Idex Corporation (IEX) — Q3 2024 Earnings Call Transcript

Good morning, everyone. This is Wendy Palacios, Vice President of FP&A and Investor Relations for IDEX Corporation. Thank you for joining us for our discussion of the IDEX third quarter 2024 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months ending September 30, 2024. The press release, along with the presentation to be used during today's webcast, can be accessed on our investor website at investors.idexcorp.com. Joining me today are Eric Ashleman, our Chief Executive Officer and President; and Abhi Khandelwal, our Senior Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up for your questions. Turning to Slide 2. Please note that during today's call, we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to the risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today. We do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, I'll now turn this call over to our CEO and President, Eric Ashleman.

Thanks, Wendy, and good morning, everyone. I'm on Slide 3. Our IDEX teams drove strong Q3 results in an uncertain environment. Here are the highlights. We delivered nice organic growth supported by excellent margins in our Fluid & Metering Technology and Fire Safety and Diversified Products segments. Our free cash flow across IDEX of $192 million was 33% of adjusted net income. Execution through operational excellence was really strong overall. We're pleased to see orders growth within our Health & Science Technologies segment, and our teams are digging into the Mott acquisition with focused energy as we align around our best long-term growth prospects across all of our recent HST acquisitions. We have some important projects to deliver in Q4 in all segments that set us up well for next year. From the start of Q2 to the end of Q3, we really haven't seen a noticeable change in the macro environment. The recent interest rate drop by the Fed and China's stimulus announcements has yet to create positive ripple effects through improved certainty. An extremely close U.S. November election with polarized outcomes also isn't helping in the near term. Take all of that together, and we continue to see an environment where day-to-day order rates remain stable with an absence of larger long-term project commitments. This dynamic really holds true in the more fragmented industrial markets of FMT. We're encouraged by an increase in quoting activity as we move from summer to fall and we don't see projects moving from delayed to canceled. We'll watch for signs either way as many customers more formally consider their capital and OpEx deployment within calendar budget cycles. We continue to see strength within our intelligent water markets, and I'll talk more about our focused efforts there on the next slide. Within the Health & Science Technologies segment, we saw a robust Q3 organic orders increase partially driven by blanket orders, many of them landing within our IDEX Health & Science business. Admittedly, we're comparing to the low point of last year, but we drove year-over-year order increases in all of our major HST reporting areas. We booked a bit of backlog overall this quarter, and we posted a nice sequential uptick to our highest order point in 2024. We are encouraged by these trends within HST but remain cautious as we consider the trajectory of recovery within our most important markets. Our defense, aerospace and satellite communication markets are strong; they experienced double-digit growth within the quarter. However, most major semiconductor customers are pushing out the next industry inflection point into at least the midpoint of 2025. Life Sciences and analytical instrumentation customers are more positive than they have been; they're innovating at a rapid clip and launching a lot of new gear. But they, too, are pretty noncommittal to the timing of next-level growth rates. Our teams continue to deploy resources toward their best long-term growth prospects with an eye towards applied materials science technology synergies as we integrate Mott alongside our recent HST acquisitions. Fire Safety and Diversified Products had a solid quarter exceeding expectations, achieving record sales performance. Our fire business continues to grow share and scale production to meet North American OEM multiyear backlogs. BAND-IT experienced strong growth from aerospace demand. Finally, recall our dispensing business was impacted by top-line headwinds of $40 million from the end of a large 2023 North American large retailer replenishment cycle, but our teams continue to work to offset that pressure by delivering strong growth within emerging markets. We've closed that year-over-year gap considerably, delivering over 15,000 units from our new facility in India, just opened in April of last year. As an aside, I want to thank our team members from IDEX Fire & Safety, who chipped in to help people in North Carolina following the devastation from the remnants of Hurricane Helene. Finally, we're thrilled to formally close on the Mott acquisition this quarter. Things are really exciting there. We'll share more details on the progress of the integration activities and some of the benefits we are experiencing early on in a slide to follow. Turning to slide 4. Our intelligent water platform continues to be a bright spot for us. We see significant opportunities now and in the future as municipalities and industries around the world cope with the impacts of climate change as they navigate dynamic regulatory and funding ecosystems to support the best use and management of water. Water management is a sector that has classically been slow to change. Those days are over. Our aging and neglected infrastructure just can't handle the demands of expanding populations and increasingly severe weather events. What was once underground and out of sight is now impossible to ignore. What was once analog and manual is now increasingly digital and automated. Federal, regulatory and funding support is stepping in to drive growth from above within a typically bottoms-up local and regional landscape. Our teams are ready to meet the challenge. Below ground, IDEX Intelligent Water aims to be the collection system experts, monitoring flow of stormwater and identifying small issues before they become big ones. Above ground, our teams help protect the environment with solutions that treat water and reduce the amount being used in critical processes. You see some examples here on the slide. The Envirosight Verisight ultra camera inspection system gives teams better capabilities for remote inspection of sewers in more challenging environments than before. The most recent addition to the platform is Subterra, which was acquired about three months ago. This rapid sewer screening solution complements our core inspection technologies with iPEK, Envirosight, and WinCan. Subterra’s SewerScout floats untethered downstream, capturing three-dimensional data along the way. The market needs a simple condition assessment tool in their wastewater collection systems, specifically for large pipes that are rarely inspected. Subterra's Technologies performing within an integrated digital analytics suite addresses that need and expands our overall IDEX expertise in this space. And yet another example of IDEX serving semiconductor manufacturers, the Quantum XT ultrapure water heater and pumps from Trevor continues to save billions of liters of ultrapure water. In this market, Trevor's innovation displaced an established heater pump manufacturer that didn't recognize or address quickly enough the semiconductor industry's needs to reduce water consumption. Now, turning to slide 5 and an update on our acquisition of Mott Corporation. Less than two months since completing our acquisition of Mott, the partnership is off to a fast start. A few high-potential IDEX team members have formally joined the Mott leadership team in the earliest days of acquisition integration. This gives the Mott team a living connection to the rest of IDEX to drive collaborative efficiency. While it's too soon to share specifics, teams from Mott and other IDEX units within HST are already working on innovative new solutions together to leverage Mott's highly engineered filtration technologies. In one instance, a combined team has rapidly developed a customer-ready prototype in the first 90 days of Mott being part of IDEX. Frankly, it's been tremendous to see. As you can see in the photo on the right of slide 5, earlier this month, Mott opened its third manufacturing facility in Connecticut. This plant quadruples Mott's production capacity for custom design ultra-thin porous metal sheets, which are a critical component in the generation of green hydrogen, a low-emission fuel essential for the world's energy transition. The picture on the left shows Mott's high-purity operations where point-of-use gas filters used in the semiconductor industry are laser marked, pressure and helium leak tested, inspected then pulse cleaned before bagging. As a reminder, Mott is a leader in the design and manufacturing of centered porous material structures and flow control solutions. The Mott team has deep material science knowledge and process control capabilities. Their business complements our broader applied materials science technology businesses within HST, including Muon, STC Material Solutions, and Optical Technologies. We're excited about Mott's history of execution and the robust backlog funnel that has been built to date with key project deliveries as we close out 2024. With that, I'll turn it over to Abhi to discuss our financial results.

Thanks, Eric. Turning to the consolidated financial results on slide 6. Please note that all comparisons are against the prior year period unless stated otherwise. Also, the acquisition of Mott is reflected in IDEX's consolidated and HST segment financials as of the close of the transaction on September 5. Third quarter orders of $781 million were up approximately 10% on a reported basis and up 8% organically. We saw orders growth across the portfolio with HST seeing 20% organic growth in the quarter, half of which was partially driven by blanket order activity that will ship in 2025. FSDP had low single-digit organic growth while FMT was essentially flat. We did see slight sequential growth in FMT orders. Third quarter sales of $798 million were up 1% reported and flat organically compared to the prior year. We experienced organic growth of 4% in FSDP and 2% in FMT. HST had a 5% organic decline driven by continued headwinds that I will cover in the upcoming slides. Third quarter gross margin was 44.3% and adjusted gross margin was 44.6%, an expansion of 20 basis points and 40 basis points, respectively. Gross margin expansion was driven by strong price/cost, partially offset by higher employee-related costs. Third quarter adjusted EBITDA margin was 26.9%, down 150 basis points. With the acquisition of Mott, our biggest acquisition to date, we had higher than typical M&A spending, which negatively impacted our margins by approximately 40 basis points. We are accelerating the integration of Mott and are excited to see the realization of the expected commercial synergies. We continue to leverage 80/20 across IDEX to deploy resources to growth and reduce complexity. I will discuss the drivers of third quarter adjusted EBITDA on the next slide in a moment. On a GAAP basis, our Q3 effective tax rate was 22.9% versus 20.2% in the prior year period. The prior year rate included certain one-time benefits, which contributed $0.11 of adjusted EPS in the prior year period. Third quarter net income was $119 million, resulting in GAAP EPS of $1.57. Adjusted net income was $144 million with an adjusted EPS of $1.90, down $0.22 or 10%. We achieved the higher end of our guide, and while our guidance did not include contributions from Mott or its related financing costs, these amounts essentially offset one another during the quarter. Free cash flow for the quarter was $192 million, a decrease of 7%. We achieved a conversion rate of 133% of adjusted net income, a 400 basis point improvement on a year-over-year basis. We have a strong balance sheet, and this quarter, we paid over $50 million in cash dividends. We also funded the acquisition of Mott through the combination of approximately $212 million of cash, $279 million of borrowings from our revolving credit facility, and $495 million net proceeds from the issuance of senior notes. We maintain a strong investment-grade rating with a 2.4 gross leverage ratio at the close of September. Moving on to Slide 7, which details the adjusted EBITDA drivers. For the third quarter, adjusted EBITDA decreased by $11 million. Our organic sales volume decline of approximately 3% unfavorably impacted adjusted EBITDA by $9 million, flowing through at prior year adjusted gross margin rate. The negative volume flow-through was partially offset by strong price/cost spread of 100 basis points and operational productivity, resulting in a $10 million benefit over the prior year. In the quarter, we saw unfavorable mix, primarily in our industrial businesses and our dispensing businesses. We had higher employee-related costs and higher transaction-related expenses in connection with the acquisition of Mott. All these factors combined resulted in an unfavorable organic flow-through. The impact of FX slightly increased adjusted EBITDA by $1 million and acquisitions net of divestitures added $2 million on a quarter-over-quarter basis as the benefits from our acquisitions more than offset the impact on adjusted EBITDA from divested companies. I will now review segment level performance. Turning to Slide 8 and FMT segment. In Q3, we experienced sequential and mid-single-digit plus organic year-over-year growth in orders across the majority of our businesses. This growth was muted by continued ag cycle headwinds and pushout in chemical project activity, resulting in total flat organic orders growth for FMT. Net sales were up 2% organically. We had strong price capture across the segment and experienced high single-digit growth in our industrials and intelligent water businesses. Total segment growth was unfavorably impacted by demand softness in our ag OEM and energy businesses. Our industrial day rates remain steady from Q2 with no change in overall market conditions. The strength in year-over-year organic growth in our Industrial business was partially due to prior year comps. Our Intelligent Water portfolio continues to see strength in the North American municipal market with strong governmental funding to support ongoing investments. Our energy businesses are seeing headwinds from weather-related issues in North America, a slowdown in propane truck builds, distributor destocking, and decreased demand for propane in Europe. Our ag OEM business remains challenged by the market slowdown. Despite this downturn, our teams remain focused, tackling the market headwinds and leveraging 80-20 to redeploy resources. Adjusted EBITDA margin decreased 160 basis points due to higher employee-related costs, discretionary spending, and unfavorable mix, partially offset by price-cost. Moving on to slide 9 and our HST segment. Orders grew sequentially and experienced a year-over-year organic growth of 20%. Growth was partially driven by blanket orders in life science and performance pneumatics businesses. Year-over-year comps were also a factor as life sciences, analytical instrumentation, and semiconductor markets bottomed the same period last year. Our innovation funnel in life sciences remains active while there is no change in our outlook. Net sales were down 5% organically. Although we have strong price capture, it did not entirely offset the volume declines driven by continued challenges in the end markets we serve. Our life sciences and analytical instrumentation businesses' demand was steady sequentially from Q2 to Q3. Defense, aerospace, and satellite communication end markets remained strong. We saw double-digit growth in the quarter. Within semiconductors, what we are seeing is a push-out in the end market recovery to the second half of next year. Our HST industrial light businesses continue to experience project delays. As I commented earlier, the acquisition of Mott is reflected in HST's segment financials as of the close of the transaction on September 5th. The integration of Mott is moving at a brisk pace. Q3 adjusted EBITDA margin for HST declined 40 basis points year-over-year, primarily due to lower volume and higher employee-related costs, partially offset by price-cost, favorable operational productivity, and the cost of work the teams have done to align with the current environment and the net accretive impact of acquisitions and divestitures. Now turning to slide 10. I'd like to take a moment to recognize our FSDP team's performance, delivering record sales and adjusted EBITDA in the quarter. Orders in our Fire & Safety/Diversified Products segment were up 4% organically, driven by Fire & Safety low double-digit growth, partially offset by declines in dispensing and BAND-IT. Net sales were up 4% organically. We had strong price capture and higher volumes, mainly driven by Fire & Safety and BAND-IT. Our Fire & Safety businesses continue to see growth in North America fire OEMs, and we are ramping production to meet their needs. BAND-IT experienced growth driven by strong aerospace demand, offsetting declines in industrial and auto. Our dispensing business experienced declines as expected, driven by headwinds from the North American big box retailer refresh cycle. Growth from the India market had been an offset to this headwind through the first half of this year, due to the timing of projects in the emerging markets blending in the first half of 2024. Q3 adjusted EBITDA margin declined 20 basis points year-over-year, primarily due to unfavorable mix with positive price/cost offsetting higher employee-related costs. With that, I would like to provide an update on our outlook for the fourth quarter and full year on Slide 11. For the fourth quarter, we project organic sales to increase 3% to 4% compared to the prior year. We anticipate an adjusted EBITDA margin of approximately 27% with GAAP EPS in the range of $1.64 to $1.69 and adjusted EPS in the range of $2.01 to $2.06. On a year-over-year basis, we expect mid- to high single-digit organic growth in FMT and FSDP. In HST, we expect flat sales growth. Our full-year adjusted EPS outlook remains unchanged, and we expect organic revenues to decline 1% to 2% with an adjusted EBITDA margin of approximately 27%. We project GAAP diluted EPS to range from $6.65 to $6.70 and adjusted EPS to range from $7.85 to $7.90 in line with our prior guidance. The full-year revenue guidance implies a high single-digit organic sales decline in HST and low single-digit growth in FMT and FSDP.

With that, I'll turn it over to Eric for closing remarks. Thanks, Abhi. I'm on Slide 12. Look, it's easy to get caught up in the economic uncertainties that play out quarter-to-quarter. It's been a frustrating last couple of years as we've seen the last echoes of the pandemic play out against an uncertain geopolitical environment, an environment made more uncertain globally by the unprecedented number of 2024 national elections. We've managed well throughout this period. We've improved the long-term growth prospects of IDEX significantly through incredibly focused work within a proprietary M&A funnel. We have some outstanding people and technologies at our disposal to develop trusted solutions to our customers' most difficult problems. We're building relative and absolute scale across business units to support advantaged markets like water, which we discussed today, advanced semiconductor wafer fabrication, Life Sciences and Analytical Instrumentation, and space and defense. We're rapidly digitizing traditionally analog applications throughout IDEX as we transform everything from customer acquisition and support to core product functionality. And we continue to grow through our jump-off points within Asia Pacific as these developing markets reach economic trigger points to adopt IDEX advanced technologies. We sometimes take our abilities to execute for granted. We shouldn't. 80/20 isn't a tool at IDEX; it's evolved into an intuitive mindset. We can size up the critical view quicker than others and swing our best people to our biggest challenges and opportunities without the need for time-wasting decision loops. Finally, we're talking about collaboration across business boundaries to build scale more than we have in the past. Some have asked if this challenge is the notion of a decentralized IDEX. It isn't. We've built our culture intentionally over the last 15 years to prepare us for this moment. Our teams collaborate and help each other naturally without stifling structure and bureaucracy to win for customers. We live our purpose every day through our commitment to our core values of trust, team, and excellence. Thanks again to our IDEX employees and partners around the world for all that you do to make IDEX a great company. With that, I'll turn it over to the operator for your questions.

Thank you. Good morning, everyone.

Morning, Deane.

Hey, Deane.

Can we start with the tone of business, the day rates? Eric, you already kind of given us the good news that the small project delays didn't escalate, so that was good. And you gave us some color on BAND-IT. But just the progression of the quarter and your read on the day rates, that would be a great place to start. Thanks.

Yes. As I said in the opening comments, they've been stable for a while without really a lot of inflection. So, you don't really see anything different through the summer months as it played out in the quarter. A lot of it looks pretty similar to where we were in Q2. And of course, we've got the businesses that are closest to consumption. We track those all the time. They've been steady with a little bit of lift in them, and we see that playing out in the numbers that we posted in our core industrial units here. Therefore, I think we are in good shape on those indicators that the industrial system continues; we're still making things in plants all across the country. That's what a lot of that indicates. The project and the longer-term commitments, I think, are about the same place as well. The uncertainty and overhang of the upcoming election next week, those kind of things are still out there. We always look to see if any of those projects start to move into a category of either delayed or canceled instead of delayed or just not talked about any longer. We don't see that. I made a comment about the fact that quoting activity is picking up a little bit, which I think is a good sign. And we have a bit of revenue ramp here in Q4; almost all of that is project-related with a couple of key things in the backlog now. Some of them are underway and near completion and I think are also good signs of confidence for the time ahead.

To expand on Eric's points, if we look at the transition from Q2 to Q3, we observe an organic growth of 2%. However, if we analyze the FMT business specifically, both pumps and water experienced high single-digit growth. Valves also saw high single-digit organic growth, though this was counterbalanced by declines in the agriculture and energy sectors. Within HST, the essential industrial segment also achieved high single-digit growth.

That's really helpful and I appreciate all that color. And just as a follow-up, I love the fact that you put the spotlight on your Intelligent Water portfolio. We met with the team and got to visit each of these businesses at the WEFTEC Trade Show in New Orleans recently. So, if we had to point to one, probably the fastest-growing sector in the water infrastructure is this whole Stormwater Management sector. It looks like you guys get some first-mover advantage there. Can you just talk about critical mass for the Intelligent Water group? Do you need to add more capabilities? What kind of is the funnel like? Where and how does this business grow from here?

Yeah. Well, thanks. We appreciate talking to you and others at that show. You mentioned a key word. We, in our commentary about kind of our businesses in that area, pointed to becoming the collection experts. That's really the work we do here. And that has a lot of focus right there, obviously, through things like Stormwater and significant weather events. That's where you see that play out. I think we've got the assets positioned in the right place to really focus. And as you saw, they work together in a way where the hardware and analytics provide you predictive insight into what’s going on in your system and what is likely to occur in the future. One key reason we're winning is that we focus on our end customers, particularly the operating professionals who are trying to run the system, but also specification engineers and project engineers within municipalities and industries. They are trying to understand the analytics of the system and the way that water circuit works, and then trying to put that together to obtain capital project approval. At this particular phase of the cycle, funding support is more positive with longer duration. Being able to understand your system will position you well to obtain funding for your municipality or business. Sorry, you also asked about other pieces and where we are.

Yeah.

I mean, Subterra is a good example. That's an under-the-radar, underappreciated technology we very much believe in. We've been working with that company before, and it really helps to complete our capabilities. There are other things we would like to do within this ecosystem of collection. So we continue to work in this area and would like to make it larger, both organically and inorganically over time.

Great to hear. Thank you.

Thanks, Deane.

Good morning, everyone.

Good morning, Nathan.

Good morning.

I'm going to follow up on Deane's question. Because at the event, you could say the Intelligent Water businesses altogether were showing customers what the combined businesses' capabilities were. I'm just thinking about how you run those businesses and potentially how you run some of the businesses in HST to collaborate together. Eric, that was one of your closing comments, is collaboration across the business units without losing the decentralized structure. How do you manage that process with these businesses? Do you need some kind of integration with the commercial organization, cross-training for sales? How do you manage those businesses to drive the collaboration you want to see without actually going and integrating the businesses?

Yes. It's a great question. When you consider these areas where we put some scale together, they present themselves as kind of mini versions of IDEX. One of the ways that we work is nimbly and agilely. It’s a super flat organizational structure. So we have a leader of the water business, and between that leader and the leaders of individual pieces of water, there’s not a lot of stacking. This is wide and horizontal rather than vertical. The quality of the people, the quality of the system, and our operating model allows you to take that span a little wider. You already have something working for you in terms of being close to the point of impact with all leaders. So that's a key ingredient; it's always been part of IDEX. It comes down to strategy. That’s why we work intensively in building strategy and strategic capabilities to understand these worlds and where collaboration needs to happen versus where businesses can operate independently. We can deliver in a hybrid world because we’ve always done it. It’s about putting some of the scale to work because the solution set demands it. We have ever since I've worked at IDEX. We're just becoming a bit more focused to seeing some of the scale to work.

Thanks a lot. I guess my follow-up question is around the HST order number. A 20% organic growth, I think Abhi said half of that was from blanket orders. Is the right way to think about it, without the blanket orders, the order number would have been about 305? That’s the average of where it's been settled in over the last few quarters since the bottom in 2023? So it’s kind of no change sequentially, still waiting and seeing, not really getting any better and not getting any worse. Or are these blanket orders indicative of some improvement in some of those markets?

Yeah. So Nathan, let me try to answer your question. If you think about it sequentially from Q3 to Q4 and look at HST, HST was up about $20 million. I'd say about half of that was blanket order activity that we saw from Q2 to Q3, and the other half was just straight demand between different businesses. And year-over-year, HST posted about a $51 million organic change in orders. That's, again, the same kind of amount for blanket and half of that was demand. So you do see underlying improvement in those markets.

And just a reminder, we have half of this segment in other high-tech areas that aren't the usual suspects of semiconductor and life science and analytical instrumentation. Those are performing like the industrial businesses we see elsewhere. We've got some growth in there, compared to before. We feel good about the position we see here. We've posted the highest order number for the year and built a little bit of backlog, having conversations with customers showing signs of optimism. This doesn’t say when the next inflection comes but having people leaning in the same direction is one of the signs we wanted to see as we start to move away from baseline stability.

Awesome. Thanks for taking my questions.

Hey, good morning, everyone. So, first question kind of ties into a couple of answers that you already had. But maybe talk about how you're thinking about the sequentials in the fourth quarter. I know, Eric, I think you briefly mentioned there was some incremental project activity coming in. But maybe talk about it. It doesn't seem like there's a change in your day rate, choppy and stable, but choppy month-to-month, week-to-week kind of expectations. How should we think about that into next year from a backlog order cadence perspective? Is that a fair assumption to start next year until we see a change in the backdrop?

Yes. If you think about Q3 to Q4, it’s really about a few different places where we have projects in the backlog that are supposed to ship in Q4. First is around ABEL; they ship big pumps and that’s in the backlog. The second is in pharma, in our MPT business where there's backlog that is booked and we are working on it. Lastly, tied to Mott, we have a big energy project scheduled to go out at the end of the quarter. So a decent part of the ramp is tied to these projects.

I think it's going to depend on what we see play out here in the fourth quarter. I do think this is a period where everybody, including us, is forced to consider their next calendar year in terms of what bets they're going to make and how they're going to make them. They need to talk to critical suppliers like us as they do. It’ll be interesting to see if that may inflect it one way or another. But a continuation of stability seems reasonable going forward. It's really a matter of what layers are added on top of it and the health of commitments and ability to make them. Those usual suspects that come into play are there. It's been a minimum of two quarters of base level stability; it allows you clarity to see the pieces that rise above it.

So then let's move beyond kind of that horizon and get towards the point where there is a recovery in the market. How would you think about the growth algorithm now that you've reshaped the portfolio? You’ve centralized some resources or added central resources to support this decentralized model. Could you break down the growth algorithm and categorize the drivers of that growth from market synergies to performance?

Look, we now have a portfolio increasingly starting to weigh itself towards faster-growing markets, especially the ones we've acquired into HST. That segment is becoming the biggest segment and will carry more load as we move forward. We would always want to outperform our core market entitlements but moving that entitlement north is the goal. We'd like to dial IDEX into a mid-single-digit grower plus as we navigate that. We’ll continue to deploy capital on the bottom line. So you can add a point or two of inorganic growth and get to higher single-digit ranges when combined. This should allow a nice double-digit earnings expansion because these are high-margin businesses. Additionally, we will practice 80/20 in productivity, especially with our acquisitions. We expect nice flow-through because we have differentiated offerings and we know how to execute.

Very clear. Thanks, Eric.

Good morning, guys. Thanks for taking my call this morning.

Good morning, Vlad.

Hey, Vlad.

I just wanted to dig in on FMT a bit. In your commentary, you moved from stable to market softness for energy. Can you just talk a little bit more about the dynamics you're seeing in energy in particular and how you're thinking about the election impact on those end markets?

Yes. First, I always remind people of the job we do here. We do a lot of downstream work around custody transfer. That’s where we help the economy move. This is one area that, if you go back in time about a year ago, we were still processing quite a backlog in that business. Now, we’re at very standard IDEX levels of lead time and replenishment. So, there’s calibration issues, particularly on a year-over-year basis. Take this energy story and divide it; it’s probably half us, half some of the pressure you see in the market. The health of the energy sector overall will promote CapEx deployment and all the areas that eventually find their way downstream to where we do business. To be honest, a really cold winter will also help, and that has very little to do with politics.

Okay. That’s helpful, Eric. Appreciate it. And then maybe just sticking with FMT. In terms of the stability you’ve seen in the day rate orders, any color on what you're seeing by geography and whether you're seeing any meaningful differences in domestic versus international trends?

Probably, as you suspect, North America is leading the way; that’s been the case for a while, not just by a little but by a lot. Reasonable stability in Europe with no significant inflection. When you go on the other side of the globe, India is really good. China is trailing the pack due to where it is within its economic cycle. We’re holding our own because we choose to make certain bets in specific places that are small but representative of that economy. If I were to rank them: India first, North America strong, Europe stable, and China at the back but still positive.

Okay. Appreciate that. Thanks.

Yes.

Hey. Thank you. Good morning, everyone.

Hi, Jeff.

Eric, I want to come back to the HST orders and the blanket orders. Is there anything there in the number of customers or the size of the orders that helps firm-up a view into 2025? Is the channel inventory liquidations have run their course and we’re getting to some sort of normalization here?

I think even though it's a strong and sharp comparison year-over-year, when you dig into the entries, I think they're generalized and you need to add them up to get conclusions. They’re more positive overall. The fact that these are laying in across the life science spectrum does suggest a move from stability to something different. The rate of advancement is still not determined yet. The inventory dynamic you talked about is important. Some of these are not in life sciences or semiconductors; they are in OEM-centric items that have higher customer concentration but seeing orders like this is a good sign.

Yes, we have seen stability in life sciences, but semiconductors are at a push-out point. We are seeing improvements sequentially

Reminder again, half of this segment is in other high-tech areas that aren’t the usual suspects. Those are performing well, and we feel good about the progress. The highest order number for the segment this year plus a bit of backlog is significant.

Understood. And just regarding China, could you share how it performed this quarter and any context on total IDEX price in the quarter as well?

On the first part, the commentary for China is really similar whether it’s in FMT or the entire company. We have many challenges on a macro basis. However, we do position ourselves well based on the opportunities we identify. Overall, I’d say it remains positive. Abhi?

Right. And we saw about 2.3% price in the quarter and a 100 basis point spread discussed as part of the guidance in Q2. That’s where we landed.

Thank you for that. Have a good day.

Thank you.

Hi. Good morning, everyone.

Good morning.

On HST, you’re talking about a pick-up in semis. What are the customers saying that gives you insight into comment, and why wouldn't we see that pick-up sooner than mid-year next year? Have you discussed the margin differential across those four subsegments within HST?

From a semi perspective again, we focus on wafer manufacturing and fabrication and metrology solutions. It’s a question of factory utilization because overall until it hits certain levels and there’s an identifiable catalyst taking it there, it doesn't drive big-ticket items. The lack of any singular big catalyst means a longer cycle, but we are waiting for the next cycle to come along.

On the margin front, year-over-year we saw HST margins down 40 basis points on organic sales down 5%. That's a testament to the work we've done on rightsizing the business. It demonstrates that we’re managing costs effectively.

Okay. That’s helpful. Maybe sticking with margins, every few years you navigate some supply chain calamity. With the election coming up, tariffs are now back in the news. Where do you stand with your positioning if tariffs emerge, and how are you readying for that?

Every company should be thinking about supply chain resilience, and we are as well. We built the company around a model that is more localized, which tends to be more insulated from these events. We’re running scenarios and addressing critical inputs in the way that we always do.

That’s helpful. Thank you.

Hey, good morning, all. I wanted to come back to the EBITDA bridge, specifically the resource investment/discretionary, which was $12 million, a big step up sequentially versus Q1. I was hoping you could unbundle those. Is the resource investment offset by lower discretionary? Or is this discretionary going up too? And then some of those targeted investments and the paybacks?

Yes, let me take the bridge item first. The $12 million headwind year-over-year ties to higher M&A spending due to the acquisition of Mott, which is about a third of it. Another third is tied to stock compensation issues, and then there is discretionary spend in customer-facing areas as well.

Okay. Appreciate that. And then shifting back to Mott, it sounds like you're running ahead there. Should we think about the 2026 accretion target getting pulled forward based on this fast start?

We are still in early days. It's hard to pinpoint what 2025 versus 2026 is going to produce, but we are working closely with the local teams.

You always meet the business and that’s the reality. This reality is every bit as good as what we thought coming in.

Appreciate the details. Best of luck.

Hey, good morning, guys. I wanted to touch on the other recent M&A. For Muon, how's it tracking considering the weakness in orders at one of your large customers?

I’m not sure what EA is; can you clarify?

Sorry, just focus on Muon, considering the weakness in orders.

That's just a piece of that business; it's not the majority. We're involved in wafer manufacturing and fabrication on advanced solutions, and it’s not a one-for-one correlation. There’s also a focus on other areas that remain promising, and we are exploring synergies.

Interesting. Okay, and just in terms of sequential growth in HST, which areas are really driving demand?

For us, it tends to be in the Analytical Instrumentation area since we do a lot of work in that space.

Perfect. Thanks, guys.

I know it’s late in the call, but Eric, I was listening to your prepared remarks about the conversion of analog processes to digital. I just wondered if you had further insights on how you're evolving your operations?

It’s something we started emphasizing and have a focus across our smaller pieces of IDEX. With scale, we're applying this more widely. In FMT particularly, the market looks to us to lead on how this work is done. We're implementing initiatives to make sure we lead the way. We have strong traction in fire and water businesses. That’s about digital functionality to help scale our processes.

Perfect. Thank you.

Thanks so much. Thanks to everybody for joining today. I really appreciate the questions and the interest. The bottom line here remains that we are in a choppy and uncertain world, but IDEX is in a good spot. We're not out of the woods at HST yet, but it’s encouraging to see strong year-over-year orders compared to the previous low, and a positive backlog build has emerged. We anticipate recovery to play out positively based on our strengthened portfolio through acquisitions like Mott, which is a good indicator. Our two other segments are performing well with growth opportunities. Execution remains strong across the board. The second half of the decade, which is only two months away, is going to be a tremendous period of value creation overall for IDEX. I look forward to discussing it with you in the upcoming quarters. Thanks. Have a great day.

Thank you.

Thank you.