return. It's a great business. When we look at Water Systems and Distribution. The Distribution up 6% is a nice indicator. One is, you know, we feel that the conditions are fairly normal. That's a largely North American statement there, of course. The trends look good here as we come into Q2.
From a water system standpoint, we're a little bit more exposed globally, so as you could imagine, there were some positives and some softer spots in countries like Brazil or we're exposed to the Middle East. You know, I would say as you Your question on what are we thinking about based on our outlook, and we recognize that, you know, after a strong Q1, does this portend something that says, you know, the underlying markets are gonna see softness or something's gonna happen? Not per se, here's a few things that we're watching. One is, you know, we are watching the agricultural business in the U.S. and in Europe. Fertilizer prices, input costs, you know, also they can have an impact in terms of that of that spend there.
We're also looking at the situation in the Middle East. If we look at the global disruption, one of the things that I would say we're probably watching closer than any immediate sales we have in the Middle East because they're small, our peninsula sales are fairly small, but is the lingering effect or what fuel prices do to distribution, to our infrastructure, to decisions to make spends, you know, within the residential area. I think those are a few of the things that we are looking at. The underlying markets look solid. You know, we think this is gonna be a nice year for Franklin.
Q2 is trending well, but those are some of the areas that were harder for us to predict, and we wanted to have a degree of balance here as we came into Q2. Jennifer, I don't know if you.
Yeah. I, you know, I would just add on that, you know, with one quarter under our belt, we do feel confidence. Again, it is one quarter, and there are enough uncertainties in the market that we did not want to raise our guidance. Our aim, Joe and I, as we came into the role and into Franklin Electric, is predictability. We felt it was a little too soon to raise our guidance, though I would say we're feeling optimistic.
Okay. Understood. Yeah, predictability is something investors love, and leaving a little bit of uncertainty to the upside, there's nothing wrong with that. In terms of the outlook, just to further level set on the year and guidance as it stands, how should we think about, you know, segment growth and margin performance? You know, how do excuse me, those moving parts shake out for Water, Energy Systems, Distribution respectively?
From an outlook standpoint, you know, we gave our guidance kind of in that low to mid-single digits. You're gonna see that across all businesses. There's no businesses that we expect to tail off or ones that we expect, you know, to kind of shoot through the roof. What we're seeing from a trend standpoint is the energy business looks like it could be on the high end of that, so we expect it to see nice growth, and we expect year-over-year margin improvement in all three segments. For energy, we'd call that out just because they're starting, you know, at a high point there with their OI margins in the mid-30s.
From a distribution standpoint, you know, we've been consistent about this here the last four or five quarters is you're gonna see continued margin expansion in that business. They were a nice contributor to our OI growth last year. They will be again this year. What we like about that business is looking at our trends and how we've expanded that channel, given our customers additional services and products to be able to grow, you know, we feel it's hard to predict. There is a weather element. You know, we're still looking at housing starts. It's a high replacement business, the baseline and the backbone of that business we feel good about, which should come in kinda to the middle to the higher end of it. The Water Systems business, you know, we've got great opportunities.
We've had a strong North American position. We're excited about our space in the mining or the mineral extraction area. We saw, you know, rest of the world growth, so outside the U.S. in that area, up 30%. Smaller base, but gives us a nice indication. We're a little bit more exposed to some of the global dynamics, so I think if Europe, we're tempering our expectation there a little bit if some of the Mideast conflict bleeds over. That's probably gonna be to the mid, maybe to the kind of lower end of that mid-single digit range, low single digit, mid-single digit range. But again, we expect expanded margin there in all three segments, you know, with growth kind of in the range that we referenced at the outset of the year.
Okay. Appreciate the color there. You mentioned the robust margin performance in Energy Systems, that really stand out, you know, profitability in that segment. Maybe speak to, you know, what drives that, you know, level of margin? What, what makes it sustainable, more importantly, as we look forward?
Yeah. You know, I said up front, you know, the history in that business started kind of pumps, motors, drives, and infrastructure. If you look at the story the last five years, it's been about smarter solutions, hardware and software and technology. As you can imagine, that mix-up and where that growth is coming from has really helped us to shore up and to build a great margin. I would say the other thing in the business, so, you know, we've launched our Value Acceleration Office, and I mentioned this earlier, with a focus on efficiency and productivity. Our energy business definitely got a head start there.
They've gone through some ups and downs into and out of COVID, and what we've built is a very efficient business, a great innovation business focused on growing some of those higher-margin business in the hardware and software space. We feel good about those margins, not only maintaining, but as I mentioned, year-over-year this year, we're gonna improve those margins. There's gonna be a little bit of a comp in Q2 where price got ahead of the tariff, the tariff expense. For a full year, we feel good about that and really driven by great products, new technology, and accretive new products.
Understood. I'll ask the requisite question on data centers. Exactly where does your team play? You know, what exposure do you have to data centers directly or AI complex overall? Are you willing to size that revenue? Looking at slide seven, it looked like mid-teens growth rate anticipated. Is that the current growth rate? How should we think about, you know, the potential impact to the Franklin Electric story through more of a medium-term lens given the, you know, growth prospects of that?
Yeah, great question, and maybe I'll leave this slide up. I was gonna take it down here, but here's if you look at these three businesses, actually all of them have some exposure to data center. You If you're in pumps, motors, and drives, and you'll have some exposure to data center. There's really three areas that we focus on right now but then I'll talk about what we're excited about, where we're standing up operation, and we're really, you know, gaining some traction.
From an energy standpoint, maybe if I start right to left here, since we do have a business that's focused on grid battery backup, power quality, we do have, you know, a segment of that market that serves data centers, because that's such a critical element from an energy infrastructure and as an input. On the water space, there's a couple areas that we serve. On the outside of the data center, we do have, you know, largely sold through distribution or that water business, the condensation, the cooling towers, and the management there. What we're really excited about is inside the data center, and there's two specific applications. One is that utility hookup, which are generally, larger electrically driven pumps, motors, that serve the wider data center.
Then finally and last and probably the most exciting for us is to get a position selling to and serving the large CDU manufacturers because, you know, coming from this space and knowing this business well, you know, it's very hard to be able to partner with a global supply chain and meet the needs of hyperscalers. We started by coming up with our solutions to serve those specs, getting on those specs, and now we've got production being stood up here in the U.S. We've been doing it a couple different areas before, but dedicated production to be able to serve and sell in those spaces and we're excited about it.
I would tell you this, Bryan, we will size this, you know, more formally here in our call after Q2, but we've got some good orders in hand, some good spec positions we're excited about. I think, you know, if you look at, you know, some of the CDU manufacturers, you look at orders growth, you look at that opportunity, you know, our outlook here the next five years looks strong. I think having a good, responsive U.S. source for pump, motors, and drives, it's really the heartbeat of that CDU system, and that's something that we're excited about here.
Okay.
I would say growth rates are, you know, depending on the part of the data center, are at that or above that here. That's a kind of a wider data center and data centers have been a part from an installation, you know, physical and otherwise. Really the piece that we're serving there in the liquid cooling space is at the high end of anything you see published for data centers.
Got it. That's exciting. I look forward to hearing more and learning more about that. There has been and remains, call it pretty healthy debate about your Distribution segment and, you know, the role of Headwater Companies, the pros and cons of Distribution being in the portfolio. Maybe circle back to strategic rationale, the commercial strategic upside of, you know, having the Headwater Companies in the fold, and then for those who push back, and typically that's on margin, speak to what has been done and what can still be done to improve the level of margin generation.
Sure. Historical view, just in 30 seconds, we got into this space, somewhat as a defensive measure, if you go back five, six, seven years. We felt that we had great products, great services, great solutions, and our ability to sell that purely as a two-step, you know, through two-step distribution, was a limiting factor. We got into that space defensively. It's become more of an offensive play for us here in the past few years, and for a couple of reasons. One is our intimacy with end customers is unique in our space, and we recognize it's not a unique setup for companies, for companies like us.
What it allows us to do is to see exactly what's happening with our customers real time, understand dynamic pricing, the movements of the market, and the movements of the market in that space are local. They're not national. They're not global. To be able to feed that upstream, if you think of the opportunities for us, you know, and I know there's been a lot of AI questions here that we've been asked today, but our ability to put the right inventory at the right place at the right time, working capital is a big opportunity for us. Also, I mentioned about innovation. We don't have to ask those questions to go around our distribution to say, you know, "What are your needs? What are you doing?" We're with them. We're with well drillers. We're with home builders.
We're with wastewater installers on a day-to-day basis. Having that as a key input or to inform us in terms of our new product or our acquisition strategy, when I say our channel is strong, it's strong with the partners we have. You know, when your channel is something that you can see, touch, and then input that data from more real time to be able to get the right product at the right time, it's really become an important thing for us. I would say room on margin. You know, we've talked about if we gave a midterm outlook, we think, you know, getting in that 10% range similar to what you see public company peers are that are bigger distributors, you know, is our focus.
You're going to continue to see expansion there. We want to be able to show that improvement externally, you'll see us to talk about that represented. There's more work to do, we thought we had a good start last year, 200 basis points last year. We'll have nice expansion again this year.
Okay, understood. Just out of curiosity, the, you know, return profile Distribution has always been, you know, quite a bit better than, you know, the optics of margin trends. Where are returns currently? If you have the step up in margin as you're targeting, where does that shake out on a ROIC basis?
Yeah. Well, just from a return standpoint, I'll let Jennifer Wolfenbarger talk about ROIC, but, you know, our gross margins are generally in line with the industry, where our gross margins are around 30% in that business which is fairly common in that industry. I think some of the efficiencies and what we expect to see is more on how we run that business. Think SG&A, OpEx, back office distribution, and those are some of the focus areas where you see that driving out in margin in addition to gross margin expansion. You're gonna see it both in gross margin expansion in terms of leveraging our position upstream and then making more efficient decisions in how we buy using consignment for commodities, getting it tied a little bit closer with dynamic pricing.
Also on the, you know, below the COGS line, below the gross margin line, we've got a lot of nice initiatives there. From a return standpoint.
Yeah
Maybe if Jennifer-
The return on invested capital in that business is roughly around 14.5%, so really strong return on invested capital. As we continue to make improvements on the businesses and getting that business on more of a sustained 10% OI basis, that's gonna read through. In addition to, we'll continue to look at rooftop consolidation within the business. We've made some acquisitions. We continue to look at driving efficiency on how we run that business from a structural perspective. Those will all read out and continue to improve our return on invested capital for that business.
Okay. Got it. Appreciate the detail. I'd like to spend a minute on water treatment if you don't mind, you know.
Please.
Just touch on strategic alignment and building out your presence in that vertical. You know, speak to the current size and margin level. I know there's a nice step up in margin in Q1, and, you know, how impactful the, you know, the platform, the strategy can be looking forward.
Yeah. Maybe just to scope it first. That business for us is just over $200 million. The margin for that business is just slightly under kind of our average margin overall for Franklin. And it's been improving, and our expectation is that will be net neutral to accretive here over the next year or so. Here's what we really like about that business. We've chosen a position in the market that's fairly unique. We're not pure manufacturers. We're not just dealers. We basically are the grease or the middle layer in that industry. We assemble, we bring leading solutions together, but we also serve, and we serve through technology. You know, here's one example, Bryan.
We when we look at the last couple years, the proof points for that, why is that growing 8% in a market that's probably pretty flat if you look at water treatment residential. It's our ability to sign up dealers to put them on our infrastructure platform to give them access not only to great products, all the products that we serve upstream, but also the technology to be able to sell and serve to their end customers. We've added about 150 new dealers here over the past couple years. We'll continue to add dealers. In some cases, it makes sense for us to stand up a greenfield or a front end. In more cases, it's buying smart solutions technology and then to be able to work with dealers and sign them up.
That's really been a proof point. Our growth leading indicators give us pretty good sense that we're gonna continue to outgrow that market over the next couple years. As we add new products and new solutions, I think there's a multiplier effect.
Got it. Yeah, your performance has stood out in that space, no question about that. If we look forward, you said that within the foreseeable future, you know, neutral to positive in terms of mix impact, how profitable can that platform, you know, become as you continue to scale? Any way that we can dimensionalize that?
Yeah. I think, one, is it depends on the type of products that we bring to market. I would say we're constantly looking for areas to sell more in terms of aftermarket services and solutions, which obviously will have a mix up element to it. you know, I see that being accretive to our net portfolio, which is, you know, so you can see where we sit today. We see that as a mid to high teens business here over the next year or two. I guess it's hard, you know, to give kind of midterm, you know, outlook for something that's as a sub part of the segment.
Not quite ready to do that, but we see opportunity to continue to move that forward.
Okay. Understood. We're almost at time. final topic, touch on capital deployment, you know, priorities and focus. I know, you know, CapEx steps up this year, maybe, you know, discuss the, you know, the key areas of investment there. In terms of inorganic deployment, what's of greatest interest to your team on the M&A front? how do you think about dry powder? Your balance sheet's obviously in strong shape. What would be kind of the sweet spot of deal size?
Yeah.
Just for one.
Two comments, and then I'll see if Jennifer wants to add to it. One thing I would say, internal capital deployment, it's a blend of growth and capacity and infrastructure. If you look at, we just launched a new factory in Turkey on the Water side. We have one coming on our Turkey campus on the energy business here later this year. We've got an expansion in India to support some important customers. We have some of the consolidation work that we referenced, that Jennifer referenced earlier. From a capital standpoint, it's operational efficiency and capacity where it's needed. I'm excited about that capital deployment to talk about innovation.
You know, as you could imagine, if you look at liquid cooling or data centers, you can't just sell off the shelf and expect to participate in a real way in that market. We're standing up production for that in our Oklahoma facility right now. The investment that really goes into new products is, kind of rounds out, you know, that capital deployment. From a deal standpoint, I'll say this, over the last five years, we've done smaller bolt-on deals that have been a blend of dealer, distributor, and some water products. You're gonna see bigger deals in the water product space, we're focusing on fewer and larger revenue. Larger revenue for us is when you look at that + $100 million range.
We're not talking about adding a fourth leg, or we're not talking about a major or a seismic shift. We feel there's opportunities for us to look at some bigger companies, and the market is better for it today, which I'm sure you've heard a little bit from others.
Yeah.
Any-
I might just add a little bit of color on the internal, on the organic capital deployment. You know, I'm really proud of the work that we did and really the shape of our capital pool is much different than it has been historically with a bigger shift towards growth, productivity, as Joe mentioned, and a smaller, you know, allocation towards maintenance. A lot of work has gone into making that possible to continue to maintain our equipment, and so forth, but focusing more of our investment on what's gonna deliver real return.
Got it. Very, very helpful color. We're a little beyond time, but thank you both again. Very helpful detail.
Thanks, Bryan. Have a great day, everyone.