Q3 2023 IDEX Corp Earnings Call

Greetings and welcome to IDEXX Corporation's third quarter 2023 earnings Conference call. At this time all participants are in 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.

Mind you. This conference is being recorded I would now like to turn the conference over to your host Allison the losses.

You may begin.

Good morning, everyone. This is Allison losses, interim Chief Financial Officer, and Chief Accounting Officer for IDEXX Corporation.

Thank you for joining us for our discussion of the IDEXX third quarter 2023 financial highlights.

Last night, we issued a press release outlining our company's financial and operating performance for the three months ending September 32023.

The press release, along with the presentation slides to be used during today's webcast can be accessed on our company website at IDEXX Corp Dotcom.

Turning me today is Eric Ashman, our Chief Executive Officer and President.

Today, we will begin with Eric providing an overview of the state of IDEXX This business.

Well, then discuss IDEXX third quarter financial results and update on segment performance in the markets, we serve and our outlook for the fourth quarter and full year 2023.

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 8776606853 and entering conference I'd 13734464.

Or simply log on to our company homepage for the 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 IDEXX <unk> filings with the Securities and Exchange Commission.

With that I'll now turn this call over to our CEO and President Eric Ashlin.

Thanks, Alison and good morning, everyone I have some important news on slide five before turning to our results and outlook I'd like to introduce Alison losses, who is serving as our interim CFO.

Alison has been with us for over two years, serving as our Vice President and Chief Accounting Officer. She also leads our Investor Relations and financial planning and analysis functions. During her tenure at IDEXX Allison has done an outstanding job serving as a strong partner to our former CFO Bill Grogan and myself.

Thank you Alison for all you're doing and your expanded interim role and I would also like to thank bill for his many years of service at IDEXX.

So as you saw in our release yesterday, we are pleased to announce that a beat tend to wall is joining IDEXX in November as our next CFO of.

He joins us from multi color Corporation, a global packaging services and label solutions provider, where he served as CFO.

Prior to that he served as senior Vice President and CFO of <unk> International.

He previously worked at IDEXX for over 10 years, serving as my financial partner during most of my term as CEO.

We're thrilled to have him back with us and I consider us very fortunate to have leaders like obese and Allison at the top of our finance organization.

With that I'll turn to our Q3 performance I'm on slide seven.

IDEXX delivered strong results in the third quarter delivering robust profitability in an environment, where volumes are stabilizing at lower levels.

Also generated excellent cash flows as we continued to execute on our cost containment and inventory reduction plans.

I'd like to thank our IDEXX teams around the globe for their contributions in driving these outstanding results. This was very solid execution in a difficult environment.

Unknown Executive: Greetings and welcome to Idex Corporation's third quarter, 2023 Earnings Conference Call. At this time, all participants are on a list and only mode. A question and answer session will follow the formal presentation.

Recall that we expected our industrial and municipal markets within FMT and FSD P to reach the end of an elongated and moderate destocking cycle within the third quarter.

Unknown Executive: 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.

That played out as expected.

Our analytical instrumentation life Sciences pharma and semi con markets within HST largely held at equilibrium in Q3 and bounced along the bottom after an unprecedented rapid destocking cycle in the first half of the year.

Allison Lausas: I would now like to turn the conference over to your host, Allison Lausas. Thank you, you may begin. Good morning, everyone.

Allison Lausas: This is Allison Lausas, Interim Chief Financial Officer and Chief Accounting Officer for Idex Corporation. Thank you for joining us for our discussion of the Idex third quarter, 2023 Financial Highlights. Last night, we issued a press release, outlining our company's financial and operating performance for the three month ending September 30, 2023. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company website at idexcorp.com.

Taken together this moves IDEXX into a very natural position, where lead times backlogs and next quarter visibility all aligned with typical pre pandemic profiles.

Looking forward, we continue to see divergence between end market prospects, there are discrete attractive opportunities within each of our segments.

Many of which are tied to transformational catalysts within environmental sustainability or critical infrastructure.

Examples include water analytics space broadband and battery production.

Allison Lausas: Joining me today is Eric Ashlamin, our Chief Executive Officer and President. Today, we will begin with Eric providing an overview of the state of Idex's business. I will then discuss Idex third quarter financial results, an update on segment performance in the markets they serve, and our outlook for the fourth quarter in full year 2023. Following our prepared remarks, we will open the call for your questions. If you should need to access 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 Idee 137-344-644. Or simply log on to our company homepage for the webcast replay.

These sit within a broader framework of uncertainty driven by macro concerns that include higher interest rates and expanding geopolitical risk most specifically demand rebounds for our most pressured HST businesses appear to have moved out a bit into 2024.

We continue to believe that organizational agility speed of decision, making outstanding business quality and our strong culture has served us well to navigate the twists and turns ahead.

We can both dynamically assigned capital and resources to our best near term opportunities, while we stay focused on our long term strategy of profitable growth outperformance.

In terms of capital deployment M&A continues to be a top focus within our funnel builds we are aggressively following complementary threads between our most growth advantaged businesses and technologies as we seek to build out breakthrough competitive advantage. We did this recently with our next site acquisition extending our reach within water analytics through enhanced hardware.

Allison Lausas: 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 idex's filing with the Securities and Exchange Commission.

And software capabilities, our Iridium acquisition earlier this year boosted integrated capabilities within thin film optics.

Eric Ashleman: With that, I'll now turn this call over to our CEO and President, Eric Ashlamin. Thanks, Allison, and good morning, everyone. I have some important news on slide five.

Our inorganic pipeline is robust and of high quality, allowing us to engage in M&A with discipline and strong strategic intent and our balance sheet has ample capacity to continue to execute on our best opportunities. Finally, we divested our micropump business during the quarter and repaid $150 million on our term note facility as we can.

Eric Ashleman: Before turning to our results and outlook, I'd like to introduce Allison Losses, who is serving as our interim CFO. Allison has been with us for over two years, serving as our Vice President and Chief Accounting Officer. She also leads our investor relations and financial planning and analysis functions. During her tenure at Idex, Allison has done an outstanding job serving as a strong partner to our former CFO, Bill Grogon, and myself. Thank you, Allison, for all you're doing and your expanded interim role, and I'd also like to thank Bill for his many years of service at Idex.

To focus on long term growth occasional portfolio realignment will occur.

We expect this transfer of ownership will better position micropump as it joins the collection of like minded businesses focused on similar technologies and customers I would like to express my appreciation for all the microphone team has done since joining IDEXX in 1995 with that I'll turn it over to Alison to discuss our financial results.

Eric Ashleman: Also, as you saw in our release yesterday, we are pleased to announce that a B candle wall is joining Idex in November as our next CFO. A B joins us from multi-color corporation, a global packaging services and label solutions provider, where he served as CFO. Prior to that, he served as Senior Vice President and CFO of Circle International. He previously worked at Idex for over 10 years, serving as my financial partner during most of my term as COO. We're thrilled to have him back with us, and I consider us very fortunate to have leaders like a B, an Allison at the top of our finance organization.

Thanks, Eric moving on to our third quarter consolidated financial results on slide nine.

Unknown Executive: Organization.

All comparisons are against the third quarter of 2022, unless otherwise stated.

Orders of $712 million were down, 9% overall and down 11% organically.

We experienced an organic decrease within our <unk> segment and organic growth in FSD.

Sales of $793 million were down, 4% overall and down 6% organically, we experienced a 15% organic decrease from HST and a 1% decrease in FMT.

Eric Ashleman: With that, I'll turn to our Q3 performance, I'm on slide seven. Idex delivered strong results in the third quarter, delivering robust profitability in an environment where volumes are stabilizing at lower levels. We also generated excellent cash flows as we continued to execute on our cost containment and inventory reduction plans. I'd like to thank our Idex teams around the globe for their contributions in driving these outstanding results. This was very solid execution in a difficult environment.

<unk> revenues grew organically by 3%.

Gross margin of 44.1% decreased by 220 basis points compared with last year.

Adjusted gross margin decreased 90 basis points, primarily due to lower volume leverage and unfavorable mix, which was partially offset by strong operational productivity and price cost.

Eric Ashleman: We call that we expected our industrial and municipal markets within FMT, an FSDP, to reach the end of an elongated and moderate destocking cycle within the third quarter. That played out as expected. Our analytical instrumentation like sciences, pharma, and semi-con markets with an HST largely held at equilibrium in Q3 and bounced along the bottom after an unprecedented rapid destocking cycle in the first half of the year. Taken together, this moves Idex into a very natural position, where lead times, backlogs, and next quarter visibility all align with typical pre-pandemic profiles.

Adjusted EBITDA margin was 28, 4% down 30 basis points I will discuss the drivers of adjusted EBITDA on the next slide.

On a GAAP basis, our Q3 effective tax rate of 22% was lower than our effective rate in the third quarter 2022 of 21, 8%.

The rate was driven down by both the Finalization of research expenditure capitalization treatment that served to increase tax benefits on foreign sourced income and a tax election related to the Milan acquisition that reduced our minimum tax on foreign earnings.

These favorable rate items were partly offset by tax recorded on the gain from the micro pump divestiture and are not expected to have a significant impact on our fourth quarter rate.

Eric Ashleman: Looking forward, we continue to see divergence between end-market prospects. There are discreet, attractive opportunities within each of our segments, many of which are tied to transformational catalysts within environmental sustainability or critical infrastructure. Examples include water analytics, space broadband, and battery production. These sit within a broader framework of uncertainty driven by macro concerns that include higher interest rates and expanding geopolitical risk. Most specifically, demand rebounds for our most pressured HST businesses appear to have moved out a bit into 2024.

Net income was $209 million, which resulted in GAAP EPS of $2.75 adjusted.

Adjusted net income was 161 million with adjusted EPS of $2.12, which is down to four 1%.

The lower tax rate contributed 11 of adjusted EPS favorability in the current quarter compared to both the prior year and the midpoint of our third quarter guidance.

Eric Ashleman: We continue to believe that organizational agility, speed of decision-making, outstanding business quality, and a strong culture of service well to navigate the twists and turns ahead. We can both dynamically assign capital and resources to our best near-term opportunities while we stay focused on our long-term strategy of profitable growth out performance.

Finally cash from operations of $227 million was up 14%, primarily due to lower working capital driven by inventory reductions.

Free cash flow for the quarter was $207 million up 14% versus last year and achieved a conversion rate of 129% of adjusted net income.

Eric Ashleman: In terms of capital deployment, M&A continues to be a top focus. Within our funnel builds, we are aggressively following complimentary threads between our most growth advantage businesses and technologies as we seek to build out breakthrough competitive advantage. We did this recently with our next site acquisition, expanding our reach within water analytics through enhanced hardware and software capabilities. Our already in acquisition earlier this year boosted integrative capabilities within thin film optics. Our re- and organic pipeline is robust in a high quality, allowing us to engage in M&A with discipline and strong strategic intent. And our balance sheet has ample capacity to continue to execute on our best opportunities.

We drove over $25 million of inventory out of the business in the third quarter through our targeted reduction efforts and we saw inventory turns remained consistent with last quarter due to lower sales.

Moving on to slide 10, which details the drivers of our third quarter adjusted EBITDA.

Adjusted EBITDA decreased by $6 million compared to the third quarter, 2022, or 6% organic sales reduction unfavorably impacted adjusted EBITDA by $37 million flowing through at our prior year adjusted gross margin rate.

<unk> cost was accretive to margins and we drove operational productivity that offset employee related inflation.

Eric Ashleman: Finally, we divested our micropump business during the quarter and repaid 150 million on our term note facility. As we continue to focus on long-term growth, occasional portfolio realignment will occur. We expect this transfer of ownership will better position micropump as it joins the collection of like-minded businesses focused on similar technologies and customers. I would like to express my appreciation for all the micropump team has done since joining iDex in 1995.

Mix was unfavorable by $6 million, mainly centered in HST due to continued volume declines in our analytical instrumentation life science and semiconductor components.

Resource and discretionary spending was favorable versus last year as we continue to execute on our cost containment plan given the top line pressure we are experiencing reductions.

Reductions in variable compensation expense contributed $8 million of benefit in the quarter.

Allison Lausas: With that, I'll turn it over to Alison to discuss our financial results. Thanks, Eric. Moving on to our third quarter consolidated financial results on slide 9. All comparisons are against the third quarter of 2022 unless otherwise stated. Orders of 712 million were down 9% overall and down 11% organically. We experienced an organic decrease within our HST and FST segment and organic growth in FSD. Sales of 793 million were down 4% overall and down 6% organically.

These results yielded a negative 31% organic flow through.

Overall, our teams focus on cost containment and resource reallocation has effectively managed our revenue decline.

Ensuring continuity of our most valuable resources has IDEXX well positioned to recover and grow back stronger than before with market dynamics term favorable.

We want an iridium acquisitions net of night, and Micropump divestitures and FX contributed an additional $9 million of adjusted EBITDA.

Allison Lausas: We experienced a 15% organic decrease in HST and a 1% decrease in FNT. FSD revenues grew organically by 3%. Growth margin of 44.1% decreased by 220 basis points compared with last year. Adjusted growth margin decreased 90 basis points, primarily due to lower volume leverage and unfavorable mix, which was partially offset by strong operational productivity and price cost. Adjusted EBITDA margin was 28.4% down 30 basis points. I will discuss the drivers of adjusted EBITDA on the next slide.

With that I'll provide a deeper look at our segment performance.

I'm on page 11.

In our fluid <unk> metering technology segment orders decreased by 5% organically, mainly due to an expected slowdown in our industrial businesses and continued customer destocking in our agriculture business.

Sales decreased by 1% organically driven by this destocking impact, partly offset by favorable energy chemical and water performance.

We began to see our industrial order day rates decline in the second quarter of this year and they remained steady at that level throughout the third quarter.

Allison Lausas: On a gap basis, our Q3 effective tax rate of 20.2% was lower than our effective rate in the third quarter 2022 of 21.8%. The rate was driven down by both the finalization of research expenditure, capitalization treatment, that served to increase tax benefits on foreign source income, and a tax election related to the Milan acquisition that reduced our minimum tax on foreign earnings. These favorable rate items were partly offset by tax recorded on the gain from the micro-pumped divestiture and are not expected to have a significant impact on our fourth quarter rate.

Although our customers continue to exercise caution due to recession concerns and lower energy prices, we see tailwind tied to domestic infrastructure initiatives and within mining.

Within the agriculture, we continue to experience the impact of distribution destocking exacerbated by declining net farm income and crop prices are.

Our delivery continues to outperform our competitors and we are focused on targeted share gain to offset this pressure.

Additionally, the acquisition of T E valve and the adoption of its automated actuation technology is delivering strong results.

On the energy side, we continued to execute well driving down backlogs and lead times underlying market demand remains steady, but we expect to see revenue declines versus third quarter as our backlog position normalizes.

Allison Lausas: Net income was 209 million, which resulted in gap EPS of $2.75. Adjusted net income was 161 million, with adjusted EPS of $2.12, which is down 2 cents or 1%. The lower tax rate contributed 11 cents of adjusted EPS favorability in the current quarter, compared to both the prior year and the midpoint of our third quarter guidance. Finally, cash from operations of $227 million was up 14%, primarily due to lower working capital driven by inventory reductions.

In the chemical market, we continue to see positive results across the U S Europe, and Asia with pharma and battery applications, providing opportunities for growth.

Our water business continues to exhibit growth our opportunity funnels are increasing and we see no signs of municipal project funding delays as we approach 2024.

Adjusted EBITDA margin expanded 50 basis points compared to last year, primarily due to strong price cost and favorable operational productivity more than offsetting lower volume leverage.

Allison Lausas: Free cash flow for the quarter was $207 million, up 14% versus last year, and achieved a conversion rate of 129% of adjusted net income. We drove over $25 million of inventory out of the business in the third quarter through our targeted reduction efforts, and we saw inventory turns through main consistent with last quarter due to lower sales. Moving on to slide 10, which details the drivers of our third quarter adjusted EBITDA.

Moving to the HST segment.

We experienced a 24% organic orders decrease and a 15% organic sales decrease mainly due to pressure across the life sciences analytical instrumentation and semiconductor markets as well as industrial market performance similar to that within FMT.

Allison Lausas: Adjusted EBITDA decreased by 6 million, compared to the third quarter 2022. Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by 37 million flowing through at our prior year adjusted gross margin rate. Price cost was a creative to margins, and we drove operational productivity that offset employee-related inflation. Mix was unfavorable by 6 million, mainly centered in HST, due to continued volume declines in our analytical instrumentation, life science, and semiconductor components. Resource and discretionary spending with favorable versus last year, as we continue to execute on our cross-continent plan given the top-line pressure we are experiencing.

Adjusted EBITDA margins contracted by 410 basis points, primarily due to lower volume leverage and unfavorable mix, partially offset by strong price cost and favorable operational productivity.

Our analytical instrumentation business continues to experience customers, Destocking, which remains driven by China's softness.

Lower pharma biopharma spending and overall caution around the global economy.

We expect that performance will remain stable at this level in the fourth quarter with improvement in 2024.

We see a similar trend within our life science business.

Semiconductor continues to experience softness with the expectation that the market has reached bottom in the third quarter.

We anticipate a broader market will begin to recover at some point in 2024.

Allison Lausas: Reductions and variable compensation expense contributed 8 million of benefit in the quarter. These results yielded a negative 31% organic flow through. Overall, our team's focus on cross-continent and resource reallocation has effectively managed our revenue decline. Ensuring continuity of our most valuable resources has Idex well-positioned to recover and grow back stronger than before when market dynamics turned favorable. Luan and Eredian acquisitions net of night and micropumped vestitures and effects contributed an additional 9 million of adjusted EBITDA.

We continue to see positive results stemming from our space broadband laser communication initiatives, which are bolstered by iridium <unk> technological capabilities are.

Our material processing technology business continues to experience softness across pharma markets, but are seeing some early signs of improvement within biopharma food and nutrition as well as tailwind, it's connected to leveraging our technology and battery production application.

Industrial markets in HST slowed in the quarter in line with F Mt's results.

Allison Lausas: With that, I'll provide a deeper look at our segment performance. I'm on page 11. In our fluid and metering technology segment, orders decreased by 5% organically, mainly due to an expected slowdown in our industrial businesses and continued customers destocking in our agriculture business. Sales decreased by 1% organically driven by this destacking impact partly offset by favorable energy, chemical, and water performance. We began to see our industrial order day rates decline in the second quarter of this year, and they remain steady at that level throughout the third quarter.

Finally, turning to our fire and safety diversified products segment.

Organic orders grew by 2% versus third quarter last year and organic sales grew 3% with strong fire and safety results more than offsetting destocking at band it.

Adjusted EBITDA margins expanded by 150 basis points, primarily due to strong price cost and favorable operational productivity, partially offset by unfavorable mix and lower volume leverage.

The paint market remains mixed the uncertain global macro environment is driving consumer confidence lower while at the same time the construction market in North America remains strong.

Allison Lausas: Although our customers continue to exercise caution due to recession concerns and lower energy prices, we see tailwinds tied to domestic infrastructure initiatives and within mining. Within agriculture, we continue to experience the impact of distribution de-sbacking exacerbated by declining net farm income and crop prices. Our delivery continues to outperform our competitors, and we are focused on targeted share gain to offset this pressure. Additionally, the acquisition of PZBELV and the adoption of its automated actuation technology is delivering strong results.

Within our fire business, we do not see any significant changes to North America fire OEM production capacity, we continue to win through value added integrated systems, and technology and standardized offerings that enable higher OEM through pipe.

Our Europe and Asia businesses remained steady.

Rescue performance remained steady as well, although we are seeing some signs of north American budget delays and inventory reduction due to high borrowing costs.

Band It continues to outperform our relatively flat U S auto market due to having content on high priority vehicles.

Allison Lausas: On the energy side, we continue to execute well, driving down backlogs and lead times. Underlying market demand remains steady, but we expect to see revenue declines versus third quarter as our backlog position normalizes. In the chemical market, we continue to see positive results across the US, Europe, and Asia with farmer and battery applications providing opportunities for growth. Our water business continues to exhibit growth. Our opportunity fundals are increasing, and we see no signs of municipal project funding delays as we approach 2024.

There is some pressure on the energy side, driven by lower oil prices and we experienced some destocking within aviation.

With that I would like to provide an update on our outlook for the fourth quarter and full year 2023.

I'm on slide 12.

In Q4, we are projecting GAAP EPS to range from $1 50 to $1 55, and adjusted EPS to range from $1 74 to $1 79.

Organic revenue is expected to decline 8% to 9%.

Allison Lausas: Adjusted EBITDA margin expanded 50 basis points compared to last year, primarily due to strong price cost and favorable operational productivity more than offsetting lower volume leverage. Moving to the HST segment, we experience the 24% organic orders decrease and a 15% organic sales decrease, mainly due to pressure across the life sciences, analytical instrumentation, and semiconductor markets, as well as industrial market performance similar to that within FMT. Adjusted EBITDA margins contracted by 410 basis points, primarily due to lower volume leverage and unfavorable mix, partially offset by strong price and favorable operational productivity.

And adjusted EBITDA margins are expected to be about 26%.

We expect that our HST revenues will be slightly unfavorable versus our previous guide offset by FMT volume's landing better than expected.

Equally our strong execution in the third quarter allowed us to work through our backlog faster than expected. This is driving an equal and offsetting five cents of impact to third quarter results and fourth quarter expectations.

Turning to the full year 2023, we are maintaining our full year organic revenue guidance of down 1% to 2% at.

At the midpoint, we have raised our EPS guidance by 'twenty.

With approximately 11 cents driven by lower third quarter effective tax rate and the remainder coming from third quarter operational outperformance, partly offset by five cents of revenue timing due to accelerated backlog burn in the third quarter.

Allison Lausas: Our analytical instrumentation business continues to experience customer's beef backing, which remains driven by China's softness, lower pharma, biopharma spending, and overall caution around the global economy. We expect that performance will remain stable at this level in the fourth quarter with improvement in 2024. We see a similar trend within our life science business. Semiconductor continues to experience softness with the expectation that the market has reached bottom in the third quarter. We anticipate a broader market will begin to recover at some point in 2024.

In summary, we estimate full year organic revenue contraction of one to two per cent T. L. GAAP EPS of $7.91 to $7.96 and adjusted EPS of $8 13 to $8.18.

Adjusted EBITDA margin is expected to be approximately 27.5% capital expenditures are anticipated to be about $80 million and free cash flow is expected to be 100% of adjusted net income with that I'll turn it over to the operator for your questions.

Allison Lausas: We continue to see positive results stemming from our space, broadband laser communication initiative, which are bolstered by irradiance technological capabilities. Our material processing technology business continues to experience softness across pharma market, but are seeing some early sidings of improvement within biopharma, food and nutrition, as well as tailwinds connected to leveraging our technology and battery production application. Industrial markets in HST slowed in the quarter in line with FMT's results.

Thank you.

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Allison Lausas: Finally, turning to our fire and safety diversified product segments. Organic orders grew by 2% versus third quarter last year, and organic sales grew 3% with strong fire and safety results, more than offsetting the stocking at bandit. Adjusted EBITDA margins expanded by 150 basis points, primarily due to strong price cost and favorable operational productivity, partially offset by unfavorable mix and lower volume leverage. The paint market remains mixed. The uncertain global macro environment is driving consumer confidence lower while at the same time the construction market in North America remains strong.

Our first question comes from Deane Dray with RBC capital markets. Please proceed with your question.

Thank you and good morning, everyone.

Hey, Dan.

First I'll start with congratulations on the CFO news, we've heard from a couple of former IDEXX executives, who were seeing all these appraisers. So that's five years you got him to rejoin and then can I add my thanks to Allison for all our help in her role as interim CFO.

Thanks for both comments.

Thank you.

You're very welcome so maybe Eric for some big picture questions macro you're great at kind of synthesizing all the different inputs here and Havent knows the macro is giving us a lot of mixed signals, but maybe just click through like the day rates.

Allison Lausas: Within our fire business, we do not see any significant changes to North America fire OEM production capacity. We continue to win through value ad integrated systems and technology and standardized offerings that enable higher OEM throughput. Our Europe and Asia businesses remain steady. Rescue performance remains steady as well, although we are seeing some signs of North American budget delays and inventory reduction due to high borrowing costs. Bandit continues to outperform a relatively flat U.S, auto market due to having content on high priority vehicles. There is some pressure on the energy side driven by lower oil prices, and we experience some destocking within aviation.

That started to slow in the second quarter Whats your take on that lead times and anything from that Youre, leading businesses like band. It Warren Rupp that suggest how things are going to play out over the near term.

Yeah, well I mean, we often refer to those as they are kind of canaries in a coal mine.

We discretely track about five of those businesses and keep an eye on weekly order rates and do it if the sort of small order flow day to day stuff level, we parse out projects.

Allison Lausas: With that, I would like to provide an update on our outlook for the fourth quarter and full year 2023. I'm on slide 12. In Q4, we are projecting gap EPS to range from $1.50 to $1.55 and adjusted EPS to range from $1.74 to $1.79. Organic revenue is expected to decline 8 to 9%, and adjusted EBITDA margins are expected to be about 26%. We expect that our HST revenues will be slightly unfavorable versus our previous guide offset by FMP volumes landing better than expected. Equally, our strong execution in the third quarter allowed us to work through our backlogs faster than expected. This is driving an equal and offsetting five cents of impact to third quarter result and fourth quarter expectation.

Well, what we can see them there is frankly between the second and the third quarter are almost dead on flat.

So the kind of moderate destocking cycle that we predicted at the beginning of the year I think largely played out.

Through the first half of the year, and frankly moderated and even quarter to month to month within the quarter, we didn't see a lot of changes there. So.

What that says is kind of our distributors because theres a lot in that world.

Our end users all of US we're kind of back to the right inventory position based on our quick replenishment.

Fast lead times.

And now I think.

It goes into the question of sort of an uncertain environment. When does it start to flex upwards those would be the businesses of course, we would watch to see early indications of that.

So for right now it's flattened out.

Allison Lausas: Turning to the full year 2023. We are maintaining our full year organic revenue guidance of down one to two percent. At the midpoint we have raised our EPS guidance by 20 cents with approximately 11 cents driven by lower third quarter effect rate and the remainder coming from third quarter operational outperformance partly offset by five cents of revenue timing due to accelerated backlog burn in the third quarter. In summary, we estimate full year organic revenue contraction of one to two percent to yield gap EPS of $7.91 to $7.96 and adjusted EPS of $8.13 to $8.18. Adjusted EBITDA margin is expected to be approximately 27.5 percent capital expenditures are anticipated to be about 80 million and free cash flow is expected to be 100 plus percent of adjusted net income with that.

It's holding there is decent activity out there, there's certainly opportunities here and there, but not signaling any any further trouble and waiting to see if it.

And bring sports some more encouraging signs alright appreciate all that color and then the second question is in HST in the analytical instruments life Sciences, and I'll preface this with no.

No one has gotten this right so far.

Yep.

Whether it's the thermo N and danaher and that whole group its been a pretty fluid and so I wanted to see your degree of confidence that.

We're bottoming here because there is some suggestion that it's not just destocking, but there might be some.

Some end market demand here and this equipment the analytical instruments side.

Some demand falling off so it seems to have gotten worse in October. So just your degree of confidence how does this calibrate that.

Unknown Executive: I'll turn it over to the operator for your question. Thank you. At this time, we'll be conducting a question and answer session. If you like to ask a question, please press star one on your telephone keypad. A confirmation to all indicate your line is in the question queue. You may press star two if you like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

The first half of 'twenty four for this business for you.

So I want to take a little time here, because I think I got to set our context in relation to those comments in the environment you described.

First of all as I said in the prepared remarks, I mean, we're talking about four buckets of business, primarily they kind of fall into this category analytical.

Instruments life Science of course, that's that's the larger piece of it.

Pharma exposure as well as semi con that's about half of HST and that's the piece that where we are.

Dean Dray: Our first question comes from Dean Dre with RBC capital markets. Please proceed with your question. Thank you.

Describing when we walk through this.

Eric Ashleman: Good morning, everyone. Hey, Dean. First, let's start with congratulations on the CFO news. We've heard from a couple of former IDACs executives who are seeing obvious praises. So that's fabulous. You got them to rejoin. And then can I add my thanks to Allison for all her help and her role as interim CFO. Thanks for both comments. Thank you. You're very welcome. So maybe Eric, for some big picture questions, macro, your grade, it kind of synthesizing all the different inputs here and having knows that macro is giving us a lot of mixed signals.

I want to back up and say if you think about timeline you actually have to go back we're almost a year into this for us because of the short cycle nature. We actually saw some of this noise in Q4 of last year.

And as you said, we and others.

I have to get our heads around the fact that it's actually been a series of additive components.

Laid out here over the course of that year.

Initially thought it was just simply aggressive demand turning to something more moderate and of course, we felt that in in our businesses in Q4.

Then it was a reexamination of inventory positions and just frankly seen way too much of it at many points and of course that Destocking played out.

Eric Ashleman: But maybe just click through like the day rates. That's hard to slow in the second quarter. You know what you take on that lead times and anything from that you're leading businesses like Bandit and Warren Rupp that suggest how things are going to play out open in your term. Yeah. Well, I mean, we often refer to those as the kind of canaries in our coal mine and we discreetly track about five of those businesses and keep an eye on weekly order rates and do it at the sort of, you know, small order flow day to day stuff level.

I think here in the second and third quarter, it's been kind of a second or third inning. If you will.

Some concerns about some macro forces is probably the most significant being China's contribution or lack thereof.

As we going forward relative to what it has been in earlier periods. So there's kind of three things have played out what I think that's done for US is of course, we felt that pretty aggressively in the earlier piece or let's say that a lot of businesses because of the component nature of the products we make.

More moderately.

In the last quarter.

And I can see that our backlog position our visibility within the quarter are kind of inventory position and factories, where we supply that's an equilibrium.

Eric Ashleman: We parse out projects. What we can see in there is frankly, between the second and the third quarter, they're almost dead on flat. You know, so the kind of moderate destiking cycle that we predicted at the beginning of the year, I think largely played out, you know, through the first half of the year and frankly moderated. Even quarter to months a month within the quarter, we didn't see a lot of changes there.

So I don't see any more external forces or things that would come in there are simply trying to unwind the past that does mean frankly that.

We're kind of open to the recovery loop.

That's ahead of us and the uncertainty of when it will occur and how it might play out.

Eric Ashleman: So, you know, what that says is kind of our distributors, because there's a lot in that world. Our end users, all of us, we're kind of back to the right inventory position based on our quick replenishment, you know, our fast lead times. And now, I think, you know, it goes into the question of sort of an uncertain environment. When does it start to flex upward? Those would be the businesses. Of course, we would watch to see early indications of that.

And again I back up a little bit and say, we're hitting that from four different levels. So while there could be some things that falloff in other places as people kind of think about demand and where they may go maybe some of those are in the life Science Arena as you know.

We're going to have some other things that are going to potentially be working against that that may washed that out in the interim so equilibrium a little bit more.

More of a variable term for us, but I think those abnormal abnormal shocks to the system that we saw play out over the last year or so we're essentially saying that those are behind us and now like everybody else, we can lean forward.

Eric Ashleman: So, for right now, flatten out. It's, you know, it's holding. There's decent activity out there. There's certainly opportunities here and there, but not signaling any any further trouble and waiting to see if it and brings forth some more encouraging funds. I appreciate all that color. And then the second question is in HST and the analytical instruments, life sciences, and I'll preface this with no one has gotten this right so far. You know, whether it's the thermo and Dan or and that whole group, it's been pretty fluid.

And it kind of poke at the customer level and take a look at what people are doing in innovation streams and start to play out of course from here.

That's all very helpful context, Eric Thank you.

King.

Our next question is from Mike Halloran with Robert W. Baird. Please proceed with your question.

Hey, good morning, everyone.

Hi, Mike.

So I want to follow up to both those questions been asked so just just to make sure im clear on what you're seeing on the life science and analytical instrumentation side.

Eric Ashleman: And so I want to just say your degree of confidence that, you know, we're bottoming here because there's some suggestion that it's not just destocking, but there might be some some end market demand here. And this equipment, the analytical instrument side, some demand falling off. So it seems to have gotten worse in October. So just your degree of confidence. How does this calibrate the first half of 24 for this business? for you.

You're not necessarily saying that you're expecting the end market to recover from ear and some sort of linear fashion or anything like that you're just saying sell in is that the point, where it's matching with sell out or am I misinterpreting that.

No I think thats, a good probably summarized it a little better than I did but I was trying to make sure people can understand that context for us again we're.

What's really important to recognize here, where we're inside the life science instrument at a component level are inside the lithography instruments. So.

These are critical items Barry's last SaaS replenishment and so yes, I was describing us kind of unwinding a series of unnatural patterns, but we are now in sync and we are in sync and essentially opened to the same variability that that end market is at this point.

Eric Ashleman: You know, pharma exposure as well as semi-con. That's about half of HST and, you know, that's the piece that we're, you know, we're describing when we walk through this. Then I want to back up and say, you know, if you think about timeline, you actually have to go back, we're almost a year into this for us. Because of the short clinical nature, we actually saw some of this noise in Q4 of last year.

Exactly and so as you get into next year, that's where the variability is but at least the comps are easy.

<unk> from call it mid <unk> type range.

Yeah.

Yes, certainly as the year progresses as accounts get increasingly easier.

Yes.

Got it and then and then you talked about the short cycle side of things.

From a destock perspective that makes a lot of sense, maybe higher level. How are you thinking about the economically sensitive parts of your business as we head into 'twenty four.

Eric Ashleman: And as you said, we and others, you know, I think I have to get our heads around the fact that it's actually been a series of additive components. You know, let's plate out here over the course of that year. Initially, thought it was just, you know, simply aggressive demand, turning to something more moderate. Of course, we felt that in our businesses in Q4. Then it was a re-examination of inventory positions and just frankly seeing way too much of it at many points.

The risk profile as you see it doesn't sound like the day rates, you're saying that there's there's much worsening going on now.

Maybe someone else being clouded by the Destocking. So just some help as we were thinking.

<unk>.

I mean, it's it is interesting I think the industrial system is still performing at a pretty high level I mean, the day rates that we're talking about here that that flatness that I described and those carry levels, that's pretty healthy business that suggest people are working factories are producing things and putting it to work.

Eric Ashleman: And of course that the stocking played out. I think here in the second and third quarter, it's been, you know, kind of a second or third inning, if you will, you know, some concerns about some macro forces, probably the most significant being China's contribution or lack thereof, you know, as we going forward relative to what it has been in earlier periods. So kind of three things have played out what I think that's done for us is of course we felt that pretty aggressively in the earlier piece service here that a lot of businesses because of the component nature of the products we make.

Certainly around it though discussions around longer term commitments or things that are going to happen in the spring of next year I mean, they're just they're harder conversations to have because of all the uncertainty that people are feeling to pick anything from the higher interest rate position of the increasing geopolitical risks that's out there consequences.

Eric Ashleman: And here more moderately in the in the last quarter. And I can see that our backlog position, our visibility within the quarter are kind of inventory position and factories where we supply that's in equilibrium. So I don't see any more external forces or things that would come in there simply trying to unwind the past. That does mean frankly that, you know, that we're kind of open to the recovery loop that's ahead of us and the uncertainty of when it will occur and how it might play out.

A major election in the U S. Next year, so I can see to see a lot of people on the one side continuing to kind of for gas on the.

And the things that are happening day to day.

But kind of backing up with a wait and see approach.

At a higher level, just because of uncertainties for anything that's sort of past the horizon.

Yeah. It makes sense, what one quick follow up clarification for Allison.

Did you say that <unk> shifted from <unk> into <unk> I, just wanted to clarify what that statement yourselves.

Eric Ashleman: And again, Dean, I back up a little bit and say we're hitting that from four different levels. So while, you know, there could be some things that fall off in other places as people kind of think about demand and where they may go. Maybe some of those are in the life science arenas, you know, that we're going to have some other things that are going to potentially be working against that that may wash that out in the interim.

That's correct Mike Okay.

Our aggressive back backlog pull down in third quarter. So it's just a shipment shifted timing within the back half of the year.

Great I was just making sure I have the direction correct I appreciate it thanks, everyone.

Eric Ashleman: So equilibrium's a little bit more of a variable term for us, but I think those abnormal, abnormal shocks to the system that we saw play out over the last year or so. We're essentially seeing that those are behind us. And now, like everybody else, we can lean forward, you know, going and kind of poke at the customer level and take a look at what people are doing and innovation strings and start to plan our course from here. That's all very helpful context, Sarah. Thank you. Thanks, Dean.

Thanks, Mike.

Our next question comes from Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Hey, Nathan.

I guess I'll.

I'll ask a question about the order rates here.

Is it possible for you to kind of separate out what you think is <unk>.

Michael Halloran: Our next question is from Mike Halorand with Robert W. Baird. Please proceed with your question. Hey, good morning everyone. Hi, Mike. So I want to follow up to both those questions, Dean asked. So just to make sure I'm clear on what you're saying on the life science and analytical instrumentation side. You're not necessarily saying that you're expecting the end market to recover from here and some sort of linear fashion or anything like that.

Declining customer backlogs versus what actual decline in end market demand.

And I guess, what I'm trying to get at here is if you are talking about inventory correction, having happened and we move to selling more towards sell through.

Would imply then that you should see sequential improvement in the actual dollars of orders in both of those businesses as we move into the fourth quarter.

Michael Halloran: You're just saying selling is at the point where it's at matching with sell out. Or am I missing to I think that's a good, we probably summarized it a little better and I did, but I was trying to make sure that people can understand that context for us. Again, what's really important to recognize here, we're inside, you know, the life science instrument at a component level or inside the lithography instrument. So, you know, these are critical items, various last fast replenishment.

Yes.

Well look again I put a lot of weight on the predictive abilities of those.

Early indicator businesses that we have to talk a lot about sort of day to day, how the system is operating so I think that again that stability means a lot.

In this environment order patterns do change a little bit remember an earlier comment I have there for Mike I mean, I think I think you're seeing people moving to shorter increments of order patterns. They know now companies like certainly IDEXX, we get we can deliver with faster replenishment or.

Michael Halloran: And so, yes, I was describing us kind of unwinding a series of unnatural patterns, but we are now in sync. And we're in sync and essentially open to the same variability that that in market is at this point. Exactly. And so as you get into next year, that's where the variability hits, but at least the cons are easy starting from, call it mid forward Q onward type range. Well, yeah, certainly as the year progresses, the college could increase always easier.

Our customer satisfaction metrics are really good. So if you feel any uncertainty you don't have to give us nearly the same kind of visibility in your order requirements that you had to you know to.

Two quarters ago or a year ago.

So I think you do see a piece of that the changes in the order profiling more of a order it as you go.

Michael Halloran: Got it. And then you talked about the short cycle side of things from a destack perspective, that makes a lot of sense. Maybe higher level, how are you thinking about the economically sensitive parts of your business, as we head into 24, you know, the risk profile as you're seeing it doesn't sound like the day rates are saying that there's much worsening going on. But maybe some of that's being clouded by the destack, so just some help as we think.

And so and again, we we ate into some pretty aggressive backlog and along the way.

And any time lead times keep coming down I mean that does tend to influence order patterns for folks on the other side. So I think it's things like that playing out by and large around a pretty stable base, especially on the industrial side.

To me says I think this is a stable environment, but one that's looking for the next catalyst.

Michael Halloran: Yeah, I mean, it is interesting. I think the, you know, the industrial system is still performing at a pretty high level. I mean, the day rates that we're talking about here that that flatness that I described in those canary levels, that's pretty healthy business that suggests people are working factories are producing things and putting it to work. Certainly around it, though, you know, discussions around longer term commitments or things that are going to happen in the spring of next year, I mean, they're just the harder conversations to have.

And I guess my follow up question I know you guys don't do a lot of large projects that you have stuff that goes into larger projects and I think you've asked is debating concern that rising interest rates and inflation.

Changing the dynamics changing the ROI for customers on those investments can you talk about what you're seeing on customers' willingness to let out these larger capital projects.

Historically you've seen.

Michael Halloran: Because of all the uncertainty that people are feeling to pick anything from the higher interest rate position or the increasing geopolitical risk that's out there, consequences of a major election in the US next year. You see a lot of people on the one side, continuing to kind of forecast on the, you know, on the things that are happening day to day, but kind of backing up with a wait and see approach.

People hesitate.

In these kinds of environments. So just any color you can give us on what youre, saying that yes.

That's probably a piece of the answer to your last question as well.

The certainty around projects like that is not very good.

And you've got some people that are you know they are still talking about them, but they start to move that time horizon, we're getting closer to 2020 for like a magnet and so it becomes a reference point.

Michael Halloran: At a higher level, just because of uncertainties for anything that sort of passed the horizon. That makes sense. One quick follow up clarification for Allison. Did you say that five cents shifted from four to into three to I just want to clarify what that statement was. That's correct, Mike. So we find progress of back backlog pull down in third quarter. So it's just a shift of timing within the back half of the year. Great. I was just making sure I had the direction correct. Appreciate it. Thanks everyone. Thanks, Mike.

And a point on the calendar, where people are pointing to where things might come to fruition in that in that side of it again contextually for us.

Not all of our businesses, but we will see it as part of a plant expansion commitment or something like that for food or something related to infrastructure. So those kind of discrete things that require a lot of capital would come together a lot of planning I think there is a lot more uncertainty around them and it's instead it's.

Running the current system faster and you know a little bit a little bit longer before you you rebuild it due to that same level of uncertainty.

Nathan Jones: Our next question comes from Nathan Jones with Steve. Please proceed with your question. Good morning, everyone. Nathan. I guess I'll ask a question about the order rate here. The order rate in FMT, the actual dollars of orders, a bit lower than 3Q than in 2Q and orders in HST in 3Q a bit lower than 2Q. Is it possible for you to kind of separate out what you think is? Declined in customer backlogs versus what actual declined in end market demand.

Great. Thanks for taking my questions. Thanks.

Thanks, Mike.

Our next question comes from Allison <unk> with Wells Fargo. Please proceed with your question Hi, Good morning, It's Eric I just wanted to go back to HST one of the things IDEXX has been known for it is investing through the cycle could you maybe talk to the new product development cycle and analytical instrumentation life science.

Is or maybe even how youre thinking about that investment hasn't slowed at all should we expect maybe a slower organic coming out of this just any thoughts there.

Nathan Jones: And I guess I'm trying to get out here is if you're talking about inventory correction having happened and we move to sell in more towards sell through, wouldn't that imply then that you should see sequential improvement in the actual dollars of orders in both of those businesses as we move into the fourth quarter? Yeah, but well, like again, I put a lot of weight on the predictive abilities of those early indicator businesses that we have to talk a lot about sort of day to day, how the system is operating.

Well, it's actually I'm glad you mentioned that because in many ways at ground level in those businesses you kind of see two IL two realities sitting side by side and they are actually quite different one is the near term reactive reality.

What's happened over here and the end of last year, and where order levels on a daily requirements are lots of cost containment and being Super crisp up.

Productivity and just getting the product out.

But even at the customer level I mean, I think you've seen that entire world is spending a lot of time thinking through okay. What do we need to do to innovate to get ahead of the game in the next cycle because I can't find anybody that doesn't see that theres going to be something more positive coming out of the same megatrends that have been driving that sector forever.

Nathan Jones: So I think that, again, that stability means a lot in this environment. And order patterns do change a little bit. Remember, the earlier comment I had there for Mike, I mean, I think you're seeing people moving to shorter increments of order patterns, they know now companies like them and certainly I'd expect we can deliver with faster punishment, our customer satisfaction metrics are really good. So if you feel any uncertainty, you don't have to give us nearly the same kind of visibility in your order requirements that you had to, you know, two quarters ago or a year ago.

Very far out ahead of us and will occur again.

When they do we're seeing at the customer level and within our business is a real step up in terms of innovative steps to get after it I was talking to territory, So who runs our businesses there and she's describing some of the projects that we're working on conjunction with no really significant customers and.

Nathan Jones: So I think you do see a piece of that that changes in the order profiling more of a order it is you go. And so, you know, and again, we we ate into some pretty aggressive backlog along the way. And anytime we times keep coming down, I mean, that does tend to influence order patterns for folks on the other side. So I think it's things like that playing out by and large around a pretty stable base, especially on the industrial side. That to me says, I think this is a stable environment, but one that's looking for the next catalyst.

Some of the highest degrees of innovation jokes frankly seen in the last few years. So I think there's actually a very purposeful collaborative arrangement here and talk about where this industry is going to go well and as it comes out.

This is one of the reasons I think we try to stay as fast and nimble as we can so we can put capital and resources to those best opportunities and frankly overfeed them in times like this so that.

You've actually called it exactly how we see it at ground level.

That's great color. Thank you.

Then a small divestiture you know as you think of the portfolio. They have obviously, a very unusual cycling up here was this sort of just a one off or is this something that you think might we might see more of as we go forward here just any thoughts.

Nathan Jones: And I guess my follow up question, I know you guys don't do a lot of large projects, but you have stuff that goes into larger projects. And I think investors have been concerned that rising interest rates versus inflation are changing the dynamics, changing the ROI for customers on those investments. Can you talk about what you're seeing on on customers willingness to, you know, to let out these larger capital projects. I know historically you've seen, you know, people hesitate in these kinds of environments for just any color you can give us on what you're saying now.

Well I think I missed it.

It's a nice little business I think as we looked at it. We just don't have a lot of technology that similar we didnt see necessarily an ability to scale it.

And larger scale versions of it tend to be in markets that are not as attractive for us. So I do think that level of thinking of something that we do constantly.

You could see it play out that way from time to time, but I wouldn't view. It just as this one isn't as a massive transformational shifts in portfolio for IDEXX.

Nathan Jones: Well, that's probably a piece of the answer to your last question as well. I mean, you know, the certainly around projects like that is not very good. And you've got some people that are, you know, they're still talking about them, but they start to move that time horizon. We're getting closer to 2024, like a magnet. And so it becomes a reference point and a point on the calendar where people are pointing to where things might come to fruition in that, in that side of it.

But as we increasingly think about.

Look what we're trying to do here is drive growth outperformance little tighter integrator ability between the pieces of IDEXX I referenced that in the opening comments.

Things that kind of stand alone that don't have that ability to scale, we're going to take a look at assess that carefully and then.

It feels like the right decision as a potential different elements and we'll continue to make those choices but.

Nathan Jones: Again, contextually for us, that's not all of our businesses, but we'll see it as part of a plan expansion commitment or something like that, you know, for food or something related to infrastructure. So those kind of discrete things that require a lot of capital would come together, a lot of planning. I think there is a lot more uncertainty around them. And it's instead it's, you know, kind of run on the current system faster and, you know, a little bit, a little bit longer before you rebuild it due to that same level of uncertainty.

I wouldn't I wouldn't summit up to something more aggressive than that.

Great. Thank you.

It's helpful.

Our next question comes from the law by therapy with Citigroup. Please proceed with your question.

Good morning, Thanks for taking my call.

Yep.

Yeah.

So maybe just one more on HST.

I know you'd previously talked about an expectation for semicon markets stabilized during <unk> recovery I think beginning in <unk>.

Nathan Jones: Great. Thanks for taking my questions. Thanks, Nathan.

Allison Poliniak: Our next question comes from Allison Poliniak with Wells Fargo. Please proceed with your question. Hi. Good morning. Eric, I want to go back to HST. One of the things I'd like to have been known for is investing through the cycle. Could you maybe talk to the new product development cycle in analytical instrumentation like sciences, or maybe even how you're thinking about that investment? Has it floated all? Should we expect maybe a slower organic coming out of this?

I don't know if I missed it but maybe you can give us more color on how semicon market, specifically are trending versus your prior expectations and your views on the likely trajectory of semicon related demand going forward.

Yes.

Again, it's it's a it's an important but a small part of IDEXX at less than 10%, but I think I think that one is pushed further into 2024 I mean, it's it's stable here.

Allison Poliniak: Just any thoughts there? Well, I'm actually glad you mentioned that because in many ways, at ground level in those businesses, you kind of see two realities sitting side by side, and they're actually quite different. One is the near term reactive reality of what's happened over here in the last year, where order levels are, what daily requirements are, lots of cost containment and being super crisp up around productivity and just getting the product out.

Certainly and we hit it from a variety of levels were in Fabs were in metrology instruments were in memory, where any sophisticated sides of it.

So we see it from a whole bunch of different spots, but I think all of it suggests the recovery of that sector is a little bit further out into 2024.

We're certainly close to those customers were critical.

Can't do much with parts.

Allison Poliniak: But even at the customer level, I mean, I think you see that entire world is spending a lot of time thinking through, okay, what do we need to do to innovate, to get ahead of the game in the next cycle? Because I can't find anybody that doesn't see that there's going to be something more positive coming here. The same mega trends that have been driving that sector forever are not very far out ahead of us and will occur again.

Parts and components, so we'll get that intelligence.

I suspect the order ramp will start somewhere out into 2024.

Okay. That's helpful.

And then maybe just shifting the FSD P.

Yes.

Again on the on the borders NFC DP.

Allison Poliniak: But when they do, we're seeing at the customer level and within our business is a real step up in terms of innovative steps to get after it. I was talking to Territory, who runs our businesses there and she's describing some of the projects that we're working on, the conjunction with really significant customers. And it's some of the highest degrees of innovation jumps that I've frankly seen in the last few years. So I think there's actually a very purposeful collaborative arrangement here to talk about where this industry is going to go.

Took a step down sequentially so.

I guess just any color on is there something seasonal there or just how youre thinking about SPP orders.

Involving into <unk> and going forward.

Sure No I can take that that's really the step down due to dispensing as that replenishment cycle did come to an end there.

So and you see that well down in third quarter, you'll see it also.

And so forth, but also in fourth quarter, and we've got a bit of seasonality.

Allison Poliniak: And as it comes out, this is one of the reasons I think we try to stay as fast nimble as we can so we can put capital and resources to those best opportunities and frankly overfeed them in times like this. So you've actually called it exactly how we see it at a ground level.

In fire and rescue.

Fewer production days.

Okay. That's helpful. Thanks Alison.

Allison Poliniak: That's great for color. Thank you.

Our next question is from Rob Wertheimer with Melius Research. Please proceed with your question.

Eric Ashleman: And then a small divestiture, you know, as you think of the portfolio today, obviously a very unusual site going up here, it was just sort of just a one-offers is something that you think might seem more of as we go forward here to any thoughts. Well, I think it was a nice little business, I think, is we looked at it. We just don't have a lot of technology that's similar. We didn't see necessarily an ability to scale it.

Thank you I'm trying the conversation and the education on life Sciences, and HST has obviously been a bit more volatile than many.

As expected and I'm wondering if you could do almost like a 101, what normalization looks like.

The simple question is what drives customer purchasing is it your customers' customers volumes is it innovation cycles as a capex cycles and confidence to cycle, Scott just how your products flow through that lifecycle.

Eric Ashleman: And larger scale versions of it tend to be in markets that are not as attractive for us. So I do think that level of thinking is something that we do constantly. And you could see it play out that way from time to time. But I wouldn't view it just as this one isn't as a massive transformational shift in portfolio for IDEX. But as we increasingly think about, you know, look what we're trying to do here is drive growth out performance, little tighter integrative ability between the pieces of IDEX.

I appreciate it Rob. So so look this is a first of all it's a super direct business. So we're talking with them relatively concentrated.

Concentrated customer set of leading Oems.

It's quite different from many other parts of the IDEXX in that respect.

Up until the pandemic and some of the forces that we've seen here in the last three or four years, it's not typically been a very cyclical kind of industry. It's generally stayed at that kind of mid to high single digits, depending on where are we sort of jump in.

Eric Ashleman: I referenced that in the opening comments. Things that kind of stand alone that don't have that ability to scale, we're going to take a look at assess that carefully. And then it feels like the right decision is a potential different only. Then we'll continue to make those choices. But I wouldn't sum it up to something more aggressive, and that.

Allison Poliniak: Great, thank you.

Allison Poliniak: Thanks, Elton.

With the exception of the semi portion of course.

In all cases, you can think of US as these are piece of platform.

Centric businesses and so on.

On innovation stream comes in somebody's looking to move to the next level and it's either their instrument or their lithography machine or their device.

Vladimir Bystricky: Our next question comes from Blod by Thuraby with City Group.

Vladimir Bystricky: Please proceed with your question.

As moving up well ahead of that our engineers are in there on the design cycle and.

Vladimir Bystricky: Good morning. Thanks for taking my call. So maybe just one more on HST. I know you previously talked about an expectation from Semicon markets to stabilize during 3Q recovery, I think beginning in 4Q. I don't know if I missed it, but maybe you can give us more color on how Semicon markets specifically are trending versus your prior expectations and your views on the likely trajectory of Semicon related demand going forward. Yeah, again, it's an important but a small part of iDex is less than 10%, but I think that one is pushed further into 2024.

And working on the spec points and you secure the spec so essentially it's pretty classic platform business once you're in on a platform you run the duration of it.

Vladimir Bystricky: I mean, it's stable here and we're certainly, and we hit it from a variety of levels. We're in fabs, we're in metrology, instruments, we're in memory, we're in sophisticated fides of it, and so we see it from a whole bunch of different spots, but I think all of it suggests the recovery of that sector is a little bit further out into 2024. We're certainly close to those customers, we're critical, you know, they can't do much without our parks and components, so we'll get that intelligence, but I suspect the order ramp will start somewhere out into 2024.

And your concurrently always working on different iterations of things in either early gestation or late.

So it's very very classically aligned that way. So you do have good visibility into.

Plans for programs planned for program launches the variable that you run into of course is the adoption the run out of those devices to take up the inventory positions on them all the things that we've talked about as we've kind of gone through the last year here.

Perfect. Thank you.

I know there was a lock on that topic, but I appreciate it and then if I can just go a little bit further afield, just any general acquisition market, you've seen cost of capital rising for private equity, perhaps faster than when you guys have pretty good cash flow.

Getting easier to win.

Or any general characterization of that market and I'll stop there.

Yeah, well I mean, certainly in for I mean, we we've tried here for the last two or three years to be very very focused on it frankly cultivating proprietary transactions.

We're taking advantage a little bit of the environment, where we're comfortable we're planning components and michie environments.

And see things and interact with people that maybe are not.

Vladimir Bystricky: Okay, that's helpful. Then maybe just shifting the FSDP. Again, on the orders that FSDP took a step down sequentially, so I guess just any color on it, is there something seasonal there or just how you're thinking about FSDP orders evolving into 4Q and going forward? Sure, Vlad, no, I can take that. That's really the step down due to dispensing as that replenishment cycle did come to an end there. So you see that in third quarter, you'll see it also a bit into fourth, but also in fourth quarter, we've got a bit of seasonality in firing rescue, fewer production days.

As we all know in the outside world. So we depend on multi year relationships and conversations to try to get ourselves to a position where frankly, there aren't a lot of competitors in line.

Vladimir Bystricky: Okay, that's helpful. Thanks, Alison. Thank you.

We're looking at an asset.

It's not always possible to the extent it isn't.

Would agree that.

<unk> seen something quite different here with higher interest rates, there's obviously some levels.

People that need a lot of debt financing you can only get two and can't pass that.

That will allow a property to.

Probably stay out and play longer with strategics like us and others that might be taking a look at it.

So you could view that as quite positive I would say on the other side, though too because of that environment. Maybe here more recently you see some others that are a little bit more reluctant to transact in that way because you didn't want to wait for a recovery loop or better demand curves that would support higher valuations and terminal values. So.

Robert Wertheimer: Our next question is from Rob Werthheimer with Melius Research.

I think it's probably a little bit of a wash on that side, but in many ways. We've always considered this better for us if we're working at much more discreetly a bit more in the weeds and ideally in a proprietary way.

Eric Ashleman: Please proceed with your question. Thank you. I'm enjoying the conversation and the education on life sciences and HST, it's obviously been a bit more volatile than many expected, and I wonder if you could do almost like a 101 what normalization looks like with a simple question is what drives customer purchasing? Is it your customer's customer's volumes? Is it innovation cycles? Is it capex cycles and confidence cycles? Yeah, just how your products flow through that life cycle. Yeah, I appreciate it, Rob.

Great. Thank you.

You bet.

Our next question comes from Andrew Bus Gala with BNP. Please proceed with your question.

Hey, guys.

Yeah looking into.

<unk> segment.

You know your margins are so strong.

Eric Ashleman: So like this is first of all, it's a super direct business. So we're talking with a relatively concentrated customer set, you know, of leading OEMs. So it's quite different from many other parts to IDEX and that respect. You know, it's up until the pandemic and some of the forces that we've seen here in the last three or four years, it's not typically been a very cyclical kind of industry. It's generally state that they're kind of mid to high single digits, depending on where we sort of jump in with the exception of the semi portion, of course.

Really on <unk>.

Declining organic sales.

I'm wondering you know kind of tied to the Joe a question asked on HST is yes.

How do you invest from here with your orders are.

Moderating or declining into year end.

How do you how do you tie that to your margins.

In the context of protecting them.

Or if your outlook it sounds like everything is as expected. So do you continue to invest here.

Eric Ashleman: In all cases, you know, you can think of this as these are these are platform centric businesses. So an innovation stream comes in, somebody's looking to move to the next level and it's either their instrument or their lithography machine or their device is moving up well ahead of that our engineers are in there on the design cycle and working on the spec points and you secure the spec. So essentially it's pretty classic platform business once you're in on a platform run the duration of it and you're concurrently always working on different iterations of things in either early gestation or late.

Yes, just kind of see where your head's at with.

With where that market is going and what it means for margin.

Yeah, well a couple of things here.

First.

I'm glad you noticed I mean, the FMT segment in particular, I mean has fantastic performance over the last couple of quarters. So Q3 was really good.

What youre, saying there is reasonable cost containment, we run them really most business is pretty lean anyways.

It's much easier to run them at a steady state then cut over the last few years has been so that brings out our best and frankly, our teams have recognized say, they're doing their part from an IDEXX side and really driving outstanding performance.

Eric Ashleman: So it's it's very very classically aligned that way so you do have good visibility into you know plans for programs plans for program launches the variable that you run into of course is the adoption the run out of those devices to take up the inventory positions on them all the things that we've talked about as we've kind of gone through the last year Thank you.

I would say from an investment profile.

These are businesses some of which are 80, 90 or 100 years old.

They are really really well positioned.

They do very well in almost all.

Versions of economic realities that are out there so making sure that they stay.

Unknown Executive: And I know there was a lot on that topic, but I appreciate it.

Eric Ashleman: And then if I can just go a little bit further to the general acquisition market, you've seen cost of capital rising for private equity, perhaps faster than when you guys have pretty good cash flow are getting easier to win or any general characterization of that market. And I'll stop there. Yeah, well, I mean, certainly and for, I mean, we've we've tried here for the last two or three years to be very, very focused on a frankly cultivating proprietary transactions, we're taking advantage a little bit of the environment where we're comfortable, we're planning components and nitchy environments, we often see things and interact with people that maybe are not as well known in the outside world.

<unk> innovative well position.

With the right channel partners out in the right places.

That's something we're always thoughtful I believe.

Typically the investments when we talk about growth investments are generally people based.

And there are often discrete additive things that we'll do to go out certain things like battery production to support mobility E mobility economy or something like that so we'll augment and make those.

Investments or not depending on how we view kind of the state of the outside world, but the base of the business just to kind of core of the franchise. We are really really careful of that to make sure that that domain expertise that supports all of that positioning and differentiation of incredible margins is sound for any reality.

Eric Ashleman: So we depend on multi year relationships and conversations to try to get ourselves to a position where frankly, there aren't a lot of competitors. In line, as we're looking at asset, that's not always possible to the extent it isn't. I would agree that, you know, you've seen something quite different here with higher interest rates, there's obviously some levels, because, you know, people that need a lot of debt finance and can only get to and can't pass, that will allow a property to probably stay out and play longer with strategic like us and others, but might be taking a look at it.

Until that.

Kind of mid thirties.

EBITDA margins.

Well into the low Thirty's operating margin does really sustainable in your view.

Even if the order trends continue to go negative in organic sales.

Yes.

And then to enter 2024.

I mean, there's a couple of things to keep in mind. There are these you know at any point and we've seen it a couple of times over the last few years is that that business gets kind of close to flat or negative the deleveraging side of things is really tough.

Eric Ashleman: You know, I thought you could view that as quite positive. I would say on the other side, though, too, because of that environment, maybe hear more recently to see some others that are a little bit more elected to transact in that way, because they want to wait for recovery loop or better demand curves that would support higher valuations, you know, internal values. So I think it's probably a little bit of wash on that side, but in many ways, we've always considered this better for us. If we're working it much more discreetly, a bit more in the weeds and ideally in a proprietary way.

Unknown Executive: Great. Thank you. You got it.

Because of the strong contribution margins and our commitment to kind of maintain the core.

So depending on where things go we always have to be aware of that we are also at the probably the best point of the price cost cycle.

Here now.

That's the spread that we're at today is probably not going to continue out into the future.

We've always been a company that gets price of course, its been more aggressive here lately with inflation. We're now at a point where those prices are sticky there's some moderation on the inputs. This is the best part of the cycle and this is the best part of the company that gets that price pricing. So there's a little bit of a piece on here I'd be careful of is assuming it's perpetual state.

Andrew Buscaglia: Our next question comes from Andrew Buscala with BNP. Please proceed with your question. Hey, guys, you know, looking into your FMP segment, you know, your margins were so strong, you know, really on declining organic sales. I'm wondering, you know, kind of tied to the question asked on HSD is, you know, how do you invest from here with your orders are moderating or declining into your end? You know, how do you tie that to your margins in the context of protecting them?

The good part of this part of the cycle.

Okay, Alright makes sense. Thanks.

Thanks, Eric.

Yeah.

Our next question comes from Brett Linzey with Mizuho. Please proceed with your question.

Hey, good morning.

Thanks for taking the questions.

Just one more on HST, so encouraging to see the stabilization in certainly the recovery path is going to take some time to play out and figure out but just in terms of the profit recovery on the other side should we think of the business is yielding a stronger than average incremental margin as they do or when they do recover.

Andrew Buscaglia: Or, you know, if your outlook sounds like everything's as expected. So do you continue to invest here? Kind of seen where your head's at with, you know, with where that market's going and what it means for margin. Yeah. Well, a couple things here. Well, first, I'm glad you noticed. I mean, the FMP segment in particular, I mean, has fantastic performance over the last couple of quarters to Q3 was really good. What you're seeing there is what reasonable cost containment.

You need some cost to come back in any way to dimension.

As we recover the levered nicely and so our longer term expectation for the H S. T Senate businesses, it's more in that.

EBITDA margins of 29%.

Yeah.

Okay, great. Thanks, and then just shifting over to the comments you made on water sounds like the opportunity funnel is increasing.

Andrew Buscaglia: We run them. They're in those businesses pretty lean anyways. It's much easier to run them in a steady state than kind of the last few years have been. So that brings out our best. And frankly, our teams have recognized they're doing their part from an IDEC site and really drive an outstanding performance. I would say, from an investment profile, these are businesses, some of which are 80, 90, 100 years old. They are really, really well positioned.

You may be able to size that and is it related to some of the fiscal stimulus or other independent factors driving that strength.

Yeah, well I mean the.

The water side of things has been steady throughout I would say.

It's indirectly related of course to a lot of our focused efforts to invest in our infrastructure frankly, the state of our infrastructure has now gotten to the point, where it's impossible to look away from as well we've seen that on a major scale in major cities certainly here in the U S.

Andrew Buscaglia: They do very well in almost all versions of economic realities that are out there. So, making sure that they stay innovative, well positioned with the right channel partners out in the right places, that's something we're always thoughtful of. Typically, the investments, when we talk about growth investments, they're generally people based. And they're often discrete additive things that we'll do to go at certain things like battery production, the support, mobility, e-mobility economy or something like that.

Those two things together.

Our putting and I've always thought of it as a warm blanket multiyear blanket.

It's just it takes a long time to spend money in that sector.

Since these projects are just they take a long time to engineer rollout and go out there and.

So no matter, how discrete that kind of pop on funding might be.

Always going to have a lead a little bit of an elongated run out so we sort of view that as a as a comfortable blanken for businesses like ours and others that are in this sector. We've seen that it's held up held up again in this quarter as well.

Andrew Buscaglia: So we'll augment and make those investments or not, depending on how we do kind of the state of the outside world, but the base of the business. Because they just, the core of the franchise, we are really, really careful of that to make sure that the domain expertise that supports all that positioning and differentiation and incredible margins is found for any reality. So that mid 30s, you know, e-mobility margins, well into the low 30s, operating margins is really sustainable in your view, even if those order trends continue to go negative in organic sales just, yeah, weekends into 2024.

Dimensionalize. It you can look at the size of water and IDEXX and.

It's again, it's a nice piece of the portfolio and we would see that it would stay at the upper end of the growth profile.

Alright, I appreciate it great quarter.

Thank you.

Our next question comes from Joe Giordano with TD Cowen. Please proceed with your question.

Hey, guys good morning.

Hi, Joe.

I just wanted to clarify did you say a lot of your customers and stuff and in HST in the areas of weakness now.

Talking about October got worse. So I know that you were very clear that like the inventory situations and destock that normalize but what is your actual orders kind of look like in October relative to the rest of the quarter like do you think HST orders should we be thinking off in dollars versus the third quarter in the fourth quarter or is that makes sense.

Andrew Buscaglia: I mean, there's a couple of things to keep in mind there. These, you know, at any point, and we've seen it a couple of times over the last few years, if that business gets kind of close to flat or negative to be leveraging side of things is really tough because of the strong contribution margins and our commitment to kind of maintain the core. So, you know, depending where things go, we always have to be aware of that.

Well look I'll. Let go ahead also sure no I think I think on a on a pure dollar basis, we should expect to see some higher orders in the fourth quarter, but there is some blanket activity also that happens as we wrap the year.

Andrew Buscaglia: We are also at the probably the best point of the price cost cycle here now. That's the spread that we're at today is probably not going to continue out into the future. We, you know, we've always been a company that gets price, of course, it's been more aggressive here lately with inflation. We're now at a point where those prices are sticky, there's some moderation on the inputs. This is the best part of the cycle, and this is the best part of the company that gets that price pricing. So there's a little bit of a piece on here. I'd be careful of is assuming it's perpetual state. It's the good part of this part of the cycle. Okay. All right. Makes sense. Thanks, Eric. Yep.

Okay.

Maybe not necessarily a sign that things are improving is just kind of a seasonal order uptake.

That's right well well I mean, it could be real need to keep close watch.

At what point, just an extension of that.

Given like the.

The nature of that business and the fact that youre running kind of book to Bill someone there Phil.

What point can.

Can you give an organic decline.

Decline in HFC kind of be like baked in for 2020 for like when do orders need to start to improve for that to be.

Brett Linzey: Our next question comes from Brett Lindsey with Mizzouho. Please proceed with your question. Hey, good morning. Yes. Thanks for taking the questions. Just one more on HST. So encouraging to see the stabilization and certainly the recovery path. It's going to take some time to play out and figure out, but just in terms of the profit recovery on the other side, should we think of the businesses yielding a stronger than average incremental margin as they do or when they do recover.

Be a positive number theoretically.

Oh, okay.

I think we'd have to monitor this pretty well, we obviously will see the balance of the fourth quarter is always everybody kind of does the same planning cycles at the same time so.

The best opportunity for us to get in front of customers talking about programs things that they're launching their confidence in them.

I think we want to watch it quarter by quarter and stay Super close to it. These are the most dynamic markets that we have in the whole place.

Brett Linzey: Or do you need some cost to come back any any way to mention that. As we recover, they'll deliver nicely. And so, you know, a longer term expectation for the HST set of businesses is more in the, you know, even a margins of 29% plus.

Brett Linzey: Okay, great. Thanks.

I guess I come back to kind of the comments I made I think when Mike asked the question. He did such a good job summarizing it in the beginning.

No.

We're basically saying that we've taken all of the inventory related noise out of this and that's essentially the echo of the past I will say to the extent the industry heads in different directions. Here, we are in sync with it where we are a critical component.

Eric Ashleman: And then just shifting over to the comments you made on on water sounds like the opportunity funnel is increasing. Might be able to size that and is it related to some of the fiscal stimulus or other, you know, independent factors driving that strength? Yeah, well, I mean, the water side of things has been steady throughout. I would say. It's indirectly related of course to a lot of the focused efforts to invest in our infrastructure.

<unk> supplier folks that are making very sophisticated instruments and things for a variety of different markets and geographies and we are somewhat dependent we are.

Lately dependent on their success their call the way that theyre seeing that those those markets are going to traverse.

What we can do from our side is provide them.

I think a timely and relevant diagnostic mainly because of the fact, we're so short cycle that we're going to feel and see those inflection sooner than almost anybody.

Eric Ashleman: Frankly, the state of our infrastructure has now gotten to the point where it's impossible to look away from as well. We've seen that on a major scale and major cities certainly here in the U.S. And those two things together, you know, are putting in. I've always thought of it as a warm blanket multi-year blanket. You know, it's just it takes a long time to spend money in that sector. These projects are just to take a long time to engineer roll out and go out there.

And so with that in mind, we need to stay close to them will understand all of those things.

And it's four buckets of business for us occasionally move at slightly different rates and we can move resources around.

So we'll see how it plays out as we go through 'twenty four.

Eric Ashleman: And so no matter how discrete the kind of pop on funding might be, it's always going to have a little bit of an elongated run out. So we sort of do that as a comfortable blanket for businesses like ours and others that are in this sector. We've seen that. It's held up held up again in this corner as well. I mean, did to mention, I said, you know, you can look at the size of water and index. And, you know, it's again, it's a nice piece of the portfolio. And we would see that it would stay at the upper end of the gross profile. All right, appreciate it.

That's fair and just lastly, you.

With the accelerated kind of backlog burn that you had this quarter are there targeted opportunities to do that again in the fourth quarter in parts of your business.

We still have a couple of businesses that have longer backlogs I mean, they're still working through generally because lingering issues in supply chain and elsewhere.

We spoke of one in energy, but we've talked about it was pretty strong in the third quarter of lot of that was us getting some more of that backlog out related to some consolidation stuff that we've done about a year ago.

Brett Linzey: Great quarter. Thank you.

It's not many of them, but we do have a couple of other pockets in here that we're trying to get back down to kind of all.

Joseph Giordano: Our next question comes from Joe Jardana with TD Call and please proceed with your question. Hey guys, good morning. I just want to clarify a lot of you know, your customers and stuff in HST and the areas of weakness now have been kind of talking about October about worse. So I know that you were very clear that like the inventory situations and destox that normalize, but what is your actual orders kind of look like in October relative to the rest of the quarter?

All IDEXX level.

Thanks, guys.

We have reached the end of the question and answer session I'd now like to turn the call back over to Eric Ashland for closing comments.

Okay, well, thanks for everybody for joining our call and as I always do I want to thank the.

Members of the IDEXX team that are on a really really strong execution and performance in the quarter.

Joseph Giordano: Like do you think HST orders should we be thinking up in dollars versus the third quarter in the fourth quarter? Is that makes sense? Look, I'll let go ahead. Sir, no, I think, I think on a pure dollar basis, we should expect to see some higher orders in the fourth quarter, but there is some blanket activity also that happens as we wrap the year. Okay, so that may be not necessarily a sign that things are improving, it's just kind of a seasonal order up there.

I had just a few comments here I think there's certainly there's a lot of uncertainty out there.

In the environment I think it's going to require a certain amount of patience.

But as I think about IDEXX and the things that we can control here's what I know I know our portfolio is in great shape, it's growing through M&A, it's well positioned certainly does support long term growth outperformance.

I really think our flattened decentralized structure keeps us agile and nimble, we can move things around and resource Ah things, probably faster than anybody and we do that each and every day.

Joseph Giordano: That's right. Well, we'll need to be, we'll need to keep close watch. At what point, just extension of that, just given like the nature of that business and that your fact that you're running kind of booked a bill, someone there still. Like at what point, can you do like a organic decline in HST kind of be like baked in for 2024? Like when do orders need to start to improve for that to be a positive number theoretically?

And our teams and leaders are outstanding and frankly, they're going to be outstanding plus one it would be joins us here in November.

Of that one.

Break will be all set up here I think two of them to really support a nice extended run for IDEXX as the world starts to dial in.

And responds to frankly, the trends that we know are all come in so with that thanks for your support and have a great day.

Joseph Giordano: Well, look, I, I think we'd have to monitor this pretty, well, obviously, will should then now to the fourth quarter is always everybody kind of does the same planning cycles at the same time. So, you know, that's the best opportunity for us to get in front of customers, talk about programs, things that they're launching their confidence in them. You know, I think we want to watch it quarter by quarter and stay super close to it.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Okay.

Joseph Giordano: These are the most dynamic markets that we have in the whole place. I just, I come back to kind of the comments I made. I think when Mike asked the question, he did such a good job summarizing it in the beginning. You know, we're basically saying that we've taken all of the inventory related noise out of this and that's essentially the echo of the past. I will say to the extent, you know, the industry heads in different directions here, we are in sync with it, where, you know, we're a critical component component supplier folks that are making very sophisticated instruments and things for a variety of different market and geographies.

Joseph Giordano: And, you know, we are somewhat dependent on we are completely dependent on their success. They're called the way that they're seeing that those those markets are going to traverse. You know, what we can do from our side is provide I think a timely and relevant diagnostic mainly because of the fact we're so short cycle, and we're going to feel and see those inflection sooner than almost anybody, and so, with that in mind, we need to stay close to them.

Joseph Giordano: We'll understand all of those things. Again, it's four buckets of business for us, occasionally move at slightly different rates and we can move resources around. And we'll see how it plays out as we go through 24. That's fair. And just with the accelerated kind of backlog burn in the end of quarter, are there targeted opportunities to do that again in the fourth quarter in parts of your business? We still have a couple of businesses that have longer backlogs.

Joseph Giordano: I mean, they're still working through generally because lingering issues and supply chains and elsewhere. We spoke of one in energy, but we talked about, you know, it's pretty strong in the third quarter of a lot of that was us getting some more of that backlog out related to some consolidation stuff that we've done about a year ago. It's not many of them, but we do have a couple of other pockets in here that we're trying to get back down to kind of all IDX level. Thank you guys. We have reached the end of the question and answer session.

Eric Ashleman: I'd now like to turn the call back over to Eric Asfelman for closing comments. Okay, well, thanks for everybody for joining our call. And as I always do, I want to thank the members of the IDX team that are on for really, really strong execution and performance in the quarter.

Eric Ashleman: I just a few comments here. I think there's certainly a lot of uncertainty out there, you know, in the environment. I think it's going to require a certain amount of patience. You know, but as I think about IDX and the things that we can control, here's what I know. I know our portfolio is in great shape. It's growing through MNA. It's well positioned. Certainly this support long-term growth out performance. I really think our flattened decentralized structure keeps us agile and nimble.

Eric Ashleman: We can move things around and resource things probably faster than anybody. And we do that each and every day. And our teams and leaders are outstanding. And frankly, there's going to be outstanding plus one is to be joins us here in November. So with that, you know, when things break will be all set up here, I think to really support a nice extended run for IDX is the world starts to dial in and responds to frankly the trends that we know are all coming.

Unknown Executive: So with that, thanks for your support and have a great day.

Unknown Executive: This concludes today's conference. You may disconnect your lines at this time and we thank you for your.