AMETEK, Inc.

Hello, and welcome to the first quarter 2025 Amatek 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 your hand has been raised. To withdraw your question, please press star 11 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 welcome to Amatek's first quarter 2025 earnings conference call. Joining me today are Dave Zipico, Chairman and Chief Executive Officer, and Dollar Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we'll be making forward-looking statements which represent the company's current expectations and are based on information currently available to the company. Various risk factors and uncertainties, including government trade policies and tariffs, could cause actual results to differ materially from our current expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in AMETEC's filings with the SEC. AMETEC disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2024 or 2025 results or 2025 guidance will be on an adjusted basis, excluding after-tax acquisition-related intangible amortization and excluding a pre-tax $29.2 million or $0.10 per 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. I'll turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Ametek had a strong start to 2025, with excellent first quarter results. We delivered robust margin expansion, generated strong free cash flow, and delivered earnings above our expectations. Additionally, orders were again strong in the quarter. Our results reflect the strength of the Ametek growth model, the quality of our niche differentiated businesses, and most importantly, the outstanding efforts from our colleagues. Now, let me turn to our first quarter financial results. Sales were $1.73 billion, essentially in line with the first quarter of 2024. Organic sales were down 1%, acquisitions added one point, and foreign currency was flat. Orders were strong in the quarter, with overall orders up 8% and organic orders up 3% versus the prior year. Book to bill in the quarter was 1.04 and we ended the first quarter with a backlog of $3.47 billion near record levels. MSX operating performance to start the year was excellent. Operating income in the quarter was $455 million, a 2% increase over the first quarter of 2024. Operating margins were 26.3% in the quarter, up 60 basis points from the prior year. And excluding the dilutive impact from acquisitions, core margins were up 90 basis points in the quarter. EBITDA in the quarter was $559 million, up 3% versus the prior year, with EBITDA margins in the press of 32.2%. This operating performance led to strong cash generation with free cash flow of $394 million in the quarter and free cash flow to net income conversion of 112%. Diluted earnings per share were $1.75, up 7% versus the first quarter of 2024, and above our guidance range of $1.67 to $1.69 per share. Now let me provide some additional details at the operating group level. First, the electronic instruments group. Our electronic instruments group continues to deliver excellent operating performance, resulting in robust operating margins. EIG sales were $1.14 billion, down 1% from the first quarter of last year. Organic sales were down 2%, acquisitions added two points, and foreign currency was a one-point headwind. EIG operating income was up slightly to $354.1 million, and operating margins were very strong at 31%, up 50 basis points from the prior year, while core margins were an impressive 110 basis points. EMG delivered strong growth and excellent operating performance in the quarter. EMG's first quarter sales were a record, $588.3 million, up 2% versus the prior year, with organic sales also up 2%. In the quarter, we experienced improving order patterns, especially within our Paragon medical business. EMG's operating income in the quarter was $128.7 million, up 7% compared to the prior year period. EMG's operating margins were 21.9%, up a sizable 120 basis points from the first quarter of 2024. I'm pleased with our performance in the first quarter with robust margin expansion, strong order growth, excellent cash flow generation, and 7% earnings growth despite a continued uncertain economic environment. We remain committed to making strategic investments in our businesses to best position them for long-term growth. These investments are supporting our global and market expansion and technology innovation strategies. For all of 2025, we continue to expect to invest an incremental $85 million in support of these initiatives with key investments in research, development, and engineering, to help advance our product differentiation. Our Vitality Index, which measures the sales of new products introduced in the past three years, was a strong 26% in the first quarter. We are confident that these investments will further solidify our competitive positions in our core markets and help broaden our exposure within new attractive growth markets. I want to take a moment to highlight just two of the many recent new product introductions across the company. First, from Gatan, a leader in electron microscope technology, they recently launched the EDAX Elite Ultra Energy Dispersive X-ray Spectroscopy System. The Elite Ultra solves a common challenge in advanced materials research by improving the ability to map and quantify elements in very thin samples. This system provides faster, more accurate results, allowing for deeper insights into material composition. One of the key features of the Elite Ultra is a larger sensor, which captures more x-rays and improves the system's sensitivity to a wider range of elements, leading to better data and faster analysis. Catan worked closely with another Ametek business, Amtek, in the development of this advanced sensor technology. This is just one example of the ways our businesses partner together to help support and accelerate our technology innovation. With this new product introduction, Catan continues to lead the way in developing advanced solutions that help scientists and engineers push the boundaries of their scientific research. Vision Research also launched a new line of small, powerful high-speed cameras, the Phantom KT series. These cameras leverage a custom-designed high-speed sensor from Forza Silicon, another Ametek business. These sensors provide superior image quality and performance, making them ideal for advanced applications. Their compact design makes them easy to use in a variety of settings, whether for industrial testing, motion analysis, or medical research. Through this latest innovation, Vision Research continues to lead the market in high-speed imaging technology, offering researchers powerful tools to capture and analyze fast-moving phenomena. These advancements, along with many others introduced in the quarter, highlight our continued commitment to our customers and position us well to drive long-term success and meet evolving needs across emerging applications. Now switching to capital deployment. Strategic acquisitions remain our number one priority for capital deployment. We are managing a robust pipeline of attractive acquisition candidates. While our top priority for capital deployment remains acquisitions, we are also well positioned to deploy capital on share buybacks. We have a $1.25 billion share repurchase authorization, and as we have shown in prior periods of market dislocation, we are willing to opportunistically purchase shares. Given our robust free cash flow generation, and strong, flexible balance sheet, we're well positioned to deploy capital on both strategic acquisitions and opportunistic share purchase. Now, let me share our views on the rapidly evolving trade conflict and how Amatek is approaching this period of heightened uncertainty. Taking a step back, during the first quarter, we saw improving order patterns and generally solid conditions across most markets and geographies. While there was still some cautiousness from customers, conditions were improving and we were encouraged with our start to the year. With the introduction of the tariffs in early April and subsequent back and forth trade negotiations over the past month, the level of uncertainty around trade policy and its implications have increased. Although it is impossible to know how these trade conflicts will evolve, we are confident in our ability to successfully navigate an uncertain and changing economic environment. Our distributed offering structure empowers local teams to respond quickly and appropriately to the unique dynamics of their businesses, markets, supply chains, and customers. This level of flexibility is a meaningful advantage in a dynamic environment such as the current one. Our portfolio of highly differentiated products and mission-critical applications will allow us to effectively pass through higher input costs, including tariffs, while continuing to deliver strong margins and cash flows. Our broad exposure and diversification across end markets and geographies limit our dependence on any single customer, product, technology, supplier, or region. This diversification is a strategic strength and helps shield the entire company from a concentrated risk. Our large global manufacturing footprint and supplier base, along with our asset-light business model, will allow us to localize production and adjust supply chains. And lastly, our strong balance sheet and outstanding cash flow generation provides us with the ability to continue playing offense through acquisitions and opportunistic share repurchases while also continuing to invest in our businesses. During the first wave of the China tariffs in 2018, during COVID, and then again during the resulting supply chain crisis, there were high levels of economic uncertainty. And each time, our businesses quickly reacted and strengthened their positions. Our business is robust by design and resilient by nature. We use periods of disruption to make our businesses stronger and more efficient. We use our strong cash flows and balance sheets to better position Ametek for accelerated growth following the period of uncertainty. We're confident we can do the same in this environment. More specifically, our businesses have responded quickly and have developed tariff response plans, which include specific mitigation actions to offset the impact from tariffs. These mitigation actions include select pricing initiatives, localization of production operations, adjustments to our supply chain, and targeted productivity actions. We are also finding opportunities created by the tariffs to take advantage of our substantial U.S. manufacturing footprint to broaden our customer base and support their growth in the U.S. While uncertainty has increased as a result of the global trade dynamics, we believe we can offset tariff headwinds through the implementation of these mitigation actions. As a result, we continue to expect full-year sales to be up low single digits on a percentage basis compared to 2024. We also continue to expect diluted earnings per share to be in the range of $7.02 to $7.18, up 3% to 5% compared to last year's results. We expect the benefits from these various mitigating actions to build throughout the year. We remain confident in our four-year outlook and our ability to deliver strong results in 2025. In summary, Ametek delivered strong results to start the year. Our businesses executed exceptionally well delivering strong margins, solid orders growth, and earnings ahead of our expectations. The durability of the Emetech growth model combined with our diversified market exposures, outstanding cash flows, and proven management capabilities position us well to navigate through these uncertain economic times. We remain focused on delivering long-term growth and creating long-term value for our shareholders. I will now turn it up Turn it over to Dallop, who will cover some of the financial details of the quarter, then we'll be glad to take your questions.

Dallop? Thank you, Dave, and good morning, everyone. As Dave noted, Amitek delivered a strong start to the year, highlighted by excellent operating performance, robust core margin expansion, and strong free cash flow conversion. Now, let me provide some additional financial highlights for the first quarter. First quarter general and administrative expenses were $28 million, up $1.5 million from the prior year. For the full year, we continue to expect general and administrative expenses to be up modestly versus 2024 levels and to remain at approximately 1.5% of sales. First quarter other operating expenses were up $1 million compared to the first quarter of 2024 due to lower interest and investment income. First quarter interest expense was $19 million. The effective tax rate in the quarter was 19% in line with the first quarter of 2024. For 2025, we continue to anticipate our effective tax rate to be between 19% and 20%. As we have stated in the past, actual and quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Capital expenditures in the first quarter were $23 million. And for the full year, we expect capital expenditures to be approximately $155 million, or about 2% of sales. Depreciation and amortization expense in the quarter was $106 million. For the full year, we expect depreciation and amortization to be approximately $410 million, including after-tax acquisition-related intangible amortization of approximately $203 million, or $0.88 per diluted share. Operating working capital in the first quarter was 18.1% of sales. That compares to 18.7% in last year's first quarter. Operating cash flow was $418 million, up 2% versus the first quarter of 2024, while free cash flow was $394 million, up 3% over the prior year. Free cash flow conversion was strong at 112% in the quarter. For 2025, we continue to expect free cash flow conversion to be approximately 115% of net income. Total debt at March 31st was $1.9 billion, down from $2.1 billion at the end of 2024. Offsetting this debt is cash and cash equivalent of $399 million. At the end of the first quarter, our gross debt to EBITDA ratio was 0.9 times, and our net debt to EBITDA ratio was 0.7 times. We continue to have excellent financial capacity and flexibility with approximately $2.5 billion in cash and available credit facilities to support our growth initiatives and our active acquisition pipeline. While acquisitions remain our number one capital allocation priority for use of our free cash flow, we also seek to provide value to our shareholders through opportunistic share repurchases and a consistently increasing dividend. In February, we announced an 11% increase in our quarterly cash dividend to $0.31 per share, our sixth consecutive year of 10% plus annual increases in our dividend payouts. Additionally, Amtech's Board of Directors approved a $1.25 billion share repurchase authorization in February that provides us with added flexibility to enhance shareholder value. In summary, our businesses delivered strong results to start the year. Our proven operating capabilities drove strong earnings, robust margin expansion, and outstanding free cash flow conversion. With a proven strategy, significant capital deployment capacity, and a strong track record of execution, we are confident in our positioning to navigate current trade uncertainties and drive growth and value creation in 2025. I'll now pass it to you, Ken. Thanks, Dalit.

Andrew, could we please open the lines for questions?

Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. And our first question comes from the line of Matt Somerville with DA Davidson.

Thanks. Morning.

Morning, Matt.

Dave, could you maybe provide a little bit more detail on what you are seeing specifically in Paragon and the broader group of medical-related businesses, especially given that you explicitly called out Paragon as seemingly seeing a notable inflection in orders after a period of softness in that business shortly after you acquired it a year and a half or so ago? So a little bit more color on Paragon and medical, and then I have a follow-up.

Sure, Matt. As you know, Paragon is a business that we acquired a little over a year ago. They specialize in single-use and consumable surgical instruments and implantable components in attractive med-tech markets. And as you said, when we bought it, right after that, they went through a destocking. And we took that period of time over the past year to really execute a multi-year improvement plan where we're dramatically improving the cost position of the business. The business is in growing markets. It has excellent engineering capability. They have a leading additive manufacturing capability, a substantial number of new program wins. And we just viewed the softness as customers were realigning with the current market environment. There was some overbuying during the prior period. And what we saw in the quarter was very encouraging. the customers are beginning to see stock. If you look broader at the OEM automation and the med tech OEM businesses, those businesses that were really the places where we saw the D stocking in some, those orders were up 25% in the quarter. So across all of those businesses, 25% in Paragon led all those businesses. So Paragon was greater than 25% substantially greater than 25%. So So it, you know, the customers are D stalking, um, the business also performed very well on a profit margin basis. It was a 25% in the quarter. So, you know, we're, we're free. We have a new management team there. The business is executing or working through some of our business improvement plans. Um, those orders that we have in the, in the, in the first half of the year are going to lead to us having some substantial growth in the second half of the year. So we're feeling really good about it, and the team's performing very well, and it's good that the market's performing exactly as we thought it would, and we told you about the past few quarters.

Thanks, David. And just as a follow-up, can you speak more broadly across Amatek as to the order cadence you've experienced through the first four months of the year? Have you seen, and I wouldn't think so given most of what you do is fairly customized to a degree, but are you seeing any sort of buy ahead, any sort of discernible demand destruction? And if you can maybe comment on what price realization looked like in Q1. Thank you.

Yeah, I'll take the second part first. I mean, during the quarter, we saw a couple of points of inflation, and we were able to offset that with price. So it was a positive spread. In terms of orders, as I said in the prepared remarks, overall orders were up 8% in the quarter. Organic orders were up 3%. And so that shows continued improvement. that we've seen for third quarter in a row, and sequentially they were up about 2%, and we have a near record backlog, so that's very good. The cadence in March was the strongest month for orders in the year, so it improved throughout the quarter. Then we started Q2, and we were concerned because of all the tariff things going on, but our orders are still solid. We're really, really good, and we feel good about it. So pretty typical quarter with March being the strongest, and we also had a strong April. Thank you.

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

Thank you. Good morning, everyone. Good morning, Dean. Hey, maybe we'll start right where you left off with Matt's question, maybe just the next layer of detail because you're really adept at taking us through key and markets geographies. And really, if there's ever been a time where we're interested in the nuances, it sounds like no demand destruction, but just, you know, how are you positioned? Um, it looks like the orders have been strong, but any kind of call outs, positives or negatives within geographies and your particular verticals.

Yeah. Um, in the, in the geography area, um, positive growth in the US offset by modest declines internationally. So we're up a bit in the US and just down a bit in Europe and Asia. Our China market was was down about 10%. Asia, excluding China was was roughly flat. So, yeah, it kind of played out how we thought it would, but it was, again, strength in the US offset by just modest declines in other areas. If I go around the horn on our process business, organic sales for that business declined low single digits in the first quarter. Sales were pretty much in line with our expectations, but And long-term project activity remained solid, but customers are still remaining cautious about when they place the POs given the broader macro uncertainties. And there were some delays in project timing and process. And we now expect organic sales for our process businesses to be roughly flat for the year. Our aerospace and defense business had a strong start to 2025. Organic sales were up mid-single digits in the first quarter. Growth was strongest in our commercial OEM business and our after-arm market business also had a very good quarter as we have content across a broad range of commercial aerospace platforms and aftermarket capabilities really positioned us well. For the full year in A&D, we continue to expect organic sales to be up mid-single digits. third market segment commentary organic sales for our power businesses were up low single digits in the quarter we saw the growth early across our power platform we continue to manage a strong growth funnel good new business pipeline good opportunities in power grid modernization and electrification we are expecting some cautious customer behavior in the international markets in the near term, given some of the tariff uncertainty. But for the full year, we continue to expect organic sales to be roughly flat versus the prior year. And then lastly, I'll talk about our automation and engineered solutions business. The organic sales were down low single in the quarter. Continued solid sequential sales growth. orders were strong in the quarter. I talked about our OEM customers already as a response to Matt's questions, but clearly the orders are normalizing with both year-over-year and solid sequential orders growth and highlighted the performance of our Paragon medical business. And for the full year, we continue to expect mid-single-digit organic sales growth. So, you know, we got through the quarter. I mean, it was a good quarter. pretty much as expected. You know, margins were good. Cash flow strength was good. Base earnings were good. Orders continue on a positive strength. Our balance sheet strength is really good. So there's a lot of positives in the first quarter, Dean.

Yeah, it really does sound that. So I appreciate that caller. And just one data point on the tariffs, and that's exactly what we would have expected you to go through all the mitigation and plan, can you just size for us China sourcing as a percent of COGS? That data point helps us frame what kind of headwind that you're up against.

Right. I'll go through the entire tariff mitigation, what we're working on. And I'll cover China specifically, a couple of different ways, what we're sorting there and what we're selling there. So it'll, I think, be a good summary. We estimate our annual tariff impact, direct impact to tariffs, to be about $100 million. And we expect to be able to offset this direct impact through our mitigating actions. And that's why we feel... you know, comfortable to reaffirm our four years sales and EPS guidance. Um, you know, given our strong start to the year and some of the things that I talked about now, if I break down that a hundred million, it comes from really three sources. Um, you know, there's a 10% across the board tariffs for all countries. As a second component, it includes is the 145% tariffs on China imports to the U S. Now we have fairly limited exposure here, given the proactive actions we started back in 2018 to shift sourcing away from China. We've talked about that multiple times over the years. And in fact, the remaining sourcing costs in this category are from recently acquired businesses. So the bulk of Amatek is not sourcing from China. When we source from China, we sell in China. But we have some new acquisitions that we have to work on, like the Paragon deal, like some of the more recent deals. We're doing some work in China, but it's relatively modest to get that 145% tax on trade. The other element of it is in terms of Mexico. We're glad to find out that people have done good work. And we're over 98% compliant with the USMCA guidelines. So very, very little exposure. So we feel really good about our ability to offset the $100 million of direct tariff exposure through our various mitigating actions. Now, the other element, though, I want to make you aware of is separate from those direct impacts, we have the 125% retaliatory tariffs imposed by China on the US. And as you know, we do about 9% of our sales in China. A lot of it's local for local, but we do have approximately 4% of our sales. So in the case of the second quarter, that would be about $70 million. They're direct US to China. And we expect, we're seeing, short-term delays here given the magnitude of the tariffs. Our customers are taking a wait-and-see attitude. They're confirming to us that they still want the products, but they're waiting for lower tariff levels. Much of this product is our higher-end instrumentation and optics business where there's really limited alternatives to Ametek with similar capability products. And as you may know, we've been very careful to protect our IP for this product for many years. So we're building the product in the US. We're shipping it around the globe. Our Chinese customers desire our products. But that $70 million in Q2 is very difficult to predict the outcome near term. And we don't have control over that situation. We may be able to ship it all in Q2. We may not be able to ship it in Q2 because those are risks beyond our control and they're related to country to country dynamics. So when we looked at that risk, we have ways to fix it. We understand that some of our products are so specialized that there is a, I'll call it an opaque process in China where customers can go and get exemptions. We understand that some of our products are qualifying for those exemptions, but we don't, we're monitoring the situation, but we don't have more detail than that. We're also initiating an element of a manufacturing localization plan that will change the value added nature of some of our production processes so that we don't run into this problem. So we're gonna use our footprint to change some sourcing, some assemblies, some testing calibration processes, So we get substantial transformation in markets that aren't subject to terrorists. And finally, we can sell these products outside of China. This isn't an issue where we can't sell them there. They're just in the queue. They've been started. There are 70 million planned for it for Q2. So we're really dealing with a shorter term issue here. And how that's going to turn out in Q2, I'm not certain. It could turn out well. It could be delayed. We're comfortable that we can offset the problem in the year. Over the balance of the year, we're still very good with a very good plan that I can talk a little bit more about, but that is the issue that we're dealing with very near term in terms of Q2, and it could swing either way. It could go in Q2. It could shift to Q3. We just got uncomfortable dealing with the uncertainty in the near term with something we didn't really control. And that's why we're confident in the year, but the swing between Q2 and Q3, we're not certain of.

Dave, that all sounds like you've got it dialed in right. We understand these are extenuating circumstances, but you guys have been through this before, at least in terms of supply chain challenges. We appreciate all the call here. Thank you and best of luck.

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

Hi, good morning and nice quarter. I guess, Dave, my question, you know, if you look at the spread, you know, obviously the EMG margins have been under pressure relative to history for reasons we all know, but I'm just wondering with some of the positive momentum you're seeing in the orders for that segment and in particular Paragon with some of the you know, cost actions you've taken as, you know, orders and sales start to improve? How do we think about, you know, the margin trajectory for that business? I guess that's my first question. And my second question, obviously, you know, acquisitions is your specialty. Just wondering if, just given the, you know, complexity around trade war and tariffs and all that type of stuff, if some of the larger acquisitions that you guys had been contemplating, if that's sort of, you know, on hold at this point. And then just last, administrative, I think you guys usually guide one quarter out, and I don't think you guided for the second quarter, so I just want to know if I missed anything.

Thanks. Yeah, no, Jamie, you didn't. And really the response to Dean in my prior question, the uncertainty around the Q2 sales and whether those can skip to later in the year is why we didn't guide for Q2. So we affirmed the year, but we did not guide to Q2 because of the uncertainty. related to the Paragon margins, we're going to see upside in the second half of the year for sure because we're continuing to work through our improvement plans and now we have some volume. So, you know, we have some upside in margins for sure in Paragon in the second half of the year.

And I guess I'm thinking EMG in total, like just the spread between EMG, IMG, obviously Paragon and EMG.

Yeah, I think that, you know, the way – EIG margins are extremely good, and they're performing extremely well. I think if you want to think about it from your perspective, we have a hedge on EMG margins. There's some upside there, given the acceleration of that business. And then the third thing you –

It was just M&A, like unfold.

Yeah. We have a very, very robust pipeline, and we're very active in the pipeline. Some of the deals, the uncertain nature of it, there's been some delays. Some of them are going forward. And we have, over the history of time, we've been buyers in up markets and down markets. And we've been able to buy some of the best businesses, the best returns for our shareholders and down markets. So we're very active. You know, if you think about this thing, I mean, you know, we're ideally positioned to deal in this changing environment. We're very good operators. We've been through challenges before, as we talked about with Dean. We've got an experienced management team. We've got a distributed operating structure that really empowers local management. We have our portfolio of essential mission critical businesses that allow us to pass through higher input costs. We expect to differentiate our performance and M&A is going to be part of that. It's very difficult to predict if we sign a deal in a couple weeks or we sign a deal at the end of the year. But we're not backing off at all, and we're in the fortunate position that we can do two things at once. And we're going after M&A, and we also have a balance sheet in periods of dislocation. We've used our balance sheet to initiate buybacks also.

Thank you very much, and great job.

Yeah, thanks, Jamie.

Thank you. And our next question comes from the line of Jeff Spray with Vertical Research Partners.

Hey, thank you. Good morning, everyone.

Good morning, Jeff.

Good morning. Dave, thanks for that super detailed kind of tariff rundown. I wonder if you could just give us the punchline, though, like, you know, China specifically, you know, what is it that you're looking to overcome there on that 145%?

Well, the 145% is built into the $100 million. And so it's 125%. Well, you got China and the U.S. on a supply chain, it's 145. That's within the 100 million, and that's fairly small. So, again, we just have a couple of recent acquisitions. So that goes into the 100 million. The 100 million is the total amount of things going to the U.S.

Got it. And then just thinking about this possible shipping delay in Q2 and appreciate, you know, the guidance uncertainty it creates. We should just assume that's, you know, very high incremental margin business though, right? I would guess that that throws 10 cents or more of sort of variance, you know, in an all L-SQL construct as it relates to Q2.

Yeah, I think you're thinking about it the right way. It's our high-end products. That capability is not available from many places in the world. And it's higher margin business, and I think you're thinking about it right.

And, you know, we've gotten some inbound questions just about your research exposure and doge risk and anything along those lines. Could you just address what, if anything, you know, you're seeing there and yeah. You know what your exposure is.

Yeah. That total research exposure is about 10% of sales. It's international. And a lot of the doge stuff has been in a lot of life science research and we have some exposure there, but not much. So, so there's some delays with our government customers. Uh, but at this point for us, it's relatively modest.

And then just maybe less from me, just on price, can you share, I'm sorry if I missed it, what price was in the quarter? And I don't think you changed the organic growth outlook, but I would assume your outlook implicitly would now include some more price, maybe with some volume detraction on the economic uncertainty.

You're exactly right. And when we rolled up the whole year, the volume was down a little bit, but the pricing was up a little bit. and it's part of our tariff mitigation plan, and we felt comfortable keeping the four-year guide, the plus low single digits, accurately. In terms of the specific price, we're not going to give out that specific number, but I can tell you that we covered all inflationary costs in Q1. We had a good positive spread, and we expect that to continue throughout the year.

Thank you.

Thank you, Jeff.

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

Hi, guys. Good morning.

Good morning, Andrew.

Can we just talk about just the particular intestine measurement side? You know, we've heard a lot of concerns, and these are broad macro concerns, that a lot of the components that, you know, go into the high-end instrumentation are sourced by many in the industry in China. And I think you guys have done a fairly good job, as you've pointed out, of adjusting your supply chain away from China over the past five, six, seven years. What kind of opportunities does it create? Because there are these big concerns that shipments are going to come to a grinding halt in May. You guys seem to have better supply chains. I would imagine on the margin some of your competition in the U.S. does come. internationally. Could you just describe the opportunity that that creates for you?

Yeah, really, it's a great question, Andrew. We have good structure, good bones to deal with this situation. We have 100 plants approximately in the U.S., and we have 50 internationally. And we're already working with some customers that we haven't worked with in the past on some opportunities in the U.S. to use our infrastructure in the U.S. to be able to win market share. We're clearly focused on the tariff mitigation, but there are opportunities to using our structure in the U.S., and I think that that structure of 50 plants outside the U.S. really gives us some flexibility to look at localization at a different level and the transformation of the value-add so that as we move through the course of the year, we're going to be able to mitigate the impact of tariffs. So I think it's a comprehensive plan. You know, DALP and I reviewed the – one of the things we've done a good job with this year is being a great operating system, great business system, but providing a structure and then getting all of our teams to execute within it. And we learned from that. So DALP and I went through plans with every one of our businesses, and we're going to continue that for a period of time. And there were plans in the business, and it talked about the – Tariff mitigation had talked about sourcing changes. It, it, it, it talked about, uh, you know, uh, select pricing opportunities. It talked about, uh, you know, going on offense and, and, uh, we spent a lot of time understanding where our competitors are located and where we're located and, and, uh, areas of, of, uh, advantage that we're going to have in the new structure. And, and we're, we're, we're, we're working on this now and we're getting positive, uh, positive, uh, playback from our customers.

And just a follow-up question, you know, given this new round of tariffs, how are you and the board thinking about manufacturing footprint, your supply chain, because clearly you've made major adjustments in the aftermath of the first wave. What, if any, adjustments just directionally you and the board are thinking longer term? And the follow-up question on that is, what are you guys doing to your CapEx spending this year? Is it going up or is it going down? Thank you.

Yeah, I think the board is very pleased that we started to reduce our risk from China supply chain five years ago. We're constantly acquiring businesses, so we're working on exiting those businesses, and that's in process. I think in terms of our manufacturing footprint, I just think having expanded localization in various countries so that longer term we're less you know dependent on on some of the the tariffs is the right thing to do so we're not we're not changing maybe where we build the core technology but we're shifting the the value add to more and more locales around the world and we've been doing that over time that's why we have 50 plants outside the US that's why we've been so Successful in these international markets almost I think in the quarter, you know high 40 percent sales or work for international markets and and We're going to continue doing that. So so we think that's the right strategy the right plan in terms of capex We're not reducing our capex there We have some you know, very aggressive Digital digital programs going on right now and Um, you know, we have, we have, we're looking to improve our sourcing with AI. Uh, we're, we're looking to, uh, uh, you know, improve our, our, uh, e-commerce, uh, capabilities. Uh, so we, we, we have some very, very long-term, uh, strategic plans that are around, uh, improving our capability through, through software investments. And we're going to continue those. And we also have, uh, you know, we have a good footprint already. So, you know, it's largely, you know, effectively utilizing that footprint. So I feel good about that. And, you know, I see no reason at this time to change our capital spending plan.

Thanks so much.

Thank you, Andrew.

Thank you. And our next question comes from the line of Brett Lindsey with Mizzouho.

Hey, good morning, all. Hey, Brian. Yeah, I wanted to come back to the destocking comment around automation engineered solutions. Perhaps just an update on the level of OEM inventory in some of those channels. And then anything in terms of the pulse on capital projects? Are you seeing any shift in timelines as it relates to some of those businesses?

Yeah, in terms of the timelines, I talked about a little bit in our process business. We are seeing... We're not seeing projects canceled, but we're seeing uncertainty and some projects are delayed and we made an adjustment in our annual outlook related to that business because of that. So that's definitely happening. Um, uh, yeah, another question. Yeah. The OEM inventory, you know, what we're seeing is that, that the, the D stock is not, uh, completed for all customers, but when it, once it ends, Then you see a pop and those customers are recalibrating to the demand level. So you, and you're going to see that as we work through the course of 2024. So by 2025, excuse me, uh, by the time 25, 25 is completely over, I think all of these stocking will be done. I was thinking, but you know, it's starting to happen now and it's driving, you know, drove strong orders in the first quarter.

Okay. Got it. I guess just a quick follow up there. So. I guess the assumption for the year from a planning perspective is that persists through the balance of the year, or does it improve in the second half? Any thoughts there?

Yeah, you're talking about our sales, or you're talking about orders, or you're talking about what part of our business?

Just talking about the level of inventory, like when you think that gets worked out and we're kind of normal.

Okay, I see. Yeah, I think in the automation area... That's working itself through. We're seeing the U.S. is kind of, I'll call it, finished. Some of the destocking is still occurring in Europe, places like Germany. So that's automation. In terms of the MedTech OEMs, I think it's OEM dependent, and they all have different supply chains. They're good at running their business, but they seem to not really have very tight control on their inventory. So we're seeing it's difficult to predict. It's difficult for them to predict, and it's difficult for us to predict because of that. But you're seeing as they work through their process that destock is ending, and there's more normalization of inventory. And we saw a big chunk of that in Q1, and that's like what we saw with the Paragon orders, right? Paragon orders were up much, much more than 25% in Q1. And that was customers getting to the point where they're recalibrating, they're normalized, and they're setting their plan for the year. And as we go through the year, we're going to see other MedTech customers do that. But it's happening as we thought it would.

Appreciate the insight. And then maybe just one more on A&D. Not much ground was covered here. How are those businesses performing versus expectations and is your thinking and outlook changed between commercial or defense based on any developments we've seen?

Yeah, we're still feeling really good about the aerospace business. It grew mid-single digits in the quarter. We're expecting it to grow mid-single digits for the year with balanced growth across both our commercial segment and our defense segment. When I think about the commercial segment, you have the OEM multi-year backlogs. That drove a significant part of our growth in Q1. And they have eight, ten-year backlogs, depending on what you look at. So we feel good about that. And in the defense area, the funding is solid, and we feel good about that. In terms of the aftermarket, a lot of older planes are flying now because there's been some delays on this OEM side and that plays to our strength with the slower fleet retirements. That business is a good domestic business, but also a good international business. Older planes are flying. In the US, there's some dislocation now at the airlines, but they're still flying the planes. They're flying older planes. You know, fuel costs are coming down, and, you know, the dynamic there is if we don't get the OEM sale, it's okay because we have such a strong aftermarket presence, and that team running that business is just doing a great job for us. So, you know, for us, and we're in some niches in this aerospace business, it's about 17%, 18% of our company. But, you know, I would say it's a very stable, strong, growing business for us right now.

Appreciate all the details always. Thanks a lot.

Thank you, Brent.

Thank you. And our next question comes from the line of Scott Graham with Seaport Research Partners.

Yeah, hey, good morning, all, and thanks for taking my questions. I wanted to maybe unbundle airspace and defense a little bit. I know you just did a little bit more just now, Dave, but, you know, when you went through your prepared or the question and answer period with A and D, You didn't specifically talk about defense, and I know that that business has been, you know, a little bit, you know, flat down the last couple of quarters. Are you suggesting that defense kind of gets better in the second half of the year? And then my follow-up on that would also be on the aerospace side. I know you just indicated that you're comfortable with your aftermarket business, but, you know, obviously there's some you know, passenger, you know, wariness to travel, and I'm wondering how that might roll into the second half.

Yeah, great question. Specifically on defense, we're expecting growth, balanced growth across all subsegments. So we're expecting defense to grow in the second half of the year, and we'll see what gets, you know, passed in Congress and things, but it's pretty optimistic right now. So I think we're well-positioned there, and there's long-term threats, obviously. In terms of the aftermarket, you're exactly right. I mean, you're seeing some airlines with some stress, but again, that's why I was... The planes are still flying, and older planes in particular are flying longer because fleet retirements have slowed, and I just think that it's Our aerospace business and aftermarket is a U.S. and international business. In our international business, we have operations all over. So I have a feeling that if the U.S. slows, the international market will strengthen or will stay strong because they're in a little bit different cycles. But right now, what we're looking at is all sides of the business are strong. Got it.

Thank you. I just wanted to also ask, if I could, about – capital allocation, you seem to have a little bit more jump in your speech when you're talking about capital. It seemed like you're a little bit more excited about M&A and then talked about share purchases a bit more than you've talked about in the past. You have a lot of capital to deploy. Your net leverage number is very low, obviously. And I was just wondering, on the M&A side, are you seeing bid-ask spreads kind of, you know, get a little bit more favorable, and on the share repurchase side, do you see being more active this year?

Yeah, I think that we're well positioned, Scott. I mean, we have, as you said, our net debt to EBITDA is 0.7, and when you go through just locations like this a couple times in your career, you realize that opportunities are going to be there. And we're working with people I think good assets are still demanding good prices so so it's not like you're seeing you know tremendous bargains they've come in a bit, but we have a really good pipeline, we have a good reputation. we're working with some people. A lot of processes going on, and I think that we're just in an ideal position to acquire some businesses and also. You know. act on the dislocation and stock price that could be occurring. And when I put the two together, you know, in a time where, you know, you may be on your back foot, we're not on our back foot. So, you know, springing our steps forward lean. So, I think you got that right. And, you know, this is a time where we can differentiate our performance.

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

Hi, thanks. I just wanted to kind of follow on that acquisition topic that's come up a couple times. And obviously there's a lot of uncertainty, maybe more on our side of the phone than what you guys appear to be seeing today, at least, with the comments around April and 1Q being okay. How have the conversations around acquisitions changed? I mean, there's uncertainty on cost, a little bit of uncertainty on the demand environment. Do you have to wait until you get clarity? How do you kind of approach that uncertainty from a valuation and or closing standpoint?

Thank you. Yeah, that's a great question, Rob. It's deal specific. So, for example, if you're going to acquire a business that has a huge supply chain from China, you know, that may be a wait right now and delay because you see how that thing is going to play out. But then you deal specific, you have, you know, other dynamics. So, and... We've been doing this for a long time. It is an uncertain time, especially when you look at it month to month, but we're looking at it in the long term. And we've been through this before, and there are opportunities arising. And we got some issues we're managing through. We talked about them, gave a tremendous amount of detail on them. But overall, I think that we're well positioned to do well, and I think that You're correct. Some deals are moving ahead. Some deals have been a sideline for a period of time because of the trade dynamics. But there's enough in our pipeline that we're still working aggressively on them. Does that answer your question, Rob?

It does.

Thank you. Okay. Thank you.

Thank you. And our next question comes from the line of Joe Giordano with TD Cowen.

Hello, Joe.

Hi. Hi. This is Dan on for Joe. And I had a question on commercial aerospace. So you spoke about, obviously, U.S. travel volumes potentially declining, but you mentioned that international mud remains strong. But in terms of actions that the airlines are taking, one of the major airline companies spoke about reducing maintenance spend. Is that something that you see broadly in the industry, or is that something that would impact you guys later Basically, any color on what you're hearing from customers or how something like that would impact your business.

Yeah, I think that the impact on our business is relatively muted. The aftermarket piece of the business is a smaller part compared to the OE piece of the business and compared to the defense business. You know, we could see a downturn in that part of the business. We're not seeing it now, but we're very diversified in specific areas. And, you know, if there is a future downturn, we'll deal with it. But right now, it's not happening. That's a fact in our business.

I appreciate that. Thank you. And I apologize if this has been asked. I joined the call a bit late. But are you seeing any pre-buys broadly in the market? And specifically for you guys, was any part of your mitigation actions for tariffs that include you yourself pre-buying?

Yeah, I think that, you know, we build customized products. So we didn't see – there could be some pre-buying, but we didn't see a lot of it. So I think that we'd see that less than most, but there could have been some there. In terms of inventory purchases, we're certainly doing the smart things. And, you know, we have operators in our distributed model that are very, very, that run their businesses like they own them. And if they think they want to bring some inventory in because it makes sense, they're making those decisions.

Appreciate that.

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

Hi, good morning, everyone.

Good morning, Andrew.

David, I wanted to ask you, your backlog has been at record levels almost every quarter now, going back as far as I can remember. So I'm curious, what gets this backlog to convert? Presumably, tariffs are now kind of delaying that conversion. Well, maybe you're not seeing that, but that's a thought I had. I guess this is very unique to Amatek, and it sets you up pretty interestingly once it does start to convert. So what gets it going in your opinion?

Yeah, I think that the backlog is at high levels. There are some delays related to tariffs. We talked about... some of the delays for the products that were shipping directly to china we're talking about other other situations where you know the tariffs are causing customers that will go back and have to get more money to to buy products so so i think the tariffs are going to cause some delays and um you know i think we have a good tariff mitigation plan we have good localization plans and you know there's some comfort in having that backlog as we navigate through this thing over the next in terms of the company quarters and uh But you're right, there are some delays caused by the tariffs.

And are you noticing, I don't know, any patterns in the last few quarters where the backlog specifically is building? It sounds like A&D, even some of your medical stuff. But is there a concentration in one area that you're seeing? Or can you talk a little bit more about the color within that backlog?

No, I don't think it's concentrated. I think you hit the areas. I mean, A&D backlog is a longer cycle business. It's strong. I think the big change is the MedTech with Paragon backlogs increasing.

Yeah, okay. All right, thanks, David.

Okay, thank you.

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

Thanks again, 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 for Have a great day.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.