AMETEK, Inc.

Good day and thank you for standing by. Welcome to AMATEK's first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Julia. Good morning and thank you for joining us for AMATEK's first quarter 2024 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer, and Dala Peery, Executive Vice President and Chief Financial Officer. During the course of today's call, we will 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 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 2023 or 2024 results or 2024 guidance will be on an adjusted basis, excluding after-tax acquisition-related and tangible amortization, and excluding the pre-tax $29.2 million or 10 cent per diluted share charge in the first quarter for integration costs related to the Paragon medical acquisition. 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 and then we'll open the call for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMATEK delivered strong results in the first quarter of 2024 with outstanding operating performance leading to double-digit growth and earnings per share. During the quarter, we established records for sales, operating income, and EBITDA, and deliver robust core margin expansion and excellent cash flows. Considering our first quarter results and the positive outlook for the back half of the year, we are increasing our earnings guidance for the full year. AMATEK's continued success is a testament to the strength and resiliency of our growth model, the quality of our businesses, and the outstanding contributions from all AMATEK colleagues. Now let me turn to our first quarter results. Sales in the first quarter were $1.74 billion, up 9% over the same period in 2023. Organic sales were down slightly, acquisitions added nine points, and foreign currency had a small positive impact. Booked to bill in the quarter was 0.96, and we ended the quarter with a very strong backlog of $3.46 billion near record levels. AMATEK's operating performance to start the year was excellent. Operating income in the quarter was a record, $446 million, a 10% increase over the first quarter of 2023. Operating margins were .7% in the quarter, up 30 basis points from the prior year. Excluding the dilutive impact from acquisitions, core margins were up a very strong 180 basis points versus the prior year. EBITDA on the quarter was also a record at $542 million, up 13% over the prior year, with EBITDA margins an impressive 31.2%. This outstanding performance led to earnings of $1.64 per diluted share, up 10% versus the first quarter of 2023, and above our guidance range of $1.56 to $1.60. Now, let me provide some additional details at the operating group level. First, the Electronic Instruments Group. The Electronic Instruments Group had a strong start to the year with tremendous operating performance, leading to record operating margins and impressive margin expansion. Sales for EIG were $1.16 billion in the quarter, up 4% from the first quarter of last year. Organic sales were up 1%, and acquisitions added three points. Growth in the quarter remained strongest across our aerospace and defense and materials analysis businesses. EIG's operational execution in the first quarter was superb, with strong profit and exceptional operating margin expansion. Operating income was $353 million, up 14% versus the prior year, while EIG operating margins were a record, 30.5%, up a robust 280 basis points. This level of operating margins speaks to the quality and leadership positions of our highly differentiated businesses. The Electromechanical Group also delivered solid first quarter operating performance, despite the headwinds from inventory normalization impacting some of our EMG businesses. EMG's first quarter sales were a record, $579 million, up 21% versus the prior year, driven by contributions from recent acquisitions of Paragon Medical and Bison Engineering. First quarter operating income was $120 million, while core operating income margins were .1% in the quarter. Our first quarter results reflect the unique capabilities of our growth model to successfully manage short-term market headwinds and deliver robust margin expansion, outstanding cash flow, and strong double-digit earnings growth. Our businesses remain focused on executing our strategic initiatives and delivering differentiated technology solutions to support our customers' most complex challenges. Our distributed operating structure enables flexibility in responding to market dynamics, while our robust cash flow and balance sheet provide ample support for our acquisition strategy. This acquisition strategy, along with our organic growth initiatives, is expanding AMETEC's presence within high-growth markets. These markets include MedTech, Clean Energy, Electrification, and Aerospace and Defense, and help ensure our diverse portfolios are well positioned to capitalize on these attractive long-term sector growth areas. We remain committed to investing across our businesses to accelerate new product development and expand our sales and marketing efforts. In 2024, we expect to invest an incremental $100 million in growth initiatives with a sizable portion of this in support of our research, development, and engineering efforts. The effectiveness of these investments is reflected in our Vitality Index, which was a strong 25% in the first quarter. AMETEC's commitment to invest in RD&E and continuously innovate ensures a steady stream of new products that support our customers' critical applications and position us for continued success. I wanted to take a moment to highlight an example of how the elements of the AMETEC Road Model work together to deliver exceptional results. AMETEC Zygo, a global leader in the design and manufacture of advanced optical metrology systems and ultra-precise optical components, was recently awarded AMETEC's Dr. John H. Schluck's Award, an annual award provided to the AMETEC business that best exemplifies the commitment to continuous improvement in achievements and operational excellence. As part of its market expansion strategy, Zygo identified an attractive new market segment, virtual and augmented reality applications, as a compelling growth opportunity for their advanced optical metrology systems. This led to Zygo's new product development and commercial teams working closely together to advance their technology capabilities and commercialize as a solution to support the highly precise requirements of this application. The success of this work resulted in strong demand and the need for Zygo to meaningfully increase production. Utilizing cross-functional teams and deploying tools like value stream mapping and Lean Six Sigma, they achieved a remarkable threefold increase in production output, allowing them to meet the growing demand for the metrology solution. This achievement highlights the synergy between our new product development, global market expansion, and operational excellence strategy, to help identify, develop, and deliver exceptional technology solutions to address an important market need and accelerate growth. Congratulations to the Zygo team for a job well done. Now switching to our acquisition strategy. The acquisitions we completed in 2023 are integrating nicely into Amethek. We are leveraging our proven integration capabilities and our global infrastructure to help accelerate their growth, drive operational improvements, and deliver strong returns. We are very excited about these acquisitions as they are expanding our market presence and attract our growth markets, including the MedTech space through the Paragon Medical acquisition. Paragon Medical, which we acquired in December, is a leading manufacturer of highly engineered medical components and single use and consumable surgical instruments. Paragon has an outstanding brand, leading innovation and design capabilities, and a strong position serving a number of high growth market segments. Our integration efforts are focused on supporting and accelerating this growth, while also leveraging Amethek's infrastructure and operational excellence capabilities to drive efficiency improvements. The integration charge we took in the first quarter will allow us to drive these improvements and better position Paragon for accelerated growth and profitability. Looking ahead, our acquisition pipeline remains robust, and we are actively working on multiple opportunities. We have the balance sheet and financial capacity to deploy meaningful capital on strategic acquisitions. We look forward to delivering continued value to our shareholders, to strategic acquisitions, and prudent capital deployment. Now turning to our outlook for the remainder of the year. We expect the impact of inventory normalization to continue to the first half of the year, with improvements in the second half of the year, as we indicated on our last earnings call. As a result, for the full year, we continue to expect overall sales to be up low double digits on a percentage basis, with low to mid single digit organic sales growth. Diluted earnings per share for the year are now expected to be in the range of $6.74 to $6.86, up 6% to 8% compared to last year results. An increase from the previous guidance range of $6.70 to $6.85. For the second quarter, we anticipate overall sales to be up mid to high single digits, with earnings of $1.63 to $1.65 up 4% to 5% versus the prior year. In summary, Amatek delivered a strong first quarter with earnings growth, which exceeded our expectations driven by exceptional operating performance. We are encouraged by these results and remain confident in our ability to navigate the current environment and benefit from improved sales growth in the back half of 2024. We are confident in the future of Amatek as our world-class talent and the adaptability of the Amatek growth model will continue to be a key part of our growth model. And we are confident that we will continue to drive the long-term, sustainable success for our stakeholders. I will now turn it over to Della Perry, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions. Della?

Thank you, Dave, and good morning, everyone. As Dave highlighted, Amatek had a very strong first quarter with record-level sales and exceptional operating performance, highlighted by strong core margin expansion and free cashflow conversion. who will cover some of the additional financial highlights for the first quarter. First quarter, general and administrative expenses were $26.4 million, or .5% of sales, in line with last year's first quarter. For fiscal year 2024, general and administrative expenses are expected to be approximately .4% of sales. First quarter interest expense was $35 million, up $15 million from the prior year first quarter due to higher debt balances outstanding following the December 2023 acquisition of Paragon Medical. Other operating expenses were down $5 million, primarily due to higher interest income and higher pension income compared to the prior year's first quarter. The effective tax rate was 18.9%, down from .5% in the first quarter of 2023. For 2024, we continue to anticipate our effective tax rate to be between 19 and 20%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Capital expenditures in the first quarter were $28 million, and we continue to expect capital expenditures to be approximately $160 million for the full year, or about 2% of sales. Depreciation and amortization expense in the quarter was $98 million. In 2024, we expect depreciation and amortization to be approximately $400 million, including after-tax, acquisition-related, intangible amortization of approximately $190 million, or 82 cents per diluted share. Operating working capital in the first quarter was .7% of sales. Operating cash flow was $410 million, up 6% versus the first quarter of 2023, while free cash flow was $383 million, up 4% over the prior year. For the quarter, free cash flow conversion was a strong 123% of net income. For the remainder of 2024, we continue to expect strong key free cash flow conversion in the range of 110 and 120% of net income. Total debt at March 31 was $2.9 billion, down from $3.3 billion at the end of 2023. Offsetting this debt is cash and cash equivalents of $374 million. At the end of the first quarter, our gross debt to EBITDA ratio was 1.3 times, and our net debt to EBITDA ratio was 1.2 times. We continue to have excellent financial capacity and flexibility with approximately $1.8 billion of cash and available credit facilities to support our growth initiatives and our active acquisition pipeline. While acquisitions remain our number one priority for use of our free cash flow, we also seek to opportunistically repurchase our shares and provide our shareholders with a consistently increasing dividend. In February, we announced a 12% increase in our quarterly cash dividend to $0.28 per share, our fifth consecutive year of 10% plus annual increases. In summary, our businesses delivered strong results to start the year with outstanding operating performance, leading to robust core margin expansion and excellent free cash flow. Kevin?

Thank you, Dalit. Julie, could we please open the lines for questions?

Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of De'Andre of RBC. Your line is now open.

Thank you. Good morning, everyone. Good morning, Dean. Hey, can we start off with the usual kind of tour the end markets and geographies and maybe finish up with the just kind of the de-stocking comments? It just continues to be drawn out. We're seeing it in all kinds of pockets, so it's not Ametek specific in any way, but just kind of what you refreshed for you on that as well. Thanks.

Sure, sure. Glad to do that all, Dean. I'll start with a walk around the company, and I'll start with our process business. Overall sales for our process businesses were roughly flat versus last year and in line with our expectations. Growth remained solid across our energy and semiconductor businesses, and we're really well positioned there to benefit from the sizable project and investment activity within these markets. For the full year, we continue to expect sales for our process businesses to be up low single digits. Next, I'll switch to aerospace and defense, and our A&D businesses had a strong start to the year, approximately 10% organic growth in the quarter. Growth was very solid across both our commercial aerospace and defense segments. For all of 2024, we continue to expect organic sales for our A&D businesses to be up high single digits on a percentage basis, with similar growth across both our commercial aerospace and defense businesses. Next, I'll move to power. Our power businesses were up low double digits in the first quarter with contributions from the acquisitions of UEI and amplifier research being offset by a low single digit decrease in organic sales. These recent acquisitions, along with the acquisition of RTDS in 2022, expanded our presence within a number of highly attractive market segments which are expected to benefit from a strong investment cycle, including the expansion of renewable energy and the power grid infrastructure. For the power segment, we continue to expect low to mid single digit organic sales growth for 2024. And finally, going to the automation and engineered solutions market segment, overall sales for A&ES were up 20% on a percentage basis in the quarter or up mid-20s in the quarter, with contributions from the acquisitions of Paragon Medical and Bison Engineering being offset by a high single digit decrease in organic sales. As we expected, the impact from normalization of inventory levels across our OEM customer base continued in the first quarter, and we expect to see a return to growth in the second half of the year consistent with what we had indicated last quarter. And finally, as a result, we continue to expect organic sales for our automation businesses to be up low single digits with stronger growth in the back half of the year. So that's the walk around the company, and I think you also asked for what's going on in the various geographies, so get to that too, Dean. The U.S. was down 1% against a pretty difficult comparison, and our strongest growth was in our aerospace and defense businesses. Moving to Europe, we were down 2%, so minus 2, organic with notable growth in parts of our process and parts of our power businesses offset by weakness in automation. And in Asia, we were up low single digits with strength across our process businesses, so we had a very good performance in Asia, and digging down into that a little further, China was flat in the quarter with solid growth in parts of our process businesses. So up low single digits in Asia, and China was flat. It all really

helped. Go ahead.

Yeah, you asked about the D-stock, Dean, and I think that it's playing out as we had talked about last quarter. I think the D-stock will continue into the second quarter, but in the second half of the year, we expect that to turn around. So we're watching that closely, and it's really kind of playing out as we thought. I mean, the D-stock was probably a bit more than we thought it was going to be in Q1, but that may be positive for later in the year, because we think the second half of the year is just positive.

Great. And just a quick follow-up on the growth investments. We know this is your playbook. Is there anything unique in terms of how you're deploying that capital? I mean, typically it's salespeople is a component, but any other kind of wrinkles here you could share?

Yeah, it's salespeople with the largest chunk of it is in the engineering, the research, development, and engineering. And we have a full slate of projects. We have excellent opportunities longer term, and we're getting after them. So I'm very positive on what's happening in our new product development programs.

Great. Thank you.

Thank you,

Dean. One moment for our next question. Thank you. Our next question comes from the line of Jeffrey Sprague of Vertical Research Partners. Your line is now open.

Hey, thanks. Good morning, everyone. Good morning, Jim. Hey, can you just address a little bit more tarragon itself, how it's performing, and the charge that you took? I don't recall a large charge like this on prior deals. Maybe there's smaller ones that you just absorbed but didn't break out, but kind of the nature of what you're trying to accomplish. And is this kind of a one-time deal in this quarter as you kind of bed down the asset?

Yeah, that's a great question, Jeff, and it's kind of what you said. I mean, we typically absorb the smaller acquisitions as we proceed through the years and quarters. And the last time we did something like this, we bought, I believe, Zygo, so a bigger acquisition, and because of the size of the acquisition and because of the opportunities that we see, we wanted to take that integration charge because there are tremendous, tremendous opportunities to improve the business. So it's a one-time nature. It's for larger deals, as you know. Paragon was the largest acquisition that we have done. We spent about $1.9 billion. So as we dug into it, as we worked with their management team, we got really comfortable with this plan. Quite honestly, there's more opportunities than we thought. We have a good team of both Amatek and Paragon leaders that are really getting after it now, so I feel really good about the business. The integration is being integrated into Amatek well. It's very positive around the future, and I think this restructuring is largely going to happen over the next couple of years, and we really see less than two-year payback on it, so excellent payback, and we started on that, and we're really positive what we're doing, and I feel positive about the deal.

Great. And then maybe just switching gears, and I'm sorry if I missed it. I was on a little bit late, but can we just decompose revenue growth in the quarter for the segments, some color on what the organic performance was at the segment level, and if you have any color on price or other elements of revenue, I'm interested to hear.

Yeah, if you look at our overall sales, we're up 9%. That's both groups, and the organic group, the organic growth was just down modestly, about a half a point. EIG overall sales were plus 4%. The organic growth in EIG was plus 1%. EMG overall sales were plus 21%, and the organic sales at EMG were minus 4%. So you had that defines the group dynamics for revenue.

And maybe just one last one back to this kind of whole D-stock question. Just a comment that it was more in Q1 than expected, and I know it's kind of hard to know what your customers are going to do, but just your confidence level that it actually is in fact D-stock, and you have visibility on sell-through being better on the other side. Yeah, maybe just kind of address that if you could.

Yeah, yeah. The first point is when you look at Amatek's first half, second half, we typically have 48% of our revenue and profits in the first half of the year and 52% of our revenue and profits in the second half of the year, and that's exactly what we have this year. So our second half of the year is not back-end loaded, so we feel good about that. Another point that you may not see, it really appears our orders have stabilized. Specifically, when I look at Q3-23, and then I look at the next quarter, Q1-24 to the last quarter to compare to Q23, so the last two quarters sequentially with all the acquired backlog removed, so really looking at a true run rate sequentially, we've seen low single-digit growth in orders in both Q4-23 and Q1-24, so it feels like we've bottomed and we're starting to see some modest improvements. At the same time, in Q1-23, we had an extremely good quarter, so we have a difficult comp that we're battling. Finally, and perhaps most importantly, we've had customer commentary that continues to communicate to us in the second half of the year, the de-stocking phase will come to an end, and we should return to a positive book to build. So in terms of the economic environment, we're watching it closely, but for the balance of the year, we're just assuming modest economic growth, not any kind of economic acceleration, and at the same time, not a recessionary environment. And we expect that we'll grow sales modestly each quarter, and the comparables get easier in the second half of the year, and as I said, this 48%, 52% split, H1 to H2, is very much aligned with our historical averages.

And I'm sorry, did you have a comment on price? I missed it, and I'll see the floor. Thank you.

That's a good question, Jeff. So, you know, pricing was continued to more than offset inflation. You know, pricing was approximately 4% in the quarter, and inflation was about 3%. You know, the results speak to the highly differentiated nature of the Amatek product portfolio, and our leadership position in these niche markets around the globe. And for the full year, we do expect that pricing to come in a bit and inflation to come in a bit, but we expect to maintain a positive spread between them. Thank you. Thank you,

Jeff. One moment for our next question. Thank you. Our next question comes from the line of Brett Lindsay of Mizuho. Your line is now open.

Hi, guys. This is Peter Rasson from Brett Lindsay. So, as we look at a potentially more aggressive tariff regime, can you just talk about how nimble your supply chain configuration is and then your ability to flex around different regions if needed?

Yeah, it's a great question. I mean, we look at tariffs, and that became a bigger issue, you know, back in the 2017 timeframe. And in the quarter, we had a minimal impact from tariffs, and they were completely offset for price. And, you know, to give you an idea, across the whole company, tariffs are only going to cost us about a penny, like $3 million or $4 million. And what happened there is we've aggressively rebalanced our supply chain. It's largely done. So we're not overexposed to any region of the globe. And we have a strategy where, from the U.S., we're largely sourcing from Mexico and other regions of the Americas, and in Europe, we do a lot of sourcing from the Czech Republic and Serbia. And in Asia, we do a lot of sourcing from Malaysia. So we've got a nice balance around the world. So I think the hard work that we did over the past few years of really rebalancing our supply chain, we're essentially finished with it, just a very, very small bit of work that continues. And we're very well positioned to be able to deal with an increasing tariff regime, specifically with China in particular. We don't have a real risk there. We do excellent business in China. It's a -for-China strategy. It's about 9 percent of our sales, and largely we source what we sell in China. So we're in a pretty good position in terms of tariffs.

Perfect, thanks. And then if you can just provide some color on the tempo or monthly cadence of trends in the quarter and then looking into April.

Yeah, I mean, it was a pretty typical quarter. March was the strongest quarter. Wait a minute. Okay, yeah, pretty typical quarter with March being the strongest on both orders and sales. So sales were the highest of the quarter in March, and then in April we're right on plan. So we feel good about the guidance. And it's pretty, as I said, it's bouncing around there, but we're not seeing any incremental weakness at this point.

Thank you.

Thank you.

One moment for our next question. Thank you. Our next question comes from the line of Scott Graham of Seaport Research Partners. Your line is now open.

Hi, good morning. Thanks for taking the question. Really, maybe the first question is about the M&A environment. EBITDAs do seem to have firmed up, even though this first quarter, I think most would say industrial land has been a little uneven. Nevertheless, when EBITDAs firm up, that's kind of when I think Ametek does a lot of striking. And I'm just wondering, are we looking at a year this year that could mirror last year? I mean, what is like the really near-term pipeline look like, Dave?

You know, it's very, very difficult to predict the very near-term, but, you know, Scott, the pipeline remains very strong, and we're actively looking at a number of high-quality deals across a broad set of markets. So, you know, we have, you know, 1.8 billion of existing cash and credit facilities post-Bergon. We have, you know, a balance sheet that would support, you know, if the deals meet our criteria, we could do, you know, over 4 billion of deals this year, and that would only take our leverage up to about two and a half times. So we're really in an excellent position, and it's not a balance sheet issue, it's not a cash flow issue. We're performing extremely well. It comes down to finding the right businesses, and we have a good pipeline right now, a very good pipeline. And, you know, we really have the opportunity, as you said, we typically have this opportunity to differentiate our performance with the M&A element of our growth strategy with this strong balance sheet and with these strong cash flow positions. So, you know, in this market, it's a bit choppy, our combination of OPEX and M&A and this proven acquisition strategy. I'm really looking to differentiate our performance with our M&A and our OPEX, you know, during the next couple of quarters.

Thank you for that. You answered one of Jeff's questions earlier, saying, you're expecting sales to be up modestly each quarter. Were you referring to organic for the next three quarters?

Yeah, this is sequential, Scott. Okay, so sequentially

you're expecting sales dollars to be up? Q1 will be

a bit higher than Q2, Q3 will be a bit higher than Q2, and Q4 will be a bit higher than Q3.

Okay, and the last one is just, you know, sort of back on the orders. I know you do have a pretty significant comp that you're up against when you stack them. What were orders in the quarter in dollars and in organic?

Yeah, the orders were minus eight, and organic orders were minus 10. And again, we had a tough comp, and I went through the process of they sequentially grew low single digits the last couple of quarters when you take out the comp. I think in Q1 of 23, we had exception orders from some project business, and EIG in particular. So when you take that out and you look at what's going on sequentially, we get more comfortable. Yeah,

no, I get it. 22 and 21 were also exceptional organic periods for you. Okay, thank you.

Thank

you,

Scott. One moment for our next question. Thank you. Our next question comes from the line of Andrew Obin of Bank of America. Your line is now open.

Hey, guys. Good morning.

Good morning, Andrew.

Just a question, how to think about the Paragon medical integration costs. So what's the payback on this restructuring that's now – because I assume it's extra. So what's the payback on this restructuring that's embedded in 24 Guide, and how much of it should I add to 25? Yeah,

well, in 24, we had told you in a prior meeting that Paragon was going to contribute 8 to 10 cents to Amatek's EPS, and that still holds. When I look at that $22 million charge, we said the payback is going to be less than two years. And at run rates – so it'll take us a couple years to get there – but the run rate, we have $70 million of benefits. So we spent approximately $29 million. We're going to get approximately $70 million of benefits. The payback is less than two years. So that really tells you what a great return it has. And it's just – there wasn't a lot of focus. And we can run things really efficiently. And I'm just excited that the management team sees it that way, too. And we're really going to make Paragon an exceptional business from an operating perspective. Regarding 2025, I think we've come out and said that we should see a substantial increase in operating earnings related to Paragon in 2025. But I'm not willing to quantify what's going to happen in 2025. We're much too far away to do that. But again, the metrics I'd point you to are we spent $29 million. We'll see $70 million in benefit at max run rate. And the payback for the project is a little less than two years. So we feel really good about it. It could pay back for our shareholders.

Sorry. And I should probably take it offline. But just to make sure – so I thought that Paragon restructuring was extra because you saw incremental opportunities. So you were saying that I should have – that that was embedded all along but was not in the guide? I'm sorry. I just

think that it's a larger deal. And we saw a lot of opportunities over. It will take us a few years to do it. So we pulled it forward. Okay.

I'll take it offline because I'm not sure if I – so I should have had it in my numbers or this $0.10 is extra on top of you were thinking. Just confirming that. I apologize. And I'm happy to take it offline with Kevin. I apologize.

Yeah. I don't know what you have in your numbers, Andrew. I don't really look at them. I can tell you that we're expecting to get $0.8 to $0.10 of benefits from Paragon. And this restructuring doesn't change that.

Gotcha. That makes sense. And then just on revenue, and you did give very good color, was basically the D-stock what drove – I guess you were expecting – I think you guided for low double-digit revenue in the first quarter, a little bit below. So it's just you said it's D-stock pulled forward, correct?

Yes.

Thanks so much.

Thank you, Andrew.

One moment for our next question. Thank you. Our next question comes from the line of Christopher Glynn of Oppenheimer & Co. Inc. Your line is now open.

Thanks. Good morning, everyone. Good morning. Yeah, I was curious just to go into the topic a little bit of the long-term, multi-year kind of secular trends where you see it impact. You know, it occurs to me maybe the power business could be on your leading edge with energy transition and electrification. But curious your comments in general on the kind of secular trends and in particular what you're seeing is kind of street level evidence on reshoring type trend.

Yeah, I think the – when I think about the long-term secular growth drivers, and we talked about a little – a few of them in my talk, but a lot of project activity around the semiconductor market and that's finally – we're moving closer and closer to the point where that's going to start turning into business for us in the West. There's a lot of project work on semiconductors. The power market, as you said, and there's really two drivers there, the driver for renewables, energy, but also the driver for investments in the power grid. So our RTDS business or power instrumentation business are really levered to those. So that's starting to happen as we work its way through. When I think about the aerospace and defense business, again, we had a great quarter again and that's continuing. And I think both Airbus and Boeing have a nine-year backlog, so the commercial market looks good. Our defense – we're in the right position in defense. We had another good quarter in defense. So I think about those kind of markets and those trends. I feel good about the future and a lot of fiscal stimulus in the U.S., which has not been there in the past, but it takes time to work through the system. So I think longer term, I think we're in the right places to do well. Thank you. Thank you, Chris.

One moment for our next question. Thank you. Our next question comes from the line of Joe Giordano of TD Cohen. Your line is now open.

Hi. Good morning. This is Van On for Joe. Sorry. I know de-stocking and bottoming of orders within automation has been discussed a few times. So just a quick follow-up. This is obviously something a lot of companies have been struggling with in the past two quarters, but some have also been talking about changing their internal processes to gain more visibility of end market and end users. Is there anything that you guys have done potentially more frequent conversations or reaching out to end market users to understand a bit better their demand going forward? Anything you've changed recently?

I can't point to anything being changed. I mean, if you go back and you follow us, we kind of called exactly what happened. We talked about the first half of the year of sales outpacing orders. So that means you'd have a slightly below one book to bill. We talked about the de-stock in the first half and we thought it would turn positive in the second half. We did that before this quarter. I think we have a pretty robust communication system with our field, but there's always opportunities to get better. And we work on those and continuously improve our businesses. But I feel like the information that we got from the field is pretty accurate and we're on top of it. But there's always room to improve and we're always looking at ways to improve.

Thank you. I'll relay that. Thank you so much. Thank

you. One moment for our next question. Thank you. Our next question comes from the line of Nigel Koh of Wolfe Research. Your line is now open.

Oh, thanks. Good morning, everyone. Thanks for the question. Hey, David, I just want to come back to the order math. I think you said down 8% and then down 10% organic. We've got about nine points of contribution from Paragon in our numbers. I'm just wondering, you know, what am I missing? Because I've expected there to be significant contribution from Paragon in the order numbers. So just help me out with that math, please.

Yeah, we had 9% acquisition growth and Paragon in the acquisition is not the organic. So the Paragon sales orders. Sales, excuse me.

Yeah. Okay. But then the orders, you know, 8% organic to 10% reported down 10% organic. Was

there

no mature impact from Paragon there?

Yeah, with Paragon, we had obviously the large book, the backlog of orders in Q4. And then in Q1, there's a timing issue because Paragon's going through the same D stock that the EMG businesses are. So there's a bit of a D stock there.

Okay. That

impacts the order. So the medical market, it's in both our EMC business and Paragon, we're seeing the same kind of D stock in the EMG businesses. You know, if we look at the medical procedures, they're all growing at mid to high single digits. But the medical device OEMs are, you know, D stocking their inventory, correcting their inventory. It's kind of a widely communicated piece of information. And we monitor them in procedures and they're growing. So this D stock, we think, is going to run its base through the first half of the year.

Okay. Does that impact the full year forecast? I think we've got, you know, close to $500 million sales to Paragon. Does that D stock impact that outlook? Yeah, I think.

Go ahead.

No, no. Please go ahead,

Dave. Yeah, I think for the year, you know, we bought Paragon, it was a little less than $500 million. And the first year we talked about the mid single digit growth. So that's still exactly what we have in our model. So

we think

that we get out of this year and we think it'll be double digit grower the next couple of years. But the Paragon model from the viewpoint of what we had going into the year and what it is now is pretty much identical.

Okay. And then just, sorry, a follow up on the $29 million. Is that all restructuring or was there some, you know, inventory and accounting, you know, breakdown? Yeah,

I'd say the vast majority of it was restructuring. You know, and there was a small part of it that were other integration costs. But the vast majority.

And does some of that come into TQ as well? You know, do you think about that in TQ?

Yeah, we started the effort in Q1. And, you know, as I said, we pulled forward all the benefits that we had. And, you know, I think the restructuring was done in Q1. So I don't think we're going to have another restructuring charge in Q2, if that's what you're asking. Okay.

Great.

It's a one off charge. It's a one off charge. Okay, great. We had a Zygote business. We had a big acquisition. We did a similar thing when we got comfortable with what we could do. And we may have another charge with Paragon down the road if we think there's other ways to improve it. But right now, this is a one time charge to, you know, dramatically improve the operating capability of that business. And the returns that I communicated to you are very positive.

Makes perfect sense. Thanks.

I am showing no further questions at this time. I would now like to turn it back to Kevin Coleman, Vice President of Investor Relations and Treasurer, for closing remarks.

Thank you. Thanks, everyone, for joining our call today. And as a reminder, a replay of today's webcast may be accessed in the Investor section of amitech.com. Have a great day.

Thank you for your participation in this conference. This does conclude the program. You may now disconnect.