IDEX Corporation (IEX) Earnings

Management highlights

- **Overall Quarterly Performance - IDEX delivered stronger-than-expected Q2 2026 results, with 5% overall organic sales growth, 28% overall organic order growth, 70 basis point year-over-year expansion of adjusted EBITDA margin to 28.1%, and 12% adjusted EPS growth to $2.32. - Results were driven by higher volumes across the company's growth platforms and strong operational execution. A net 8 cent benefit from IEPA tariff refunds is included in reported adjusted EPS; even excluding this benefit, results exceeded Q2 guidance. - The company generated $177 million in free cash flow, ended the quarter with over $1.1 billion in liquidity, and reduced gross leverage to 1.9x from 2.1x year-over-year. - **Growth Platform and End Market Highlights - High-growth advantage end markets (data center, semiconductor, space and defense) now make up over a third of HST revenue, with approximately 50% recurring revenue in HST's semiconductor portfolio. - The Intelligent Water platform within FMT delivers double-digit growth, driven by strong demand for municipal wastewater analytics and ultra-high purity water solutions for semiconductor fabrication, where IDEX's differentiated offering reduces water consumption. - Mining growth in FMT is led by acquired business Apple Pumps, which focuses on critical minerals mining and has benefited from 80-20 resource allocation focused on this end market. - North American fire demand within FSDP continues a multi-year trend of strong demand and backlog, with growth supported by embedded differentiated automation technology. - **Strategic and Operational Execution - The 80-20 framework is used to prioritize resource allocation to the highest-value, highest-growth opportunities, especially at newly acquired businesses, to drive future margin expansion. - Capital deployment remains focused on capex for high-growth businesses, regular share repurchases, dividends, and bolt-on M&A focused on expanding growth platform capabilities. The company repurchased $77 million in shares in Q2, 53% higher year-over-year, and plans to maintain ~$75 million quarterly repurchases through 2026. - Geographic strength is led by North America, with steady performance in Europe, faster growth in India, and stable performance in China despite broader macro softness in that market.

Guidance

- Full-year 2026 organic growth guidance is raised to 5% to 6%, up from the prior guidance range of 3% to 4%. The guidance balances low double-digit growth for HST and slightly up year-over-year growth for FMT and FSDP. - Full-year 2026 adjusted EBITDA margin guidance is raised to 27% to 27.3%, up from the prior range of 26.5% to 27%. - Full-year 2026 adjusted EPS guidance is raised to $8.70 to $8.85, up from the prior range of $8.35 to $8.55, representing high single-digit to low double-digit year-over-year growth. - Q3 2026 guidance calls for 5% to 7% organic growth, adjusted EBITDA margin of 27% to 27.5%, and adjusted EPS of $2.20 to $2.25. - Full-year 2026 capital expenditure guidance is increased from $90 million to approximately $110 million, to fund select capacity expansions to support high-growth, high-return businesses, primarily in HST to meet 2027 and 2028 demand.

Segment performance

1. **Health and Science Technology (HST)**: Organic revenue grew 12% year-over-year, with organic orders up 47% year-over-year. Growth was driven by strong demand in semiconductor, data center, and space and defense end markets, which now represent over a third of HST revenue. Adjusted EBITDA margin expanded 270 basis points year-over-year to an undisclosed level, with a 90 basis point net benefit from IEPA tariff refunds; underlying margin performance was strong. HST contributes low double-digit organic growth to the consolidated company outlook. 2. **Fluid Metering and Technology (FMT)**: Organic revenue grew 1% year-over-year, with organic orders up 11% year-over-year, reaching a record of over $1 billion. Strength came from the water platform and mining end markets, partially offset by softness in ag, chemical, and energy end markets. Adjusted EBITDA margin declined 20 basis points year-over-year, with an 180 basis point net benefit from IEPA tariff refunds; the underlying margin performance was in line with Q2 guidance. FMT is projected to deliver slightly up year-over-year organic growth for full-year 2026. 3. **Fire, Safety and Diversified Products (FSDP)**: Organic revenue declined 1% year-over-year, while organic orders grew 19% year-over-year. Order growth was boosted by strong aerospace demand (including a large blanket order) and continued momentum in North American fire and integrated systems. Sales declined due to expected lower activity in dispensing and softer performance in European rescue markets, partially offset by aerospace strength. Adjusted EBITDA margin decreased 50 basis points year-over-year, with a 120 basis point net benefit from IEPA tariff refunds, driven by unfavorable mix and volume deleverage partially offset by productivity improvements. FSDP is projected to deliver slightly up year-over-year organic growth for full-year 2026.

Risks & headwinds

- Broader industrial demand and short-cycle order flow remains uncertain, as customers still face uncertainty around geopolitical tensions, interest rate direction, and persistent inflation. - Actual future results may differ materially from management's forward-looking expectations due to a variety of unforeseen risks and uncertainties, which are detailed in the company's SEC filings and press release.

Analyst Q&A

• Q: Mike Halloran asked for commentary on short-cycle traditional end markets, how they are improving, and what the current backlog build and forward visibility looks like compared to historical patterns. /

  A: Management explained that in contrast to typical inflection points where short-cycle small order flow leads recovery, longer-lead direct OEM orders tied to secular growth drivers (water, mining, data center) drove backlog build first in Q2. Small order flow through distribution channels began improving at the end of Q2 and has continued into July. For HST, backlog has been building for 18 months with a sharp inflection higher in early 2026; at mid-2026, the company has twice as much 2027 business locked in compared to the prior year, mostly in high-growth data center, semiconductor, and space & defense end markets, giving much greater forward visibility than usual.

• Q: Brian Blair asked for detail on IDEX's differentiated intelligent water platform, and whether double-digit growth can be sustained or will normalize. /

  A: Management explained the platform has two core drivers: the first is municipal wastewater inspection and analytics, which is well-positioned to benefit from global aging infrastructure and increased focus on addressing flood and pollution issues, following the acquisition of EnviroSight to expand portfolio breadth. The second high-growth driver is differentiated ultra-high purity water heating solutions for semiconductor fabrication, which reduce water consumption compared to competing products, aligning with industry sustainability needs. Both segments are currently performing well, with no signs of a downturn on the horizon, supporting continued strong growth.

• Q: Nathan Jones asked what the additional capex is funding, and updated the company's current capital allocation strategy for M&A and share repurchases going into 2027/2028. /

  A: The vast majority of the increased capex is allocated to HST to expand capacity for the three high-growth end markets, and is intended to meet demand in 2027, 2028 and beyond, not to resolve current bottlenecks. For capital allocation, management is actively pursuing bolt-on acquisition opportunities to expand and strengthen existing growth platforms, with proprietary cultivation of opportunities in HST's core high-growth areas. Consistent quarterly share repurchases at the current ~$75 million pace will remain the base case going forward, with repurchase levels flexed up or down based on M&A deal activity.

• Q: Brett Lindsey asked what incremental margin expectations are for HST as mix shifts to higher-growth advantage end markets, and how IEPA tariff rebates will impact future quarters. /

  A: Management confirmed that the mix shift to higher gross margin advantage businesses will lead to higher incremental margin flow through than historical levels for HST. Excluding IEPA impacts, HST delivered high-30s percentage margin flow through in Q2 2026, and this higher flow through rate is expected to continue through the second half of 2026 and into 2027. Almost all IEPA refunds and associated customer rebates were recorded in Q2, with only immaterial marginal impacts expected in future quarters.