IDEX Corporation

Greetings and welcome to IGES Corporation's second quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Yates, Vice President and Chief Accounting Officer. Thank you. You may begin.

Thank you. Good morning, everyone. This is Mike Yates, Vice President and Chief Accounting Officer for IDEX Corporation. Let me start by saying thank you for joining us for a discussion of the IDEX second quarter 2021 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months ending June 30th, 2021. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company's website at www.idexcorp.com. Joining me today is Eric Ashman, our Chief Executive Officer, and Bill Grogan, our Chief Financial Officer. The format for our call today is as follows. We will begin with Eric providing an overview of the state of IDEX's business, an update on our growth investments, and an overview of our order performance and outlook for our end markets. Bill will then discuss our second quarter 2021 financial results and provide an update on our outlook for the third quarter and full year 2021. Finally, Eric will conclude with updates on our sustainability and diversity, equity, and inclusion programs. Following our prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877- 660-6853 and entering conference ID number 13712090. Or you may simply log on to our company's homepage for a webcast replay. Before we begin, a brief reminder, this call may contain certain forward-looking statements that are subject to the Safe Harbor language in last night's press release and in IDEXA's filings with the Securities and Exchange Commission. With that, I'll now turn this call over to our CEO, Eric Asherman.

Thank you, Mike. Beginning with our overview on slide six. The past year and a half have been among the most dynamic and unpredictable ever experienced, but our IDEX team stepped up again in Q2 and delivered during an extremely challenging environment. Thank you to the IDEX employees around the world who are working so hard. Our commercial performance is very strong as we recorded record orders and backlog in the quarter. Order trends continue to improve sequentially and all three segments are materially above pre-pandemic levels. Our day rates are very strong and our OEM order patterns are robust. Only large industrial projects, many of them in FMT, continue to lag a bit. We're beginning to see them move into planning funnels, indicating support for continued phases of organic growth in the back half of 2021 and next year. Our number one operating challenge for the quarter was supply chain and logistics disruptions. IDEX is generally a short-cycle business with quick lead times. We typically operate at the component level, further down our customer's bill of materials. We're also not very vertically integrated. We depend on a tight network of supplier partners, often located close by our operating units, to quick-turn our solutions with a minimum of visibility. For these reasons, the challenging conditions of tight material supply and bottleneck logistics tend to lag other industrial companies. Our agile model does support a quick calibration to today's reality, and it helps us exit quicker than many on the backside of a supply-side constraint. Overall, we believe these disruptions have hit a plateau. We don't see things getting worse, and the challenges will continue to be highly variable. At the same time, we don't anticipate these disruptions getting better soon, and most likely they will not subside until the end of this year or early next year. We anticipated rising inflation as the global economy recovered, but like many, did not imagine the sharp rate of increase. This narrowed our spread between price capture and material costs, although we remained positive overall. Our teams leverage the systematic investments we made a few years ago in pricing management and aggressively deploy two, sometimes three, pricing adjustments with precision. We are on track to expand our price-cost spread to typical levels as we travel through the back half of the year. While we spend a lot of time talking about our business's ability to capture price, one area I don't want to miss is our continued focus on operational productivity. Our teams continue to drive margin improvement through 80-20 simplification, lean efforts, through sound capex deployment our robust project funnels continue to be another weapon to combat rising costs the one project that exemplifies this spirit deserves mention as we discuss q2 our energy market now starting to show some signs of recovery off the bottom are still lagging the overall group our teams are aggressively executing a facility rationalization project to consolidate our scale and focus our human resources at close working proximity ultimately This is a long-term value driver for that group, but in the quarter, the project created headwinds for us as equipment was delayed and inventory positions were less than ideal to support production transfers. We expect the project to be back on track and completed by the end of the third quarter. Overall, I am confident in our path through these choppy recovery seasons. We continue to apply relentless focus from outstanding teams to deliver solutions that matter from high-quality businesses that are very well positioned within their application steps. Moving on to slide seven, we deployed just over $575 million in the first half of the year with our acquisitions of Apple Pumps, Airtek, and a small investment in a digitalization technology startup within the fire and rescue space. We continue to build out processes and capabilities to explore additional strategic investments we want to make across IDEX. Our funnel for potential acquisitions is stronger than it has been in the past, and we are more aggressive in pursuing opportunities that enhance our business solutions fit well with our style of competition and drive IDEXX-like returns. It's early days in our integration of Able and Airtek, but we're happy to see that each business is performing well, with excellent growth prospects in the near and long term. While we've stepped up our M&A game, we're also investing in our existing businesses with a 45% increase in capital spending through the first half of the year. We're in the process of expanding IDEXX facilities in China and India, We project significant ongoing growth opportunities across Asia, and these investments are critical to support our local for local approach as we move to the next level of competitive advantage. We're also focused on our digital strategy with our largest investments tied to our areas of higher integration and scale as we seek to drive higher impact for our customers. Lastly, as I mentioned previously, we're focused on operational productivity as market dynamics are changing, as well as investing in new technology to support growth. This is on both the CAPEX and OPEX side. Some of these investments are targeted at new applications in high-growth areas, like components to enable new global broadband satellite networks, building batteries for electric vehicles, and providing key products to support the build-out of incremental capacity and semiconductor manufacturing. These investments are combined with targeted spend in areas to support automation and efficiencies across the shop floor. This strategic approach to both inorganic and organic investment is already paying off and sets us up for ongoing success for years to come. Turning to our commercial results on slide eight, as I mentioned, order strength continued in the second quarter, both compared to prior year and sequentially, resulting in a backlog build of 65 million in the quarter. As we look across our segments, all rebounded well from the pandemic and delivered strong organic order growth. Sequentially, fluid and metering technologies and fire and safety diversified products saw increased orders compared to the first quarter. Our health and science technology segment also saw increased sequential orders if we exclude the impact of a COVID testing application de-booking that occurred in Q2. Order intake across all segments was also above second quarter 2019 levels. FMT lags HST and FSD due to lower levels of investment in the oil and gas markets as well as its concentration in the industrial market, which saw a pre-COVID pullback in the second half of 2019. These commercial results give us confidence in our ability to deliver double-digit growth in the second half of the year and continue to highlight the resilience of our businesses and the criticality of our solutions to customers. On slide nine, we provide a deeper look into our primary end market. Our focus is shifting from recovery to growth is most of our businesses are now performing above pre-pandemic levels. Even with pockets of concern around supply chain disruptions and COVID in certain geographies, we're optimistic about the outlook of our end markets and our ability to execute within them. In our fluid and metering technology segment, industrial day rates were strong. Supply chain challenges remained, but overall the market trajectory was at or above 2019 levels with only large projects lagging, as I mentioned earlier. Agriculture continued to drive strong growth, driven by aging farm equipment and record crop prices. Our water business was stable. We continue to monitor the impact of the federal infrastructure package on U.S. municipal spending. Energy and chemical markets continue to trail 2019 levels, primarily due to limited capital investment in the sector, as well as a longer project close cycle. One item to highlight for FMT is the impact of our FMD acquisition last year. It's now in our organic figures, and with its backlog burn last year and significant pullback in customers' capital investments, it impacted FMT's organic sales by 11%. In other words, FMT's organic sales for the quarter would have been 19% instead of 8%. Moving to the health and science technology segment, we're seeing recovery and pivot to growth across all our end markets. Semiconda and food and carpet continue to perform well. driven by strong market demand and winning sharing through our targeted growth initiatives. The overall automotive market continued to face supply chain-driven challenges, but we outperformed the market due to our product concentration in higher-end European vehicles. Our AI and life science markets continued to perform well as the pandemic impact eased and investments had increased. The industrial business within the segment saw a similar result to FMT. Finally, in our fire and safety diversified product segment, Dispensing rebounded as large retailers freed up capital and worked through pent-up demand for equipment. Our bandit business was adversely affected by U.S. automotive production pullbacks due to microprocessor shortages in the second quarter. However, we continue to achieve new platform wins and believe we're well positioned to outperform the market as supply chain constraints ease. In fire and rescue, we have yet to see larger tenders come back, and emerging markets remain slow. We continue to closely monitor market conditions and expect some choppiness in the second half of the year. That said, we're confident in the future trajectory of our end markets as well as our ability to execute on our strong backlog and have raised our organic growth expectation for the year. With that, I would like to turn it over to Bill to discuss our financial results.