AMETEK, Inc.

Hello, and welcome to the Ametek third quarter 2025 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 third quarter 2025 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer, and Dala Puri, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in 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 historical results will be on an adjusted basis, excluding after-tax, acquisition-related and tangible amortization, and excluding acquisition-related costs. 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 now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. Amitek delivered outstanding results in the third quarter, with double-digit growth in sales, quarters, operating profit, and diluted earnings per share. Organic sales growth was strong in the quarter, leading to outstanding margin expansion in earnings well ahead of our expectations. Given these excellent results and our outlook for the remainder of the year, we are increasing our full-year earnings guidance. Now let me turn to our third quarter financial results. Sales were a record $1.89 billion, an increase of 11% from the third quarter of 2024. Organic sales were up 4%, acquisitions added six points, and foreign currency translation was a one-point benefit. Orders were also very strong in the quarter, with overall orders up 13% to a record $1.97 billion, and organic orders up 7%, leading to a record backlog of $3.54 billion. Our operational performance in the quarter was excellent, with strong margin expansion and double digit earnings growth. Operating income in the quarter was a record, $496 million, an 11% increase over the third quarter of 2024. Excluding the impact of recent acquisitions, margins were 27%, up 90 basis points versus the prior year. EBITDA on the quarter was a record, $592 million, up 11% versus the prior year, with EBITDA margins an outstanding 31.3%. This operating performance led to record earnings of $1.89 per diluted share, up 14% versus the third quarter of 2024. Now, let me provide some additional details at the group level. First, the electronic instruments group. EIG delivered outstanding operating performance in the third quarter with strong margin expansion and operating margin levels that reflect the differentiated nature of our products and solutions. EIG sales were a record $1.25 billion, up 10% from last year's third quarter. Organic sales were flat. Acquisitions added nine points, and foreign currency was a one-point tailwind. EIG operating income was $360 million, up 6% versus the prior year. Operating margins, excluding the impact of recent acquisitions, were 30.4%, up 50 basis points versus the prior year. The electromechanical group had an excellent quarter, delivering outstanding sales growth, record operating income, and sizable margin expansion. EMG's third quarter sales were a record $646 million, up 13% versus the prior year. Organic sales were up 12%, and foreign currency was a one-point tailwind. Growth was broad-based across all EMG businesses in the quarter. EMG's operating income in the third quarter was a record $164 million, up 25% compared to the prior year. EMG's operating margins were up sharply to 25.4%, a 250 basis point increase from the third quarter of 2024. Our results in the third quarter and thus far this year are a powerful demonstration of the Ametek growth model in action. Our distributed operating structure and embedded operational excellence culture has allowed our businesses to quickly react to changing market dynamics and deliver excellent results. While there are still macroeconomic uncertainty, given the ongoing trade conflicts, Amatek is well positioned. We are seeing positive inflection in our automation and engineered solutions markets, along with continued strength across our aerospace and defense businesses. Additionally, we are managing a growing pipeline of opportunities within our power businesses and are benefiting from the strong secular trends driving that market. We are also seeing some improved visibility across our process markets. Although as noted, we are closely monitoring the trade dynamics and impact on demand timing. Our recent acquisitions, Ferro, Vertec, Kern, and Paragon are integrating very well into Ametek and delivering strong results. As Dallop will cover, we have significant balance sheet flexibility providing us with ample firepower to deploy on strategic acquisitions. Lastly, our operating model continues to shine with our colleagues doing an outstanding job leveraging our global infrastructure and operating systems to drive outstanding performance. Thank you to all colleagues for your tremendous efforts. Now switching to capital deployment. As noted, our integration efforts with recent acquisitions are progressing very well. Strategic acquisitions continue to be a core element of our growth strategy and the primary focus for our capital deployment. We are managing a strong pipeline of attractive acquisition candidates and expect to be active in pursuing strategic opportunities going forward. Complementing our proven acquisition strategy is a consistent commitment to investing in our businesses to best position them for long-term success. For 2025, we now expect to deploy an incremental $90 million toward organic growth initiatives, with this investment focused primarily on research and development, sales, and digital marketing initiatives. The tangible results of this focus are clear, with our third quarter vitality index a strong 26%. The benefits of these investments coming to fruition can be seen in the many new product innovations across the company. I wanted to highlight a few of these new product innovations, the first one from our Virtec Vision business. Virtec Vision is the leading provider of 3D laser projection and quality control inspection systems for critical aerospace and industrial applications. Virtec recently introduced a new AI-powered camera and software monitoring system that complements its advanced 3D laser projection system. further advancing their intelligent real-time inspection capabilities. The IRIS AI inspection camera addresses customers' critical need for improved quality control and real-time documentation in complex manufacturing workflows. The AI-powered camera captures and documents every step of the build process, creating a complete digital record for each part. A notable feature of this new solution is the ability for users to create custom ai inspection models that can automatically detect anomalies allowing for real-time process corrections with this new product launch vertek makes powerful digital manufacturing tools intuitive and operator friendly helping customers improve quality and productivity our nsi mi technologies business the global defense Tech leader in advanced RF and microwave test and measurement solutions is also doing an outstanding job developing highly differentiated custom solutions for their customers' critical applications. NSI is aligned with strong secular growth themes tied to advancements in satellite systems, autonomous vehicles, and defense systems, and as a result, are seeing excellent demand for their advanced measurement solutions. NSI's recently introduced new product, the vector digital receiver advances their antenna, radome, and electromagnetic field measurement capabilities, directly supporting the development of next-generation communication systems and advanced sensors for air, land, space, and sea applications. I also wanted to congratulate our Rolland business on an impressive recent industry recognition. Roland is a global leader in advanced clinical communications and workflow solutions for hospitals and healthcare systems worldwide. For the second consecutive year, Roland has won the prestigious MedTech Breakthrough Award for Best Clinical Administration Hardware Device. This award recognizes Roland's responder platform for its critical role in addressing key challenges in modern healthcare, such as nursing shortages and clinician workload stress. The new Responder Enterprise Converge simplifies and coordinates care by improving direct staff-to-staff and patient-to-staff communication, which leads to faster response times, enhanced patient safety, and better staff efficiency. This recognition underscores Rollins' technology leadership and its commitment to developing solutions that empower healthcare professionals and improve patient outcomes. This is a fantastic example of how our businesses are translating their technological innovation efforts into market leading award winning solutions for our customers. Finally, an update on the global trade environment. The situation continues to be very fluid and ever changing. We remain vigilant in monitoring developments and proactively managing potential impacts. As we have discussed, our businesses continue to execute their well defined mitigation plans, which include targeted pricing, strategic supply chain modifications, and utilizing our global manufacturing footprint to adapt to changing demand patterns. Our teams also continue to leverage our U.S. manufacturing presence to support global customers adapting their own supply chains. Ematek's culture and decentralized operating structure remain key advantages. providing flexibility to implement these actions quickly and effectively. Our proven playbook for navigating these uncertain environments continues to serve us well and our teams are executing effectively. Now turning to our outlook for the remainder of the year. We continue to expect full year sales to be up mid single digits on a percentage basis compared to 2024. Given our strong third quarter performance, and outlook for the fourth quarter, we are increasing our earnings guidance for the year. Diluted earnings per share for the year are now expected to be in the range of $7.32 to $7.37, up 7% to 8% versus the prior year. This is an increase from our previous guidance range of $7.06 to $7.20 per diluted share. For the fourth quarter, We anticipate overall sales to be up approximately 10% with earnings in the range of $1.90 to $1.95 per share up 2% to 4% versus the prior year. Fourth quarter earnings growth would be 6% to 9% adjusting for last year's lower than normal tax rate. To summarize, Amitek delivered an excellent third quarter with strong sales and orders growth, robust margin expansion, and earnings well ahead of our expectations. Our businesses continue to execute exceptionally well, delivering our differentiated technology solutions across a diverse set of niche markets. The durability of our operating model and our strong cash flow provide us with the flexibility to navigate through challenging market conditions and continue to proactively invest in our businesses and in strategic acquisitions. As a result, We remain firmly positioned to deliver long-term sustainable growth and create value for our shareholders. I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter, then we'll be glad to take your questions. Dalip.

Thank you, Dave, and good morning, everyone. As Dave noted, Amatek had an excellent third quarter with strong growth and outstanding operating performance. This allowed us to deliver several financial records. as well as double digit growth in orders, sales, operating income, and earnings per share in the quarter. Now let me provide some additional financial highlights for the third quarter. Third quarter general administrative expenses were $28 million, or 1.5% of sales, essentially in line with last year's third quarter. Third quarter interest expense was $23 million. Third quarter other expense was $17.9 million, with the increase versus last year's third quarter primarily due to one-time acquisition-related costs for Faro Technologies. As I noted during our previous earnings conference call, we are excluding one-time acquisition-related costs from adjusted earnings. This approach will be consistently applied to future acquisitions, ensuring comparability and clarity in our non-GAAP financial reporting. The effective tax rate in the quarter was 17.2%, down from 18.8% in the third quarter of 2024. The reduction was driven by a lower effective international tax rate. For 2025, we now anticipate our effective tax rate to be between 18 and 18.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Capital expenditures in the third quarter were $21 million. We expect capital expenditures to be approximately $150 million for the full year, or about 2% of sales. Depreciation and amortization expense in the quarter was $103 million. For the full year, we expect depreciation and amortization to be approximately $425 million, including after-tax acquisition-related intangible amortization of approximately $210 million, or 91 cents per diluted share. Operating working capital in the third quarter was 18.9% of sales, a slight improvement from the third quarter of 2024. Operating cash flow was $441 million in the quarter, and free cash flow was $420 million. Free cash flow conversion was a strong 113% in the quarter. For 2025, we expect free cash flow conversion of approximately 110% to 115% of net income. Total debt at September 30th was $2.5 billion. up from $2.1 billion at the end of 2024 due to the acquisition of Faro Technologies. Offsetting this debt was cash and cash equivalents of $439 million. At the end of the third quarter, our gross debt to EBITDA ratio was one times, and our net debt to EBITDA ratio was 0.9 times. We continue to have significant financial capacity and flexibility with over $2 billion in cash and available credit to support our growth initiatives and our capital deployment strategies. In the third quarter, we demonstrated this financial flexibility by deploying approximately $920 million on the acquisition of Faro, $150 million on share repurchases, and $71 million in dividends. all while maintaining our financial capacity and a conservative balance sheet with gross leverage around one times. The share repurchases in the quarter resulted in approximately 800,000 shares of our common stock being repurchased in the open market. In summary, Amitek delivered an excellent third quarter with strong top line growth, robust margin expansion, outstanding earnings growth, and a meaningful increase to full year earnings guidance. Our differentiated technology portfolio, our global manufacturing capabilities, along with our strong cash flow and balance sheet provides us with the foundation to successfully execute our growth strategy and to continue delivering exceptional results. Kevin?

Thank you, Donald. Andrew, can 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 1-1 again. One moment, please. And our first question comes from the line of Dean Dre with RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Dean. Hey, that was really good earnings quality, cash flow and margin. So congrats to the team. Thank you. Hey, maybe we can start with the tour of your key platforms and regions and what stands out in particular. It looks like Paragon really had a strong quarter as well.

Thank you. Yeah, Paragon did have another strong quarter. I'll take us the whole way around the horn and I'll start with our process market segment. Overall sales were up low teens in process driven by contributions from recent acquisitions. with organic sales down just slightly in the quarter. We remain encouraged by the strong pipeline of activity across our process and markets. Although trade uncertainty continues to lead to slower decision making and delays, as I talked about in my prepared remarks, there's very strong project activity and visibility is improving across some of our key markets. For the full year, we expect overall sales for our process segment to be up mid to high single digits and continue to expect organic sales to be flat to down low single. I'll go to A&D now. Aerospace and defense businesses, they just delivered another excellent quarter with overall organic sales increasing low double digits on a percentage basis. Growth remains strong and balanced across commercial OEM, aftermarket, and defense markets. and our businesses continue to win content on new programs and expand content on a wide range of platforms. We continue to expect sales for our A&D businesses to be up high single digits for the year. Power and industrial businesses delivered strong results in the third quarter with both overall and organic sales up mid single digits. We have increased our outlook now and expect full year organic sales to be up low to mid single digits for our power and industrial businesses. So we took that from, we increased it a click to low to mid single digits for power. We're benefiting from demand across our grid modernization and electrification applications, including in support of the power build out needed for AI data centers. And I'll talk about one product there, our IntelliPower business is a business that provides uninterruptible power systems for data center microgrids and the rugged UPS systems which are proven in defense and other mission critical applications are perfectly suited for the harsh conditions and high reliability requirements of data center microgrids. So similar other Ametek businesses are identifying attractive opportunities to expand their current technologies into this market and we had some initial successes with both the Intel power and we talked about last time the RTDS simulation systems and then finally I'll talk about the automation and engineer solutions business another excellent quarter with high single-digit organic sales growth robust orders growth growth was broad-based across our automation and engineer solutions businesses in the quarter But again, notable strength from Paragon Medical on orders input was outstanding. And we are maintaining our four-year forecast for mid-single-digit organic growth in the quarter. And then you asked about the geographies also, Dean, so I'll do that also. Yeah, we had sales were up mid-single digits in the U.S. And internationally, a total international were up low single digits with strength in Europe, partially offset from Asia to help them Asia. So, and in the U S we have some broad based strength. We were really solid there. Europe was up low double digits and it was our automation, our email business and our mad business that did really well there. And in Asia, it was a kind of a tale of two stories. Uh, we were down mid single digits driven by China. But if you take China out of it, Asia, excluding China was up mid to high single digits. So, you know, changing dynamic there. I mean, with China, we had more of the export issues and things we're dealing with. So we're feeling good about the momentum in a lot of regions of the world, and China was an exception to that.

That's a great update. Just the last one, and it's related to the last point, Dave. Any comments about tariffs, the offset?

and um you know is that what's driving the the softness in china for you as well yeah i say what's driving is a tariff renegotiation of price so the the uh the tariffs need to be renegotiated they need to be included in the pricing and our chinese customers are going back to the government entities and getting higher prices to pay for our products and that's causing the uh us a delay And there's a lot of, uh, I call it the tariff games in ship where they're trying to time the situation to, uh, get a lower, lower price, lower tariff, but we're, we're competitively very strong there. We're not, uh, or our products that we sell are benefiting from, uh, there aren't liable competitors for most of the things we build. We make high margins when we sell there. So, so we're kind of, we have good customers. We have good team over there and it's just going to be delayed, but, uh, we're, we're, we're solid on the longterm.

Thanks for all those updates, Dave.

Thank you, Dean.

Thank you. And our next question comes from the line of Matt Somerville with DA Davidson.

Thanks. Morning, Dave. I was wondering if you could maybe double-click a little bit on Paragon. Obviously, that business had been a little bit of a source of concern for some, you know, coming out of the gate with the whole medical destocking. So can you give a little bit more granularity on the type of organic sales performance and order growth you saw and kind of remind us how we should think about the go forward organic, you know, algorithm for that business, as well as maybe how it's trending from a profitability standpoint relative to, you know, what your view would have been when you bought it.

Thanks. Right. Excellent question, Matt. I mean, Just to remind everybody, Paragon's single-use and consumable surgical instruments and implantable components in attractive MedTechs markets with good long-term growth rates, very good long-term growth rates. These are mid to high single-digit long-term growth rates, growing markets, excellent engineering capability. Numerous new product wins will provide upside for years to come. And they just had another excellent quarter. I mean, the EMG orders, you know, led the company. And there was substantially up and Paragon led that EMG. So it was a another quarter of just outstanding, you know, double digit plus plus orders. And, you know, and we're a situation now where we're, we're probably about a little more than halfway done with the restructuring that we're doing. So that's, happening and there's you know some plant closures involved with that and I want to get into a lot of details but the cost structure is being reduced and at the same time all of that's happening we're winning new programs and phasing them in and we were out there about a month ago to see everything and it's really going great the the margins are now in line with amethyx margins and we think there's more upside so we think this business is going to be a You know, 35 plus EBITDA business and when we're done working on it, which will take another year, but I couldn't be more pleased with what's going on with the deals. Outstanding work by the entire Paragon team. I hope some of you can get out there sometime because it's quite an impressive manufacturing facility that we visited last month and we're very bullish on what's happening at Paragon.

Thanks, David. Let me just as a follow-up, you expressed, I think, a couple times in your prepared remarks, a little more optimism with respect to process. Can you just go back an additional layer and give a little bit more granularity on sort of end markets and whether or not you feel like there's, you know, a flush, for lack of a better word, that's going to happen here as it relates to maybe some pent-up demand?

Yeah, it's a very interesting dynamic, and it's perceptive for you to pick up on the matter. I mean, we looked at process and process improved just about everywhere sequentially on all the markets and all the geographies, except China. So China was the one, the one area that it didn't, didn't improve. And we've got the, the tariff repricing negotiation going on, but everywhere else it, uh, you know, it, uh, it's on the right trend. So we're getting more visibility there. And I can think that as that, as that business comes back sometime in next year, We have a business that's leveraged to succeed because the cost structure is really well controlled. The new product innovation is there. So on the upside, the process is going to have an excellent 2026, I think so.

Thank you.

Thank you, Matt.

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

Yes, good morning. How are you?

Good, Andrew. How are you?

Yeah, I think I was missing three slides on nuclear. Sorry. Sorry for the joke. So can you just talk about fantastic water? Thank you. Can you just talk about strength in Europe? Can you just talk about the verticals and geographies? It was a nice surprise to hear that. Thank you.

Yeah, our teams in Europe, it's pretty positive what's happening there. And We saw a couple of different places. I mean, we saw an improvement at our Dunker Motoren business, so our automation segment did extremely well. The Paragon elements of Europe did extremely well. Our materials analysis division that was selling analytical instruments to the research market did extremely well, and our aerospace business was solid. So it wasn't one or two things, it just all was positive in Europe, and it led us in growth. It was up low double digits, so we're very happy to see that strength.

That's terrific. And maybe could you talk about order numbers was another positive surprise in the quarter. Can you just talk about the progression of the order patterns throughout the quarter? And, you know, frankly, what happened in October? Did you sustain the momentum into the year end?

Right. Well, October is not over yet, but I'll give you the month to date. But overall, it's a pretty simple story. September was the strongest month of the quarter and year. So strongest month of the quarter and year to date on both sales and orders. So we had a really good September, indicative of momentum, as you suggested. And October isn't over, but it's very solid. I checked it before the meeting, and it's very solid. So, you know, we don't see a slowdown on the order side.

Thanks so much.

Thank you, Andrew. Thank you. And our next question comes from the line of Chris Snyder with Morgan Stanley.

Thank you. I wanted to ask about the Q4 top line guide up 10%. But, you know, Q3 was up 11%. And I thought that we were going to see maybe more M&A contribution in Q4, which would then imply like an organic step back versus an easier comp. So I guess, Annie, just helping unpacking of the organic and the M&A and even I guess maybe the FX as we kind of build into that 10% number for Q4. Thank you.

Yeah, I think that, uh, the, the, it's, uh, you know, approximately 10% and we could do a little better and we can do a little worse, but we're certainly feeling confident. So, so, uh, I think the acquisitions are in there at the, uh, mid to high single digit number and, and, uh, it gets to about 10%, but, uh, what some of the trade dynamics range on the, on the, the earnings. But I think it's where we feel very, very confident in Q4.

Thank you. I appreciate that. Oh, sorry.

I was just going to say that on the foreign exchange side, we're obviously a very global business, but we're primarily dollar-centric. So as a result, we're not expecting any foreign exchange impact on the top line in Q4 or on the bottom line. And as you've seen in the past quarters, we're very insulated from FX volatility. So that shouldn't be a factor.

Got it. Thank you. I appreciate that. I wanted to ask about the industrial and power business, which showed better organic growth in Q3, and you guys raised the guide. You know, is this all data center power tide, or are you seeing positive rate of change on more of the industrial kind of typically focused businesses? Thank you.

Yeah, I'd say it's more the power side. It's more the power side and the – The areas that we talked a little bit about, we're seeing backup power systems and micro grids and their server racks. We also sell to the nuclear industry and they're putting power systems in. It's that backup power system business in the US that's doing quite well. The business that I highlighted last quarter, RTDS, they do the real-time simulations for resilient, high-performance power additions to the grid. They're the company you go to when you want to expand your power, and they're working with the hyperscalers to define the new power additions that they have to put in to power the data centers. Those are the two areas that we have most traction. The industrial side of the business is solid. It's not a drag, but the upside is on the power side. And keep in mind, Chris, we do have a decent-sized part of that power business that sells the traditional transmission and distribution infrastructure. So as the U.S. has to build out the T&D and you get some of the local microgrids, we're in a pretty good position to benefit from that.

Thank you. I appreciate that and great to see the momentum.

Thank you, Chris. Thank you. And as a reminder, to ask a question, please press star 11 on your telephone. Our next question comes from the line of Julian Mitchell with Barclays.

Hi. Good morning. Thanks very much for the question. Maybe I'd start with the farrow business, and if you could help us understand kind of the progress there in terms of organic farming. trends, you know, understand it's still in the sort of acquisition calculus, but maybe help us understand any movement there around sort of organic orders and sales, um, and how you feel about that sort of, uh, trending into next year, please.

Yeah. Well, uh, as you know, Farrell wouldn't show up in our organic because we don't show up in organic till we've owned it for a year or so. But Farrell, they, they, they hit their number and they hit their number on the top line, the bottom line. And, uh, had a really good quarter. So that integration is doing well. We have a very good team at Ferro. Just to remind you, Ferro designs and develops 3D metrology and digital reality solutions. We're number one or number two in a bunch of niches in that market. And it's an excellent strategic fit with Ametek and our Creaform business. So those teams are really getting after it and they're working on some new products and working on some new channels and I'm very optimistic about what they're going to be able to do. All arrows are up right now in terms of the acquisition integration. I spent some time with the team. Delop and I spent some time with the team just within the last couple weeks, and we're very pleased with it. They won't show up in organic, but they did meet sales, and they did meet their profit commitment for the quarter.

Thanks very much. And then just my second question would be around... I guess two parts. One is on the process industry side. I think it's still sluggish right now, but you sounded more optimistic on next year. So just wondered if there's something you've seen turning in the orders in the process industry side. And secondly, in the U.S., good growth. Wondered if any government shutdown effects weighing in recent months.

I'll take the government shutdown first. I mean, so far, to be honest, it hasn't been much of an issue for us. Obviously, if it continues for, you know, until the end or something, it might become a bigger issue. But it's really a non-event at this point. You talked about process orders. Yeah, they're definitely trending up. Process orders are trending up in all areas. And the one distinction was the China part of the business. China is, uh, you know, it's heavily, uh, part of it as research too. So there's a academia research element to it and the China business, but in other areas, it's, it's all trending up. And we have told you before we have a good pipeline of new orders and. And, uh, we'll make money when power, when that, when the, when the, when the organic growth comes back, because that, that business is a powerful, you, you haven't followed us for a long time, but the process business is powerful business. And, uh, so I don't know when it's going to turn up. But when it does, we've run it in the right way, and we keep investing in new products, and we've got the capability, what our customers need, and it's going to eventually turn and be positive on the contribution margin basis for sure.

Great. Thank you.

Thank you, Joanne.

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

Thanks, and good morning. You've touched on some of the dynamics here, but it's still a little bit interesting, the broad-braced, I think you said, growth across EMG versus EIG on core growth. And I wondered if you might simplify for us whether that's geographic and market, selling cycle, maybe just your thoughts on that gap, which is wider than sometimes it is.

Thank you. Yeah, I think the biggest thing to understand, Rob, is you've got to go back to the pandemic. and you had a supply chain crisis and we have specialized products there and they're OEM products. They're not directly sold to the end user like they are in EIG. So it's mainly a EMG issue with specialized products. So everybody wanted to go out and get a bunch of products to put them on the shelf because they needed to supply their customers. So we had a period of 18, 20% quarters in terms of orders. And now that then we went through a period of the d stock where people had some excess inventory and now the d stocks end so what you're seeing is that whole d stock and it's flowing through the emg business and it's showing up in places like paragon it's showing up in our emit businesses it's it's uh it's showing up in our automation businesses and also in that emg group we have our aerospace part of our aerospace business there and that business is going well so all those businesses are kind of hitting on full cylinders, and that's why everything is up so high. So the one thing that's different, we didn't really have a D-stock in EIG. We had an EMG. Now we're working through that.

That was perfect. Thank you. And then I just wanted a little mini teach-in on unenergizable power supply where you mentioned some of the crossover in data centers. I don't know how much business you had in data centers before and whether this is a a fully nimble shift to capitalize or, or, or, you know, some of that, but a little bit less. Thank you. I'll stop there.

Yeah. I mean, we, we, we have, uh, I'll call it hundreds of millions of dollars in, in uninterruptible UPS systems. And they're sold to places like nuclear power plants or offshore, uh, oil and gas wells, or, or the most difficult, uh, applications that you can go into where you cannot fail. And that business has been a good businesses for us for a long period of time. Um, there, we have one product that's used on, uh, usually that is basically on used on every part of the Naval fleet, very industrialized rack mount product. And what we did is we took that product and, um, I don't want to say dummy to down, but we made it work for the data center market. So it's a, it's a, and they want mission critical. They want those kinds of applications. So we're finding some applications. where data centers want to buy the best. They want to find the most, they need a product that's more durable. And I think on that product, you know, we have the backlog of, it's not a tremendous amount. It's north of 25 million in a pipeline of another 30 million, something like that. So that's for that product. And we have another product in the RTDS space for the simulation systems. So we have some places that we're going to be able to play now where they're willing to pay for our technology. And our teams have done a good job of identifying attractive opportunities to expand in current technologies while staying pure to the Ametek differentiated technology. Because we think in the long run, we don't want to sell things that end up being low margin where you have perfect competition and no one makes money. So it's a... Low base we have now, but very high growth in that segment.

Thank you.

You're welcome.

Thank you. And our next question comes from the line of Andrew Buscaglia with BNP. Hey, good morning, everyone.

Good morning, Andrew. So some of your positive commentary is very interesting. Some companies are still talking about It's like kind of customer hesitation to spend and ongoing delays, especially in automation. So maybe like what are your conversations with customers like that seem to be a little bit different or where you're seeing a little more confidence? Yeah, but just can you talk a little bit more about that and elaborate?

Yeah, I mean, the automation market has been historically a great market for Amatek. And we pick and choose our customers regularly. These are people that have paid for our performance. And there was a slowdown in the market driven by the pandemic effect and the supply chain crisis and the buying. We kind of talked about this for several quarters when we predicted it. So we kind of called bottom last quarter, talked about it a couple quarters. So it's kind of expected for us. So I really can't comment on what's going on and Other areas, I'm not sure I'd have to look at that stuff. But what I know is it kind of played out as we thought it would. And we're on record talking about it, too. So it's pretty much what we thought was going to happen.

I guess that's more like your customers are probably getting more comfortable with the tariff situation. And we have some more clarity relative to six months ago, maybe.

I think that's true, Andrew.

I think that's true. Okay. Yeah. Interesting. I don't know if you said or you mentioned your price versus cost or how that shook out this quarter.

Yes. Pricing offset inflation and tariffs. So we're very happy with that. So our price offset total inflation and tariffs, and we had a positive spread on top of that. So we have a highly differentiated nature of the Emetech product portfolio. We have leadership in these niche markets around the globe, and as we talked about today, these are mission-critical products. That's the nature of our products, and we invest a lot in R&D, and we're doing a good job of servicing our customers and at the same time offsetting some of the negative events from inflation and tariffs and with a positive spread.

Thanks, David.

Thank you, Andrew.

Thank you. Our next question comes from the line of Nigel Koh with Wolf Research.

Thanks. Good morning. Good morning, Nigel. I wanted to just dig into the automation. I think you called out high-small-digit organic growth there, David. Obviously, the comps there are quite easy, but it's still quite strong growth. I'm actually wondering, you know, can you maybe just pass out what you're seeing? I mean, I think a lot of that's in Europe. You know, inventory, you know, adjustments versus end market demand, any end market color, customer demand would be really helpful things.

Yeah, we talked about, you know, several quarters how the European market was lagging. We talked about how we had an incredibly strong position with German machine builders. We talked about the the situation. It was just a matter of time. And I think it's just just changing. I mean, the one thing that would be different for us is we've talked about before when a lot of people talk about automation. You have to distinct make a distinction between discrete automation and process automation. Okay, so you're doing factory automation, I'll call it. We play in the factory automation, but that's not our largest market. We're really in discrete automation where you have to move things very quickly and very precisely. So all the precision machines that are doing things in the different end markets that have to be very precise, that's our sweet spot. And there's a certain set of customers there that we deal with. It's the medical customers. It's very precise research equipment. It's like the S&P 500. In terms of the end markets, but it's the most precise equipment and it's mainly discreet automation. So you may be seeing a, uh, the factory automation may still be slower and discreet automation as a subset or as a distinct niche for us as strong. And we have kind of the best products there. And, and, uh, those customers are coming back and we had a great, great, uh, performance this month. And we were off coming off the, uh, the bottom there with some of the D stocks. So. I take your point that it's an easy comp, but it is what it is.

Yeah, yeah. I think I was trying to dig into it. Sorry, how much is just these dot comps, easy comps versus a real inflection in customer demand? I'm not sure if you've actually got the sell-through data there, but my second question is really around the EMG margins. Obviously, really great momentum there. 25% is pretty close to where EMG margins have peaked in the past, but with Paragon, where do you think that sort of margin objective or target might be for EMG going forward?

I think Paragon gives us the opportunity to increase it further, and when we sit down and we talk with that business, we'll set a target for next year, but certainly I would expect we have the capability to have record margins in EMG going forward.

Great. Thank you.

Thank you. Our next question comes from the line of Robert Jamieson with Vertical Research.

Thanks, guys, for you guys having a quarter today. Thanks, Robert. I just wanted to get, hey, just want to get your overall view on overall short cycle exposure. You know, last quarter you talked about short cycle bottoming. Just curious how you're thinking about this as we head into next year, you know, what you saw in the quarter and what you're seeing so far in early 4Q. Yeah.

Yeah, when we talk about our business, we're more of a mid-cycle than short cycle, just maybe a little change and just make sure we're on the same page. But, yeah, I think this is a result of the – The pandemic, the supply chain crisis, and I think that we're in an upward trend now. I think it's still early to talk about next year, but these automation, these EMG areas and med tech, they're solid. And air and defense remains strong. So it feels really good on some of these businesses with solid positions. And we are winning businesses. We are winning new share for these businesses. You know, EMG is kind of firing on all cylinders now, so.

Great, thank you. And then just wondered, you know, with a lot of capacity, just can we get an update on the M&A pipeline? Anything that your areas that you're particularly interested in, anything like that would be helpful.

Our pipeline remains very strong. Uh, we're actively looking at a number of high quality deals. Uh, we have the Dell talked about our capacity to fund them. It's strong. Uh, we remain disciplined looking at our returns on capital. We've done it for a long period of time and it's, uh, there's no change in that. The pipeline includes a variety of deals and there are different deal sizes and they're in a different end markets are all in markets that we're in now though. Our teams are as active as they've ever been working on deals. I really think that we have the opportunity to differentiate our performance with the M&A element of our growth strategy combined with our balance sheet and cash flow positions. It's a good time for us. When you combine our operational excellence capability and our M&A capability, I'm looking to use those two factors to dry performance over the next couple of years.

Great. Thank you.

Thank you.

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

Good morning. This is Michael on for Joe. Hello, Michael. So I wanted to unpack the A&D performance. Previously, you mentioned high-skill digital organic in the quarter, related content growth in that area. Is that content growth mainly related to FARO And then can you just maybe unpack for us your expectations for a normalized growth range for A&D going forward? And you had several years, whether it's on the EIG side or EMG side of high single-digit growth. So just trying to understand how to map that going forward. Thank you.

First of all, FARO is not in the A&D segment, so zero contributes to the A&D performance. The other thing is in the quarter, Organically, we're up low double digits. For the year, we're continuing to confirm high single digits. In the quarter, the thing about me that struck was it was balanced. Commercial OEM was very strong. Aftermarket was very strong. The defense markets were very strong. And we're continuing to win content on programs to expand where we're going in the future. So we're not talking about next year right now, but when I think about the aerospace group, when I think about the aerospace business, when I think about the aerospace team, their backlog remains strong and they have strong positions on key programs. So it looks optimistic.

Thank you. One moment, please. Our next question comes from the line of Scott Graham with Seaport Research.

Hey, good morning. Congratulations on the quarter, Dave. Thank you, Scott. I wanted to maybe step back and 40,000-foot this, and I know when you came on board back eight years ago, one of the big things that you were going to champion was an improvement in the front end and the top line focus as opposed to, you know, what has historically been more of a, you know, kind of margin lean, let's put it that way. I know you've done a lot of things internally, but it's been sort of an up and down industrial environment. So I was just hoping you indicated just now you want some business. I know A&D has been a good market for you since that time. But again, industrial, other areas have been up and down. Would you see now that winning of business starting to spread out into other end markets, given, you know, the work that's been done on top-line initiatives on a going-forward basis as the industrial economy improves?

You know, it's an interesting point. You had a couple years of below-50 PMIs, and I don't remember the last time that happened. I think I was at a investor conferences and they told me it never happened. I think that we're extremely well positioned for growth and it's across all of our businesses. I'd say as the industrial economy picks up and you recover from having negative PMIs for basically two, two and a half years, I think you'll see some improvements. The other thing I'd point you to is I've been with Ametek 35 years. I've been with CEO for nine years. And over those nine years, we've averaged a 4% organic growth. So this quarter right now, when you have 4% organic growth, you have double digit on the top line, you have double digit orders, you have double digit earnings. That's pretty much what we've done for the last nine or 10 years. And if you go back, it's further than that. We have a model. It's consistent. We have a great team working on it. And I do think that we're going to participate in a greater way in terms of organic growth as the industrial economy improves.

Thank you.

Thank you, Scott.

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

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

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