Idex Corporation (IEX) — Q3 2016 Earnings Call Transcript

Thank you, Melissa. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer and Interim Chief Financial Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX third quarter financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three-month period ending September 30, 2016. A press release, along with the presentation slides to be used during today's webcast, can be accessed on our company's website at www.idexcorp.com. Joining me today is Andy Silvernail, our Chairman and CEO. The format for our call today is as follows. We will begin with Andy providing an overview of the third quarter financial results. We will then provide an update on our markets and geographies and discuss our capital deployment. We will then walk you through the operating performance within each of our segments for the third quarter. Finally, we will wrap up with our outlook for the fourth quarter and full year 2016. Following our prepared remarks, we will then open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877-660-6853 and entering the conference ID 13620008 or you simply may log on to our company's home page for the webcast replay. As we begin, a brief reminder, this call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission. With that, I will turn the call over to our Chairman and CEO, Andy Silvernail.

Thanks, Mike. Hey, I appreciate everybody joining us here for our third quarter conference call. As we get into the details here, I want to lay out a couple of very important messages. In the face of continuing macroeconomic challenges, I think there are three critical things to take away. The first is our execution has been outstanding. Whether it's profit execution or cash execution or focusing on our critical niche markets in our profit pools, our teams have done an exceptional job around that. Second, I think we can note the power of our disciplined capital deployment, and I will go into that in detail as we walk through the call here. And, three, we are extremely well-positioned with our balance sheet and our cash flows to continue with our disciplined capital deployment to drive total shareholder return. As we go through the discussion today, I think those are the three key messages to keep in mind. In the quarter, we saw a ratable uptick in orders throughout the quarter, as we did in the second quarter. We delivered 2% organic growth, and that's the first time we've seen that in six quarters. Overall, the results were strong. Our orders were up 9%; our sales were up 5%. Again, organic orders were up 2%; organic sales were down 2%. We had adjusted EPS of $0.92, which was up $0.03 or 3%. But please keep in mind that included a $4.6 million inventory step-up charge related to AWG and the SFC acquisitions. Our adjusted operating margin was 20.9%. That was down 60 basis points from last year, but it was negatively impacted by that step-up that I just noted of $4.6 million. In the fourth quarter, we are going to have a remaining $5.2 million of step-up for the SFC acquisition, and I will go through that in more detail. Still, I think it is important to note that in the quarter, we saw an impact of about $0.04 a share in step-up, and it impacted our operating margin by 90 basis points. In the quarter, we had tremendous cash production of $125 million of operating cash production and $114 million of free cash flow, which I will note is a record. We did close the two acquisitions in the quarter, AWG and SFC. AWG was on July 1 and SFC was on August 31. We are delighted to have both of them as part of the IDEX family. Additionally, we divested two non-strategic product lines in the quarter, and we did the third here in the first part of October. We also made the decision to utilize $125 million of our overseas cash to partially fund the acquisitions. That did come at a cost of about $5.2 million in the quarter and it raised our effective tax rate to 29.6% versus our guidance of 27%. That had a $0.03 negative impact on our adjusted EPS for the quarter. I am going to take some time and walk you through the puts and takes so you can get a clean sense of what our operating earnings were for the quarter and what you should expect going forward. Before I do that, let me talk a little bit about what we're seeing in our core markets and geographies. The trends remain the same from what we have been talking about for the last three quarters or so. In our energy world, demand does remain weak. It impacts our energy, our banded and ceiling solutions platforms, but it is certainly no worse than we have seen at any one time, and we have talked about stability in some of those markets. That holds true for our industrial world, especially in industrial distribution. We have seen stability; we talked about that in the second quarter. We have seen sequential stability from Q1 until today in certainly in our day rate business. On the agricultural side, ag prices continue to be depressed. Yet, we did see a little bit of upside here in the quarter for the first time in quite some time. While we are not calling an improvement yet, we do believe that we've seen a bottom. Life science and scientific fluidics continue to outperform. This has been a great story for us for quite some time and it will be going forward. Our core markets of bio, analytical instrumentation, and IVD are all doing well. With that said, there has been some news lately about what's going on in the genetic sequencing world, so I want to take a second and just address that. First and foremost, that is a great segment of the market that is going to grow double-digit for the foreseeable future and is going to have legs for a long time to come. We like our position in that market, and we are well-positioned with customers in that market. Also, remember we don't have a single customer within IDEX that represents more than 2% of our sales. We have seen some commentary lately suggesting that it is substantially higher than that, but I just want to ensure clarity: no customer represents more than 2% of our sales. We are bullish about these markets as we go forward, and we will continue to make bets aligned with those markets. The municipal market remains solid, and we do expect to see modest increases going forward, as we've noted in past discussions. In North America, the story really revolves around what's happening in the industrial and energy markets, principally around industrial distribution. We expect that to be stable, but with no signs yet of recovery. Europe, obviously with what's going on in the U.K., brings some volatility. We haven't seen any direct impact to our business in Europe. It has been positive for us this year, especially in our dispensing and water businesses. In Asia, specifically China, we have seen muted demand. However, India has been a very good new story for us, especially in our fire, rescue, energy and dispensing businesses. Let me pivot for a moment and move from markets to talk about capital deployment because that has been a big piece of our story here in 2015 and now 2016. When you think about our value creation model, it is very much supported by a balanced and disciplined capital deployment strategy. We are going to fully fund organic growth. We've always made a commitment to do that, and we will continue to do so. We are going to pay consistent shareholder dividends. We will buy back shares when it makes sense to create value, and we are going to focus on executing in M&A. We've got a great balance sheet, strong free cash flows, and a good acquisition pipeline as we think about the balance of 2016 and certainly into the future. On M&A, we have put over $0.5 billion to work here this year including AWG, SFC and also Akron earlier in the year. If you think about AWG and Akron in particular, it has helped us build a terrific fire and safety platform. We've seen channel opportunities, innovation opportunities, and we certainly have cost opportunities to drive this portfolio into the future. We also completed the acquisition of SFC Koenig on August 31. That cost us €217 million and we have a great business here based in Switzerland. It is a global leader around highly engineered metal-per-metal seals focusing on high pressure and high temperature and transportation to hydraulic markets, but it is very scalable. I think there are opportunities in their core business to take market share and adjacent businesses around aerospace and medical, so we have a terrific business in SFC. We are delighted to have all three as part of the IDEX family. In terms of capital deployment this year, we spent $55 million buying back 739,000 shares at an average price of $74 a share. I think we've executed that well. As I mentioned before, we are going to fully fund organic growth. We've taken an aggressive segmentation of our portfolio, thinking about where we have great advantages in niches and where the profit pools are really attractive. We continue to drive investment for above-market growth. Finally, on dividends, we have told you for a long time now our goal is 30% to 35% of net income, and we will continue to execute around that. The last element I want to discuss related to capital deployment is really the strength of our balance sheet. This is critical as you think about our ability to drive total shareholder return for the long term. As I noted earlier, we utilized $125 million of our global cash to fund our Q3 acquisitions. This did drive a higher than expected quarterly tax rate, but we thought it was prudent, given where the cash was located globally and our ability to leverage that cash to put money to work in attractive returns rather than allowing it to sit idle. It's important to note that our long-term debt balance increased only $45 million when you compare September 30 to June 30, even while we invested $288 million of capital into AWG and SFC in the third quarter. Today, we sit at around 2 times leverage on an EBITDA basis and we have plenty of capital availability. We have $450 million of revolver. Over the last three years, we have averaged about $335 million of free cash flow. Additionally, we have $240 million still sitting on our balance sheet. As we think about our ability over the next three years to deploy $1 billion of capital, I feel very comfortable that we are capable of doing that. I mentioned earlier that we have divested three product lines in 2016; two happened in the third quarter and one just at the beginning of the fourth quarter. This emphasizes our commitment to optimizing our portfolio. We've discussed this in the past, and to be clear, these are not large businesses, nor do we expect to divest significant chunks of our business. However, we want to continually position our product portfolio moving forward. If you consider the acquisitions we've made along with the small divestitures, I want you to think about the impact we expect going into 2017. The bottom line is that we anticipate about $0.25 of incremental earnings in 2017 from the combination of our acquisitions, minus the small impacted divestitures. Let's move to Slide 4 now, and we will start talking about the results, then I will get into the segments. In the third quarter, our orders were up $530 million, or 9% total — 2% organically. Again, that was the first improvement since the first quarter of 2015. Revenue was also $530 million, which was up 5%, but down 2% organically. Our operating margin for the quarter was 20.5%, but as previously mentioned, it was at 20.9% when considering the net loss on the divestitures. That was down 60 basis points year-over-year, mainly due to 90 basis points of pressure from the fair value inventory step-up mentioned earlier. Cash flow again was a great story — with $125 million of cash from operations, $114 million of free cash flow. That was 163% of net income and it increased by $9 million, or 9%, from last year. Net income delivered was $70 million, resulting in GAAP EPS of $0.91. When considering the loss from divestitures, our adjusted EPS was $0.92, and again, increased by $0.03 or 3% from last year. Now, as I indicated in my opening remarks, I want to provide some color and detail regarding the quarter's dynamics to help link back to our guidance. In terms of guidance, we had directed adjusted EPS of $0.92 — here are the factors to consider. We had $0.02 of pressure from the SFC acquisition, specifically driven by $0.03 of fair value inventory step-up offset by $0.01 of positive operations. We incurred another $0.03 of pressure from the additional tax expense associated with our higher tax rate and $0.02 favorability from currency exchange. Overall, we experienced a $0.03 operational beat. A useful perspective on the operational strength of the business in the quarter shows we had a $0.95 operating quarter, and we improved operating margins on an apples-to-apples comparison. Now, let's turn to the segment discussions. I'm on Slide 6 and let’s start with fluid metering. In the quarter, orders decreased by 1% and organic sales were flat. Operating margin increased by 340 basis points, which was driven primarily by the fair value inventory step-up we encountered last year when we bought Alpha, which had a $2.5 million impact in the third quarter of last year. As I mentioned earlier, the energy markets remain challenging, yet we have seen from a more positive perspective in aviation. The low fuel prices have aided our efforts to develop channels in that sector; however, the mobile markets and LPG remain challenging. The water segment has proved to be a winning story for us. The municipal markets are solid, especially regarding water services. In the industrial segment that I’ve elaborated on extensively, we have seen stability regarding day rates. However, we noticed that some smaller projects— not the larger projects because, as you know, we are typically not involved in them— have faced delays and cancellations, which is hindering our sales outlook for the fourth quarter of this year. The agricultural sector (ag agricultural) remains soft overall, but we have witnessed some positive movements in the fourth quarter. While we support continued improvements, we're not ready to declare a significant turnaround yet. Now, onto Slide 7, where we will delve into health and science. Previously mentioned, life sciences and scientific markets remain strong. These segments have shown positive growth for quite some time and we are excited about our positioning in the marketplace. However, we should note the industrial-facing portions within the sector. About half of HST is traditionally linked to life and scientific areas; the other half has industrial segments. We have noticed strength and weaknesses across these markets. Our organic order growth in HST for the quarter was 4%, while organic sales were down 1%. Operating margin fell by 140 basis points due to the fair value inventory step-up related to SFC. Scientific fluidics continues to thrive. The main end-markets are performing well and meeting or exceeding expectations. The three segments of analytical instrumentation, bio, and IVD are maintaining strong results, and we expect that to persist throughout this year and into the next. Our ceiling solutions—specifically those related to semiconductor—are performing well, but those serving the oil and gas sectors remain challenged. We appreciate what SFC contributes in this aspect of our business. Meanwhile, HST is contesting some weaknesses in industrial-facing businesses, including our gas, micro pump, and industrial parts of material processing. Lastly, I want to note our material processing division. The pharmaceutical sector still looks excellent, but long-cycle CAPEX pressures are lingering, as discussed earlier. Finally, I will address Slide 8, which speaks to diversified holdings. Organic orders increased 4% in the quarter, but organic sales declined 6%. Margins decreased by 750 basis points, which aligns with our forecasts. The step-up related to AWG impacted this segment and brought the overall portfolio mix down due to more businesses taking on new amortization. Going forward, we are targeting operating margins around the 25% range. However, we anticipate improvement over time as AWG and Akron’s margins progress. Our dispensing sector has been outstanding, with business performance exceeding expectations. X-Smart has been a major victory for us across all three principal regions. We expect positive developments to unfold here. In terms of fire and rescue, bringing Akron and AWG into our portfolio has driven expected synergies. Our integration is progressing well and we announced internal restructuring focused on facility consolidation and delivering these benefits. A restructuring charge will be seen in the fourth quarter; this continues our expected trajectory. Regarding Band-It, we see strength in transportation but still experience weakness surrounding oil and gas—similar challenges as before. Despite this, our focus on niche markets allows us to pursue growth, affirming our long-term confidence in this business. I am on Slide 9, focusing on the fourth quarter and full-year guidance. For the fourth quarter, we estimate EPS will be in the range of $0.92 to $0.94, allowing us to keep the midpoint of our guidance for the year, translating to $3.72 to $3.74 despite the hurdles noted earlier. There’s some misunderstanding concerning the underlying operating earnings; I will clarify. We’re guiding towards adjusted EPS of $0.92 to $0.94, including about $0.02 of pressure from the SFC acquisition. We expect some incremental step-up along with operational impacts — expecting about $0.03 of operational benefit from SFC in the quarter, canceled out by around $0.05 of inventory step-up; thus leading us to $0.02 negative entirely. Also, we will encounter approximately $0.01 pressure from divestitures. While we are guiding to $0.92 to $0.94, the underlying operational capability is closer to $0.95 to $0.97, reflecting our real operating capability for the year. Continuing with modeling items, we expect organic revenue growth to approximately hit 1% in the quarter. Operating margins will rest at 19.5%, including the $5.2 million step-up. We are anticipating a strong operating profit margin as we finalize the fourth quarter and prepare for an excellent exit rate into the year. You can expect the tax rate to revert to its 27% benchmark, moving away from the 29.6% seen this quarter. For the full year, we expect organic revenue to be down 1% and adjusted operating margin to land near 20.5%. We anticipate full-year capital expenditures to reach approximately $40 million, with free cash flow hitting about 120% of net income. In total, we expect our share count to reduce by about 1% for the year, given past executions. As always, we do not include provisions associated with future acquisitions or divestitures into our guidance along with pension settlements or related restructuring actions. With that, I will turn it over to the operator, and we will open it up for questions. Thank you.

Hi, guys. Good morning.

Hi, Allison.

Andy, could you delve into the health and science a little bit more? One of your customers was discussing concerns of oversupply and potential NIH funding slowing, but orders were strong. I am trying to reconcile the differences in those comments.

Yes. I want to be careful here. We never talk about any specific customer. I think that if you step back and look at that landscape, whether you are looking at genetic sequencing, analytical instrumentation generally, or in vitro diagnostics more broadly, we see the trends continuing to be very good. If you look specifically at sequencing, it remains a double-digit growth market. It's evolving from a research tool toward a production or commercial tool, which will lead to changes in its dynamics. Overall, we are positioned exceptionally well across that customer base in that market. Furthermore, our traditional markets in IVD and analytic instrumentation are showing healthy strength. When looking at expected funding trends, the outlook remains positive. Overall, while there are occasional bumps, we maintain a strong sentiment regarding our prospects.

That's great. Thanks. Regarding your capital deployment strategy this year, particularly in light of the prolonged industrial malaise, have you noticed any changes in the M&A environment? Are smaller businesses becoming more active to set themselves up for sale, or are there signs of price declines?

I don't believe there's been a meaningful break yet in that. In other words, we aren't seeing a tangible shift regarding the valuations of some of the pricier assets. When examining energy markets, many businesses are contending with operational struggles and aren't ready to part with those assets at depressed multiples. That said, our M&A pipeline remains cultivated and stable; it has been actively pursued for some time. The activity from the auction environment has slowed down in recent quarters, but that has not significantly changed our approach to M&A. As we move forward, I do expect more activity in our marketplace as companies adapt to their operating conditions and reassess pricing. We will continue to do what we do best and strive to maintain our current level of engagement.

Great. Thanks.

Thank you, Allison.

Thanks and good morning, Andy and Mike.

Good morning.

Good morning.

Just a couple of quick questions. First, regarding your exit rate for Q4, considering you mentioned 1% growth, we had discussed the potential for a 4% organic growth rate last quarter. Could you give us more context on why that change occurred?

The primary reason for the change is that day rates have remained flat, showing no major changes. While day rates are consistent with what we've seen, larger CAPEX projects have been pushed out, which directly affects our overall assessment of growth. The absence of larger projects is reflected across many segments. Hence, we believe the market remains stagnant without any immediate signs of recovery.

Understood. If you could extend that to thinking about next year — assuming 1-2% organic growth for 2017, typically you would guide us towards something like 30-35% incremental margins with consistent operational performance. If we apply a 25-30% rate on this year's figures, we could see potential EPS growth in the neighborhood of 8-10%. Am I accurately gauging this, or are there other factors we should consider?

Your logic is sound, Steven. We are not prepared to make any projections today, but we appreciate your insights.

Okay, and lastly, just for Mike, could you clarify why borrowing was avoided in favor of repatriating cash, given today’s interest rates and low leverage levels?

The decision was made to bring money back globally to better optimize our balance sheet and extract it from specific locations, like China, where we successfully repatriated about $50 million. This approach was more prudent than borrowing at a low interest rate.

That makes more sense. Thank you.

You bet. Thank you.

Good morning, Andy. Good morning, Mike. Very nice quarter.

Thank you. Good morning, Scott.

I want to ask about organic growth. If you expect organic growth to be around 1% in Q4 and you were down 2% this quarter, could you provide insights into specific segments driving that improvement?

Generally, there isn’t one particular segment generating significantly different performance. We expect stability across sectors. Notably, our day rate business will remain a factor. Mike, any input?

SFC is indeed projected to show stronger performance in Q4; this is part of the forecast.

If I paraphrase, it sounds like stronger markets are holding steady, while the weaker segments have remained stable.

Yes, that's accurate. I wouldn't characterize them as getting weaker — they are stable.

My next question relates to productivity gains and the dollar-level productivity savings you previously spoke about. Given last year's expectations, are we still within the realm of what you were targeting?

Currently, we anticipate about $15 million to $20 million as the baseline to offset natural inflation, wage inflation, basic overhead increases — which we've historically mentioned. To achieve incremental profitability and margin expansion, we aim to exceed that baseline significantly, ideally aiming beyond $20 million.

Conducting productivity measures allows us to leverage price improvements, especially if we successfully counteract material inflation.

Thank you very much.

You bet, Scott. Thank you.

Good morning, guys.

Hi, Nathan. Good morning.

I wonder if we could delve deeper into the industrial end markets, distinguishing where conditions have improved or worsened.

Interestingly, once we moved past the significant downturn in energy-related markets, the ripple effect spread across general industrial landscapes, which is unusual. Performance across various industrial connections appears surprisingly cohesive. From our gas businesses to Band-It and Warren Rupp, we observe equal sluggishness. While energy markets remain particularly challenging, the overall industrial backdrop exhibits stability.

If oil prices stabilize, do you think that will positively influence general industrial markets?

Yes, I believe that prolonged stability could drive gradual improvement; however, the actual impact may take time to fully materialize.

Can you elaborate on the different parts of the water markets you operate in? Recently, I've seen varied reports concerning performance.

Water services are our strongest segment. For us, as a case in point, our ABS business has excelled. I suspected municipal engagement would yield positive outcomes. I still maintain belief in municipal potential for the foreseeable future. It’s important to monitor this area as we move forward.

Thank you.

Thanks, Nathan.

Hi, good morning, guys.

Hi.

Good morning.

Great quarter. On your completed deals this year, do those acquisitions come into play neutral to your free cash flow conversions? I'm trying to figure out what's possible outside of margins and growth related exclusively to cash flow performance and the 120% conversion we've seen this year.

Generally speaking, we'd expect these acquisitions to boost our free cash flow conversion due to the impact of amortization. Additionally, all three additions are asset-light, requiring less capital investment. Thus, in terms of working capital and margins, we anticipate positivity as they help to enhance cash flow performance over time.

All three deals assist with cash flow — while they may not enhance earnings due to the impact of step-up amortization, they definitely help free cash flow in the quarter.

Okay, that helps. Now regarding FMT, could you rank the contributors driving margin expansion: restructuring carryover, mix, or leverage? Margins appear significantly enhanced.

Three elements are driving this margin expansion. First, we have demonstrated restructuring benefits from adjustments made last year. Second, there's a positive mix happening, though this isn't a major factor. Third, the noteworthy success we've initiated within our fixed businesses contributes significantly to overarching margin improvements. Additionally, we continue to realize positive pricing on our FMT products.

Thanks, I'll pass along.

Thanks, Brett.

Thank you. Good morning everyone.

Hi, Deane.

Hi, Deane.

I was looking for more insight into fluid metering. If I gather correctly, you described push-outs seen during the quarter as part of the normal hesitancy around larger ticket items. Are these delays shifting to Q4, or is there uncertainty surrounding when they would materialize?

It's uncertain, Deane. We've noted previous quarters where similar delays were evident. Until we restore some confidence, significant projects linked to large CAPEX budgets will remain in limbo. Energy markets provide a case study. Assuming energy prices fluctuate in the $50 to $60 range, in 2017 we might see some excess capacity absorbed before new CAPEX comes in 2018. This fluctuation is a market-wide trend.

That's quite insightful. Just to confirm for the fourth quarter, you mentioned some different charges related to restructuring; is that solely for acquisitions, or are there additional restructuring actions in place?

While most of the restructuring pertains to acquisitions, we also have some other areas where we have chosen to consolidate and gain leverage.

Understood. Regarding the recent divestitures, could you provide more detail on what drove these actions? Was it due to selling business units that lacked growth potential or had unfavorable margins?

The rationale extends beyond growth profiles; it emphasizes tactical approaches to market positioning as the primary motivation. We seek businesses aligned with our projections while evaluating their needs effectively — selling to parties that may hold different expectations or have better capabilities to position them. We also do not view these businesses as resource-efficient in terms of management time, so those resources can better serve core operations. For context on the businesses sold, I haven't published specifics yet, but they are minor. You'll see that outlined in the next few weeks.

Thank you.

Thank you, Deane.

Thank you. Good morning, Andy and Mike.

Good morning.

Hi, Matt.

In life sciences, while orders were strong this quarter, one customer indicated concerns about potential oversupply and reduced NIH funding, impacting 4Q expectations. How does this translate to possible inventory overhang for you?

Be aware that we don’t comment on specific customers. Generally, the strength we observe in numbers tends to precede customer experiences due to our positioning in the supply chain. For Q4, our indicators do not suggest a major change. Notably, we do not rely on any single customer, as none exceed 2% of our overall sales, thereby insulating us from disruptions. Movement in life sciences demands attention; while hiccups exist, we remain confident in sustained long-term growth.

Thank you. A broader question: What do you believe is required for delayed projects to receive approval from your clients?

In short, sustained improvement in terms of economic metrics — I know this sounds weak, but it's essential to restore confidence. People need assurance before engaging in significant capital expenditures, so I believe the macroeconomic environment will need to stabilize to enable future investments.

Thank you.

Thank you.

Hi, thanks. Good morning, guys.

Hey, Walt.

Good morning.

Could you discuss where you stand regarding the productivity initiatives? How far are you in the process of enhancing margins?

I believe we are well-positioned to improve productivity and margins. A significant driver of our profits this year relates to the focus on roughly a quarter of our portfolio that consists of fixed businesses, yielding nearly 300 basis points in profitability growth in that sector. Meanwhile, several of our traditionally profitable companies have experienced challenges due to persistent commodity prices and weak industrial distribution. Yet, we’ve maintained a robust earnings quality in these businesses, achieving solid cash flow and margin improvements. Our focus remains on sustaining strong margins and ensuring operational excellence as the economy continues to gradually improve.

Is there a specific target for long-term adjusted operating margins moving forward?

With modest growth, we can foresee about 50-80 basis points of margin improvement annually, in tandem with a couple of points of growth. Our break-even threshold has decreased significantly, positioning us to drive productivity effectively.

That’s great, thank you.

Thanks Walt.

Hi. Good morning, Andy.

Hi, Jim.

Good quarter, earnings-wise.

Thank you.

In terms of your businesses, post-acquisitions, what percentage is transitioning to book-and-ship versus capital projects?

Most of our operations are heavily focused on book-and-ship. Large capital projects have historically not been substantial for us, but they certainly have the potential to impact quarters with their volatility. We typically enter quarters with half our target booked. Overall, no material differences have changed our operational smoothness; we still face challenges with larger CAPEX-related projects, but the structural integrity of our business remains stable.

Understood, thanks. Lastly, you mentioned the expected 500 basis point improvement associated with acquisitions. Can you address which factors may contribute to that margin enhancement?

With SFC as a high-margin business, the focus is major growth moves. However, for AWG and Akron, we anticipate enhancement in their margin profiles as they integrate into our core IDEX business. The overall expectation is for 500 basis points of improvement, with a more substantial output in the initial year, expected to reach a couple of hundred basis points quickly as we push into future years.

Appreciate the insight. Thank you.

Thank you, Jim.

Good morning, Andy and Mike. Thank you for having me on.

Hi, Jim.

Good morning.

Is the restructuring effort primarily linked to acquisitions or are there broader actions at play too?

Primarily focused on acquisitions, but we are also addressing other areas with potential for operational efficiencies.

Could you break down the reasons behind the recent product line divestments? Did you identify growth limitations or concerns regarding margin profiling?

The rationale extends beyond growth profiles to include market positioning. We're striving for greater advantage with businesses that align with our long-term projections, but may not suit our brand expectations. In making these decisions, we also consider the value of management resource investment. The businesses targeting divestment have not been specified yet; updates will follow shortly.

Greatly appreciated. Thank you.

Thank you, Jim.

Thanks, Good morning, guys. In regards to agricultural performance, you mentioned a slight uptick, which seems unusual compared to competitors’ reports. Could you expand on the drivers behind this, even if temporary?

We are cautious, but we did observe a tangible improvement in the quarter. Replacement parts seem to be a driving force here in the market. After multiple down quarters, it may be a sign of easing inventories. However, declaring a significant turnaround would be premature as the situation continues to evolve.

Got it. Thank you.

Thank you.

Hi, guys. Thanks for taking my questions.

Hi, Joe.

Focusing on the HST sector, orders had been flat or down for several quarters, so I was surprised to see a rise this quarter. What may be causing this shift?

There isn’t a major change at this point. While our back-half comparisons are easing, this uptick isn't indicative of a larger inflection. It’s a welcome sign, nevertheless, but doesn't signify that market dynamics have dramatically shifted.

The perspective from major market players has shown a potential slowdown in financing. Is this pressure from deal activity impacting capital spending?

I don’t believe so. While there are many products emerging in the sequencing space battling for dominance, the investments have the potential to enhance productivity in the future. Our long-term focus is centered on deployment pipelines with significant room for growth.

Great, thank you.

Thank you.

Thank you very much and for your participation today. I believe our discussion showed the strong operational results we've achieved even amidst challenging macroeconomics. We'll continue striving to enhance shareholder returns and maintain a robust balance sheet. Thank you for your support of IDEX, and we look forward to speaking with you again in about 90 days.