Idex Corporation (IEX) — Q3 2025 Earnings Call Transcript

Good morning, everyone, and welcome to IDEX's Third Quarter 2025 Earnings Conference Call. We released our third quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX; and Akhil Mahendra, our Interim Chief Financial Officer and Vice President of Corporate Development. Today's call will begin with Eric providing highlights of our third quarter results and a discussion of our current business outlook and strategies. Then Akhil will discuss additional financial details and our updated outlook. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric.

Thanks, Jim. Good morning, everyone, and thank you for joining us today. The IDEX teams across the globe collectively delivered better-than-expected results in the third quarter of 2025, and I'm proud of our team's hard work and steadfast commitment to execution, particularly given today's challenging economic conditions. I'm on Slide 3. Regardless of the business environment, our business model and 8020 philosophy, along with our strong balance sheet and continued robust cash generation position us to quickly address challenges and pursue opportunities as they arise. We do this while remaining focused on driving long-term sustainable growth and value for all of our stakeholders. As we'll discuss further today, our team is laser-focused on the things we can control, thoughtfully executing our strategy amid a dynamic economic environment. Before I provide an overview into our results, I'd like to step back and highlight where we are in IDEX's evolution and frame our priorities in the months and quarters ahead. When IDEX was founded almost 40 years ago, it was effectively a holding company with a portfolio of disparate but attractive industrial businesses. These were strong brands operating independently without a clear governing framework. In Phase II, we introduced a common IDEX culture and business approach, powered by an operating model with 8020 as its heartbeat, not only enhance the efficiency of our operations, but also served as a decision-making framework and growth accelerator, guiding our focus, resource allocation and portfolio optimization. In our current Phase III, we've made a number of foundational acquisitions accompanied by complementary bolt-ons to expand our capabilities in targeted advantaged end markets. These additions helped us establish higher growth platforms leveraged to 21st century secular trends. Today, we are intensively deploying 8020 in these areas to enhance efficiencies and productivity and unlock integrated growth potential. We followed this playbook over the previous decade to build our IDEX Health & Science platform. Now we want to repeat the work at a faster pace with more power as we integrate new businesses and technologies into IDEX. I'd like to take a moment and shine a light on the three pillars of 8020 driven higher growth, so you can best understand our strategy to unlock sustainable value for shareholders. Please turn to Slide 4. The first pillar involves targeting high-growth advantaged markets as we allocate capital within our portfolio. We acquired 11 outstanding companies over the past 5 years. Each business brings one or more critical technologies to IDEX alongside a series of attractive market access points. Examples of the critical solution set that's expanded for us include support for data centers, space and defense, advanced semiconductor manufacturing and water. Each acquired company links and integrates in some way with other pieces of IDEX, providing scale and efficiency while reducing enterprise complexity. In parallel to this work, we divested four businesses with less attractive market exposures and lower potential to scale. Our collective growth entitlement has moved to the right of traditional industrial indexes. We now have five thematic growth platforms that cover half of our revenue, and we believe they will disproportionately fuel organic growth for IDEX as we move forward. In prior earnings calls, we talked about our build-out of the intelligent water platform, expanded in the last few years with the acquisitions of Nexsight and Subterra. These businesses were a strong contributor of organic growth for IDEX in Q3. In September, we were proud to host a number of analysts and investors at the largest Water Industry Trade Show in North America. They were impressed by what we've built. We've also publicly referenced some great work at Airtech within our performance pneumatics group. The team continues to win as they support power generation applications for data centers. They were a top driver of orders and sales growth for HST this quarter, making great businesses work together is the second pillar of Phase III growth outperformance. Please turn to Slide 5. Here, we integrate technologies and market access points within growth platforms. As an active example, I'd like to take you through our integration progress within our Material Science Solutions platform. The teams there have done excellent work. They also were strong contributors to HST's growth in Q3. All of the companies within MSS map close to one of three critical jobs to do for customers. One, we form critical material properties. Two, we shape materials to create and control surfaces. And three, we had functionality by applying coatings. The platform brings these capabilities together for power. Our teams say, if we achieve one of these attributes, we can bid on a project. If we achieve two, we're highly likely to get the order; if we hit all three, we influence specifications in the space and drive transformative growth. Within MSS, I'd like to highlight how the team at Muon is doing a great job effectively offsetting pressures within semiconductor lithography to drive performance. With 8020 at the heart of the work, Muon is improving productivity, rationalizing its cost structure, focusing on higher quality revenue and redeploying resources towards higher-value commercial opportunities. An example of tuning towards advantage markets is the development work Muon is actively pursuing now within data center cooling applications after recently winning business in the optical switching space, which we mentioned last quarter. We are excited about the results our 8020 actions are driving, which notably improved Muon's profitability in the third quarter to above HST segment average. The MSS platform is well positioned to drive profitable growth going forward. Please turn to Slide 6. The third key component of Phase II of IDEX' evolution is balanced capital allocation. Akhil will get into more details here, but after the last few years of accelerating larger M&A to build our growth platforms, our current focus is on optimizing our business portfolio, tuning our capabilities in an ever-evolving marketplace, augmenting those efforts with strategic bolt-on acquisitions and returning capital to shareholders. I hope you found this overview of the evolution of IDEX helpful and engaging. We are confident in the strategic plans to drive sustainable profitable growth for shareholders in the years ahead. Now I'd like to move to our third quarter 2025 results, which demonstrate traction on these collective efforts and position us well to deliver within the guidance we set for the second half of 2025. I'm on Slide 7. IDEX delivered better-than-expected third quarter results despite continued macro uncertainty. Our Health & Science Technologies segment, or HST, is building momentum as our teams continue to identify integrated growth opportunities. Overall, organic orders and sales increased 5% and 10%, respectively, year-over-year, on the back of growth in pharma and data centers. Our most recent acquisition, Micro-Lam, is off to a great start, enhancing our capabilities and optics given their proprietary material shaping technology. As discussed earlier, we saw strength from our businesses within MSS, notably within our Optics businesses and Muon. HST also drove strong margin improvement due to volume leverage and full run rate of their platform optimization efforts. We see a path for continued margin expansion going forward. While HST continues to successfully turn its capabilities towards advantage markets, the segment's more fragmented industrial market exposures are netting to flattish, and we see little evidence of near-term improvements. And Fluid & Metering Technologies, or FMT, third quarter sales and profitability exceeded expectations, driven by strong execution and pricing. Our water businesses facing municipal markets were standouts in terms of orders and revenue growth. FMT's general industrial exposure points remain stable without signs of positive inflection. Finally, in our Fire & Safety Diversified Products segment, or FSDP, disruptions in the funding environment and sluggish replenishment spending impacted our third quarter results and tempered our expectations for near to midterm demand. So overall, we see a dynamic macro environment with an uncertainty overhang that we expect will continue into 2026. It's not clear how and when broad external catalysts will line up to support more predictable and positive conditions. But at IDEX, we plan to continue to make our own luck through 8020, tuning our resources and technologies towards those opportunities with higher growth velocities and working together as a team to integrate our growth platforms, providing more solutions power for key customers. We're on track to deliver the second half of the year and look forward to continuing our momentum into 2026. With that, I'll pass it over to Akhil to discuss our financials and our updated outlook in greater detail.

Thanks, Eric, and good morning, everyone. All the comparisons I will discuss will be against the prior year period unless stated otherwise. As Eric mentioned, in the third quarter of 2025, IDEX delivered strong financial performance. Organic revenue growth of 5% was better than we expected with momentum in HST driving the outperformance. Adjusted EBITDA margin and adjusted EPS came in higher than our forecast for the company overall. Orders grew 7% organically in the quarter. Our HST segment reached a record high at $390 million, and both FMT and FSDP posted high single-digit order growth in the quarter. While order activity was strong on a year-over-year basis, much was received and shipped within the quarter, leaving overall backlog levels relatively flat sequentially. As a reminder, given the nature of IDEX's rapid fulfillment business model, we typically enter a quarter approximately 50% booked, which limits our overall visibility. Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity within municipal water, data centers, semiconductor MRO, pharma, and space and defense. Semiconductor lithography remained below prior year levels. In Life Sciences, where IDEX provides niche components for analytical instruments, we continue to see low single-digit growth. Finally, while we posted order growth in FSDP, this increase was largely due to timing of orders last year. FSDP order activity was subdued in the third quarter, specifically in dispensing and fire and safety outside of the U.S. Organic sales in the third quarter grew 5% with both positive pricing and higher volumes contributing versus last year's third quarter. Strong price execution across segments was a primary driver, while volumes increased in both our HST and FMT segments but declined in FSDP. IDEX adjusted gross margin contracted slightly or 10 basis points versus last year given unfavorable mix. These headwinds were largely offset by productivity gains across our businesses. Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains, favorable price-to-cost and volume leverage. These more than offset unfavorable mix. Our platform optimization and cost containment efforts yielded $17 million in savings in the third quarter. These initiatives remain on track to deliver over $60 million in full-year savings. Free cash flow of $189 million decreased 2% versus last year on higher working capital. Free cash flow conversion was 123% of adjusted net income, and we remain on pace to achieve our target of at least 100% free cash flow conversion for 2025. We ended the third quarter with strong liquidity of approximately $1.1 billion. Finally, we deployed another $75 million to repurchase IDEX shares in the quarter, taking our total to $175 million for the first three quarters of 2025, continuing our acceleration of returning cash to shareholders as Eric noted earlier. Now, quickly, some color on our results by segment. I'm on Slide 9. In HST, organic orders grew 5% and revenue grew 10%. Volumes increased on strength in life sciences, space and defense, semiconductor consumables, pharma, and data centers. These areas more than offset year-over-year declines in semiconductor lithography and industrial businesses. HST adjusted EBITDA margin expanded 120 basis points year-over-year given strong volume leverage, platform optimization savings, cost containment actions and favorable pricing. These more than offset the dilutive impact of unfavorable mix. Turning to Slide 10. In FMT, organic orders increased 8% and organic sales increased 4%. Orders growth was supported by our intelligent water platform, which delivered strong performance this quarter, with project timing and favorable prior year comparisons driving results otherwise. Looking at our leading indicator industrial order rates, they appear to be range bound and notably without any strong indication for sustainable inflection in the near term. We are also seeing continued hesitation on larger orders from customers across most of our industrial end markets. FMT achieved adjusted EBITDA margin improvement of 90 basis points driven by favorable pricing and execution of platform optimization and cost containment actions. Please turn to Slide 11. FSDP organic orders increased 7%, but organic sales declined by 5%. Orders benefited from continued growth within North America Fire OEM and growth in BAND-IT. Within dispensing, orders increased, but this was largely driven by timing. Organic sales declined in the quarter, primarily due to soft volumes across Fire OEM, rescue tools, and dispensing. While short-term headwinds impacted sales in Fire and Rescue, the broader outlook for these businesses remains steady, albeit with limited catalysts for near-term acceleration as macroeconomic and geopolitical factors weigh on order activity. Dispensing volumes were also pressured, reflecting the natural progression of the business' refresh cycle. As customers increasingly shift towards refurbishing existing equipment rather than investing in new machinery, we anticipate continued softness in this area. FSDP experienced adjusted EBITDA margin contraction of 200 basis points, mainly due to volume deleverage. This headwind was partially offset by platform optimization and cost containment actions and favorable pricing. I'm on Slide 12. Let us turn to capital allocation for the quarter. As Eric mentioned, free cash flow generation remains strong, allowing us to continue to allocate resources towards the areas we think will generate the highest returns. We drove $189 million of free cash flow after investments for organic growth, including CapEx spend of $15 million in the quarter. IDEX has generated 97% free cash flow conversion year-to-date. We ended the quarter with strong liquidity of $1.1 billion, including cash levels of about $600 million and revolver capacity of about $500 million. Our current gross leverage position sits at approximately 2.1x. While we feel comfortable with our current leverage and liquidity position, we intend for our leverage to migrate lower and get to our typical target range of under 2 in the next several quarters. Our balance sheet provides financial flexibility to meet capital allocation priorities. As mentioned earlier, we accelerated our pace of share repurchases. We're purchasing $75 million of shares in the quarter and $175 million year-to-date. In September, we increased our share repurchase authorization to $1 billion. We paid approximately $54 million in dividends in the third quarter and continue to target 30% to 35% of adjusted net income in dividends paid. Regarding M&A, we do not expect to pursue large acquisition opportunities in the near term after investing in the establishment of our growth platforms over the last couple of years. Instead, we will be focused on bolt-ons and portfolio optimization in the coming quarters. Please turn to Slide 13. We are narrowing our full year guidance range to $7.86 to $7.91, which remains within our previously communicated outlook of $7.85 to $7.95. This reflects continued strength in HST, particularly within our advantaged markets: data centers, space and defense, semiconductor MRO, and pharma, which are helping offset pressure in our FSDP business stemming from funding disruptions and sluggish equipment replenishment spending. FMT continues to perform in line with expectations, contributing to overall portfolio stability. Both our organic growth expectation of 1% for the fiscal year '25 and adjusted EBITDA margin expectation of between 26.5% to 27.5% remain unchanged. Our updated guidance reflects more of a level load of sales between the third and fourth quarters, reflective of the typical historical seasonal cadence at items. Our strong third quarter results have positioned us well to deliver on the second half expectations we set this summer. With that, I'll turn the call back over to Eric.

Thanks, Akhil. I'm on Slide 14, where we highlight the key drivers of IDEX's shareholder value creation. As I mentioned earlier, we are squarely in the midst of driving Phase III of our evolution. We are applying 8020 to drive integration, operational improvement and enhanced growth prospects across our high-margin growth platforms. We intend to remain very selective around bolt-on acquisitions to augment our organic efforts taking a balanced long-term approach to capital allocation, supported by near-term intentionality. As Akhil said, our current focus here is smaller bolt-ons and returning capital to shareholders. In the past couple of years, we identified acquisition opportunities and pulled forward activity to more quickly establish attractive value-creating growth platforms. We are now acutely focused on applying 8020 to maximize their potential. We believe all of this will drive meaningful EPS growth over the longer term, driven by organic growth we can leverage and capital deployment that amplifies IDEX's value creation potential for all stakeholders. We have outstanding and passionate teams and talent, a portfolio of highly critical and adaptable technologies in advantaged markets and a culture of operational excellence and the heartbeat of 8020, which powers it all, supported by a robust balance sheet that we leverage via a balanced and effective capital deployment philosophy. We believe we are in a position of strength to deliver as a premier growth compounder as we close out the decade and head towards our next phase of evolution. That concludes our prepared remarks. With that, I'll turn it over to the operator to take your questions.

I really appreciate that Slide 3 on the evolution. And also just kind of giving us the near-term clarity on capital allocation, portfolio optimization. And so that was a big help.

Sure.

This seems always appropriate, especially given the macro uncertainty. Eric, can you give us your insight into the tone of business? You mentioned some order hesitation. But just the metrics that you typically use, the day rates, order size, some of the bellwether businesses? And can you also weave in whether there have been any blanket orders that's also a good indicator for us.

I think there are two different realities we are facing. On one hand, we have areas that are contributing to our growth, specifically in dynamic data centers and our water initiatives, which have their own positive momentum. On the other hand, the broader economy feels more fragmented. It's stable overall, without a clear direction. We monitor several businesses and their day rates, which come from fragmented distribution, to gauge any shifts. If they all move in sync, it typically signals an inflection point, either positive or negative. Throughout this year, I've observed that leading up to the spring policy events, those metrics were stable but slightly higher. After experiencing volatility during spring and summer regarding tariffs and policy, things stabilized in July, though at a lower level compared to the first quarter. There's an added uncertainty due to potential changes in policy direction, so we are hopeful for improvement. While we track these metrics weekly, they remain very stable without any significant changes. On the large order side, which is a smaller part of our overall order flow but still insightful, we see the same hesitancy. Orders aren’t being canceled, but the decision-making process seems to be taking longer, leading to delayed timing in outcomes. We are still securing the expected orders, just with a longer timeline, so there isn't a noticeable improvement there either. However, this situation exists alongside another area that operates under a different rhythm, driven by other macro forces.

That's all really helpful. And just as a follow-up, and then I'll hand it off. Just can you reference any of the bellwether businesses, in particular, and also the impact of government shutdown on the fire business, in particular.

Yes, many of our key businesses are in FMT, which has a more fragmented user base through indirect distribution. Think of companies like Gast, Warren Rupp, and Viking. On the HST side, there's BAND-IT, a business that supplies clamps, and a part of that business is also quite fragmented due to industrial applications. This is generally the nature of our focus. The importance lies in our ability to fulfill orders quickly; for instance, we can receive an order on a Monday, produce it by Wednesday, and have it in service by Friday. This provides a clear signal of actual consumption trends. When orders remain stable, it usually indicates that the system is functioning well, with people focused on maintenance and replacements. However, if there's a shift, it suggests increased activity such as extra shifts or even facility expansions. Regarding government funding, it doesn't impact us as much as one might expect. The North American fire and rescue markets are performing well and have been for some time. Our enhanced automation offerings are helping us exceed baseline entitlements. When we mention government support, it's more about challenges in Europe and parts of Asia, particularly in China and Southeast Asia. Typically, funding tends to increase later in the year as budgets cycle, but this year, both regions didn't follow that trend. In Europe, much of the available funding is allocated to different priorities, like disaster preparedness, which leaves less for our sector. In China, there’s a push to bolster local industries, leading to cautious decision-making regarding government spending during a weaker economy, yet this doesn't directly affect the U.S. market.

So no, I agree with Deane. I like those four slides you put at the front that kind of laid things out. One question on it. Can you frame what this means from a growth perspective for the portfolio relative to history? I know that the 2010 growth was pressured by the 8020 piece, but it was kind of that 3%, 4% kind of range, all else equal on a reported organic basis. What does that look like on a forward basis in a normal environment? Or however you want to frame the growth algorithm today versus the previous decade before you embarked on Phase III.

I believe that historically, IDEX has closely followed industrial production or the ISM index, showing a strong correlation during those years. By enhancing our integrated side and incorporating more vibrant technologies, particularly from HST and the water sector, we aim to shift our growth potential upward. We're beginning to see this shift, especially in the HST segment, which has usually contributed modest growth. We hope to elevate this toward mid-single digits for the company. This growth is fueled by two key factors: our diverse portfolio filled with advanced tech assets aligning with modern trends, and the collaborative approach we're developing to ensure these technologies work effectively together within IDEX. This synergy is evident in the Material Science Solutions platform. For example, we're witnessing quicker outcomes in a specific business like Muon due to this collaboration. Therefore, it's about both integrating new assets and optimizing their collective impact, transitioning us from our traditional industrial growth to a more robust mid-single-digit growth rate.

That's helpful. Appreciate that. And then maybe the answer here is obvious with some of the stuff you said in the earlier remarks, but you look back over the last seven or so quarters, orders have been positive. They've trended if I take a really loose average in that 3%, 4% kind of range from an organic growth perspective. How do you think about when the revenue levels can start more consistently normalizing towards that range? We've had a lot of moving pieces quarter to quarter for a while now. But just when do you think there's going to be more of a consistent relationship between those things emerging?

Well, I think two things got to happen there. I mean, obviously, we're getting a lot of price, too. So as you referenced those numbers, what we're looking at is not just the organic rates, especially on the industrial businesses, but we're actually looking for the volume step up underneath it. I do think it's been a while now since that base level in industrial world started to move or inflect. At some point, when it does, we're going to be really well positioned to move on top of it. That's still an important part of the business, and it covers a lot of IDEX. I think back to this theme of controlling what we can control and having more pieces available at our disposal to do it, that's the part that's more impactful and where we're spending all our time and energy. So stories like you see in the Material Science Solutions platform, the work that I've referenced long ago about kind of how data centers are coming together in our pneumatic space, that's kind of leading the way for growth for us right now. Water, which on the municipal facing side, was a high single-digit grower for us here in this quarter. Having more of those cases and points put down and ultimately Mott being part of that as well as we continue the exact same work there. I think it's those two components. It's an entitlement shift that I think is overdue on the industrial side and then us just doing the work that I'm describing here on top of it.

I'm curious, Eric, when you take a step back and reflect on the last year or 18 months and consider the deals you've made, it seems you've engaged in interesting deals positioned in the growth areas you mentioned. However, if I compare what we've been acquiring to our previous acquisitions, do you think we may have pursued growth differently? Have we strayed from what made IDEX unique in terms of positioning and visibility of these businesses? I'm interested in your thoughts on the M&A activities over the last two years, especially now that we are refocusing on 8020 as a specific mandate.

Yes. I appreciate the question. From probably the most positive aspect, the line of sight between the technology and the market access points we've acquired and areas of growth in the economy that are not affected by some of the things we've talked through is really positive. Almost every single point we've referenced here in terms of us making our own luck, you can trace it back to areas very close to the businesses that we've acquired. So I think that part of the thesis I feel very confident about. The actual work being performed is not that different than I remember kind of the earlier days of IDEX, while a lot of our traditional technology was pretty industrial in nature. The actual development and iterative innovation work that goes on there is very, very difficult in cutting edge. Part of the thesis here really is to essentially set the same specification points now in emerging industries, be a part of that, be a partner with customers as they develop things and then solve problems that I think are honestly equivalent to what we did back in the earlier industrial times. They're different assets. We do a lot more of the work in clean room environments than we used to do in traditional manufacturing. But the nature of engineering first rapid iteration, kind of capital D and a small r in R&D, I mean, that's classic IDEX. The ultimate business filter here that looks at delivering massive criticality at a low price point is just that sort of secret source code of our economic engine, that's constant as well. While it is an evolutionary shift, probably the newest piece of it is the way that we're collaborating across borders within businesses, I actually think that's reflective of just where the world is now as well. The kinds of solutions they're asking us to solve some of the best customers that are out there often demand work that transcends a single business or a single technology. We're setting ourselves up in a way that we can continue to participate with a world that's developing and evolving as well.

That's great insight. Following up on that, I recognize that policies often change, especially from a governmental perspective. If I were to ask you for a five-year growth outlook, I'm not looking for specific numbers, but do you believe any of your businesses are now positioned differently compared to five years ago, particularly in a context where policy is currently a consideration, such as in the Med tool sector and lab-based clinical applications?

Well, look, I think there's no question in certainly the last five years things have changed, and the pace of change is a lot faster than it used to be. So when I think of that from the highest level, I think about businesses in a company that's agile and can move on a dime and can quickly rally around change. I think we're actually really, really well set up for that. I'll just give you a quick example. We highlighted a lot of great things going on in this Material Science Solutions platform. Got some applications there on the data center side that didn't even exist, they really weren't on our horizon even one year, one and a half years ago. They're a testament to the teams and the flat organizational nature of the way we run things and the autonomy of decision rights. Those teams jumped on that kind of put 100% effort on it, segmented it with 8020, and ultimately won the day very, very quickly. From a world of change, I do think we're very well set up just in terms of how we run and lead IDEX to go after that. Now there are specific places, you mentioned one there on the life sciences side. That's in a different space than it was years ago. But I think even there, the tunability of our technology allows us to respond to things very, very well. In Life Sciences today, there's some pressure on the kind of academic funding side of things. But there's a lot of strength on the pharma side, and we're able to tune resources and shift accordingly. That ability to do that within a small- to medium-sized organizational construct and do it fast does set us up for change sort of no matter what direction it takes us. From a kind of a trade policy perspective, which is sort of the big headline today that we're dealing with, this is a really localized business model. We tend to iterate, ideate, produce, source, make stuff, and sell it within the same geography. So it protects us a bit from unexpected shifts on that side as well.

I guess I'll come from the other side of the platforming strategy and some of the acquisitions that have been made here. Questions have obviously been focusing on growth. I think there are opportunities for you guys to take some more costs out of those businesses, maybe combining some rooftops. I know you did some headcount reductions earlier in the year. So maybe if you could just talk about it from the other side and the potential for reducing costs, expanding margins as part of this strategy as well.

Yes, our approach to driving value at IDEX relies heavily on operational excellence. We utilize the 80/20 principle to identify where resources are effectively utilized and where they are not. I'd like to discuss a few acquisitions to illustrate our efforts. A few years ago, we acquired Airtech and invested significant effort into that business. We organized a leadership event there, bringing in senior IDEX leaders to address key areas for growth. When I revisited a year later, I was pleased to see the positive impact of our initiatives, which enabled the business to grow successfully. Regarding the Material Science Solutions platform and Muon, we've made some cost adjustments, and now our profitability exceeds the consolidated HST levels, positioning us well to leverage this going forward. Additionally, our work with Mott follows a similar principle. We are analyzing business opportunities to determine key areas for improvement and mapping resources effectively. A notable achievement in Q3 was Mott's gradual ramp-up to Q4, where they proactively advanced some initiatives in Q3 due to efficiency gains from both their team and our support. We have also focused on operational productivity, which involves consolidating back-office functions to reduce administrative overhead. This strategy has led to many of the current efficiencies, and we are now seeing consistent performance in Q3, with expectations for further improvements into Q4.

Nathan, just maybe to put some numbers around it, right? Eric mentioned the dealer and the platform optimization efforts. The second bucket was really cost containment efforts and actions that we put into place starting in the second quarter. What you see today is we delivered $17 million across those two buckets, and the step-up will be a few million dollars, running at about $20 million here in the fourth quarter.

Are there further opportunities for these kinds of restructuring savings? I think you've talked about maybe consolidating some rooftops as one of the things to do in the future as part of combining these businesses, moving them closer together. Is there something that you're likely to move on in 2026?

Well, that's certainly a chapter that we'll take a look at. One of the advantages when you put similar businesses together, as you can absolutely look at your infrastructure topology and then ask questions around how to effectively leverage that. I will say we haven't done as much of it here this year because that's a big variability element as we've worked on some of the other aspects of 8020 and bringing people together, particularly in a commercial and a technical way that's different. We've been a little careful not to superimpose more variability on top of it and run the risk that any of that then manifests through to the customer base. That is a chapter to come. It's something that we'll certainly consider here, and we'll be thoughtful in how we layer it across so that it doesn't interrupt growth. But that is an open area of opportunity for us. We're always thinking of that as we scale the company because we want to take some of that complexity out of the system.

I guess my follow-up is going to be around capital allocation. Specific change in priorities, I guess, really this quarter with I know you talked about M&A maybe taking more of a backseat now smaller deals, not the transformational deals. You have repurchased shares each quarter this year, increase the authorization. Is part of the plan here to be more of a serial repurchaser of stock going forward? I would imagine that you think the stock is probably well below intrinsic value right now; IDEX has historically been a share repurchaser in that situation. How should we think about share repurchase both opportunistically in the short term and more as a long-term avenue for capital deployment?

Yes, Nathan, let me just sort of walk you through that framework. First, I think it's important for me to recognize the high-quality portfolio we've built, which enables us to generate strong free cash flow consistently that we're actually able to deploy. You sort of called it out M&A; there was a period of heavy investment for us during our growth platform building phase, and now we're focused on bolt-ons that are going to have attachment points to these growth platforms that we've built. One of the greatest examples here that half for you was in one of the slides was Micro-Lam, which we announced last quarter. Its integration is going really well. It's sorting to plug in very nicely into the MSS platforms. From a funnel perspective, our funnel is strong. We continue to cultivate proprietary ideas. As those opportunities are available to us, we'll execute on them. As we think about excess cash flow, we'll continue to return that capital to shareholders, and that's through dividends. I do want to make sure that you know we spend a minute on that. That is a policy that we've grown our dividend here historically. We aim for 30% to 35% adjusted net income to be paid out from that front and then share repurchases, which, as you mentioned, we've stepped up. Coming into the year, we had already stepped up the share repurchases because we were outside of that heavier deployment of capital towards platform building. If you look at where how the numbers stack up, year-to-date, we've returned about 80% of our free cash flow to shareholders. So, as we think about this framework and look at what's ahead, especially us moving towards more bolt-on being able to add more things to the growth platforms, you'll see that excess cash being returned to shareholders.

But I think, Nathan, long-term, also people to recognize, we've got some work in parallel. We're always thinking about where does IDEX go next, what other technologies are out there that could be interesting for us, are there access points for markets, so that work continues, but it's of a longer duration. It's important that we don't interrupt it, but we're kind of doing two parallel tracks here. We're thinking ultimately about deploying capital to the points of highest return. Right now, for us, taking advantage of what we purchased, getting it to work together effectively, working on both the top and the bottom line and driving a ton of value out of the base that we've acquired is absolutely a point of high return. As we do that, returning cash and capital to the shareholders, we think if nothing else, a real signal and sign of the confidence we have in the long-term growth strategy for the company.

The Intelligent Water platform has gotten a decent amount of airtime today. I think that's fair. Eric, as you called out, the team presented quite well at WEFTEC. So wondering if you could offer some finer points on contribution in the quarter. I think you would have noted high single digit. I don't know if that was a revenue or order expansion. A clarification there would be helpful. More importantly, just speak to the underlying demand trends, visibility and growth prospects of the platform as we look to '26.

The revenue growth in the high single digits is noteworthy, and we received good orders as well. We emphasize the municipal aspect of our water platform because, while it includes a segment focused on high-purity applications, primarily in semi-fabrication areas, the bulk of our business is municipal-facing. We play a critical role in helping communities understand their underground systems, which are environments that are challenging to navigate. Our acquisitions, including Nexsight, have enhanced our offerings with advanced inspection tools and analytical capabilities. This segment is the most software-driven in our portfolio, utilizing technologies for flow monitoring and detection in demanding conditions. The data we capture feeds into an analytical framework that aids municipalities in understanding their systems. We serve two main types of customers: operators who manage daily operations and capital specification engineers who rely on our insights for larger infrastructure projects. Our contributions are crucial for the smooth functioning of these systems and have become more integrated over time, as demonstrated during WEFTEC. The recent addition of Subterra extends our capabilities significantly with a user-friendly device. We're excited about the growth we've experienced and are optimistic about future opportunities.

That's excellent. I appreciate the color. And Q3, HST results were pretty encouraging overall. I know your team has been navigating challenging market conditions for a while, and perhaps there aren't standout green shoots quite yet, but it seems like, I guess, the aggregate demand outlook is, I believe, gradually improving. Given the restructuring and optimization work your team has done, how should we think about HST incrementals once we do get back to a more supportive demand environment?

Bryan, it's Akhil. Yes, I can take this one. Look, the way I would think about it is sort of from an incremental standpoint, just given the demand dynamics that you laid out, we'd expect somewhere in that 35% to 40% incrementals. Again, if those demand dynamics weren't there, we'd vector to the lower end of that, but that's sort of how we're thinking about demand there to support the business.

I want to emphasize the excellent performance of the teams working in HST. They've had a remarkable year, with growth in orders, sales, and profitability in all three quarters we've observed, and they are set to improve even further in the fourth quarter. The underlying markets for IDEX vary, but much of this success is due to the exceptional efforts we've seen in MSS, data center applications, Airtech, and other areas.

So maybe just going back to your commentary, Eric, on sort of the price versus volume dynamics that you've seen, and you mentioned that you've been seeing strong price realization overall. Could you give any color on what price actually contributed in 3Q and how you're thinking about pricing heading into '26, particularly if kind of a still sideways or sluggish demand environment in portions of the business line?

Yes. So price capture has increased, obviously, as we've gone through the year, much of it in response to the tariff announcements. In Q3, we were about 3.5%. That's a high point for the year, higher than anything we had in 2024. It's starting to approach some of the levels at the tail end of '23, which was kind of the end of that big inflationary cycle. So it's increasing. Two things I would say about it. One, I always want to remind people here. One reason that we're able to do that and do it effectively is a testament to the differentiation that we have in our technologies, the positioning of our businesses and the great work of our teams. I say that because I think as this goes on and the levels get higher, I think this is an area where it's getting a little more difficult. There's some real pricing fatigue that is out there generally. I think this is where I appreciate the differentiation that we have in our businesses and our ability to kind of withstand that argument. It goes back to the original business filter of the company of lots of criticality at a relatively low price point. So when our increases do hit, they're easier to rationalize than some others. Heading forward, obviously, from a pricing perspective, a lot of it is going to depend on where does policy go. So much of it has been a response to that, kind of the base level pricing entitlement. We're planning for that. We've got some of it out now as kind of a pre-announcement getting ready. Nothing really interrupting that side of the cycle. The open question is, does policy become more aggressive? Does that then force us to go to even higher levels? Ultimately, that's into an environment that I think is starting to show some real fatigue.

Yes. Vlad, I can put some dimensions around the 3.5%. I think you heard us talk about it earlier in the year; we came out with traditional price of about 1.5%. Then in the second quarter, once we started to put tariff pricing in place to offset that incremental cost, we're now at about a 2% run rate just to help you put some numbers around what Eric mentioned. We expect that to continue here in the fourth quarter unless there's maybe a positive announcement here, or it could go the other way, just given what's on the horizon. We're not accounting for that, but our intention is to continue to offset it, just given the remarks Eric made here.

That's helpful to understand. Could you clarify the cadence between the third and fourth quarters and whether there was any shift in demand, considering the positive performance in the third quarter while reiterating the full year? What has changed between the quarters?

Yes. Look, I think if you go back when we were out here in the summer, we talked about sequentially 2% to 3% growth in general would be flat and there was that step-up. Teams did a really nice job executing with this backdrop, you think about certain order timing materialized earlier than we anticipated, the 8020 work that Eric mentioned with Mott and the operational improvements that we're seeing there. That left us with more of a balanced 3 to 4Q, which is more reflective of a historical pattern for IDEX overall. We're in the 4Q; we still see a ramp in HST, but we've got line of sight to it. It's in our backlog. So we're confident in being able to deliver on that.

I understand you won't provide formal guidance for 2026, but could you share some insights into your thinking for the upcoming year? As we aim to return the business to our historic mid-single-digit organic growth rate, what key risks and opportunities should we keep in mind for next year?

Yes. A lot of it will depend on the nature of the base level industrial entitlement, as that still plays a significant role in IDEX. As we approach Q4, it's crucial to monitor those key businesses to identify any potential changes, which will be vital for our industrial coverage. Pricing dynamics will also be important. As Akhil mentioned, we need to consider the balance between a lower figure that accounts for our inflation and a higher figure that must offset any applicable policies at that time. This will factor into our decision-making. Ultimately, success will come down to momentum and our ability to create favorable conditions in the areas we are focusing on. We are currently discussing each of our five growth platforms, looking at what opportunities are in the pipeline, what we are winning, and when we can expect results. These three elements will guide our outlook for the next year. The final piece is within our control, while the other two are influenced by external factors that shape our diversified company. We will be looking for indications of change as we progress through Q4 and will reference these in our discussions.

Just a quick follow-on on that last one, thinking about 2026. I guess, one, just on the organic revenue, what's your feel at this point? Are you cautious about 2026 or you're optimistic about the organic growth, especially given the platforms? I guess second, just help us think about the operating leverage that we should get when we're thinking about modeling 2026 EPS.

Walt, it's Akhil. So, just building on what Eric mentioned, we'll talk about guidance when we see here next. But just at a higher level, look, he mentioned us monitoring the day rates. We are short cycle; we have limited visibility. We're continuing to do the work around '26 and what that's going to look like, taking into account all the factors that Eric mentioned: the pricing dynamics, us being able to make our own luck, and the work that we're doing within our growth platforms and the macro backdrop. We're going to continue to monitor that pretty closely. But as you think about generally the incrementals, we mentioned, think of it as 30% on a consolidated basis, 30-ish percent, which some will be higher here. That is what we're looking at from an incremental standpoint. Earlier in the call, we mentioned where HST would be, so I think taken together, that should hopefully give you some level of guidance of where we expect '26 incrementals to land.

I would just say, Walt, to add on that degrees matter here. The closer the world tends to tilt towards flattish, our incrementals don't spring as well. You get a little bit of buoyancy in the system and get that up around 3%, 4%. Things start to perform a lot better. Kind of where we are in that spectrum will matter as well around that point that Akhil mentioned.

I wanted to come back to the platform optimization savings and the cost containment. So the $60 million, I guess, how should we think about any carryover into next year? And then how much would be maybe structural versus discretionary that would flex back up as these volumes might improve?

Akhil here. When considering the different areas, there's the platform optimization and dealer layering category, which I see as more structural. We expect that to achieve its run rate this quarter and continue moving forward. This is related to the $42 million we announced in our fourth quarter earnings earlier this year. Then there's the second category for cost containment, which will also reach its run rate soon. This is more temporary and may come back depending on the opportunities we anticipate pursuing, allowing us to invest in those areas. This represents a $20 million portion, bringing the total to $62 million. That's my perspective on the two categories.

Well, thank you. Thanks for joining today, and thanks for your interest and support in IDEX. I think key takeaways here, certainly, we're making our own luck with 8020 in a broadly uncertain world that taking you through our evolution, I hope you can appreciate we built some real strong foundational assets. We've got some outstanding businesses, very strong teams in talent, a highly engaged and collaborative culture and effective operating model powered by 8020. Now we've boosted our technical and commercial vitality through these strategic acquisitions and divestitures, and we're writing the source code for a new way of working together as a team within scalable growth platforms. I'm happy to see we're starting to put some growth points on the board there as we do that work together. We're confident overall that we'll continue to build momentum through this focused work as we move forward to drive value for all of our shareholders. I really look forward to talking to you about it more in the quarters ahead. Thanks so much, and have a great day.