AMETEK, Inc.

Hello and welcome to the Amatek Third Quarter 2024 conference call. At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations and Treasurer, Kevin Coleman.

Thank you, Andrew. Good morning and thank you for joining us for Amatek's Third Quarter 2024 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer, and Dala Puri, 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 to 2024 guidance will be on an adjusted basis, excluding after-tax, acquisition-related and tangible amortization, and excluding a pre-tax $29.2 million or $0.10 per diluted share charge in the first quarter of 2024 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 Investor section of our website. We'll begin today's call with prepared remarks and then open it up for questions. I'll now turn the meeting to Dave. Thank you, Kevin,

and good morning, everyone. Amatek delivered strong results in the third quarter. Our businesses executed extremely well, resulted in earnings per share above our expectations, solid margin performance, outstanding cash flow conversion, and double-digit growth in overall orders with positive growth in organic orders. Additionally, during the quarter, we deployed approximately $60 million on share repurchases. Subsequent to the end of the quarter, we acquired Vertec Vision, an excellent strategic fit with our Creaform business. I am very pleased with our team's performance. Our businesses remain focused on managing through short-term macro headwinds while ensuring our position for long-term growth. We have a proven, successful growth model, an efficient operating structure, robust cash flows, a strong balance sheet, and leading positions across a diverse set of niche markets. Now let me turn to our third quarter financial results. Third quarter sales were $1.71 billion, up 5% from the same period in 2023. Organic sales were down 2%. Acquisitions added 7.5 points, and foreign currency was flat. Overall orders in the quarter were up 12%. Booked to bill was 1.02, and organic orders were up 2%. Additionally, we saw solid sequential growth in orders. We ended the quarter with a strong backlog of $3.44 billion near record levels. Amatek's operational performance in the third quarter was excellent. Our disciplined approach to cost management and operational efficiency resulted in strong margins. Operating income in the quarter was $446 million, a 2% increase over the third quarter of 2023, and operating margins were .1% in the quarter. Core margins, excluding the dilutive impact from acquisitions and the impact of foreign currency, were very strong at 27.4%, up 40 basis points versus the prior year. EBITDA in the quarter was $553 million, up 4% versus the prior year, with EBITDA margins and oppressive 31.2%. Cash flow in the third quarter was excellent, with free cash flow up 4% versus the prior year, and free cash flow conversion of very strong 135%, reflecting our SLA business model and operating capability. This operating performance led to earnings of $1.66 per diluted share, up 1% versus the third quarter of 2023, and above our guidance range of $1.60 to $1.62 per share. Now let me provide some additional details at the operating group level. First, the electronic instruments group. EIG continues to perform well, with strong margin expansion and overall outstanding levels of operating margins, reflecting the quality of our businesses. EIG sales were $1.13 billion, in line with the third quarter of last year. Organic sales were down 2%, and acquisitions contributed 2 points. Growth remains solid across our aerospace and defense businesses, while our high-end research instrumentation business, Kameeka, also saw strong growth in the quarter. While we did see some temporary delays in projects bending across parts of our EIG business as we had expected, our new funnel pipeline remains solid, and our businesses are very well positioned across a number of secular growth markets. EIG operating income was $339 million, up 1%, and operating margins were very strong, .9% up 40 basis points from the prior year. EIG core margins were 30.2%, up 70 basis points versus last year's third quarter. Now, switching to the electromechanical group. EMG's third quarter sales were $574 million, up 18% versus the prior year, with organic sales down 3%, and acquisitions contributing over 20 points to growth. Strong growth across our aerospace and defense businesses in the quarter was offset by expected weakness within our OEM-exposed businesses due to the impact of inventory de-stocking. EMG orders were very strong in the quarter, growing 12% organically. EMG's operating income in the quarter was $132 million, up 3% compared to the prior year period, while EMG's third quarter operating margins were 22.9%, with excellent core margins of 26.1%. AMATEK delivered a strong performance in the third quarter, effectively navigating demand headwinds to deliver strong results. We remain focused on executing our growth model and positioning AMATEK for continued long-term growth, while ensuring we deliver strong results in the face of a choppy macro environment. Now, turning to our acquisition strategy. Strategic acquisitions are a core component of our growth model. We're committed to deploying our strong cash flow and acquisitions to expand our portfolio and highly attractive market segments. With that, I'm excited to announce our newest acquisition, Vertek Visions. Vertek Vision is a leading provider of laser-based projection and inspection systems, offering a suite of 2D and 3D laser projectors, smart cameras, and advanced measurement solutions powered by their proprietary AI software. Vertek's automated systems enhance productivity, improve quality, and reduce costs across a range of aerospace, defense, and industrial applications. Vertek is an excellent strategic fit with our Creaform business, broadening its technology offerings and enabling a wider range of automation and inspection capabilities for our customers. Vertek is headquartered in Waterloo, Canada, and has annual sales of approximately $40 million. I would like to welcome the Vertek team to the AMATEK family. Looking ahead, our acquisition pipeline remains robust. As noted, we have a strong and flexible balance sheet and anticipate remaining active in this area. AMATEK also remains committed to investing in our businesses to ensure their position for long-term sustainable growth. In 2024, we are investing an incremental $90 million in growth initiatives, including our new product development efforts, where our teams are focused on developing highly differentiated technologies to help solve our customers' most complex challenges. Throughout our business, we see countless examples of innovative products and technologies being developed to support our customers and provide them with the advanced differentiated capabilities they need. One way we measure the success of our new product development activities is through our Vitality Index, which measures the sales from products introduced over the past three years. In the third quarter, our Vitality Index was an outstanding 28%. In addition to our internal development activities, I'm also pleased to announce that our Kameka business, a leader in microanalytical and metrology instrumentation, recently completed a small technology acquisition of Polygon Physics. Polygon Physics specializes in ultra-compact, ultra-low, power-electron, cyclotron resonance technology. This technology enhances Kameka's capabilities in advanced metrology instrumentation and advanced chip manufacturing. Polygon provides us access to cutting-edge ion source technology and expertise that will help accelerate Kameka's new product development efforts and enhance their technology portfolio. We're excited to welcome the Polygon team to Ametek. Now turning to our outlook for the remainder of the year. Given our third quarter results, we're raising our earnings guidance for the full year. We continue to expect overall sales to be up 5% to 7% versus the prior year. Diluted earnings per share for the year are now expected to be in the range of $6.77 to $6.82, up 6% to 7% versus the prior year. This is an increase from our previous guidance range of $6.70 to $6.80 per diluted share. For the fourth quarter, we anticipate overall sales to be up mid-single digits with earnings in the range of $1.81 to $1.86, up 8% to 11% versus the prior year. In summary, I'm pleased with the team's performance in the quarter and thus far in 2024. We're managing through an uncertain macro environment, but confident in our ability to navigate these challenges. Ametek has been very successful over a long period of time managing a diverse set of highly differentiated niche businesses. The Ametek growth model has allowed us to deliver double-digit earnings growth throughout different phases of the economic cycle. The strength of our portfolio, combined with our operational excellence capabilities and acquisition strategy, has allowed us to deliver outstanding results. It has also allowed us to successfully manage through periods of economic weakness or uncertainty and emerge even stronger with exceptional growth. We are excited for the future. I will now turn it over to Dalla Purry who will take us through some of the financial details of the quarter, and then we'll be glad to take your questions.

Dalla? Thank you, Dave, and good morning, everyone. As Dave noted, Ametek delivered strong results in the third quarter with excellent operating performance and high free cash flow conversion. Now let me provide some additional financial highlights for the quarter. Third quarter general and administrative expenses were $25 million, essentially unchanged from the prior year. As a percentage of sales, G&A expense came in at .4% of sales, down from .5% in last year's third quarter. For fiscal year 2024, general and administrative expenses are expected to be approximately .5% of sales. Third quarter interest expense was $25 million, up $7 million from the third quarter of 2023 due to higher debt balances following recent acquisitions. Third quarter other operating expenses were down $4 million versus the prior period, due largely to higher pension income and lower acquisition-related due diligence expense in the quarter. The effective tax rate in the quarter was 18.8%, up from .7% in the third quarter of 2023. For 2024, we anticipate our effective tax rate to be between 17 and 17.5%, driven by a lower fourth quarter tax rate due to statute expirations. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from the full year estimated rate. Capital expenditures in the third quarter were $26 million, and we expect capital expenditures to be approximately $135 million for the full year, or about 2% of sales. Depreciation and amortization expense in the quarter was $90 million. For the full year, we expect depreciation and amortization to be approximately $395 million, including after-tax, acquisition-related, intangible amortization of approximately $188 million, or $0.81 per diluted share. Operating working capital in the third quarter was 19% of sales. Cash flow generation in the third quarter was excellent. Operating cash flow was $487 million, up 3% versus the third quarter of 2023, while free cash flow was $461 million, up 4% over the prior year. This was a record third quarter level for both operating and free cash flow generation. Free cash flow conversion was also outstanding, at 135% in the quarter. For the full year, we now expect free cash flow conversion of approximately 115% to 120% of net income. During the quarter, we spent $60 million on share repurchases, repurchasing approximately 371,000 shares of our common stock in the open market. Additionally, at the end of the quarter, we paid down a maturing $300 million private placement note. Total debt at September 30th was $2.34 billion, down $360 million in the quarter, and down approximately $1 billion from the end of 2023. Offsetting this debt is cash and cash equivalents of $396 million. At the end of the third quarter, our gross debt to EBITDA ratio was 1.1 times, and our net debt to EBITDA ratio was 0.9 times. We have significant financial capacity and flexibility, with over $2 billion of cash and available credit facilities to support our acquisition strategy and growth initiatives. In summary, Ametek delivered strong results in the third quarter. Our operational excellence initiatives and our strategic focus contributed to strong earnings, robust margins, and excellent free cash flow. With a strong balance sheet, near record backlog, and leadership across our key markets, we are well positioned for continued long-term growth.

Kevin? Thank you, Doug. Andrew, could we please open the lines for questions?

Certainly. As a reminder, to ask a question, please 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. One moment, please. Our first question comes from the line of Matt Somerville with D.A. Davidson.

Thanks.

Morning,

guys.

Morning, Matt.

David, could you maybe do a little bit more of a detailed update specifically on what you're seeing in your medical and life sciences facing end markets across both EIG and EMG, and work in some commentary on what you're seeing in those businesses specifically around de-stocking, and then I have a follow-up.

Yeah, sure. In terms of the de-stock, we saw demand largely in line with our expectations in the quarter. Actually, as both our OEM customers and our automation and paragon businesses continue to work down excess levels of inventory, and these stocking headwinds are going to continue. We remain well positioned on a range of attractive programs within both the automation business and the paragon business, and we're really encouraged by the trend in recent order rates. We had, you know, in EMG where the main de-stocking areas was up plus 12 organically. Again, we had a positive book to bill of 1.02, and if you just look at the trends, the trends are heading in the right direction. So, you know, we stabilized, we saw solid sequential growth and orders, and we're feeling pretty good about that.

And then as a follow-up, you mentioned in your prepared remarks when talking about EIG that you're still seeing a little bit of customer tentativeness with respect to some delays in that portion of the business. Can you just talk through maybe which divisions are being most impacted by that, which end markets, et cetera, and if you're able at all to kind of ring-fence and quantify the impact?

Sure, yeah, I'll do that, Matt. In terms of the project delays that we spoke about last quarter, this quarter played out largely as expected. Customers remain cautious given the impact of various economic, geopolitical, and election uncertainties, and these project delays are specifically in our EIG test and measurement businesses. That's what we talked about last quarter. And, you know, the key point here is our new opportunity funnel remains strong, so things are definitely not getting worse. In fact, the EIG orders trend went from minus 11 organic in Q1 to minus 4 organic in Q2 to minus 2 organic in Q3. So we're feeling pretty good about the, encouraged by the positive trend there.

Got it. Thanks, David.

Thank you, Matt.

And our next question comes from the line of Dean Dre with RBC Capital Markets.

Thank you. Good morning, everyone. Good

morning,

Dean. Hey, Dave, maybe you could take us through the end markets, geographies, and, you know, to the extent that you can, some comments on China. I don't think there's ever been more mixed messages, most of them negative, but each company has got different views based upon their exposures, but

maybe we can start there. Thanks.

Great sort of questions. I'll try to get them all in if I forget anything, you know, pull me back to it. I'll go around the horn first. Both, and talk about a process business, both overall and organic sales for our process businesses declined low single digits in the quarter. Growth remains solid across our energy businesses. We had a good quarter in energy and also our high-end research business. We talked about Cameca also had a very strong growth in the quarter. And looking ahead, we continue to expect organic sales for our process businesses to be flat to up low single digits for the full year. Next, switching the aerospace and defense, aerospace and defense is about the 18% of AMETEC, delivers strong performance in the quarter, both overall and organic sales were up mid single digits. Growth was strongest across our commercial OEM and commercial aftermarket businesses. Reminder, we have a good balance between sales and defense and we have a good balance between OEM products and aftermarket. And additionally, we're on a wide range of applications and not dependent on any one platform. So we're positioned well to benefit from the long-term growth across these markets. And for the full year, we continue to expect high single digit organic growth for aerospace and defense businesses. Next, I'll go to power and industrial. Power and industrial businesses were up mid single digits in the quarter, driven by the contributions of Amplify Research and UEI, recent acquisitions, both of them. Organic sales were down low single digits in the quarter. We expect organic sales for our power and industrial businesses to be down low single digits for the full year. Now, finally, our automation and engineer solutions market segment, overall sales there increased in the low 20% range, driven primarily by the contributions of Paragon Medical. Organic sales were down high single digits due to continued normalization of inventory across our OEM customer base. And for the full year, we continue to expect organic sales to decline mid single digits as the headwinds from the stocking continue. Talking about the geographies. Yeah, a little different to mix there. We have strong growth in Europe and Asia, offset by some declines in the US. You talked specifically about China. Our Asia business did well, and China was actually up 10%. We had strong growth in our .P.T., our ultra-precision technology division. Amatec products are used by our customers in China to improve their manufacturing processes, automate processes, make the environment cleaner, produce energy, so very well positioned. But that market will remain choppy, and there's been some stimulus announced, but the results that we're seeing now aren't from stimulus. They're just from market share wins and making good headway in the markets. But it's very difficult to predict what's happening in China. So it's a, you know, just wait and see what happens each quarter.

That's

really helpful, and

it is remarkable how it really depends on what your exposures are in China. You just can't paint it all with the negative brush there. And just as a quick follow up, the context of the stocking, the longer it lasts, I always get this impression that it's really a lower demand as opposed to just an inventory correction. So what's your sense? Is there a reset, let's say, at Paragon, or is it still you can see selling versus sell through and that there is really like an inventory work down coming through? Just kind of, you know, how do you separate those two dynamics? That's a great question, and it's obviously difficult to parse, but we're pretty confident that we're working through a supply chain crisis level of inventory. And we have some math you can see when we work through that, and there's the same kind of growth on the other end of it. And the same thing is happening in the medical space as the automation space. So we're seeing the other factor that influences our decision is the new business activity, the pipeline activity. Our customers are very active. We're working on new programs and they're getting delayed, but there's no program cancellations, and there's some uncertainty when they're going to go forward. But we're full out working on a tremendous number of opportunities. So we think it's a de-stocking issue and it's not an overall -to-end issue, and we think we'll work through it. And you can see some of that's starting to happen with the order trends in our business. Excellent. We'll leave it there. Just a quick shout out. That was a nice free cash flow this quarter. Thank you. Thank you, Dean. Thank you. The team did

a great job. Our next question comes from the line of Jeff Spraith with Vertical Research Partners.

Hey,

thanks. Good morning,

everyone. Good morning, Jeff. Really good morning.

Hey, David, I was on a little late, so I don't know if you, you know, just listening to your answer to Dean, I don't know if you already specifically commented on Paragon, but, you know, just in terms of the sales trajectory there, if you wouldn't mind repeating it. Sure. And then, you know,

and then just on just on EMG overall, right, it's certainly kind of interesting set of cross currents, right,

with de-stock going on, but orders up 12 organically. Maybe you could just unpack a little bit more kind of the moving pieces inside that if

you haven't already.

Yeah, I haven't gone deeper, but I can say that every division at EMG was up substantially in order. So it wasn't one area. So it was across the board, all parts of EMG were up in order. So we're really encouraged by that. Speaking of Paragon, again, it's a single use and consumable surgical instruments business, implantable components, and attractive medtech markets with solid growth rates. And we continue to be excited about the future growth opportunities, excellent engineering capability, leading additive manufacturing capability, many, many new program wins which we'll provide upside as these things get phased in. And the business is really well positioned when the de-stocking headwinds abate. At the same time, we're working on substantial efficiency improvements in the business. And the team is really doing an excellent job of doing that because some difficult things that are going on. And but that process is proceeding well. So I'm very pleased. I mean, Paragon met its expectations for Q3. They had similar sequential order improvement that we talked about in our other businesses and overall very pleased with it.

David, then on sort of the margin recovery plan itself, obviously the restructuring in Q1 and I guess if there's a silver lining in the drawdown, maybe it allows you to accelerate some things on restructuring and the like. Can you give us a sense of sort of the likely tailwind into 2025 as we work through some of these things and arguably sales start to

kind of stabilize, pick back up into the new year?

Yeah, I think the scenario you're talking about is something that has a high likelihood of happening. But when you talk about 2025, we don't give guidance at this time of the year. So we're going to stay away from that and talking about next year. But the things that you're pointing to are correct. I mean, it's a tough time. We're improving the business significantly. There's some plant closures in there and continuing to fund all the new product phases in. So it's going to be a very, very positive scenario as we move forward with that business.

Great.

Thank you for the insight. Appreciate

it.

Thank you, Jeff.

Our next question comes from the line of Rob Wertheimer with Milius Research.

I had a couple cleanups. Just to kind of put a bow on the destocking. I mean, you guys were clear that destocking should continue through the end of the year. I think you mentioned that it continues again now, Dave. The orders seem to indicate that we're getting there. I don't know whether your comment was implied was intended to imply any continuation in the next year.

Yeah, I think we've definitely stabilized in the last couple of orders we're seeing quarters. We're seeing incremental orders growth. We're encouraged by that. We're seeing it in EMG where the destocking was occurring. We're seeing it in all of our businesses. So that's all positive. But this destock isn't like a switch. It's going to slowly improve as we get into next year. We'll give you the guidance for next year. But whether the destock occurs or not, we're going to make money. And that's what we're working on on the operations side. So my point is there's positive trends now. We haven't given guidance for next year. We go through our standard process with sitting down with each business and go through a comprehensive budgeting process. We look at market conditions and sales opportunities and cost reduction opportunities and decide what investments to fund. And it's very important to follow this process right now given all the macro geopolitical election uncertainty. Because that's why we're firm on working through our process and giving you a good look at the best information we have at the beginning of next year.

Perfect. Thank you. And then if I may, on the acquisition pipeline, your balance sheet looks great. Obviously the pipeline is robust. Are you seeing any similar hesitations to commit amongst your potential inquiries slowing things down or should we just assume things come unstuck as a normal process? Thank you.

Yeah, that's a good question. Excellent question, Robin. And this is just my subjective read on the market, but I feel like things are coming unstuck. We were in a period where things were, everybody was dealing with higher interest rates and trying to get their businesses in order. But our pipeline is full. Our pipeline is robust and we're talking to a lot of people about a lot of things. So I feel like sometime next year, sometime early next year, it feels like things are moving and it feels like they're moving at an accelerated pace.

Thank

you. Thank you.

Our next question comes from the line of Scott Graham with Seaport Research Partners.

Hey, good morning. Thanks for taking the question, guys. Really just a couple of them. You know, you're doing a lot of investing internally. The vitality is up to, you know, 28%. You gave you mentioned that you're really heavily focused on some differentiated products. Could you maybe unbundle that a little bit more? And, you know, I know vitality, the percentage is always a tricky thing because it's a three-year trail. But nevertheless, is that a number that you think can go even higher? And, you know, maybe which businesses? I know that you're single-sitters. I get all that. But, you know, is there anything that's standing out to you in certain business units? And where can that index go? Yeah, I think we think the right level for our business is between 20 and 30%. And, you know, we're at 28%. And it could go down to 20 or go up to 30. And that's probably the right range. And it's, as you mentioned, it's very distributed across our company. We're spending incrementally $90 million on projects. They're good projects. They're going to result in good sales in the future. In some cases, they're coming in at lower price points, too. There's been a good job of cost reductions through the new development processes. So it's a... And when you have the, you know, fresh -to-date product line and you're a leader and the niche markets that we're in, it enables you to justify premium pricing for the new product. So that all feels good. It's working well. And it's part of our core. So as you know, you've followed us for a long time. Whether the market's good or the market's bad, we fund the R&D spending consistently. And it's paid off for us in the long run. And we plan to continue it.

Thank you. I just maybe wanted to ask something

that's a little bit more forward-looking to the extent that you can answer it. You know, one of your two very large aerospace customers is struggling in various parts of their portfolio and production. I'm just wondering, does that dampen your potential outlook for 2025 in your aerospace business? Yeah, we haven't done the detailed work on 2025. And related to the situation, we did see some minor delays in the quarter, but we were able to work around them. And we factored in the impact that we know of for Q4. And it's a fluid situation, obviously, but we feel confident in our guide for Q4. Our aerospace businesses have diverse exposures across a wide range of platforms, a very healthy mix of OEM and aftermarket sales. There's no overexposure to any single platform or any single customer. So we're feeling good about that. And there's a strong demand. And we're well positioned to benefit from it. And we're not selling as much up on the value chain. We focus on what we do well, the technologies and the niche markets that we focus on. And we really feel that we're in a good position going forward. And hopefully, some of the larger customers can work through some of the situations that we're in. But we think we have a call properly for the rest of this year. Great. Thank you. Thank you, Scott.

Our next question comes from the line of Brett Lindsay with Mizzouho.

Hey, good morning, all.

Hello, Brett.

Hey, hey, just wanted to come back to the OEM dynamic and the D-stock once more. So you noted some of the internal exercises or the math that teams were doing to gauge that pressure. I guess, is there any way to quantify in revenue dollars or order percent how much of the pressure on results this year has been related to OEM D-stock?

I say that, yeah, if you go back to Q2, we talked about it. It's pretty significant. It's significant. So if that reverses, that's clearly not a headwind. It's a headwind that's not there for next year. So yeah, in our automation business and with Paragon, that D-stock was substantial.

Okay, got it. And then just on the project delays, so I think you noted it was various verticals. I guess, what are you hearing from customers in terms of project readiness and when these might return? Are you contemplating any catch-up in the fourth quarter as part of the guide or have you slid that expectation to 2025? I

think our Q4 guide for our project businesses in EIG assumes a normal calendar Q4 that's pretty strong. So we'll see a sequential increase from Q3 to Q4 related to seasonality, related to projects in that business. So it feels like there's definitely some year-end spending going on, so that's positive.

Okay,

great. Best of luck.

Thank you.

Our next question comes from the line of Nigel Cope with Wolf Research. Thanks.

Good morning, everyone. Just wanted to come back to orders. Plus 2% organic, I think, is what you said. So that's great news. I don't think you were signaling the return to growth until the fourth quarter, unless I'm mistaken. So just anything happened during September that changed that? I mean, he'd call out, was there some aerospace just to see any color there? And then maybe on the back end of that, if we kind of look at the implied organic orders, it seems like there's about $140 million or thereabouts, $140-150, of backlog growth that's not organic. That's a big number. So I'm just wondering what the book to build was for Paragon and whether this full tech acquisition had an influence as well.

Yeah, the first point is we don't give guidance on orders. So I don't know how you got your information on the Q3 being a quarter late, but in any event, it's what it was. The second point was the backlog build. Yeah, we don't have that number in front of us. That's not something we look at. It was $3.44 billion for the company and pretty healthy and the orders turned positive. So I think it's, you know, I wouldn't read too much into it. It's just positive. We're just encouraged by the positive trends and maybe it occurred earlier than you thought it would be. And we think we're going to have a good quarter in Q4.

Okay, maybe I'm just mistaken there. And then looking at Paragon, obviously, I think you asked about the sort of set up.

If

the review

seen

in sales this year is woody inventory draw, should we consider that to be sort of one time in nature and therefore, you know, we spring back to a visual plan in 2025? Or do you think it might take a little bit longer to achieve that?

So Nigel, your question broke up on our end and we couldn't hear you. Oh, okay. Just, okay.

Paragon inventory has reversed basically in 2025.

Yeah, yeah, I mean, is that inventory situation at base, it's definitely going to improve in 2025 and, you know, hopefully it improves in 2025 and we have a lower cost structure and we also have a lot of new products that we're facing. And it's going to take some time. Like I said, you don't throw a switch. But yeah, I really think it is going to improve in 2025.

Thank you. And our next question comes from the line of Christopher Glenn with Oppenheimer.

Thank you. Good morning, everybody.

So

a

lot of time spent on the EMG orders and Dave, you gave the kind of sequential

improvement in the year over years for EIG. But wondered if we could go a little further into the, you know, sequential three Q over two Q orders pattern for EIG. Maybe anything on book to bill there?

Yeah, the book to bill for the whole company was 1.02 and it was above one for both of the groups. That's what I can give you there.

Okay, that covers all that. And then last quarter you talked about defense delays and

you had a couple of single digit quarters for AMD versus the high single digit guide. What's the status update on the defense and is that something that you have factored in pretty strong in the fourth quarter? Yeah, we had Q2 and Q3 is a little bit of project timing on that and we think that's going to reverse and there's some good things scheduled for us in Q4. That business is excellent because it's growing. The defense business is growing, but it is project based. So it can be lumpy, but it's lumpy and headed in the right direction. So you're looking at it the right way.

Great, thanks. Lastly, I'm not sure if it was asked multiple companies coming through here, but the deal pipeline, just curious mix of small,

larger actionability. Yeah, the deal pipeline remains strong. We're actively looking at a high number of quality deals. We obviously have got the cash and the credit facilities to execute. That's recognized by sellers. The pipeline is a variety of deal sizes and we're very active and what I had mentioned before, it feels like things are starting to move a little bit more. In that area than they were maybe the last six or nine months.

Great, thanks a lot.

Thanks,

Chris. As a reminder, ladies and gentlemen, to ask a question, please press star 1-1 on your telephone. Once again, to ask a question, please press star 1-1 on your telephone. Our next question comes from the line of Andrew Obin with Bank of America.

Good morning. Can you hear me? Yeah. Hey, how are you? Look, I appreciate that you don't give guide on orders, but just checking if my math is correct. If I do look on a two-year stack, just third quarter of last year organically was the easiest comp in the year. I think it was minus 10 and it just goes to minus 2 by Q4. And if I look at Q2 and Q3 on a two-year stack for orders, I'm just wondering, is it reasonable to assume that we've bottomed and by fourth quarter we could return to growth? It's just arithmetically it would suggest that we'll probably continue to be, you know, we'll go back to order decline. And I know you don't guide it, but we're just getting a lot of questions from investors. When do orders imply for these short cycle names? And look, I get it. It's macro. You don't have a special issue. Crystal ball. I appreciate all these things.

Yeah, that's right. Dark crystal ball is no better than anyone else's, but we don't look at the two-year stack numbers, so I can't comment on your numbers. What I can comment is that there's been healthy sequential increases from Q2 to Q3. And we also saw a sequential increase from Q1 to Q2. So along with the two-year stack and the year over year, and we gave the organic numbers already, the sequential numbers are, you know, they were up mid-single digits in the quarter. So that's an encouraging fact from our viewpoint.

Nope, really appreciate it more than I expected. And just a follow-up question on Paragon. And it's a different business. I mean, it's MetTech, right? So a lot more regulation. Could you just give us an update on the timeline of your restructuring? And obviously AmetTech Playbook is as good as anyone's in the industrial world. But how do you apply this Playbook on timing of the restructuring and getting things out fast in terms of cost in a regulated environment where you can't just move production from one facility to another? It's all subject to regulatory approval. Can you just, what lessons are being learned and what has the speed of restructuring been relative to, I'm sure, very high expectations? Thank you. Yeah,

because the environment's regulated and we know that because we have another business in the space that we move factories. So our EMC business is a sister business to Paragon. So we're very experienced with the regulatory environment and our timing is adjusted for it. And you have to move slow and you have to be careful when it takes a bit longer, just like moving an aerospace business or just like moving a defense business or just like moving a utility business. So we operate in a lot of regulated markets. That's really our focus. We like regulated markets. This isn't new for us. It's kind of core. If you look at our whole portfolio and you're right, it does take time and we're going to do it right.

So on time. Really appreciate it.

Thank you. Our next question comes from the line of Joe Giordano with TD Cowan.

Hey guys, good morning. Hello Joe.

Just

curious on the arrow, you mentioned like you're taking everything into consideration. I know you're a very balancer, but is your Boeing OE exposure like, are you essentially assuming zero in the fourth quarter or are you still selling to like maybe, you know, tier ones or something where you can still ship?

Yeah, I think you've got it right. I mean, to the where we have confirmed orders to lower levels of the supply chain is zero. And if there was anything direct, it's removed. Got

it. And then apologies if I missed this, I joined a little bit late. But on Paragon, did you give like an updated 2024 like revenue number that you expect from them or a contribution number?

No, we didn't. We didn't give the number and the number that we gave last quarter still holds and Paragon executed in line with what they thought they did for this quarter. It was a good quarter for them.

And we also

talked about the sequential orders growing in Paragon too.

Thank you. Our next question comes from the line of Jeff Sprague with Vertical Research Partners.

Hey, thanks for letting me back in just a really quick follow

up. Dave, can you just give us an update on price and then what you're seeing on kind of price cost spread in

the quarter? And you think that changing any as we move into Q4, the early part of 25?

Yeah, that's a good question, Jeff. I mean, price, it seems that we're getting back to more normal patterns. And in the quarter, we got three points of price, pretty consistent across the portfolio. And we got about 100 basis points of positive spread to the P&L from it. So I think the days of the high inflation, the higher price are abating. And I think we're in the normal, if you look into next year, normal price cost spread where we are always positive by 50 basis points and the number is like 2 to 3%.

Great. Thanks, Jen. Thanks, Jeff. And our next question comes from the line of Steve Barger with KBCM.

Hi, Steve.

Hey,

thanks. Good morning. Morning. I'll just ask a question on the semi-cap cycle. It feels like expectations are moderating a bit due to slower recovery in some consumer products. But I know there's still a lot of optimism around leading edge investments coming through. I think you're in deep, deep back to detection and more leading edge. But based on how your portfolio is positioned, can you match or outgrow whatever the equipment market does as the cycle improves?

Yeah, I think we can. I mean, for example, in the quarter, our semiconductor businesses were up mid-single digits. And that was, you know, we had growth and it was driven by the uniqueness of the product portfolio. And the one thing about our portfolio is that we have a lot of laboratory semiconductor stuff that gets worked on during the, between the cycles and then the production stuff that happens. So there's a natural balance in there. And we usually don't have large swings either way. They kind of compensate and they're not correlated with each other. So, you know, it's a positive market. I mean, you have some dynamics with China. You have some dynamics with new technology. We have a product in our, the Cameca business has been developed. It's very unique and best in class. We're selling quite well now. So, yeah, we were up mid-single digits. We think we'll be up mid-single digits for the year in semiconductor. That's about 6% of our portfolio. And we haven't done the planning for 2025, but if anything, that's a market that buys technology and our technology is getting better. In fact, the small acquisition that we did, Polygon Physics, was related to an ion source technology that is specifically used in EUV manufacturing and gives us some capability in the advanced semiconductor space.

Understood. And so does it feel like the cycle itself, and I know you're, you do have some lab exposure, but for the more high volume production cycle, does it feel like we're inflecting?

Yeah, I mean, you know, you read all the industry things out there and it feels like there's some inflection points, but then you get some geopolitical dynamics and, you know, kind of sit back and see what happens on that one.

Got it. Thanks. Thank you, Steve. Thank you. I'll now hand the call back over to Vice President of Investor Relations and Treasurer Kevin Coleman for any closing remarks.

Thank you, Andrew. And thanks everyone for joining our call today. Another reminder, a replay of the webcast can be accessed in the Investor section of Ametek.com. Have a great day. Ladies

and gentlemen, thank you for participating.

This does

conclude today's program and you may now disconnect.