Ametek Inc (AME) — Q2 2025 Earnings Call Transcript

Thank you, Towanda. Good morning, and welcome to AMETEK's Second Quarter 2025 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2024 or 2025 results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization, and excluding the pretax $29.2 million or $0.10 diluted share charge in the first quarter of 2024 for integration costs related to the Paragon Medical acquisition. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open it up for your questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK delivered strong second quarter results, highlighted by record-level sales and EBITDA, strong core margin expansion and excellent earnings growth. We also raised our full year sales and earnings guidance to reflect our second quarter results and the recent acquisition of FARO Technologies. The addition of FARO Technologies nicely complements our existing metrology and precision measurement businesses. Our ability to deliver strong operating performance is notable given the challenging macro environment and is a testament to the quality of our differentiated businesses, the strength of our operating capabilities and the contribution from all AMETEK colleagues. Now let me turn to our second quarter financial results. Sales were a record $1.78 billion, an increase of 2.5% from the second quarter of 2024. Organic sales were flat. Acquisitions added 1.5 points and foreign currency translation was a 1-point benefit. Book-to-bill in the quarter was 1.00 and we ended the second quarter with a backlog of $3.47 billion near record levels. Our operating performance in the quarter was excellent, leading to strong margin expansion and earnings growth. Operating income in the quarter was $462 million, a 3% increase over the second quarter of 2024. The operating margins were 26% in the quarter, up 20 basis points from the prior year. Core margins, excluding the dilutive impact from acquisitions and the impact of foreign currency, were very strong at 26.7%, up 90 basis points versus the prior year. EBITDA in the quarter was a record $565 million, up 4% versus the prior year with EBITDA margins an impressive 31.8%. This operating performance led to earnings of $1.78 per diluted share, up 7% versus the second quarter of 2024. Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. The Electronic Instruments Group delivered solid operating performance in the second quarter. EIG sales were $1.16 billion, up 1% from last year's second quarter. Organic sales were down 3%, acquisitions added 2 points and foreign currency was a 1-point tailwind. EIG operating income was $344 million, and operating margins were 29.7% with core margins a very strong 30.7%, up 40 basis points versus the prior year. The Electromechanical Group had an excellent quarter with strong sales and orders growth, record operating income and sizable margin expansion in the quarter. EMG's second quarter sales were a record $618 million, up 6% from the prior year. Organic sales were up 5% and foreign currency was a 1-point tailwind. Additionally, orders were again strong in the quarter with notable order strength within our Paragon and Automation businesses. EMG's operating income in the second quarter was a record $144 million, up 17% compared to the prior year. EMG's operating margins were 23.3%, up 210 basis points in the second quarter of 2024, with core margins up an impressive 260 basis points. Our businesses continue to execute well, delivering strong operating results against the backdrop of a challenging macro environment. Our business model allows us to react quickly to changing economic conditions while ensuring we remain focused on delivering long-term sustainable growth. We are committed to making strategic growth investments across our businesses to help support and accelerate progress. For all of 2025, we continue to expect to invest an incremental $85 million in strategic growth initiatives across the company, with these investments focused on research, development and engineering and sales and marketing. These efforts and our commitment to innovation ensure a steady stream of new products that support our customers' critical applications and position us for continued success. Our vitality index, which was 26% in the quarter, continues to reflect the success of our technology innovation strategy. I want to take a moment to highlight a recent new product introduction from our SPECTRO Analytical Instruments business. SPECTRO Analytical Instruments is a leading global provider of advanced instrumentation solutions for highly precise and accurate elemental analysis. This new product, the SPECTROGREEN MS, is their latest solution designed for high-performance elemental analysis. It addresses a key challenge in environmental and pharmaceutical laboratories by simplifying the process of analyzing complex samples for trace elements. The new product incorporates several innovations that improve workflow and efficiency, including its ability to analyze both high concentration and trace elements in a single measurement, significantly reducing analysis time for busy labs. With this new product launch, SPECTRO Analytical continues to advance its technology leadership and provide customers with greater speed, accuracy and ease of use for their critical applications. This is just one of the many innovative new product introductions across our business. Now switching to capital deployment. As noted, we acquired FARO Technologies subsequent to the end of the second quarter for approximately $920 million. FARO is a leading provider of advanced 3D metrology and digital reality solutions. Their technology solutions, which include measurement arms, laser scanners and integrated software platforms enable customers in end markets, including aerospace and defense, public safety and architecture and engineering to precisely measure and visualize physical environments for a wide range of critical applications. FARO's product suite nicely complements our existing metrology and precision imaging capabilities, particularly within our Creaform business, providing the most comprehensive portfolio of automated 3D metrology, laser projection and digital reality solutions. This acquisition provides AMETEK with a significant presence in the fast-growing digital reality market and has a strong recurring revenue profile through its service and cloud-based subscriptions. We see significant potential to expand operating margins through integration into AMETEK's global infrastructure and operating model. FARO has annual sales of approximately $340 million. We're very pleased to welcome the FARO team to AMETEK and excited for the future. Strategic acquisitions are a core component of the AMETEK Growth Model, and we are committed to deploying our strong cash flow to expand our portfolio in highly attractive market segments. Looking ahead, our acquisition pipeline remains robust, and Dalip will detail, we have a very strong and flexible balance sheet. We anticipate remaining active in this area. Finally, a comment on the global trade landscape. While the situation remains fluid, our businesses have been proactive in addressing the potential impacts of tariffs. As we highlighted last quarter, we have well-defined mitigation plans that are being executed across the organization. These actions are multifaceted and include targeted pricing initiatives, strategic adjustments to our global supply chains and leveraging our worldwide manufacturing footprint to localize production. Our teams are also identifying opportunities to utilize our U.S. manufacturing presence to support global customers looking to localize or reshore their supply chains. AMETEK's diversification across end markets and geographies limits our dependence on any single region, and our decentralized structure allows for the flexibility needed to implement these mitigation actions quickly and effectively. We have a proven playbook for navigating through these uncertain environments, and we are making outstanding progress. Our focus remains on supporting our customers, delivering strong results and utilizing our strong financial position to invest in our long-term growth initiatives and strategic acquisitions. Now turning to our outlook for the remainder of the year. Given our results in the second quarter and the closing of FARO Technologies, we now expect full year sales to be up mid-single digits on a percentage basis compared to 2024. Diluted earnings per share for the year are now expected to be in the range of $7.06 to $7.20, up 3% to 5% versus the prior year. This is an increase from our previous guidance range of $7.02 to $7.18 per diluted share. For the third quarter, we anticipate overall sales to be up mid-single digits, with earnings in the range of $1.72 to $1.76 per share, up 4% to 6% versus the prior year. Our full year and third quarter guidance incorporates the expected contributions from the FARO acquisition. In summary, AMETEK delivered strong second quarter results. Our businesses are well positioned with differentiated technology solutions, serving a diverse set of growing niche markets. We have a durable operating model and an ability to react quickly to changing market dynamics. Our strong cash flows provide us with the opportunity to deploy meaningful capital on strategic acquisitions. AMETEK remains firmly positioned to deliver long-term sustainable growth and strong returns for our shareholders. I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions.

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK had a solid second quarter, highlighted by excellent operating performance, robust core margin expansion and strong earnings growth. Now let me provide some additional financial highlights for the second quarter. Second quarter general and administrative expenses were $27 million or 1.5% of sales, in line with last year's second quarter. Second quarter interest expense was $17 million. Second quarter other expense was higher by approximately $3 million versus the prior period due to lower pension income and foreign exchange movements. The effective tax rate in the quarter was 19%, in line with the second quarter of 2024. For 2025, we now anticipate our effective tax rate to be between 19% and 19.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. The recently enacted tax reconciliation bill aligns well with our U.S.-based manufacturing footprint and innovation-led growth model. While we are continuing to assess the full implications, we expect it to favorably impact our cash tax position. Capital expenditures in the second quarter were $29 million, and we now expect capital expenditures to be approximately $160 million for the full year or about 2% of sales. Depreciation and amortization expense in the quarter was $108 million. For the full year, we expect depreciation and amortization to be approximately $425 million, including after-tax, acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share. Operating working capital in the second quarter was 18.6% of sales, in line with the second quarter of 2024. Operating cash flow was $359 million in the quarter, and free cash flow was $330 million. Year-to-date, free cash flow conversion was 102% of net income. For 2025, we continue to expect strong free cash flow conversion of approximately 115% of net income. Total debt at June 30 was $1.9 billion, down from $2.1 billion at the end of 2024. Offsetting this debt was cash and cash equivalents of $620 million. At the end of the second quarter, our gross debt-to-EBITDA ratio was 0.85 and our net debt-to-EBITDA ratio was 0.6. Pro forma for the acquisition of FARO, our gross debt-to-EBITDA ratio increases modestly from 0.85 to 1.25. With respect to our recent acquisition of FARO, we will be excluding any one-time acquisition-related costs and restructuring charges from adjusted cash EPS starting in the third quarter. This approach will also be consistently applied to all future acquisitions, ensuring comparability and clarity in our non-GAAP financial reporting. We continue to have significant financial capacity and flexibility with over $2 billion of cash and available credit facilities to support our growth initiatives and to further deploy on strategic acquisitions. In summary, AMETEK had a solid second quarter, delivering strong results, including robust margin expansion and earnings growth. Our leading positions across attractive market segments, combined with our strong balance sheet and outstanding global operating capabilities leave us very well positioned to navigate the current environment and deliver on our growth strategies.

Thanks, Dalip. Towanda, can we please open the line for questions?

Can we start off with the end market and regional tour and given all of the fluid trading environment? It's really interesting to get your perspective on kind of the puts and takes. And Dave, could you also include the cadence of the months because we've heard reports recently where it was choppy month-to-month, and I know you've got some perspective there? We heard June was down but then July came back. I don't know if that was a pattern you saw. So a bit to unpack there.

Sure, I'll address all three aspects and begin with an overview of the company. Our sales in the Process sector remained unchanged compared to last year, as growth from recent acquisitions balanced out a 4% drop in organic sales. Ongoing trade dynamics and fluctuating negotiations are causing uncertainty in project spending; however, we are optimistic about a robust pipeline of underlying project activities across our sectors. Consequently, we now anticipate that organic sales in our Process businesses will remain flat or decline slightly for the entire year. Moving to Aerospace and Defense, our Aerospace segment recorded another robust quarter, with both total and organic sales growth rising in the high single digits. This growth was widespread across all subsegments, with commercial OEM showing the strongest increase. Looking ahead to 2025, we now project organic sales in our Aerospace and Defense sectors to rise in the high single digits, an upward revision from our previous expectation of mid-single digits, which we feel very positive about. Our Power sector reported a slight increase in both overall and organic sales during the quarter. Given our strong position in energy, grid modernization, and electrification, we are well-positioned for long-term growth. For the year, we now predict organic sales in our Power & Industrial sectors to increase in the low single digits compared to last year, an improvement from our prior flat outlook. This reflects solid performance in our Aerospace and Defense as well as our Power and Industrial sectors. Finally, our Automation & Engineered Solutions segment returned to growth this quarter, with both overall and organic sales up slightly. We experienced strong order growth in our Paragon and Automation businesses this quarter, which we are excited about. We continue to anticipate mid-single-digit organic growth for this subsegment. Overall, that's a summary of our situation. Regarding the trade environment, our businesses responded promptly by developing plans to address tariffs and mitigate their effects. We have a comprehensive strategy to pursue selective pricing increases, as well as adjustments to our supply chain, localized manufacturing, and targeted cost reductions. We saw direct benefits from these initiatives in the second quarter, including pricing adjustments and supply chain improvements, and we expect these advantages to persist throughout the year. This reflects our operational capability, and we are successfully navigating through these challenges. In our last call, we expressed confidence in our ability to cover these direct costs, and I can now say we are very confident about our position regarding tariffs. Lastly, in terms of quarterly performance, the cadence you inquired about indicates that June was the strongest month for orders and sales in the year. Typically, we observe that the last month of the quarter tends to produce the highest results, and this was consistent in June. It was the strongest month of the quarter and the year, and while July has not yet concluded, it is looking promising so far. Overall, it was a typical quarter, with June being our best month in sales and orders, with no indications of a slowdown.

Great. Dave, that was a comprehensive answer to multipart questions, so I'll leave it there.

Congratulations on completing the FARO acquisition. Could you provide more details on the integration plan? I believe there are significant synergies to be gained compared to a typical AMETEK strategy, especially considering their margins and the compatibility with Creaform. Could you elaborate on the expected synergies? Additionally, how does this tie into your 2025 guidance? It seems like you may not anticipate much benefit in 2025, as you focus on integration, but excluding restructuring, could there be some contribution in that year?

Yes, that's a great question, Jeff. We expect a small benefit of a couple of cents in 2025. We will have a partial quarter in Q3 and then Q4, resulting in a slight increase. Looking at the acquisition, as I mentioned earlier, it aligns excellently with our operations. We believe we can create significant value for FARO. Previously a public company, they will help us eliminate public company costs and integrate into AMETEK's global infrastructure. We anticipate higher than usual synergies, predicting mid-teens cost synergy. FARO has recently operated at around 15% EBITDA, and we expect to see that increase to about 30% EBITDA in roughly three years, highlighting the substantial potential for enhancing operating margins through our integration. We're delighted to add differentiated adjacent products and technologies to AMETEK's Ultra Precision Technologies division, complementing our offerings. We hold a leading market share in key verticals like measurement arms, laser scanners, and laser trackers, and we’re now entering the rapidly growing digital reality scanning market. Our emerging SaaS solution supports the digital reality capture workflow, and FARO has a solid recurring revenue profile with about 60% coming from hardware, 25% from service, and 15% from software. The teams have collaborated effectively, which is very encouraging. This business reminds me of the Zygo acquisition, both in name and because it also integrates into our UPT division. Zygo was a smaller public company that sought high-profile success, at times venturing beyond its core focus. We’re seeing a similar situation with FARO. Reflecting on the Zygo experience, their sales averaged a 9% CAGR over the first decade, EBITDA grew over five times, EBITDA margins increased 2.5 times, and we reduced working capital by 50% in the initial five years. I believe we have similar potential with FARO. There's a lot of talent in that company that can help us gain focus. The current management team has done a commendable job of streamlining the business in the last 12 to 18 months, and we are extremely excited about the future.

So that's a solid algorithm if you can achieve it. That's wonderful. And then, yes, absolutely. Now, on Paragon, Dave, could you give us some insights? It seems, as you mentioned, that orders are firming up. Has that had an impact on the revenue at Paragon yet? How do you anticipate Paragon performing as we progress through the latter part of the year?

Yes, I mean Paragon had another excellent quarter, Jeff. Orders growth was again robust. Sales were strong, and we continue to drive outstanding margin expansion. The orders were the largest increase in AMETEK by far. We also have a situation where the Paragon EBITDA margins are now in line with AMETEK. So they're 30-plus percent EBITDA margins, and we see meaningful margin runway ahead. Outstanding work by the entire Paragon team that these talk is over, and we are very, very excited about what we're seeing. So very pleased with what's going on there. They're in a good position with our customers and consumable surgical instruments and plantable components in attractive market segments. We're through the destock. We took some time to do some hard work cleaning up the business. It has excellent engineering capability. They have new programs wins and really, really pleased with where we're at now.

Nice quarter. I have two questions. First, Dave, I'm trying to understand the assumptions in your guidance, especially regarding the conservatism you applied. You mentioned that FARO adds a couple of pennies and that tariffs should be a positive factor. Could you clarify your current assumptions related to the $100 million in tariff costs discussed last quarter as well as the $70 million from China? Have there been any changes in the core business? I'm looking to compare the current guidance to the first quarter. My second question is about the EMG margins this quarter. Paragon, you've said that the margins are now aligned with AMETEK. As we approach the end of the year, I would expect EMG to be one of your segments with the greatest margin improvement. Am I understanding that correctly?

Yes, I'll begin with the margins, and I believe you're approaching it correctly. There was strong performance this quarter, with an increase of 200 basis points, specifically 210 basis points on a reported basis and 260 on a core margin basis. EMG performed very well regarding margins. I anticipate this trend will continue in the latter half of the year, showing good margin expansion. Both our EIG and EMG businesses saw core margin improvements of 90 basis points, with reported margins up 20 and core margins up 90. We had a remarkable quarter, excelling in our business operations with excellent productivity, positive price/cost dynamics, and strong acquisitions. On the OpEx front, our team is achieving great results, and we’ve increased our OpEx to $155 million, which is about $25 million higher than where we began the year and up $5 million from last quarter. The OpEx aspect is functioning extremely well, and we are satisfied with that. Regarding our guidance, we exceeded our earnings expectations and have raised our forecast for the year, including a positive contribution from FARO. While we feel confident, there is a degree of conservatism in the Q3 forecast due to evolving dynamics. Concerning China, we noted the $70 million we flagged in the second quarter. We did manage to secure a significant portion of that as the quarter progressed; however, we did not capture it all. The $70 million identified as a tariff impact, which we aimed to offset, will not be continuously updated due to the changing environment. In real-time, I can confirm we managed to mitigate that. Consequently, the $100 million originally seen as a negative headwind is no longer a concern, and that’s the clearest way to convey it.

A couple of questions. You talked in detail about Paragon, which was very helpful. Can you go through the same kind of analysis specifically for the Automation side of the business, how that business is performing from a profitability standpoint? What you're seeing from an inbound order point of view? Where you are with the inventory sort of reductions you were seeing in the channel there as that's been one of the more challenged businesses for you guys? And then I have a follow-up.

Yes. The Automation business is in the same category as Paragon as the destock is over. We're seeing strong growth in orders. Both Paragon and the automation business drove the profitability increase. And EMG. There's continued upside there. But both Paragon and Automation, the 2, the medtech which Paragon's in, Automation that dealt with the destock is done. So we're feeling good about that. It's driving profit growth and that's why the EMG margins are up 260 basis points on a core basis. And then you have a follow-up?

Yes. Yes. As you think about those businesses specifically, what do you think the right go-forward organic algorithm looks like for that portion of AMETEK? And then, Dave, if you can just maybe comment a little more broadly on what you're seeing from a go-forward actionability standpoint, M&A-wise, post-FARO, what you're seeing in terms of deal size multiples, et cetera, that would be helpful.

Yes. I believe the automation and engineered portion of the EMG business is experiencing positive momentum, which I anticipate will guide us into our next growth phase. This year, we project a mid-single-digit increase, which reflects positively compared to last year. If order rates continue to improve, there could be additional upside. Regarding our acquisition strategy, we successfully completed two deals this year, investing $1 billion and generating $400 million in revenue from these acquisitions, which we are excited about. These are high-quality companies that enhance our presence in appealing growth markets. We have a clear strategy to add value in both acquired businesses. As I previously discussed, we recently acquired FARO in detail. In response to your question, our acquisition pipeline remains robust, and we are actively pursuing several high-quality opportunities. As Dalip noted, we have $2 billion in existing cash and credit facilities. While we will maintain a disciplined approach, analysis indicates that if we leveraged up to 2.5 times, we could have about $4.5 billion to $5 billion available for spending. We have the potential to distinguish our performance through the M&A component of our growth strategy, combined with our strong balance sheet and cash flow. We excel in this area, especially during volatile market conditions. Our operational excellence, coupled with M&A, keeps us focused on a strong pipeline.

I wanted to just kind of follow up on some of the commentary on back half growth. It seems like with FARO and some of the prior M&A done, that M&A could be about almost a mid-single-digit tailwind. And I would imagine there's some FX tailwinds on top of that kind of pushing collectively maybe into that mid- to high-single-digit range in the back half. So I guess, is that right? And then what do you guys assume for organic growth in the back half of the year?

The one thing, Chris, talk about FX a little bit. We're going to see for the year a top line FX tailwind of about 1 percentage point. We saw that same 1 percentage point in Q2. So on the top line, there's a little bit of a tailwind. But on the bottom line, we're largely naturally hedged. I mean when the currencies go either way, you never hear us talking about it as a positive from it or as a negative from it. We run our businesses differently than most. We have a natural hedge at the bottom line given the general balance of revenues and costs across key currencies. Generally, we don't see meaningful impact to our profit results from FX movements. Now the FX is a dollar has weakened, and we do export quite a bit of high-technology products from the U.S. So I think the lower dollar because we build our higher tech technology products and many of them in the U.S. is going to make us more competitive. We understand our competitive positions, and we're very well positioned to deal with currency fluctuations, and it's a positive situation. Yes, I think organic growth for the year is still plus LSD. So we're assuming positive LSD. We're assuming both groups are positive, and then we have the acquisitions that get us to MSD for the year. That's where we are versus our prior guide. We think that it's reflective of the situation that we're operating in.

I appreciate that. And then maybe just following up on FARO. I think the margin opportunity is pretty clear when we see the gross margin that they were running at, but I think if we look at the business, there really hasn't been much, if any, growth over the medium to long term. Could you just maybe talk about how Creaform has grown? Just to provide some color on the industry growth there.

Yes. Creaform has grown significantly. When we acquired it, it was about a $40 million business, and it's grown at double digits since then, and the team has done an excellent job. So it's a much, much bigger business than when we acquired it. I made the analogy to our Zygo acquisition because I think it's really key. There's a lot of capability at FARO and a lot of talent, and they were just unfocused. They went down a path and spent a lot of money and didn't get a return for it. We're going to do the same thing we did with Zygo. As we get the team together, we're going to focus on their core advantages. We're not going to swing for the fences. We're going to look for incremental wins and that business is going to grow nicely for us. We have a bottom line chance to double the EBITDA margins in 3 years. At the same time, with the technology and capability in that business, we're going to grow the top line too, and we have a good analogy with the Zygo acquisition.

I have two questions that I'd like to combine. Regarding China, was there a surge in demand for metrology equipment due to uncertainty around potential tariffs in the latter half of the year? Additionally, overall on your organic growth, I may have missed some information, but as you discussed the segments and your current and future positions, can we conclude that short cycle industrial has likely reached its lowest point, and that you have increased your expectations for organic growth and margins moving forward? I just want to clarify these two points.

Yes, in terms of China yes, the country was down low single digits for us for the quarter. So it was down a bit. I don't think there's really a pull ahead there. It's a situation where we're doing some projects and the projects require funding and the tariffs have just caused a lot of delays in getting the proper funding. There's still strong demand for our projects, and we got a good portion of the stuff out in the second quarter that we flagged last time, so that was a positive. There's still a bit of uncertainty in the market. We're well positioned, and our customers are working with us. I wouldn't characterize it as a pull ahead in metrology. No, I don't think we saw that. Your other question was related to?

Has the cycle bottomed and are you guys feeling better about organic growth?

Yes. I don't see the med tech market and the automation market as short cycle; they are more mid-cycle. However, we are noticing a specific end to destocking, and we are optimistic about the orders in that area. Our strength in the A&D business is showing a broad-based improved outlook. The power business is beginning to accelerate with increased grid spending and a better outlook. We've mentioned strong growth in automation and Engineered Solutions, especially with Paragon, which is the highest growth within the company. Our automation business is also on an upward trend. The process and analytical sectors are not weakening significantly, but the markets remain sluggish. We have a solid pipeline of potential orders and are starting to see quotes related to reshoring new opportunities as well as existing ones, but the project business is encountering some uncertainty that we need to navigate. Nonetheless, the other three market segments show a positive outlook.

Wanted to come back just to the slower decision-making. I guess are customers giving you any sense on the timing of that quotation activity and what the budgeting timeline might look like there? And then anything on that front to glean through July in terms of those discussions.

Yes, the timelines are challenging. There are definitely some delayed shipments. It's important to resolve the uncertainties around trade. We're seeing a high number of trade deals being negotiated and concluded, which helps remove uncertainty and allows us to move forward. I don't think the uncertainty comes from the level of tariffs but rather from the tariffs themselves. As we reach agreements on trade deals, that uncertainty is decreasing. As we understand the implications of these agreements, I believe uncertainty will continue to diminish. In the U.S., as Dalip mentioned, we have positive outcomes from the tax bill, which clarified future tax rules and allowed for immediate expensing of R&D and capital equipment purchases, encouraging customer capital investments. At the same time, tariffs are motivating companies to reshore to the U.S., and we are well-positioned to assist them. So, while that's a positive, we need to settle the tariffs. As more of these issues are resolved, I think the challenges surrounding certain projects will also lessen.

I have a follow-up regarding the $70 million in potential at-risk revenue you mentioned during the last quarter's call. I understand this relates to direct U.S. to China instrumentation. Could you clarify how much of that revenue was shipped in the second quarter? Are you expecting the remainder to be delivered as part of the framework, or are there still some uncertainties?

I think I'd say that a good majority of it shipped, and there's still some of it that's unresolved and that will get resolved in Q3 and Q4.

Dave, could you provide more detail about the pipeline in the aerospace and defense market? It has been some time since the Abaco deal four years ago, and I'm interested in how the industry’s supply chain challenges might present opportunities in that area. Additionally, how do you view aerospace and defense in the broader context of your businesses regarding long-term mergers and acquisitions?

Yes, I think the A&D market is certainly a market we would like to deploy more capital in. We're actively looking at the market. We're actively looking at some deals. From my viewpoint, it's been a great profit generator from AMETEK. We have unique differentiated positions, a really good management team. They continue to perform, and I love to deploy capital in that area.

Okay. Great. And then for EMG, our automation is starting to accelerate here and it sounds like some incremental inflection. So with this cyclical momentum there and medical, would you expect more level loaded the first half, second half sales versus usually, it's slightly tilted towards the first half on a seasonal basis?

Yes. I'd say with the increase in orders, we're going to have a solid second half. There might be a little bit of a different tilt than a typical year. You saw the orders coming in, in the first half of the year and you might have the shipments coming out 3 to 6 months later. So it might be a little bit different.

This is Jacob Moore on for Steve. Just a two-parter from us as well kind of staying on orders and backlog, they look pretty solid this quarter. Can you just help us understand the breakdown of orders and backlog between the segments? Are there any end markets you would call out notable strength or weakness in orders? And then the quick second is related to the tariff situation. Beyond the China metrology, do you think there's any level of pull forward more broadly up to this point? Any perspective you have there would be helpful.

Yes. In terms of the pull forward, we're typically manufacturing customized systems that are higher dollar value. I'm sure there was a little bit of pull forward, but it's not of a meaningful quantifiable number in our respect. So we are probably less affected by pull forwards than most companies because of the nature of our product portfolio. In terms of the orders, overall orders we're up 6% in the quarter. The EMG business was up double digits. EIG was up single digits in terms of book-to-bill was 1, EMG was a little above 1 and EIG was a little below 1. As I mentioned, the cadence of the orders, June was the strongest quarter of the strongest month of the quarter and also the strongest month of the year.

A lot of details already. Dave, thanks for the details by segment. So the EIG book-to-bill, I'm just curious, the Aerospace and Defense businesses within EIG, will they be still above 1 within that overall?

Yes, they'd be above 1, but that's a backlog business, okay? So a lot of those orders are 3, 6 or 9 months even a year in advance, but yes, they were above 1.

Yes. Okay. And then you called out obviously the process and Analyticals, SBU, still, I think you said sluggish. There's been a lot of concern around academic and government funding. Just curious what you're seeing in your Gatan and some of the other businesses that might be affected by those pressures.

Yes, it's a good question. If you just look at our verticals, the medtech was positive. A&D, as I talked about, was positive. Automation was positive and food was positive. The two negatives will be the semiconductor market and the research academia market. That would be how I would look at it from the verticals. Obviously, our process business plays in a lot of those, but semi and research were headwinds in the quarter.

And maybe just could you just size that research exposure for AMETEK? And do you view these pressures as temporary? Or do you think it could be with us for some time?

Yes. The research market is about 10% of AMETEK. That's a good estimate for size. In the U.S., there is a redefining a little bit of the spend, and without getting into a lot of details, the spend associated with the projects have been reduced, but they still want to go forward with the projects. There are some delays. In the research market, there are some parts of the world where the research market is very strong, about 25% to 30% of our research markets in the U.S., the balance of it internationally. We had a little issue in China there that we talked about, and the smaller part of it is in the U.S. where there is some delay in research academia funding and we're seeing that as a bit of a headwind to our process business. I think it will be around for definitely in quarter 3 as we get into the fourth quarter, I'm not sure.

I apologize for joining the call late. Dave, did you share the pricing for the quarter? Also, what are your thoughts for the second half? With tariffs decreasing, how did you manage this with customers? I'm sure the prices you announced were at a certain level, and with the tariffs coming down, you may have needed to make adjustments. Could you walk us through this?

Yes. A lot of that is into the detailed discussions in our business units. I'll say that in the quarter, we had positive price cost spread. We didn't guide to a price exactly, but we had a positive price/cost spread. I think we'll have that for the year. The price increases, I would define them as selective. We're trying to work with our customers. At the same time, I'm confident that the impacts of tariff and inflation will be offset by price. It speaks to the results related to the highly differentiated nature of the AMETEK product portfolio and our leadership position in niche markets around the globe. So that's how I'd characterize it.

Okay, I appreciate that. And then just maybe flipping to process, which looked like it was softer than perhaps you were thinking internally. That sort of division, whatever we want to call that has a lot of different end markets. Could you kind of tell us what the puts and takes were there?

Yes, I was looking into that earlier. There were some positives in the medtech space, particularly from our Rauland businesses, which had a strong quarter, as well as some positivity in the food sector. Our MOCON business, which constitutes about 3% to 4% of our operations, also performed well. The oil and gas market was stable, with no significant positive or negative changes. However, we faced challenges in the semiconductor and research markets during the quarter. That's my summary.

Thank you, Towanda, and thanks, everyone, for joining our call today. And as a reminder, a replay of today's webcast can be accessed in the Investors section of ametek.com. Have a great day.