AMETEK, Inc.

Good day, ladies and gentlemen, and welcome to the Q4 2018 Amatek, Inc. earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions for how to participate will follow at that time. During the conference, if anyone should require assistance, please press star, then the number zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Kevin Coleman, Vice President of Investor Relations. Sir, you may begin.

Thank you, Jimmy. Good morning, and thank you for joining us for Amatek's fourth quarter 2018 earnings conference call. With me this morning, Dave Zepico, chairman and chief executive officer, and Bill Burke, executive vice president and chief financial officer. Amatek's fourth quarter and full year results were released earlier this morning and are available electronically on market systems and on our website in the investor section of amatek.com. This call is also being webcasted. and can be accessed on our website. The webcast will be archived and made available on our site later today. Before we get started, I want to remind you that any statements made by AMETEC during the call that are not historical in nature are to be considered forward-looking statements. As such, these statements are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in AMETEC's filings with the SEC. AMETEC disclaims any intention or obligation to update or revise any forward-looking statements. Please also note that our fourth quarter reported results include an after-tax gain of $11.8 million, or five cents per diluted share, related to the finalization of the impact of the 2017 Tax Cuts and Jobs Act. Any references made on this call to 2017 or 2018 financial results will be on an adjusted basis excluding this fourth quarter 2018 gain and excluding the fourth quarter 2017 net gain related to the Tax Cuts and Jobs Act, realignment costs and other charges. Please refer to the investor section of amatek.com for a reconciliation of any non-GAAP financial measures used during this call. We'll begin today with prepared remarks by Dave and Bill, and then we'll open it up for your questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Amitek had an excellent fourth quarter to complete another outstanding year. For the full year, we established records for essentially all key financial metrics. We delivered 7% organic sales growth and 26% growth in diluted earnings per share. We generated record cash flows, which we successfully deployed on strategic acquisitions, and we continued to invest in our businesses to position them for long-term success. In addition to the impressive result for the full year, we also had a fantastic fourth quarter with record results. Sales were up low double digits, driven by strong acquisition contributions and continued solid organic growth. Orders also grew at a strong pace, and we ended the year with a record backlog. Operating profit growth and operating margin expansion in the quarter were excellent, leading to a high quality of earnings that exceeded expectations. We remained very active investing our strong cash flows, deploying over $750 million on three acquisitions and $364 million on opportunistic share repurchases in the quarter. We also bolstered the strength and flexibility of our balance sheet with an expanded revolving credit line and completed a private placement debt offering, providing a significant capacity to pursue future growth opportunities. Now for the fourth quarter results. Fourth quarter sales were a record $1.3 billion, up 11% compared to the fourth quarter of 2017. Organic sales growth was solid at 5%, with acquisitions contributing 7% in foreign currency, a 1% headwind. Orders also remained very solid. Overall orders were up 11% over the prior year, with organic orders up 5%. Another positive book-to-bill quarter resulted in a record backlog of more than $1.6 billion, providing us with solid visibility as we enter 2019. EBITDA in the quarter was a record $332 million, up 22% over the prior year period, with EBITDA margins of very strong 26.1%. Operating income in the quarter was a record $282 million, up 14% over the same quarter last year, with reported operating margins of 22.2%, up 50 basis points over the prior year period. Excluding the dilutive impact of acquisitions, operating margins increased an impressive 130 basis points over last year's fourth quarter. Diluted earnings per share were a record 86 cents in the quarter, representing an outstanding 23 percent increase over the prior year's fourth quarter earnings. Now for the full year 2018 results. Amitek delivered annual records essentially on all key financial metrics in 2018. Overall sales were up 13% to $4.8 billion. Organic sales grew an impressive 7%. Acquisitions contributed 5%, and foreign currency was a one-point benefit. Overall orders were up 11%, and organic orders were also up 7% in 2018. Four-year operating income was $1.1 billion. and operating margins were up 70 basis points to 22.2%. Excluding the dilutive impact from acquisitions, 2018 operating margins were up an impressive 110 basis points over 2017. Full-year diluted earnings per share were $3.29, up 26% over the prior year. Now turning to the fourth quarter results of the individual operating groups. First, the electronic instruments group. Fourth quarter sales for EIG were up 11 percent to a record $826 million. Recent acquisitions contributed 8 percent, organic sales grew 4 percent, and foreign currency was a one-point headwind. We continue to see strong growth across our process businesses. with particular strength in our materials analysis businesses. EIG's operating income in the quarter was a record $214.6 million of 11% over the fourth quarter of 2017. Reported operating margins were 26%. Excluding the dilutive impact of acquisitions, EIG margins were up a robust 130 basis points versus the prior year. The electromechanical group had another excellent quarter with strong sales growth and outstanding operating performance. EMG sales in the fourth quarter were $445.3 million, up 11% over the fourth quarter of 2017. Organic sales growth was very strong at 9%, while the acquisition of FMH Aerospace contributed 3%, and foreign currency was a one-point headwind. Sales grew nicely across all EMG businesses in the quarter, with particular strength across our aerospace and engineer materials businesses. EMG's operating performance in the quarter was outstanding, with operating income increasing 18% to $85.8 million and operating margins expanding 110 basis points to 19.3%. So to summarize, Amatek delivered tremendous performance in the fourth quarter and throughout the year. Each of our businesses continue to deliver exceptional results through the execution of the Ametek Growth Model, which combines our four growth strategies with a disciplined focus on cash generation and capital deployment to create long-term value for all of Ametek's stakeholders. I would like to thank all Ametek colleagues for their exceptional work and success in 2018. Before I discuss our outlook for 2019, I wanted to highlight some of the efforts our businesses are taking to drive the future of Ametek. I'll start with acquisitions. 2018 was an exciting year on the acquisition front, having deployed a record level of capital to acquire six outstanding businesses. We deployed over $1.1 billion in capital on these acquisitions and acquired approximately $350 million in annual sales. In the fourth quarter alone, we completed three acquisitions. Forza and Teliadar, which I highlighted during our last earnings call, and Spectro Scientific, which we acquired in late November. Spectro Scientific is a leading provider of machine condition monitoring solutions for critical assets and high-value industrial applications. They offer differentiated solutions that serve the increasing need for predictive maintenance in a broad and growing set of end markets. Spectro Scientific provides both lab-based and on-site instrumentation including consumables and cloud-based software analytics to help customers determine and monitor the condition of lubricants and fluids in mission-critical equipment. They're based in Chelmsford, Mass., and have approximately $50 million in annual sales. Spectra Scientific, along with the other businesses acquired in 2018, are integrating very nicely into Amatek, and we expect them to add tremendous value going forward. In addition to deploying a record level of capital and acquisitions, we also deployed $364 million on share repurchases during the quarter, bringing the total capital deployed in 2018 to nearly $1.5 billion. Acquisitions clearly remain the number one priority for capital deployment. As we have done in the past, we will continue to repurchase our shares opportunistically and will continue to pay a modest dividend to our shareholders. Despite the record-level capital deployment, we have significant capacity available to continue our acquisition strategy, and Bill will touch on this further in a moment. We remain focused on investing back on our businesses to support their growth initiatives. In 2018, we invested approximately $75 million in incremental growth opportunities. These investments were focused across our sales and marketing and research development and engineering functions. We're seeing excellent results from these initiatives as we continue to drive strong organic sales growth. One important driver of this organic sales growth is new product development. In the fourth quarter, our vitality index, which measures the level of sales generated for new products and solutions introduced within the last three years, was excellent at 25%. The traction that our new products are gaining in the respective markets speak to the success of our research, development, and engineering efforts. We also remain focused on expanding our footprint across the globe and into new adjacent markets. In October, we celebrated the opening of our newest technology solution center in Bangalore, India. This center showcases the latest products and technologies of many of Amatek's businesses and is designed to assist customers in selecting the right equipment and enhance our service platforms within the region. This facility greatly enhances our ability to expand our position in India's attractive growth markets. We will continue to expand our global sales channels, develop additional service capabilities, and add to our manufacturing flexibility to better serve our customers and support global growth. Lastly, our operational excellence initiatives continue to drive strong improvements in the operating performance as was seen in our margin expansion in the fourth quarter and full year results. In 2018, we generated approximately $90 million in savings from our operational excellence initiatives, largely driven by our global sourcing and strategic procurement efforts. We also remain focused on driving top-line growth through our expanded commercial excellence toolkit which continues to drive additional market share gains across our businesses. These key strategies make up the cornerstone of Amitek's growth model and will remain a strong focus as we move into 2019. Now let me provide some brief comments on tariffs. Our businesses continue to do a tremendous job managing each of the work streams we have put in place to help address the effects of tariffs. While the situation remains fluid, We remain very confident in our ability to mitigate the headwinds from the announced tariffs given our ability to capture incremental pricing due to the highly differentiated nature of our business, the strength and flexibility of our global supply chain, and our ability to shift production given our asset-light business model. Amitek's proven operational excellence capability, which captures each of these elements, positions us extremely well to offset the impacts from tariffs. in the fourth quarter we will be able to fully offset the direct impact from tariffs and for all of 2019 we also expect we will be able to offset the impact of known tariffs through our various initiatives. Now I'll move to our outlook for the year. As we noted in our press release, going forward we will report EPS results and guidance on an adjusted basis with ASBAC non-cash after-tax acquisition-related intangible amortization. We believe providing this non-GAAP measure allows our shareholders to better understand the strength of our cash flow generation and core operating results and aligns more comparably to our acquisitive pairs. With that said, we expect 2019 adjusted earnings for diluted share to be in the range of $3.95 to $4.05, an increase of 8% to 11% over the comparable result in 2018. We expect overall sales in 2019 to be up high single digits. Organic sales are expected to be up 3% to 5%, with a similar level of organic growth across each reportable segment. For the first quarter, We anticipate sales will be up high single digits. Adjusted earnings are expected to be in the range of $0.95 to $0.97 per diluted share, a 9% to 11% increase over the prior year. To conclude, our teams performed exceptionally well in the fourth quarter and delivered outstanding results in 2018. We are firmly positioned to achieve another year of solid growth and sustainable long-term success through the execution of the AMETEC growth model. I will now turn it over to Bill Burke who will cover some of the financial details of the quarter, then we'll be glad to take your questions.