Q2 2023 AMETEK Inc Earnings Call

August 1, 2023

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Good day and thank you for standing by welcome to the AMETEK second quarter 'twenty to 'twenty three earnings conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation, there will be a question and answer session to.

To ask a question during the session you will need to press star one one on your telephone you will.

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<unk>.

To withdraw your question. Please press star one one again please.

Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your Speaker today, Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you Bonnie good morning, and thank you for joining us for Ametek's second quarter 2022, 2023 earnings Conference call. Joining me today are Dave <unk>, Chairman and Chief Executive Officer, and Bill Burke Executive Vice President and Chief Financial Officer.

During the course of today's call, we'll be making forward looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results could differ significantly from expectations.

A detailed discussion of the risks and uncertainties that may affect our future results.

Paint and ametek's filings with the SEC.

AMETEK disclaims any intention or obligation to update or revise any forward looking statements.

Any references made on this call to 2022 or 2023 results.

2023 guidance will be on an adjusted basis, excluding after tax acquisition related intangible amortization.

Reconciliations between GAAP and adjusted measures can be found in our press release and on the investors section of our website.

We will begin today's call with prepared remarks by Dave and Bill and then we'll open it up for questions and now I'll turn the meeting over to Dave.

Thank you, Kevin and good morning, everyone.

AMETEK achieved exceptional performance in the second quarter marked by strong sales growth.

Standing operational execution and record results ahead of our expectations.

In the quarter, we established records for sales.

Operating income operating margins, earning.

Earnings per share and EBITDA.

We also ended the quarter with a record backlog.

Ametek's continued outstanding results reflect the strength of the AMETEK growth model.

The quality of our niche differentiated businesses.

The benefits from our organic growth initiatives and most importantly, the outstanding efforts from our dedicated colleagues.

Considering our strong second quarter results and the positive outlook for the remainder of the year. We are again, increasing our earnings guidance for the full year.

Now, let me turn to our second quarter results.

Second quarter sales were 165 billion up.

Up 9% over the same period in 2022 organic.

Organic sales growth was 5%.

Acquisitions added four points.

In the quarter and foreign currency was flat.

Our book to Bill ratio in the second quarter was 1.01, our 12th consecutive quarter of positive book to Bill.

As a result, we ended the quarter with a record backlog of 344 billion up $220 million from the end of 2022.

$1 6 billion or <unk>, 91% from the end of 2020.

Operating income in the quarter was a record $419 million, a 15% increase over the second quarter of 2022.

Operating margins were 25, 4% in the quarter up an impressive 130 basis points from the prior year.

EBITDA in the quarter was a record $496 million.

Up 12% over the prior year, while EBITDA margins were also impressive at 31%.

This operating performance led to record earnings of $1 57 per diluted share.

Up 14% versus the second quarter of 2022 and above our guidance range of $1 49 to $1 51 per share.

Now let me provide some additional details at the operating group level.

First the electronic instruments group.

Sure.

The electronic instruments group had a great quarter with excellent sales growth and tremendous operating performance sales for <unk> were 113 billion in the quarter up 10% from the second quarter of last year.

Organic sales were up a very strong 8% with acquisitions accounting for the balance of the growth.

Yes, I'd sales growth in the second quarter was widespread across each of our divisions with growth, particularly strong in our aerospace and defense and ultra precision technologies businesses.

Aig's operating performance was impressive was strong profit growth and margin expansion.

Operating income was $307 million.

Up 16% versus the prior year, while operating margins were 27, 1% up a robust 130 basis points from the prior year.

The electromechanical group also delivered strong <unk>.

Sales growth and excellent operating performance in the quarter.

Amg's second quarter sales were a record $511 million up 5% versus the prior year driven by the acquisition of Bison engineering with organic sales roughly flat in the quarter.

Emg's operating income in the quarter was $136 million up 10% compared to the prior year period.

Emg's second quarter operating margins were excellent at 26, 6% up 100 basis points versus the prior year.

Amg's core operating margins, which exclude acquisition dilution, we're up a sizable 180 basis points.

Overall AMETEK achieved outstanding performance in the second quarter of 2023.

In addition.

<unk> continued strong operating execution, our strong results speak to the attractiveness and diversity of the end markets we serve.

Our business is hold leading positions in attractive niche market segments.

Through our continued organic growth investments and strategic acquisitions we.

We are expanding our presence and market segments and niches aligned with strong secular growth drivers.

As a result, our businesses are well positioned with differentiated solutions to benefit from the meaningful and long term investments in areas such as electrification clean energy healthcare efficiency in manufacturing reassuring.

In addition to our alignment with strong growth markets AMETEK has seen great success from our organic growth initiatives and investments.

For all of 2023, we expect to spend over $100 million on incremental growth investments.

These investments are largely focused on expanding our sales marketing and commercial excellence initiatives as well as broadening our research development and engineering efforts.

Ametek's research development and engineering teams across our businesses consistently deliver innovative and next generation products tailored.

Tailored to meet the unique needs of our customers.

While there are numerous examples across the company I wanted to highlight our avocado business unit.

For their outstanding accomplishments.

<unk> is a leading provider of commercial off the shelf embedded computing systems for aerospace defense and specialized industrial applications.

Demand for <unk> solutions remains strong given our position as a leading provider of Ruggedized technology solutions with advanced thermal management capabilities.

<unk> was awarded the best overall design for high performance <unk> at the recent accelerator technology Innovation Awards.

<unk> also recently introduced our next generation integrated computing and graphics card with the latest GPU technology.

This provides our customers with advanced computing graphics processing and security capabilities required an AI focused applications, such as intelligence surveillance and reconnaissance radar signal processing and deep machine learning for autonomous systems.

In addition to abaco, many other businesses are well positioned.

The benefit from the growing demand for high computing power.

And analytics.

We recognize the pivotal role of organic growth initiatives and driving our overall growth strategy.

These investments in organic growth, coupled with our market leadership in attractive market exposures positioning the company for continued success in driving sustainable long term growth.

Now switching to our capital deployment and acquisition strategy.

Over the last three quarters, we deployed approximately $530 million on the acquisition of three businesses.

<unk>, our Tds and Bison engineering.

Each of these businesses is integrating nicely into AMETEK and each is very well positioned to capitalize on attractive growth opportunities in their markets.

Our acquisition pipeline remains very strong and our businesses and internal M&A teams are actively managing a number of opportunities.

AMETEK remains committed to leveraging our strong cash flow to pursue strategic acquisitions that align with our growth objectives.

With a robust balance sheet and significant financial capacity.

We are well positioned to support our acquisition strategy and capitalize on value creating opportunities in the future.

Now turning to our outlook for the remainder of the year.

While uncertainties in the macroeconomic environment continues to warrant caution in the short term.

We are confident in our ability to navigate through these challenges and deliver strong results.

Building upon our strong first half results and positive outlook for the remainder of the year, we are again, increasing our earnings guidance.

For the full year, we expect overall sales to be up mid to high single digits with organic sales expected to be up mid single digits.

Diluted earnings per share for the year are now expected to be in the range of $6 18 to $6 26.

Up 9% to 10% compared to last year's results.

This is an increase from our previous guidance range of $5 96 to $6 10 per diluted share.

For the third quarter, we anticipate overall sales to be up mid single digits with adjusted earnings of $1 56 to $1 58 per share up eight 9% versus the prior year.

In summary, AMETEK second quarter results were excellent.

Our businesses continued to deliver excellent performance benefiting from differentiated technology solutions that cater to diverse and growing niche markets.

It's a component the implementation of our organic growth initiatives has yielded higher levels of growth, while our portfolio remains aligned with attractive mid and long term markets.

Our asset light business model and strong cash flows provide us with the flexibility to navigate challenging environments, while actively deploying capital to drive increased shareholder value.

As a result, AMETEK remains firmly positioned to deliver long term sustainable growth.

I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, then we'll be glad to take your questions Bill.

Thank you Dave.

As Dave highlighted AMETEK had a very strong second quarter with record level operating performance and a high quality of earnings.

Now, let me provide some additional financial highlights for the second quarter.

Second quarter General and administrative expenses were $24 5 million essentially unchanged from the prior year as a percentage of sales or one 5% versus one 6% in last year's second quarter for.

For 2023 general administrative expenses are expected to be approximately one 5% of sales in line with last year's G&A to sales level.

Second quarter other income and expense was a $6 million headwind versus the prior period due largely to lower pension income in the quarter.

The effective tax rate was 18, 2% down slightly from the 18, 5% in the second quarter of 2022.

For 2023, we now anticipate our effective tax rate to be between 19% and 19, 5%.

And as we've 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 second quarter were $28 million and we continue to expect capital expenditures to be approximately $145 million for the full year or about 2% of sales, reflecting our asset light business model.

Yes.

Depreciation and amortization expense in the quarter was $82 million for the full year, we expect depreciation and amortization to be approximately $335 million, including after tax acquisition related intangible amortization of approximately $157 million or <unk> 68 per diluted share.

Operating working capital in the second quarter was 19% of sales.

Cash flow in the quarter was up meaningfully from the prior year.

Operating cash flow was $335 million up 42% from the prior year and free cash flow was $307 million up 47% from the second quarter of 2022.

Free cash flow conversion was 95% in the quarter and for the full year. We continue to expect approximately 120% free cash flow to net income conversion.

Total debt at June 30 was $2 2 billion.

Down from $2 $4 billion at the end of 2022.

Offsetting this debt is cash and cash equivalents of $606 million.

At the end of the second quarter, our gross debt to EBITDA ratio was one one times and our net debt to EBITDA ratio was 0.8 times.

We continue to have excellent financial capacity with approximately $2 9 billion of cash and existing credit facilities to support our growth initiatives.

In summary, our businesses continued to deliver exceptional results in the second quarter of 2023.

We delivered strong sales growth achieved robust margin expansion and a high quality of earnings.

Our leading positions across attractive market segments record backlog and outstanding operating capabilities have positioned us well for continued success in the back half of the year.

Kevin.

Thank you Bill.

Can we please open the lines for questions.

Alright sure.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to enjoy a question. Please press star one again.

And please standby, while we compile the Q&A roster.

Our first question is from the line of Allison <unk> of Wells Fargo. Your line is now open.

Hi, Good morning, Good morning, Allison could you maybe talk to your obviously book to Bill being positive is very strong outcome here just given some of the uncertainties that could you maybe talk to order trends that youre seeing since then anything concerning thing that you talked about sort of EBIT Lucas more in the longer term, but any short term kind of headwinds that youre starting to see.

See there thanks.

Great question, the overall demand environment still feels solid.

We had the 12th straight quarter of positive book to Bill.

Ended with an all time record of $344 billion. So our book to Bill was 1.01 and it was positive in both groups. So that's really great.

Our backlog is over 50% of our annual sales and well above normal historical levels.

Normal <unk> level of about 30%. So we're in a strong position as we proceed throughout 2023.

If you recall in the last couple of earning calls we have highlighted a couple of dynamics that would impact order growth in the first or difficult comparisons.

If you look at our over an extended period of time in fact in all of 2021 and 'twenty two we averaged 18% organic growth. So we have some difficult comps that we're running up against.

And the second dynamic we highlighted is our expectation to return to more normalized ordering patterns.

We had a situation where customers were ordering early and now let the supply chain is improving and getting back to normal.

Lead times are getting back to normal.

Seeing this dynamic play out.

But we are well positioned to deal with it and our record backlog and positive book to Bill give us confidence for the remainder of the year.

Great that's helpful and leverage clearly low here you talked about a pipeline pretty active can you maybe give us some color on sort of what's been holding it back is it still in terms of executing is it still I would say valuations at this point.

You're just not seeing anything of great interest just any comment there would be helpful. Thanks.

Our pipeline remains very strong and we're actively looking at a number of.

High quality deals across a broad set of our markets and as always we will remain disciplined.

So the discipline is in full force.

But we expect to be active in the back half of the year.

And more broadly over the next couple of years, we really have the opportunity to differentiate our performance.

With the M&A aspect of our growth strategy.

We're very well positioned with a strong balance sheet.

Really working hard at it and sometime you can't predict what quarter theyre going to <unk>.

Close on in what quarter Theyre going to happen, but the backlog is.

I had an elevated backlog of deals that are at an elevated level and we are extremely busy.

Got it. Thank you. Thank you Allison.

Yes.

Thank you one moment. Please while we proceed with the next question.

Our next question comes from the line up Matt Summerville from D. A Davidson <unk> company. Your line is now open.

Thanks, Good morning.

Good morning, Matt.

David could you maybe just go ahead and do the kind of around the horn. If you will with respect to the businesses. The decisions. What you saw in Q2 and how that informs your organic expectations for those areas for the balance of the year.

Glad to Matt.

I'll start with our largest market segment our process.

Segment, and overall sales for our process businesses.

We're up high single digits in the quarter.

That included mid single digit organic growth and contributions from the recent acquisition of Navistar.

Growth remained solid across each of our process divisions with <unk>.

As mentioned in the prepared remarks, our ultra precision technologies business.

Evered, notably strong growth and driven by high end optics and metrology businesses.

We also grow saw solid growth across our med tech businesses.

The Rollins business that we mentioned a couple of quarters ago continues to perform extremely well.

So for the full year, we continue to expect mid single digit organic growth for the process businesses very solid.

The aerospace and defense.

The growth remains very strong across our aerospace and defense businesses in.

In the quarter, both overall and organic sales were up low double digits on a percentage basis.

And it really was reflective of strong solid performance in all of the sub segments in A&D.

Growth was particularly strong across our aftermarket businesses.

As air travel returns to pre pandemic levels driving.

Very strong demand for MRO products and services.

And given the strong growth in the quarter. We now expect sales for the full year to increase low double digits on a percentage basis versus 2022, So we increased our outlook for our aerospace and defense businesses.

Moving to power and industrial overall sales were up mid teens on a percentage basis in the second quarter.

And that was really fueled by mid single digit organic sales growth and the contributions from the <unk> acquisition, which is performing extremely well.

Organic growth in the quarter was strongest in our power test and measurement business programmable power.

And for the full year.

We continue to expect mid single digit organic sales growth for our power and industrial businesses.

And finally, our automation and engineered solutions.

Overall sales were up mid single digits with mid single digit decline in organic sales being offset by the contributions from the bison acquisition.

And as we noted previously in my question, Dallas, and I talked about normalization of inventory levels is continuing across our OEM businesses and the impact is most significant in our automation business.

For the full year, we now expect organic sales for our automation and engineered solutions business to be up low single digits.

With stronger growth expected across our <unk> businesses.

That's the best across the around the horn.

Thanks, David I appreciate that and then maybe just to your last point can you maybe comment on how long this normalization.

This normalization periods that you feel may.

It may last with respect to automation and then if you could maybe just to switch gears, a little bit give a little bit of geographic color in terms of what youre seeing both organically and from an incoming order rate standpoint. Thank you, yes. They go out too.

In terms of the automation business.

I think it's going to last.

A couple of quarters, it's probably going to bottom near the end of this year and what we have there is the the end markets for automation or very interesting the places where the inventory correction as steep as it with our medical technology customers with our life Sciences customers had been positioned on a lot of Covid test.

Equipment also our semiconductor, especially in the memory areas is weak right now so the.

Yes.

Correcting and its going to correct in the second half, but I really think what the end markets that that business serves as coil to respond so.

In an upward fashion so.

We kind of saw this coming.

It's impacting OEM businesses, but very significantly in our automation business, but we are positioned well to manage through that increase our guidance and because.

Because we're really operating well.

Productivity programs are progressing nicely as I mentioned, the <unk> recent acquisitions are performing very well.

Price inflation, we have good visibility.

And the A&D business is accelerating its our highest margin segment.

Now moving onto your next question.

Really feel good about the geographical story around AMETEK, two we saw strong broad based growth across all segments.

The U S was up mid single digits.

We had broad based strength notable strength in our process in aerospace and defense businesses.

Europe was up high single digits really really positive performance there with notable strength in our process and power businesses.

And.

Asia was up three points with notable strength in process.

Okay, Matt Thank you David Alright.

Thank you one moment please for the next question.

Our next question comes from the line of Deane Dray of RBC capital markets. Your line is now open.

Thank you and good morning, everyone. Good morning Deane.

First I'm going to start with a shout out compliment for that one pager and your website that gives you the quarter recap and backlog and free cash flow I don't know I didn't see the timing in the first quarter, but we really appreciate having that up on the website. So thank you.

Welcome.

With a lot of good questions, we've gone through already just.

Yeah on this normalization and we're seeing that everywhere and it seems to be not.

Not very disruptive for you all is there an opportunity maybe this is for bill.

Would you be releasing any buffer inventory as things start to normalize you go from.

Just in case a bit closer to just in time is that an opportunity.

Absolutely and Thats something our businesses are very much focused on we did all the right things to two.

Work, our way through the supply chain protect our customers given our extensive backlogs, but as that starts to normalize our businesses are pivoting now to reducing inventories and I think you'll see that happen as we as we move through the second half of the year.

That was the timing we were looking for and maybe some commentary on price cost any kind of pricing carryover benefit and contribution from new products in the quarter.

Yes.

Price issue in the second quarter, we continued to more than offset inflation.

Our pricing was about 5% and inflation was about 4%.

And that gave us a positive spread of approximately 100 basis points. So solid performance there.

We're seeing decreasing costs in some commodities and logistics.

<unk> offset by other costs and wages and travel but.

I feel like we have that really under control with good visibility and the results there is speak to.

The highly differentiated nature of ametek's product portfolio.

Great new products new products.

Solid quarter.

4% of sales for our vitality index. So what's happening is our customers are.

Buying our new products.

Our new products have really good markets and.

So we feel really good about that and.

Significant introduced introductions across the business I mentioned.

The abaco introduction in the workday one but.

While these are these are not.

Homerun type swings and our product development is spread out across the business, but we have a lot of good things going on.

You can get to the hall of Fame with lots of singles and doubles that's right.

Tech strategy. Thank you.

Yes.

Thank you Dave.

Thank you one moment please for the next question.

Our next question comes from the line of Christopher Glynn Oppenheimer and company incorporated your line is now open.

Thanks, Good morning, Dave Bill Kevin.

Morning, Chris.

So reacting figure.

John Abaco, you've closed that out talking about.

Demand for high computing power and analytics like many other A&D businesses wondering if we could dive into that last delusion there.

Yes, when I'm talking about other businesses I'm talking about the.

Whats happening for example in some of our.

Process instrumentation businesses, we're doing a lot of.

Work there too.

Improve bringing some.

<unk> technologies that we are in the lab to the field.

And as especially.

Our spectral scientific business, where.

There is a lot of technology that we're putting in smart technology, where there's AI algorithms in it and we're doing measurements that were previously done in the lab now we're doing in the field. So that's really good and that's all around our predictive maintenance programs that we have with spectra analytics. So we're really positive on that.

You think about.

Are some of our materials analysis businesses. There is tremendous amount of data that we're taking from materials analysis, and we're showing our user stat and unique.

<unk> weighs highlighting the technologies our measurement technology. So you have situations, where the graphics powers of graphics intensity of what we're doing is just kind of state of the art. So.

But really across our businesses a couple of trends around predictive maintenance trends around moving the measurements to the field.

Trends around in the research environment and analytical computational power.

To take the data that we have and provide our users with of actionable intelligence is would be the areas I'd highlight.

Thanks.

It's very interesting.

Then <unk>.

Curious about any areas that might be inflicting higher I think the question do you worry about anything kind of reaching an inflection or peak junctures, but you did raise the aero defense market and.

I think defense might be one particular area if you could elaborate thanks.

On both our aerospace and defense markets, we have not peaked.

Demand is strong.

In the commercial market, but I talked about it but outlook for the year, both commercial and the.

The defense market have low double digit outlooks.

So we're really well positioned in the defense market and some of the things I talked about with Abigail play to that but both sides of A&D commercial and defense are strong.

And we clearly have not peaked.

Thank you.

To ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Alright, and our next question.

Alright, well only please comes from the line up Brett Linzey of Mizuho. Your line is now open.

Hi, Good morning, all good morning, Brett.

Hey, just wanted to come back to orders was hoping you might be able to provide some context for how things track throughout the quarter any preliminary view on July and is there anything notable to glean from the changes in the mix of orders between.

<unk> or capex related versus more opex purchases.

Yes, I'll answer the second part of that first then the thing that I would clean it's more OEM versus end user.

So if we have Oems between our product and customer the <unk>.

Mmm are have inventory in place and as we.

Get back to a more normalized.

Activities the OEM parts of the business are where the orders normalizing on the end user.

Out of the business, we're not seeing that.

Really at all in end demand still remains strong.

Regarding to your first question regarding the how we've progressed throughout the month.

We had.

Solid orders in Q2.

As typical orders ramp higher each month of the quarter.

So June was the highest month of the quarter and notably when we adjust for acquisitions because when you close an acquisition you book the entire.

Backlog is order input so we take that out and if we look to the last couple of years Cumulus is like the highest booking or the second highest booking month in the last couple of years. So June was really strong so.

And then in terms of July .

It's a.

Just just closed last night and I havent really dug into it at a deep level, but it's certainly up to that point was.

In line with the growth that we're telling.

Communicating here, where we are increasing our guidance for the second half after the year very substantially.

Okay, great. Thanks, and then just shifting over to pricing as we do work through this normalization of some of the destock dynamic are there any areas you think there is.

Maybe price concessions or do you think you can hold the line on price if not grow it in your business is there.

There's going to be.

Just a small amount of give back we're going to retain the vast majority were to retain the vast majority of pricing.

On a go forward basis.

I expect that inflation to moderate a bit, but we're going to keep the 100 basis points spreads. So we feel real good about the VA.

Analysis in the control and what's playing out with price so.

<unk> will retain the price and.

Certainly not going to be a big give back.

Okay, Great I'll leave it there thanks, Thank you Brett.

One moment please for the next question.

Okay.

Our next question comes from the lineup and you open of Bank of America. Your line is now open.

Thank you this is David Ridley Lane on for Andrew <unk>.

So David I guess.

Good morning.

I guess, what's directionally embedded in the revenue guidance for year, ending backlog I understand there is going to begin this normalization of the backlog I'm wondering if you see that sort of playing out in second half or is that more of a 2024 story.

And as I mentioned in the last couple of calls I do expect our sales to outpace orders in the second half of the year, but.

It will be a moderate impact and we'll end the year with.

Historically high backlog in comparison to what we've done in the past so it'll be a modest impact as we progress.

Progress through the second half of the year.

Thank you and then if I'm doing the math right guidance seems to imply about 40% core incremental margins.

Versus kind of prior expectations of 30% to 35.

What's the what's been improving whats been going better than you expected.

Yes margin performance has been great and.

<unk> and <unk>.

Second second quarter, we had really healthy core incrementals of 52%.

So.

You are correct on your outlook for the year and it probably is a bit higher because of our performance has been outstanding.

If you look at.

Reported and core were both up 130 basis points at the company level healthy Incrementals and.

We think for the full year, the Incrementals will be similar in both groups and 40% is a good number.

Thank you very much thank you David.

Thank you one moment please for our next question.

Our next question comes from the line of Joe Giordano of Cowen. Your line is now open.

Hi, Good morning. This is zane on for Joe Giordano.

Hello.

Hey, I just wanted to check if.

Is there any color you guys can provide on like some specific end markets in terms of any any customer in cincy, specifically looking forward. If you have any color on.

Any slowdowns on the medical side like pressure on biotech because we're hearing from.

I think people who are in the industry that there has been some pressure on some slowdown in that area.

I had mentioned that some of our automation customers are in the med Tech and life Sciences World and we are seeing.

The impact of inventory destock and Thats included in our overall guidance, but in terms of our overall medical business.

Not including that piece of the.

Automation business Q2, we were up mid teens, so really strong and strong growth in our engineered medical components business.

Very significant performance for AMETEK in the second quarter and for the full year.

Great. Thank you.

Thank you.

Alright, so I do not see any other questions at this point I would now like to turn the conference back to Kevin Coleman for closing remarks.

Hey, do you have any for all your health and thank you for joining us for our conference call today and as a reminder, a replay of today's webcast can be accessed in the investors section of AMETEK Dot com have a great day.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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Good day and thank you for standing by welcome to the AMETEK second quarter 2023 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to.

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Please be advised that today's conference is being recorded.

I'd now like to hand, the conference over to your Speaker today, Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

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 risks and uncertainties that may affect our future results is contained in ametek's filings with the SEC.

AMETEK disclaims any intention or obligation to update or revise any forward looking statements.

Any references made on this call to 2022 or 2023 results or to 2023 guidance will be on an adjusted basis, excluding after tax acquisition related intangible amortization.

Reconciliations between GAAP and adjusted measures can be found in our press release and on the investors section of our website.

We will begin today's call with prepared remarks by Dave and Bill and then we'll open it up for questions and now I'll turn the meeting over to Dave.

Thank you, Kevin and good morning, everyone.

AMETEK achieved exceptional performance in the second quarter marked by strong sales growth outstanding operational execution and record results ahead of our expectations.

In the quarter, we established records for sales.

Operating income operating margins.

Earnings per share and EBITDA.

We also ended the quarter with a record backlog.

Ametek's continued outstanding results reflect the strength of the AMETEK growth model that.

The quality of our niche differentiated businesses to.

The benefits from our organic growth initiatives and most importantly, the outstanding efforts from our dedicated colleagues.

Considering our strong second quarter results and the positive outlook for the remainder of the year. We are again, increasing our earnings guidance for the full year.

Now, let me turn to our second quarter results.

Second quarter sales were 165 billion.

9% over the same period in 2022.

Organic sales growth was 5% acquisitions added four points.

In the quarter and foreign currency was flat.

Our book to Bill ratio in the second quarter was 1.01, our 12th consecutive quarter of positive book to Bill.

As a result, we ended the quarter with a record backlog of $3 $44 billion up $220 million from the end of 2022 and up $1 6 billion or <unk>, 91% from the end of 2020.

Operating income in the quarter was a record $419 million, a 15% increase over the second quarter of 2022.

Operating margins were 25, 4% in the quarter up an impressive 130 basis points from the prior year.

EBITDA in the quarter was a record $496 million up.

Up 12% over the prior year, while EBITDA margins were also impressive at 31%.

This operating performance led to record earnings of $1 57 per diluted share.

Up 14% versus the second quarter of 2022 and above our guidance range of $1 49 to $1 51 per share.

Now let me provide some additional details at the operating group level.

First the electronic instruments group.

Sure.

Okay.

Organic sales were up a very strong 8% with acquisitions accounting for the balance of the growth.

Yes, I'd sales growth in the second quarter was widespread across each of our divisions with growth, particularly strong in our aerospace and defense and ultra precision technologies businesses.

Aig's operating performance was impressive was strong profit growth and margin expansion.

Operating income was $307 million.

Up 16% versus the prior year, while operating margins were 27, 1% up a robust 130 basis points from the prior year.

The electromechanical group also delivered strong sales growth and excellent operating performance in the quarter.

Amg's second quarter sales were a record $511 million up 5% versus the prior year driven by the acquisition of Bison engineering with organic sales roughly flat in the quarter.

Emg's operating income in the quarter was $136 million up 10% compared to the prior year period.

Emg's second quarter operating margins were excellent at 26, 6% up 100 basis points versus the prior year.

<unk> core operating margins, which exclude acquisition dilution, we're up a sizable 180 basis points.

Overall AMETEK achieved outstanding performance in the second quarter of 2023.

In addition.

<unk> continued strong operating execution, our strong results speak to the attractiveness and diversity of the end markets we serve.

Our business is hold leading positions in attractive niche market segments.

Through our continued organic growth investments and strategic acquisitions we.

We are expanding our presence and market segments and niches aligned with strong secular growth drivers.

In addition to our alignment with strong growth markets AMETEK is seeing great success from our organic growth initiatives and investments.

For all of 2023, we expect to spend over $100 million on incremental growth investments.

These investments are largely focused on expanding our sales marketing and commercial excellence initiatives as well as broadening our research development and engineering efforts.

Ametek's research development and engineering teams across our businesses consistently deliver innovative and next generation products tailored.

Tailored to meet the unique needs of our customers.

While there are numerous examples across the company I wanted to highlight our avocado business unit.

For their outstanding accomplishments.

<unk> is a leading provider of commercial off the shelf embedded computing systems for aerospace defense and specialized industrial applications.

Demand for <unk> solutions remains strong given our position as a leading provider of Ruggedized technology solutions with advanced thermal management capabilities.

Abaca was awarded the best overall design for high performance <unk> at the recent accelerator technology Innovation Awards.

<unk> also recently introduced our next generation integrated computing and graphics card with the latest GPU technology.

In addition to abaco, many other businesses are well positioned.

The benefit from the growing demand for high computing power.

And analytics.

We recognize the pivotal role of organic growth initiatives and driving our overall growth strategy.

These investments in organic growth, coupled with our market leadership in attractive market exposures positioning the company for continued success in driving sustainable long term growth.

Now switching to our capital deployment and acquisition strategy.

Over the last three quarters, we deployed approximately $530 million on the acquisition of three businesses.

An avatar or Tds and bison engineering.

Each of these businesses is integrating nicely into AMETEK and each is very well positioned to capitalize on attractive growth opportunities in their markets.

Our acquisition pipeline remains very strong and our businesses and internal M&A teams are actively managing a number of opportunities.

Okay.

AMETEK remains committed to leveraging our strong cash flow to pursue strategic acquisitions that align with our growth objectives with a robust balance sheet and significant financial capacity.

We are well positioned to support our acquisition strategy and capitalize on value creating opportunities in the future.

Now turning to our outlook for the remainder of the year.

While uncertainties in the macroeconomic environment continues to warrant caution in the short term.

We are confident in our ability to navigate through these challenges and deliver strong results.

Building upon our strong first half results and positive outlook for the remainder of the year, we are again, increasing our earnings guidance.

For the full year, we expect overall sales to be up mid to high single digits with organic sales expected to be up mid single digits.

Diluted earnings per share for the year are now expected to be in the range of $6 18 to $6 26.

9% to 10% compared to last year's results.

This is an increase from our previous guidance range of $5 96 to $6 10 per diluted share.

For the third quarter, we anticipate overall sales to be up mid single digits with adjusted earnings of $1 56 to $1 58 per share up eight 9% versus the prior year.

In summary, AMETEK second quarter results were excellent.

Our businesses continued to deliver excellent performance benefiting from differentiated technology solutions that cater to diverse and growing niche markets.

It's a component the implementation of our organic growth initiatives has yielded higher levels of growth, while our portfolio remains aligned with attractive mid and long term markets.

Our asset light business model and strong cash flows will provide us with the flexibility to navigate challenging environments, while actively deploying capital to drive increased shareholder value.