AMETEK, Inc.

Welcome to the Ametek third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Kate. Good morning, and thank you for joining us for Amatek's third quarter 2022 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer, and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we'll be making 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 Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill, and then we'll open it up for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Ametek delivered record results in the third quarter with stronger than expected sales growth and outstanding operational execution, leading to earnings above our expectations. Operationally, our businesses are performing exceptionally well and successfully offsetting inflation with price increases, resulting in impressive margin expansion. We are also seeing continued strong and broad-based demand across our diversified niche markets, leading to impressive organic order growth and a record backlog of $3.2 billion. And this morning, we announced the acquisition of two excellent businesses, Navitar and RTDS Technologies, expanding our presence in high-end precision optics and in testing solutions for the electric power grid and renewable energy applications. I will provide more details on these acquisitions shortly. Given our results in the third quarter and outlook for the fourth quarter, we are again increasing our earnings guidance for the full year. Now let me turn to our third quarter results. Third quarter sales were a record $1.55 billion, up 8% over the same period in 2021. Organic sales were up 11%. Acquisitions added one point and foreign currency was an approximate four point headwind in the quarter. Demand also remained solid across our niche markets with organic orders growing 9% in the quarter, while book to bill was 1.07, our ninth consecutive quarter of positive book to bill. Backlog at quarter end was a record $3.2 billion, up approximately 1.4 billion from the end of 2020. Operating income in the quarter was a record $385 million, a 14% increase over the third quarter of 2021, while operating margins were 24.8% in the quarter, up a robust 140 basis points from the prior year with strong margin expansion in each operating group. Our ability to drive meaningful margin expansion despite the inflationary environment reflects the differentiation of our technology solutions and our flexible operating model. EBITDA in the quarter was also a record of $463 million, up 12% over the prior year, with EBITDA margins a record 29.8%. This outstanding performance led to a record of earnings of $1.45 per diluted share, up 15% versus the third quarter of 2021, and above our guidance range of $1.36 to $1.38. Now let me provide some additional details at the operating group level. First, the electronic instruments group. The electronic instruments group delivered excellent operating performance with continued strong and broad-based growth. Sales for our electronic instruments group were $1.05 billion in the quarter, up 7% from the third quarter of last year. Organic sales were up 10% with a one-point contribution from acquisitions being more than offset by an approximate 3.4 in currency headwind. Growth was again broad-based across our EIG businesses, with particularly strong growth within our Rolland, TMC Presitech, and Thermal Process Management businesses. Third quarter operating income was $272.7 million, up 11% versus the prior year, and operating margins were 25.9% in the quarter. up 90 basis points from the prior year. The performance of our electromechanical group in the quarter was exceptional, with excellent sales growth and record operating results. EMG's third quarter sales were a record $497.7 million, up 8% versus the prior year, with organic sales growing 13% in the quarter and foreign currency at four-point headwinds. Growth was very broad-based across all of our EMG businesses. EMG's operating income in the third quarter was a record, $136.5 million, up 19% compared to the prior year period. EMG's third quarter operating margins were a record, 27.4%, up an impressive 240 basis points versus the prior year. Overall, our businesses delivered outstanding performance in the third quarter. allowing us to manage an uncertain macro environment, meaningfully expand margins, and drive earnings ahead of our expectations. Now switching to our acquisition strategy. We are very pleased to announce the acquisition of two highly strategic businesses. Navitar and RTDS Technologies are both excellent businesses and highly strategic acquisitions for Amatek, expanding our presence with in attractive secular growth markets. Now let me take a moment to provide additional color on both these acquisitions, starting with Navatar. Navatar is a leading provider of optical solutions for critical applications across several markets, including medical and life sciences research, machine vision and robotics, semiconductor, and industrial automation. Their comprehensive suite of high-precision, custom optical solutions includes fully integrated imaging systems, sensors, cameras, optics, and software. Navitar is an excellent strategic and complementary fit with our Zygo business unit, as their technical capabilities around cameras and optical systems further expand Zygo's product offering. Additionally, Navitar is a high-growth business well-positioned to benefit from the growth and demand for precision optical solutions across attractive growth markets. Navitar was privately held and is based in Rochester, New York. Now switching to RTDS Technologies. RTDS provides real-time digital simulation systems used by utilities and research and educational institutions in the development and testing of the electric power grid and renewable energy applications. Their simulation solutions allow engineers to rapidly prototype verify, and test the performance of the electric grid, power instruments, and networks in a closed-loop system to help accelerate product development life cycles and decrease testing costs. RTDS's simulation solutions are playing a key role in the modernization of the electric grid infrastructure, as well as supporting secular growth drivers including renewable energy, distributive power generation, and energy storage. The acquisition of RTDS broadens our power instruments businesses, testing and simulation capabilities, while expanding our exposure to the renewable energy space. RTDS is privately held and based in Winnipeg, Canada. We are very excited to welcome the Navatar and RTDS teams to the Ametek family. We deployed approximately $430 million on these acquisitions acquiring approximately $100 million in annual sales. Over the past two years, we deployed more than $2.4 billion in capital on acquisitions and acquired eight businesses. Our acquisition pipeline remains solid. We have a strong balance sheet and significant financial capacity and look to remain active in deploying capital on strategic acquisitions. In addition to the recent acquisitions, We continue to focus on ensuring Ametek is strategically positioned for long-term sustainable growth. Our businesses are driving broader adoption of our organic growth initiatives, including growth cousins, digitalization, and new product development. This includes making strategic growth investments across our businesses to help support and accelerate growth. For all of 2022, we now expect to invest approximately $110 million in support of these growth initiatives. We are seeing great results from these efforts over both the short term and long term. In the third quarter, sales from new products introduced over the last three years was 27%, a record level for our Vitality Index, reflecting the great work of our teams. These efforts have helped lead to double-digit organic sales growth in each of the past six quarters.