IDEX CORP /DE/ Q3 FY2024 earnings call

• IDEX teams drove strong Q3 results with nice organic growth supported by excellent margins in Fluid & Metering Technology, Fire Safety, and Diversified Products segments. Free cash flow was $192 million, 33% of adjusted net income.
• Encouraged by orders growth in Health & Science Technologies segment and progress with Mott acquisition.
• Intelligent Water platform is a bright spot with significant opportunities as municipalities and industries cope with climate change. Examples include Envirosight Verisight ultra camera inspection system, Subterra's SewerScout, and Quantum XT ultrapure water heater and pumps from Trevor.
• Acquisition of Mott is off to a fast start with IDEX team members joining Mott's leadership team, and teams already working on innovative solutions together.

Fluid & Metering Technology (FMT)

• In Q3, experienced sequential and mid-single-digit plus organic year-over-year growth in orders across most businesses, but muted by ag cycle headwinds and push out in chemical project activity, resulting in total flat organic orders growth. Net sales were up 2% organically. Adjusted EBITDA margin decreased 160 basis points due to higher employee-related costs, discretionary spending, and unfavorable mix, partially offset by price/cost.

Health & Science Technologies (HST)

• Orders grew sequentially with 20% organic year-over-year growth, partially driven by blanket orders in life science and performance pneumatics businesses. Net sales were down 5% organically. Adjusted EBITDA margin declined 40 basis points year-over-year, primarily due to lower volume and higher employee-related costs, partially offset by price/cost, favorable operational productivity, and the net accretive impact of acquisitions and divestitures.

Fire Safety and Diversified Products (FSDP)

• Orders were up 4% organically, driven by Fire & Safety low double-digit growth, partially offset by declines in dispensing and BAND-IT. Net sales were up 4% organically. Adjusted EBITDA margin declined 20 basis points year-over-year, primarily due to unfavorable mix with positive price/cost offsetting higher employee-related costs

• Fourth quarter: Project organic sales to increase 3%-4% y/y. Anticipate adjusted EBITDA margin of ~27%, GAAP EPS $1.64-$1.69, adjusted EPS $2.01-$2.06. Mid- to high single-digit organic growth expected in FMT and FSDP; flat sales growth in HST.
• Full year: Adjusted EPS outlook unchanged. Expect organic revenues to decline 1%-2%, adjusted EBITDA margin ~27%. GAAP diluted EPS to range $6.65-$6.70, adjusted EPS $7.85-$7.90 in line with prior guidance.

• Macro environment uncertainty with no noticeable change, including impact of Fed rate drops, China's stimulus, and U.S. November election.
• Day-to-day order rates stable with absence of larger long-term project commitments.
• Uncertainty in recovery trajectory of key markets like defense, aerospace, satellite communication, semiconductors, and Life Sciences.

Q: Can we start with the tone of business, the day rates?

A: Day rates have been stable without inflection. Quoting activity is picking up a bit. Project and longer-term commitments remain in similar state with election overhang.

Q: Talk about critical mass for the Intelligent Water group?

A: Becoming collection experts, with assets positioned to focus on Stormwater Management. Subterra is a good example, and the group works to provide predictive insight.

Q: How do you manage collaboration across business units without losing decentralized structure?

A: Super flat organizational structure, wide and horizontal, with quality people and operating model allowing wide span. Focused strategy and talent development enable hybrid work.

Q: Thoughts on sequentials in fourth quarter?

A: Sequential ramp tied to a few projects like ABEL pumps, pharma MPT backlog, and Mott energy project. Future depends on fourth quarter actions and election impact.

Q: Thoughts on growth algorithm after portfolio reshaping?

A: Portfolio weights to faster-growing markets. Organic rates, inorganic growth, and 80/20 productivity drive growth.

Q: Dynamics in energy for FMT?

A: Energy market has softness due to warm winter, comparison issue from prior consolidation, and indirect relationship to election impact.

Q: View on China for FMT?

A: Tiny piece, North America leading, Europe stable, India good, China trailing but positive.

Q: Insights on HST orders and blanket orders?

A: Half of HST orders growth from blanket orders, indicating improvement in markets though semicon recovery pushed to mid-2025.

Q: EBITDA bridge and resource investment?

A: $12 million headwind tied to M&A spend, stock comp timing, and discretionary spend. Paybacks from targeted investments.

Q: Progress on Mott integration?

A: Early days, but integration is fast with teams partnering, and early excitement about acquisition.

Q: Status on Muon and recent M&A?

A: Muon not entirely semi-driven, with other components doing well. Work ongoing to integrate with other Applied Material Science businesses.

Q: Evolution of analog processes to digital?

A: Digital transformation in FMT, fire, and water businesses, with more seamless integration of information and automation.