Q3 2023 AMETEK Inc Earnings Call

Okay.

Good day and welcome to the AMETEK third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your tongue.

Second you'll that inherent automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you Abigail and good morning, and thank you for joining us for Ametek's third quarter 2023 earnings Conference call.

With me today are David that Pico, Chairman and Chief Executive Officer, and Bill Burke Executive Vice President and Chief Financial Officer.

During the course of today's call, we'll be making forward looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in ametek's filings with the.

The SEC.

<unk> disclaims any intention or obligation to update or revise any forward looking statements any.

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

Reconciliations between GAAP and adjusted measures can be found in our press release and on the investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill and then we'll open it up for questions I'll now turn the meeting over to Dave.

Thank you, Kevin and good morning, everyone.

AMETEK delivered excellent results in the third quarter highlighted by outstanding operational execution.

Margin expansion.

Strong cash flows.

And earnings ahead of our expectations.

In the quarter, we established records for operating income operating margins earnings per share EBITDA and cash flows.

Given the strong results.

And our outlook for the balance of the year.

We have again increased our earnings guidance for the full year.

We have also been very active on the acquisition front.

During the third quarter.

<unk> the acquisition of United Electronic industries.

Subsequent to the end of the third quarter, we acquired amplifier research.

Today, we also announced the signing of a definitive purchase agreement to acquire Paragon medical highly.

A highly attractive acquisition.

Which broadens our exposure in the medical technology space.

I will provide more details on these acquisitions shortly.

Now, let me turn to our third quarter results.

Third quarter sales were $1 62 billion.

Up 5% over the same period in 2022.

Organic sales growth was flat.

Acquisitions added four points in the quarter.

Foreign currency added one point.

Book to Bill in the quarter was $0 96.

We ended the quarter with a very strong backlog of $3 4 billion near record levels and down a modest 2% sequentially.

Our backlog is up 5% from last year's third quarter, and up 23% or $640 million from the end of 2021.

Ametek's operating performance in the third quarter was exceptional.

Operating income in the quarter was a record $438 million of.

A 14% increase over the third quarter of 2022.

Operating margins were a record 27% in the quarter up a sizeable 220 basis points from the prior year.

EBITDA in the quarter was also a record at $511 million.

Up 10% over the prior year.

EBITDA margins and an impressive 31, 5%.

Operating cash flow was up 45, 45% in the quarter to a record $473 million.

This outstanding performance led to record earnings of $1 64 per diluted share up 13% versus the third quarter of 2022 and above our guidance range of $1 56 to $1 58.

Operator: Good day, and welcome to the Ametek 3rd quarter, 2023 earnings conference call. At this time, all participants are in a listen only mode. After this be great presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. So withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.

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

First the electronic instruments group.

The electronic instruments group delivered impressive operating performance with continued strong and broad based sales growth.

Sales for AIG were 114 billion in the quarter up 8% from the third quarter of last year.

Kevin Coleman: I would now like to hand the conference over to your speaker today, Kevin Coleman, vice president of investor relations and treasurer. Please go ahead. Thank you Abigail.

Organic sales were up three 5% acquisitions added three 5% and foreign currency added a point.

Kevin Coleman: Good morning, and thank you for joining us for Ametek's third quarter, 2023 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in Ametek's filings with the SEC.

Aig's organic sales growth remains broad based and reflects our leading position across attractive market segments and the impact of our organic growth initiatives.

Growth in the quarter was particularly strong across our aerospace and defense businesses as well as in our <unk> spectral and Kamika businesses.

Third quarter operating income was a record $335 million up 23% versus the prior year and operating margins were a record 29, 5% in the quarter up an impressive 360 basis points from the prior year.

Kevin Coleman: Ametek disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2022 or 2023 results or to 2023 guidance will be on an adjusted basis, excluding after-tax acquisition related and tangible amortization. Reconciliation between GAP and adjusted measures can be found in our press release and on the investor's section of our website. We'll begin today's call with prepared remarks by Dave and Bill, and then we'll open it up for questions on now turn the meeting over today.

Tremendous work by our businesses in the third quarter.

The electromechanical group also delivered solid operating performance in the quarter. Despite the impact of normalization of inventory levels across our OEM customer base.

Amg's third quarter sales were $487 million.

Down 2% versus the prior year with.

With organic sales down 8% in the quarter.

Acquisitions added four points and foreign currency added two points.

Kevin Coleman: Thank you, Kevin and good morning, everyone. Ametek delivered excellent results in the third quarter, highlighted by outstanding operational execution, superb margin expansion, strong cash lows, and earnings ahead of our expectations. In the quarter, we established records for operating income, operating margins, earnings per share, EBITDA and cash lows. Given the strong results and our outlook for the balance of the year, we have again increased our earnings guidance for the full year. We have also been very active on the acquisition front.

Emg's operating income in the quarter was $128 million.

One 7% compared to the prior year period.

While emg's third quarter operating margins were a very solid 26, 2%.

Our performance in the third quarter and thus far in 2023.

It reflects the unique value inherent in the AMETEK growth model.

Our differentiated businesses are aligned with diverse and attractive growth markets, while our organic growth initiatives continuing to position us for long term sustainable growth.

Kevin Coleman: During the third quarter, we completed the acquisition of United Electronic Industries and subsequent to the end of the third quarter. We acquired amplifier research. Today, we also announced the signing of a definitive purchase agreement to acquire Paragon Medical, a highly attractive acquisition, which broadens our exposure in the medical technology space. I will provide more details on the acquisition shortly.

Our distributed operating structure provides our businesses with the ability to execute our growth strategy and our flexibility to react quicker.

Quickly to changing market conditions.

And our asset light business model and strong operational execution.

<unk> outstanding cash flow generation, which we redeploy on value enhancing acquisitions.

This strong cash flow and a robust balance sheet are key differentiators for AMETEK in this higher interest rate environment.

David Zapico: Now, let me turn to our third quarter results. Third quarter sales were $1.62 billion, up 5% over the same period in 2022. Organic sales growth was flat. Acquisitions added four points in the quarter, and four in currency added one point. Look to bill in the quarter was 0.96. We ended the quarter with a very strong backlog of $3.4 billion near record levels and down a modest 2% sequentially. Our backlog is up 5% from last year's third quarter and up 23% or $640 million from the end of 2021.

Now switching to our acquisition strategy.

As noted we have been very active in managing a strong pipeline of acquisition opportunities.

We are pleased to welcome our most recent acquisitions.

United Electronic industries and amplifier research.

I'm pleased that we have signed a definitive agreement to acquire Paragon medical.

I will provide some more color on each of these businesses starting with Paragon medical.

Paragon medical is a leading manufacturer of highly engineered medical components in instruments, serving applications, including orthopedics minimally invasive surgery robotic surgery and drug delivery solutions.

David Zapico: Ametek's operating performance in the third quarter was exceptional. Operating income in the quarter was a record $438 million, a 14% increase over the third quarter of 2022. Operating margins were a record 27% in the quarter, up a sizeable 220 basis points from the prior year. EBDA in the quarter was also a record at $511 million, up 10% over the prior year, with even a margin in the price of 31.5%. Operating cash low was up 45%, 45% in the quarter to a record $473 million. This outstanding performance led to record earnings of $1.64 per diluted share, up 13% versus the third quarter of 2022, and above our guidance range of $1.56 to $1.58.

Paragon has a broad product portfolio of single use and implantable components are sold to a diverse blue chip customer base of leading medical device Oems.

Paragon is an excellent acquisition for AMETEK. It expands our presence in the med Tech space and provides us with access to attractive new market segments with strong growth rates.

We are acquiring paragon in an all cash transaction valued at approximately $1 9 billion.

Paragon has annual sales of approximately $500 million and is headquartered in Pearson, Indiana.

The closing of the acquisition is subject to customary closing conditions, including.

Applicable regulatory approvals.

Now switching to United Electronic industries, or <unk>, which we acquired in August.

<unk> is a leading provider of Ruggedized test measurement and simulation and control solutions.

David Zapico: Now let me provide some additional details at the operating group level. First, the electronic instruments group. The electronic instruments group delivered impressive operating performance with continued, strong, and broad-based sales group. Sales for EIG were $1.14 billion in the quarter, up 8% from the third quarter of last year. Organic sales were up 3.5%, acquisitions added 3.5% and foreign currency added a point. EIG's organic sales growth for me is broad-based or reflects our leading position across attractive market segments and the impact of our organic growth initiatives.

<unk> custom products cater to diverse data acquisition is from hardware in the loop testing two aircraft simulators and automated testing systems in mission critical applications.

With a strong presence in the defense.

Aerospace nuclear power generation in semiconductor.

<unk> nicely complements ametek's power systems and instruments Division Cigna.

Significantly expanding our data acquisition capabilities.

<unk> has annual sales of approximately $35 million and is based in Norwood, Massachusetts.

Next amplifier research is a leading provider of innovative RF and microwave solutions.

David Zapico: Growth in the quarter was particularly strong across our aerospace and defense of businesses, as well as in our ZIGO, Spectro, and Kameka businesses. Third quarter operating income was a record $335 million, up 23% versus the prior year, and operating margins were a record 29.5% in the quarter, up and impressive 360 basis points from the prior year. Tremendous work by our EIG businesses in the third quarter.

This equipment is used for electromagnetic compatibility testing within the defense industrial automotive medical and communication sectors.

Amplifier research is an outstanding strategic acquisition and complementary fit with our existing compliance test solutions business.

Their technical capability to broaden our RF instrumentation and testing portfolio.

Amplify our research is a growing business well positioned to benefit from the growth in demand for electric vehicle research development and testing.

David Zapico: The electronic mechanical group also delivered solid operating performance in the quarter, despite the impact of normalization of inventory levels across our OEM customer base. EIG's third quarter sales were $487 million, down 2% versus the prior year, with organic sales down 8% in the quarter, acquisitions added 4 points and foreign currency added 2 points. EIG's operating income in the quarter was $128 million. Down 7% compared to the prior year period, while EMG's third quarter operating margins were at very solid 26.2%.

<unk> research is based in Saturday, MPA and has annual sales of approximately $60 million.

Our acquisition pipeline remains very solid.

We have a strong balance sheet and significant financial capacity and look to remain active in deploying capital in the coming quarters.

AMETEK also remains committed to investing in our businesses to help position them for long term sustainable organic growth.

In 2023, we plan to invest approximately $100 million in these growth initiatives.

Including our new product development efforts for our businesses continued to develop highly differentiated technologies to help solve our customers' most complex challenges.

David Zapico: Our performance in the third quarter and thus far in 2023 reflects the unique value and hair in the Ametek growth model. Our differentiated businesses are aligned with diverse and attractive growth markets, while our organic growth initiatives continue to position us for long-term sustainable growth. Our distributed operating structure provides our businesses with the ability to execute their growth strategy and a flexibility to react quickly to changing market conditions. Our asset-related business model and strong operational execution drive outstanding cash flow generation which we redeploy on value and enhancing acquisitions. This strong cash flow and our robust balance sheet are key differentiated for Ametek in this higher interest rate environment.

In the quarter, our vitality index.

Which measure sales from products introduced over the prior three years was a healthy 26%.

As a complement to our internal new product development efforts are or check business recently acquired a small technology company.

<unk>.

To help broaden their technology capabilities and the radiation detection market.

And our read both cutting edge technology expertise and an exceptional product development team known for their innovative solutions, having developed specialized artificial intelligence algorithms for radiation detection and a range of nuclear security.

Our research health and medical applications.

David Zapico: Now switching to our acquisition strategy. As noted, we have been very active managing a strong pipeline of acquisition opportunities. We are pleased to welcome our most recent acquisitions, united electronic industries and amplifier research, and pleased that we have signed a definitive agreement to acquire Paragon Medical. I will provide some more color on each of these businesses starting with Paragon Medical. Paragon Medical is a leading manufacturer of highly engineered medical components and instruments serving applications including orthopedics, minimally invasive surgery, robotic surgery, and drug delivery solutions.

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

With strong performance in the third quarter and a positive outlook for the remainder of the year. We are once again raising our earnings guidance.

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

And we continue to expect organic sales to be up mid single digits.

Diluted earnings per share for the year are now expected to be in the range of $6 31 to $6 33.

Up approximately 11% compared to last year's results.

This is an increase from our previous guidance range of $6 18 to $6 26 per diluted share.

David Zapico: Paragon's broad product portfolio of single use and implantable components are sold to a diverse blue chip customer base of leading medical device OEMs. Paragon is an excellent acquisition for Ametek. It expands our presence in the mid-tech space and provides us with access to attractive new market statements with strong growth rates. We are acquiring Paragon and an all cash transaction value at approximately $1.9 billion. Paragon has annual sales of approximately $500 million and is headquartered in Pearson, Indiana. The closing of the acquisition is subject to customer closing conditions including applicable regulatory approvals.

For the fourth quarter.

We anticipate overall sales to be up mid single digits with adjusted earnings of $1 61 to $1 63 per share up 6% to 7% versus the prior year.

In summary, Ametek's third quarter results for 2023 were outstanding with strong growth across our long cycle businesses record operating performance and strong acquisition activity. Our businesses continued to excel driven by our differentiated technology solutions, serving diverse and grow.

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

David Zapico: Now switching to united electronic industries or UEI, which we acquired in August. UEI is a leading provider of ruggedized test measurement simulation and control solutions. UEI's custom products cater to diverse data acquisitiones from hardware and loop testing to aircraft simulators and automated testing systems and mission critical applications. With a strong presence in the defense, aerospace, nuclear power generation, and semiconductor, UEI nicely complements Ametek's power systems and instruments division, significantly expanding our data acquisition. Abilities, UEI, Evangelical Sales, or approximately $35 million is based in Norwood, Massachusetts.

AMETEK remains firmly positioned for long term sustainable growth.

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

Thank you Dave as Dave noted AMETEK delivered outstanding results in the third quarter exceptional operating performance robust margin expansion and strong cash flows let.

Let me provide some additional financial highlights for the quarter third quarter General and administrative expenses were $24 $6 million essentially unchanged from the prior year and as a percentage of sales were one 5% versus one 6% in last year's third quarter.

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

David Zapico: Next, Amplifier Research, is a leading provider of innovative RF and microwave solutions. Its equipment is used for electromagnetic compatibility testing within the defense, industrial, automotive, medical, and communication sectors. Amplifier Research is an outstanding strategic acquisition and complimentary fit with our existing compliance and test solutions business. Their technical capabilities broaden our RF instrumentation and testing portfolio. Amplifier Research is a growing business well positioned to benefit from the growth and demand for electric vehicle research, development, and testing. Amplifier Research is based in Satterton, PA, and as annual sales are brought from a $60 million.

Other income and expense was a headwind of $9 million in the quarter due largely to lower pension income and higher due diligence costs.

The effective tax rate in the quarter was 17, 7% down from 19% in the third quarter of 2022 due to improved utilization of tax credits.

For 2023, and we now anticipate our effective tax rate to be between 18, 5% and 19% and as we stated in the past actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate.

Capital expenditures in the third quarter were $29 million and we continue to expect capital expenditures to be approximately $145 million for the full year or about 2% of sales.

Depreciation and amortization expense for the quarter was $82 million for the full year, we expect depreciation and amortization to be approximately $330 million.

David Zapico: Our acquisition pipeline remains very solid. We have a strong balance sheet and significant financial capacity and look to remain active into point capital in the coming quarters.

<unk> after tax acquisition related intangible amortization of approximately $157 million or <unk> 68 per diluted share.

David Zapico: Ametek also remains committed to investing in our businesses to help position them for long term sustainable organic growth. In 2023, we plan to invest approximately $100 million in these growth initiatives, including our new product development efforts, where our businesses continue to develop highly differentiated technologies to outsell our customer's most complex challenges. In the quarter, our vitality index, which may your sales from products introduced over the prior three years, will the healthy 26%.

Operating working capital in the third quarter was 19, 1% of sales.

Flow was excellent in the quarter with outstanding growth versus the prior year.

Operating cash flow was a record $473 million up 45% versus the third quarter of 2022, while free cash flow was also a record at $444 million up 49% over the prior year.

Free cash flow conversion was 131% in the quarter and for the full year. We continue we continue to expect approximately 120% free cash flow to net income conversion.

David Zapico: As a complement to our internal new product development efforts, our or tech business recently acquired a small technology company, InnoRid, to help broaden their technology capabilities and the radiation detection market. InnoRid, both cutting-edge technology expertise and an exceptional product development team, known for their innovative solutions, having developed specialized artificial intelligence algorithms for radiation detection in a range of nuclear security, research, health, and medical applications.

Total debt at September 30 was $2 2 billion down.

<unk> down from $2 $4 billion at the end of 2022.

Offsetting this debt is cash and cash equivalents of 100 $842 million.

At the end of the third quarter, our gross debt to EBITDA ratio was one one times and our net debt to EBITDA ratio was 0.6 times, leaving us with significant available cash and financial capacity to deploy on strategic acquisitions.

As Dave has noted we have been very active during the third quarter, we deployed approximately $150 million on the acquisitions of <unk> and iterate.

David Zapico: Now, I'll turn you to our outlook for the remainder of the year. With strong performance in the third quarter and a positive outlook for the remainder of the year, we are once again raising our earnings guidance. For the full year, we continue to expect overall sales to be up into high single digits, and we continue to expect organic sales to be up mid single digits. The earnings per share for the year are now expected to be in the range of $6.31 to $6.33 up approximately 11% compared to last year's results.

David Zapico: This is an increase from our previous guidance range of $6.18 to $6.26 for diluted share. For the fourth quarter, we anticipate overall sales to be up mid single digits with adjusted earnings of $1.61 to $1.63 per share, up 67% versus the price. Jr.

And subsequent to the end of the quarter, we deployed approximately $105 million on the acquisition of amplifier research.

Also subsequent to the end of the third quarter, we announced the signing of a definitive agreement to acquire Paragon medical for $1 9 billion, which.

Which would be our largest acquisition to date.

Following the acquisition of Paragon, and we would still have significant financial capacity with approximately $1 5 billion of cash and existing credit facilities available to support our growth initiatives.

In summary, AMETEK had exceptional results in the third quarter, we achieved significant market margin expansion and delivered high quality earnings.

Our strong position in key market segments, coupled with a very strong backlog.

Exceptional operating capabilities positions us well for continued success Kevin.

Thank you Bill.

Abigail could we please open the lines for questions.

David Zapico: In summary, Ametek's third quarter results for 2023 were outstanding. With strong growth across our long cycle businesses, record operating performance, and strong acquisition activity. Our businesses continue to excel driven by our differentiated technology solutions serving diverse and growing markets. Our asset-like business model and strong cash flows provide us with the flexibility to navigate challenging economic environments while actively deploying capital to enhance and shareholder value. Ametek remains firmly positioned for long-term sustainable growth.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

One moment for our first question.

Our first question comes from Deane Dray with RBC capital markets. Your line is open.

Thank you good morning, everyone.

Dean Congrats on all the M&A successes here and maybe we can start with Paragon looks right in your wheelhouse precision medical robotics.

William Burke: I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, then we will have to take your questions. Bill, thank you, Dave. And state noted, Ametek delivered outstanding results in the third quarter with exceptional operating performance, robust margin expansion and strong cash flows.

If you could provide some color on the company in terms of like what percent are consumables were real like saying all those one use.

Patients so consumables comment on margins and growth if you could please yeah sure.

William Burke: Let me provide some additional financial highlights for the quarter. Third quarter, general administrative expenses were $24.6 million, essentially unchanged from the prior year, and as a percentage of sales were 1.5% versus 1.6% in last year's third quarter. For 2023, general administrative expenses are expected to be approximately 1.5% in line with last year's GNA to sales level. Other income and expense were the headwind of $9 million in the quarter due largely to lower pension income and higher due diligence costs.

<unk>.

To give you my view of Paragon as you stated the leading provider of highly engineered medical components in instruments.

When you look at the key market drivers of this acquisition.

Do you have the aging population the demographic shifts.

He also have procedure innovation, where the minimally invasive procedures are becoming more and more.

More percentages of surgeries and they do a great job at that and also in this market there.

William Burke: The effective tax rate in the quarter was 17.7% down from 19% in the third quarter of 2022, due to improved utilization of tax credits. For 2023, we now anticipate our effective tax rate to be between 18.5% and 19%. And as we stated in the past, actual quarterly tax rate can differ dramatically either positively or negatively from this full year estimated rate. Capital expenditures on the third quarter were $29 million, and we continue to expect capital expenditures to be approximately $145 million from the full year, or about 2% of sales.

There is a continuing trend towards outsourcing to Oems and they want to the Oems want to accelerate their time to market.

Paragon is really well positioned with significant new product wins in this space.

It serves a specialty applications I talked about the orthopedics.

Minimally invasive surgery robotic surgery in drug delivery.

Orthopedics as a largest but theres strong positions in each of the applications.

The portfolio was one of your questions consisted of single use and consumable surgical instruments and implantable components and about 40% of our business is recurring in nature. So the.

William Burke: Appreciation and amortization expense of the quarter was $82 million. For the full year, we expect depreciation and amortization to be approximately $330 million, including after tax acquisition related intangible amortization of approximately $157 million, or $68 per diluted share. Operating capital in the third quarter was 19.1% sales. Cash flow was excellent in the quarter without outstanding growth versus the prior year. Operating cash flow was a record $473 million, up 45% versus the third quarter of 2022.

The single use consumable surgical instruments are about 40% of the revenue so we really like that.

As a blue chip customer base.

Over 600 programs with diverse sources of revenue.

About 85% of the business is on sole source programs.

It's a very very sticky business when you combine the regulatory environment with lengthy approval processes.

And the capabilities of Paragon, there is high switching costs.

William Burke: Well, free cash flow was also a record at $44 million, up 49% over the prior year. Re-cash flow conversion was 131% in the quarter, and for the full year, we continue to expect approximately 120% free cash flow to an income conversion. Total debt at September 30, was $2.2 billion, down from $2.4 billion at the end of 2022. All setting this debt is cash and cash equivalents of $1800.

And it's a business that as unique value to its customer base.

A lot of surveys in the market and they are the highest quality provider.

They have excellent customer service.

Differentiator for them as their design and development capability.

I really considered a true partner by their customers.

And when I look at this from that's about Paragon when I look at it what it does for AMETEK.

It increases our med tech exposure now to over 20%.

One of the goals, we've been we've been trying to achieve.

It adds about $500 million of revenue to AMG.

And that revenue is coming.

Comes from Paragon, which is a <unk>.

Secular low double digit grower.

It really fits our business model with the highly engineered products that provide unique value to customers.

David Zapico: Deane Dray, David Zapico, Dray, David Zapico, Dray, David Zapico, Dray David Zapico, Dray, David Zapico, Dray, David Zapico, Dray Patience. Now the portfolio is one of your questions consisted of single use and consumable surgical instruments and implantable components and about 40% of the business is recurring in nature. So the single use and consumable surgical instruments are about 40% of the revenue. So we really like that. Has a blue chip customer base over 600 programs with diverse sources of revenue about 85% of the businesses on source programs.

It's a growing profitable business that provides multiple avenues of growth.

And Theres really an opportunity for us to improve margins by applying the AMETEK growth model is already a profitable business, but there's plenty of room for us to apply the AMETEK growth model and expand margins.

Paragon will benefit from the Ametek's global infrastructure for sure and we liked the management team their highly talented team and we're excited about.

What we can accomplish together and importantly, the deal economics ametek's traditional Darryl the oracles and this is on a large deployment of capital. So our return on invested capital hurdles are met by this deal.

We paid about 15 times <unk>.

TTM.

EBITDA for the business so well.

We're very excited for the business.

That's a good business for us we've been looking at these businesses for some time.

As your universal excitement amongst the Paragon in AMETEK.

Alright that was a great overview and you hit all the key questions on the consumables margins and growth. So it sounds like a great story.

And if I could just on a follow up question on EMG. So.

We're seeing destocking all over the sector in Biopharma and Med Tech.

Be interested in hearing from you.

Besides the Destocking is there.

Are there any kind of read through on the end markets.

In those business are you seeing any slowing there and look no. One is getting no. One has the crystal ball here in terms of how long do you think this lasts but I'd love to hear your expectation on the duration of this inventory normalization charging.

<unk> great questions.

For the quarter, we grew our top line, 5% on a mid single digit guide.

Our revenue was in line with the guide the acquisition of <unk>.

Formed a bit better.

And.

We maintained as I said.

Our full year sales guidance mid to high single digits and organic growth of mid single digits.

To maintain that organic guide for the full year, our aerospace and defense business is stronger and our automation is weaker and they're offsetting and that's one of the benefits of the AMETEK portfolio and specifically in terms of Q3 revenue we saw faster destocking in our automation businesses than we.

<unk>. So that's that's what we saw there.

And we expect the Destocking to continue through the end of the year.

In terms of your question is it a destock or a downturn, it's very difficult.

Dynamic environment, right now and lots of uncertainties with the geopolitical risks the interest rate increases or factoring in for sure.

But from what we see this as largely an inventory correction and demand looks constructive with many new projects in the orphanage coughing and the projects are not being delayed or canceled our aerospace and defense looks solid our medical look solid significant projects in semiconductor clean energy power grids. So we.

David Zapico: It's a very, very sticky business when you combine the regulatory environment with lengthy approval processes and the capabilities of Paragon, there's high switching costs. It's a business that has unique value to its customer base. You know, we did a lot of surveys in the market and there's the highest quality provider. They have excellent customer service. A differentiator for them is their design and development capability. And I really consider the true partner by their customers.

Positive post Destocking and.

And we think that the.

Destocking will.

Continue through the end of the year.

In terms of 2024, we're going to sit down with our teams and understand what's going on in.

In general were constructive.

That's all really helpful. Thank you. Thank you Deane.

One moment for our next question.

Our next question comes from Matt Summerville with D. A Davidson your line is open.

Thanks, Good morning.

Dave.

Margins this quarter really moved into a new ZIP code for AMETEK I was wondering if you could maybe talk about the key drivers as you just think about the sequential performance right Rev slab profitability of $28 million on the <unk> line as well as kind of a year over year dynamics. So maybe if you can just kind of flush all of the.

David Zapico: And when I look at this from that's about Paragon, I look at what it does for Ametek. It increases our Metek exposure now to over 20%. It's one of the goals we've been trying to achieve. It has about 500 million in revenue to EMG. And that revenue comes from Paragon, which is a secular, low double digit grower. It really fits our business model with the highly engineered products to provide unique value to customers.

That would be helpful sure, Matt if you'll go back and look at my last quarter or two I told you AIG with gaining momentum in.

The momentum certainly showed up in Q3.

We had an excellent operating quarter.

I mean.

<unk> margins were up 360 basis points.

David Zapico: It's a growing profitable business that provides multiple avenues of growth. And there's really an opportunity for us to improve margins by applying the Ametek growth model. It's already a profitable business, but there's plenty of room for us to apply the Ametek growth model and expand margins. Paragon will benefit from the Ametek's global infrastructure, for sure. And we like the management team. They're highly talented team and we're excited about what we can accomplish together.

Sure.

Driven by high contribution leverage on our growth.

We really had excellent price cost.

We had strongly performing acquisitions.

It all came came together too.

Put up record margins.

Got it and then just as a follow up with respect to Paragon I. Appreciate the stats you shared is there any way.

David Zapico: And importantly, the deal economics met Ametek's traditional deal hurdles. And this is on a large deployment of capital. So our return on the capital orders are met by this deal. And we paid about 15 times TTM EBITDA for the business. We're very excited for the business. It's a good business for us. We've been looking at these businesses for some time. And as universal excitement amongst Paragon and Ametek.

To kind of parse out what you've seen year, one cash EPS accretion would look like and then what the expected closure timing might be for that.

Great questions, Matt we think the closure.

Pendant on regulatory approval, but nothing nothing atypical, but we think the.

We will get the approvals and close sometime in the first quarter.

In terms of year one.

We will have very modest cash EPS accretion is going to be impacted by.

Unknown Executive: All right. That was a great overview and we hit all the key questions on consumables, margins and growth. So it sounds like a great story.

Purchase accounting integration cost.

Our realignment cost of financing cost will pay with this with a mix of cash and debt.

David Zapico: And if I could just on a follow-up question on EMG. So we're seeing destocking all over the sector and biofarmer Ametek. Be interested in hearing from you. Besides the destocking, is there any kind of read through on the end markets in those business? Are you seeing any slowing there? And look, no one's getting, no one has a crystal ball here in terms of how long you think this lasts. But I'd love to hear your expectation on the duration of this inventory normalization.

But we're very strong accretion in year two.

And we're excited about getting that getting the business under our wing, improving our business and delivering and we're very excited.

Just real quick Dave So youre not planning to non-GAAP those items out youre, just going to run through the P&L.

We will make that decision at the time historically.

<unk> not broken them out, but with the amount of acquisition activity, where we have it may make sense to do that we haven't made a decision yet.

David Zapico: Thanks. You know, for the quarter, we grew our top-lying 5% on a mid-single-digit guide. Our revenue was in line with the guide. The acquisition performed a bit better. And we maintained, as I said, our full-year sales guide, mid-to-high single-digits and organic growth of mid-single-digits. Now, to maintain that organic guide for the full-year, our aerospace and defense business is stronger, and our automation is weaker. And they're offsetting. That's one of the benefits of the Ametek portfolio.

Got it thank you guys.

One moment our next question.

Our next question comes from Allison <unk> with Wells Fargo. Your line is open.

Hi, Good morning, good morning Allison.

Just wanted to go back to your comments on automation, if I recall that typically a canary in the coal mine, but it seems from your comments on what Im reading through I, just want to clarify that it just seems to be more industry destocking for you in that market or is it something that you're right I'll make sure I understand.

David Zapico: And specifically, in terms of Q3 revenue, we saw faster destocking in our automation businesses than we anticipated. So that's what we saw there. And we expect the destocking to continue through the end of the year. In terms of, you know, your question is, is it destocking or downturn? It's very difficult. So, dynamic environment right now. And lots of uncertainties. With the geopolitical risks, the interest rate increases, they're factoring in for sure.

Yes.

Think it's destocking.

We think it's destocking.

The destocking last through the year end.

But post destocking.

We remain constructive.

That business automation sells to a lot of markets.

The health care part of that market is not doing well right now.

Some of the other exposure but.

We think it's clearly destocking.

Got it and then on growth investments keeping to the $100 million.

David Zapico: But from what we see, this is largely an inventory correction. And demand looks constructive with many new projects in the offing. And the projects are not being delayed or canceled. Our aerospace and defense looks solid, our medical looks solid, significant projects and semiconductor, clean energy, power bridge. So we remain positive post destocking. And we think that destocking will continue through the end of the year. And in terms of, you know, 2024, we're going to sit down with our teams and understand what's going on. But in general, we're constructive.

How should we be thinking that into 'twenty four or is that something that you think.

It could be a raise there and then just even with Paragon.

What that R&D I think you've talked about the design piece of it being very big part of that how does design and R&D is it higher than the typical AMETEK has should we be thinking.

You should think about the <unk>.

Marathon is matching the AMETEK profile.

Got it and then organic investments as we kind of look to 'twenty four as well.

We're going to sit down with each of our teams.

To discuss 2024 over the next six weeks.

We're going to review each of the individual businesses.

Unknown Executive: That's all real helpful. Thank you. Thank you, Dean.

We do deep dives as you know into what they're seeing in their niches there market dynamics.

Operator: One moment for our next question.

Opportunities cost reduction opportunities and we want to go through that these.

Matt Summerville: Our next question comes from Matt Somerville with DA Davidson. Your line is open. Thanks. Morning. Dave, your EIG margins, this quarter, really moved into a news zip code for Amatech. I was wondering if you could maybe talk about the key drivers as you just think about the sequential performance right revs flat profitability of $28 million on the OP line, as well as kind of the year over year dynamics. So maybe if you can just kind of flush all of that out, that would be helpful.

These meetings before Theres any commentary on 2024, we'll tell you in early February.

But.

Yes.

So in terms of talking about next year.

The typical things like.

We would expect price to offset inflation.

Capex will be about 2% of sales and things like that but we're going to defer from talking about.

The overall plan until we get to meet with our teams.

Understand at a detailed level.

Perfect. Thank you. Thank you Allison.

Matt Summerville: Yeah, sure, Matt. I mean, if you'll go back and look at my last quarter or two, I told you EIG was gaining momentum and momentum certainly showed up in Q3. We had an excellent operating quarter. I mean, EIG margins were up 360 basis points. Driven by high contribution leverage on the growth, we really had excellent price cost. We had strongly performing acquisitions and it all came came together to put up record margins.

Our next question.

Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open.

Hey, Thank you good morning, everyone.

Hey, Jeff.

Martin.

Hey, just to come back to Paragon, maybe one more time, maybe somebody else to come at it again.

I just kind of wanted to understand maybe the profit improvement plan going forward.

Looks like rough math, right margins EBITDA margins, 25% or so.

Matt Summerville: And then just as a follow up with respect to Paragon, I appreciate the stats you share. Is there any way to kind of parse out what you think year one cash EPS accretion would look like and then what the expected closure timing might be for that. Great questions, Matt. We think the closure. Thank you. It's dependent on regulatory approval, but nothing atypical. We'll get the approvals and close some time in the first quarter.

Youre doing 800 to 1000 bps better now than that.

When you talk about kind of the aspirations for the business and the cost cutting and other opportunities is that the sort of ZIP code in margin improvement, we should be thinking about here and if so over kind of how long a period of time.

Yes.

That is the ZIP code and is over time.

We're going to build a plan with the management team and show them all the resources that AMETEK has in some of our business processes, but.

Matt Summerville: In terms of year one, we'll have a very modest cash EPS accretion. It's going to be impacted by purchase accounting, accounting, integration costs, regalignment costs, the financing costs. We'll pay with this with a mix of cash and debt, but a very strong appreciation in year two. And we're excited about getting the business under our wing, improving a business and delivering. We're very excited. Just real quick, Dave, so you're not planning to non-gap those items out.

What youre talking about is in the ZIP code of what we have planned.

And.

Just to elaborate a little bit more on how this fits is there a kind of.

Our commercial or operational synergy with other parts of the business or should we just think of this as a <unk>.

Interesting healthy kind of standalone business that drops into the portfolio.

We have an existing business and our EMG business is about a $200 million business.

Our call it our engineered medical components. So we're familiar with those segments are completely different end markets, but.

Matt Summerville: You're just going to run them through the TNL event. We'll make that decision at the time. Historically, we have not broke them out, but with the amount of acquisition activity that we have, it may make sense to do that. We haven't made a decision yet. Got it. Thank you, guys.

Think about that is additive to that existing position, but in a greater scale.

Operator: One moment for our next question.

And then maybe just one last one for me.

The Med Tech World has been a little rocky here. The last couple of years procedures post COVID-19 everything.

You characterize it as a double digit secular grower.

But.

Are they kind of sitting at a little bit of.

Allison Poliniak: Our next question comes from Allison Poliniac with Wells Fargo. Your line is open. Hi, good morning. Good morning, Allison. I just want to go back to your comments on automation. If I recall that's typically a canary in the coal mine, but it seems from your comments what I'm reading through, I just want to clarify that it just seems to be more industry stocking for you in that market or was it something that you're just going to make sure I understand.

A trough here impacted by those sorts of forces or maybe just kind of.

No not really they're growing nicely.

Yes, the market growth that they are benefiting from and they happen to be in the fastest areas. They have deployed their resources well and they are benefiting from the faster fastest growth areas.

The.

Allison Poliniak: We think it's de-stocking. We think it's de-stocking and the de-stocking will last through the year end, but post-de-stocking, we remain constructive. That business automation sells to a lot of markets, and the healthcare part of that market is not doing well right now, and some of the other exposures, but we think it's clearly de-stocking.

They are winning new business on new programs and is pretty substantial.

And.

We did surveys on these businesses in.

This is a really good business in terms of.

Their capability and how they take care of their customers and they are definitely winning share. So it's going to be a low double digit grower for the next to continue in the next few years.

A lot of that's programmed in.

David Zapico: Got it. And then on growth investments, keeping to $100 million, how should we be thinking that into 24 is something that you think could be a raise there? And then just even with Paragon, what that R&D, I think you talked about the design piece of it being very a big part of that. How does design an R&D? Is it higher than the typical Amatech? How should we be thinking about that? I think you should think about the Paragon as matching the Amatech profile.

No.

That's the way, we're looking at there's going to be ups and downs as we go throughout the years, but this is a solid business with really good growth prospects.

Great Congrats and good luck with it take care.

One moment our next question.

Our next question comes from Scott Graham with Seaport Research Partners. Your line is open.

Hey, good morning, Thanks for taking a minute here Nathan good morning quarter. Thank you. So just.

David Zapico: Got it. And then organic investments as we kind of look to 24 is, you know? Yeah. We're going to sit down with each of our teams, discuss 2024 over the next six weeks. We're going to review each of the individual businesses. We do deep dives, as you know, into what they are seeing in their niches, their market dynamics, growth opportunities, cost reduction opportunities. And we want to go through that these meetings before there's any commentary in 2024 will tell you in early February.

A couple of items Bill what was the working capital percent last year.

Give me give me one second on that sure sure ill just ill ask another one.

Yes.

Got it it was 18 four.

18, four okay. Thanks, and then.

One 5 billion of availability.

David Zapico: But so in terms of talking about next year, you know, we have the table things like... We'll expect price to offset inflation and CAPEX will be about 2% of sales and things like that, but we're going to defer from talking about the overall plan until we get to meet with our teams and understand at a detailed level.

Just maybe walk us through there that is net of Paragon I assume and is that like an assumption at about two five times leverage.

That's the that's the amount of cash and available availability under our revolver post Paragon.

Leverage post Paragon would only be about one five times EBITDA at the gross level to.

Allison Poliniak: Perfect. Thank you. Thank you, Allison.

So substantial.

Financial flexibility as well as we're still.

Jeffrey Sprague: Moment for our next question. Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open. Hey, thank you. Good morning, everyone. Good morning, Jeff. Morning. Hey, just to come back to to Paragon, maybe one more time. Somebody else to come at it again.

Well under Levered, I would say and as David talked about lots of other.

Opportunities available to us as we look to continue the acquisition strategy. So again, it's always finding the right businesses.

For the AMETEK portfolio it is not capital constrained.

Right right, Yes, that's how you do that.

Hello.

Another way to make sure.

David Zapico: I just kind of want to understand the maybe the profit improvement plan going forward. It also looks like rough math, right, margins, evidom margins, 25% or so. You know, you're doing 800 to 1000 bits better now than that in EIG. When you talk about kind of the aspirations for the business and the cost cutting and other opportunities, is that the sort of zip code and margin improvement we should be thinking about here and if so over kind of how long a period of time.

As Bill said post Paragon at one five leverage if we wanted to take it up to two and a half leverage which is we've been there before and that's not a high number for all we could spend $2 6 billion on acquisitions above and beyond or above and beyond Paragon. So we're in the M&A game and our.

Our pipeline looks really good.

We have the balance sheet to be able to execute on it and the capability to integrate these businesses.

Thank you for that I appreciate it when you are looking at deals. These days in this interest rate environment, Youre, obviously funding them off of a lot of balance sheet liquidity.

David Zapico: Yeah, that is the zip code and it's over time. And we're going to be able to plan with the management team and show them all the resources that Amatec has and some of our business processes, but what you're talking about is in the zip code of what we have planned.

Admittedly may be now higher rates all through the revolver, but you impute an interest rate that is kind of more market oriented when you make these decisions.

David Zapico: And just to elaborate a little bit more on how this fits it, is there a kind of a commercial or operational synergy with other parts of the business or should we just think of this as an interesting healthy kind of standalone business that drops into the portfolio. We have an existing business in our EMG business. It's about a 200 million dollar business. It's our caught our engineered medical components. So we're familiar with this segment. There's completely different end markets, but think about that as an additive to that existing position, but in a greater scale.

Yes.

Our models use current borrowing rates as part of that.

Decision, making process.

Got it. Thank you last question is the <unk>.

Typical one Dave would you mind kind of maybe on bundling.

Before divisions.

Sure Scott.

Walk around the business start with our process business.

And.

Overall sales for process were up mid single digits.

At low single digit organic sales and the contribution from the acquisition of an avatar.

And demand across our process markets remained solid our products and technologies are well aligned with important.

David Zapico: And then maybe just one last one from me, you know, the med tech world's been a little rocky here, you know, the last couple of years procedures post COVID, everything. You characterize it as a double digit secular grower, but are they kind of sitting in a little bit of a trough here impacted by those sorts of forces or maybe just kind of. Not really. They're growing nicely. I mean, you have the market growth that they're benefiting from and they happen to be in the fastest areas.

Secular growth trends like the energy transition in healthcare.

Growth in the quarter was strongest across <unk>.

These end markets, while our high end optics business and <unk> continues to perform very well with was strong demand because our custom optical solutions.

For the full year, we continue to expect mid single digit organic sales growth for our process businesses.

Go into.

Aerospace and defense next.

Aerospace and defense continues to perform well and organic sales were up low double digits in the quarter.

David Zapico: They've deployed their resources well and they're benefiting from the faster pathless growth areas. You know, there's there's a winning new business on new programs and it's pretty substantial. And we get surveys on these businesses and this is a really good business in terms of their capability and how they take care of their customers and they're definitely winning share. So, you know, it's going to be a low double digit grower for the next, you can see in the next few years and a lot of that's programmed in. Now, you know, that's the way we're looking at. There's going to be ups and downs as we go throughout the years, but this is a solid business with really good growth prospects.

Unknown Executive: Right, congrats and good luck with it. Take care. One moment for our next question.

Growth remains strong and broad based across our A&D sub segments of.

Growth in the quarter was strongest in our defense businesses.

While commercial OEM and aftermarket businesses also grew at healthy levels.

Given this strong performance.

We now expect sales for aerospace and defense increased mid teens on a percentage basis for the full year.

In power and industrial those businesses delivered solid results in the third quarter with overall sales up mid teens.

This growth was driven by a low single digit organic sales growth.

And the contribution from the acquisition of <unk> technologies.

We saw the strongest growth in the quarter across our renewable energy and power simulation businesses, including our Tds.

Our power businesses are well positioned to benefit from.

Scott Graham: Our next question comes from Scott Graham with C4 Research Partners. Your line is open. Hey, I'm good morning. Thanks for taking a minute here. Nice. Thank you. So just a couple of items bill. What was the working capital percent last year? Give me one, give me one second on that. Sure. I'll just ask another one. Yeah, I got it. It was 18 for 18 for. Okay, thanks. And then, you know, the 1.5 billion of availability, just maybe walk us through there.

Long term investments required to modernize the electric power grid.

And build out of the renewable energy infrastructure globally.

And for all of 2023, we continue to expect mid single digit organic sales growth for our power business.

And finally, our automation and engineered solutions business.

Overall sales for <unk> were down mid single digits in the quarter.

With contributions from the acquisition of Bison engineering.

Being more than offset by a low double digit decrease in organic sales.

Scott Graham: That is net of Paragon. I assume. And is that like an assumption that about two and a half times leveraged? No, that's the that's the amount of cash and available availability under our revolver post Paragon that the leverage post Paragon would only be about one and a half times even dot the gross level. So substantial financial flexibility as well as we're still, you know, well under lever, and I would say, and as Dave's talked about lots of other opportunities available to us as we look to continue the acquisition strategy.

As we expected the impact from.

Normalization of inventory levels, which we talked about earlier across our OEM customer base.

Bind with challenging prior year comparisons.

Created a short term headwind for our OEM exposed businesses.

We believe underlying.

Demand is solid.

We talked about earlier.

<unk>.

Across our diverse automation engineer solutions markets and we remain constructive.

But we do expect as we said before.

The inventory normalization is going to recur throughout the OEM customer base will continue through the end of the year.

Scott Graham: So again, it's always finding the right businesses for the tech portfolio, but it is not capital constraint. Right. Yeah. That's how you do that as well. Another way to make that. Another way to make that is bill said post Paragon. We have 1.5 leverage. If we wanted to take it up to two and a half leverage, which is we've been there before and that's not a high higher number for all. We can spend $2.6 billion on acquisitions above and beyond Paragon.

And now for the full year, we expect organic sales for our automation and engineered solutions businesses to be down mid single digits versus the prior year.

So that's all for the.

The sub segment commentary Scott.

Thanks very much.

Thank you Scott.

One moment our next question.

Our next question comes from Nigel Coe with Wolfe Research Your line is open.

Scott Graham: So we're in the M&A game and are pipeline looks really good. And we have the balance sheet to be able to execute on it and the capability to integrate these businesses. Thank you for that. I appreciate it. When you are looking at deals these days in this interest rate environment here. Obviously funding them off of a lot of balance sheet liquidity and admittedly, maybe now higher rates off of the revolver, but are you impute an interest rate that is, you know, kind of more market oriented when you make these decisions?

Thanks, Good morning, Congrats on the deal.

Steven.

Good morning, Jimmy.

Yes, we can hear you Nigel.

Okay. Good I Couldnt hear you.

Okay. So.

Maybe you could do the same process geographically talk about what you're seeing by geography, but I'd be curious about Europe and China.

You gave some perspective on this.

<unk>.

Maybe you could talk about maybe just put a final point on full queue, maybe talk about core growth.

Scott Graham: Yeah, our models use current borrowing rates as part of that decision making process. Thank you. Last question is, you know, you're the typical one Dave, would you mind kind of maybe unbundling the four divisions? Sure, Scott. Walk around the business start with a process business. And overall sales for process were up mid single digits at low single digit organic sales and the contribution from the acquisition of now. Arthur. And demand across our process markets remains solid.

An acquisition conditions the bulky.

In Q4 and <unk>.

Yeah.

Yes.

Okay I'll go across the.

Geographies, we had continued solid growth in the U S.

With the international slowing a bit so unpack that a bit.

<unk> was up mid single digits.

With notable strength in our process business.

Europe was down low single digits.

Notable strength in process in our aerospace business, but weakness in automation.

You mentioned, China, our China exposure was down 3%.

Scott Graham: Our products and technologies are well aligned with important secular growth friends like the energy transition and healthcare. Growth in the quarter was strongest across these end markets while our high end optics business in ZIGO continues to perform very well with strong demand for their custom optical solutions. And for the full year, we continue to expect mid-single digit organic sale growth for our process businesses. Going to aerospace and defense next, aerospace and defense continues to perform well.

Strong growth in process weakness in automation.

And overall Asia was down about 10%, so China, China did better than overall Asia.

Kind of about 9% of sales.

So again up in the U S.

Slowing in international markets.

And the second question you asked was on Q4.

And the guide for Q4.

Okay.

Our sales will be up mid single digits.

We will grow in revenue.

Scott Graham: Organic sales were up low double digits in the quarter. Growth remains strong and broad based across our A&D sub segments. Growth in the quarter was strongest in our defense businesses while commercial OEM and after market businesses also grew at healthy levels. Given this strong performance, we now expect sales for aerospace and defense to increase mid-teens on a percentage basis for the full year. In power and industrial, those businesses delivered solid results from the third quarter with overall sales up mid-teens.

There are two factors impacting.

<unk>.

The earnings in Q4, and one of them is a higher tax rate.

And the second one is there some acquisition integration costs in there related to the deals we completed.

But we're very confident in our guide for Q4.

I'm sorry, David what was the core growth for <unk>.

Okay.

Core growth for Q4 was.

Low to mid single digits.

Scott Graham: This growth was driven by a low single digit organic sales growth and the contribution from the acquisition of RTDS technologies. We saw the strongest growth in the quarter across our renewable energy and power simulation businesses, including RTDS. Our power businesses are a well-positioned to benefit from long-term investments required to modernize the electric power grid and build out of the renewable energy infrastructure globally. For all of 2023, we continue to expect mid-single digit organic sales growth for our power business.

Okay. So thats hopefully acceleration from <unk>, what's what's driving that acceleration.

I think we're seeing some some.

Good demand on the <unk> side from.

The typical yearend selling your year end sales that we typically get of capital capital spending plus the DIY business is performing well.

So our aerospace and our process businesses are performing well.

And Thats, what driving our organic sales in Q4 to be higher than the organic sales in Q3.

Got it that's helpful. Maybe just one more for me.

So, let's see Paragon big deal.

You've closed another small deal.

Scott Graham: Finally, our automation and engineering solutions business. Overall sales for A&ES were down mid-single digits in the quarter with contributions from the acquisition of bison engineering being more than offset by a low double digit decrease in organic sales. As we expected, the impact from normalization of inventory levels, which we talked about earlier across our OEM customer base combined with challenging prior year comparisons created a short-term headwind for our OEM exposed businesses. We believe underlying demand is solid as we talked about earlier and across our diverse automation and engineering solutions markets and we remain constructive.

It sounded really bullish on the on your outlook as well so it seems like the pipeline Phil. Please so that's all I mean.

Scene here change in behavior from sellers, so we see more willing sellers or.

Seen any change in sort of asked multiple here.

Any color on the market would be helpful.

Yes, I think.

<unk>.

A little choppy in the market and people are reevaluating and.

Now the interest rates are higher so so financing that debt on a continuing organization may be a challenge.

And as I said in the beginning of the year. Our pipelines are strong I would categorize our pipeline right now is very strong.

We have a lot of attractive candidates, we're looking at and.

I am just bullish on being able to differentiate ametek's performance.

Over the next 12 months to 24 months with our Opex on our M&A.

Scott Graham: But we do expect, as we said before, the inventory normalization is going to recur throughout the OEM customer base will continue through the end of the year. And now for the full year, we expect organic sales for automation and engineering solutions businesses to be down mid-single digits versus the prior year. So that's all for the sub-statement commentaries, Scott. Thanks very much. Thank you. One moment for our next question.

Great. Thanks.

Yes.

One moment for our next question.

Our next question comes from Christopher Glynn with Oppenheimer. Your line is open.

Thank you good morning, good morning, Chris.

Well I don't want to keep it going on Paragon, a little bit I think you listed as.

For medical components and instrument I'm wondering if it is the OEM and some some of the instruments basis and also a little bit on ownership history in the process.

Nigel Coe: Our next question comes from Nigel Coe with both free search. Your line is open. Maybe you could do the same process geographically, talk about what you're seeing by geography. I'd be curious about Europe and China. And also you gave some perspective on business performance. Maybe you could talk about maybe just to find a point on 4Q, maybe talk about core growth and acquisition, conditions for 4Q. Okay, Q4 and JRC. Okay, I'll go across the geographies.

Process competitiveness and such.

Yes, when you think about Paragon.

There are largely selling to an OEM customer base, but they do sell some other.

They do sell some of their surgical instruments directly to the end customer.

But it is largely an OEM customer base.

We purchased the business from American Securities.

And from our view.

<unk>.

Did an excellent job running the business and kind of fans.

Fantastic management team in place.

Have a good growth strategy in the.

They are what they did is really positioned kind of a pure med tech play.

Nigel Coe: We had continued solid growth in the US with the international slowing a bit. So unpack that a bit. The US was up mid single digits with notable strength in our process business. Europe was down low single digits. Notable strength and process in our aerospace business, but weakness and automation. You mentioned China. Our China exposure was down 3%. Strong growth and process, weakness and automation. And overall Asia was down about 10%. So China, China did better than overall Asia.

Sure.

Positioning this with some other parts of their portfolio. So.

We're pretty excited about what we're buying.

Okay. Thanks for the added color.

Yes, Thank you Chris.

One moment for our next question.

Yes.

Our next question comes from Peter Peter Costa with Mizuho. Your line is open.

Good morning, everyone. This is Peter thoughts on for Lindsay So just coming back to orders could you provide some context around the monthly order cadence through the quarter then moving into October have you been seeing anything concerning or anything tracking better than your internal expectations. Thank you.

Nigel Coe: China is about 9% of sales. So again, up in the US, slowing in international markets. And the second question you asked was on Q4 and the guy for Q4 and our sales will be up mid single digits. We'll grow in revenue. There are two factors impacting the earnings in Q4 and one of them is a higher tax rate. And the second one is there's some acquisition integration costs in there related to the deals we completed.

No I think the.

Quarterly evolution of orders is about what we see we mentioned are.

Book to Bill and things like that and when we.

It started out in Q4 in line with what we need to deliver those results. So.

We had talked to.

Our last few earnings calls we highlighted a couple of dynamics that would impact orders our orders have been very strong for an extended period of time.

In fact, we averaged 18% organic growth in 2021 and 2022.

And we had 12 consecutive quarters up to this quarter with <unk>.

Positive book to Bill So as a result, we have a near record backlog as we said.

Nigel Coe: But we're very confident in our guide for Q4. I'm sorry, David, what was the progress for the four key? Core growth for Q4 was low to mid single digits. Okay, so that's obviously acceleration from from 3Q. What's what's driving that acceleration? I think we're seeing some some good demand on the EIG side from the typical year end selling year end sales that we typically get of capital capital spending plus the EIG businesses performing well.

Yeah.

These dynamics are playing out.

We anticipated.

Perfect. Thank you.

One moment for our next question.

Our next question comes from Andrew <unk> with Bank of America. Your line is open.

Hi, This is David Ridley Lane on for Andrew Open.

Hello, David.

Nigel Coe: So our aerospace and our process businesses are performing well and that's what driving organic sales in Q4 to be higher than the organic sales in Q3. Got it, that's helpful. Maybe just one more for me. So obviously Paragon, Big Deal, you know, you've both another, you know, smaller deal. It sounds really bullish on the on the outlook as well. So it seems like the carcline still prefer sell. I mean, are we seeing here change in behavior from sellers?

Morning.

I was wondering if you've seen any impact from the higher interest rates on an end market demand and.

Particular, some of the other publicly traded test and measurement companies have mentioned project delays, particularly.

Particularly in China have you seen anything.

Along those lines.

As I mentioned, we were down about 3% organically in China. So there was.

Some delays but.

Wasn't substantial.

Nigel Coe: So we see a more willing sellers. I've always seen any change in sort of awesome both here and any any any current in the market will be helpful. Yeah, I think it's a little choppy in the market and people are reevaluating and the interest rates are higher. So financing that debt on a continuing organization may be a challenge. And as I said, in the beginning of the year, our pipeline is strong. I would categorize our pipeline right now is very strong.

In terms of <unk>.

Increasing interest rates, that's one of the uncertainties that we're clearly looking at and it's a very dynamic environment right now.

And there are factors for sure but.

We're not seeing an impact on projects proceeding.

Or anything like that from the interest rates at this point.

Got it.

Are you supply chain constrained at this point in your aerospace and defense businesses.

Is that a sort of a limiter on growth accelerating and even.

David Zapico: We're going to initiate Ametek's performance over the next 12 to 24 months with our optics in our M&A. Great. Thanks, David. Thank you. One moment for our next question.

Greater overtime.

We are not supply chain limited in aerospace at this time.

Now the industry is.

With some supply chain difficulties.

We're not limited.

Alright, Thank you very much.

Christopher Glynn: Our next question comes from Christopher Glynn with Oppenheimer. Your line is open. Thank you. Good morning. Good morning, Chris.

One moment alright, our next question.

Yes.

Yeah.

David Zapico: When it want to keep it going on, I've carried on a little bit. I think you listed as for medical components and instruments. I'm wondering if it is the OEM and some of the instrument spaces. And also a little bit on ownership history in the field process, competitiveness and such. Yeah, when you think about paragon, they're largely selling to an OEM customer base, but they do sell some other, they do sell some of their surgical instruments directly to the end customer.

Our next question comes from Michael <unk> with TD Cowen Your line is open.

Thank you and good morning, everyone.

Morning, Michael.

Back to Paragon.

Currently medical related revenues are about give or take 10% of sales and after this acquisition. It takes me to about 20%. So we just expect it.

David Zapico: But it's largely an OEM customer base. We purchased the business from American Securities. And from our view, they did an excellent job running the business and had a fantastic management team in place of a good growth strategy. And, you know, what they did is really positioned kind of a pure MedTech play by, you know, positioning this with some other parts of their portfolio. So we're pretty excited about what we're buying.

Just curious if youre expecting to make like a deeper push into medical moving forward.

And then what is sort of like the best way to think about balancing M&A dollars for these different end markets as well, let me color would be helpful.

Unknown Executive: Okay. Thanks for the added color. Yeah. Thank you, Chris.

Yes.

Operator: One moment for our next question.

Yes.

There is a balance and ametek's end markets and we really liked that balance that's why we're able to navigate some of the challenges that we're going through right. Now so we plan on keeping that balance, but if there are other attractive areas in the medical space, We'll certainly look at them but.

So we like the balance in the portfolio.

And what was your other question Michael.

Oh M&A dollar yes.

I mean, we have we have a distributed operating model and all of our businesses. We have we have management teams there that are.

Doing strategy work around our businesses and trying to make their businesses better and they are bringing forward acquisition candidates. So.

Yeah, we don't we don't have a predefined number of predefined amount of capital that we're going to apply to certain markets.

Peter Kostow: Our next question comes from Peter Kostow with Mizzouho. Your line is open. Good morning, everyone. This is Peter Kostow. I'm for Brett Lindsey. So just coming back to orders. Did you provide some context around the monthly order cadence to the quarter and then moving into October? Have you been seeing anything concerning or anything tracking better than your internal expectations? Thank you. No, I think the quarterly evolution of orders is about what we see.

We're going to we're not looking for the deal the deal quality the quality of the businesses and if we have the management teams the integrator so.

Different viewpoint, we don't look at it from the top down in terms of dollars allocated per market.

Got it.

Helpful and just kind of diving back into it so potentially depending on availability of assets and not such.

Do you expect.

Peter Kostow: We mentioned our book to Bill and things like that. And we started on Q4 and in line with what we need to deliver those results. So, you know, we had talked our last few earnings calls. We highlighted a couple of dynamics that would impact orders. And our orders have been very strong for an extended period of time. In fact, we averaged 18% organic growth in 2021 and 2022. And we had 12 consecutive quarters up to this quarter with positive book to Bill. So as a result, we have a near record backlog, as we said.

Total revenues for the medical end market.

Increasing over time, and how do you think that it's.

David Zapico: David. Now these dynamics are playing out as we anticipate it. Perfect. Thank you. One moment for our next question.

20% now it could be it could go $25 30 that wouldn't bother us but.

We plan on having.

Diversified revenue base.

Great. Thank you.

Thank you.

Thank you that concludes the question and answer session. At this time I would like to turn it back to Kevin Coleman for closing remarks.

Thank you Abigail and thanks, everyone for joining us for our conference call. As a reminder, a replay of today's webcast can be accessed in the investors section of AMETEK Dot com have a great day.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

David Zapico: Our next question comes from Andrew Obin with Bank of America. Here line is open. Hi, this is David Ridley Lane on for Andrew Obin. Good morning. I wonder if you've seen any impact from the higher interest rates on on in market demand and in particular, you know, some of the other publicly traded test and measurement companies have mentioned project delays, particularly in China. Have you seen anything along those lines? Yeah, as I mentioned, we were down about 3% organically in China, though there was some delays, but it wasn't substantial.

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David Zapico: You know, in terms of increasing interest rates, that's one of the uncertainties that we're clearly looking at. It's a very dynamic environment right now. And they're factors for sure, but, you know, we're not seeing an impact on projects, proceeding or anything like that from the interest rates at this point.

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David Zapico: Got it. And are you supply chain constrained at this point in your aerospace and defense businesses? Is that a sort of limiter on growth, accelerating and even greater over time? We are not supply chain limited in aerospace at this time. Now the industry is dealing with some supply chain difficulties, but we're not limited. All right, thank you very much. One moment, our next question.

Dan.

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Michael Anastasiou: Our next question comes from Michael Anastasio with TD Cohen. Your line is open. Thank you.

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David Zapico: Good morning, everyone. Good morning, Michael. Back to Paragon, you know, currently medical related revenues are about give or take 10% of sales, and after this acquisition, it takes you to about 20%. So let's just expect the, just curious if you're expecting to make like a deeper push into medical moving forward. And then what is sort of like the best way to think about balancing them and a dollars for these different markets as well?

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David Zapico: Any color would be helpful. Yeah, I, there's a balance in Amitex and markets, and we really like that balance. That's why we're able to navigate some of the challenges that we're going through right now. So it's what we plan on keeping that balance, but if there are other attractive areas in the medical space, we'll certainly look at them, but, you know, it's, we like to balance in the portfolio. And what was your other question, Michael?

David Zapico: Oh, M&A dollar. Yeah, I mean, we have, we have a distributed operating model and all of our businesses, we have, we have management teams there that are. You know, don't strategy work around their businesses and trying to make their businesses better and they're bringing forward acquisition candidates. So, you know, we don't we don't have a predefined number of predefined amount of capital that we're going to apply to certain markets. Paul and just kind of kind of dive it back into it.

David Zapico: So potentially depending on availability of assets and not such, you expect, you know, total revenues to the medical and market, you know, increasing over time and how do you expect that? Yeah, 20% now it could go, you know, 25 30 that wouldn't bother us, but we plan on having a diversified revenue base.

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Good day and welcome to the AMETEK third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

You will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

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

Thank you Abigail and good morning, and thank you for joining us for Ametek's third quarter 2023 earnings Conference call.

With me today are Dave <unk>, Chairman, and Chief Executive Officer, and Bill Burke Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in ametek's filings with.

The SEC.

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

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

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

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

Thank you, Kevin and good morning, everyone.

AMETEK delivered excellent results in the third quarter highlighted by outstanding operational execution.

Superb margin expansion.

<unk> cash flows and.

And earnings ahead of our expectations.

In the quarter, we established records for operating income operating margins earnings per share EBITDA and cash flows.

Given the strong results.

And our outlook for the balance of the year.

We have again increased our earnings guidance for the full year.

We have also been very active on the acquisition front.

During the third quarter.

<unk> the acquisition of United Electronic industries.

Subsequent to the end of the third quarter, we acquired amplifier research.

Today, we also announced the signing of a definitive purchase agreement to acquire Paragon medical.

A highly attractive acquisition, which broadens our exposure in the medical technology space.

I will provide more details on these acquisitions shortly.

Now, let me turn to our third quarter results.

Third quarter sales were $1 62 billion.

Up 5% over the same period in 2022.

Organic sales growth was flat.

Acquisitions added four points in the quarter.

Foreign currency added one point.

Book to Bill in the quarter was $0 96.

We ended the quarter with a very strong backlog of $3 4 billion near record levels and down a modest 2% sequentially.

Our backlog is up 5% from last year's third quarter, and up 23% or $640 million from the end of 2021.

Ametek's operating performance in the third quarter was exceptional.

Operating income in the quarter was a record $438 million of <unk>.

14% increase over the third quarter of 2022.

Operating margins were a record 27% in the quarter up a sizeable 220 basis points from the prior year.

EBITDA in the quarter was also a record at $511 million.

Up 10% over the prior year.

With EBITDA margins and an impressive 31, 5%.

Operating cash flow was up 45, 45% in the quarter to a record $473 million.

This outstanding performance led to record earnings of $1 64 per diluted share up 13% versus the third quarter of 2022 and above our guidance range of $1 56 to $1 58.

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

First the electronic instruments group.

The electronic instruments group delivered impressive operating performance with continued strong and broad based sales growth.

Sales for <unk> were 114 billion in the quarter up 8% from the third quarter of last year.

Organic sales were up three 5% acquisitions added three 5%.

Michael Anastasiou: Great, thank you. Thank you.

Foreign currency added a point.

Aig's organic sales growth remains broad based.

Flex, our leading position across attractive market segments, and the impact of our organic growth initiatives.

Growth in the quarter was particularly strong our cross our aerospace and defense businesses as well as in our <unk> spectral and Kamika businesses.

Third quarter operating income was a record $335 million up 23% versus the prior year and operating margins were a record 29, 5% in the quarter up an impressive.

160 basis points from the prior year.

Tremendous work by our businesses in the third quarter.

The electromechanical group also delivered solid operating performance in the quarter. Despite the impact of normalization of inventory levels across our OEM customer base.

Amg's third quarter sales were $487 million.

Down 2% versus the prior year with.

With organic sales down 8% in the quarter.

Acquisitions added four points and foreign currency added two points.

Kevin Coleman: That concludes the question and answer session at this time. I would like to turn it back to Kevin Coleman for closing remarks. Thank you Abigail. Thanks everyone for joining us for our conference call as a reminder of replay of today's webcast can be accessed in the investor section of Ametek.com. Have a great day. Thank you for your participation in today's conference.

Operator: This does conclude the program. You may now disconnect. Thank you. Andrew Obin, David Zapico, David Zapico, David Zapico, David Zapico, David Zapico,[inaudible] David Zapico, David Zapico Zapico, David Zapico, David Zapico, David Zapico,[inaudible] Zapico, David Zapico David Zapico, David Zapico, David Zapico,[inaudible] Zapico, David Zapico, David Zapico, David Zapico, David Zapico, David Zapico,[inaudible][inaudible] Zapico, David Zapico[inaudible] Zapico, David Zapico David Zapico, David Zapico, David Zapico, David Zapico, Andrew Obin, Brett Deane Dray, Matt Summerville, Joseph Giordano, Unknown Executive, Scott Deane Dray, Matt Summerville, Joseph Giordano, Unknown Executive[inaudible] Deane Dray, Matt Summerville, Joseph Giordano, Unknown Thank you Abigail.

Emg's operating income in the quarter was $128 million.

One 7% compared to the prior year period, while Emg's third quarter operating margins were a very solid 26, 2%.

Kevin Coleman: Good morning and thank you for joining us for Amatex third quarter 2023 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risk and uncertainties that may affect our future results is contained in Amatex filings with the SEC.

Our performance in the third quarter and thus far in 2023.

Reflects the unique value inherent in the AMETEK growth model.

Kevin Coleman: Amatex disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2022 or 2023 results or to 2023 guidance will be on an adjusted basis excluding after-tax acquisition related and tangible amortization. Reconciliation between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill and then we'll open it up for questions on the turn the meeting over today.

Our differentiated businesses are aligned with diverse and attractive growth markets, while our organic growth initiatives continuing to position us for long term sustainable growth.

Our distributed operating structure provides our businesses with the ability to execute our growth strategy and our flexibility to react.

Quickly to changing market conditions.

And our asset light business model and strong operational execution.

<unk> outstanding cash flow generation, which we redeploy on value enhancing acquisitions.

This strong cash flow and a robust balance sheet are key differentiators for AMETEK in this higher interest rate environment.

David Zapico: Thank you Kevin and good morning everyone. Amatex delivered excellent results in the third quarter highlighted by outstanding operational execution, superb margin expansion, strong cash lows and earnings ahead of our expectations. In the quarter, we established records for operating income, operating margins, earnings per share, EBITDA and cash lows. Given these strong results and our outlook for the balance of the year, we have again increased our earnings guidance for the full year. Carter.

Now switching to our acquisition strategy.

David Zapico: We have also been very active on the acquisition front. During the third quarter, we completed the acquisition of United Electronic Industries and subsequent to the end of the third quarter. We acquired amplifier research. Today, we also announced the signing of a definitive purchase agreement to acquire Paragon Medical, a highly attractive acquisition which bronze our exposure in the medical technology space. I will provide more details on these acquisitions shortly. Now, let me turn to our third quarter results.

As noted we have been very active managing a strong pipeline of acquisition opportunities.

We are pleased to welcome our most recent acquisitions.

United Electronic industries and amplifier research.

I'm pleased that we have signed a definitive agreement to acquire Paragon medical.

I will provide some more color on each of these businesses starting with Paragon medical.

Paragon medical is a leading manufacturer of highly engineered medical components in instruments, serving applications, including orthopedics minimally invasive surgery robotic surgery and drug delivery solutions.

David Zapico: Third quarter sales were $1.62 billion, up 5% over the same period in 2022. Organic sales growth was flat. Acquisitions added four points in the quarter and four in currency added one point. Book to bill in the quarter was 0.96. We ended the quarter with a very strong backlog of $3.4 billion near record levels and down a modest 2% sequentially. Our backlog is up 5% from last year's third quarter and up 23% or $640 million from the end of 2021.

Paragon has a broad product portfolio of single use and implantable components are sold to a diverse blue chip customer base of leading medical device Oems.

David Zapico: Ametek's operating performance in the third quarter was exceptional. Operating income in the quarter was a record, $438 million, a 14% increase over the third quarter of 2022. Operating margins were a record 27% in the quarter, up a sizeable 220 basis points from the prior year. EBDA in the quarter was also a record, had $511 million, up 10% over the prior year, with even a margin in the price of 31.5%. Operating cash low was up 45%, 45% in the quarter to a record, $473 million.

Paragon is an excellent acquisition for AMETEK and expands our presence in the med Tech space and provides us with access to attractive new market segments with strong growth rates.

We are acquiring paragon in an all cash transaction valued at approximately $1 9 billion.

Paragon has annual sales of approximately $500 million and is headquartered in Pearson, Indiana.

The closing of the acquisition is subject to customary closing conditions, including <unk>.

David Zapico: This outstanding performance led the record earnings of $1.64 per diluted share, up 13% versus a third quarter of 2022, and above our guidance range of $1.56 to $1.58. Now, let me provide some additional details at the operating group level.

<unk> regulatory approvals.

Now switching to United Electronic industries, or <unk>, which we acquired in August.

<unk> is a leading provider of Ruggedized test measurement and stimulation and control solutions.

<unk> custom products cater to diverse data acquisition is from hardware in the loop testing two aircraft simulators and automated testing systems in mission critical applications.

David Zapico: First, the electronic instruments group. The electronic instruments group delivered impressive operating performance with continued strong and broad based sales group. Sales REIG were $1.14 billion in the quarter, up 8% from the third quarter of last year. Organic sales were up 3.5%, acquisitions added 3.5% and foreign currency added a point. EBIG's organic sales growth for me is broad based, reflects our leading position across attractive market segments, and the impact of our organic growth initiatives.

With a strong presence in defense.

Aerospace.

Nuclear power generation in semiconductor.

<unk> nicely complements ametek's power systems and instruments Division.

Significantly expanding our data acquisition capabilities.

<unk> has annual sales of approximately $35 million and is based in Norwood, Massachusetts.

Next amplifier research is a leading provider of innovative RF and microwave solutions and.

David Zapico: Growth in the quarter was particularly strong across our aerospace and defensive businesses, as well as in our ZIGO, Spectro, and Camica businesses. The third quarter operating income was a record, $335 million, up 23% versus a prior year, and operating margins were a record, 29.5%, and the quarter, up an impressive 360 basis points from the prior year. Superior. Tremendous work by our EIG businesses in the third quarter.

This equipment is used for electromagnetic compatibility testing within the defense industrial automotive medical and communication sectors.

Amplifier research is an outstanding strategic acquisition and complementary fit with our existing compliance test solutions business.

Their technical capability to broaden our RF instrumentation and testing portfolio.

Amplify our research is a growing business well positioned to benefit from the growth in demand for electric vehicle research development and testing.

David Zapico: The Electra Mechanical Group also delivers solid operating performance in the quarter despite the impact of normalization of inventory levels across our OEM customer base. EMG's third quarter sales were $487 million, down 2% versus the prior year with organic sales down 8% in the quarter. Acquisitions added four points and four in currency added two points. EMG's operating income in the quarter was $128 million, down 7% compared to the prior year period, while EMG's third quarter operating margins were a very solid 26.2%.

<unk> research is based in Saturday MPA.

Annual sales of approximately $60 million.

Our acquisition pipeline remains very solid we.

We have a strong balance sheet and significant financial capacity and look to remain active in deploying capital in the coming quarters.

AMETEK also remains committed to investing in our businesses to help position them for long term sustainable organic growth.

In 2023, we plan to invest approximately $100 million in these growth initiatives, including our new product development efforts for our businesses continued to develop highly differentiated technologies.

David Zapico: Our performance in the third quarter and thus four in 2023 reflects the unique value inherent in the Ametek growth mark. Our differentiated businesses are aligned with theverse and attractive growth markets, while our organic growth initiatives continue to position us for long term sustainable growth. Our distributed operating structure provides our businesses with the ability to execute their growth strategy and the flexibility to react quickly to changing market conditions. And our asset-la business model and strong operation and execution drive outstanding cashflow generation, which we redeploy on value and enhancing acquisitions. This strong cashflow and our robust balance sheet are key differentiated for Ametek in this higher interest rate environment.

Help solve our customers' most complex challenges.

In the quarter, our vitality index.

Which measure of sales from products introduced over the prior three years was a healthy 26%.

As a complement to our internal new product development efforts are or check business recently acquired a small technology company.

<unk>.

To help broaden their technology capabilities and the radiation detection market.

And our read both cutting edge technology expertise and an exceptional product development team known for their innovative solutions, having developed specialized artificial intelligence algorithms.

Radiation detection and a range of nuclear security.

Research health and medical applications.

David Zapico: Now switching to our acquisition strategy. As noted, we have been very active managing a strong pipeline of acquisition opportunities. We are pleased to welcome our most recent acquisitions, united electronic industries, and amplifier research. And pleased that we have signed a definitive agreement to acquire Paragon Medical. I will provide some more color on each of these businesses starting with Paragon Medical. Paragon Medical is a leading manufacturer of highly engineered medical components and instruments serving applications including orthopedics, minimally invasive surgery, robotic surgery, and drug delivery solutions.

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

With strong performance in the third quarter and a positive outlook for the remainder of the year. We are once again raising our earnings guidance.

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

And we continue to expect organic sales to be up mid single digits.

Diluted earnings per share for the year are now expected to be in the range of $6 31 to $6 33.

Up approximately 11% compared to last year's results.

This is an increase from our previous guidance range of $6 18 to $6 26 per diluted share.

David Zapico: Paragon's broad product portfolio of single use and implantable components are sold to a diverse blue chip customer base of leading medical device OEMs. Paragon is an excellent acquisition for Ametek. It expands our presence in the mid-tech space and provides us with access to attractive new market statements with strong growth rates. We are acquiring Paragon in an all-cash transaction value at approximately $1.9 billion. Paragon has annual sales of approximately $500 million and is headquartered in Pearson, Indiana. The closing of the acquisition is subject to customer closing conditions including applicable regulatory approvals.

For the fourth quarter.

We anticipate overall sales to be up mid single digits with adjusted earnings of $1 61 to $1 63 per share up 6% to 7% versus the prior year.

In summary, AMETEK third quarter results for 2023 were outstanding with strong growth across our long cycle businesses record operating performance and strong acquisition activity. Our businesses continued to excel driven by our differentiated technology solutions, serving diverse and grew.

<unk> markets, our asset light business model and strong cash flows provide us with the flexibility to navigate challenging economic environments, while actively deploying capital to enhance shareholder value.

David Zapico: Now switching to united electronic beneficiaries or UEI, which we acquired in August. UEI is a leading provider of ruggedized test measurement simulation and control solutions. UEI's custom products cater to diverse data acquisitiones from hardware and loop testing to aircraft simulators and automated testing systems and mission critical applications. With a strong presence in defense, aerospace, nuclear power generation, and semiconductor, UEI nicely complements Amatex power systems and instruments division, significantly expanding our data acquisition capabilities. UEI has annual sales of approximately $35 million and is based in Norwood, Massachusetts.

AMETEK remains firmly positioned for long term sustainable growth.

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

Thank you Dave as Dave noted AMETEK delivered outstanding results in the third quarter exceptional operating performance robust margin expansion and strong cash flows let.

Let me provide some additional financial highlights for the quarter third quarter General and administrative expenses were $24 $6 million essentially unchanged from the prior year and as a percentage of sales were one 5% versus one 6% in last year's third quarter.

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

David Zapico: Next, Amplifier Research is a leading provider of innovative RF and microwave solutions. Its equipment is used for electromagnetic compatibility testing within the defense, industrial, automotive, medical, and communication sectors. Amplifier research is an outstanding strategic acquisition and complimentary fit with our existing compliance test solutions business. Their technical capabilities broaden our RF instrumentation and testing portfolio. Amplifier research is a growing business well positioned to benefit from the growth and demand for electric vehicle research, development, and testing. Amplifier research is based in Southern TMPA and has annual sales of approximately $60 million.

Other income and expense was a headwind of $9 million in the quarter due largely to lower pension income and higher due diligence costs.

The effective tax rate in the quarter was 17, 7% down from 19% in the third quarter of 2022 due to improved utilization of tax credits.

For 2023, and we now anticipate our effective tax rate to be between 18, 5% and 19%.

As we stated in the past actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate.

Capital expenditures in the third quarter were $29 million and we continue to expect capital expenditures to be approximately $145 million for the full year or about 2% of sales.

David Zapico: Our acquisition pipeline remains very solid. We have a strong balance sheet and significant financial capacity and look to remain active into point capital in the coming quarters. Amatex also remains committed to investing in our businesses to help position them for long term sustainable organic growth. In 2023, we plan to invest approximately $100 million in these growth initiatives, including our new product development efforts, where our businesses continue to develop highly differentiated technologies to help solve our customers' most complex challenges.

Depreciation and amortization expense for the quarter was $82 million for the full year, we expect depreciation and amortization to be approximately $330 million, including after tax acquisition related intangible amortization of approximately $157 million or <unk> 68 per diluted share.

Operating working capital in the third quarter was 19, 1% of sales.

Flow was excellent in the quarter with outstanding growth versus the prior year.

Operating cash flow was a record $473 million up 45% versus the third quarter of 2022, while free cash flow was also a record quarter at $44 million up.

David Zapico: In the quarter, our vitality index, which may your sales from products introduced over the first three years, will the healthy 26%. As a compliment to our internal new product development efforts, our or tech business recently acquired a small technology company, InnoRid, to help broaden their technology capabilities and the radiation detection market. InnoRid, both cutting-edge technology expertise and an exceptional product development team, known for their innovative solutions, having developed specialized artificial intelligence algorithms for radiation detection in a range of nuclear security, research, health, and medical applications.

Up 49% over the prior year.

Free cash flow conversion was 131% in the quarter and for the full year. We continue we continue to expect approximately 120% free cash flow to net income conversion.

Total debt at September 30 was $2 2 billion.

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

Offsetting this debt is cash and cash equivalents of 100 $842 million.

At the end of the third quarter, our gross debt to EBITDA ratio was one one times and our net debt to EBITDA ratio was 0.6 times, leaving us with significant available cash and financial capacity to deploy on strategic acquisitions and as Dave has noted we have been very active during the third quarter, we deployed approximately 100.

David Zapico: Now, I'll turn to our outlook for the remainder of the year. With strong performance in the third quarter and a positive outlook for the remainder of the year, we are once again raising our earnings guidance. For the full year, we continue to expect overall sales to be up into high single digits. Edges, and we continue to expect organic sales to be up mid-single digits. Salute earnings per share for the year are now expected to be in the range of $6.31 to $6.33 up approximately 11% compared to last year's results.

$50 million on the acquisitions of <unk> and iterate.

David Zapico: This is an increase from our previous guidance range of $6.18 to $6.26 for dilated share. For the fourth quarter, we anticipate overall sales to be up mid-single digits with adjusted earnings of $1.61 to $1.63 per share, up 6% to 7% versus the prior year.

And subsequent to the end of the quarter, we deployed approximately $105 million on the acquisition of amplifier research.

Also subsequent to the end of the third quarter, we announced the signing of a definitive agreement to acquire Paragon medical for $1 9 billion, which.

Which would be our largest acquisition to date.

Following the acquisition of Paragon, and we would still have significant financial capacity with approximately $1 5 billion of cash and existing credit facilities available to support our growth initiatives.

In summary, AMETEK had exceptional results in the third quarter, we achieved significant market margin expansion and delivered high quality earnings.

Our strong position in key market segments, coupled with a very strong backlog.

Exceptional operating capabilities positions us well for continued success Kevin.

Thank you Bill.

David Zapico: In summary, Ametek's third quarter results for 2023 were outstanding. With strong growth across our long-cycle businesses, record operating performance and strong acquisition activity, our businesses continue to excel driven by our differentiated technology solutions serving diverse and growing markets. Our asset-like business model and strong cash flows provided with the flexibility to navigate challenging economic environments while actively deploying capital to enhance its shareholder value. Ametek remains firmly positioned for long-term sustainable growth.

Abigail could we please open the lines for questions.

Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

One moment for our first question.

Our first question comes from Deane Dray with RBC capital markets. Your line is open.

Thank you good morning, everyone.

Dean.

Congrats on all the M&A successes here and maybe we could start with Paragon looks right in your wheelhouse precision medical robotics.

William Burke: I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, then with the leather-taker questions. Nope. Thank you, Dave. As Dave noted, Ametek delivered outstanding results in the third quarter with exceptional operating performance, robust margin expansion and strong cash flows. Let me provide some additional financial highlights for the quarter. Third quarter general administrative expenses were $24.6 million, essentially unchanged from the prior year, and as a percentage of sales were 1.5% versus 1.6% in last year's third quarter.

If you could provide some color on the company in terms of like what percent are consumables were real like saying all those one use.

Patients so consumables comment on margins and growth if you could please yeah sure.

Give you my view of Paragon as you stated the leading provider of highly engineered medical components in instruments.

When you look at the key market drivers of this acquisition.

William Burke: For 2023, general administrative expenses are expected to be approximately 1.5% of sales in line with last year's G&A sales level. Other income and expense were the headwind of $9 million in the quarter due largely to lower-pension income and higher due diligence costs. The effective tax rate in the quarter was 17.7% down from 19% in the third quarter of 2022 due to improved utilization of tax credits. For 2023, we now anticipate our effective tax rate to be between 18 and a half percent and 19%.

The aging population the demographic shifts.

You also have procedure innovation, where the minimally invasive procedures are becoming more and more.

More percentages of surgeries and they do a great job at that and also in this market.

There is a continuing trend towards outsourcing to Oems and they want to the Oems want to accelerate their time to market.

Paragon is really well positioned with significant new product wins in this space.

William Burke: And as we stated in the past, actual quarterly tax rates can differ dramatically either positively or negatively from this full-year estimated rate. Capital expenditures on the third quarter were $29 million, and we continue to expect capital expenditures to be approximately $145 million from the full year, or about 2% of sales. Appreciation and amortization expense in the quarter was $82 million, but the full-year we expect depreciation and amortization to be approximately $330 million, including after-tax acquisition-related intangible amortization of approximately $157 million, or $68 per diluted share.

It serves a specialty applications I talked about the orthopedics.

Minimally invasive surgery robotic surgery in drug delivery.

Orthopedics as a largest but theyre strong positions in each of the applications.

The portfolio was one of your questions consisted of single use and consumable surgical instruments and implantable components and about 40% of our business is recurring in nature. So the.

The single use consumable surgical instruments are about 40% of the revenue so we really like that.

As a blue chip customer base.

Over 600 programs with diverse sources of revenue.

William Burke: Operating capital in the third quarter was 19.1% sales. Cash flow was excellent in the quarter without standing growth versus the prior. Deane Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, Dray, You also have procedure innovation, where the minimally invasive procedures are becoming more, more, more percentages of surgeries and they do a great job at that. And also in this market, there's a continuing trend toward outsourcing to OEMs.

About 85% of the business is on sole source programs.

It's a very very sticky business, our new combined the regulatory environment with lengthy approval processes.

And the capabilities of Paragon, there is high switching costs.

Business at as unique value to its customer base.

A lot of surveys in the market and they are the highest quality provider.

They have excellent customer service.

Differentiator for them as their design and development capability.

I really considered a true partner by their customers.

And when I look at this from that's about Paragon when I look at it what it does for AMETEK.

It increases our med tech exposure now to over 20%.

One of the goals, we've been we've been trying to achieve.

It adds about $500 million in revenue to AMG.

And that revenue is.

It comes from Paragon, which is a secular low double digit grower.

It really fits our business model with the highly engineered products that provide unique value to customers.

It's a growing profitable business that provides multiple avenues of growth.

Theres really an opportunity for us to improve margins by applying the AMETEK growth model is already a profitable business, but there's plenty of room for us to apply the AMETEK growth model and expand margins.

Paragon will benefit from the Ametek's global infrastructure for sure and we liked the management team. They are highly talented team and we're excited about what we can accomplish together and importantly, the deal economics ametek's traditional deal hurdles and this is on a large deployment of capital. So our return on invested capital.

Herders are met by this deal.

We paid about 15 times TTM.

EBITDA for the business. So we're very excited for the business.

That's a good business for us we've been looking at these businesses for some time and.

As your universal excitement amongst the Paragon in AMETEK.

Alright that was a great overview of any hit all the key questions on the consumable both margins and growth. So it sounds like a great story.

And if I could just on a follow up question on EMG. So.

We're seeing destocking all over the sector in Biopharma and Med Tech.

Be interested in hearing from you.

Besides the Destocking is there any kind of read through on the end markets.

Those business are you seeing any slowing there and look no. One is getting no. One has the crystal ball here in terms of how long do you think this lasts but I'd love to hear your expectation on the duration of this inventory normalization charging.

<unk> great questions.

For the quarter, we grew our top line, 5% on a mid single digit guide.

Our revenue was in line with the guide the acquisition of <unk>.

Formed a bit better.

And.

We maintained as I said.

Our full year sales guidance mid to high single digits and organic growth of mid single digits.

To maintain that organic guide for the full year, our aerospace and defense business is stronger and our automation is weaker and they're offsetting and that's one of the benefits of the AMETEK portfolio and specifically in terms of Q3 revenue, we saw faster destocking in our automation businesses and we and.

William Burke: And they want to, OEMs want to accelerate your time to market and Paragon is really well positioned with significant new product wins in this space. It serves specialty applications. I talked about the orthopedics minimally invasive surgery, robotic surgery and drug delivery. Orthopedics is a largest, but there's strong positions in each of the applications. Now the portfolio is one of your questions consisted of single use and consumable surgical instruments and implantable components.

<unk>. So that's that's what we saw there in <unk>.

And we expect the Destocking to continue through the end of the year.

In terms of your question is it a destock or a downturn, it's very difficult.

<unk> environment right now.

Lots of uncertainties.

With a geopolitical risks the interest rate increases or factoring in for sure.

But from what we see this as largely an inventory correction and demand looks constructive with many new projects in the orphanage coughing and the projects are not being delayed or canceled.

William Burke: And about 40% of the business is recurring in nature. So the single use and consumable surgical instruments are about 40% of the revenue. So we really like that. As a blue chip customer base, over 600 programs with diverse sources of revenue, about 85% of the businesses on sole source programs. It's a very, very sticky business when you combine the regulatory environment with lengthy approval processes and the capabilities of Paragon, there's high switching costs.

Our aerospace and defense looks solid our medical look solid significant projects in semiconductor clean energy power grids. So we remain positive post destocking.

And we think that the.

Destocking will.

Continue through the end of the year.

In terms of.

2024, we're going to sit down with our teams and understand what's going on but.

In general were constructive.

That's all real helpful. Thank you.

Thank you Dave.

One moment for our next question.

William Burke: It's a business that has unique value to its customer base. We did a lot of surveys in the market and there's the highest quality provider. They have excellent customer service. A differentiator for them is their design and development capability. And I really considered a true partner by their customers. And when I look at this from that's about Paragon, I look at what it does for Amitech. It increases our MedTech exposure now to over 20%.

Our next question comes from Matt Summerville with D. A Davidson your line is open.

Thanks, Good morning.

Dave.

Margins this quarter really moved into a new ZIP code for AMETEK I was wondering if you could maybe talk about the key drivers as you just think about the sequential performance right revs flat profitability of $28 million on the op line as well as kind of a year over year dynamics. So maybe if you can just kind of flush all of them.

William Burke: It's one of the goals we've been trying to achieve. It adds about 500 million in revenue to EMG. And that revenue comes from Paragon, which is a secular low double digit grower. It really fits our business model with the highly engineered products to provide unique value to customers. It's a growing profitable business that provides multiple avenues of growth. And there's really an opportunity for us to improve margins by applying the Amitech growth model.

That would be helpful sure, Matt I mean, if you'll go back and look at my last quarter or two I told you AIG with gaining momentum in that.

Momentum certainly showed up in Q3.

We had an excellent operating quarter.

<unk>.

AIG margins were up 360 basis points.

Driven by high contribution leverage on our growth.

We really had excellent price cost.

William Burke: It's already a profitable business, but there's plenty of room for us to apply the Amitech growth model and expand margins. Paragon will benefit from the Amitech global infrastructure for sure. And we like the management team. They're highly talented team and we're excited about what we can accomplish together. And importantly, the deal economics met Amitech's traditional deal orders. And this is on a large deployment of capital. So our return on investment capital orders are met by this deal.

We had strongly performing acquisitions and.

It all came came together too.

Put up record margins.

Got it and then just as a follow up with respect to Paragon I. Appreciate the stats you shared is there any way.

To kind of parse out what you've seen year, one cash EPS accretion would look like and then what the expected closure timing might be for that.

Great questions, Matt we think the closure.

William Burke: And we paid about 15 times TTM EBIDOT for the business. So we're very excited for the business. It's a good business for us. We've been looking at these businesses for some time. [inaudible] and as a universal excitement amongst the Paragon and Ametek. All right, that was a great overview and he hit all the key questions on consumables margins and growth, so it sounds like a great story. And if I could just on a follow up question on EMG, so we're seeing destocking all over the sector and Biopharma and Medtech, be interested in hearing from you.

It's dependent on regulatory approval, but nothing nothing atypical, but we gain.

We will get the approvals and close sometime in the first quarter.

In terms of year one.

Yes, it will have very modest cash EPS accretion is going to be impacted by.

Purchase accounting integration costs <unk>.

Realignment cost financing cost will pay with this with a mix of cash and debt and but we have very strong accretion in year two.

And we're excited about getting getting the business under our wing, improving our business and delivering and we're very excited.

William Burke: Besides the destocking, is there any kind of read through on the end markets in those business? Are you seeing any slowing there? And look, no one's getting, no one has a crystal ball here in terms of how long you think this lasts, but I'd love to hear your expectation on the duration of this inventory normalization. Thanks. Yeah, sure, doing great questions. You know, for the quarter, we grew our top line 5% on a mid single digit guide.

Just real quick Dave So youre not planning to non-GAAP those items out youre, just going to run them through the P&L.

We'll make that decision at the time and historically, we have not broken them out but.

The amount of acquisition activity, where we have it may make sense to do that we haven't made a decision yet.

Got it thank you guys.

One moment our next question.

William Burke: Our revenue was in line with the guide. The acquisition performed a bit better and we maintained, as I said, our full year sales guide mid to high single digits and organic growth of mid single digits. The maintain that organic guide for the full year, our aerospace and defense business is stronger and our automation is weaker. And they're all setting. That's one of the benefits of the Amitec portfolio. And specifically in terms of Q3 revenue, we saw faster destocking in our automation businesses than we anticipated.

Our next question comes from Allison <unk> with Wells Fargo. Your line is open.

Hi, Good morning, good morning Allison.

Just wanted to go back to your comments on automation, if I recall that typically a canary in the coal mine, but it seems from your comments on what Im reading through I, just want to clarify that it just seems to be more industry destocking for you in that market or is it something that you're just want make sure I understand.

Yes.

Think it's destocking.

We think it's destocking.

The Destocking will last through the year end.

William Burke: So that's what we saw there. And we expect the destocking to continue through the end of the year. In terms of your question, is it a destalk or a downturn? It's very difficult dynamic environment right now and loss of uncertainties. With the geopolitical risks, the interest rate increases, they're factoring in for sure. But from what we see, this is largely an inventory correction. And demand looks constructive with many new projects in the offening and the projects are not being delayed or canceled.

But post destocking.

We remain constructive.

That business automation sells to a lot of markets.

The health care part of that market is not doing well right now.

Some of the other exposure but.

We think it's clearly destocking.

Got it and then on growth investments keeping to the $100 million.

How should we be thinking that into 'twenty four or is that something that you think.

It could be a raise there and then just even with Paragon.

William Burke: Our aerospace and defense looks solid, our medical looks solid, significant projects, and semiconductor clean energy power bridge. So we remain positive post destocking. And we think that destocking will continue through the end of the year. And in terms of 2024, we're going to sit down with our teams and understand what's going on, but in general we're constructive. That's all real helpful. Thank you. Thank you, Dean. One moment for our next question.

What that R&D I think you talked about the design piece of it being very big part of that how does design and R&D is it higher than the typical AMETEK has will be thank you.

You should think about the <unk>.

Marathon is matching the AMETEK profile.

Got it and then organic investments as we kind of look to 'twenty four as well.

We're going to sit down with each of our teams.

To discuss 2024 over the next six weeks.

We're going to review each of the individual businesses.

We do deep dives as you know into what they're seeing in their niches there market dynamics.

Opportunities cost reduction opportunities and we want to go through that these.

Deane Dray: Our next question comes from Matt Somerville with DEA Davidson. Your line is open. Thanks, morning. Dave, your EIG margins this quarter really moved into a new zip code for Amatech. I was wondering if you could maybe talk about the key drivers as you just think about sequential performance, right? Revs flat profitability of $28 million on the OP line as well as kind of the year over year dynamics. So maybe if you can just kind of flush all of that out, that would be helpful.

These meetings before Theres any commentary on 2024 will tell you in early February.

But.

So in terms of talking about next year.

The typical things like.

Yes, we would expect price to offset inflation.

Capex will be about 2% of sales and things like that but we're going to defer from talking about.

The overall plan until we get to meet with our teams.

Understand at a detailed level.

Perfect. Thank you. Thank you Allison.

Deane Dray: Yeah, sure, Matt. I mean, if you'll go back and look at my last quarter or two, I told you, EIG was gaining momentum and momentum certainly showed up in Q3. We had an excellent operating quarter. I mean, EIG margins were up 360 basis points driven by high contribution leverage on the growth. We really had excellent price cost. We had strongly performing acquisitions and it all came together to, you know, put up record margins.

Our next question.

Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open.

Hey, Thank you good morning, everyone. Good morning, Jeff.

Sure.

Hey, just to come back to Paragon, maybe one more time, maybe somebody else to come at it again.

I just kind of wanted to understand maybe the profit improvement plan going forward.

So it looks like rough math, right margins EBITDA margins, 25% or so.

Deane Dray: And then just as a follow up with respect to Paragon, I appreciate the stats you share. Is there any way to kind of parse out what you think year one cash EPS accretion would look like and then what the expected closure timing might be for that? Great questions, Matt. We think the closure is dependent on regulatory approval, but nothing atypical, but we'll get the, we'll get the approvals and close some time in the first quarter.

Youre doing 800 to 1000 bps better now than that and AIG. When you talk about kind of the aspirations for the business and the cost cutting and other opportunities is that the sort of ZIP code in margin improvement, we should be thinking about here.

If so over kind of how long a period of time.

Yes, yes.

And that is that is the ZIP code and this over time.

We're going to build a plan with the management team and show them all the resources that AMETEK has in some of our business processes, but.

Deane Dray: In terms of year one, you know, we'll have a very modest cash EPS accretion. It's going to be impacted by purchase accounting, integration costs, regalignment costs, financing costs. We'll pay with this with a mix of cash and debt. And, but we'll have very strong appreciation in year two. And we're excited about getting the business under our wing, improving a business and delivering. We're very excited. Just real quick, Dave, so you're not planning to non-gap those items out, you're just going to run them through the TNL event.

What youre talking about is in the ZIP code of what we have planned.

And.

Just to elaborate a little bit more on how this fits in.

Is there a kind of.

Our commercial or operational synergy with other parts of the business or should we just think of this as a <unk>.

Interesting healthy kind of standalone business that drops into the portfolio.

We have an existing business and our EMG business is about a $200 million business.

Our call it our engineered medical components. So we're familiar with those segments are completely different end markets, but.

Think about that is additive to that existing position, but in a greater scale.

Deane Dray: You know, we'll make that decision at the time. You know, historically, we have not broke them out, but with the amount of accretion activity that we have, it may make sense to do that. We haven't made a decision yet. Got it. Thank you, guys. One moment for our next question. Our next question comes from Allison Poliniac with Wells Fargo. Your line is open. All right. Good morning. Good morning, Allison. I just want to go back to your comments on automation if I recall that's typically a canary in the coal mine, but it seems from your comments what I'm reading through.

And then maybe just one last one for me.

The Med Tech World has been a little Rocky here. The last couple of years procedure is post COVID-19 everything.

You characterize it as a double digit secular grower.

But.

Are they kind of sitting at a little bit of a trough here impacted by those sorts of forces or maybe just kind of.

No not really they're growing nicely.

Deane Dray: I just want to clarify that it just seems to be more industry-stacking for you in that market, or was it something that you're just going to make sure I understand? Yeah, we think it's de-stocking. We think it's de-stocking and the de-stocking will last through the year end, but post-de-stocking, we remain constructive. You know, that business automation sells to a lot of markets and, you know, the healthcare part of that market is not doing well right now and, you know, some of the other exposure, but we think it's clearly de-stocking.

Yes.

You have the market growth that they are benefiting from and they happen to be in the fastest areas. They have deployed their resources well and they are benefiting from the faster fastest growth areas.

The.

There is there are winning new business on new programs and is pretty substantial.

And.

We did surveys on these businesses and this is a really good business in terms of.

Their capability and how they take care of their customers in.

They are definitely winning share so.

Is going to be a low double digit grower for the next can see in the next few years.

A lot of that's programmed in.

Deane Dray: Got it. And then on growth and investment, you know, keeping to $100 million, you know, how should we be thinking that into 24 is something that you think, you know, there could be a raise there? And then just even with Paragon, what that R&D, I think you talked about, you know, the design piece of it being very a big part of that. How does design an R&D? Is it higher than the typical Amateurc?

No.

That's the way, we're looking at there's going to be ups and downs as we go throughout the years, but this is a solid business with really good growth prospects.

Great Congrats and good luck with it Okay correct, yes.

One moment our next question.

Deane Dray: How should we be thinking about that? I think you should think about the Paragon as matching the Amateurc profile. Kyle. Got it. And then organic investments as we kind of look through 24. Yeah. I mean, we're going to, you know, sit down with each of our teams, discuss 2024 over the next six weeks. We're going to review each of the individual businesses. We do deep dives, as you know, into what they are seeing in their niches, their market dynamics, growth opportunities, cost reduction opportunities.

Our next question comes from Scott Graham with Seaport Research Partners. Your line is open.

Hey, good morning, Thanks for taking a minute here nice quarter. Thank you.

A couple of items.

Deane Dray: And we want to go through that these meetings before there's any commentary in 2024. We'll tell you in early February. But so in terms of talking about next year, you know, we have the typical things like, you know, we'll expect price to offset inflation and capex will be about 2% of sales and things like that. But we're going to defer from talking about the overall plan until we get to meet with our teams and understand at a detailed level. Perfect. Thank you. Thank you, Alison. Moment for our next question.

Jeffrey Sprague: Our next question comes from Jeffrey Sprague with vertical research partners. Your line is open. Hey, thank you. Good morning, everyone. Good morning, Jeff. Morning.

David Zapico: Hey, just to come back to to Paragon, maybe one more time, maybe somebody else to come at it again. I just kind of want to understand the, maybe the profit improvement plan going forward. It also looks like rough math, right margins, evidom margins, 25% or so. You know, you're doing 800 to 1000 bits better now than that in EIG. When you talk about kind of the aspirations for the business and the cost-cutting and other opportunities, is that the sort of zip code and margin improvement we should be thinking about here and if so over kind of how long a period of time?

David Zapico: Yeah, that is the zip code and it's over time. And we're going to be able to plan with the management team and show them all the resources that Amatec has in some of our business processes, but what you're talking about is in the zip code of what we have planned.

David Zapico: And just to elaborate a little bit more on how this fits, is there a kind of a commercial or operational synergy with other parts of the business or should we just think of this as an interesting, healthy kind of standalone business that drops into the portfolio? We have an existing business in our EMG business. It's about a 200 million dollar business. It's our caught our engineered medical components. So we're familiar with this segment. There's completely different end markets, but think about that as an additive to that existing position, but in a greater scale.

David Zapico: And then maybe just one last one from me. The Medtech world's been a little rocky here, the last couple of years, procedures, post-COVID everything. You characterize it as a double-digit secular grower, but are they kind of sitting in a little bit of a trough here impacted by those sorts of forces? Or maybe just kind of the and not really. They're growing nicely. I mean, that's You have the market growth that they're benefiting from, and they happen to be in the fastest areas, they've deployed their resources well, and they're benefiting from the faster, fastest growth areas, you know, there's there's a winning new business on new programs and it's pretty substantial.

David Zapico: And, and, you know, we get surveys on these businesses and this is a really good business in terms of. They're capability and how they take care of their customers and they're definitely winning share. So, you know, it's going to be a low double due to your grower for the next, you can see in the next few years and a lot of that's programmed in now, you know, that's that's the way we're looking at there's going to be ups and downs as we go throughout the years, but this is a solid business with really good growth prospects.

Unknown Executive: Right, congrats and good luck with it. Take care.

Scott Graham: One moment for our next question. Our next question comes from Scott Graham with C-Port Research Partners, your line is open. Hey, I'm good morning. Thanks for taking a minute here. Nice morning, Scott. Thank you. So, you just a couple of items built.