AMETEK, Inc.

Welcome to the first quarter 2022 Amatek earnings conference call. My name is John, I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. During a question and answer session, if you do have a question, press 01 on your touchtone phone. Now, I'll turn the call over to Kevin Coleman, Vice President of Investor Relations and Treasurer.

Thank you, John. Good morning, and thank you for joining us for Ametek's first quarter 2022 earnings conference call. With me today are Dave Zupico, Chairman and Chief Executive Officer, and Bill Burke, Executive Vice President and Chief Financial Officer. 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 AMETEC's filings with the SEC. AMETEC disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2021 or 2022 results will be on an adjusted basis, excluding after-tax, acquisition-related, and tangible amortization. Reconciliations between GAAP and adjusted measures can be found in our press release and on the investor section of our website. We'll begin today's call with prepared remarks by Dave and Bill, and then open it up for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Amitek delivered outstanding results in the first quarter with strong sales growth and excellent operating performance, driving robust core margin expansion and earnings which exceeds our expectations. We are also seeing continued strong demand This demand remains broad-based across our diverse set of niche markets, leading to outstanding orders growth and a record backlog. I'm very proud the way our teams are managing a challenging and uncertain macro environment. Ametek's flexible operating model allows our businesses to quickly adjust and adapt to changing economic conditions and deliver exceptional results. Before I provide more details on the results for the quarter, I wanted to comment on the ongoing geopolitical events in Ukraine. We are deeply saddened by the tragic events continuing to unfold in Ukraine. Our hearts and thoughts are with all those affected. To assist with the immediate needs of this mass humanitarian crisis, the Ametek Foundation has made donations to several charities that are actively providing food, shelter, and medical supplies to those impacted. Additionally, many Ametek colleagues and our businesses have mobilized to help in whatever way they can through donations to charities supporting the crisis. Thank you to all employees who are supporting those in need. Now let me turn to our first quarter results. First quarter sales were $1.46 billion, up 20% over the same period in 2021. Organic sales growth was 14%. Acquisitions added seven points, and foreign currency was a one-point headwind in the quarter. Overall orders in the first quarter were $1.7 billion, an increase of 22% over the prior year period, while organic orders were up 18% in the quarter. Book-to-bill was 1.17 in the first quarter, reflecting continued robust and broad-based demands. Backlog at quarter end was a record, $3 billion, up approximately $1.2 billion from the end of 2020. Operating income in the quarter was $353 million, a 20% increase over the first quarter of 2021. Operating margins were 24.2% in the quarter, up 10 basis points from the prior year. Core operating margins were 25.5%. up an impressive 140 basis points versus the first quarter of 2021, with strong core margin expansion in each operating group. This outstanding margin expansion is a testament to the strength of our operating capability and the great work of our teams in managing inflationary and supply chain impacts across our business. EBITDA in the first quarter was $434 million, up 22% over the prior year, with EBITDA margins of 29.7%. This outstanding operating performance led to earnings of $1.33 per diluted share, up 24% versus the first quarter of 2021, and above our guidance range of $1.24 to $1.28. Next, let me provide some additional details at the operating group level. First, the electronic instruments group. Sales for our electronic instruments group were $987.8 million, up 25% from last year's first quarter. Organic sales were up 15% in the quarter, while recent acquisitions contributed 11%, and foreign currency was a one-point headwind. Organic growth was particularly strong across our ultra-precision technologies division, with Creaform, Riker Technologies, and TMC Presitech businesses leading the growth. EIG's operating income in the first quarter was $244.8 million, up 18% versus the prior year, while EIG operating margins were 24.8% in the quarter. EIG's core margins were up a very strong 130 basis points over the prior year to 27.5%. The Electro Mechanical Group also had a great quarter with excellent organic sales growth driven by broad-based demand and strong operating performance. EMG's first quarter sales increased 11% versus the prior year to $470.8 million. Organic sales growth was 12% and foreign currency a one-point headwind. Demand within our automation businesses remains excellent. reflecting AMETEC's highly differentiated motion control capabilities and leadership positions within our niche applications. EMG's operating income in the first quarter was a record $128.2 million, up 22% to the prior year period. EMG's operating margins expanded an exceptional 250 basis points to 27.2%. which includes an approximate $7 million gain on the sale of the facility in the quarter. On a core basis, excluding this gain, EMG margins were up a very strong 100 basis points versus last year's first quarter. Our teams continue to deliver outstanding performance in a very challenging and dynamic operational environment. In addition to ensuring we successfully navigate the current macro environment, We are focused on ensuring Ametek is positioned for long-term success and sustainable growth by making investments in our organic growth initiatives. In 2022, we expect to invest approximately $110 million in support of these growth initiatives, including strong growth across our research, development, and engineering groups. Ametek's leadership positions in our niche markets are driven by deep industry expertise and the differentiation of our technology. Our research and engineering teams do a wonderful job developing innovative next-generation products and technologies to support their customers' applications. For the full year, we now expect to invest more than $345 million, or over 5.5% of sales, in RD&E. Our Vitality Index, which reflects the level of sales from products introduced over the past three years, was a very strong 26% in the first quarter. One way we recognize and celebrate the great work of our business's new product development efforts is through the Ametek Innovation Award. This award provided annually to the Ametek businesses who best demonstrates breakthrough innovation of new technology driving expanded growth opportunity. The most recent Innovation Award winner was our used trailer Rotron business unit. a leading provider of advanced thermal management systems for use in support of critical aerospace, defense, industrial, and commercial applications. Utilizing various elements of the Ametek new product development process, the team developed a highly innovative heat exchanger that provides meaningful improvements in aircraft engine performance versus the incumbent technology. This new product will deliver strong incremental sales for Ametek, while providing important sustainability benefits to the reduction of approximately 1 million tons of carbon dioxide over a 10-year period due to an advanced, more thermally and aerodynamically efficient design of the heat exchanger. Driving such benefits aligns with Ametek's core value of social responsibility by using innovative solutions to help our customers create a more sustainable future. Congratulations to the USETRITLER Rotron team and all the Ametek colleagues contributing to the development of outstanding new products and technologies. Now switching to our acquisition strategy. We had a record year of capital deployment in 2021, deploying approximately $2 billion on the acquisition of six businesses. Those businesses are integrating nicely, and we expect contributions from the acquisitions in the coming years as they further implement key elements of the Ametek growth model. Our acquisition pipelines remain strong and our M&A teams remain busy in identifying attractive acquisition opportunities. We have ample balance sheet capacity and strong cash flows to support our acquisition strategy and expect to remain active over the coming quarters. Now let me touch on the supply chain issues. Overall, the global supply chain and logistics channels remain tight and unreliable. The supply chain and logistics environment in the first quarter was similar to what we experienced during the fourth quarter, with extended lead times for a broad range of materials and components. These issues are leading to higher inflation, but given our product differentiation, we were able to more than offset this inflation with higher pricing, leading to a strong price inflation spread and outstanding margin expansion. Now to our outlook for the remainder of the year. While we are bullish on the future, we remain cautious in the short term given uncertainty related to the supply chain challenges, the war in Ukraine, and the COVID lockdowns in China. However, given the strength of the Emitech growth model and our proven operational capabilities, we are confident in our ability to manage these ongoing headwinds. Additionally, our record backlog and leadership positions across attractive mid and long cycle markets position us well for continued strong growth. For the full year, we continue to expect organic sales growth to be up mid to high single digits, while overall sales growth are expected to be up high single digits, down slightly versus our prior guidance given increased foreign currency headwinds. Given our first quarter results, we are increasing our full year earnings guidance. Diluted earnings per share for the year are now expected to be in the range of $5.34 to $5.44, up 10% to 12% compared to 2021. This is an increase from our previous guidance range of $5.30 to $5.42 per diluted share. While confident in our increased outlook for the year, the COVID-19 lockdowns throughout China are expected to shift some sales from the second quarter into the second half. For the second quarter, overall sales are expected to be up low to mid-single digits compared to the same period last year, and second quarter earnings are expected to be in the range of $1.27 to $1.30 per diluted share, up 10% to 13% versus the prior year. To summarize, Ametek delivered a strong first quarter with solid orders and sales growth, strong margin expansion, and a high quality of earnings. allowing us to increase our earnings guidance for the year. These outstanding results speak to the strength of the Amatek growth model, along with the resilience of our world-class workforce. Our differentiated technology solutions and market-leading positions across diverse niche applications have allowed us to navigate through these difficult economic cycles. While I expect these challenges will continue throughout 22, we remain well-positioned for continued long-term growth. 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. Bill?