Q4 2023 IDEX Corp Earnings Call

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Operator: Greetings. Welcome to the fourth quarter 2023 IDEX Corporation Earnings Conference Call. At this time, all participants will be in listening mode.

Speaker Change: Greetings and welcome to the fourth quarter of 2023, IDEXX Corporation earnings Conference call.

Speaker Change: At this time, all participants will be in listen only mode.

Operator: The question and answer session will follow the fall presentation. If anyone should require operator assistance during today's conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to Allison Lossus, Vice President and Chief Accounting Officer. Ms. Lossus, you may now begin.

Speaker Change: And answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during todays conference. Please press star zero from your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I'll now turn the conference over to Alison.

Alison: Losses, Vice President and Chief Accounting Officer, Santosh, you May now begin.

Allison Poliniak: Good morning, everyone. This is Allison Lawfus, Vice President and Chief Accounting Officer for Idex Corporation. Thank you for joining us for our discussion of IDEC's fourth quarter and full year 2023 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months and full year ending December 31, 2023. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company website at idexcorp.com.

Alison: Good morning, everyone. This is Allison losses, Vice President and Chief Accounting Officer for IDEXX Corporation. Thank you for joining us for our discussion of the IDEXX fourth quarter and full year 2023 financial highlights.

Speaker Change: Last night, we issued a press release outlining our company's financial and operating performance for the three months and full year ending December 31st 2023.

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

Allison Poliniak: Joining me today are Eric Ashelman, our Chief Executive Officer and President, and Abhi Khandelwal, our new Senior Vice President and Chief Financial Officer. Today we'll begin with Eric providing an overview of the state of IDEX's business. The Bee will then discuss our fourth quarter and full year 2023 financial results and provide an update on the various markets we serve. He will also discuss our outlook for the first quarter and full year 2024. Finally, Eric will close the call with his final remarks. We will then open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877-660-6853 and entering conference ID 1-374-2102, or simply log on to our company homepage for the webcast replay.

Alison: Joining me today are Eric Eshelman, our Chief Executive Officer and President.

Eric Eshelman: <unk>, our new senior Vice President and Chief Financial Officer.

Eric Eshelman: Today, we'll begin with Eric providing an overview of the state of IDEXX. This business <unk> will then discuss our fourth quarter and full year 2023 financial results and provide an update on the various markets we serve.

Speaker Change: He will also discuss our outlook for the first quarter and full year 2024.

Speaker Change: Lastly, Eric will close the call with his final remarks, we will then open the call for your questions. If you should need to exit the call for any reason you may access a complete replay beginning approximately two hours. After the call concludes by dialing the toll free number 870 76606853.

Eric Eshelman: And entering conference I'd E. One.

Eric Eshelman: 3742102, or simply log onto our company homepage for the webcast replay.

Operator: Before we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the Safe Harbor language in last night's press release and in IDEX's filings with the Securities and Exchange Commission. With that, I will now turn this call over to our CEO and President, Eric Ashleman. Thanks, Allison, and good morning, everyone.

Eric Eshelman: Before we begin a brief reminder, this call may contain certain forward looking statements that are subject to the safe Harbor language in last Night's press release and in IDEXX as filings with the Securities and Exchange Commission.

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

Eric Ashwin: Thanks, Alison and good morning, everyone first I'd like to introduce and welcome our new CFO I'll be candid wall back to IDEXX be previously worked at IDEXX for 10 years and served as my finance partner for the majority of that tenure.

Eric Ashleman: First, I'd like to introduce and welcome our new CFO, Abhi Khandelwal, back to IDEX. Abhi previously worked at IDEX for 10 years and served as my finance partner for the majority of that tenure. I'm thrilled to welcome him back, and in many ways, it feels like he never left.

Eric Ashwin: Thrilled to welcome them back and in many ways it feels like you've never left.

Eric Ashleman: Turning to slide 6, we navigated the challenging backdrop in 2023 with really strong execution. As backlogs normalized, we took inventory out of the system, reduced lead times for customers, increased cash flow to record levels, and delivered productivity through strong price capture and operational excellence. As always, I want to reach out to our IDEX employees around the globe with a sincere and appreciative thank you.

Eric Ashwin: Turning to slide six we navigated the challenging backdrop in 2023 with really strong execution.

Eric Ashwin: Backlogs normalize we took inventory out of the system reduce lead times for customers increased cash flow to record levels and delivered productivity through strong price capture and operational excellence as always I want to reach out to our IDEXX employees around the globe with a sincere and appreciate it. Thank you.

Eric Ashleman: I want to apply a bit of high-level perspective as I cover last year's dynamic demand pattern. Coming into 2023, we expected this would be a year of recalibration across our broad array of markets, and our thesis certainly held. Our fragmented industrial markets, with an FMT and parts of FSDP and HST, played out as expected.

Eric Ashwin: It will play a bit of a high level perspective, as I cover last year's dynamic demand patterns coming into 2020. Three we expect that this would be a year of recalibration across our broad array of markets and our thesis certainly held.

Eric Ashwin: Our fragmented industrial markets within FMT and parts of F. S. D. P. N H S. T played out as expected supply chain improved dropping overall lead times, bringing artificially high backlog and inventory levels and to focus customers attack. These positions moderately over time through order reductions to our businesses ultimately reaching levels of stability for us.

Eric Ashleman: Supply chains improved, dropping overall lead times, bringing artificially high backlog and inventory levels into focus. However, customers attacked these positions moderately over time through order reductions to our businesses, ultimately reaching levels of stability for us in the fall. Are less fragmented markets within life sciences and analytical instrumentation, and SEMICON, recalibrated in a dramatically different way? Through much of the post-pandemic recovery, these markets have run red-hot, with demand that was really only constrained by supply chain availability? Demand pressures from high interest rates, lower capital availability, and a lackluster post-COVID recovery in China, combined with outside inventory balances and backlogs, drove sharp order reductions throughout these normally fast-growing sectors. This played out dramatically in the first half for IDEX.

Eric Ashwin: <unk> in the fall or.

Less fragmented markets within life Sciences, and analytical instrumentation and semi con recalibrated in a dramatically different way.

Eric Ashwin: Through much of the post pandemic recovery. These markets had run red Hot with demand that was really only constrained by supply chain availability demand pressures from high interest rates lower capital availability and a lackluster post COVID-19 recovery in China, combined with outsized inventory balances and backlogs drove sharp order reductions throughout these normally fast growing.

Eric Ashwin: [noise] sectors. This played out dramatically in the first half for IDEXX, given our short cycle character. We saw the decline quicker then maddie and reached equilibrium in the fall sooner than some.

Eric Ashleman: Given our short cycle character, we saw the decline quicker than many and reached equilibrium in the fall sooner than some. As we delivered against expectations within a stable Q4, we took a breath and developed a plan of attack for the year ahead. Lead times and backlogs are back to pre-pandemic levels. The majority of our industrial and municipal businesses are stable and seeing improvement, with early and encouraging signs of modest growth ahead. The open questions are the specific catalysts and timing to support further acceleration.

Eric Ashwin: As we delivered against expectations within a stable Q4, we took a breath and developed a plan of attack for the year ahead.

Eric Ashwin: Lead times and backlogs are back to pre pandemic levels. The majority of our industrial and municipal businesses are stable and seeing improvement with early and encouraging signs of modest growth ahead.

Eric Ashwin: The open questions or the specific catalysts and timing to support further acceleration.

Eric Ashleman: Our teams continue to aggressively engage with our top growth bets to drive market outperformance. These initiatives are spread across all segments in a variety of niche verticals. We're particularly excited about our growth work with customers in our water, semiconductor, space communications, and energy transition markets. The market that's not yet showing signs of near-term recovery remains life sciences and analytical instrumentation. We haven't forecasted a positive inflection yet for 2024. That said, our teams continue to work on a robust pipeline of innovative projects in conjunction with our customers, positioning us to win on tomorrow's next-gen platform. We believe in the long-term growth potential of these end markets and are well positioned to support growth at the first signs of improved demand. We continue to focus on aggressive capital deployment towards M&A as we tune the portfolio towards faster-growing, high-quality markets. We acquired Aridian and STC Materials Solutions last year, adding important pieces of materials science technology to our HST segment.

Eric Ashwin: Our teams continue to aggressively engage with our top growth that's to drive market outperformance. These.

Eric Ashwin: These initiatives are spread across all segments and a variety of niche verticals were particularly excited about our growth work with customers in our water semi con space communications in energy transition markets.

Eric Ashwin: The market is not yet showing signs of near term recovery remains life sciences, and the angle of analytical instrumentation.

Eric Ashwin: We haven't forecasted a positive inflection yet for 2024 that said our teams continue to work a robust pipeline of innovative projects in conjunction with our customers positioning us to win on Tomorrow's next Gen platforms. We believe in the long term growth potential of these end markets and are well positioned to support growth at the first signs of improved demand.

Eric Ashwin: Dan.

Eric Ashwin: We continue to focus on aggressive capital deployment towards M&A as we tune the portfolio towards faster growing high quality markets, we acquired Iridium and S. T C material solutions last year, adding important pieces of material science technology to our H S T segment.

Eric Ashleman: Our funnel is expanding, filled with targets that enhance our growth potential. Our balance sheet is strong, fully supporting our ambitions. Finally, we divested two businesses, Micropump and Novotima, as we practice 80-20 at the enterprise level. With that, I'll turn it over to Abhi to discuss our financial results. Thanks, Eric, and thanks to everyone for welcoming me back to Idaho.

Eric Ashwin: Our funnel is expanding filled with targets that enhance our growth potential our balance sheet is strong fully supporting our ambitions. Finally, we divested two businesses micropump and Nova team on as we practice 80 20 at the enterprise level with that I'll turn it over to a be to discuss our financial results.

Be: Thanks, Eric and thanks to everyone for welcoming me back to IDEXX.

Abhi Khandelwal: It's great to be here and be rejoining a great organization. Moving on to the Consolidated Financial Results on slide 8, all comparisons are against the prior year period unless stated otherwise. Orders of $754 million in the fourth quarter were down 6% overall and down 10% organically.

Be: It's great to be here and be rejoining a great organization.

Be: Moving on to the consolidated financial results on slide eight.

Be: All comparisons are against the prior year period unless stated otherwise.

Be: Orders of $754 million in the fourth quarter were down, 6% overall and down 10% organically.

Abhi Khandelwal: We experienced an organic decrease in each of our three sectors. FMT and FSDP declined by mid-single digits, while HST contracted by about 17% as markets stabilized at a new level post recalibration. For the year, orders were down 7% overall and down 11% organically.

We experienced an organic decrease in each of our three segments FMT and FSD P declined mid single digits.

Be: <unk> contracted by about 17% as market stabilized at a new level post recalibration for the year orders were down 7% overall and down 11% organically.

Abhi Khandelwal: Our HST segment contracted upwards of 20% as customers experienced sharp inventory calibration during the year and levels set to new near-term demand targets that included stunted growth expectations for China coming out of the pandemic. Our FMT and FSDP segments were down low single digits as they also experienced recalibration, all the way at a much smaller scale. Fourth quarter sales of $789 million were down 3% overall and down 6% organic.

Be: Our <unk> segment contracted upwards of 20% as customer experienced a sharp inventory calibration during the year and level set two new near term demand targets that include a stunted growth expectations for China coming out of the pandemic.

Be: Our FMT and <unk> segments were down low single digits as they also experienced recalibration Aldo.

Be: Although at a much smaller scale.

Be: Fourth quarter sales of $789 million were down, 3% overall and down 6% organically, we experienced a 19% organic decrease in HST.

Abhi Khandelwal: We experienced a 19% organic decrease in HST, while both FMT and FLTP grew by 3% organically. For full year sales of $3.3 billion, we're up 3% overall and down 1% organically. HST contracted by 10% on an organic basis, driven by declining life sciences, analytical instrumentation, and semiconductor marketing, although partially offset by price. FMT and FSDP grew mid-single digits, driven largely by strong price capture on slightly higher volumes. However, fourth quarter gross margin was essentially flat at 42.7%, while adjusted gross margin, which is also 42.7%, contracted 90 basis points due to lower volume leverage.

Be: While both FMT and efforts DB grew by 3% organically.

Be: Full year sales of $3 3 billion were up 3% overall and down 1% organically.

Be: Steve contracted by 10% on an organic basis.

Be: Driven by declining life Sciences, and article instrumentation and semiconductor markets.

Be: Really offset by price.

Be: FMT and FSD P grew mid single digits, driven largely by strong price capture on slightly higher volumes.

Be: Fourth quarter gross margin was essentially flat at 42, 7%, while adjusted gross margin, which was also 42, 7% contracted 90 basis points due to lower volume leverage.

Abhi Khandelwal: Unfavorable mix and the dilutive impact of acquisitions and divestitures, partially offset by strong price costs and operational fraud. Both full-year gross margin and adjusted gross margin of 44.2% contracted 60 basis points for the same reasons I just described. Fourth quarter adjusted EBITDA margin was 25.8%, down 120 basis points.

Be: Unfavorable mix and the dilutive impact of acquisitions and divestitures, partially offset by strong price cost and operational productivity.

Be: Full year gross margin and adjusted gross margin of 44, 2% comp.

Be: Contracted 60 basis points for the same reasons I just described.

Be: Fourth quarter adjusted EBITDA margin was 25, 8% down 120 basis points.

Abhi Khandelwal: I will discuss the drivers of fourth quarter adjusted EBITDA on the next slide. On a full year basis, Adjusted EBITDA margin contracted 40 basis points to 27.5%. A bridge of the full-year adjusted EBITDA can be found in the appendix of this presentation.

I will discuss the drivers of fourth quarter adjusted EBITDA on the next slide.

Be: On a full year basis.

Be: Adjusted EBITDA margin contracted 40 basis points to 27, 5%.

Be: A bridge of the full year adjusted EBITDA can be found in the appendix of this presentation.

Abhi Khandelwal: Despite a year of significant volume pressure, our teams delivered on price, cost, and operational productivity, significantly muting the impact of this unprecedented volume decrease. On a gap basis, our Q4 effective tax rate of 22.7% versus last year's fourth quarter effective tax rate of 20.5% increased primarily due to the absence of one-time foreign currency benefits realized in 2022. Also, in connection with the funding of the acquisition of Muon, as well as the impact of the loss recorded on the sale of Novotima during 2023, for which no related tax benefit was realized due to the type of consolidated Our full year gap effective tax rate of 21.7% was flat with the prior year.

Despite a year of significant volume pressure.

Be: Our teams delivered on price cost and operational productivity significantly muting the impact of this unprecedented volume declines.

Be: On a GAAP basis.

Be: Q4 effective tax rate of 22, 7%.

Be: Versus last year's fourth quarter effective tax rate of 25% increase.

Be: Increased primarily due to the absence of one time foreign currency benefits realized in 2022.

Be: In connection with the funding of the acquisition of new one as well as the impact of the loss recorded on.

On the sale of <unk> during 2023.

Be: For which no related tax benefit was realized due to the type of consolidated group and Richard participated.

Be: Our full year GAAP effective tax rate of 21, 7% was flat with the prior year. However, both 2023 and 2022 included favorable discrete events.

Abhi Khandelwal: However, both 2023 and 2022 included favorable discrete events. Fourth quarter net income was $109 million, generating EPS of $1.43. Adjusted net income was $139 million, with adjusted EPS of $1.83, down 18 cents from the prior year fourth quarter. Full year net income was $596 million, resulting in an EPS of $7.85.

Be: Fourth quarter net income was 109 million generating EPS of $1 43.

Be: Adjusted net income was 139 million with adjusted EPS of $1 83 down 18.

From the prior year fourth quarter.

Be: Full year net income was $596 million, resulting in EPS of $7 85.

Abhi Khandelwal: Adjusted net income was $624 million, generating adjusted EPS of $8.22, up $0.10 or 1% from last year. Finally... Free cash flow for the quarter was $179 million, up 22% over the prior year period. We achieved a conversion rate of 129% of adjusted net income, mainly driven by improved working capital performance, despite lower adjusted net income, on an organic basis. We drove more than $40 million of inventory reduction in the quarter through our targeted reduction efforts, and we saw inventory turns improve. For the year, we delivered record free cash flow of $627 million, up 28% versus last year and coming in at 101% of adjusted net income.

Be: Adjusted net income was $624 million.

Be: Generating adjusted EPS of $8 22 up 10, 1% from last year.

Be: Finally.

Be: Free cash flow for the quarter was $179 million up 22% over the prior year period.

We achieved a conversion rate of 129% of adjusted net income mainly.

Be: Mainly driven by improved working capital performance, despite lower adjusted net income.

Be: On an organic basis.

Be: We drove more than $40 million of inventory reduction in the quarter.

Be: Through our targeted reduction efforts and we saw inventory turns improve.

Be: For the year.

Be: Delivered record free cash flow of $627 million up 28% versus last year.

Be: And coming in at 101%.

Be: <unk> net income mainly.

Abhi Khandelwal: mainly driven by lower networking capital, as we reduced organic inventory levels by almost $65 million and achieved Higher Adjusted Income. We achieved this despite higher year-over-year capital expenditure as we maintain our focus on investing for the future. We will continue to drive inventory levels down and optimize working capital levels further in 2024. Moving on to slide 9, which details the driver of a fourth-corner adjusted EBITDA. Adjusted EBITDA decreased by $15 million compared to the fourth quarter of 2022.

Be: Mainly driven by lower net working capital as we reduced organic inventory levels, but almost $65 million in.

Be: And achieved higher adjusted net income.

Be: We achieved this despite higher year over year capital expenditure as we maintain focus on investing for the future.

Be: We will continue to drive inventory levels down and optimize working capital levels further in 2024.

Be: Yeah.

Be: Moving on to slide nine.

Be: Which details the driver of our fourth quarter adjusted EBITA.

Be: Adjusted EBITDA decreased by $15 million compared to the fourth quarter of 2022.

Abhi Khandelwal: Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by $36 million. Flowing through in our prior year, adjusted gross margin rate. Price cost was achieved to margins, and we drove operational productivity that offset employee-related inflation. Mix was unfavorable by $3 million. Reductions in Variable Compensation contributed $3 million of benefit in the quarter. These results yielded a negative 39% organic flow.

Be: Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by $36 million.

Be: Flowing through at our prior year adjusted gross margin rate.

Be: Price cost was accretive to margins and we drove operational productivity.

Be: That offset employee related inflation.

Be: Mix was unfavorable by $3 million.

Be: Reductions in variable compensation contributed $3 million of benefit in the quarter.

These results yielded a negative 39% organic flow group overall, our team's focus on cost containment and resource reallocation has effectively managed our revenue declines.

Abhi Khandelwal: Overall, our team's focus on cost containment and resource reallocation has effectively managed our revenue decline. IDEX is well positioned to recover and grow back stronger than before when market dynamics turn favorable. The impact of FX on acquisitions, net of divestitures, contributed $5 million of adjusted EBITDA in the quarter.

Be: IDEXX is well positioned to recover and grow back stronger than before when market dynamics turn favorable.

Be: The impact of FX and acquisitions net of divestitures contributed $5 million of adjusted EBITDA in the quarter. However, the divestiture of micro pump Lord flow through as the margins were higher than those of our newly acquired assets who are experiencing volume deleveraging given the end markets the plan with that.

Abhi Khandelwal: However, the divestiture of micropump lowered flow through as the margins were higher than those of our newly acquired assets, who are experiencing volume D leveraging given the end markets they plan. With that, I will provide a deeper look at our segment portfolio. I'm on slide 10.

Speaker Change: I will provide a deeper look at our segment performance.

Speaker Change: I'm on slide 10.

Abhi Khandelwal: Let me walk you through our outlook as it relates to our end market. First, as I consider the market served by fluid and metering technologies. Industrial data began to see some sequential improvement in the fourth quarter, and we expect continued stability in the near term as our short cycle businesses meet underlying customer demand. We continue to see normalized book and bill order patterns given shorter lead times and normalized supply chain dynamics. As we move into 2024, we are cautiously optimistic as we continue to see tailwinds due to domestic infrastructure initiatives and within mining. We anticipate these patterns will hold. Though we will continue to monitor day rates to evaluate longer-term expectations, as this is the most short-cycle market exposure, our water businesses continue to be favorably positioned as we enter 2024. Municipal project activity remains strong, with no signs of funding delays, and the project funnel is healthy, with new opportunities and winning shared or delivered solutions for critical water challenges.

Speaker Change: Let me walk you through our outlook as it relates to our end markets.

Speaker Change: As I consider the market served by our fluid <unk> metering technology segment.

Speaker Change: Industrial day rates began to see some sequential improvement in the fourth quarter.

And we expect continued stability in the near term as.

Speaker Change: As our short cycle businesses meet underlying customer demand.

We continue to see normalized book and Bill order patterns, given shorter lead times and normalized supply chain dynamics.

Speaker Change: As we move into 2024, we are cautiously optimistic as we continue to see tailwind due to domestic infrastructure initiatives and within mining.

Speaker Change: We anticipate these patterns will hold Dolby will continue to monitor dayrates to evaluate longer term expectations. As this is the most short cycle market exposure.

Speaker Change: Our water businesses continued to be favorably positioned as we enter 2024.

Speaker Change: Municipal project activity remains strong with no signs of funding delays and the project funnel is healthy with new opportunities winning share to deliver solutions for critical water challenges.

Abhi Khandelwal: Our energy businesses remain steady, even as new oil production is down and fuel markets are flat, driven by declining fuel prices and mild heating seasons in North America and Europe. As consolidation occurs within this industry and funding for new projects remains delayed, we see operators doing more with less, using the same infrastructure to drive production. These market dynamics favorably impact our demand profile, as our energy businesses meet customers' need for replacements as they keep existing infrastructure running. In the chemical market, we continue to see positive results across the U.S. and Europe, with pharma and battery applications providing opportunities for growth. China's softness is being mitigated by the rest of Asia. The one area experiencing pronounced headwinds in FMT is China's agricultural business.

Our energy business has remained steady even as new well production is down and fuel markets are flat driven by declining fuel prices and miles heating season in North America and Europe.

Speaker Change: As consolidation occurs within this industry and funding for new projects have been delayed.

Speaker Change: We see operators doing more with less using the same infrastructure to drive production. These market dynamics favorably impact our demand profile.

Speaker Change: <unk> energy businesses meeting customers' need for replacements as to keep existing infrastructure running.

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

Speaker Change: <unk> softness is being mitigated by the rest of Asia.

Speaker Change: The one area experiencing pronounced headwinds in FMT as agricultural business.

Abhi Khandelwal: The size of this market is about 10% of the SMT segment, which equates to mid-single digits for overall items. However, we continue to see headwinds as OEMs have stepped down their projections due to continued destocking and declining net farm income and crop prices. Our KZ valve acquisition continues to be a differentiator with its automated actuation valve technology, and we are focused on targeted share gain to offset the pressure of current market challenges. Moving on to the Health and Science Technology section. We continue to see positive results stemming from our space broadband laser communication initiatives, which are bolstered by Iridium's technological capabilities.

Speaker Change: The size of this market is about 10% of the SMT segment, which equates to mid single digits for overall IDEXX.

We continue to see headwinds as Oems have stepped down their projections due to continued destocking.

Speaker Change: And declining net farm income and crop prices.

Speaker Change: Our <unk> acquisition continues to be a differentiator with its automated actuation valve technology and we are focused on targeted share gain to offset the pressure of current market challenges.

Speaker Change: Moving on to the health and Science Technology segment.

Speaker Change: We continue to see positive results stemming from our space broadband laser communication initiatives.

Speaker Change: Our bolstered by Iridium technological capabilities.

Abhi Khandelwal: We expect this space to grow in 2024. The industrial markets served by businesses in the HST segment are experiencing signals in line with FMT's expectations. Our material processing technology business is gaining share in battery production, with a step up in new orders as we enter the year, and we continue to see signs of improvement within biopharma related to new vaccine development, where our technologies are uniquely positioned, and we see particular strength in emerging markets. For Semiconductor, we began to see initial signs of improvement as we exited 2023. We expect this market will continue to recover somewhat in 2024, driven by an improved outlook for memory chips due to demand for devices. Further up, we look forward to continued growth in Semiconductors driven by artificial intelligence. Automotive and Long-Term Secular Tailwinds Driven by Electrification, While these markets point towards growth, the area within HST that is not yet showing signs of recovery is in our Life Sciences and Analytical Instrumentation markets, which represent nearly 35% of HST and about 15% of overall IDAC. However, the long-term growth drivers have not changed.

Speaker Change: We expect this space to grow in 2024.

Speaker Change: The industrial markets served by businesses in the <unk> segment.

Speaker Change: Experiencing signals in line with FMT as expectations.

Speaker Change: Our material processing technology business is gaining share in battery production with the step up in new orders as we enter the year and we continue to see signs of improvement within Biopharma related to new vaccine development, where our technologies are uniquely positioned.

Speaker Change: We see particular strength in emerging markets for.

Speaker Change: For semiconductor we began to see initial signs of improvement as we exited 2023.

Speaker Change: We expect this market will continue to recover somewhat in 24, driven by an improved outlook for memory chips due to demand for devices.

Speaker Change: Further out we look forward to continued growth in semi con driven by artificial intelligence.

Speaker Change: Aldo motive in long term secular tailwind driven by electrification.

Speaker Change: While these markets point towards growth the area within <unk> that is not yet showing signs of recovery is in our life Sciences and article instrumentation markets, which represents nearly 35% of HST and about 15% of overall IDEXX.

Speaker Change: However, the long term growth drivers have not changed.

Abhi Khandelwal: While orders appear to be stabilizing, we have not forecasted a positive inflection yet for 2024. While this industry navigates immediate challenges, we continue to have our eye on the future. We are closely partnered with our customers across our life sciences businesses, and we are actively innovating to provide tomorrow's solutions.

Speaker Change: While orders appear to be stabilizing we have not forecasted a positive inflection yet for 2024.

Speaker Change: Wireless industry navigates immediate term challenges, we continue to have our iron in the future. We are closely partnered with our customers across our life Sciences businesses, and we're actively innovating to provide tomorrow solution.

Abhi Khandelwal: With our focus on innovation and operational scale to support customers from prototyping to production, we are uniquely positioned for growth as these markets recover. Turning to our fire and safety diversified products, we expect FSDP will be flattish to down slightly in 2024.

Speaker Change: With our focus on innovation and operational scale to support customers from prototyping to production.

Speaker Change: We're uniquely positioned for growth as these markets recover.

Speaker Change: Turning to our fire and safety diversified products, we expect <unk> will be flattish to down slightly in 2024.

Abhi Khandelwal: Although driven by headwinds and dispensing, as key customers recently completed their multi-year refreshment cycle, we expect fire and safety in markets to remain stable and growth to be driven by strategic share gain initiatives our teams are focused on. We continue to win through value-added integrated systems and technology and standardized offerings that enable higher OEM throughput. Overall demand at Bandit continues to remain strong, and we expect growth on a year-over-year basis. With that in mind... I'd like to provide an update on our output for the first quarter and full year 2024. I'm on slide 11.

Speaker Change: Driven by headwinds in dispensing as key customers recently completed a multiyear refreshment cycle.

Speaker Change: We expect fire and safety end markets to remain stable and growth to be driven by strategic share gain initiatives. Our teams are focused on.

Speaker Change: We continue to win through value added integrated systems, and technology and standardized offerings that enable higher OEM throughput.

Speaker Change: Overall demand at band it continues to remain strong and we expect growth on a year over year basis with that I'd like to provide an update on our outlook for the fourth quarter and full year 2024.

Speaker Change: I'm on slide 11.

Abhi Khandelwal: We expect full-year organic growth of 0% to 2%, with the majority of our end markets stable to growing, as I highlighted in my Market Outlook Commentary. This range reflects low single-digit growth from FMT and includes acknowledgement of the uncertainty in the timing and scale of recovery given the short-cycle nature of our business. For HST, we expect low single-digit growth as broader expectations for year-over-year growth across its markets are moderated by the lack of visibility in the life sciences and analytical instrumentation space. And we expect FSDP to be down slightly as the dispensing refreshment cycle has completed, and volume in that space will step down. The dynamic is expected to lower overall IDEX organic growth by 1% and offsets the growth expected by fire and safety in Bandit. This organic rate guide equals earnings per share contraction of 3 cents to growth of 26 cents.

Speaker Change: We expect full year organic growth of zero to 2% with the majority of our end market is stable to growing as I highlighted in my market outlook commentary.

Speaker Change: This range reflects low single digit growth from FMT and includes acknowledgment of the uncertainty and timing and scale of recovery given the short cycle nature of our business.

Speaker Change: For SSD, we expect low single digit growth as broader expectations for year over year growth across its markets are moderated by the lack of visibility in the life sciences and analytical instrumentation space.

Speaker Change: And we expect <unk> to be down slightly.

Speaker Change: Has the dispensing refreshment cycle is completed and volume in that space will step down.

Speaker Change: The dynamic is expected to lower overall IDEXX organic growth by 1%.

Speaker Change: And offset the growth expected by fire and safety and Bandon.

This organic rate guide equals earnings per share contraction of <unk> growth of 26.

Abhi Khandelwal: Depending on top-line results and includes price costs, which we anticipate will be positive for the year, and mixed pressure stemming from dispensing volume. Additionally, we expect our operational productivity will more than offset pressure from wage-related inflation and provide $0.10 to $0.15 of EPS growth. As always, we're committed to investing in future growth prospects and expect to make incremental resource investments of five to nine cents during the year as we invest in the people needed to champion our growth efforts and drive the next chapter for our performance. The reset of variable compensation levels after a challenging 2023 provides a $0.16 headwind, while the impact of recent acquisitions and divestitures contributes $0.12 of adjusted EPS growth. Finally, considering a few non-operational items.

Speaker Change: Depending on topline results and includes price cost, which we anticipate will be positive for the year and mixed pressure stemming from dispensing volumes.

Additionally, we expect to operational productivity were more than offset pressure from wage related inflation and provide 10 to 15 cents of EPS growth.

Speaker Change: As always we're committed to investing in our future growth prospects and expect to make incremental resource investments of 5% to nine.

Speaker Change: During the year as we invest in the people needed to champion our growth efforts and drive the next chapter for outperformance.

The reset of variable compensation levels after a challenging 2023 provide.

Speaker Change: Provides a <unk> 16 headwind, while the impact of recent acquisitions and divestitures.

Speaker Change: <unk> <unk> of adjusted EPS growth.

Speaker Change: Finally, considering a few non operational items.

Abhi Khandelwal: Lower levels of debt due to paydowns in the second half of 2023 are expected to yield 7 cents of EPS growth, and we expect FX to also provide 7 cents of benefit. However, these are more than offset by an increase in the effective tax rate on a year-over-year basis, creating 19 cents of headwinds to adjusted EPS. The 2023 effective tax rate includes certain discrete events that produced 9 cents of benefit to adjusted EPS in 2023 as compared to 2022. However, those benefits do not repeat in 2024.

Speaker Change: Lower levels of debt due to paydowns in the second half of 2023 are expected to yield seven cents of EPS growth and we expect FX to also provide seven cents of benefit.

Speaker Change: These are more than offset by an increase in the effective tax rate on a year over year basis.

Speaker Change: <unk> 19 cents of headwinds to adjusted EPS.

Speaker Change: The 2023 effective tax rate includes certain discrete events, which produced nine cents of benefit to adjusted EPS in 2003 as compared to 2022.

Speaker Change: Those benefits do not repeat in 2024, and Conversely, the projected 2024 rate of 23% includes the heavier mix of improved performance in geographical regions with higher tax rates as well as certain legislative changes increasing global tax.

Abhi Khandelwal: And conversely, the projected 2024 rate of 23% includes a heavier mix of improved performance in geographical regions with higher tax rates, as well as certain legislative changes increasing global tax. So, in summary, we are projecting organic revenue growth of 0% to 2% for the year. The variable compensation and tax rate pressure essentially erodes 4% of EPS growth year-over-year, lending adjusted EPS expectations in the range of $8.15 to $8.45, are down 1% to up 3% over 2020. Moving to slide 12.

Speaker Change: So in summary, we are projecting organic revenue growth of zero to 2% for the year.

Speaker Change: The variable compensation and tax rate pressure.

Speaker Change: Essentially you towards 4% of EPS growth year over year lending adjusted EPS expectations in the range of $8 15 to 845.

Speaker Change: Our down 1% to up 3% over 2023.

Speaker Change: Moving to slide 12.

Abhi Khandelwal: I'll provide additional details regarding our 2024 guidance for both our first quarter and full year. In Q1, we are projecting GAAP EPS to range from $1.45 to $1.50, and adjusted EPS to range from $1.70 to $1.75. Organic revenue is expected to decline 6-7% year-over-year due to tough comps, and adjusted EBITDA margins are estimated to be about 25%.

Speaker Change: Additional details regarding our 2024 guidance for both our first quarter and full year.

Speaker Change: In Q1, we are projecting GAAP EPS to range from dollars 45 to $1 50.

Speaker Change: And adjusted EPS to range from $1 70 to $1 75.

Speaker Change: Organic revenue is expected to decline, 6% to 7% year over year due to tough comps.

Speaker Change: And adjusted EBITDA margins are estimated to be about 25%.

Speaker Change: While it is not a factor impacting year over year comparability I would like to remind you that on a sequential basis when walking from fourth quarter results to first quarter.

Abhi Khandelwal: While it is not a factor impacting year-over-year comparability, I would like to remind you that on a sequential basis when walking from fourth-quarter results to first-quarter, we have a headwind of $0.10 related primarily to the accelerated recognition of share-based compensation in the first quarter of each year. Turning to the full year 2024. In summary, we estimate full year organic revenue of flat to up 2%, to yield GAAP EPS of $7.15 to $7.45 and adjusted EPS of $8.15 to $8.45. Adjusted EBITDA margin is expected to be approximately 28%. Capital expenditures are anticipated to be about $75 million, normalized upon the completion of certain factory automation investments and Emerging Market Footprint Expansion in 2023. And free cash flow is expected to be over 100% of adjusted net income.

Speaker Change: We have a headwind of 10.

Speaker Change: Is it primarily to the accelerated recognition of share based compensation in the first quarter of each year.

Speaker Change: Turning to the full year 2024 in summary, we estimate full year organic revenue of flat to up 2%.

The yield gap EPS of $7 15 to $7 45.

Speaker Change: And adjusted EPS of $8 15 to $8 45.

Speaker Change: Adjusted EBITA margin is expected to be approximately 28%.

Speaker Change: Capital expenditures are anticipated to be about $75 million normalized upon the completion of certain factory automation investments.

Speaker Change: And emerging market footprint expansion in 2023 and.

Speaker Change: And free cash flow is expected to be over 100% of adjusted net income.

Eric Ashleman: Corporate costs are also expected to be approximately $95 million, up from 2023 by approximately $10 million as variable compensation resets to current market expectations. But after that, I'll turn it over to Eric for closing remarks. Thanks, Obie. I'm on slide 13.

Speaker Change: Corporate costs are also expected to be approximately $95 million up from 2023 by approximately $10 million as variable compensation resets to current market expectations.

Speaker Change: Got it.

Speaker Change: I'll turn it over to Eric for closing remarks.

Eric: Thanks, Tobey I'm on slide 13 in summary, the majority of our businesses are stable and starting to see the early days of market recovery, we're working together as a team to drive outperformance above that baseline and we are well positioned to capitalize on growth to come as we invest our cash back into the business to support organic and inorganic expansion.

Eric Ashleman: In summary, the majority of our businesses are stable and starting to see the early days of market recovery. We're working together as a team to drive our performance above that baseline, and we are well positioned to capitalize on growth to come as we invest our cash back into the business to support organic and inorganic expansion. Our core FMT businesses are back to world-class lead times with expanded margins, and they're ready to expand them again as volume leverage broadly returns. Fire and Safety and Bandit, with an FSDP, have differentiated technologies to accelerate growth and continue as the leading players in their global markets.

Eric: Our core FMT businesses are back and World class lead times with expanded margins, they're ready to expand them again as volatile volume leverage broadly returns.

Eric: Fire and safety and band it within FSD have differentiated technologies to accelerate growth and continue as the leading players in their global markets much of HST is seeing recovery or the early signs of growth.

Eric Ashleman: Much of HST is seeing recovery or the early signs of growth. However, we temper these expectations a bit overall, given our lack of insight supporting demand recovery within life sciences and analytical instrumentation markets, and we also face the cyclical headwinds from global global dispensing in our agriculture business. Finally, these are really the early days of a new normal following three years of unprecedented change. Better to be appropriately cautious and careful as we line up our resources and strategic plans to support the full cycle ahead, one I feel will be especially strong for companies like ours. We are prepared to help customers solve their toughest problems or seize their greatest opportunities. Our businesses and technologies are outstanding. Our teams and talent are world-class, and our culture is really unique.

Eric: We temper these expectations a bit overall, given our lack of insight supporting demand recovery within life Sciences, and analytical instrumentation markets and we also faced the cyclical headwinds from global global dispensing and our agriculture businesses.

Eric: Finally, it's really the early days of a new normal following three years of unprecedented change better to be appropriately cautious and careful as we line up our resources and strategic plans to support the full cycle ahead, one I feel will be especially strong for companies like ours.

Eric: We are prepared to help customers solve their toughest problems or sees their greatest opportunities our businesses and technologies are outstanding our teams and talent are world class and our culture is really unique.

Operator: We appreciate your support and interest in IDEX, and with that, I'll turn it over to the operator for your questions. Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.

Speaker Change: We appreciate your support and interest in IDEXX and with that I'll turn it over to the operator for your questions.

Speaker Change: Thank you we will now be conducting a question and answer session.

I wanted to ask a question at this time, Please press star one on your telephone keypad.

Operator: <unk> indicate your line is in the question queue.

Speaker Change: You mean, if I start to feel like to remove your question from the queue.

Nathan Hardie Jones: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Thank you. And our first question will be coming from the line of Nathan Jones with CFO. Please proceed with your question. Good morning, everyone.

Speaker Change: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment please poll for questions. Thank you.

Speaker Change: Thank you and our first question will be coming from the line of Nathan Jones with Stifel. Please proceed with your questions.

Nathan Hardie Jones: Good morning, everyone.

Nathan Hardie Jones: And if I could be.

Nathan Hardie Jones: Thank you Nathan.

Eric Ashleman: Thank you, Nathan. I just want to start off with a question on inventory de-stocking versus demand. I guess it's most appropriate to the life sciences and analytical instrumentation businesses, although obviously, the sharp declines you saw in that in 2023. Is there any way for you to give us more color around what you think were actually core declines in your customers' demand versus them taking down their levels of inventory of your product? Yeah, well, certainly the second is much larger than the first, probably by a level of two.

Nathan Hardie Jones: I just wanted to start off with a question.

Nathan Hardie Jones: Inventory destocking versus demand I guess, it's most appropriate.

Nathan Hardie Jones: The life Sciences, and analytical instrumentation businesses, obviously sharp declines you saw in that in 2023 is there any way for you to parse out I'll give you some more color around what you think was actually caused declines in your customers' demand versus them, taking down their levels of inventory of your products.

Speaker Change: Yeah, well certainly the.

Speaker Change: Second is much larger larger than the first probably I'll, let by a level of two.

Eric Ashleman: So, you know, we saw these kind of double-digit declines here, pushing, I think, 20% at some point. I don't think that's representative of their underlying markets, and we haven't seen that in the public comments for them either. But this really was an incredible run-up, and then, obviously, you know, kind of an artificial plunge down as those things were normalized. So where is the state of their markets? Kind of down low single digits to maybe slightly double, you know, in the early spot of double.

Speaker Change: So we saw these kind of double digit declines here, pushing I think 20% at some point.

Speaker Change: I think thats representative of their underlying markets and we haven't seen that in the public comments for them either.

Speaker Change: It really was an incredible run up and then obviously kind of an artificial plunged down if those things were normalized so where is the state of their markets have been down low single digits to maybe slightly level, yes. The early early spot a double.

Eric Ashleman: But, again, I think one of the main points we want to make sure people understand is while the comparisons, even in Q4, were dramatically different for us, and we continue to see that calibration, we've actually been living at kind of a sequential level of stability here for a while now. We were talking about in late summer and certainly saw through the bulk of the fourth quarter and are now projecting that more formally across 24. And so it's kind of a case of two realities.

Speaker Change: But again I think one of the main points, we want to make sure people understand is while the comparisons even in Q4 are dramatically different for us and we can send it to continue to see that calibration.

Speaker Change: <unk> been living at kind of a sequential level of stability here for a while now and we were talking about in late summer and certainly saw through the bulk of the fourth quarter and are now projecting that more formally across 24.

Speaker Change: So it's kind of a.

Speaker Change: There are cases of two realities, one that's going to for a while now continue to still have those year over year comparisons because of the <unk>.

Eric Ashleman: One that's going to, for a while now, continue to have those year-over-year comparisons because of the, you know, market difference we had 12 months ago, the periods we're going to move through, at least through the first half of the year. But a relatively stable platform here, you know, just lacking a little bit of visibility as to when the catalyst comes in there that starts to accelerate again. Yeah, I was looking at the order rates in HST, and they've certainly stabilized over the last couple quarters, and there was a sequential improvement from 3Q to 4Q. Can you possibly break out the different pieces in HST sequentially on the order rates where you're seeing things improve versus where the life sciences and analytical instrumentation orders are going on a sequential basis? Yeah, a couple things there, and Abhi can fill in anything I missed, but I mean, we do get a little bit more blanket activity at the end of the year, even in those core lifecycle analytical instrumentation markets. There's a little step up there.

Speaker Change: Market difference we have 12.

Speaker Change: 12 months ago.

Speaker Change: We're going to move through at least through the first half of the year, but a relatively stable platform here.

Speaker Change: Just lagging a little bit of visibility as to when their catalyst comes in there that starts to accelerate again.

Speaker Change: Yes, I was looking at the order rates in HSA and certainly stabilized over the last couple of quarters.

Speaker Change: There was.

Speaker Change: Sequential improvement.

Speaker Change: From <unk> to <unk>.

Speaker Change: Can you.

Speaker Change: Possibly pass out.

Speaker Change: Different paces in HSA sequentially on the order rates, where youre seeing things improve buses, where the life sciences and analytical instrumentation orders are growing on a sequential basis.

Speaker Change: A couple of things there in a big can fill in anything I missed but I mean, we do get a little bit more blanket activity at the end of the year, even in those core lifecycle analytical instrumentation market Theres, a little step up there.

Eric Ashleman: Half of, about half of HST is kind of classically more industrial anyways and mirrors a lot of what we have over in FMT. And so that same kind of broader support and early indicators of growth that I know we'll talk about a lot here on the call. We saw that kind of at that Thanksgiving time on there too, so that accounts for a piece of it.

Speaker Change: Half of that half of HST is classically more industrial anyways and mirrors a lot of what we have over in FMT and so that same kind of broader support and early indicators of growth that I know, we'll talk about a lot here on the call.

Speaker Change: We saw that kind of at that Thanksgiving time on there too so that accounts for a piece of it.

Eric Ashleman: A little bit of activity on the semi-con side, although that's really early days and modest too. So, you know, nothing really on the declining side, a few things moving up. The only thing, again, most of it just sort of reflective of broad-based support with the one exception of a little bit of year-end blanket activity on the life sciences. Yeah, Nathan, the only thing I'd add is if you look at the sequential order lift in HST, we're up about $30 million. The majority of that, to Eric's point, was demand. There's about $10 million of blanket activity that happens typically year over year.

Speaker Change: Little bit of activity on the semi con side, although that's real early days and modest too.

Speaker Change: So nothing really on the declining side, a few things moving up the only thing again most of it just sort of reflective of a broad based support with that one exception of a little bit of yearend blanket activity on the life Science World Yeah, Nathan the only thing I'd add is if you look at the sequential order lift in HST were up about 30 million majority of it.

Nathan Hardie Jones: As tore explained was demand does about $10 million of linked to the activity that happens typically year over year.

Abhi Khandelwal: But to Eric's point, we saw orders improve starting Thanksgiving. And then I guess the last one, just across the portfolio, your customer's level of inventory now. I mean, you guys talked about still taking your inventory down in the first half of 24.

Nathan Hardie Jones: But to Eric's point, we saw orders improve starting Thanksgiving through December.

And then I guess last one just across the portfolio.

Speaker Change: Your customers level of inventory now.

Speaker Change: I mean, you guys talked about still taking your inventory down in the first half of 'twenty four or do you think your customers are still doing something similar and there is still a headwind from destocking in the first half of 'twenty four and when do you think we actually get to a point where customer inventory match demand levels.

Eric Ashleman: Do you think your customers are still doing something similar, and there's still a headwind from de-stocking in the first half of the year? And when do you think we'll actually get to a point where customer inventories match demand levels? Yeah, I mean, I would say I'd parse that out a bit, too. I mean, a lot of... You know, inventory that would be closest to us on the FMT side would be largely in distributor channels and places like that, highly fragmented. You know, that's largely corrected now.

Speaker Change: Yes.

Speaker Change: I'd say I'd parse that out a bit too I mean, a lot of.

Inventory that would be closer to us on the FMT side would be largely in distributor channels and places like that highly fragmented.

Speaker Change: That's largely corrected now we never as we always remind you we're not we don't sell a lot of products that stock real well anyways. So we probably are.

Eric Ashleman: We never, as we always remind you, we're not a, we don't sell a lot of products that sell real well anyways, so we probably are... I think we hit quicker levels there than maybe some, but we're good on that side. On the OEM side, I think it's customer by customer, but between us and our end customers, we're really, really close. And a lot of that's just been driven by the fact that we got back to really, really high levels of customer performance and lead time performance early. And then, even if nobody's monitoring that in a manual way, eventually, and pretty quickly, it will be automated.

Speaker Change: Hit quicker levels, there than maybe some but we're good on that side on the OEM side, I think its customer by customer, but between us and our end customers. I mean, we are really really clean.

Speaker Change: And a lot of that has just been driven by the fact that we got back to really really high levels of customer performance and lead time performance early and then even if nobody's monitoring that in a manual way eventually in pretty quickly it automates and so kind of tie those two things together the only piece of course that we can't quite see would be.

Eric Ashleman: The only piece, of course, that we can't quite see would be, you know, end customer solutions inventory way out in the extended nature of their channels. We hear about pockets of it here and there from different places, but again, the fragmentation and the diversification of IDEX, I think, puts us in a place where no one or two of those places is going to upset the balance. Excellent. Thanks very much for taking the time to answer my questions. Thanks, Nathan. Our next questions are from the line of Allison Poliniak with Wells Fargo. Hi, good morning.

Speaker Change: And customer solutions inventory way out into the extended nature of their channels.

Speaker Change: Yes, we hear about pockets of it here and there from different places, but again, the fragmentation and the diversification of IDEXX.

Speaker Change: I think puts us in a place where no one or two of those places is going to upset the balance much.

Speaker Change: Excellent thanks, very much for taking my questions. Thanks Nathan.

Speaker Change: Our next questions are from the line of Allison <unk> with Wells Fargo. Please proceed with your question.

Allison Losses: Hi, good morning.

Allison Poliniak: I just want to ask on the life sciences side, new product development. I think you mentioned it was ongoing. Could you talk about it relative to history, like how it's pacing? Is it stronger?

Allison Losses: Just wanted to ask on the life Sciences side, New product development I think you mentioned it with ongoing could you talk to it relative to <unk>.

Allison Losses: Articles like pallet P thing is it stronger is it.

Eric Ashleman: Is it sort of the same amount of investment? And then just any, you know, fairly large resets in that business as well? Has any of the competitive dynamics changed as a result of that? Any thoughts there? Thanks. Yeah, no, great, great questions.

Allison Losses: Theme and amount of investment and then just any.

Allison Losses: I'm fairly large reset and that business as well.

Allison Losses: How does that dynamic has changed as a result of that.

Yes, no great great questions and early here in the year, there's a number of conferences and trade shows and things that always reoccur. So it's a good time to have.

Eric Ashleman: And early here in the year, there's a number of conferences and trade shows and things that always happen. So it's a good time to meet, you know, have good contact points with people. I will tell you, and I think I've said this in the last couple of quarters, the level of innovation that's happening between, you know, our folks on the ground and our major customers is at a really strong level. And I think if you step back a second, it actually makes sense intuitively, you know, it's a tough environment. People are coming off of a phase where largely it was about replenishment and trying to make things. And now I think there's a recognition that it's back to, you know, dynamics that are going to be more normal. You've got real competition between some very, very serious and well-established customers.

Allison Losses: Have good touch points with people I will tell you I think I said this the last couple of quarters the level of innovation, that's happening between our folks on the ground and our major customers is it a really strong level.

Allison Losses: And I think if you step back a second I mean, it's actually makes sense intuitively it's.

Allison Losses: It's a tough environment people are coming off of a phase where largely it was about replenishment and trying to make things and now I think there's a recognition. It's it's back the dynamics that are would be more normal you've got real competition between some very very serious and well established customers innovation in this sector is going to lead the way and then if you look at the.

Eric Ashleman: Innovation in this sector is going to lead the way. And then if you look at the way that we typically interface with IDEX, I mean, we're really good at scaling with customers. So we're hearing a lot of things now around, you know, can you get the prototypes done sooner?

Allison Losses: Way that we typically interface with IDEXX I mean, we're really good at scaling with customers. So we're hearing a lot of things now around can you get the prototypes done sooner because if we do that then that gets you the scalable production right behind it and so I think thats as healthy as Ive seen it.

Eric Ashleman: And if we do that, then that gets you to scalable production right behind it. And so I think that's as healthy as I've seen it, you know, and in many ways, to the extent that people are grappling with their own dimensions of trying to normalize cost and potentially might not have as many resources, that actually dials in well for the kind of work. And I think that side of it actually is our most healthy barometer about long-term success here for both us and the sector. Competitive dynamics, you know; there are not a ton of names in this world.

Allison Losses: And in many ways to the extent that people are grappling with their own dimensions of trying to normalized cost and potentially might not have as many resources that actually dialed in well for the kind of work that we do as well because we've got now a full suite of integrated capabilities. So I think that side of it actually is our most healthy barometer about long term.

Allison Losses: SaaS here for both us and the sector.

Allison Losses: Competitive dynamics.

Allison Losses: Not a ton of names in this world I think we have a good understanding of where we stack up and how we're positioned and our share. So I feel very good about we've maintained if not enhanced our position with all the major players.

Eric Ashleman: I think we have a good understanding of where we stack up and how we're positioned in our share. So I feel very good about, you know, we've maintained, if not enhanced, our position with all the major players. And then, you know, we continue to follow how they're doing as they battle it out side by side. And, you know, I'm just, I always feel very good about the number of bets that we have, virtually all of them. Got it, understood. And then just on working capital, I know you mentioned you wanted to bring it down. Is there any target that you're focused on and trying to attain in 2024? Just any thoughts there? Thanks.

Allison Losses: And then we continue to follow how theyre doing as they battle it out side by side and I'm just.

Allison Losses: We feel very good about the number of beds that we have with virtually all of them.

Speaker Change: Got it understood and then just on working capital I know you mentioned you wanted to bring it down is there any target that you are focused on trying to 18 and 24, just any thoughts there. Thanks.

Abhi Khandelwal: Yeah, Allison, as we mentioned in our opening remarks, we took down inventory by about $65 million in 2023, which is about a 0.4 ton improvement. As we think of 2024, we're targeting another half a point of improvement from inventory. Got it. Thanks for the color.

Speaker Change: Listen as we mentioned in our opening remarks, we took down inventory about $65 million in 2023, which is about 0.4 ton improvement as we think of 2024, we are targeting another half a point of improvement from an inventory standpoint.

Speaker Change: Got it thanks for the color. Thank you.

Allison Poliniak: Thank you. Our next questions come from the line of Mike Halloran with Baird. Good morning, everyone.

Speaker Change: The next question is coming from the line of Mike Halloran with Baird. Please proceed with your question.

Mike P. Halloran: Good morning, everyone, Hey, Mike Good morning, Mike.

Mike P. Halloran: So let's just start on the overall thought process for the year. I certainly appreciate all the color, prepared remarks. But as you think about how you're conceptually setting the guidance here, it's the thought that you're basically looking for sequential stability across the platform from current levels, understanding that the ag piece, the dispensing piece, has some cyclical pressures, but the remaining pieces are just relatively normal cyclicality, not assuming an inflection, or should we be thinking about those positive catalyst markets as... You're pushing some sort of in Yeah, I'll kind of hit on it from the revenue and demand side and let Abhi sort of square up how it financially tracks alongside of it.

Mike P. Halloran: So, let's just start on the on the overall thought process for the year certainly appreciate all the color.

Speaker Change: <unk> remarks.

Mike P. Halloran: But as you think about how you're you're conceptually setting the guidance here.

Mike P. Halloran: Is the thought that you are basically looking for sequential stability across the platform is from current levels understanding that the AG piece. The dispensing piece have some cyclical pressures, but the remaining pieces is just relatively normal cyclicality, not assuming an inflection or should we be thinking about those positive catalysts.

Mike P. Halloran: Market says.

Mike P. Halloran: Youre, pushing some sort of inflection into the numbers this year as an offset.

Mike P. Halloran: And then maybe just talk about how you're expecting that cadence to work out.

Mike P. Halloran: Yes.

Mike P. Halloran: I'll kind of hit it from a revenue.

Mike P. Halloran: Our revenue and demand side, and let it be sort of square up how it financially tracks along side of it but I think if you move from a life left or right kind of start at the midpoint of last year again, we saw back half that was pretty stable for us.

Mike P. Halloran: But, you know, if you move from left to right and kind of start at the midpoint of last year, again, we saw a back half that was pretty stable for us, slight, slight reductions in final backlog reductions that really ended the year with a normalized position. And I remind people that for IDEX, what that means is, you know, we turn things really, really fast. It gives us about a half, a quarter of visibility when we stand here, you know, here on January 1st, looking at it.

Mike P. Halloran: Slight slight reductions in final reductions in backlog that really ended the year with a normalized position and I'll remind people that for IDEXX. What that means is we turn things really really fast it gives us about a half a quarter of visibility when we stand here Purion January 1st looking at it.

Eric Ashleman: So we're kind of back to equilibrium in that perspective, and then we started to see this sort of broader support emerging out of the snow, if you will, at the end of Q4 and continuing through January. January was a nice start for us in all three segments.

So we're kind of back to equilibrium in that perspective, and then we started to see this sort of broader support emerging out of the snow. If you will in the end of Q4 and continuing through January January was it was a nice start for us in all three segments.

Eric Ashleman: And so, as you project forward, you're right, Mike, we actually have a little bit of a seasonal uptick for us that's fairly typical from Q1 to Q2. We've not been able to see it the last couple of years because of some different dynamics that have been out there. That's simply weather-related and hits businesses like water and a few others.

Mike P. Halloran: So then as you project forward Youre right, Mike we actually have.

Mike P. Halloran: A little bit of a seasonal uptick for us thats fairly typical from Q1 to Q2, we've not been able to see at the last couple of years because there are some different dynamics that have been out there that simply weather related and hits businesses like water and a few others and so we have a natural uptick there. Some of these early bookings and some of the support that we've seen just given our lead times and customer.

Eric Ashleman: And so we have a natural uptick there. Some of these early bookings and some of the support that we've seen, just given our lead times and customer expectations, kind of dials in around Q2 as well. So there's a little bit of an additive bounce there and explains a bit of the difference between Q1 and Q4. We have a series of growth bets that, of course, we have positioned across all verticals. I offered a few highlights in my opening comments. Those are known programs and known platforms.

Mike P. Halloran: Expectations kind of dialed in around Q2, as well so theres a little bit of an additive bounce there and explains a bit of a difference between Q1 and Q2.

Mike P. Halloran: We have a series of growth bets that of course, we have positioned across all verticals I offered a few highlights in the opening comments.

Mike P. Halloran: Or if those are known programs known platforms. We're engaged on those now and we feel more assured about when they're going to start along the way.

Eric Ashleman: We're engaged on those now, and we feel more assured about when they're going to start. And then we have things like, you know, a slight recovery in the semiconductor markets kind of modeled more in the back half than the first. So, you know, I think it's normal IDEX, certainly a normal entry position as we look at the year, some normal seasonality, normal run-out of growth bets that we have that accelerate through the year, made a little bit more exaggerated, I think, by, you know, certainly a conservative call on the first quarter, given that we just landed here. We're seeing some things come together, and we just kind of have a, you know, there's a little bit of an air pocket here just based on lead times as to where those things lie in and how quickly we can get out.

Mike P. Halloran: Then we have things like <unk>.

Mike P. Halloran: A slight recovery in the semiconductor markets kind of modeled more back half than the first so I think it's normal IDEXX certainly a normal entry position as we look at the year some normal seasonality normal run out of growth bets that we have that accelerate through the year made a little bit more exaggerated I think by.

Mike P. Halloran: Certainly a conservative call on the first quarter given that we just landed here. We just landed here, we're seeing some things come together and we just kind of have a little bit of an air pocket here just based on lead times as to where those things lay in and how quickly we can get at them.

Eric Ashleman: Yeah, Mike, just to add a little more color to it, as you kind of, just to build on Eric's commentary here. So if you go from left to right, kind of think about where we ended Q4. We landed Q4 at $1.83. As I move the pencil forward and look at, you know, what we're seeing in Q1, again, to Eric's point, it's $1.83, you know we took a bit of a conservative view just sequentially we expect operationally to get better by 12 to 15 pennies so if you just if you just look at operationally $1.83 you know add 15 cents to it you have now $1.98 closer to two dollars year over year it doesn't matter but sequentially as I think about it what what does impact us is a 10 cent stock comp timing and then 4 cents of variable comp reset that kind of takes our guide down to you know what we what we've lit up in the paper here for from $1.75 to $1.77 but sequentially as you look at it operationally we are seeing the improvements that Eric's talking about it's early days but as Eric mentioned we built backlog in January majority of that is shippable in Q2 and beyond and then you see a seasonal uptick from Q1. Great, super helpful.

Speaker Change: Yes, just to add a little more color to it as you as you go to.

Speaker Change: Just to build on Eric's commentary here. So if you go from left to right kind of think about where we ended Q4 with ended Q4 at $1 83 as it moved the pencil forward and look at.

What we're seeing in Q1 again to explain it.

Speaker Change: We took a bit of a conservative view just sequentially, we expect operationally to get better by 12 to 15 pennies.

So if you just if you just look at it operationally $1 83.

Speaker Change: <unk> you have $1 98 closer to $2.

Speaker Change: Year over year, it doesn't matter, which sequentially as I think about it what does impact us is that Tencent stock comp timing and then <unk> a variable comp reset that kind of takes our guide down to what.

Speaker Change: What we've laid out in the paper here from $1, 25% to 77% sequentially as you look at it operationally we are seeing the improvements that youre talking about its early days, but as Eric mentioned, we built backlog in January a majority of that is shippable in Q2 and beyond and then you see a seasonal uptick from Q1 to Q2.

Speaker Change: Great Super helpful and then.

Mike P. Halloran: And then, you know, just an update on how you're looking at the M&A landscape here, the actionability of the portfolio, I mean, the front log lap opportunity. I'm guessing it's probably not that different from what you talked about the last few quarters, the last couple years, but I'm loving the update we have. Yeah, no, it continues to be an area of tremendous focus, I think, irrespective of what the backdrop is. We've driven the increases and potential there with funnel build and cultivation and conversations and analysis and all the things that really are at the highest level we've ever had in the company. I do think, though, that, you know, it's maybe the year... Thank you, Great.

Speaker Change: Just an update on how you're looking at the M&A landscape here action ability of the portfolio.

Speaker Change: The front log of op opportunity.

Speaker Change: I'm guessing, it's probably not that different from what you talked about the last few quarters last couple of years level.

Speaker Change: <unk>, yes.

Speaker Change: It continues to be an area of tremendous focus I think irrespective of what the backdrop is we've driven the increases in potential there with funnel build and cultivation and conversations and analysis and all the things that really are at the highest level we've ever had in the company.

Speaker Change: I do think though that is.

Is maybe the year feel.

Speaker Change: Some of the same fundamental support that we're talking about here.

Speaker Change: I could imagine that that might help availability of targets and people might start to think about monetizing them and moving and maybe that lifts the market around us as well. So it is still largely being driven by our efforts, but I think a good environment and we feel very very positive about what we're going to be able to do there.

Eric Ashleman: We appreciate everyone. Thank you. Our next question is from the line of Deane Dray with RBC Capital Markets. Please submit your question. Thank you. Good morning, everyone.

Speaker Change: Great. We appreciate everyone.

Speaker Change: Okay.

Speaker Change: Our next question is from the line of Deane Dray with RBC capital markets. Please proceed with your question.

Deane Dray: Good morning, Dean. Hey, I just want to also add my welcome back to Avi and also thanks for all the detail and how you've laid out the assumptions very, very clearly. We just appreciate all the specifics. Oh, thanks, Dean.

Deane Dray: Thank you and good morning, everyone.

Deane Dray: Hey, just want to also add my welcome back to Avi and also thanks for all the detail and how you've laid out the assumptions.

Deane Dray: Very very clear, which is I appreciate all the specifics.

Deane Dray: <unk>.

Deane Dray: Just I wanted to circle back on the life Sciences analytical story here and just make sure I understand how you are not expecting and not forecasting any inflection and 24 and I get that you want to be conservative here, because it's been a moving target.

Eric Ashleman: I want to circle back on the life sciences analytical story here and just make sure I understand how you're not expecting and not forecasting any inflection in 24. And I get that you want to be conservative here because it's been a moving target. But if you listen to what your customers are saying in terms of their earnings reports and how they're forecasting, they're collectively talking, if I were to generalize, that there would still be some inventory normalization running, at least through the mid-year, so call it the end of the second quarter, and at that point, they would start to see some normalization, some recovery. They've got easy comps in the second half.

Deane Dray: But if you listen to what your customers are saying in terms of their earnings reports and how they're forecasting collectively talking if I were to generalize that there would be still some inventory normalization running.

Deane Dray: At least through the mid year, so call. It the end of the second quarter and at that point, they would start to see some normalization some recovery they've got easy comps in the second half so I.

Eric Ashleman: So, I would imagine maybe there's a timing issue for you and when that would start to read across into your recovery with these customers. But let's just start there. What's the lead time difference in terms of that recovery?

Deane Dray: I would imagine maybe there is a timing issue for you went to when that would start to read across into your recovery with these customers.

Deane Dray: But let's just start there.

What's the lead timing difference in terms of that recovery because it does seem like.

Eric Ashleman: Because it does seem like it's pivoting. Yeah, I, you know, from an inventory reduction perspective, I mean, again, there's a big industry with a lot of end markets. We have different platforms, different programs, and all of them. We really get it down to customer by customer, you know, factory by factory, and inventory position between us and them in every single case. So we've known for a while that, you know, we're in pretty lockstep at that level. Then it comes down to individual demand swings, and to be fair, there'll be some.

Deane Dray: It pivots this year.

Deane Dray: Yes.

Deane Dray: From an inventory reduction perspective, I mean again, there is a big industry with a lot of end markets. We have different platforms different programs in all of them. So I mean, we really get it down to customer by customer.

Deane Dray: Factory by factory and inventory position between us and them in every single case.

Deane Dray: So we've known for a while that we are in pretty lockstep at that level and it comes down to individual demand swings and to be fair, though there'll be some and maybe in line with what you're talking about there is some pockets of end customer inventory that might still be out there in the way of recovery and pieces of what we have but in other places I think we are comfortable.

Eric Ashleman: Maybe, in line with what you're talking about, there are some pockets of end-customer inventory that might still be out there and in the way of recovery and pieces of what we have, but in other places, I think we're comfortable that the mix is going to work over and kind of hold the flat narrative that we have here and the flat projections that we have internally. You know, absolutely. I've heard some of the same commentary around the back half.

Deane Dray: The mix is going to work over and kind of hold flat narrative that we have here and that in a flat projections that we have internally.

Deane Dray: Absolutely efforts some of the same commentary around the back half I don't have information to refute any of that and I'd be quite happy if it were to come about that way, but I think just from an internal planning and forecasting perspective.

Eric Ashleman: I don't have any information to refute any of that, and I'd be quite happy if it were to come about that way. But I think just from an internal planning and forecasting perspective... You know, being conservative in this way, making sure our costs are in control, we've got everything ready to go from a materials and resourcing perspective. We've built some muscle here to be more dynamic than ever before, which I think presents us and lines us up in a way should that then start to happen in the second. So I certainly take the point.

Deane Dray: Being conservative in this way, making sure our costs are in control, we've got everything ready to go from a materials Resourcing perspective, we've built some muscle here to be more dynamic than ever before I think presents us and lines us up in a way should that start to happen in the second half so.

Speaker Change: I certainly I certainly take the point I think if you can see it at our level you'd see kind of technology.

Eric Ashleman: I think if you could see it at our level, you'd see kind of technology and major platform and customer sort of arrayed on a grid. That is the way that our teams think about it as they just move across quarters. That's really helpful.

Speaker Change: And major platform and customer sort of a rate on a grid that is the way that our teams think about it is they just move across quarter to quarter to quarter.

Speaker Change: That's really helpful. One question that's come up in a couple of calls and discussions that we've had in this market is a question of inventory obsolescence just because of this pocket that we've been in.

Deane Dray: One question that's come up in a couple of calls and discussions that we've had in this market is a question of inventory obsolescence. Just because of this pocket that we've been in of D stock, some of the inventory just is obsolete. It probably is not as much of an effect for you all, but is there any issue there? And what might the dynamics be?

Speaker Change: Of a destock some of the inventory just as obsolete.

Speaker Change: It probably is not as much of an effect for you all but is there any issue there.

Speaker Change: Its a dynamic space.

Eric Ashleman: Yeah, I mean, I haven't heard that raised as an internal concern or issue. I'm thinking, you know, a lot of the business we do with, let's say, analytical instrumentation, it's a little bit more of a mature space, mature industry, maybe not as likely in the short term to be obsoleted by major steps in technology, but I kind of end it there. That hasn't been something that we've talked a lot about. Okay. That would be my impression as well.

Speaker Change: Yes.

Speaker Change: I haven't heard that raised as an internal concern or issue I'm thinking a lot of the business, we do with let's say an analytical instrumentation tomorrow, so a bit more of a mature space mature industry, maybe not as likely in a short term demur.

Dimension to be obsolete it by major steps in technology.

Speaker Change: I kind of add it there that hasnt been something that we've talked a lot about it.

Speaker Change: That would be my impression as well and then just separately just because it's a good time of year.

Deane Dray: And then separately, just because it's a good time of year to look at that very near-term crystal ball that you have, all of your bellwether businesses collectively, whether it's Bandit or Gas or Warren Rupp, what is the kind of cadence of demand that you're seeing in your day rates versus your expectations? Yeah, that's one of the healthiest indicators that we have here. Just for everybody on the call, again, these are the shortest cycle, more sort of widely dispersed businesses that we have with the most fragmented customer set. And so when they move, they tend to indicate where the world is going either way.

Speaker Change: Look at that very near term crystal balls that you have.

Speaker Change: All of your bellwether businesses collectively whether its banded or gas or Warren Rupp just.

Speaker Change: What is the kind of cadence of demand that youre seeing in your day rates.

Speaker Change: Versus your expectations, yes, that's one of the healthiest indicators that we have here just for everybody on the call again. These are the shortest cycle more sort of widely dispersed businesses that we have with the most fragmented customer sets.

Speaker Change: And so when they move they tend to indicate where the world is going either way when they move together they strongly indicate where the world is going and we saw them move together back at the original zones of Recalibration here as they move down.

Eric Ashleman: When they move together, they strongly indicate where the world is going, and we saw them move together back at the original zones of recalibration here as they moved down. And in Q4 and certainly continuing here in January, they are all moving together towards the positive. You know, these are modest rates, but a simple green arrow next to all of those names across IDEX is meaningful and supports a lot of the confidence that we have. That sounds great, because we look at them, and they're coincident with some of the better indicators we've seen from the ISM New Order, so I'm glad it's consistent, and that's it. Thank you. The next question is from the line of Vlad Vesenky with C-Group.

Speaker Change: And in Q4, and certainly continuing here in January they are all moving together towards the positive.

Speaker Change: These are these are modest rates, but a simple green arrow next to all of those names across IDEXX is meaningful and supports a lot of the confidence that we have.

Speaker Change: That sounds great because we look at those.

Speaker Change: And Thats coincident with some of the better indicators, we've seen from ISI am new orders, so I'm glad it's consistent and that's it. Thank you. Thanks. Thanks Dan.

Speaker Change: The next question is from the line of Glenn.

Glenn: <unk> with Citigroup. Please proceed with your questions.

Vlad Vesenky: Please proceed with your question. Hey, good morning, guys. Thanks for taking my call. Thanks for all the great information. Just quickly, and sorry if I missed it.

Glenn: Right.

Glenn: Hey, good morning, guys. Thanks for thanks for taking my call and thanks for all the great information.

Glenn: Just quickly and sorry, if I missed it.

Abhi Khandelwal: Did you say what price cost actually was in the quarter and what you're assuming for price cost in 24 as well as your overall price assumptions in the zero to two plus zero to two percent organic growth outlook? Yeah, absolutely. This will be So firstly, for the fourth quarter, we saw pricing around four percent. It was definitely started. We definitely started to see it come down as the year progressed. So, q4 was lighter compared to the prior quarters, but it's closer to four percent as I think about 2024. What we're modeling is a two percent, you know price. I think that's all I have to say about the guide, but what we're more focused on is the price-cost spread. As I think about the price-cost spread, it's in the 80 to 100 basis points, which is, again, higher than the historical averages IDEX has seen.

Glenn: Did you say what price cost actually was in the quarter and what you're assuming for price cost in 'twenty four as well as your overall price assumptions in the zero to two zero to 2% organic growth outlook, yes, absolutely that this would be.

Glenn: So firstly for fourth quarter, we saw pricing around 4%.

Glenn: It was definitely started we should definitely start to see it come down as the year progressed of Q4 was lighter compared to the prior quarters, whereas closer to 4% as I think about 2024, what we're modeling is a 2% price in the guide.

Glenn: But we're more focused on is the price cost spread as I think about the price cost spread.

Glenn: The 80 to 100 basis points, which is again is.

Glenn: Higher than the historical averages IDEXX has seen.

Vlad Vesenky: And even the 2% price capture, if you go back in time and look at the IDEX historical pre-pandemic, it was in the, you know, 80 to 100 basis points, 120 basis points. So that's what we modeled in the guide. Kip.

Glenn: Even a 2% price capture if you go back in time and look at.

Glenn: The IDEXX historical pre pandemic was in the 80 to 100 basis points 120 basis points. So that's what we've modeled in the in the guide.

Glenn: Okay.

Speaker Change: Perfect. That's really helpful. Thanks, and then just.

Eric Ashleman: I just wanted to ask you a little more, slide 10 is a very helpful color around what you're seeing in businesses and land markets. Can you talk a little more about what you're seeing with respect to energy transition-related demand? And what kind of particular project types that are seeing a pickup or driving that, and whether you're seeing it across regions or more pronounced in any particular geography? Yeah, I'll take a shot at that.

Speaker Change: Just wanted to ask you a little more slide 10 is very.

Speaker Change: Very helpful color around what Youre seeing in the business isn't the end markets can you talk a little more about what you're seeing with respect to energy transition related demand.

Speaker Change: And kind of a particular project types that are that are seeing a pickup are driving that and whether youre seeing it across regions or more pronounced in any particular geographies.

Speaker Change: Yes.

Eric Ashleman: And of course, it always goes through a bit of an IDEX filter. So we're a couple derivatives away from what you might notice as a headline. So think of this as almost any technology that's involved in, you know, kind of the transition from traditional energy to alternate sources and emerging sustainable sources. And we see that in places like battery manufacturing, we don't make the batteries, but we do a lot of the work around material handling, because it's pretty nasty caustic material.

Speaker Change: Take a shot at that and of course, it always goes through a bit of an IDEXX filters. So we're a couple.

Speaker Change: Derivatives away from what you might notice as a headline so think of this as almost any technology. That's involved in kind of the transition from traditional energy to alternate sources and emerging sustainable sources and we see that in places like battery manufacturing, we don't make the batteries, but we do a lot of the work around material handling because.

Speaker Change: It's pretty nasty caustic material and so we've seen really really nice velocity, there and continuing into 'twenty four on things supporting.

Eric Ashleman: And so we've seen really, really nice velocity there and continuing into 24 on things supporting, you know, kind of all the work that goes on for the switch over to battery tech. Even, even some of the businesses that we have in FMT that have a little bit of mining exposure, they've been strong for a while, and they continue strong. And of course, it's tied to the mineral extraction that goes with that.

Speaker Change: And of all the work that goes on for switchover to battery Tac.

Speaker Change: Even some of the businesses that we have in FMT that have a little bit of mining exposure. It's been strong for a while they continued strong and of course, it's tied to the mineral extraction that goes with that.

Eric Ashleman: One of our recent acquisitions on the air tech side, and that business, ever since we came in, has been a part of IDEX, one of its strongest catalysts has been alternative energy solutions where we do some of the thermal management that happens inside. So it's these, you know, again, we're kind of in the box with our high-tech components, and we're doing very, very critical jobs, and we do them a little far away from the headlines, but you can absolutely see the lines coming right back into that industry. You asked about their geographic spread. I wouldn't say there are... We have projects in Europe, and some of them ultimately land in Asia, so it's pretty uniform across the globe.

Speaker Change: One of our recent acquisitions on the air Tech side that business ever since we came in was a part of IDEXX at one of its strongest catalyst has been alternative energy solutions, where we do some of the thermal management that happens inside so today.

Speaker Change: Again, we're kind of in the box with our.

Speaker Change: Our high Tech components, and we're doing very very critical jobs, and we're doing them a little far away from the headlines, but you can absolutely see the lines coming right back into that industry, you asked about geographic spread.

Speaker Change: I wouldn't say there is.

Speaker Change: We have projects in Europe, some of them ultimately land in Asia, So it's pretty uniform across the globe, but again, we're hitting it in these niche verticals in niche applications.

Vlad Vesenky: But again, we're hitting it in these niche verticals and niche applications. Great, that's really helpful, Kyler. I appreciate it. Thanks a lot.

Speaker Change: Great. That's really helpful color I appreciate it.

Speaker Change: Thanks, a lot.

Mike P. Halloran: Our next questions are from the line of Rob Bortheimer with Mellius Research. Thanks. So my question is going to be on HST Life Sciences within it and how you manage costs. And I guess there's a kind of specific one, two-year question on how the financials may play out, and then just a larger question on the philosophy of how you manage the business. Is the cost structure currently set such that if, you know, if demand does come back, and you see above normal incrementals, you kind of return to historical margin levels? I mean, that's kind of the first one. You kind of prime for return, or, you know, or would costs come back? And then the second question is more just, how do you think about cutting costs when businesses turn down? Obviously, nobody has a crystal ball; we can't see what happens two years ahead.

Speaker Change: Our next question is from the line of Rob Wertheimer with Melius Research. Please proceed with your question.

Speaker Change: Thanks.

Rob Wertheimer: So my question is going to be on HST life Sciences within it and how you manage costs and I guess, there is a kind of a specific one to your question on how the financials may play out and then just a larger question on philosophy on how you manage the business.

Rob Wertheimer: Just the cost structure currently set such that if if demand does come back and you see above normal incrementals, you've kind of return towards historical margin levels, I mean, thats kind of the first one you kind of prime for return or.

Rob Wertheimer: Cost comeback.

Rob Wertheimer: And then the second question is more just how do you think about cutting costs. When business is turned down obviously nobody has a crystal ball, we can't see what happens two years at <unk>.

Abhi Khandelwal: If you'd known how deep this downturn would have been, would you have managed the business any differently or not? Thank you. Well, look, thanks for the question. So as I think about where we've been over the last couple of years, right, good operators, good business cycle. We've been looking at our cost structure. You can see in our financials where, quarter after quarter, if you look at our restructuring line, we've done work in that area. Where we are today from a cost standpoint in our life sciences business, because that was your specific question. We feel comfortable with where we are given where the volume level is.

Rob Wertheimer: If you had known how deepest downturn would've been when you have managed the business any differently or not.

Speaker Change: Well look.

Speaker Change: Thanks for the questions.

Speaker Change: Think about where we've been over the last couple of years.

Speaker Change: That's just good operator, good business cadence, we've been looking at our cost structure, you can see in our financials quarter after quarter preliminary restructuring run rate we've done work in that.

The area, where we are today from a cost standpoint, and our life Sciences business because that was your specific question, we feel comfortable with where we are given where the volume levels are to your point as the volume start to turn on the leverage on that is going to be there's going to be the point, where the margin rates are going to expand.

Eric Ashleman: The point is that as volumes start to turn, the leverage on that is going to be a point where the margin rates are going to expand, about how we are going to be thinking about this business long term. It is all about, you know, balancing the cost structure in a way where it fits the current volume levels. We don't have any specific plans today to take any more.

Speaker Change: As I think about our.

Think about our.

Speaker Change: About how we are going to be thinking about this business long term.

Speaker Change: It is all about balancing our cost structure in a way where it fit.

Speaker Change: The current volume levels, we don't have any specific plans today to take any more cost out.

Abhi Khandelwal: But I think coming back to, you know, kind of how we managed it and maybe then applying some hindsight and whether or not we would have done it differently. I mean, I would put this the same for all IDEX businesses, that the places where we are the most careful are areas of domain expertise, technical know-how, and, you know, customer relations. And we're really, really careful with those.

Speaker Change: But I think coming back to kind of how we manage it and maybe that applying some hindsight and whether or not we would have done it different.

Speaker Change: I mean I would put this the same for all IDEXX businesses. The places where we have the most careful our areas of domain expertise technical knowhow and customer relationships and we're really really careful with those because.

Eric Ashleman: Because, you know, look, these programs and the life cycle in these risk-averse areas only change and come around so often, even when it's in a market as dynamic as this. So if you're not staffed and ready to go, and I used my comments earlier about what might seem like a counterintuitive part of the cycle where business is down, we're wondering when it's going to recover, and yet the innovation loops are And again, maybe counterintuitively, because customers are struggling with some of, maybe potentially, their own resource allocation ability. That actually dials in quite favorably to our ability to help solve problems with our patients. And so think of that as like a very solid core that's sort of under glass, and we're very, very careful about going near it. You know, labor markets have obviously eased up a bit. Frankly, it's easier to flex them.

Speaker Change: These programs and these are the lifecycle and these risk averse area as the only the only change and come around so often even when it's in a market as dynamic as this one.

Youre not staffed and ready to go and I use that might hurt my comments earlier here about what might seem like a counterintuitive as part of the cycle, where business is down wondering when it's going to recover and yet the innovation loops are actually really active.

Speaker Change: And again, maybe counterintuitively because customers are struggling with some of them may be potentially their own resource allocation abilities that actually dialed in quite favorably to our ability to help solve problems with our people.

Speaker Change: Think of that as like a very solid core that's sort of under glass and we're very very careful about going near it.

Speaker Change: Labor, obviously labor markets have eased up a bit it's frankly, it's easier to flex them and so some of what <unk> is talking about under the year. We've made those moves we've taken variable resources out that can be brought back in we think quite easily should we need to go up but that technical core kind of remains the other thing that we leverage real.

Eric Ashleman: And so some of what Abhi is talking about under the year, we've done those. We've taken variable resources out that can be brought back in, we think, quite easily should we need to go up. But that technical core, kind of, remains. The other thing that we leverage really, really well at IDEX, and I think we do it quite intuitively, is... Frankly, when we look at our leaders, all of our leaders are kind of ready when the need comes to be able to do more because they're really, we have a flat organizational structure, and we're close to the point of impact anyway. So avoidance is actually a big thing.

Speaker Change: Really well at IDEXX and I think do it quite intuitively is frankly, when we look at our leaders all of our leaders are kind of ready when the need.

Speaker Change: <unk> to be able to do more because they are really we have a flat organizational structure and we're close to the point of impact anyways, and so avoidance is actually a big fan cost avoidance and holding back additions were actually able to flex that muscle a lot more than most companies.

Eric Ashleman: Cost avoidance and holding back additions, we're actually able to flex that muscle a lot more than most companies. So when environments are here and we're starting to see the early signs, we can sort of be really careful and hold back because we've got a deployment plan that allows very smart people to get close to the action and step in. So I think it's those two things working around, frankly, a labor environment that's healthier for some of that flexing that you just would want to do, all of which says that in the early days of demand run-up, back to Abebe's points on margin expansion. You know, we always perform very well as we're coming out of a period like this for all of these reasons. The leverage is at kind of its highest. Perfect. Thank you for the mini-educational talk there, Eric, and I look forward to meeting you, Obie. Yes, same here. Our next question is from the line of... Brett Linzey with Mr. Hall.

Speaker Change: So environments are here and we're starting to see the early signs. We can look we can sort of be really careful and hold back because we've got a deployment plan that allows very smart people that get close to the action and step in.

Speaker Change: It's those two things working around frankly, a labor environment Thats healthier for some of that flexing that you just would want to do all of which says that in the early days of demand run up back to these points on margin expansion.

Speaker Change: We always perform very well as we're coming out of it.

Speaker Change: Periods like this for all of these reasons the leverages its kind of its highest point.

Speaker Change: Yeah.

Speaker Change: Perfect. Thank you for the many education there.

Speaker Change: And I look forward to meeting you Obi decision.

Speaker Change: Thank you.

Speaker Change: Our next question is from the line of.

Speaker Change: Brett Linzey with Mizuho. Please proceed with your question.

Brett Logan Linzey: Hey, good morning, all. Hey, I just want to come back to the distribution, MRO, and some of the stabilization you're seeing there. Good to see. I am just curious on the other side around CapEx and planning assumptions among your customers. Has the tone changed in terms of capital outlays and things of that nature? And what are you expecting from those types of businesses for the year? Yeah, I mean, you kind of see that large project work and large capital in primarily our water business, to some degree. You see it, of course, that's municipal capital, be it in energy, a little bit in pharma.

Brett Logan Linzey: Hey, good morning, all.

Brett Logan Linzey: Hey, just wanted to come back to.

Brett Logan Linzey: Distribution MRO and some of the stabilization you're seeing there is good good to see I'm just curious on the other side around Capex and planning assumptions. Among your customers has the tone changed in terms of capital outlays.

Brett Logan Linzey: And things of that nature, and then what are you expecting in those types of businesses for the year.

Brett Logan Linzey: Yes.

Brett Logan Linzey: You kind of see that large project work in large capital in primarily in our water business to some degree you see it of course Thats municipal capital theater in energy a little bit in pharma.

Eric Ashleman: So I mean, in those zones, I would say it's early days and modest, but it is positive. You know, these would be small expansion opportunities or projects that they've been talking about for a while that they want to now start to get moving. I don't know that in many of them, I would say you're at the..., at the end of the day, we're at the kind of megaproject level, or we're ready to go, or it's been sanctioned. But to be fair, that's the usual step up when things get more positive. So we are hearing some good indications, you know, from a variety of different markets about more intentional capital deployment, not yet at the levels of kind of full-cycle support, multi-quarter or even year-end duration, but good, good early signs that it's actually quite different than what we saw in a lot of 2020. Okay, I got it.

Brett Logan Linzey: Zones, I would say, it's early days and modest but it is positive.

Brett Logan Linzey: So these would be small expansion opportunities or projects that <unk> been talking about for a while that they wanted to now start to get moving.

Brett Logan Linzey: No that and many of them I would say youre at.

Brett Logan Linzey: Kind of Mega project level or were ready to go or it's been sanctioned but to be fair. That's the usual step up when things get more positive. So we are hearing some good indications.

Brett Logan Linzey: From a variety of different markets about more intentional capital deployment not yet at the levels of kind of full cycle supporting multi quarter or even year.

Brett Logan Linzey: <unk> duration, but good good early signs that it's actually quite different than what we saw in a lot of 2023.

Brett Logan Linzey: And then just one last one on the margin outlook for this year. So 28% EBITDA margins. I was hoping you might be able to provide a little bit of context and dimension on the segment levels, you know, FMT specifically, I'm interested in that, you know, softer, but how are you thinking about the outlook for this for the segments around that 28%? Absolutely. I can do that for you.

Speaker Change: Okay got it and then just one last one on the margin outlook for this year, so 28% EBIT margins I was hoping you might be able to provide a little bit of context dimension the segment levels.

Speaker Change: FMT, specifically I'm interested in what that softer, but how are you thinking about.

Speaker Change: Yes.

Speaker Change: The outlook for this for the segments around that 28%, yes, absolutely I can do that for you. So as you saw in our guide our guide for 'twenty four for the company at 28%. So if you think about it just I think as we exited the year youre going to start to see our margins come closer to 30% as the volumes flexes back up in the back half of the year on the FMT side you.

Abhi Khandelwal: So as you saw in our guide, our guide for 24 for the company is 28%. So if you think about HST, I think as we exit the year, you're going to start to see our margins come closer to 30% as the volumes flex back up in the back half of the year. On the FMT side, you should expect a slight bit of margin expansion on top of what you saw in 2023, and then on the FSDP side, you should expect to see slight margin erosion due to the, you know, completion of the big box retailer refresh cycle, which puts some mixed pressure on the margin line. But again, HST, you should see expansion, FMT, a slight bit of expansion, and FSD, a little bit of contraction I got it.

Speaker Change: Should expect.

Speaker Change: Slight bit of margin expansion on top of what you saw in 2023, and then the <unk> side.

Speaker Change: You should expect to see slight margin erosion due to the.

Speaker Change: The completion of the big box retailer refresh cycle, which puts some mix pressure on the on the margin line, but again.

Speaker Change: <unk> you should.

Speaker Change: Expansion FMT slight bit of expansion in FSD, a little bit of contraction tied to dispensing.

Brett Logan Linzey: Very helpful. Thank you. Thank you. Our next question is from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your question. Thank you. Good morning, everyone.

Speaker Change: Got it very helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: <unk> is from the line of Jeff Sprague with vertical Research partners. Please proceed with your question.

Jeffrey Todd Sprague: Hey, Thank you good morning, everyone.

Jeff Sprague: Yeah.

Jeffrey Todd Sprague: There's a lot covered here, so maybe I'll zoom out and Eric, maybe just a little bit of a longer term perspective here. You know, some talk about being in position for the recovery and the like. I just wonder your confidence level or your view on sort of normalized organic growth for the company, right? We've come through this tumultuous three years, but looking at it through the lens of kind of your pre-COVID growth rate, 2011 to 2019 was, you know, three or 4% organic on average. Sounds like from Abhi's comment, maybe there's another point of price in the future relative to what you had, but what is your confidence level that, maybe putting aside kind of a snapback year in 2025, And so think of this as two levers primarily that we're moving. One is just the nature of the portfolio of IDEX.

Jeffrey Todd Sprague: A lot covered here, so maybe I'll zoom out and Eric maybe just a little bit longer term perspective here.

Jeffrey Todd Sprague: Some talk about being positioned for the recovery and the like and just wondering your confidence level or your view on sort of normalized organic growth for the company right. We come through this tumultuous three years, but looking at it through the lens of kind of your pre COVID-19 growth rate to 111%.

Jeffrey Todd Sprague: 2019 was three or 4% organic on average.

Jeffrey Todd Sprague: Sounds like.

Jeffrey Todd Sprague: These comment maybe there is.

Jeffrey Todd Sprague: Another point of price in the future relative to what you have but what is your confidence level of that.

Jeffrey Todd Sprague: Maybe putting aside kind of a snapback year on 2025.

Jeffrey Todd Sprague: You are at a higher level of organic growth going forward on a normalized basis.

Speaker Change: Well I appreciate the question and that's absolutely where we're heading.

Speaker Change: And so think of this as two levers primarily that we're moving one is just the nature of the portfolio of IDEXX. So we've been more aggressive towards capital deployment.

Eric Ashleman: So we've been more aggressive in capital deployment. Everything we're bringing into IDEX today is inherently in faster growing markets than, let's say, more of the industrial core that we see most notably in FMT. So the comparative basis, that's tuning. We haven't done a lot of pruning on the other side.

Speaker Change: Everything we're bringing into IDEXX today is inherently in faster growing markets than let's say more of the industrial core.

Speaker Change: That we see most notably in FMT, so as a comparative basis thats tuning.

Speaker Change: Haven't done a lot of pruning on the other side, it's fairly modest but to the extent we're doing it that's actually moving that portfolio average up as well.

Eric Ashleman: It's fairly modest, but to the extent that we're doing it, that's actually moving that portfolio average up as well. And then, you know, if reasonable market support, sort of absent massive swings of either way, as you suggest. You know, I think we've long been targeting two to three hundred basis points for performance, and everything we're working on today is moving that towards the upper bound of that range. So if you think of a world that, let's say, would start to dial itself in more from a fundamental perspective, toward something in the 2-3% range, it's sort of a natural entitlement. And maybe that's lifting from there because of the work that we're doing, as I mentioned, and then outperformance above it.

Speaker Change: And then.

Speaker Change: With reasonable market support sort of absent massive swings either.

Speaker Change: Either way as you suggested.

Speaker Change: I think we've long been targeting two to 300 basis points of outperformance and everything we're working on today is moving that towards the upper bound of that.

Speaker Change: Run out so if you think of a world that let's say would start to dial itself in more from a fundamental perspective towards something in the 2% to 3% range is sort of natural entitlement.

Speaker Change: And maybe that's lifting from there because of the work that we're doing as I mentioned and then outperformance above it has us moving into a space, where we're targeting mid single digit growth for IDEXX on an organic basis within obviously some some.

Eric Ashleman: It has us, you know, moving into a space where we're targeting mid-single-digit growth for IT on an organic basis, with then obviously some fundamental capital deployment on top of it, which would then extend the overall organic rate for the company. It's absolutely the area of focus, has been for a while, and we're excited about potentially taking out some of the forces that have been swinging up and down and sideways, making that harder. And where do you stand on the view of price, right?

Fundamental.

Speaker Change: Capital deployment on top of it which would then extend the overall organic rates of the company is absolutely an area of focus has been for a while and we're really we're excited about potentially taken out some of the forces that have been swinging up and down and sideways and making that hard to see.

Speaker Change: And where do you stand on the view of price right.

Eric Ashleman: You're, you'll have more than, you know, more than normal still in 2024. There's some argument out there that industrial companies have, you know, developed more price muscle coming through this period. Do you think there's any kind of durable stickiness in the 2% range, or do we sort of head back to something more like one over time?

You'll have more than more than normal still in 2024.

Speaker Change: There is some argument out there that industrial companies develop more price muscle coming through this period.

Speaker Change: You think.

Speaker Change: There is kind of a durable stickiness in the 2% range or do we sort of head back to something more like one over time.

Eric Ashleman: Well, look, first of all, I think, to your point, where the world is, we're not back to the inflation levels that we were at, you know, pre-pandemic. I mean, even if you look at the near-term view, it's still at, what, 2.5%, 3%. So are we, are we going to hang on to where we are today? No. Does that mean we're going to go back to, you know, where we used to be back in historical levels? No.

Speaker Change: First of all I think I think to a blend where the world is we're not back to the inflation levels that we were at.

Speaker Change: Pre pandemic.

Speaker Change: If you look at the near term view is still at 253% so.

Speaker Change: Are we going to hang on to where we are today now does that mean, we're going to go back to where we used to be back in the historical levels now is going to be somewhere in the middle.

Abhi Khandelwal: It's going to be somewhere in the middle, but looking at 2024, we feel pretty good about our position and where we are from a price cost perspective. And I would say here, you know, I think this is an absolute point of competitive advantage for us in terms of price capture. We've always been in the price capture game, and we've done that because of our positioning and our innovation with great customers, period. So yes, you know, we've come through a phase here where kind of everybody got priced because you had to. But I think as the world normalizes here, as Abhi says, we'll probably land a little north of where we've been as long as the underlying... Core inflation stays a little hotter too, so we'll maintain the spread that you'd expect. But I'm really proud, and I think we will be noticed to be noticeably differentiated because of this core capability that we have to differentiate in sticky markets with risk-averse customers that reward us when we do our job. Thanks. And just one other quick one.

Speaker Change: But looking at 2024, we feel pretty good about our position and where we are from a from a price cost standpoint.

Speaker Change: I would say I think.

Speaker Change: This is a point of absolute point of competitive advantage for us where price capture.

Speaker Change: We've always been in the price capture game.

We've done that because of our positioning and our innovation with great customers period. So yes, we've come through a phase here, where kind of everybody got price because you add too, but I think as the world normalizes here as a b says, you'll probably land a little north of where we've been as long as the underlying.

Speaker Change: Core inflation stays a little hotter too. So we will maintain the spread that you would expect but I'm really proud and I think we will be noticed to be noticeably differentiated because of this core capability that we have to differentiate and sticky markets with risk averse customers that reward us when we do our job well.

Speaker Change: Thanks, and just one other quick one what percent of your total life science and analytical in China at this point.

Jeffrey Todd Sprague: What percent of your total life science and analytical business is in China at this point? I mean, we don't have a lot of direct business there. We're kind of following customers, so it's closer. A better ratio would be what percentage of their business is in China, which is, I mean, it's a fraction. It's less than 20%, plus or minus depending on the sector that we're involved with. But again, that's kind of an indirect vector for us there. It's, we don't have a lot of feet on the ground there in a direct... Got it. Thank you very much.

Speaker Change: I mean, we don't we don't have a lot of direct business. There we're kind of following customers. So it's closer.

Speaker Change: A better ratio would be what percentage of their businesses in China.

Speaker Change: I mean, it's a fraction it's less than 20%.

Speaker Change: Plus or minus.

Speaker Change: Depending on the sector that we're involved with but again, that's it's kind of an indirect vectoring for US there. We don't have a lot of feet on the ground there in a direct way.

Speaker Change: Got it thank you very much.

Andrew Buscaglia: Our next question is from the line of Andrew Buscaglia with BNP. Hey, good morning, guys. Hey, Andrew.

Speaker Change: Our next question is from the line of Andrew.

Andrew: <unk> with BNP. Please proceed with your question.

Andrew: Hey, good morning, guys.

Abhi Khandelwal: I just wanted to, you know, on slide 10, you give a great breakdown of kind of where you're thinking things shake out, where they're going by end market. You know, I'm wondering about HST, you know, margins really kind of struggled towards the end of the year there. That life sciences analytical instrumentation piece, you know, how do we think about it from a mix standpoint? Because you mentioned mix a few times.

Andrew: Just wanted to <unk> on slide 10, we give a great breakdown of kind of where you're thinking things shake out or where they're gone going by end market.

Andrew: I'm wondering HST.

Andrew: Margins really.

Andrew: Kind of struggled towards the end of the year there.

Andrew: Sciences anecdote analytical instrumentation.

Andrew: Piece.

Andrew: How do we think about it from a mixed standpoint, because you mentioned mix a few times I imagine if that were to come back this year that could be.

Joseph Giordano: I imagine if that were to come back this year, that could be a nice bonus for your margins. Yeah, just to make myself clear, the mix that we were talking about was the mix of the dispensing business causing pressure in 2024. In a sense, the refresh cycle with the big box retailers is over, but to go back to your question, if I think about the life sciences business and think about volumes coming back, I think, as Eric mentioned, just where we are positioned in our cost structure as the business has come back and we see a little help from volume, you should see our margins expand in our HST sector www.larryweaver.com throughout the year. Okay

Andrew: A nice bonus for your margins.

Andrew: Yes.

Andrew: I make myself clear the mix that we were talking about was the mix of the dispensing business, causing pressure in 2024 since the <unk>.

Andrew: Since the refresh cycle with the big box retailers, who are over but to go back to your question. If I think about the life Sciences business and think think about volumes coming back I think as Eric mentioned just.

Andrew: Where we are positioned in our cost structure as the business is coming back and we see a little help from volume you should see our margin expand in our <unk> segment.

Andrew: <unk>.

Andrew: Throughout the year.

Okay.

Abhi Khandelwal: Okay, and FMT, you know, I thought that was surprising the growth you saw this quarter. How much is attributed to really some of the government stimulus you're seeing? And is that where some of your confidence is coming from? in 24.

Andrew: Okay.

FMT: FMT I thought that was.

Andrew: Surprising the growth you saw this quarter.

Andrew: How much is attributed to really like some of the government stimulus youre seeing and is that is that where some of your confidence is coming.

Andrew: In 'twenty four.

Joseph Giordano: Well, I mean, that's out there to some extent. It's probably most directly linked to spaces like water within FDSC. You know, but that's just a small part of the overall segment. You know, it's an indirect relationship for us, so to the extent that it is one of the elements that's out there as a backstop providing some confidence, yes, it, of course, correlates. I would say more generally for me, this is just a healthier view from a number of folks that think it's time to be confident, lean into their markets, stop ripping inventory out of the system, and kind of get to work. Again, just to make sure everybody can 3D think this through, so if they're building a lot of roads out there, I'll use that as an example, or if they're starting to fix them with abandon, we've got a lot of pumps and things that are involved in pumping liquid asphalt.

Andrew: Well I mean, that's out there to some extent its probably most directly linked to spaces like water within that.

Andrew: But that's a small part of the overall segment.

Andrew: Yes.

Andrew: Indirect relationship for us so to the extent that is one of the elements that's out there as a backstop, providing some confidence yes. It of course correlates I would say more generally for me. This is it's.

Andrew: It's just a healthier view from a number of folks that think it's time to be confident lean into their markets stopped and inventory out of the system and kind of get to work.

Andrew: Can I just just to make sure everybody can <unk> think this through so if they are building a lot of roads out there I'll use that as an example, or if theyre starting to fix them with abandon we've got a lot of pumps and things that are involved in pumping liquid asphalt. So that's kind of the nature of some of these relationships.

Eric Ashleman: So that's kind of the nature of some of these relationships. So you can line up both government-intensive work that's supported that way, as well as just general industrial or people feeling confident about the work that they're doing in their factories. Either one, and taken together, drives this. Alright, thanks for the call. Our next question is from the line of Joe Giordano with TV Cowan. Please proceed with your question. Hey guys, thanks for sneaking me in here. I had a question on HST, just on the revenue guide. I was a little surprised at the strength of the tax there.

Andrew: So you can line up both government intensive work that supported that way as well as just general industrial are people feeling confident about the work that they're doing in their factories, either one and taken together drive this dynamic.

Andrew: Yep.

Speaker Change: Alright, thanks for the color.

Speaker Change: Yeah.

Speaker Change: Our next question is from the line of Joe Giordano with TD Cowen. Please proceed with your question.

Joseph Giordano: Hey, guys. Thanks for sneaking me in here.

Joseph Giordano: I had a question on <unk> just on the revenue guide.

Joseph Giordano: I was a little surprised at the strength there and I know you guys don't guide to orders specifically, but if you just kind of hold orders around the fourth quarter level, maybe a little bit above into the 2024 and just run off the excess orders that were done like post Covid. One book to Bill was really high it kind of implies like a decent decline next year. So.

Joseph Giordano: And I know you guys don't guide to orders specifically, but if you just kind of hold orders, you know, around the fourth-quarter level, maybe a little bit above into 2024 and just run off the excess orders that were done post-COVID when book-to-bill was really high, it kind of implies a decent decline next year. So I was curious if you're contemplating, you know, an order recovery of more magnitude in 2024 for HST. Yeah, so if I kind of think about the guide for the year and look at the sequential order run-up from Q3 to Q4, as you mentioned, first of all, I've taken orders of $30 million from Q3 to Q4, $10 million of that was blanket orders that are going to ship throughout 2024, and $20 million of that was... through demand or sequential improvement that we saw throughout.

Joseph Giordano: I was curious if you're contemplating in order recovery of more magnitude in 2024 for for HST.

Yes. So if you if I kind of think about the guide for the year and look at the order sequential order run up from Q3 to Q4 as you mentioned first of all the B.

Joseph Giordano: <unk> orders of $30 million from Q2 to Q4.

Joseph Giordano: $10 million of that was blanket orders thats going to ship throughout 2024 and $20 million of that was.

Joseph Giordano: Through demand or sequential improvement that we saw throughout throughout the quarter.

Joseph Giordano: That said, as I think about 2024, we do expect to build or build orders up as we go throughout the year. As Eric mentioned, we are being cautious given where we are, but we're seeing early signs of recovery in the different parts of HST. So as you think about an order profile and think about the balance of the year, we expect to continue to build that order book and ship that throughout the year. And then just a reminder that, again, about half the segment is pretty industrial in nature, so it kind of mirrors a lot of the other comments that we've had, many of them around FMT businesses, but you get about half of that, driving and supporting. Thank you. Thank you.

Joseph Giordano: That said as I think about 2024, we do expect to build.

Joseph Giordano: Bill the orders up as we go throughout the year.

Speaker Change: Eric mentioned, we are being cautious given where we are we're seeing early signs of recovery in the different parts of HST. So as you as you think about the order profile and think about the balance of the year, we expect to continue to build that order book.

Speaker Change: And ship that throughout the year.

Speaker Change: And then just just a reminder, that again about half the segment is pretty industrial in nature. So it kind of mirrors a lot of the other comments that we've had many of them around FMT businesses, but you get about half of that.

Speaker Change: Driving and supporting HST as well.

Speaker Change: Thanks, guys.

Speaker Change: Yeah.

Speaker Change: Thank you at this time, we've reached the end of our question and answer session I will turn the call over to Eric <unk> for closing remarks.

Andrew Buscaglia: At this time, we've reached the end of our question and answer session, and I'll turn the call over to Eric Ashelman for closing remarks. Okay, well, thanks to everyone on the call for your questions and the interest in IDEX. So, B, thanks for joining and coming through your first earnings call with me. You know, just a few things here.

Eric: Okay, well thanks, everyone for you on the call for your questions and the interest in IDEXX <unk>, Thanks for joining and coming through your first earnings call with me.

Eric Ashleman: I mean, number one, we realize from the outside that Idex is a complex and diversified company. And it hasn't helped that we've had a lot of swings in some of the larger markets of the company, both up and down over the last couple of years. So, you know, we've done our best to work through that with you and help you understand where we are. I think right now, though, we're actually at a place where things are a lot clearer than they've been in a while. You know, certainly one of our key messages here is that we've hit uniform market stability. We hit that last fall, and we really enjoyed Q4 and having a chance to take a breath and get lined up here for the beginnings of what we think will be a great cycle.

Eric: Yes, just to add just a few things here I mean number one we realized from the outside you know IDEXX is a complex and diversified company.

Eric: And it Hasnt helped that we've had a lot of <unk>.

Eric: Swings in some of the larger markets of the company, both up and down over the last couple of years. So we've done our best to work through that with you and help you understand where we are I think right now, though we're actually at a place where things are a lot clearer than they've been in a while.

Eric: Certainly one of our key messages here is we've had uniform market stability, we hit that last fall and we really enjoyed Q4 as being having a chance to take a breath and get lined up here for the beginnings of what we think there'll be a great cycle. The vast majority of our end markets are starting to see a return to growth as we said and I think that point around the shortest cycle business is.

Eric Ashleman: The vast majority of our end markets are starting to see a return to growth, as we said. And, you know, I think that point around the shortest cycle business is starting to move together. That has always been a very reliable proxy for us in the company. Early days, but we've seen that. We've now seen it reinforced in January. You know, and I remind people that as we've tuned IDEX and tuned it to the kind of companies that we brought in that are faster growing, closer to, you know, really, really strong OEMs. It drives a series of bets and initiatives across the company where the unit measure is a little bit larger. We're working to execute on that and laying the foundation.

Eric: Starting to move together.

Eric: That has always been a very reliable proxy for us in the company early days, but we've seen that we've now seen it reinforced in January.

Eric: I remind people that as we've tuned to IDEXX and tuned into the kind of companies that we brought in that are faster growing closer to really really strong Oems.

Eric: It drives a series of bets and initiatives across the company, where the unit of measure is a little bit larger we're working to execute that and laying that on our foundation as we go but the fundamental piece of the story here is we we have confidence in accelerating through the year.

Eric: Our life science and analytical instrumentation world. It is uncertain for 2024, but I do want to come back and just echo.

Eric: Comments I've made before about just our commitment to that space and are confident in the long term fundamental performance that we're getting we're all going to enjoy their and.

Eric: And our positioning is fantastic, we see that evidenced by the innovation that we're being asked to do.

Eric: And finally, we've put a lot of capital to work over the last three years with real intentionality, and some pretty choppy seas, and so things are going to come down and we'll get some more wins at our back I'm really really confident we'll be able to push that further.

Eric: And continue to do that work and continue to transform the company. So thanks again for joining have a great day.

Speaker Change: This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.

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Speaker Change: Greetings and welcome to the fourth quarter 2023, IMAX Corporation earnings Conference call.

Speaker Change: At this time, all participants will be in listen only mode.

Speaker Change: Question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during todays conference. Please press star zero from your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: I'll now turn the conference over to Alison.

Alison: Losses, Vice President and Chief Accounting Officer.

Allison Poliniak: You may now begin.

Allison Poliniak: Good morning, everyone. This is Allison losses, Vice President and Chief Accounting Officer for IDEXX Corporation.

Allison Poliniak: You for joining us for our discussion of the IDEXX fourth quarter and full year 2023 financial highlights.

Allison Poliniak: Last night, we issued a press release outlining our company's financial and operating performance for the three months and full year ending December 31 2023.

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

Eric: Joining me today are Eric ethylene, our Chief Executive Officer, and President and <unk>, Kendall, our new senior Vice President and Chief Financial Officer.

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

Kendall: <unk> will then discuss our fourth quarter and full year 2023 financial results and provide an update on the various markets we serve.

Kendall: He will also discuss our outlook for the first quarter and full year 2024.

Kendall: Lastly, Eric will close the call with his final remarks, we will then open the call for your questions. If you should need to exit the call for any reason you may access a complete replay beginning approximately two hours. After the call concludes by dialing the toll free number 870 76068 phase III.

Eric: And entering conference I'd.

Eric: 137 for Q1 zero, two or simply log on to our company homepage for the webcast replay.

Eric: Before we begin a brief reminder, this call may contain certain forward looking statements that are subject to the safe Harbor language in last Night's press release, and <unk> filings with the Securities and Exchange Commission with that I'll now turn this call over to our CEO and President Eric Eshleman.

Eric Eshleman: Thanks, Alison and good morning, everyone first I'd like to introduce and welcome our new CFO Campbell wall back to IDEXX <unk> previously worked at IDEXX for 10 years and served as my finance partner for the majority of that tenure I'm thrilled to welcome them back and in many ways. It feels like you never left turning.

Eric Eshleman: Turning to slide six we navigated the challenging backdrop in 2023 with really strong execution.

Eric Eshleman: Backlogs normalize we took inventory out of the system reduce lead times for customers increased cash flow to record levels and delivered productivity through strong price capture and operational excellence as always I want to reach out to our IDEXX employees around the globe with a sincere and appreciate it. Thank you.

Eric Eshleman: I wanted to apply a bit a high level perspective, as I cover last year's dynamic demand patterns coming into 2023, we expect that this would be a year of recalibration across our broad array of markets and our thesis certainly held.

Eric Eshleman: Our fragmented industrial markets within FMT and parts of FSD P. In HST played out as expected supply chain has improved dropping overall lead times, bringing artificially high backlog and inventory levels and to focus customers attack. These positions moderately over time through order reductions to our businesses ultimately reaching levels of stability for us.

Eric Eshleman: US in the fall.

Eric Eshleman: Our less fragmented markets within life Sciences, and analytical instrumentation and semi con recalibrated in a dramatically different way.

Eric Eshleman: Through much of the post pandemic recovery. These markets had run red Hot with demand that was really only constrained by supply chain availability demand pressures from high interest rates lower capital availability and a lackluster post COVID-19 recovery in China, combined with outsized inventory balances and backlogs drove sharp order reductions throughout these normally fast growing.

Eric Eshleman: Sectors. This played out dramatically in the first half for IDEXX, given our short cycle character, we saw the decline quicker than many and reached equilibrium in the fall sooner than some.

Eric Eshleman: As we delivered against expectations within a stable Q4, we took a breath and develop the plan of attack for the year ahead.

Eric Eshleman: Lead times and backlogs are back to pre pandemic levels. The majority of our industrial and municipal businesses are stable and seeing improvement with early and encouraging signs of modest growth ahead.

Eric Eshleman: The open questions or the specific catalysts and timing to support further acceleration.

Eric Eshleman: Our teams continue to aggressively engage with our top growth bets to drive market outperformance. These.

Eric Eshleman: These initiatives are spread across all segments and a variety of niche verticals were particularly excited about our growth work with customers in our water semi con space communications in energy transition markets.

The market is not yet showing signs of near term recovery remains life sciences in Angola analytical instrumentation.

Eric Eshleman: We haven't forecasted a positive inflection yet for 2024.

Eric Eshleman: That said our teams continue to work a robust pipeline of innovative projects in conjunction with our customers positioning us to win on Tomorrow's next Gen platforms. We believe in the long term growth potential of these end markets and are well positioned to support growth at the first signs of improved demand.

Eric Eshleman: We continue to focus on aggressive capital deployment towards M&A as we tune the portfolio towards faster growing high quality markets, we acquired iridium and STC material solutions last year, adding important pieces of material science technology to our HST segment.

Speaker Change: Our funnel is expanding filled with targets that enhance our growth potential our balance sheet is strong fully supporting our ambitions. Finally, we divested two businesses micropump and Nova team on as we practice 80 20 at the enterprise level with that I'll turn it over to <unk> to discuss our financial results.

Speaker Change: Thanks, Eric and thanks to everyone for welcoming me back to IDEXX.

Speaker Change: It's great to be here and be rejoining a great organization.

Speaker Change: Moving on to the consolidated financial results on slide eight.

Speaker Change: All comparisons are against the prior year period unless stated otherwise.

Speaker Change: Orders of $754 million in the fourth quarter were down, 6% overall and down 10% organically.

Speaker Change: Experienced an organic decrease in each of our three segments FMT in FSD.

Speaker Change: Declined mid single digits.

Speaker Change: <unk> contracted by about 17% as markets stabilized at a new level post recalibration for the year orders were down 7% overall and down 11% organically.

Speaker Change: Our <unk> segment contracted upwards of 20% as customer experienced a sharp inventory calibration.

Speaker Change: During the year and level set to new near term demand targets that include a stunted growth expectations for China coming out of the pandemic.

Speaker Change: Our FMT and <unk> segments were down low single digits.

Speaker Change: Also experienced recalibration.

Speaker Change: Although at a much smaller scale.

Speaker Change: Fourth quarter sales of $789 million were down, 3% overall and down 6% organically.

Speaker Change: We experienced a 19% organic decrease in HST.

Speaker Change: While both FMT and efforts DB grew by 3% organically.

Full year sales of $3 3 billion were up 3% overall and down 1% organically.

Speaker Change: <unk> contracted by 10% on an organic basis.

Speaker Change: Driven by declining life Sciences, and article instrumentation, and semiconductor markets, partially offset by price.

Speaker Change: Empty and FSD P grew mid single digits, driven largely by strong price capture on slightly higher volumes.

Speaker Change: Fourth quarter gross margin was essentially flat at 42, 7%.

Speaker Change: Adjusted gross margin, which was also 42, 7% contracted 90 basis points due to lower volume leverage.

Speaker Change: Favorable mix.

Speaker Change: And the dilutive impact of acquisitions, and divestitures, partially offset by strong price cost and operational productivity.

Speaker Change: Full year gross margin and adjusted gross margin of 44, 2% Contra.

Speaker Change: Contracted 60 basis points for the same reasons I just described.

Speaker Change: Fourth quarter adjusted EBITDA margin was 25, 8% down 120 basis points.

Speaker Change: I will discuss the drivers of fourth quarter adjusted EBITDA on the next slide.

Speaker Change: On a full year basis.

Speaker Change: Adjusted EBITDA margin contracted 40 basis points to 27, 5%.

Speaker Change: A bridge of the full year adjusted EBITDA can be found in the appendix of this presentation.

Speaker Change: Despite a year of significant volume pressure.

Speaker Change: Our teams delivered on price cost and operational productivity significantly muting the impact of this unprecedented volume declines.

Speaker Change: On a GAAP basis.

Speaker Change: Q4 effective tax rate of 22, 7%.

Speaker Change: Versus last year's fourth quarter effective tax rate of 25% increase.

Speaker Change: <unk> increased primarily due to the absence of one time foreign currency benefits realized in 2022.

Speaker Change: In connection with the funding of the acquisition of new one as well as the impact of the loss recorded.

Speaker Change: On the sale of <unk> during 2023.

Speaker Change: For which no related tax benefit was realized due to the type of consolidated group enriched participated.

Our full year GAAP effective tax rate was 21, 7% was flat with the prior year. However, both 2023 and 2022 included favorable discrete events.

Speaker Change: Fourth quarter net income was 109 million generating EPS of $1 43.

Speaker Change: Adjusted net income was 139 million with adjusted EPS of $1 83 down 18.

Speaker Change: From the prior year fourth quarter.

Speaker Change: Full year net income was $596 million.

Speaker Change: And EPS of $7 85.

Speaker Change: Adjusted net income was $624 million.

Speaker Change: <unk> adjusted EPS of $8 22 up 10, 1% from last year.

Speaker Change: Finally free cash flow for the quarter was $179 million up 22% over the prior year period.

Speaker Change: We achieved a conversion rate of 129% of adjusted net income mainly.

Speaker Change: Mainly driven by improved working capital performance, despite lower adjusted net income.

Speaker Change: On an organic basis.

Speaker Change: We drove more than $40 million of inventory reduction in the quarter to our targeted reduction efforts and we saw inventory turns improve.

Speaker Change: For the year.

Speaker Change: Delivered record free cash flow of $627 million up 28% versus last year.

Speaker Change: And coming in at 101%.

Speaker Change: <unk> net income.

Speaker Change: Mainly driven by lower networking capital.

Speaker Change: <unk> organic inventory levels, but almost $65 million.

Speaker Change: And achieved higher adjusted net income.

Speaker Change: We achieved this despite higher year over year capital expenditure as.

Speaker Change: As we maintain focus on investing for the future.

Speaker Change: We will continue to drive inventory levels down and optimize working capital levels further in 2024.

Speaker Change: Moving on to slide nine which details the driver of our fourth quarter adjusted EBITDA.

Speaker Change: Adjusted EBITDA decreased by $15 million compared to the fourth quarter of 2022.

Speaker Change: Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by $36 million.

Speaker Change: Flowing through at our prior year adjusted gross margin rate.

Speaker Change: Price cost was accretive to margins and we drove operational productivity that offset employee related inflation.

Speaker Change: Mix was unfavorable by 3 million reductions.

Speaker Change: The reductions in variable compensation contributed $3 million of benefit in the quarter.

Speaker Change: These results yielded a negative 39% organic flow group overall, our team's focus on cost containment and resource reallocation has effectively managed our revenue declines.

Speaker Change: <unk> is well positioned to recover and grow back stronger than before when market dynamics turn favorable.

Speaker Change: The impact of FX and acquisitions net of divestitures contributed $5 million of adjusted EBITDA in the quarter. However, the divestiture of micro pump lowered flow through as the margins were higher than those of our newly acquired assets who are experiencing volume deleveraging given the end markets the plan with that.

Speaker Change: I will provide a deeper look at our segment performance.

Speaker Change: I'm on slide 10.

Speaker Change: Let me walk you through our outlook as it relates to our end markets.

Speaker Change: As I consider the market served by our fluid <unk> metering technology segment.

Speaker Change: Industrial <unk> began to see some sequential improvement in the fourth quarter.

Speaker Change: And we expect continued stability in the near term.

Speaker Change: As our short cycle businesses meet underlying customer demand.

Speaker Change: We continue to see normalized book and Bill order patterns, given shorter lead times.

Speaker Change: And normalized supply chain dynamics.

Speaker Change: As we move into 2024, we are cautiously optimistic as we continue.