AMETEK, Inc.

Good day ladies and gentlemen and welcome to the Q1 2019 Amatek, Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance during today's conference, please press star then zero on your telephone keypad. As a reminder, today's conference is being recorded. I would now like to turn the call over to Kevin Coleman, Vice President of Investor Relations. Sir, you may begin.

Thank you, Sydney. Good morning and thank you for joining us for Amatek's first quarter 2019 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. Amatek's first quarter results were released earlier this morning and are available on our website. 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. During the course of today's call, we will make forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in Amatek's filings with the SEC. Amatek disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2018 or 2019 results will be on an adjusted basis, excluding after-tax acquisition-related and tangible amortization, and excluding the fourth quarter 2018 gain related to the finalization of the impact of the 2017 Tax Cuts and Jobs Act. Reconciliation between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill and then it will open it up for your questions. I'll now turn the meeting over to Dave. Thank

you, Kevin, and good morning, everyone. Amatek began 2019 with an outstanding first quarter, establishing records for sales, orders, backlog, EBDA, and operating income. Our businesses delivered strong overall sales growth with solid organic growth and meaningful contributions from the six acquisitions we completed in 2018. Our businesses also delivered fantastic operating performance with impressive operating income growth and core margin expansion, leading to 15% adjusted earnings growth, which nicely exceeded our expectations. We also generated strong cash flow, with operating cash flow increasing 11% year over year. Given these strong results, we have increased our earnings guidance for 2019. Now on to the financial highlights for the quarter. Total sales in the first quarter were $1.29 billion, up 10% compared to the first quarter of 2018. Organic sales growth was again strong at 5%, with acquisitions adding 7%, and foreign currency a 2-point headwind. We also generated a record level of orders in the first quarter, with another quarter of positive book to bill. Our record backlog of $1.7 billion provides us solid visibility as we move through 2019. EBDA in the first quarter was a record, $337 million, up 10% over the same period in 2018. And EBDA margins were excellent at 26.2%. Operating income in the quarter was a record, at 283.3 million, up 10% over the prior year period, with reported operating margins of 22%. Excluding the dilutive impact of acquisitions, operating margins increased an impressive 70 basis points over 2018's first quarter. Adjusted earnings were $1 per share, up 15% over the comparable basis for 2018, exceeding our guidance range of $0.95 to $0.97 per diluted share. Now turning to the first quarter results of the individual operating groups. First, the electronic instruments group. EIG sales in the quarter increased 13%, to $806.9 million. Recent acquisitions contributed 10%, and organic sales growth were up 4%. Foreign currency was a two-point headwind. Our materials analysis businesses continue to deliver strong growth as their high-end analytical instrumentation solutions are very well positioned in attractive growth markets. EIG's operating performance in the quarter was outstanding, with operating income of $203.1 million, up 11% over 2018's first quarter. Reported operating income margins were 25.2%. Excluding the dilutive impact of acquisitions, EIG margins expanded an impressive 110 basis points over the prior year's first quarter. The electromechanical group also had a great quarter, with strong organic sales growth and excellent operating performance. EMG's first quarter sales increased 5% to a record $480.8 million, with organic sales growth a very strong 7%. The acquisition of FMH added 1%, and foreign currency was a two-point headwind. We continue to see broad-based growth across our automation, engineer materials, and aerospace and defense businesses, each continuing to deliver solid growth. EMG also delivered excellent operating performance in the quarter, with operating income increasing 9% to $98.8 million. Operating margins expanded nicely, up 70 basis points to 20.6%. I am very pleased with AMATEK's first quarter performance, which has positioned us very well for another year of record results. The AMATEK growth model, which combines our four growth strategies with a disciplined focus on cash generation, capital deployment, and talent development, continues to provide the framework for driving long-term and sustainable value for our shareholders. Before I discuss our updated outlook for 2019, I wanted to highlight some of the recent achievements our colleagues have had in driving success for AMATEK. I'll start with a collaborative R&D effort between two of our businesses which resulted in the release of two innovative new products. In March, EDACS, a leading provider of materials characterization systems, unveiled its Velocity Plus and Velocity Super models. The Velocity Super, at 4,500 frames per second, is the fastest electron backscatter diffraction camera system in the world. Both new Velocity systems are powered by high-speed, low-noise CMOS sensors developed by our vision research business, a leading provider of -high-speed cameras. These new additions to the EDACS portfolio offer our customers a superior solution to help solve materials characterization and elemental composition challenges in both R&D and broader industrial settings. Congratulations to the EDACS and vision research teams for coming together and developing these world-class new products. This is just one example of the many market-leading new products and solutions our businesses are developing to help solve our customers' most complex challenges. Our businesses are also capturing additional market share by expanding into attractively positioned, adjacent markets. Roland, a leading provider of communication systems for use in hospitals and healthcare facilities, has a renewed focus on expanding its technology offering to serve schools and educational institutions. Through its TeleCenter U, Roland provides school districts and campuses with flexible, streamlined communication capabilities for its students and staff. Utilizing a suite of proprietary hardware and software applications, TeleCenter U synchronizes mass communications across multiple locations for everyday messages, event scheduling, and in critical emergency situations. The solution can play a key role in helping to improve the safety and security of students and teachers during crisis situations, and it is designed to help automate and manage a school's crisis plan during the crucial first few minutes before first responders arrive. Roland has done an excellent job expanding its technology focus on safety within our schools. We will continue to invest our new product development and market expansion initiatives as we are seeing outstanding results from these investments. Our teams are also doing an incredible job integrating our recent acquisitions into Ametek. In 2018, we deployed over 1.1 billion of capital on six acquisitions and acquired approximately $350 million in annual sales. These acquisitions are already showing strong performance, and we expect them to generate excellent results in 2019. We remain focused on deploying our strong fee cash flow on strategic acquisitions. While we are aggressively pursuing these opportunities, we will remain disciplined on our acquisition efforts. Our teams are actively pursuing a broad pipeline of opportunities, and we are confident that we will be able to continue to complete value-enhancing acquisitions. Finally, we continue to focus on driving operational excellence, the cornerstone of the Ametek growth model. In the first quarter, we generated strong savings from our operational excellence initiatives, largely resulting from our global sourcing and strategic procurement activities. For all of 2019, we expect to generate over 80 million in operational excellence savings. We remain focused on developing and enhancing continuous improvement processes to drive positive operating results in 2019 and beyond. Now, moving to our updated outlook. Given our performance in the first quarter and our outlook for the remainder of the year, we now expect 2019 adjusted earnings to be in the range of $3.98 to $4.08 per diluted share, an increase of 9% to 11% over the comparable basis in 2018. This is an increase from our previous guidance range of $3.95 to $4.05 per diluted share. We continue to expect overall sales in 2019 to be up high single digits with organic sales up 3% to 5%. In the second quarter, we anticipate overall sales to be up high single digits and adjusted earnings to be in the range of $1 to $1.02 per diluted share, a 9% to 11% increase over the prior year period. To summarize, our business' outperformance in the first quarter firmly positions Amatec for another year of strong growth. Our experienced management teams, our market-leading niche businesses and our proven growth model allow Amatec to deliver strong and consistent performance. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter and then we'd be glad to take your questions.

Bill? Thank you, Dave. As Dave just mentioned, Amatec began the year with excellent performance, delivering record results that exceeded our expectations. I'll now provide some additional financial highlights for the quarter. Core selling expenses in the quarter was up in line with the core sales growth. First quarter general and administrative expenses were up $2.4 million over the same period in 2018 due largely to higher compensation costs. As a percentage of sales, general and administrative expenses were .4% in line with last year's level. The effective tax rate in the quarter was .5% down from last year's first quarter rate of 23.1%. In 2019, we expect our effective tax rate to be approximately .5% and that we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate. Working capital in the quarter was .2% up versus the prior year due to large part to the impact from the acquisitions in 2018. Capital expenditures were $21 million for the first quarter and for 2019, we continue to expect capital expenditures to be approximately $100 million or .9% of sales. Depreciation and amortization expense in the quarter was $58 million and for the full year, we continue to expect depreciation and amortization to be approximately $235 million including acquisition related intangible amortization of approximately $130 million or $0.43 per diluted share. Operating cash flow in the quarter was $196 million up 11% over last year's first quarter and free cash flow was $175 million. Total debt at the end of the quarter was $2.47 billion down $160 million from $2.63 billion at the end of 2018. Offsetting this debt is cash and cash equivalents of $368 million resulting in a net debt to EBITDA ratio as of March 31st of 1.6 times. We remain well positioned to support our growth initiatives with more than $1.8 billion of cash in existing credit facilities. To conclude, our businesses started the year with outstanding performance delivering high quality results. Our outlook for 2019 remains positive given our strong balance sheet and excellent cash flows.

Kevin? Great. Thank you, Bill. Sydney, we're now ready to open the lines for questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press the star and the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask you please place your line on mute once your question has been stated. And our first question comes from Matt Somerville with DA Davidson. Your line is open.

Good morning, Matt. Matt, are you there? Okay, Sydney, why don't we move on to the next call?

Hello?

Hi,

Matt. Matt, is that you, Matt?

Yes. Can you hear me?

Yeah, now.

Yes. Sorry, I don't know what happened there. Anyways, could you maybe comment as to the linearity you saw in your business throughout the quarter? Anything unusual across the three regions and then maybe give a little regional color around the 5% organic growth, sort of what was better, what was worse? Right.

I'll start with the geographic update. And there was a dynamic in one of our regions that was a little bit different, so I'll talk about that also. In the U.S., it was strong, high single-digit growth. It was broad-based growth, particularly in our aerospace business, our process businesses, and our e-min business. It really fired on all cylinders. Europe was a pleasant surprise, up mid-single digits. Solid growth and automation and process businesses drove that growth. And Asia was roughly flat. And that's where there was a dynamic where the activity seemed to slow in February, but it picked up very strongly in March. So some of our folks were speculating that some of the uncertainty or the Chinese New Year may have slowed a business activity, but again, in March, we ended up with a record order input for Asia. So it was flat, but going forward, we haven't changed any of our outlook for the region. So across the board, it was

a pretty good quarter. And then just lastly, Dave, can you maybe comment on where you were in Q1 with price realization and how that compared to inflation? Thank you.

Yeah, man, I didn't answer your linearity question. I mean, we strengthened through the quarter, and our strongest month was March, which is not atypical for us. And related to the price inflation, Q1-19 was much like the second half of 2018. We had an excellent quarter. We achieved about two percentage points of price across our entire business. Total inflation was a bit less than one and a half percent. So we're very pleased with these results, and we think we're well positioned to continue this for the balance of 2019. That speaks to, as I said before, the highly differentiated nature of our product portfolio and our leadership positions in these niche markets, and also our focus and determination to stay ahead of the inflation in a changing global economic environment.

Thanks, David. Thank

you, ma

'am. Thank you. And our next question comes from the line of Andrew Oben with Bank of America. Your line is open. Hi, yes.

Good morning. Can you hear me?

Yeah, good morning, Andrew.

Hey, just maybe a basic question, but just looking at the seasonality, given what the first quarter was, usually first quarter for you is quite a bit, a couple of percentage points less than 25 percent. And I guess second quarter guide and the annual guide implies that on a seasonal basis, second half is going to be weaker than usual, just looking back 10 years. And I was just wondering if you're seeing any yellow flags that are driving this kind of caution, or are you just being conservative?

Yeah, it's a great question, Andrew. I mean, the first point is in quarter two, our guide is higher than quarter one. So we typically, from Q1 to Q2, it's a bit higher. And we grew sales organically at the high end of our grant range in the first quarter. We had excellent core margin performance, and we raised our guidance, letting the entire Q1 earnings flow through to the new guide. But to your final point, it's still early in the year, and we feel good about how the quarter played out, but we're being a bit prudent in the uncertainty of the economic environment, and we feel that we're very comfortable with our guidance.

That makes sense. And just a follow-up question, I guess since 2014, we've been sort of waiting for a big comeback for your energy business. And if you can just comment what WTI being north of 60, are you seeing any change in tone from your customers to the point that maybe we're finally going to really take off, which is going to be a steady climb as it used to be? Thank you.

Sure. The energy business is probably a bit smaller as a percentage of the total WAMMET project because of some of the organic growth we've had in other areas in our M&A. It's about 6% of the company. And in the first quarter, it was up low single digits, and for the full year, we're expecting it to be up mid-single digits. And for the full year, we're looking at our upstream business to be up high single digits and the mid-downstream business to be up mid-single digits. And we have about 75% of our businesses in the mid and downstream. And what we're starting to see is typical recovery. That part of the business, our largest part of the business is starting to gain momentum. So we feel very good about our energy business. We feel really good about the market positions we have. And the business is continuing to grow. It had a great year last year and it looks like it's on target for another good year this year.

But any near-term change in behavior as the oil price rallied in the past three months?

You know, we have solid backlogs, but I can't say that there was a change, a notable change in behavior when the price of oil raised the last few months and there wasn't a change in behavior when it dropped precipitously in Q4. We just had a steady, increasing level of business and it's a global business. About two-thirds of it outside the U.S. and it just feels really solid. And as I said, the mid and downstream business is picking up nicely.

Great quarter, guys. Thanks.

Thank you, Andrew.

Thank you. And our next question comes from Nigel Coe with Rolf Research. Your line is open.

Hey, good morning, guys.

Morning, Nigel.

Hey, this is Bupendra here, sitting in for Nigel. Hey, good morning.

Good morning, guys.

So, Dave, you mentioned about the core orders in the quarter. Can you give us some color on the core orders number for the whole company as well as E&G and EMG and just kind of talk about some of the end markets which kind of strengthened or weakened during the quarter or you actually see from a color, especially in April, what we are seeing here. Thanks.

Sure, sure, Bupendra. The first thing would be the organic orders. They were up .5% for the quarter. That's, remember, against a very difficult comp at, we were up plus 12% in Q1 of 18. So, really solid orders performance. We had excellent book to bill. Our book to bill. We ended the quarter with a record backlog of $1.7 billion. So, we're feeling really good about the environment. We're operating in and from what we're hearing from our businesses and we continue to see solid underlying demand. We're really well positioned to perform well in this environment. And regarding April, I haven't seen the data as of today, but I've seen it as of yesterday and we're right on track. So, no change in pace in April and we're feeling good about Q2.

Okay, got it. And just a question on your guidance for the second quarter. The sales are going to grow up high single. Do you have the organic growth number? Like what kind of organic is built in those numbers?

Yeah, the organic growth would be the same level at the 3%, 4%, 5% number that we've guided for the year for Ametek.

Okay, so it's within the range. Got it. And lastly, you talked a little bit about the M&A pipeline. You guys did a great job like deploying more than a billion dollars here over the last in 2018. Any color on the size, at least the pipeline, EIG, EMGs, how it's kind of mixed wise as well as maybe just give us around the horn kind of color here on M&A. Yeah,

sure on M&A. Yeah, our M&A pipeline is very active. As always, we're evaluating a number of opportunities and we have a very broad pipeline. It needs to be broad because we're in the environment with deal pricing up and with the competitiveness of the environment, we have to select the deals from our broad pipeline which will give us a solid return on capital. So the M&A environment is similar to what we've been experiencing in the past few years. We're looking at deals across both of our groups and I'm very encouraged with the progress in the pipeline and you can't predict in the next quarter if the deal is going to close but I feel very confident on the long term with our process capability in M&A and with our tremendous pipeline. So I'm very bullish about M&A.

Okay, got it. And lastly, on the aerospace, I just want to leave it at this. Any, if you can explain the exposure on the 3737 max here, anything on that front and any pressure from the down take on the production especially from the Boeing?

Right. As you know, Amatek is not dependent on any one platform. So we're on just about every platform but we're not overly dependent on anyone. So when we look at the 737 issue, first of all, Boeing hasn't reduced the orders forecast and the production plan that we're seeing yet. So we're still going along meeting that demand. The second point would be for the full year of 2019, the 737 max accounts for about 15 million in revenue. So that puts it in an order of magnitude. It's a small part of the company, I think, probably about .25% of revenue. So we're not overly dependent on it. We certainly want to see the problem sixth and want to keep producing at the rate we're producing on but we had in the quarter strong OEM business. The commercial business was very solid. Our aerospace business was up high single digits in the first quarter and we're forecasting it to be up mid single digits for the year. So strong growth in all segments and maybe there's a bit of conservatism there but we feel really good about our aerospace business in all of our market segments.

Thanks a lot.

Thank you, Boothpenter.

Thank you. And our next question comes from Brett Lindsay with Vertical Research. Your line is open.

Hey, good morning all. Good morning. Good morning, Brett. Just wanted to come back to margins. Obviously a lot of noise with FX and deal impacts moving through the reported margins. What were the core incremental margins that you saw in the quarter at the total company level and at the segment level?

Okay. At the AMETEC level it was 35% and at the EIG level it was 50% and at the EMG level it was 25%. So pretty typical performance, very strong performance and we're very pleased with them.

Okay, good. And then just to follow up on the order question, appreciate the color in the 3.5%. What did that look like at the segment level? Were both positive or was the complexion 1, negative 1 up? And then within that order number, should we assume that that includes roughly two points of price similar to what you realized at the sales line in the quarter? Thanks.

Yeah, you probably should assume that because our pricing has been pretty consistent. At the group line, EIG was up 5% organically in orders and EMG was up 1% organically in orders. And EMG had the toughest hurdle because last year we had the very difficult comp at 12% and EMG was a bit stronger than EIG. So really all of our businesses had solid order performance and we have, as I said before, an excellent book to bill and record backlog. So we're feeling really good about the orders and it's really across the board.

Okay, good. And then maybe just one last one on pricing, very good pricing power all year really. As you guys look out into the balance of the year and you've seen some of these commodities and raw materials start to moderate here, is there a period of give back? And maybe you could just update us or remind us how pricing mechanisms work specifically within the metals business?

Yeah. I'd say in Amatek, except for the metals business, there isn't a period of give back. I think within the metals business, we don't really count that as price. So that's just the commodity fluctuations that get passed on to the customer. And what you really have to do is you have to have a very good price. There is a lot of the metals have stabilized, but the price of anadium is one metal that's important to us that's dropped recently. So that'll have a modest impact as we go forward on EMG's specialty metals business, but I don't expect much of an impact at the Amatek level.

Okay, great. I appreciate it. Thank you.

Thank you. And our following question comes from Robert McCarthy with Stevens. Your line is open.

Good morning, everyone. Morning, Robert. Congratulations on another solid quarter. It's nice to have a boring Amatek, right? Thank you. Yeah. But I guess from that perspective, in some of the excellent questioning that was ahead of me, I think it is a question about kind of the guide and the cadence for the year. Could you talk about that in the context of, you have entered a kind of slightly different range for the kind of deals you're looking at in terms of growth and potentially valuation and even underlying margins. Do you think given what the properties you're looking at now just dictated by the market environment, the pricing environment, do you think that some of the accretion is being blunted so that we might see it a little bit more next year? Or another way of saying it is, of the deals you've announced so far, what would you expect for kind of accretion in 2020 given the fact that it sounds like we do have a lot of puts and takes for 19? Right.

Yeah, I think in 18 we said that there's about 12 cents of benefit. In 19, there's about 12 cents of benefit from M&A. And we got a lot of deals, a slug of deals at the end of 2018. So those deals are working their way through the system and there's certainly a lot of integration activities going on. So yes, from those deals, the timing-wise will be, they'll have a potentially bigger benefit in 2020. But we're still seeing good margins now with our core business. That's very positive on those deals and the integrations are progressing very well. So they're spread out amongst our operating units and we forget about them.

And forgive me for another kind of impolitic question, but it's easier to ask these questions when your stock has rallied as significantly as it has and the investor perception has changed as radically as it has over the last three years. But if you were self-critical about yourself and the organization over the past three to four years in terms of M&A, or how do you miss on a time transaction, or how do you grade yourself on where your pitfalls are with Amatek's strategic style in terms of going after assets?

You know, I think our style is one that equates to returns. And we look for cash on cash after tax, return on invested capital 10% in year three on all these deals. And we haven't changed that. And we're getting that kind of return on the deals we're getting done. And we're not chasing deals that we can't get a return on. So a critique may be that we're not paying the inflated prices, but we feel very comfortable in the long run that there's a lot of discipline in our system. We want to maintain that discipline. And we look at the return on total capital on our balance sheet. That return on capital is about 13% in the first quarter. Our cost of capital is more like 8%, 8.5%. And we think the difference between the two is what we're creating as value for our long-term shareholders. And we look at that very closely. So that's the key driver behind our acquisition strategy. We have a lot of discipline, and we don't plan to change that. Thanks for your time. Thank you, Rob.

Thank you. And our following question comes from Dean Dre with RBC Capital Markets. Your line is open.

Thanks. Good morning, everyone.

Good morning, Dean.

Hey, just like to go into some of the variables and puts and takes in the quarter, if I could. Some of the dynamics that the industrial companies have been contending with, any puts and takes that you've seen regarding tariff? The second one is pull-in. Some of the companies saw cases where they actually had bigger demand pulled out of the first quarter into the fourth quarter. Did you see any of that? And then anything about you're not typically someone to complain about the weather, but was there any factor there, too? Just start there, too, please.

Okay. I guess I'll start with the weather, and it didn't have a measurable impact on our business. So with the tariffs, you know, Q1-19, it was a situation played out as we predicted. We had about one cent from the direct impact from tariffs, and we offset that totally with price. And our sourcing activities have been successful in reducing the growth tariffs, and we're active in continuing those sourcing plans. So price actions completely offset the tariffs, and we feel good about that. And your last question there regarding the pull-ins, we looked very hard at the pull-ins, and there's always some things pulled into Q4 before the end of the year, maybe to avoid a price increase, but it wasn't any different than any other prior year. So we're not saying we pulled a lot into Q4-18. We really looked at it hard, and it looked about the same to us. So those are the answers.

Yeah, those are all good to hear. And just going back to the record backlog, and just could you remind us how much of your backlog would convert in 2019, what percent of that, and just talk about that visibility that that gives you?

Yeah, that's right. I think it's about 85% comes out in the next year. So it gives you some very good visibility, but quite frankly, there were a number of our businesses that are book and shipped in the month or the quarter. So you don't want to take it too far, but 85% of that 1.7 billion is going to go out this year.

Great. And then last question for me, were there any growth investments in the quarter that you would call out? Just remind us what the growth investment budget is for 2019.

Right. I highlighted the product development, EDACs, and also the product development and the adjacent expansion of Rolland. Those were the highlights. Regarding investment for the year, we're investing about $80 million of incremental investments in sales, marketing, and engineering activities. That's $80 million more than we invested in 2018. And that spend is relatively linear through the year, and we're getting a good return on it. So certainly we're investing heavily, but our businesses are really focused on getting a return, and we're very pleased with our new product development activities and also the work we're doing in commercial excellence and improving our capability to go to market.

Great to hear. Thank you.

Thank

you,

Dean.

Thank you. And once again, ladies and gentlemen, if you have a question at this time, please press star and the number one key on your telephone keypad. Our next question comes from Richard Eastman with Baird. Your line is open.

Yes, good morning. Dave, just looking at the core growth rates in the quarter, the 3% for EIG and the 7% for EMG, against really a tough comp, I'm curious, as the revenue shook out in the quarter, was there any movement between segments? Was EMG maybe a bit of a positive surprise and maybe anything in EIG that maybe became an order that didn't ship? Was there any movement between the segments here relative to the first quarter macro?

The one first point is I'll make a small correction to what you said. The EIG organic growth was 4% in Q1, not 3%.

Okay, fair enough. Same question, then applies.

Same question applies. And it really played out as we thought. I mean, we had a forecast that was, and both sides of the business met their forecast. So it was pretty much a very, very, from the sales execution side, it was a very predictable quarter for us.

Okay. And the one thing that steps out from a margin perspective, your core margin in EIG of, I think you said it was up 110 basis points on the core side, was that primarily, what are the dynamics there? Is it mixed? Was there more price there in the EIG product lines or mixed or seems like a very positive variance? Yeah,

you're right, Rick. It is a positive variance. And you have the cost reductions factored in also. But our pricing that we got 2% in the quarter was broad based across our portfolio, but it's a little bit higher in the EIG than the MG. And we definitely had a positive mix. I mean, at this stage of the cycle, people were buying our fully optioned products. They have money to spend and our mix is positive. So those are the two, really three factors. We managed to cost well. We got good price in EIG and the mix was positive.

Okay. And then just last question. Around the M&A and the deals that they're kind of in your pipeline or potential deals in the pipeline, a couple things. One, are they skewed, you know, the prospects, are they skewed towards either EIG or EMG? And is there a theme in your pipeline around, you know, the type of businesses or the products? Maybe you could just address that perhaps.

Yeah, EIG is about two thirds of our business and EMG is about a third. So I think the pipeline reflects that skewing. We're looking on a lot of our businesses broad based, looking at the differentiated products, you know, the secular versus cyclical markets would be a priority. So it's a lot of what you've seen recently. There's healthcare, there's more process instrumentation, there's an automation business, there's some very good properties we're looking at, the power and industrial segments of the aerospace business. I mean, across the board, we're looking and...

Okay, yeah. Is there a healthy element of this, you know, kind of connectivity theme or, you know, any type of software extensions to the hardware? Is that represented in there as well?

A little bit. You see a little bit with Round and a little bit with CaluR and things like that. That's certainly a theme we're looking at, but it's not the, doesn't define our entire pipeline for sure.

Yeah, okay. Very good. Thank you.

Thank you, Richard.

Thank you. And our following question comes from Joe D'Odarno. Your line is open.

Morning, guys. Morning, Joe. Hey, so if you had a guess, if you spent the same amount in 2019 on M&A as you did in 2018, is it more likely that's in six deals, more than six deals, less than six deals? Like, how are you skewing the size that's in your pipeline right now?

I don't want to guess, Joe, because the pipeline has some more sizable deals and it also has some smaller deals. And with our disciplined approach, you don't know what you're going to find. So we could spend the same as we spent last year. We could spend a lot more. We could spend less. And the deals could be a lot of different sizes. So I don't want, that's pretty hard to predict at this point of the year.

Fair enough. Dave, one of the things you focused on when you came on to CEO role was kind of spending to reinvigorate organic growth and on the front end of the business. And certainly that's shown through on results, but part of that is also your underlying markets getting better. So how would you kind of break that down between success internally at Amatek relative to just your markets getting better over the last couple of years here?

Yeah, that's, you know, we just finished our ninth quarter in a row with our average organic growth of 6%. So we're really pleased with that. But, you know, clearly the economic environment's helped us. But certainly the focus and work that we're doing is improved also. Our customer facing capability is really improved. And our teams are excited and we're seeing positive results from growth kaizons and digital marketing. And our sales force is much more effective. We're driving aftermarket growth and it's becoming part of our culture and an important part of our business system. So it's very difficult to bifurcate between the market growth and the company's growth. But I can just tell you that we're making great progress and we'll let the numbers speak for themselves.

Great. And then maybe last, if you could do your kind of wrap up of everything. Sure.

Yeah. Yeah. If I go around the horn with market segment commentary, our process, start with process. Our process businesses had, you know, an outstanding start to the year. Overall sales were up mid-teens. The growth was -single-digit organically and contributions from the acquisitions of SoundComm, Forza, Tellur, and Spectro Scientific. Our materials analysis business saw particularly strong and broad-based growth. And they're continuing to see a solid demand for their high-end analytical instrumentation. So that team's done an excellent job. For all of 2019, we continue to expect organic sales to be up mid-single digits. Our aerospace and defense business delivered excellent results, as I talked about before. High single-digit organic growth to quarter. Growth remains solid across our various aerospace markets with notable strength across our military and commercial OEM businesses. For all of 2019, we continue to expect -single-digit organic sales growth with balanced growth across each market. For our power and industrial sub-segment, we saw -single-digit growth in the first quarter. And that was driven by the recent acquisition of MoTeC. Organic sales were flat in the quarter for power and industrial. In line with our expectations, we had a difficult prior year comparison in our power test and measurement business. And for all of 2019, we continue to expect -to-mid single-digit organic growth driven by the strength of our backlog and the solid order patterns that we're seeing across these businesses. And finally, for our automation and engineered solutions, we saw growth across those businesses. They remained solid with -single-digit organic sales growth in the quarter. We continue to see excellent growth from our Dunker-Moderan business tied to the automation macro trend and serving. In addition, we saw notable strength across our engineered medical components businesses in the quarter. That team is really doing a fantastic job, the EMC business. And for all of 2019, we continue to expect solid -single-digit organic sales growth for our automation and engineered solutions business. So that's a walk around the horn job. Thank you. Thank you.

Thank you. And our following question comes from Steve Barger with Cubank Capital Markets. Your line is open.

Hey, good morning, guys. This is Ken Newman on for Steve. Good morning, Ken. What is it? Morning. Hey, I just wanted to clarify. So the hurdle rates within your M&A pipeline haven't changed in terms of deal size and return metrics and multiples versus what you've said on prior calls. Is that correct? No change. No change. So on the larger end, then the $300 million to $500 million in revenue type size or deal size is probably at the upper echelon. Correct. Okay. And then it does seem, as my follow on, it seems that you're pretty positive on end markets outside of maybe some uncertainty from trade policy. But given maybe some of the conservatism in your guidance, I'm curious to hear what your view is on the cycle. Where do you think, what ending do you think we're in right now and how much more legs does the cycle have, you think?

Very difficult to predict. As we communicated earlier in the year, we expect solid growth this year, but the growth is going to moderate a bit. And it's driven by the trade tensions, the global macro uncertainty, and additionally, we have some very difficult comps. And we're staying close to Asia because of the trade difficulties, but overall, it feels pretty good. And our guide is typically a bit conservative, and we're waiting to see things play out, but we feel good about the year.

Got it. Last one for me, and I'm sorry if I missed it. How much of the $80 million in OPEC savings have been realized in the first quarter? $18 million of the $80

million, right on our plan, and that'll accelerate a bit as we progress through the year. Thanks a lot. Thank you, Ken.

Thank you. And our next question is from Robert McCarthy with Stephen. Your line is open.

You can't get rid of me. I turn up like a bad penny. So just a couple more since we'll round it out for the hour. You know, touching on your Asia comments, I mean, obviously, you're not exactly a bellwether like 3M in terms of a broad octopus touching every different end market, but you did highlight kind of some incremental softness there coming into February, some uncertainty, then March rebounding. And I think you made a comment about Asia as a whole, right, versus China specifically. So maybe you could just amplify your comments there in terms of what you're seeing, in terms of what's going on.

Yeah, so as I said, Asia was roughly flat. China's sales were down mid-single digits against a difficult comp. We had done very well over there for the better part of two years. And but the China orders were up low single digits for Q1. So similar to Asia, we had tremendous order input in China in March. I mentioned the dynamic of very slow February, tied to Chinese New Year. The other thing, our MAD business, our materials analysis business, had a great quarter in China. And some of our project businesses with difficult comps were off a little bit. So when you look at China as a whole, you had good orders in line with low single digits for Q1. And for the full year for China, we expect the growth to be in line with 3 to 5 percent of all of AMETEC. So it's moderating from the double digits growth the past couple of years, but still solid. And we're still staying close to it. But there was a bit of uncertainty. It's the one uncertainty that we're watching closely because of the global trade situation.

Two more if you'll forgive me. One viewer mail wanted to ask about Brexit, any kind of impact there that we should be thinking about?

Yeah, the UK accounts for about 4 percent of AMETEC sales. We're preparing for a hard Brexit, so we're not assuming there's a political solution. Now the can's been kicked on the road. It's been delayed until the fall. Certainly there may be some administrative issues that may cause delays in getting product in and out of Europe and to the mainland. But our businesses are very in tune with the issue. We probably are carrying about a million pounds of inventory that's been pre-positioned to make sure that we're going to be able to sustain a short-term problem. But our businesses from the UK do a lot of exporting already not to the mainland. So we know how to export from the UK. There may be some administrative issues in the short-term, and we're hoping for a solution, but again, preparing for a hard Brexit.

And then finally, just on the M&A environment, obviously it's what you guys ultimately do. You go out and buy these private companies, closely held companies, some public companies, but ultimately make them a heck of a lot better and create a lot of value, which is wonderful. And as you know, God's work as a compounder. But I guess the question I have is, given the prevailing environment where valuations are, where funding is an optionality, how do you think about the potential for selective vestitures in the portfolio? And how do you think about the repurchase option, which you obviously hit the ignition on in the last six months?

Yeah, our number one priority for capital allocation is to deploy our capital on acquisitions and buy good businesses and make them better. That's generated the long-term return for our shareholders, and it's a clear priority. You know, at the end of last year, we have an opportunistic approach to buybacks. Our stock had a significant market dislocation and we deployed a significant amount of capital and bought back some shares in the low 70s. It looked like a good move at this time. And then the priority three for the capital allocation will be a modest, consistent dividend. In terms of your other question about our portfolio, we're in process of completing our annual strategic review. This is where we closely look at all elements of our portfolio. In the review last year, we concluded that we're very comfortable with our portfolio and we had clear, profitable growth opportunities for each of our businesses. So our strategy is to focus on a broad, diverse set of niche markets, and we don't want to become exposed to any one single market, customer or technology. But we haven't completed our review that you share. We do it every year. And if we go through that review and we come to a different decision, we'll let you know. But we're comfortable with our portfolio.

Thanks again for your time.

Thank you. Thanks, Rob.

Thank you. And our next question comes from Scott Graham with BMO Capital Markets. Your line is open.

Hey, good morning, Dave, Kevin, and Phil. How's it going? Whatever

is in it.

Well, yeah, I mean, I was napping there. I don't know what happened on the cue here, but I saw I just took a nap. Rob was right. The quarter was boringly comfortable.

I'm wondering how Rob got two questions in before you got one.

I think Rob got about nine in, but that's good. You know, this is good questions as usual. I do have three more, believe it or not. Oh, geez. So I just want to understand the cadence of Organic that you're thinking this year. Obviously, you kind of came in at the high end this quarter on the Organic. But also, obviously, if you look at the stack comp, you know, your second half comps kind of jump up 200 basis points versus the first half. So are you guys kind of thinking that, you know, three to five kind of comes in a little heavier in the first half than in the second half?

Not really. I mean, I wouldn't read too much into it. I mean, we grew sales organically at the high end of our guidance range, and it's still early in the year. And we want to be prudent. So that would be the biggest driver. As we mentioned before, we do have some tough comps, and that's driving some moderating growth. But we're feeling good with how the year is playing out nicely for us, and that's one core behind us.

Great. Thank you. And I guess this is a next one. It's a question for both you and Bill. You know, as I know from history, you typically can really get some good working capital out of your acquisitions, you know, after that first six to 12 months kind of thing. Could we expect an acceleration in free cash flow as the year progresses, all of that? Yeah,

I would say that the free cash flow will probably be a little more heavily weighted into the back half of the year than it is in the front half. And I think it's, as you mentioned, we're able to drive the benefits from businesses that are now inside the Ametek portfolio for a longer period of time as well as getting after, you know, improving working capital performance across all of our base businesses.

Got it. Thank you, Bill. So my last question is kind of going back to an earlier question on M&A, but more specifically, you know, on the segments. I mean, I think there has been a profound difference in M&A in EIG versus EMG. And I'm just trying to wonder why that is. I mean, I'm looking at the organics from Electromechanical over the last couple of years. They've been outstanding. And I'm also thinking that I know you are into the connectivity thing, and Dunker Motoren is on that side of the house. So, you know, kind of like what's going on there that is not where we're not seeing more M&A on that side of the house?

Yeah, we're seeing some M&A on that side of the house. We did FMH Aerospace last year, and we're actively looking. You know, all of our businesses put together a strategic plan, and we look at those opportunities. And, you know, when you look at the characteristics, the differentiation, we have very differentiated businesses with Dunker Motoren, with our aerospace presence. So, you know, our aerospace business had an outstanding quarter this month. So we're looking at both sides of the house, and I think over the past 10 years, you know, at one point EIG and EMG were about the same size, and EIG has just grown a little bit bigger. So there's clearly a strong desire to do acquisitions on either side of the business.

Would you, maybe as a corollary to that, would you say that, and this is my speculation, of course, aerospace, particularly aftermarket oriented, as well as connectivity assets, which are on the electromechanical side of the house, that the prices for those deals are a little higher than what you would want for your ROIC, or is that just a bad chance? Yeah,

I can't, I wouldn't say that. I wouldn't say that. The pricing is really dependent on the niche market that we're looking in and the expectations of the seller. So I wouldn't say that. I mean, there's a big difference between EIG and EMG from the product portfolio. EIG has a lot of direct aftermarket with the end users, and EMG in large part is an OEM supplier, except for the aerospace business. So, but really, we're looking on both sides, and I wouldn't draw anything from your prior point. Understood. Thank you. Thank you, Scott. Thanks, Scott.

Thank you. And I am showing no further questions at this time. I would now like to turn the call back to Kevin Coleman for closing remarks.

Great. Thank you, Sydney. Thank you, everyone, for joining today. And as a reminder, a replay of today's webcast can be accessed on our website later today. Have a great one. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and we may all disconnect. Everyone have a great day.