AMETEK, Inc.

Hello, and welcome to the fourth quarter 2024 Emotech Earnings 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 11 on your telephone. You will then hear an automated message advising that your hand has been raised. Please be advised that today's conference is being recorded. It is now my pleasure to introduce Vice President, Investor Relations, and Treasurer, Kevin Coleman.

Thank you, Andrew. Good morning, and welcome to Amatek's fourth quarter 2024 earnings conference call. Joining 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'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 reference made on this call to 2023 or 2024 results or to 2025 guidance will be on an adjusted basis excluding after-tax acquisition-related intangible amortization and excluding the pre-tax $29.2 million or 10 cent 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 we'll open it up for questions. And I'll turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Amitek delivered strong results in the fourth quarter, highlighted by robust margin expansion, outstanding cash flow generation, strong organic orders growth, and double-digit growth in earnings per share. In the quarter, we established records for sales, operating income, EBITDA, and diluted earnings per share, as well as for operating cash flow and free cash flow. We also repurchased $155 million in shares during the quarter, and this morning we announced the acquisition of Kern MicroTechnique for approximately 105 million euros. Our performance this quarter marks the culmination of a strong year in which we leveraged the proven strength of our operating model to deliver outstanding results despite a challenging economic environment. Now let me turn to our fourth quarter results. Fourth quarter sales were a record $1.76 billion, up 2% from the same period in 2023. Organic sales were down 3%. Acquisitions added five points in the quarter and foreign currency was flat. Orders were solid in the quarter with organic orders up 4% versus the prior year with positive organic growth across both our EIG and EMG segments. And we ended the quarter with a strong backlog of $3.4 billion. Ametek's operating performance in the fourth quarter was excellent. Operating income in the quarter was a record, $469 million, a 5% increase over the fourth quarter of 2023. Operating margins were 26.6% in the quarter, up 90 basis points from the prior year. while core margins, which excluded the dilutive impact from acquisitions, were up a sizable 140 basis points. EBITDA on the quarter was a record $561 million, up 7% versus the prior year, with EBITDA margins then impressive 31.9%. This operating performance led to robust cash generation, with free cash flow a record $498 million on the quarter, up 4% versus last year's fourth quarter, and free cash flow to net income conversion of 129%. Diluted earnings per share were a record $1.87, up 11% versus the fourth quarter of 2023, and above our guidance range of $1.81 to $1.86 per share. Now let me provide some additional details at the operating group level. First, the electronic instruments group. EIG delivered outstanding performance in the fourth quarter, with impressive margin expansion and operating margin levels that reflect the high quality of our businesses. EIG sales were $1.21 billion, down 2% from the fourth quarter of last year. Organic sales were down 3%, and acquisitions added one point. Growth was strongest across our aerospace and defense businesses, while our advanced optical metrology businesses, Zygo, also saw solid growth in the quarter. Similar to last year, our EIG businesses experienced some project delays in the fourth quarter as customers remained cautious at year end. We view these as temporary delays as the new project pipeline remains strong. EIG operating income was a record $386.6 million, up 8% versus the prior year, and operating margins were also a record 31.8%, up a robust 280 basis points from the prior year. The electromechanical group also finished the year with strong operating performance. EMG's fourth quarter sales were 540% lower than the prior year, with organic sales down 4%. Strong performance in our aerospace and defense businesses was offset by weaknesses in our OEM-exposed businesses, which continued to face headwinds from inventory destocking. EMG's operating income in the fourth quarter was $111.2 million, down 1% compared to their prior year period, while EMG's fourth quarter operating margins were 20.3%. Now for the full year. Overall performance was strong in 2024 as we established annual records for essentially all key financial metrics. Overall sales for the year were $6.94 billion, up 5% from 2023. Operating income for 2024 was $1.81 billion, up 6%, and operating margins were 26.1% for the full year, up 20 basis points from the prior year, with core margins up 120 basis points. EBITDA for the year was $2.18 billion, up 8%, with EBITDA margins of very strong 31.4%. Full year 2024 earnings were $6.83 per annuity share, up 7% versus the prior year. We also delivered exceptional cash flows in 2024, with free cash flow up 6% versus the prior year and free cash flow to net income conversion a very strong 124%. Ametek's performance in 2024 underscores the quality of our businesses, the flexibility of our operating model, and the outstanding contributions from all Ametek colleagues. Our teams navigated a complex macroeconomic environment and delivered strong results, while also ensuring Ametek is well positioned for long-term success. Now turning to capital deployment and acquisitions. As noted in the fourth quarter, we repurchased approximately 155 million in shares, bringing our total share repurchases for the year to approximately $220 million. While our top priority for capital deployment remains acquisitions, Our strong cash flows provide us with the flexibility to also opportunistically repurchase shares. Subsequent to the end of the first quarter, we acquired Kern Microtechnique, which we announced this morning. Kern is a leading manufacturer of high-precision machining and optical inspection solutions that achieve industry-leading accuracy and surface finish. Kern's highly engineered solutions help customers produce Highly complex and precise components used in semiconductor, medtech, space, and other high-tech industries. Kern is a strong strategic fit with our ultra-precision technologies business, expanding our existing capabilities in ultra-high-precision manufacturing and opening up new opportunities to serve customers with growing demands for miniaturization and accuracy. Headquartered near Munich, Germany, Kern has annual sales of approximately 50 million euros. I'm excited to welcome all current colleagues to the Ametek family. Looking ahead to 2025, we are managing a strong pipeline of high quality acquisition candidates. We have a healthy and flexible balance sheet providing us the opportunity to deploy meaningful capital on strategic acquisitions. With our robust balance sheet, significant financial capacity, and disciplined approach to capital deployment, Ametek is well positioned to continue driving long-term value through our acquisition strategy. In addition to acquisitions, we continue to invest in our businesses to best position them for long-term growth. In 2024, we invested approximately $90 million in incremental growth investments, largely across research, development, and engineering, and sales and marketing functions to support their organic growth initiatives. We expect to invest approximately $85 million in incremental growth investments in 2025. These investments and initiatives have strengthened our leadership positions within our niche markets, helped open up new growth opportunities in attractive adjacent markets, and accelerated our new product development and technology innovation. One such example of our technology innovation successes can be found in our latest innovation award winner at Kameka. Kameka's LEAP series of atom probe microscopes provide 3D imaging and chemical composition characterization and materials at the nano scale. Historically, the LEAP product line focused on material science and geology applications targeted at highly knowledgeable academic customers at PhD level. Kameka determined that an enhanced productivity system with high sensitivity and improved yield would broaden the market and support both academic and industrial customers who put a premium on throughput, automation, and analytical capability. This led to the development of the new LEAP 6000XR, which provides enhanced ease of use, new automation features for data collection, and improved analytical capabilities. With this new technology, AtomPro tomography is now used to study nearly all classes of solid materials from the oldest minerals on earth to the most advanced aerospace alloys. As a result, new applications are emerging due to Kameka's customer-centric approach to innovation. now shifting to our outlook for the year ahead. We remain cautious as we start the year given the ongoing macroeconomic uncertainties. However, we are encouraged by the strength in orders we experienced in the second half of the year, our strong backlog, our leading positions across a diverse set of markets which are poised for improved growth, and our significant capital available to deploy on strategic acquisitions. For 2025, we expect both overall and organic sales to increase low single digits on a percentage basis compared to 2024. Diluted earnings per share for the year are expected to be in the range of $7.02 to $7.18, up 3% to 5% compared to last year's results. For the first quarter, we anticipate overall sales to be roughly flat versus the prior year first quarter with adjusted earnings of $1.67 to $1.69 per share, up 2% to 3% versus the prior year. To summarize, Emetech delivered a strong finish to the year, with solid performance in the fourth quarter, reflecting the strength of our portfolio and our ability to execute our growth strategy in a sluggish macro environment. Our differentiated technologies and deep industry expertise continue to position us well in attractive niche markets, providing a solid foundation for future growth. With a focus on innovation, operational excellence, and disciplined capital allocation, We are confident in our ability to drive continued growth and create long-term value for our shareholders in 2025 and beyond. I will now turn it over to Dalip Puri to cover some of the financial details of the quarter. Then we'll be glad to take your questions. Dalip.

Dalip Puri Thank you, Dave, and good morning, everyone. As Dave noted, Amatek had a strong finish to 2024, establishing records for sales, operating income, earnings per share, and cash flow in the quarter. Now, let me provide some additional financial highlights for the fourth quarter and the full year, as well as some additional guidance for 2025. Starting with general and administrative expenses, fourth quarter G&A expenses were $28.9 million, up $2.5 million from the prior year. For the full year, general and administrative expenses were up approximately $5 million. As a percentage of sales, G&A expense was 1.5%. in line with 2023 levels. For 2025, general and administrative expenses are expected to be approximately 1.5% of sales. Fourth quarter, other operating expenses were down $1 million compared to the fourth quarter of 2023 due to lower due diligence costs. For 2025, we expect other operating expenses to be largely in line with 2024 levels. The effective tax rate in the quarter was 12.8%, down from 17.8% in the fourth quarter of 2023 due to statute expirations. For the full year, the effective tax rate was 17.3%, which was in line with our guidance range of 17 to 17.5%. For 2025, we 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 were $52 million in the fourth quarter and $127 million for the full year. Capital expenditures in 2025 are expected to be approximately $155 million, or about 2% of sales. Depreciation and amortization expense in the quarter was $96 million, and for the full year was $383 million. In 2025, we expect depreciation and amortization to be approximately $400 million, including after-tax, acquisition-related intangible amortization of approximately $194 million, or 83 cents per diluted share. For the quarter, operating working capital was 16.8% of sales. Operating cash flow in the fourth quarter was a record at $550 million, up 2% versus the fourth quarter of 2023. Free cash flow was also a record in the quarter, up 4% to $498 million, with excellent free cash flow conversion of 129% for the quarter. Free cash flow for 2024 was a record $1.7 billion, up 6% versus the prior year, with full year free cash flow conversion also very strong at 124% of net income. For 2025, we expect free cash flow conversion to be approximately 115%. Total debt at year end was $2.1 billion, down $1.2 billion from the end of 2023. Offsetting this debt is cash and cash equivalents of $374 million. As Dave noted, we spent approximately $155 million on share repurchases in the fourth quarter, bringing our total share repurchases for the year to approximately $220 million. Additionally, subsequent to the end of the fourth quarter, we deployed approximately 105 million euros on the acquisition of Kern Microtechnique. At the end of 2024, our gross debt to EBITDA ratio was 0.9 times and our net debt to EBITDA ratio was 0.8 times. We continue to have excellent financial capacity with approximately $2.5 billion of cash and existing credit facilities to support our acquisition strategy and growth initiatives. In summary, we delivered strong fourth quarter and full year 2024 operating results. highlighted by record earnings, robust margins, and excellent cash flow generation. With a proven strategy, significant capital deployment capacity, and a strong track record of execution, we are well positioned to navigate current trade uncertainties and to drive growth and value creation in 2025. Kevin.

Thanks, Dalip. Andrew, could we please open the lines for questions?

Certainly. As a reminder, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. And our first question comes from the line of Matt Somerville with DA Davidson. Thanks.

Good morning, David. Maybe could you talk a little bit about the nature of delays you saw within EIG And if you started to see some of that break now that we're into February, and then maybe if you could also comment on your views regarding the remaining duration of the OEMD stocking, you're continuing to see an EMG, and then I have a follow-up.

Sure, Matt. Good morning. The project delays in ERG were pretty much what we've been seeing. There was a It was across the board. It wasn't really notable, but we got some delays on the shipments, but the orders were good. And similar, the destocking headwinds largely impacted our OEM-exposed businesses in EMG, which include our automation and engineering solutions subsegment. But we're starting to see improved order patterns from some OEM customers. Others are taking a little time to destock. We were encouraged by the sequential orders growth in Paragon. They had substantial double-digit orders growth. We're also encouraged by the orders in EIG. So both groups were up organically in orders and very positive from that viewpoint. And the order strength continued into January. So, you know, we're not through the destocking. Some customers are through it. Some are not. but you can see it definitely easing a bit as we go forward.

A follow-up, David. Can you talk about where you were with price cost in 24, what your views on that are for 25, and what you see as Amtech's ultimate level of price capture this year?

Sure. I think in 2024, the last quarter, we ended up pretty much in line with what we were performing throughout the year. We captured a bit more than three and, uh, our inflation was a little bit more than two and going into 2025, we've been pretty conservative in budgeting that we were saying that will offset, uh, increased price with inflation by a little bit. So we think the, the environment for inflation, at least what we're seeing is, is, is, uh, mitigated to a great degree. And, uh, you know, I think you're doing that one and a half to 2% number for the pricing.

Got it. Thank you. Thank you. And our next question comes from the line of Jeffrey Sprague with Vertical Research.

Thank you. Good morning, everyone. Hey, David, can you give us a little bit more of an update on Paragon? You mentioned orders were firming up here as we exited the year. Can you just level set us on where we're at revenue-based for that business and what you are expecting in 2025?

Yeah, I mean, even to remind everyone, we acquired a business that's in the med tech space. It manufactures single-use and consumable surgical instruments and implantable components in markets with good growth rates. long-term growing markets, excellent engineering capability, leading additive manufacturing capability, and a lot of new program wins, which we continue to execute through 2024. In 2024, they're going through a destocking of their customers, but as I said, some of their customers are destocked, and they've started the order aggressively, but some of the customers are not through the destocking. The effect of that is Sequentially we saw a significant double digit increase in order input. Now we remain excited about the business. It's the end demand in procedures within their surgical and orthopedic markets remain strong. So we know it's truly a destock that the end procedures are continuing and the inventory is being consumed and we're gaining share with these new programs. So we're investing in the long-term growth that they continue to win new programs. So, um, we also have a combined management team leading Paragon combination of Amitek and legacy Paragon management team is functioning well. Um, as I said, the inventory normalization continues the impact of business, but we're, we're, we're working through it. So we're encouraged, but that's sequential orders growth.

Dave, just to put a finer point on that. So, um, Did we end the year then somewhere around $420 million-ish of revenues in Paragon?

Exactly, exactly, Jeff. We're in that ballpark. I'm not going to give the exact number, but you're right on the pin there. And we expect that business to grow higher than Amatek as we move throughout the year, and especially in the second half.

and uh not to overly drill on on paragon but also just given the restructuring and everything you did last year in the business um can you give us a idea of kind of maybe order magnitude of margin improvement you're looking for there yeah i think from where they're on where they're at uh now we should see substantial improvement in in the next 12 months and that'll be it's biased toward the second half but uh

It'll definitely happen, and it'll be well in excess of the 20 or 30 basis points of margin improvement we're looking at for the whole company, well in excess of that.

Great. I'll pass the baton. Thanks a lot, guys.

Thank you.

Thank you. And our next question comes from the line of Jamie Cook with Truist Securities.

Hi, good morning. Congrats on a nice quarter. I guess my first question, understanding the orders have continued to improve, there's some concern out there from investors that the improvement we're seeing in the industrial economy was more of a pre-buy based on concerns post-election. It doesn't sound like you're seeing any of that, but if you could just comment sort of on the cadence of orders, whether there was anything unusual. And then I guess my second question, understanding you're guiding to I think you said low single-digit growth. You know, it sounds like we're flat in the first quarter. Just trying to understand the cadence, you know, of growth that you're expecting, again, just given some of the uncertainty on the macro. Thank you.

Sure. In terms of the cadence for orders, we had a pretty typical quarter where the orders increased significantly. every month of the quarter, but December was the strongest month for the orders. That's typical cadence, but also for the whole year, December was the strongest month. That was a good order month. Then in January, that same positive orders continued. Really, since the middle of last year, when we started seeing improvement in orders, it's definitely continuing. Our customers aren't telling us pre-buy is to get ahead of tariffs or anything, but it could be. You don't know, but it feels pretty strong from our viewpoint. As those orders make their way into our backlog, those will make their way into sales as we go forward. We're starting out the year flat, as you mentioned. As we move throughout the year, the D-Stock will mitigate And we have good pipelines, so it's a conservative but prudent start to the year is the way we're looking at it.

Thank you.

Thank you, Jamie.

Thank you. And our next question comes from the line of Andrew Buscaglia with BNP Paribas.

Thank you. Andrew, are you there? Yep.

Andrew, we're hearing about everything. No, you're breaking up. Andrew, why don't we put him on hold and we'll go to the next caller.

Certainly. One moment, please. And our next question comes from the line of Brett Lindsey with Mizzouho.

Hey, good morning, all. Hey, just want to come back to the project comments, the softness at the end of the year. It sounds like the pipeline's building and maybe strong, so front log looks pretty good. Are customers giving you any indication on the timing of when these projects might release, and how are you thinking about ES, engineered solutions, backlog conversion as part of the guidance construct?

Yeah, I think the... We have a really good pipeline, and it's going to play out in 2025, and I'm expecting to see projects that have been delayed are now moving. In terms of the A&ES piece of the business, I think that's where we're suffering from the OEM destock the most, but I think in the automation side of the business we've uh we've bottomed and we have a it's a great place to grow from where we're at right now and on the the med tech side of the business we've already started to see the destock abate so um that's where we are and and that'll play out in our guidance throughout the year and we expect those two businesses to do better as we progress throughout the year

Okay, great. And maybe just shifting over to aerospace and defense, could you give us an update on how you're thinking about the outlook on aero versus defense? I know a lot of moving pieces there. And then anything to think about in terms of profitability as we shift to more OE versus aftermarket and what you're embedding there in the guide for the year. Thanks.

Sure. Our A&D business, it had another strong year. And in the fourth quarter, it was up mid single digits. Goes up high single digits for the year, mid single digits for the quarter. Growth in the fourth quarter was strongest across our commercial businesses. So we already saw the OE component of the sales go up in the fourth quarter. We make a lot of money on OE, a lot of money on aftermarket. So I don't think there's a margin concern there. We think in 2025, it's going to grow at mid single digits. And we're seeing strength in both our commercial and defense markets. So commercial may be a bit stronger than defense, but both of those will be healthy growers in 2025. All right.

Appreciate the insight.

Thank you.

Thank you. And our next question comes from the line of Rob Wertheimer with Milius Research.

Thank you. Good morning, everybody. So margin performance was very strong, especially given just the soft core environment. I wonder, can you just talk in general about how you approached cost and margin through the quarter? Was this a bit of a baton down the hatches? Is this normal improvement flowing through? Is acquisition improvement flowing through? Maybe just characterize how you see the margin improvement in the quarter.

Yeah, I think it's Amatek operational excellence. We had an excellent operating quarter. We have reported margins. We're up 90 points. And core margins, we're up 140 basis points. And we got good productivity. We got good positive price costs, good mix. So it was a good quarter for margins. But, you know, we've been delivering good margins for year after year for a long time. I mean, for the year, our core margins were up 120 basis points. And I don't see any – reason that that's going to stop is it's our dna we're constantly working on we have operational excellence programs and we're executing them and we have high contribution margin businesses that are contributing to it so the margin performance was good it was very good we had some records that we said but but uh it was kind of expected okay perfect so so nothing nothing dramatic uh a negative kind

This one may be a little tricky to answer because there's obviously a lot of back and forth going on in government policy right now. But is there any hiccups or stutters you're seeing in potential future demand or current demand from funding that might flow through to laboratories, test measurements, scientific instruments, and so forth? And I'll stop there. Thank you.

Yeah. I don't see any specific thing that's going to hurt the laboratory community. I mean, I will say one thing about the laboratory demand. It's very strong internationally right now. So that's driving it more so than the U.S. When I think about the overall regulatory environment, I think some of the things with the new administration are positive. We have regulatory relief. We're looking forward to projects moving ahead faster. There's a different approach to antitrust. We have a focus on energy development. That's good for us. There's an increased focus on military spending, and that's good for us. There's lower taxes for products manufactured in the U.S. We do a lot of manufacturing in the U.S. There's a tax breaks plan to boost equipment investment. So I think a lot of those pro-growth policies can be really positive for us. And as a U.S. manufacturer with a lot of capability in the U.S., with a significant U.S. manufacturing footprint, provides many options and opportunities depending on how the situation develops. We have a flexible asset-light model consistent with our strategy, and we think as we get throughout this year, we'll see some opportunities develop. Thank you. Okay, Rob.

Thank you. And our next question comes from the line of Andrew Obin with Bank of America.

Hi, guys. Good morning.

Hello, Andrew.

Just to clarify, what's organic growth rate that's embedded in your first quarter guidance?

Let me see. It's a flattish number, Andrew. So both the total sales and organic sales are flat.

OK. So we are accelerating organically from fourth quarter to the first quarter.

Oh, yeah. Yeah, we're going from, you know, the minus two, minus three to a flat. So the organic growth is accelerating from Q4 to Q1, and it's tied to the acceleration in order input through organic orders. So, you know, I think that's going to continue throughout the year. So as those organic orders were strong, our sequential quarters, the organic growth will be increased versus Q4, and it's just, you know, continuation of a slow acceleration through the year.

Gotcha. And just sort of combining the two questions. First, how did you, you know, all this tariff noise, do we see it in the guidance? And also, how does FX impact your 25 outlook? Because you are a meaningful U.S. exporter. So how should we think about the impact both on the revenue and margin? Thank you.

Yeah, those are good questions. And the The guidance we have takes into account the things that we've heard about over the last few weeks, few days, few weeks. But we've been making contingency plans since shortly after the elections for tariffs. And our 2017 and 2018 playbook is relevant. That's when we executed a China for China manufacturing strategy. decoupled our supply chains from China we executed flawlessly and we're ready to do the same thing now if it's required we manufacture niche highly differentiated products we plan to pass on the cost impact of the tariffs if the tariffs get enacted to our customers as we have done previously we have a significant US manufacturing footprint as I said It's a flexible SLA model, so we're very agile. And I think that we're well positioned to manage through the current environment. I mean, our guidance doesn't take into account, doesn't assume a broader economic slowdown because of an escalating trade war, to be clear with that. No demand destruction is assumed in our budget. But with everything that we know of and with our past success and decoupling our supply chains from China and with our operational capability, we think we're ready for this and we've got it covered.

And Andrew, on foreign exchange, obviously we're a global business, but we are primarily a U.S. dollar-centric business, so our top line is not overly exposed to foreign exchange. And we have a very balanced foreign exchange footprint at the profit and cash flow level. through natural offsets so we can very much – we're not impacted by broad-based U.S. dollar movement. And I think the last few years, you've seen a lot of FX volatility, and it hasn't impacted our bottom line.

Thanks so much.

Thank you, Andrew.

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

Thanks. A lot of ground covered. Just curious on current Dave, uh, how you think about the, you know, size of the addressable market, what's, what's the competition like and how long you've been looking at that business?

Sure. Sure. Chris, it's a, it's part of our ultra precision technology division. And, and we bought a business in that, that part of our company about 15 years ago named PresiTech. and they they build what's uh called a diamond turning machines that make these surfaces that are incredibly precise optical surfaces and the business has done extremely well for amatek and we look at kern as kind of a sister company with some different technology and we think kern is uh they also do sub micron level accuracy systems their their end markets are places that need exceptional levels of precision. It includes the medical market, the semiconductor market, the research market, the space market, and there's a lot of opportunities to us to grow this business. And then running them as sister companies with our Precitec business, we have capabilities that solves a bigger set of solutions for the customers. It's typical Ametek acquisition, highly differentiated, high precision, Leader in niches really works for the miniaturization that's going on in the technology world. We got a fair price for it. The management team is staying with us, and we think it's going to be a good acquisition. Most of the sales are exported outside of Germany. They're a German company, but over 70% of their sales are all outside of Germany, so the The world goes to Munich to get the best systems, and it fits well within Ametek's family of businesses.

Great. Thanks. And just, you know, kind of a churning part of the cycle to a degree here. Several years ago, you went through some divestitures. As you look at things play out now, you're realizing you've really shrunk, you know, oil and metals, for instance. Are there any areas of the portfolio that are bubbling up for potential divestiture?

We go through that strategic analysis every year, and we went through it this year, and there's nothing that's going to impact our guide. There's nothing large or substantial. There may be some smaller plans for things that we continue to act on during the course of the year, but these will be inconsequential, and we like the portfolio that we have right now.

Great, thanks a lot.

Thank you, Chris.

Thank you. And our next question comes from the line of Nigel Coe with Wolf Research.

Thanks. Good morning. Lots of information so far, but I'm sorry if I missed this, David. What is the organic, I think low single digits for the full year, but how does that break out between EMG and ERG? And I'm just curious if you're seeing a stronger rebound at EMG, just given that Paragon and Automation were quite badly impacted by D-Stock. So I'm just wondering if you're factoring in a stronger rebound in those two businesses.

EMG is going to have slightly higher organic growth than ENG, so it's going to be a bit higher. It's going to be low single digit for the year, but EMG is going to be a bit higher.

A little bit higher, okay. That's great. And then just the EMG margins in fourth quarter. Obviously, EIG was spectacular, but EMG came in a bit lighter, and I know that there's typically some production disabsorption in the fourth quarter. Just wondering, was there any intentional extended production shortfalls in the fourth quarter?

No, it's the calendar effect, and you know we're going through a de-stocking there, and Our automation business is extremely profitable, and it's down substantially with it. So we had core margins on over 100 basis points on that part of the business. And the good thing is we've leaned out the cost structure, and we're really at a good place to grow. So as T-Stocking abates and that business has bottomed, we're looking forward to when that turns, there should be some profitable sales for us.

And then just a quick follow-on to that comment about automation margins. Are you expecting automation to be back to positive organic growth in the first quarter next year or this year?

The automation business is lagging the medical business a bit. So we'll have to see how that plays out.

Okay.

Thanks, David. Thank you. One moment, please. Our next question comes from the line of Joe Giordano with TD Catwin.

Hey, guys. Good morning. I'm not sure. Did you give the actual order number or the book to bill for the quarter? If you did, I apologize.

Yeah, let me grab that. The Yeah, organic orders were four, four percent. The book to bill was 1.01 if we exclude FX on the backlog. And both, like I said, both groups were positive. EMG was a little bit more positive than EIG, but they were both strong.

And then can you walk us through just, I think you mentioned in the outlook to the view for aerospace and defense. So can you kind of do your walk with like the 2024 actuals and like the view? Yeah, thank you.

We forgot that we didn't get to that yet. So on the process side, the process declined low single digits in the fourth quarter. We saw a strong growth in the quarter within our advanced optical metrology businesses, as well as our high-end microscopy business had a good quarter. And similar to last year, we experienced some temporary delays. Similar to last quarter, we experienced some temporary delays in project spending. And then looking forward to 2025, we expect organic sales for our process businesses to be up low single digits for the whole year. And then I talked about the aerospace and defense business already. And there we expect ongoing strength in both commercial and defense. and it to be up mid single digits for 2025. So process low, aerospace and defense mid. Then you go to power and industrial. Our sales were flat in the fourth quarter. Our RTDS business, which provides advanced power simulation systems to utilities and research institutions saw growth in the quarter for 2025. We expect organic sales for our power and industrial businesses to remain flat relative to 2024 levels. And finally, the automation and engineered solutions business. Overall sales were up low double digits, driven by the contributions from the Paragon acquisition. Organic sales were down high single digits in the quarter, consistent with the levels we've seen during the year given the continued normalization of our OEM customer inventories. And for 2025, we expect organic sales to be up mid-single digits for the year with improving growth trends throughout the year.

Thank you.

Okay, Joe.

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

Hi, good morning. This is Sahil Minocha. I'm for Dean Dre. Can you provide any context – Hi, good morning. Can you provide any context on the $85 million in growth investments? How is that split between segments, and is that adding mostly sales and engineering? And what was the 2024 growth investment?

The 2024 was $90, and the 2025 is $85, so they're very close. And again, that's the incremental spend. And it's largely... research, development, and engineering spend. So I say two-thirds of the 85 is RD&E, and about one-third of it is additional marketing channel sales and marketing work. So about two-thirds, one-third, and it's biased toward EIG largely because of the size of EIG. So it's pretty, it's across the whole company, but biased to EIG.

Got it. And then the Vitality Index reached 28% in the third quarter, I believe, which you noted was a strong level within the target range of 20% to 30%. Could you discuss some new product intros that you're most excited about for 2025, and how do you see the vitality index trending?

Yeah, we talk about a vitality index being between 20% and 30% as a good number. And we didn't mention it, but actually it was extremely high in Q4, 30%. So it was one of our highest numbers. So the new product engine is working and, uh, that's why we have such a strong pipeline of new orders. And, uh, I think it's going to pay off next year. Um, you know, we think a number like 20 to 30 is a good number for us. And we started tracking this. It was down in the low teens, mid teens, many years ago. So we think it's a good number now. You know, it's a way that we can look at the investments we're putting in and making sure we're adding value to our customers. It shows up in pricing also. We can get premium prices by adding features to products and providing new value to our customers that we weren't providing before. So it's a healthy amount. We spend a healthy amount of our D&E. And given our niche market focus and technology leadership, innovation leadership, it matches the strategy of the company.

Awesome. Thank you.

Thank you.

Thank you. And our next question comes from the line of Robert Mason with Baird.

Yes. Good morning, Dave. Dave, you had mentioned that – very good. You had mentioned earlier that, you know, your labs business, you were seeing strength more, just call it rest of the world versus the U.S. right now. Can you drill into that a little bit? Is that your own overlay or footprint where you're exposed or differences in government priorities or just – What's maybe driving that difference?

It could be government priorities. It could be channel investments we made. But the place that we're seeing a lot of lab expansion work is in Asia. So Asia, the market's healthy everywhere, but Asia is particularly healthy.

Maybe just to continue the thought there, relative to your 2025 guidance, could you provide some Kind of a geographic overlay to that, just how you're thinking about the regions for 2025.

Yeah, I'll talk about 2024. What we ended up in 2024, we had essentially strong growth in Europe and Asia offset by some declines in the U.S. So if you look at the full year, we had about plus two internationally and down MSD in the U.S., And that was largely our automation business that was down in the U S uh, so, uh, and, and, you know, in, in places like, uh, in Asia, uh, you know, we were, we were up and China was roughly flat. So, so that's kind of hanging in there for us. And, and, uh, when we think about 2025, uh, we're looking for all regions to grow. We're thinking we actually see some strength in Europe. Like I said, we were plus two in Europe and, uh, some strength in Europe. We think some of the strength in Asia is going to continue, maybe more strength outside of China than in China. We have good channels there, and we think the U.S. is going to return to growth for us. So it will be balanced growth across all geographies.

When you said China was flat, was that a Q4 number or a full year?

I think it was a full year number.

Okay, very good.

Thank you. Thank you, Rob.

Thank you. And our next question comes from the line of Andrew Buscaglia with BNP Paribas.

Hey, good morning, guys.

Andrew, I can hear you fine.

Yeah, good morning.

Good morning.

Good. Yeah, sorry about that earlier. I'm not sure what happened. So, yeah, I wanted to touch on your orders. You're saying are up 4%. And you had some good commentary, you know, just about your sub-segments for sales. But what about – it sounds like orders are getting a little bit better. The momentum is picking up. What about order momentum in each sub-segment? Where is that coming from?

Yeah, I think that what you really have is in the sub-segments, the big thing in the automation and engineer solutions, that was the destock abating. And we're starting to see some of the customers – Tad Piper- place orders now specific specifically in the in the med tech area so that's that's positive and on the automation part of the business, we think it's bottomed and we've leaned out cost structure so. Tad Piper- we're optimistic about what what that's going to do when it increases the process and the power businesses. Tad Piper- You know we think we're well positioned and those are the project businesses, we saw some delays were hoping that those are going to bait a bit and. Quoting a lot of activity, good pipelines there, and then aerospace and defense is pretty much steady. We think both our military and our commercial aftermarket is going to do well, ongoing strength in both sides of it.

Yeah, okay.

And yeah, you are generating a ton of cash, great cash flow in the quarter. This year, are we going to see a series of Kern deals, or do you expect another Paragon-ish size deal in 2025?

That's a great question. Right now, we have bigger deals in our pipeline, and we also have smaller technology deals when I put Kern in our pipeline. We could probably spend $5 billion in 2025 on deals and we still only have a debt to EBITDA of about two and a half the way we calculated. So we're very aggressive in that area and there's properties, businesses that people are holding back on. It seems like the market is picking up a bit so we think with our strong balance sheet we're going to be able to get deals done. We're going to be able to be opportunistic with share buybacks and we're going to reward our shareholders, long-term shareholders, with an ever-increasing dividend, small dividend, but ever-increasing. So we have a balance sheet where we can do it all, and we're going to do it all. But I think the most optimism is in the M&A area right now.

Okay. Thank you.

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

Thank you, Andrew, and thanks, everyone, for joining our call today. And as a reminder, a replay of the webcast can be accessed in the investor section of amatech.com. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.