Q1 2024 IDEX Corporation Earnings Call
Operator: Greetings and welcome to the IDEX Corporation First Quarter 2024 Earnings Conference Call. At this time, all parties and events are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Greetings and welcome to the IDEXX Corporation first quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce Wendy Palacios, Vice President, FP&A, and Investor Relations. Thank you. You may begin.
As a reminder, this conference is being recorded.
Speaker Change: It is now my pleasure to introduce when do you pull off yes.
Speaker Change: This president S. P N E and Investor Relations. Thank you you may begin.
Allison Ann Marie Poliniak: Good morning, everyone. This is Wendy Palacios, Vice President of FP&A Investor Relations for IDEX Corporation. Thank you for joining us for our discussion of the IDEX First Quarter 2024 Financial Highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months ending March 31st, 2024. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company website at www.idexcorp.com.
Speaker Change: Good morning, everyone. This is Wendy Palacios, Vice President of <unk> Investor Relations for IDEXX Corporation.
Wendy Palacios: Thank you for joining us for our discussion of the IDEXX first quarter of 2024 financial highlights.
Wendy Palacios: Last night, we issued a press release outlining our company's financial and operating performance for the three months ending March 31st of 2024.
Wendy Palacios: The press release, along with the presentation slides to be used during today's webcast can be accessed on our company website at Www Dot IDEXX Corp dotcom.
Allison Ann Marie Poliniak: Joining me today are Eric Ashleman, our Chief Executive Officer and President, and Abhi Khandelwal, our Senior Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call to 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 877-333-4000 or 660-6853 and entering conference ID number 137-42103, or simply log on to our company homepage for the webcast replay.
Wendy Palacios: Joining me today are Eric Eshelman, our Chief Executive Officer, and President and Avi can do all our senior Vice President and Chief Financial Officer.
Speaker Change: Following our prepared remarks, we will open the call up for your questions.
Speaker Change: 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.
6606853, and entering conference I'd number 137.
Speaker Change: 2103.
Speaker Change: Or simply log onto our company homepage for the webcast replay.
Allison Ann Marie Poliniak: 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 an IDEX filing with the Securities and Exchange Commission. With that, I'll turn this call over to our CEO and President, Eric Ashleman.
Speaker Change: 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 filing with the Securities and Exchange Commission.
Speaker Change: With that I'll turn this call over to our CEO and President Eric Ashland.
Eric D. Ashleman: Thanks, Wendy, and good morning, everyone. I'm on slide three. In Q1, our core execution capabilities delivered strong results, particularly within our fluid and metering technologies and fire and safety diversified products business. We experienced an encouraging lift in sequential orders from our core industrial and municipal markets after a period of elongated destocking, and we were able to quickly capitalize on this bounce and deliver for our customers. Our lead times and overall responsiveness are at outstanding levels as we have stripped out excess inventory and improved overall productivity.
Eric D. Ashleman: Thanks, Wendy and good morning, everyone I'm on slide three in Q1, our core execution capabilities delivered strong results, particularly within our fluid <unk> metering technologies and fire and safety diversified products businesses, we experienced an encouraging lift in sequential orders from our core industrial and municipal markets. After a period of elongated deep.
Eric D. Ashleman: Stocking and we were able to quickly capitalize on this bounce and deliver deliver for our customers.
Wendy Palacios: Our lead times and overall responsiveness are out at outstanding levels, as we stripped out excess inventory and improved overall productivity are closest to consumption businesses within FMT pulled back a bit in March after a strong January and February launch, but things stabilized again in early April suggesting our initial take on overall modest support for <unk>.
Eric D. Ashleman: Our closest to consumption businesses within FMT pulled back a bit in March after a strong January and February launch, but things stabilized again in early April, suggesting our initial take on overall modest support for 2024 remains the correct call.
Wendy Palacios: 24 remains the correct call.
Eric D. Ashleman: The health and science technology segment performed to expectations, but there are puts and takes there as we consider individual recovery rates within our markets and application set. Our tactical priorities favor those growth initiatives that best leverage our most differentiated technologies in line with markets showing higher probabilities of near-term inflection. Largely through inorganic efforts, we've expanded our technical capabilities within HST to support the highest quality semiconductor technologies to power the AI revolution. We have increased content within the transformative world of low-orbit space broadband.
Wendy Palacios: The health and Science technology segment performed to expectations, but there are puts and takes there as we consider individual recovery rates within our markets and application sets.
Wendy Palacios: Our tactical priorities favor those growth initiatives that best leverage our most differentiated technologies in line with markets showing higher probabilities of near term inflection.
Wendy Palacios: Largely through inorganic efforts, we've expanded our technical capabilities with an H S team to support the highest quality semiconductor technologies to power. The AI Revolution, we have increased content within the transformative world of low orbit space broadband we are increasingly called upon to help companies develop and deploy advanced technologies for national differ.
Eric D. Ashleman: We are increasingly called upon to help companies develop and deploy advanced technologies for national defense, and we have ambitions to continue to add to these capabilities as we further leverage our balance sheet through M&A. We continue to watch for signs of recovery in life sciences and analytical instrumentation and are ready to capitalize on growth at the first signs of improving customer demand. Our businesses serving these spaces are exceptionally well-positioned with highly credible expertise. We have confidence in our ability to outperform again once this market correction runs its course. Overall, it's clear that economic and geopolitical uncertainty persist as a backdrop for all companies.
Wendy Palacios: And we have ambitions to continue to add to these capabilities as we further leverage our balance sheet through M&A.
Wendy Palacios: We continue to watch for signs of recovery in life Sciences, and analytical instrumentation and are ready to capitalize on growth at the first signs of improving customer demand our businesses, serving these spaces are exceptionally well positioned with highly credible expertise.
Wendy Palacios: We have confidence in our ability to outperform again once this market correction runs its course.
Wendy Palacios: Overall, it's clear that economic and geopolitical uncertainty persist as a backdrop for all companies, we've leaned into that with the conviction that the three core tenants of the IDEXX difference and expression of our most basic differentiated mindset help us play offense.
Eric D. Ashleman: We've leaned into that with a conviction that the three core tenets of the IDEX difference, an expression of our most basic differentiated mindset, help us play off-the-wall. Our great teams and talent work together in superior businesses with a special culture. We practice 80-20 to align around the few things that really matter.
Wendy Palacios: Great teams and talent work together and superior businesses with a special culture. We practice 80 20 to align around the few things that really matter and we leveraged natural proximity to the customer to solve their toughest problems quickly to support our outstanding economics, we ultimately create compounding value for shareholders by driving organic growth outperformed.
Eric D. Ashleman: And we leverage natural proximity to the customer to solve their toughest problems quickly to support our outstanding economy. We ultimately create compounding value for shareholders by driving organic growth outperformance through our top growth bets. We amplify these bets through the acquisition of complementary, faster-growing companies, and we expand margins and generate strong free cash along the way as our leaders apply the five core tools of the IDEX operating model. I'd like to thank our IDEX teams around the globe for their dedication to these principles and for delivering strong performance in Q1. With that, I'll turn it over to Abhi to discuss our financial results.
Wendy Palacios: Through our top growth bets, we amplify these bets through acquisition of complementary faster growing companies, when we expand margins and generate strong free cash along the way as our leaders apply the five core tools of the IDEXX operating model.
Wendy Palacios: I'd like to thank our IDEXX teams around the globe for their dedication to these principles and for delivering strong performance in Q1.
Speaker Change: With that I'll turn it over to <unk> to discuss our financial results.
Abhishek Khandelwal: Before jumping into the consolidated results on slide, I want to highlight our team's consistent ability to execute, as seen in the results, delivering strong profitability and free cash flow in the first quarter, despite challenging year-over-year comparables. Moving on to the consolidated financials, all comparisons are against the prior year period and listed otherwise.
Thanks, Eric.
Before jumping into the consolidated results on slide four.
Speaker Change: I want to highlight our team's consistent ability.
Speaker Change: Execute as you've seen in the results.
Speaker Change: Delivering strong profitability and free cash flow in the first quarter, despite challenging year over year comparable.
Speaker Change: Moving on to the consolidated financial results call.
Speaker Change: All comparisons are against the prior year period.
Speaker Change: Unless stated otherwise.
Abhishek Khandelwal: Orders of $820 million in the first quarter were down both 1% overall and organically experienced an organic decrease in FMT and HST while FSDP grew low double digits driven by Strength in Dispensing and Emerging Markets.
Speaker Change: Quarters of $820 million in the first quarter were down 1% overall and organically.
We experienced an organic decrease in FMT and HST well.
Speaker Change: <unk> grew low double digits.
Speaker Change: Driven by strength in dispensing and emerging markets.
Abhishek Khandelwal: Forced quota sales of 8 of 1 million, we're down 5% overall and down 6% organically. We experienced a 13% organic decrease in HST and a 3% organic decrease in FMT, while FSDP grew by 2% organically. First quarter gross margin was 44.6%, declining 60 basis points, while adjusted gross margin was 45%, contracting 20 basis points due to lower volume leverage, partially offset by price cost and operational product. First quarter adjusted EBITDA margin was 26%, down 120 basis points.
Speaker Change: First quarter sales of eight a $1 million were down 5% overall and down 6% organically.
Speaker Change: Experienced a 13% organic decrease in HST and a 3% organic decrease in FMT.
Speaker Change: <unk> grew by 2% organically.
Speaker Change: First quarter gross margin was 44, 6% declining 60 basis points, while adjusted gross margin was 45% contracting 20 basis points due to lower volume leverage partially offset by price cost and operational productivity.
Speaker Change: First quarter adjusted EBITDA margin was 26% down 120 basis points.
Abhishek Khandelwal: This is a sequential improvement versus the fourth quarter of 20 basis points as we remain focused on margin expansion. I will discuss the drivers of first quarter adjusted EBITDA on the next slide. On a gap basis, our Q1 effective tax rate of 21.5% versus last year's 4 score effective tax rate of 22.2% decreased primarily due to a favorable discrete item. Our score on net income was $121 million, generating EPS of $1.6 billion. Adjusted net income was $143 million, with adjusted EPS of $1.88, down 21 cents from the prior year first quarter. Free cash flow for the quarter was $137 million, up 13% over the prior year period.
Speaker Change: This is a sequential improvement versus fourth quarter of 20 basis points as we remain focused on margin expansion.
Speaker Change: I will discuss the drivers of first quarter adjusted EBITDA on the next slide.
Speaker Change: On a GAAP basis, our Q1 effective tax rate of 21, 5% versus last year's first quarter effective tax rate of 22.2% decreased primarily due to a favorable discrete item.
Speaker Change: First quarter net income was $121 million.
Speaker Change: <unk> EPS of $1 60.
Speaker Change: Adjusted net income was 143 million with adjusted EPS of $1, an idiot down.
Speaker Change: <unk> 21 from the prior year first quarter.
Speaker Change: Finally <unk>.
Free cash flow for the quarter was $137 million.
Speaker Change: Up 13% over the prior year period.
Abhishek Khandelwal: We achieved a conversion rate of 95% of adjusted net income, mainly driven by lower variable compensation payments, on an organic basis. We drove more than $78 million of inventory reduction over the last 12 months, and we saw inventory turns improve by 0.4 turns year over year. Slide 5, Moving on to slide five, which details the driver of our first quarter of just a wee bit. For the first quarter.
Speaker Change: We achieved a conversion rate of 95% adjusted net income.
Speaker Change: Mainly driven by lower variable compensation payments and capital expenditures, despite lower adjusted net income.
Speaker Change: On an organic basis.
Speaker Change: Drove more than $78 million of inventory reduction over the last 12 months.
Speaker Change: And we saw inventory turns improve 0.4 turns year over year.
Speaker Change: Slide five.
Speaker Change: Moving on to slide five which details the driver of our first quarter adjusted EBITDA.
Speaker Change: For the first quarter.
Abhishek Khandelwal: Adjusted EBITDA decreased by $22 million compared to the first quarter of 2023. Our 6% Organic Sales Reduction unfavorably impacted adjusted EBITDA by $29 million, flowing through at a prior year adjusted gross margin rate. Price cost was accrued to March, and we drove operational productivity that offset employee-related inflation. These results yielded a negative 50% organic flow. The impact of FX in acquisitions, net of divestitures, contributed $3 million of adjusted EBITDA in the quarter, resulting in a negative 48% flow through. With that said...
Speaker Change: <unk> EBITDA decreased by $22 million.
Speaker Change: Back to the first quarter of 2023.
Speaker Change: Our 6% organic sales reduction unfair.
Speaker Change: Unfavorably impacted adjusted EBITDA by $29 million.
Speaker Change: Going through at our prior year adjusted gross margin rate.
Speaker Change: Price cost was accretive to margins and we drove operational productivity.
Speaker Change: Employee related inflation.
Speaker Change: These results yielded in a negative 50% organic look.
Speaker Change: The impact of FX and acquisitions net of divestitures contributed $3 million of adjusted EBITDA in the quarter, resulting in a negative 48% flow through.
Speaker Change: With that.
Abhishek Khandelwal: I'll provide a deeper look at our segment. I'm on slide 6, within our FMT sector. In a war of businesses, municipal project activity remains strong.
Speaker Change: I will provide a deeper look at our segment performance.
Speaker Change: I'm on slide six within our FMT segment.
Speaker Change: And our water businesses.
Speaker Change: <unk> project activity remains strong.
Abhishek Khandelwal: Note that Waters' sales performance in the first quarter of the prior year was favorably impacted by both hurricane-related backlog execution and the catch-up of a one-month lag treatment of the next set acquisition, effectively recording four months of MEC site sales in the first quarter of 2020. Our energy businesses remain stable with favorable infrastructure tailwinds offset by a mild winter. Our agricultural businesses continue to be cyclically down, in line with expectations. Finally, Q1 adjusted EBITDA margins expanded 60 basis points driven by price, cost, and operational productivity, despite slightly lower water. Moving on to page 7.
Speaker Change: Note the water sales performance in first quarter of the prior year was favorably impacted by both hurricane related backlog execution.
Speaker Change: And the catch up of a one month lag treatment of the <unk> acquisition.
Speaker Change: Effectively recording four months of <unk> sales in the first quarter of 2023.
Speaker Change: Our energy business has remained stable with favorable infrastructure tailwind offset by a mild winter.
Speaker Change: Our agriculture businesses continued to be cyclically down.
Speaker Change: In line with expectations.
Speaker Change: Finally, Q1 adjusted EBITDA margins.
Speaker Change: And a 60 basis points, driven by price cost and operational productivity.
Slightly lower volumes.
Speaker Change: Moving onto page seven.
Abhishek Khandelwal: Despite challenging year-over-year comparables, the Health and Science Technologies segment, Perform to Expectations, and nearly all of our HST business saw sequential order improvement as compared to the fourth quarter. Our teams continue focusing on our most strategic customers' next-gen solutions in life sciences and analytical instrumentation, while we watch for signs of recovery. Our space, broadband, and laser communication initiatives continue on track despite current quarter customer delays.
Speaker Change: Despite challenging year over year comparable.
Speaker Change: Health and science technology segment performed to expectations and nearly all of our <unk> business saw a sequential orders improvement as compared to the fourth quarter.
Speaker Change: <unk> continue focusing on our most strategic customers next Gen solutions and life Sciences and analytical instrumentation.
Speaker Change: While we watch for signs of recovery.
Speaker Change: Space broadband and video communication initiatives continue on track despite current quarter customer delays.
Abhishek Khandelwal: Our material processing technology business saw strength in food and sports nutrition, which offset conservative customer capital investments within biopharma and pharma. For semiconductor, we saw orders improvement both year over year and compared to the fourth quarter. And we expect these trends to continue in line with an improved outlook for memory change, in line with the FMT industrial businesses. That's just the industrials study.
Speaker Change: Our material processing technology business saw strength in food and sports nutrition.
Speaker Change: Offset conservative customer capital investments within Biopharma and pharma.
Speaker Change: Our semiconductor we saw orders improvement.
Speaker Change: Both year over year and compared to the fourth quarter.
Speaker Change: And we expect these trends to continue in line with an improved outlook for memory chips.
Speaker Change: In line with the FMT industrial businesses.
Speaker Change: That's just the industrials are steady.
Abhishek Khandelwal: Lastly, adjusted EBITDA margins improved 40 basis points over the fourth quarter of last year. A year-over-year decline of 250 basis points was driven by volume leverage, partially offset by price cost and operational productivity. Now turning to slide 8, our fire and safety diversified product segment performance was driven by dispensing project wins in emerging markets, which helped offset the impact of key U.S. customers' multi-year refreshments. We continue to see stability in fire and safety.
Speaker Change: Lastly, adjusted EBITA margins improved 40 basis points over the fourth quarter of last year.
Speaker Change: The year over year decline of 250 basis points was driven by volume leverage partially offset by price cost and operational productivity.
Speaker Change: Now turning to slide eight our fire and safety diversified products segment performance was driven by dispensing project wins in emerging markets.
Speaker Change: Which helped offset the impact of key U S customers multiyear refreshment cycle.
Speaker Change: We continue to see stability in fire and safety.
Abhishek Khandelwal: In the quarter, our focus on strategic share gain initiatives helped partially offset unfavorable budget reallocations in the industry. On the bright side, automotive demand is strong, with growth expected in the year. Additionally, industrial performance was similar to FMT and HST with sequential improvement versus. Finally, adjusted EBITDA margins expanded 40 basis points driven by price. With that, I'd like to provide an update on our outlook for the second. I'm on slide now. In Q2, we're projecting GAAP EPS to range from $1.75 to $1.80 and adjusted EPS to range from $2 to $2.05, with organic revenue declines of approximately 2 to 3% and adjusted EBITDA margins of approximately 27.5%.
Speaker Change: In the quarter, our focus on strategic share gain initiatives helped partially offset unfavorable budget reallocations in the industry.
Speaker Change: Bended automotive demand is strong with.
Speaker Change: With growth expected in the year.
Speaker Change: Additionally, industrial performance was similar to FMT and HST with sequential improvement versus Q4.
Speaker Change: Finally, adjusted EBITDA margins expanded 40 basis points driven by price cost.
Speaker Change: With that I'd like to provide an update on our outlook for the second quarter.
Speaker Change: I'm on slide nine.
Speaker Change: In Q2, we're projecting GAAP EPS to range from $1 75 to $1 80.
Speaker Change: And adjusted EPS to range from $2 to $2 five.
Speaker Change: With organic revenue decline of approximately 2% to 3% and.
Speaker Change: And adjusted EBITDA margin of approximately 27, 5%.
Abhishek Khandelwal: Turning to the full year 2024, we're maintaining our previously issued full year outlook of organic revenue growth of zero to 2%, an adjusted EBITDA margin of approximately 28%, and an adjusted EPS of $8.15 to $8.45, with the majority of Markets performing in line with the initial guidance and our focused efforts on driving growth bets. With that, I'll turn it over to Eric for his closing remarks.
Turning to the full year 2024, we are maintaining our previously issued full year outlook of organic revenue growth of zero to 2%.
Speaker Change: And adjusted EBITDA margin of approximately 28% and.
Speaker Change: And adjusted EPS of $8 15 to $8 45.
With the majority of markets performing in line with our initial guidance and a focused effort on driving growth with that I.
Speaker Change: I'll turn it over to Eric for his closing remarks.
Eric D. Ashleman: Thanks, Abhi. I'm on slide 10.
Eric: Thanks, <unk> I'm on slide 10, I'd like to close by coming back to the simple value equation I talked about in my opening remarks. It all starts with organic growth outperformance typically targeting 300 basis points above market entitlements, we drive about 20% to 25 bets across the company at any one time to achieve these results.
Eric D. Ashleman: I'd like to close by coming back to the simple value equation I talked about in my opening remarks. It all starts with organic growth outperformance, typically targeting 300 basis points above market entitlements. We drive about 20 to 25 bets across the company at any one time to achieve these results. I highlighted earlier some examples of growth initiatives through applied technologies within HST. Within FMT, we're also working on integrating the recently acquired assets within our Intelligent Water Group alongside our legacy technologies to support critical analytical work in municipal and industrial wastewater containment and processing.
Eric: Highlighting earlier some examples of growth initiatives through applied technologies within HST within FMT. We're also working on integrating the recently acquired assets within our intelligent water group alongside our legacy technologies to support critical analytical work within municipal and industrial wastewater containment and processing.
Eric D. Ashleman: Also within FMT, we're deploying digital tools across multiple brands that go to market through distribution to enhance our customer experience and promote share gain. I'll go deeper in the quarters ahead with additional specific examples to help bring this work to life.
Eric: Also within FMT, we're deploying digital tools across multiple brands that go to market through distribution to enhance our customer experience and promote share gain.
Eric: Ill go deeper in the quarters ahead with additional specific examples to help bring this work to life. We amplify these bets with complimentary inorganic work via M&A to add another 200 to 300 basis points of growth.
Eric D. Ashleman: We amplify these bets with complementary inorganic work via M&A to add another 200 to 300 basis points of growth. We see an outstanding opportunity to support faster-growing transformational markets through the disciplined build of relative and absolute scale within very high-quality net share. For the last three years, we've been working on this play in the intelligent water space, within thin film optics, and within the niche of small form factor materials intensive processes.
Eric: We see an outstanding opportunity to support faster growing transformational markets through the disciplined build of relative and absolute scale within very high quality niches over the last three years, we've been working this play in the intelligent water space within thin film optics and within the niche of small form factor materials intensive processing fee.
Eric D. Ashleman: Finally, we expand margins and seek to drive double-digit earnings growth along the way as our teams deploy the five basic IDEX operating model tools. 80-20 is our heart. Our decentralized environment and collaborative culture support speed and agility, and our inclination to resist top-heavy infrastructure supports financial leverage as we grow. In closing, the world is transforming and evolving in exciting but unpredictable ways. We're building a company to thrive and win in that environment where power meets speed and agility at the intersection of technology and culture. I look forward to communicating our progress with you along the way. With that, I'll turn it over to the operator for your questions.
Eric: Finally, we expand margins and seek to drive double digit earnings growth along the way as our team has deployed a five basic IDEXX operating model tools with 80, 20, as our heartbeat or decentralized environment and collaborative culture support speed and agility and our inclination to resist top heavy infrastructure supports financial leverage as we grow and closing.
Eric: The world is transforming and evolving in exciting, but unpredictable ways. We're building a company to thrive and win in that environment, where power meet speed and agility at the intersection of technology and culture I look forward to communicating our progress with you along the way with that I'll turn it over to the operator for your questions.
Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may 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 would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Our first question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.
Speaker Change: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.
Michael Patrick Halloran: Thanks. Good morning, everyone. Good morning, Mike. Good morning, Mike. So, just a simple question, Eric, you know, maybe just talk about in your mind if anything's really changed in the market since you gave the last guidance or from an expectation perspective. Obviously, dispensing a little better in the first quarter doesn't seem like your expectations for the remainder of the year are all that different, but when you go through some of the key end markets, has much really changed from an outlook perspective, and how are you thinking about the sequentials through the year versus normal seasonality?
Michael Patrick Halloran: Alright, Thanks, good morning, everyone. Good morning, Mike.
Michael Patrick Halloran: So just a simple question Eric.
Michael Patrick Halloran: Maybe just talk about in your mind, if anything has really changed in the market. Since you gave the last guidance from an expectation perspective, obviously dispensing a little better in the first quarter. It doesn't seem like your expectations for the remainder of the year all that different but when you go through some of the key end markets as much really changed from an outlook perspective and how.
Michael Patrick Halloran: Are you thinking about.
The sequentially through the year versus normal seasonality.
Eric D. Ashleman: Now, thanks for the question. I mean, not a lot that's different. I mean, I provided some color around the cadence of, you know, those kind of smaller flow F&T order businesses that we have that are such good diagnostics. I think it just shows that at the end of the day, the call remains the same, but it was interesting to watch the sensitivity kind of ebb and flow in a way that's a little unusual, you know, hot January and February, a little bit of pullback in March, kind of coming back to equilibrium in April.
Michael Patrick Halloran: Ignoring some of the <unk>.
Michael Patrick Halloran: Yes.
Michael Patrick Halloran: The positive things that you are driving some of your investments.
Speaker Change: No. Thanks for the thanks for the question I mean, not a lot that's different I mean, I provided some color around the cadence of those.
Speaker Change: Kind of smaller flow FMT order businesses that we have that are such good diagnostics I think just to show that at the end of the day. The call remains the same but it was interesting to watch the sensitivity kind of ebb and flow in a way. It's a little unusual thought January and February a little bit of pullback in March kind of coming back to equilibrium in April.
Eric D. Ashleman: So I think that's interesting, mainly because I think it's reflective of the, frankly, the level of sensitivity that is out there as people track inflation, interest rates, and elections. But I think we still land at the same place. You know, when we look at the markets in HST, of course, about half of it is pretty industrial, too. So it kind of follows that same rhythm and cadence.
Speaker Change: So I think thats interesting, mainly because I think it's reflective of the frankly the level of sensitivity that is out there as people track inflation interest rates election.
Speaker Change: But I think we'd still land at the same place.
Speaker Change: When we look at.
Speaker Change: Particularly in the markets in HST, a correspond half of it is pretty industrial too. So it kind of follows that same the same rhythm and cadence.
Eric D. Ashleman: You know, I think what we see is shoots of growth kind of around the periphery of the larger pieces of HST. For example, our MPT business has some great things going on in terms of food production or battery material handling, but not necessarily in the core pharma. That's still to come. You know, we saw a little lift in ceiling around some kind of coming off the bottom in consignment orders, largely in that kind of memory chip world, but we still await, you know, a broader lift on the highest quality semi-con offerings that we have in the company.
Speaker Change: I think what we see is shoots of growth kind of around the periphery of the larger pieces of HST.
Speaker Change: So our MPT business got some great things going on in terms of food production or battery material handling.
Speaker Change: But not necessarily in the core pharma that's still to come.
Speaker Change: Saw a little lift in sealing around some kind of coming off the bottom.
Speaker Change: Consignment orders largely in that kind of memory chip world, but we still await the broader lift on the highest quality semi con offerings that we have in the company. So when you step back I think kind of brought it but modest support on much of the industrial landscape of IDEXX and then I think a lot of attention.
Eric D. Ashleman: So when you step back, I think kind of broad but modest support on much of the industrial, you know, landscape of IDEX, and then I think a lot of attention for us back on those kind of two core higher growth potential markets within HST, of life science and analytical instrumentation, and the semi-con markets, and, you know, kind of great 25 sitting there, and it's just a question of how much in the back half do you start to see some velocity towards it, and that's pretty close to where we were, I think, three months ago.
Speaker Change: And for US back on those kind of two core higher growth potential markets within HST.
Speaker Change: Life Science, <unk> analytical instrumentation, and the semi con markets and.
Speaker Change: Kind of Great 25, sitting there and it's just a question of how much in the back half do you start to see some velocity towards it and that's pretty close to where we were I think three months ago.
Abhishek Khandelwal: Yeah, no, makes sense. And then an HST margin question: obviously, you're running well below peak right now. When you get mixed normalized, and those end markets come back, whether it's 25 or later this year, as you just mentioned, how do you think about margin normalization? Is that 25 to 27% kind of range you're at towards peak? Is that still the benchmark for where you think things will be when you get a little more normalization? And maybe just put a little context around that? Because there have been some moving pieces to that segment. Yeah, Mike, this is Abhishek. I think if you go back...
Speaker Change: Yeah, no it makes sense and then.
And HST margin question, obviously, you're running well below peak right now.
Speaker Change: When you get mix normalize in those end markets come back whether it's 25 or later part of this year as you just mentioned.
How do you think about margin normalization is that 25% to 27% kind of range. You are at towards peak is that still the bogey for where you think things will be when we get a little more normalization and maybe just put a little context around that because there have been some moving pieces to that segment.
Base: Yes, Mike. This is a base I think if you go back 90 days and think about the discussion we had at the end of Q4.
Abhishek Khandelwal: Yeah, Mike, this is Abhis. I think if you go back 90 days and think about the discussion we had at the end of Q4, I think, look, what we've said is as the volumes come back in HST, more specifically in life sciences and the semi-companies that Eric just talked about, this business levers really well. And what we have said is that we expect margins to be closer to 30% in HST once our volumes are back.
Speaker Change: I think look what we've said is as the volumes come back and that's just the.
Speaker Change: More specifically in life science into semi companies.
Speaker Change: Talked about this business business levers really well and what we've said is we expect margins to be closer to 30% and I just see once the volumes are back.
Speaker Change: Yes.
Operator: Yeah, sorry. I just assumed the operators cut me off. So 30% EBITDA margins when everything comes back, okay? Because the 2020 25 to 27, just for clarity, was just me just looking at. Thank you.
Hey, Mike.
Mike: Yes, sorry.
Speaker Change: I just assume the operators and cut me off so 30% EBITDA.
Speaker Change: EBITDA margins when everything comes back because the 2025 to 27 just for clarity was maybe just looking.
Previous margin ranges. So okay that makes sense. It makes sense really appreciate everyone.
Deane Michael Dray: Our next question comes from the line of Deane Dray with RBC Capital Markets. Please proceed with your question. Thank you.
Our next question comes from the line of Deane Dray with RBC capital markets. Please proceed with your question.
Eric D. Ashleman: Thank you, good morning everyone, and a special welcome to Wendy and congratulations on the new role. Hey, Eric, I think you've given some of the color here, but just regarding your read on how the year is beginning to play out, can you also touch on day rates? And it sounded like Bandit started off well, so that's always a good sign. And anything else about the Bellwethers, Warren Rupp, and some of the others?
Deane Michael Dray: Thank you good morning, everyone and a special welcome to Wendy and congrats on the new role.
Deane Michael Dray: Thank you Dean.
Deane Michael Dray: Hey, Eric I think you've given some of the color here, but just.
Deane Michael Dray: Regarding your your read on the how the year is beginning to play out can you can you also touch on day rates.
Deane Michael Dray: And it sounded like band it started off well so thats always a good sign and anything else about the bellwethers Warren Rupp.
Deane Michael Dray: Some of the others.
Eric D. Ashleman: Yeah, and that cadence that I articulated in the opening and Mike's question was really right there. It was on those bellwether businesses that we aggregate, take a look at weekly, and then, you know, kind of use as an ultimate barometer of industrial health for IDEX. And, you know, I think, again, we saw those launching really strong in January, and continued into February. It was interesting.
Deane Michael Dray: And that cadence that I articulated in the opening in Mikes question was really right. There was on those bellwether businesses that we aggregate take a look at weekly and then kind of use as an ultimate barometer of industrial health for IDEXX.
Deane Michael Dray: <unk>.
Deane Michael Dray: I think again, we saw those launching.
Deane Michael Dray: Really strong in January continued into February with interesting a little bit of a pullback in March and we had Easter earlier than ever before so it's probably some of it.
Eric D. Ashleman: A little bit of a pullback in March, and we had Easter earlier than ever before, so probably some of that. But, you know, to kind of see that swing and see it so broadly, too, it certainly caught our attention, and yet then it sort of stabilized again in April. So it's moving a little faster in both directions than it typically has, and yet the arrow still remains kind of at the exact same slope that we thought.
Deane Michael Dray: But to kind of see that swing and see it as broadly to certainly caught our attention and yet then it sort of stabilized again in April so it's moving a little faster.
Deane Michael Dray: Both directions than it typically has and yet the arrow still remains kind of at the exact same slope that we thought I just wanted to pointed out because again I think it's reflective of some of the dialogue and conversations we're having and this is higher up the food chain around projects confidence, where we are it does seem more sensitive than I've seen in a long time to.
Eric D. Ashleman: I just wanted to point it out because, again, I think it's reflective of some of the dialogue and conversations we're having, and this is higher up the food chain, around projects, confidence, you know, where we are. It does seem more sensitive than I've seen it in a long time to kind of whatever's on the news and what's out there, which isn't really surprising given kind of what this year is and where we are. So, largely an unchanged position, but I thought the color might be helpful.
Deane Michael Dray: Kind of whatever is on the news and what what's out there, which isn't really surprising given kind of what this year is and where we are.
Deane Michael Dray: So largely unchanged position, but I thought the color might be helpful.
Eric D. Ashleman: And just to build on that, I think the other thing it points to, that we've had a lot of conversations about, is normalization of the supply chain, so it's a lot faster when it turns on, a lot faster when it turns on because people know that the lead times are back to normal levels, and they can adjust their demand as they see the markets move up and down.
Just to build on it I think the other thing it points to that we've had a lot of conversations around is this normalization of the supply chain. So it's a lot faster when it turns on a lot faster when it turns on because people know that the lead times are back to normal levels that they can adjust their demand as to see the markets move up and down.
Deane Michael Dray: That's really helpful, and I'm glad you mentioned that normalization of the supply chain because that's been a focus and just a separate question in the life sciences analytical instruments market. We've been watching this and just kind of waiting where and how the destocking might run its course, and it just really hasn't turned the corner yet. I did see one of the life science guys report a strong quarter, but that was more on the bioprocessing side, less on the instrument side.
That's real helpful and I'm glad you mentioned about that normalization of supply chain because.
Deane Michael Dray: That's been a focus and just separate question on the life Sciences analytical instruments market, we've been watching this.
Deane Michael Dray: And just kind of waiting where and how that the destocking might run its course and it just really hasnt turned the corner yet.
I did see one of the life Science guys report, a strong quarter, but that was more on the bile.
Deane Michael Dray: Processing side.
On the instrument side, but what's the typical lag between what you see from the Oes in terms of their sales of instruments versus.
Deane Michael Dray: But what's the typical lag between what you see from the OEs in terms of their sales of instruments versus your supply of these components? I guess some of it has to do with what their inventory levels are and whether they're running off their current stock and then whether they're pulling on you for their orders. But just the typical lag and any color there would be helpful.
Deane Michael Dray: Your all your supply of these components I mean, I guess some of it has to do what their inventory levels are and whether they're running off their current stock and then whether they're pulling from to you for their orders, but just the typical lag any color there would be helpful. Yes.
Eric D. Ashleman: Yeah, well, so I think there's a couple points to hit here. I'll start with the first, where you ended.
Speaker Change: So I think Theres a couple of points to hit there I'll start with the first where you ended I mean, yes.
Eric D. Ashleman: I mean, the lag isn't extended for us because most of our replenishment cycles and lead time fulfillment abilities and capabilities of components going to companies like that are really fast. I mean, it's one of the reasons that, you know, when this sort of destocking cycle started, we were one of the first to come and recognize it back in Q4 of 22. And so I think, you know, any sign of life, we're going to see that first, and we're going to see it probably pretty close to the time that they're talking about selling the instruments, just because of the natural way that forecasts would roll in and come back into our factories.
Speaker Change: The lag is.
Speaker Change: It's not extended for us because most of our replenish cycles and lead times fulfillment abilities and capabilities of components going to companies like that is really fast I mean, it's one of the reasons that you know.
Speaker Change: And this sort of Destocking cycle started we were one of the first to come and recognize it back in Q4 of 'twenty two.
Speaker Change: And so I think any sign of life, we're going to see that first and it's and we're going to see it probably pretty close to the time that they are talking about selling the instruments, just because of the natural way that forecast would roll in and come back into our factories.
Speaker Change: We typically.
Eric D. Ashleman: We, you know, typically, and this is for most cases, I mean, we're not requiring months and quarters of heads up on that just because, you know, we're set up to quickly turn most of the components. I think maybe the only exception would be, look, if there's a, you know, a material shift in the overall demand profile, then we've got to think about making sure that we get those same broader signals out to our suppliers, and they do that with us.
Speaker Change: This is for most cases, I mean, we're not requiring months and quarters of heads up on that Jeff.
Speaker Change: Just because.
Speaker Change: We're setup to quick turn most of the components I think maybe the only exception would be look at theirs.
Speaker Change: A material shift.
Speaker Change: The overall demand profile then we've got to think about making sure that we get those same broader signals out to our suppliers and they do that with US do you have to have that conversation, but sort of the early turn an inflection would be relatively quickly aligned.
Eric D. Ashleman: You have to have that conversation, but the early turn in inflection would be relatively quickly aligned. The only other point kind of embedded in the earlier part of your question to come back to is, you know, just as we're all reading signals from the broader market, as you're thinking of IDEX, it's always important to recognize that we participate in the instrument side of those sales. And often, you'll see people are talking about consumable streams.
Speaker Change: The only other point kind of embedded in the in the earlier part of your question to come back to us.
Speaker Change: Just as we're all reading signals from the broader market as Youre thinking of IDEXX, It's always important to recognize we participate in the instrument side.
Speaker Change: Of those sales and often you'll see people are talking about consumable streams and maybe either those would tend to to advance and start to move ahead of instruments and so it's an interesting point, but you always have to kind of equate it back to and whats the velocity on instruments, because ultimately that's where the components that we supply go.
Eric D. Ashleman: And maybe those would tend to advance and start to move ahead of instruments. And so it's an interesting point, but you always have to kind of equate it back to, and what's the velocity of instruments? Because ultimately, that's where the components that we supply go.
Speaker Change: That's really helpful. Thank you.
Deane Michael Dray: That's really helpful. Thank you.
Speaker Change: Thanks, Dan Thanks, Dan.
Vladimir Benjamin Bystricky: Our next question comes from the line of Vlad Bystricky with Citigroup. Please answer your question.
Citigroup: Our next question comes from the line of led by sticky with Citigroup. Please proceed with your question.
Vladimir Benjamin Bystricky: Hey, good morning, everyone. Thanks for taking my question. I guess, can you just talk about, and sorry if I missed it, what price versus cost overall actually was in the quarter and your expectations for price versus cost for the year? What you're seeing in terms of inflationary pressures versus your expectations coming into the year.
Sticky: Hey, good morning, everyone. Thanks for.
Sticky: Thanks for taking my question.
Sticky: I guess can you just talk about.
Sticky: And sorry, if I missed it what.
Sticky: Price versus cost overall actually was in the quarter.
Sticky: Your expectations for price versus cost for the year end.
Sticky: What youre seeing in terms of inflationary pressures versus your expectations coming into the year.
Abhishek Khandelwal: Yeah, Vlad.
Abhishek Khandelwal: Yeah, Vlad, this is Abhi. I'm more than happy to answer that for you. So if you recall when we talked about Q4 earnings, what we talked about was price for 2024. We laid it out at about 2%. But more importantly, what we were focused on was this price-cost spread of 80 to 100 basis points. So as you think about where we exited Q1, we were closer to that 100% from a price-cost standpoint, in line with expectations, and in fact, on the high end of expectations.
Speaker Change: This will be more than happy to answer that for you. So if you recall when we talked about our Q4 earnings.
Speaker Change: We talked about was.
Speaker Change: Price for 2020 forward laid it out at about 2%, but more importantly, what we were focused on was this price cost spread of 80 to 100 basis points.
Speaker Change: As you think about where we exited Q1, we were closer to the 100% from a price cost standpoint.
Speaker Change: In line with expectations entitled the high end of expectations. If you go back and just look at IDEXX IDEXX historically, we've seen from a pricing standpoint is something in the neighborhood of 80 to $1 two point.
Abhishek Khandelwal: If you go back in time and kind of just look at IDEXs, you know, IDEXs historically, we've seen from a pricing standpoint, it's something in the neighborhood of 80 to 1.2 or 0.8% to 1.2%. So this price, the price that we have laid out for 24 is higher than normal levels. And then the price-cost spread, typically what we've seen historically is 30 to 40 BEPS versus what we're seeing here, which is 80 to 100. To answer your second question on inflation, what we're seeing is an input cost slightly favorable compared to what we had assumed in the guide that we had laid out as part of the Q4 discussion.
Speaker Change: 8% to one 2% so just price.
Speaker Change: <unk> W have laid out for 'twenty four is higher than normal levels and then the price cost spread typically what we've seen historically, it's 30 to 40 bps versus what we're seeing here, which is 80 to 100 bps to.
To answer your second question on inflation, what we're seeing is the input cost slightly favorable compared to what we had assumed.
Speaker Change: And the guide that we had laid out as part of the Q4 discussion.
Vladimir Benjamin Bystricky: Great, that's helpful color. I'd appreciate it. And then just to go back to HST. In terms of the organic sales decline that we've seen in the quarter, are you able to give us more color on the underlying growth rates in industrial and semi-con versus what you're seeing in life sciences and analytical information?
Speaker Change: Great.
Speaker Change: Helpful color I.
Speaker Change: I appreciate it.
Speaker Change: And then just to go back to HST.
Speaker Change: In terms of the.
Speaker Change: Organic sales decline that we've seen in the quarter are you able to give us more.
Speaker Change: More color on the underlying growth rates in industrial and semi con versus what youre seeing in life Sciences and analytical information instrumentation.
Abhishek Khandelwal: Well, a couple of things there. I mean, you know, the comparisons in a lot of HSTs are at pretty exaggerated levels given the rapid destocking that we saw last year. And so, you know, we've been talking about life science and analytical instrumentation as being in a general condition of kind of flat, waiting for signs of recovery.
Well a couple of things there.
Speaker Change: The comparisons and a lot of HST are pretty exaggerated levels given the rapid destocking that we saw last year.
Speaker Change: So we've been.
Speaker Change: <unk> about life science, and analytical instrumentation as being in a general condition of kind of flat waiting for signs of recovery and that just from a segment for us.
Abhishek Khandelwal: And that, you know, just from a segment percentage point of view, it's just over a third of the entire segment. And I think SEMICON certainly has high single-digit growth potential, and we're starting to see some early signs. I mentioned some things in Sealing and a couple of other places, but really have a little bit more of that dialed in in the back half as we start to kind of approach that entitlement. It's probably 25, though, before it really comes in at that full level.
Speaker Change: Percentages just over a third of the entire segment.
Speaker Change: Semi con certainly high single digit growth potential and we're starting to see some early signs I mentioned, some things in sealing and a couple of other places, but really have a little bit more of that dialed in in the back half as we start to kind of approach that entitlement, it's probably 25, though before it really comes in it.
Speaker Change: At that full level I think the industrial space, we kind of talked about it tracks with generally what we're saying about FMT.
Abhishek Khandelwal: I think the industrial space we kind of talked about tracks with generally what we're saying about FMT and much of FSDP overall, so it's more modest in the low single-digit range right now. I don't know if you want to add something there. Yeah, no, the only thing I'd add is, I think, just, look, we've talked about this; I think comparing it year over year is kind of tricky given, you know, what we saw last year.
Speaker Change: Much of <unk> DP.
Speaker Change: Overall, so it's more modest in the low single digit range right now.
Speaker Change: And.
I don't believe you want to add something.
Speaker Change: Only thing I'd add is I think.
Speaker Change: Look we've talked about this I think comparing on a year over year is kind of tricky given what we saw last year.
Abhishek Khandelwal: So I think it's important to kind of point out, if I look at the sequential order trends and look at the sequential order patterns from Q4 to Q1, we saw about $59 million of order uptick, 14 of that was tied to XST. Half of that, I'd say, is blanket with our large customers that give us blanket orders that we ship throughout, you know, 2024. The other half is normal book-to-bill.
Speaker Change: So I think it's important to kind of point out if I look at the sequential order trends and look at the sequential order patterns from Q4 to Q1, we saw about $59 million of order uptick.
14 of that was tied to existing half of that I would say as a blanket with our large customers that give us blanket W. Shape throughout 2024. The other half is normal book to Bill you look at FMT or up about $28 million in order sequentially again have true demand that we've talked about tied to our bellwether businesses and the other half being blanket and lastly, FSD PTSD.
Abhishek Khandelwal: You look at FMT, we're up about $28 million in order sequentially, again, half the true demand that we've talked about tied to our Pellwether businesses and the other half being blanket. And lastly, FSDP is the story around emerging markets and the growth coming out of India. That's really exciting for us. So you saw that in sequence. So again, I think the key here, and the focus here is to look at it sequentially because I think that's a better way to look at the business, given where we are on the cycle.
Speaker Change: Story around our margin markets and the growth coming out of India.
Speaker Change: That's really exciting for us. So you saw that sequentially. So again I think I think the key.
Speaker Change: The focus here is.
Speaker Change: To look at it sequentially, because I think thats, a better way to look at the business given where we are in the cycle.
Speaker Change: Okay.
Vladimir Benjamin Bystricky: Okay, that was really helpful, guys. Thanks.
Speaker Change: That was really helpful guys. Thanks.
Speaker Change: I'll get back in queue.
Nathan Hardie Jones: Our next question comes from the line of Nathan Jones with Stiefel. Please proceed with your question.
Speaker Change: Our next question comes from a lot of Nathan Jones with Stifel. Please proceed with your question.
Nathan Hardie Jones: Good morning, everyone.
Nathan Hardie Jones: Getting back on to the HST order patterns and the sequential improvement that you've seen there, it's obviously up quite a lot off the bottom from the third quarter of 23. Customers did a lot of inventory destocking out of some of those businesses. Is it your view that customer inventories have been right-sized and we're kind of moving back to an area where your orders are pretty close to what your end customers are selling, or is it still continued destocking going on from your customers, and do you have visibility into that?
Nathan Hardie Jones: Yeah.
Nathan Hardie Jones: Getting back onto the HSA on our patents and.
Nathan Hardie Jones: <unk> improvement that you've seen there, it's obviously quite a lot off the bottom from third quarter 'twenty three customers gain a lot of inventory destocking.
Nathan Hardie Jones: Some of those businesses.
Nathan Hardie Jones: Is it your view that customer inventories had been right sized and we're kind of moving back to an area where.
Nathan Hardie Jones: Your orders are pretty close to what your end customers are selling or is it still continued destocking going on from your customers and do you have visibility into that.
Eric D. Ashleman: Well, I'll kind of break down HST because I think that the answer varies a bit depending on the portionality of the pieces. So half of it is broadly industrial, again, more like FMT and the rest of IDEX, and I think there, like in those other areas, I'd say the de-stocking trends are largely past us. And so part of that lift you're seeing in that industrial core is because, frankly, you know, we're at about the levels of consumption, and as those become more positive, we rise with them.
Nathan Hardie Jones: Well.
Speaker Change: So I'll kind of breakdown HST, because I think the answer varies a bit depending on the.
Speaker Change: <unk>.
Speaker Change: Of the pieces so half of it is broadly industrial again more like FMT and the rest of IDEXX and I think they're like in those other areas I'd say the destocking trends are largely past us and so part of that lift youre seeing in that industrial core.
Speaker Change: And it's because frankly, we're at about the levels of consumption and as those become more positive we rise with them. So you see the same dynamic in about half of HST that you see elsewhere.
Eric D. Ashleman: So you see the same dynamic in about half of HST that you see elsewhere. I think, you know, in the other areas, it's a little trickier, and the visibility, to be fair, is a little bit murkier because of just the extension of those supply chains. So now, in life science and analytical instrumentation, of course, we can best see inventory between us and factories, and ultimately, you know, that cleared very fast for us, you know, so I don't see an inventory accumulation there.
Speaker Change: And the other areas its a little trickier and the visibility to be fair is a little bit murkier, because it just the extension of those supply chain. So now in life science and animal instrumentation of course, we can best be inventory between us and factories.
Speaker Change: And ultimately.
Speaker Change: Cleared very fast for us so I don't see an inventory accumulation, there and devices, which of course have global reach harder for us to see we asked about it all the time and there probably are pockets here and there of different platforms and things that are out there that we're probably still working through.
Eric D. Ashleman: And devices, which, of course, have global reach, are harder for us to see. We ask about it all the time, and there probably are pockets here and there of different platforms and things that are out there that we're probably still working through.
Eric D. Ashleman: So I'd say there may be some moderate or minor effects there, but they're just harder to see, and they're kind of outside the four walls of where our usual experience is. And then in Semicon, I think it varies as well, you know, because there are such discrete and different pieces of Semicon. So things associated with memory, as I said, for us, that's kind of simple consignment stock, and it's starting to move off the bottom, which would indicate, okay, we cleared that inventory too.
Speaker Change: So I'd say, there may be some moderate or minor effects, there, but they're just harder to see in their kind of outside the four walls of where our usual experiences and then in semi con I think it varies as well.
Speaker Change: Because there is such disc.
Speaker Change: Discrete and different pieces of semi con so things associated with memory as I said for us, it's kind of simple consignment stock and it's starting to move off the bottom, which would indicate okay. We cleared that inventory to some of the kind of higher tax things at the other end of the spectrum more anchor towards high end lithography metrology.
Eric D. Ashleman: Some of the kind of higher-tech things at the other end of the spectrum, more anchored towards high-end lithography or metrology, you know, I think, I think quite honestly, we're just waiting, the entire industry is waiting for a stronger demand catalyst to get it moving. So figure half of the segment, generally clear, looks a lot like industrial IDEX, and then I'd say kind of 50-50 in the other half, depending on these two large pieces.
I think I mean quite honestly, we're just waiting for the entire industry is waiting for a stronger demand catalyst there to get it moving.
Speaker Change: I'll figure half of the segment generally clear looks a lot like industrial IDEXX, and then I'd say kind of 50 50 and the other half depending on these two large pieces.
Nathan Hardie Jones: That's helpful, thanks. Maybe we can go back to the margin question and where it gets back to. [inaudible] Yeah, thanks.
Speaker Change: That's helpful. Thanks.
Speaker Change: Maybe on back on to the margin question and where it gets back to it.
Speaker Change:
Speaker Change: In a more normalized volume environment I think you said, 30% is that.
Abhishek Khandelwal: And I would think that during this downturn, that business carries a lot of highly skilled labor that you would be really hesitant to rationalize during a downturn, particularly one that's likely to be, you know, short and cyclical. And so that's led to, you know, some of these pretty high decrements that you're seeing in that segment. But it should also result in very good operating leverage and very high incrementals as we come out the other side. So any commentary you can give us on kind of what you'd expect to see out of incremental margins in HST as we see that volume recharge?
Speaker Change: First is that an EBITDA margin target because historically, we'd be talking about operating margin EBITDA margin.
Speaker Change: Okay.
Speaker Change: Yes. Thanks.
Speaker Change: And I would think that during this downturn that business carries a lot of very highly skilled labor that you would be really hesitant to rationalized during the downtime, particularly one that's likely to be cyclical.
Speaker Change: Cyclical.
Speaker Change: And so that's led to some of these pretty high Decrementals that you are seeing in that segment that should also result in very good operating leverage and very high incrementals as we come out the other side. So any commentary you can give us on kind of what you'd expect to see out of incremental margins in HST as we see that volume reach out.
Abhishek Khandelwal: Well, Nathan, I think the point you made is the answer, but I'll say it anyway, which is to your point that we've been very, very thoughtful in terms of how we right-sized the business. Again, as Eric talks about the long-term vision, we believe in the long-term vision of this business and expect this business to grow as we come out of this cycle. So as you think about the incrementals on the uptick, I'd say 35 to 40 percent is the incremental you should expect, if not north of it, depending on the investments we make in the business over the long term as we go.
Speaker Change: Well listen I think I think the point you made is the answer but I will I will.
Speaker Change: Which is to your point, we've been very very thoughtful in terms of how we right size the business again it talks about the long term vision, we believe in the long term vision does business in.
Speaker Change: This business to grow as we come out of this cycle. So as you think about the incrementals on the uptick.
35% to 40%.
Speaker Change: Incrementals you should expect if not north of it depending on the investments we make into the business over the long term as we grow this business.
Speaker Change: Thanks, very much for taking my questions.
Nathan Hardie Jones: Thanks very much for taking my question.
Speaker Change: Thanks, Dan.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Joe Giordano with TD Cowen. Please proceed with your question.
Joseph Craig Giordano: Our next question comes from the line of Joe Giordano with TD Cowen. Please answer your question.
Joseph Craig Giordano: Hi, guys good morning, Hi, John.
Joseph Craig Giordano: Just curious on the on the tools in our life science piece of HFC is there any.
Joseph Craig Giordano: Medium term is there any sort of.
Joseph Craig Giordano: Just curious, like on the tools and the life science piece of HST, is there, like, medium term? Is there any sort of like adjustments to the top end of like what this, Matt Summerville, Jeffrey Sprague, William Gorgan?
Joseph Craig Giordano: Mike.
Joseph Craig Giordano: Adjustments to the top end of like what.
Joseph Craig Giordano: Potential is I mean, I know, we're going to get to the end of the Destocking all of that over the next bit here and long term.
Speaker Change: Clear call, but like.
Speaker Change: Do we need to adjust what we think the potential is over like a multi year period here, given what's happening internationally and things like that.
Eric D. Ashleman: Well, I think there's probably a couple things out there to consider at the highest level when you're projecting. Thank you. I think you hit one of them.
Speaker Change: Alright, I think there's probably a couple of things out there to consider at the highest level when youre projecting.
Speaker Change: Thank you I think you hit one of them so the ultimate.
Eric D. Ashleman: So, you know, the ultimate position of China in this market, I think, is something everybody has to think about. It's a big part of the issue currently because it was such a catalyst of growth here more recently for most of the customers that we supply. And so kind of where that comes out there, as you know, there's some regulatory things that are that are out there in the mix.
Speaker Change: Ultimate position of China in this market I think is something everybody has to think about it as a big part of the issue currently because it was such a high catalyst of growth.
Speaker Change: Here more recently for most of the customers that we supply.
Speaker Change: So kind of where that comes out there is as you know theres. Some theres some regulatory things that are that are out there in the mix.
Eric D. Ashleman: I haven't seen a big move in this particular area from any stimulus programs that have been applied over there, so kind of where it ultimately settles in is an open question. On the other side, though, probably on the positive side, and the question would be, does it offset it, you know, we continue to see just massive technological advancements here. I know the things that we're working on with customers in our building certainly have, you know, potentially higher growth potential as you think of where that may land on a global population and what work that could get done.
Speaker Change: Haven't seen a big move in this particular area from any stimulus programs that have been applied over there so kind of where it ultimately settles in I think is an open question on.
Speaker Change: On the other side, though probably on the positive and the question would be does it offset it we continue to see just massive technology advancements here I know the things that we're working on with customers in our building.
Speaker Change: Certainly have.
Speaker Change: Potentially higher growth potential as you think of where that may land on it.
Speaker Change: Global populations and what work that could get done so kind of I would put the nature of innovation is a positive and where it goes and keeping track of it and seeing what it can hold too.
Eric D. Ashleman: So kind of I put the nature of innovation as a positive and where it goes and keeping track of it and seeing what it can all do. Right next to a question on China is probably the two biggest.
Speaker Change: Right next to a question on China is probably the two biggest calls.
Joseph Craig Giordano: Would you say, like, globally, it's, you know, longer term fungible, like there's a baseline global demand that is going up, and whether, you know, it's China or elsewhere where this needs to be put in, it needs to be put in, and like, it's just friction on a shorter term basis? Is that how you kind of think about it? I think that's exactly how we would think about it. I mean, the China piece in particular is pronounced from a, you know, just the relative nature of what it had been and what it is now.
Speaker Change: Would you say like globally.
Speaker Change: Longer term fungible like theirs.
Speaker Change: Our baseline global demand that is going up and whether it's China or elsewhere, where this needs to be put in it needs to be put in and it's just friction friction over like a shorter term basis is that how you kind of think about it that's exactly how we would think about it I mean, it's China.
Speaker Change: China piece in particular as pronounced from just the relative nature of what it had been and what it is now.
Eric D. Ashleman: And, you know, that's not trivial, that's a couple of positive years on the one side and a few of adjustment on the other. But long term, this is ultimately about applying life-saving technology, transformational technology, of course, to a global population. And I think, you know, certainly one of the things that we always intended with our franchise is having global reach and scale. We have that. You know, so if it begins to shift around and move from one region to another to do the work, that's actually something we're very well set up to align with.
Speaker Change: That's not trivial Thats couple of positive <unk> on the one side and few of them.
Speaker Change: Of adjustment on the other but long term. This is ultimately about applying lifesaving technology transformational technology of course, our global population.
Speaker Change: And I think certainly one of the things that we always intended with our franchises, having global reach and scale we have that.
Speaker Change: So if it begins to shift around and move from one region to another to do the work that's actually something we're very well set up to two aligned with so I think that's well stated.
Eric D. Ashleman: So I think that's well stated. It's near term, it's which way are the winds blowing? I think more medium term, it's more regional around some of these key questions. And long term, it seems very, very assured. And I think it's ultimately about, do you have the scale to go chase it? And we do.
Speaker Change: Kind of near term, it's which way the wind's blowing.
Speaker Change: I think more medium term, it's more regionally around some of these key questions and long term. It seems very very assured and I think it's ultimately about do you have the scale to go chase it and we do.
Alright, thanks, guys.
Matt J. Summerville: Our next question comes from the line of Matt Summerville with D.A. Davidson. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Matt Summerville with D. A Davidson. Please proceed with your question.
Matt J. Summerville: Thanks. I want to maybe just a little bit of commentary and maybe a little bit more granularity on what you're seeing in the M&A pipeline at present, which businesses, which markets are you focused on? What do you see as far as purchase price multiples? Just a little more detailed color there.
Thanks morning, I wanted to maybe just a little bit of commentary and maybe a little bit more granularity on.
Matt Summerville: What youre seeing in the M&A pipeline at present, which businesses, which end markets are you focused on what are you seeing as far as purchase price multiples just a little more detailed color there.
Eric D. Ashleman: Yeah, well, I think you saw in the remarks that I had, I made a special point to talk about the fact that we're looking for complementary pieces, so things that attach well to other areas of IDEX, and I mentioned in a high level how we had done that over the last three years in the optics space, the water space, and then I called it kind of material intensive processing on small form factor, that's where Muon fits, and frankly, STC, so these are businesses that when we purchase them, not only are we purchasing a great IDEX-like business, but we can see attachment points, more natural synergies, and frankly, it matches the vision of something that we're trying to create there, much of which comes back to the question that we just talked about in the life science arena of can we have the relative and the absolute scale to do that job well as it globalizes. And so, you know, I think that the areas that I highlighted here would be areas, you can take those as areas of high interest, and you can see the evidence of things that we've applied there.
Matt Summerville: Yeah.
Matt Summerville: Well.
You saw in the remarks that I had I mean, I made a special point to talk about the fact that we're looking for complementary pieces.
Matt Summerville: So the things that attach well to other areas of IDEXX and I mentioned in it.
Matt Summerville: At a high level, how we had done that over the last three years in the optics space the water space and then I call. They kind of material intensive processing on small form factor thats, where <unk> fits in and frankly STC.
Matt Summerville: These are businesses that when we purchased them not only are we purchasing a great IDEXX like business, but we can see attachment points more natural synergies.
Matt Summerville: Frankly, it matches the vision, it's something that we're trying to create their much of which comes back to the question that we just talked about in the life Science Arena of can we have the relative in the absolute scale to do that job well is it globalize.
Matt Summerville: And so I think I think that the areas that I highlighted here would be area you can take those as areas of high interest and you can see the evidence of things that we've applied there.
Eric D. Ashleman: You know, the valuations, I think we've consistently said, you know, for the kind of quality that we look for at IDEX, it remains quite pricey. I will tell you, I think, you know, we've put in a lot of work here recently where the capital deployed number for us would be higher if we were willing to go a couple more turns and meet some of the expectations, and we just haven't. You know, we are still very, very disciplined about what we can do with a business.
Matt Summerville: <unk> I think we've consistently said for the kind of quality that we look for at IDEXX. It remains quite pricey I will tell you I think we've put in a lot of work here recently, where.
Matt Summerville: The capital deployed number for us would it would be higher if we were willing to go a couple more turns and meet some of the expectations and we just have not.
Matt Summerville: We still are very very disciplined about what we can do with the business even in the case, where its complementary like that they're just we know what the limit is.
Eric D. Ashleman: Even in the case where it's complimentary like that, they're just, we know what the limit is. And we've held that line, and we'll continue to do that. So I think, you know, one other aspect I would put as a net positive for us, we continue to find ourselves in proprietary spaces, you know, having conversations with people generally where it's only the two of us. And so that's, I think that's important in this environment, too; that gives you a bit of a head start.
Matt Summerville: And we've held that line and we'll continue to do that so I think.
Matt Summerville: No.
Matt Summerville: One other aspect I would put as a net positive for us we continue to find ourselves in proprietary spaces.
Matt Summerville: In conversations with people generally where it's only the two of us.
Matt Summerville: And so I think thats important in this environment to that gives you a bit of a head start but so takeaway here is absolutely.
Eric D. Ashleman: But the takeaway here is absolutely urgent, and we're putting the time in, we're putting the effort in. You know, we are narrower in our focus because we are looking for things that attach well and scale quite naturally within these niches, and we do it on a proprietary basis, but we are super careful about where the line needs to end on valuation for us.
Matt Summerville: Urgent I mean, we're putting the time and we're putting the effort in.
Speaker Change: We are.
Speaker Change: <unk> and our focus because we are looking for things that attach well in scale quite naturally within these niches, but and we're doing it on a proprietary basis, but we're super careful about where the line needs to end on valuation for us.
Matt J. Summerville: Got it. And then just as a follow-up, could you maybe spend a minute talking about kind of the ultimate duration and strength of the municipal water and wastewater cycles? You kind of see it playing out for IDEX. Thanks.
Speaker Change: Got it and then just as a follow up could you maybe spend a minute talking about kind of the ultimate duration and strength of the muni water and wastewater cycles, you can kind of see it playing out for IDEXX. Thank you Yeah, I think as I've said, a couple of times before I don't I don't think it launches with a lightning bolt.
Eric D. Ashleman: Yeah, I think, as I've said a couple of times before, I don't think it launches with a lightning bolt or a bang, but actually, the duration of it is going to be very durable. You know, you've had a lot of intentional, you know, funding announcements put out there. Those always take a while to find their way home, and, you know, and funded projects that have been engineered and are now being deployed. So I think what's very positive about this cycle is that, and I can't think of another one where I've seen this much intentional focus and, frankly, this much unfortunate reinforcement in terms of things and systems that are just not able to cope with the current climate that we have out there.
Speaker Change: Or a bang, but actually the duration of it is going to be very durable.
Speaker Change: You've had a lot of intentional funding announcements put out there those always take.
Speaker Change: A while to find their way home and.
Speaker Change: <unk> funded projects that have been engineered and are now being deployed.
Speaker Change: I think what's very positive about this cycle is.
Speaker Change: I can't think of another one where I've seen this much intentional focus and frankly this much unfortunate reinforcement in terms of.
Speaker Change: Things in systems that are just not able to cope with the current climate that we have out there. So you put those two things together and what we know is that level of confidence is what it really takes for engineers and municipalities and industrial spaces to do the work to make it through the budget cycles, the inevitable number of conversations.
Eric D. Ashleman: So you put those two things together, and what we know is that level of confidence is what it really takes for engineers and municipalities and industrial spaces to do the work, to make it through the budget cycles, the inevitable number of conversations to get things approved to get them in front of us. The last point I always remind external folks to consider when they think of our water businesses is that a lot of what we're doing is analysis.
Speaker Change: To get things approved to get them in front of us.
The last point I always remind.
Speaker Change: External folks to consider when they think of our water businesses.
Speaker Change: A lot of what we're doing is analysis. So we're doing infrastructure analysis, and then providing that over generally for a technical part of our customer set.
Eric D. Ashleman: So we're doing infrastructure analysis and then providing that generally for the technical part of our customer set. And so in that way, we're actually well positioned to kind of as a diagnostic at the beginning of the cycle because much of the time they're using our information and our output to substantiate larger capital projects. So, kind of here at the beginning of a multi-year cycle is a good place for IDEX to be because we're actually helping them put the projects together that's going to extend the cycle overall.
Speaker Change: And so in that way, we're actually well positioned to kind of as a diagnostic at the beginning of the cycle because met much of the time they are using our information and our output to substantiate larger capital projects.
Speaker Change: And so kind of here in the beginnings of a multiyear cycle is a good place for IDEXX to be because we're actually helping them put the projects together that's going to extend the cycle overall.
Matt J. Summerville: Great. Thanks for the call, Eric.
Speaker Change: Great. Thanks for the color Eric.
Robert Cameron Wertheimer: Our next question comes from the line of Rob Wertheimer with Mellius Research. Please proceed with your question.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Robert Wertheimer with Melius Research. Please proceed with your question.
Robert Cameron Wertheimer: Thank you very much. Um, Eric, you touched on an interesting topic in your opening comments just about semiconductors and the, you know, the AI shift, which is obviously driving. Huge changes in demand, pricing power, all sorts of things across pockets of industrials. I wonder, do you have any expanded remarks on what your exposure is there, how your technological capabilities are changing, whether you're entering kind of a new segment of semiconductors, anything you can flush out there if you're willing? Yeah, no, and I.
Robert Cameron Wertheimer: Thank you much Eric you touched on an interesting topic in your opening comments just on semiconductors.
Robert Cameron Wertheimer: The AI shifts, which is obviously driving.
Robert Cameron Wertheimer: Huge features and demand pricing power all sorts of things.
Robert Cameron Wertheimer: Across pockets of industrial so I wonder do you have any.
Robert Cameron Wertheimer: Expanding remarks on what your exposure is there higher technological capabilities are changing whether you're entering kind of a new segment of semiconductors.
Robert Cameron Wertheimer: You can kind of flesh out there youre willing.
Eric D. Ashleman: Yeah, no, I appreciate it. I mean, it's, you know, it's still a modest portion of IDEX overall. But it's growing, and it's growing, and it has found its way into the portfolios of some of the things we've recently acquired in HST. So we're certainly more interested and focused on it. And as we've brought those technologies in, I mean, we thought about this revolution and the jobs to do within it, particularly the hardest ones, which are our number one area of interest.
Speaker Change: I appreciate it.
Speaker Change: Its still a modest portion of IDEXX overall, but.
Speaker Change: But it's growing and it's growing and has found its way into the.
Speaker Change: And of the portfolios of some of the things. We've recently acquired in HST. So we're certainly more interested and focused on it.
Speaker Change: And as we've brought those technologies in I mean, we've thought about this revolution and the jobs to do within it.
Speaker Change: Particularly the hardest ones is our number one area of interest.
Eric D. Ashleman: So we're often going right into lithography instruments, and some of the most advanced that are out there, because those are the ones that are being called upon to do the work to, you know, create the chip architecture that's going to support the hardest part of this. So we're well indexed there; we've long had a metrology portion of our business that's all about validating that that job was done well. Even on the piece within water that we have that's sort of semi-focused, I mean it's absolutely critical water purification, delivery, and heating.
Speaker Change: And going right into lithography instruments and some of the most advanced that are out there because those are the ones that are being called upon to do the work to create the chip architecture, that's going to support the hardest piece of this.
Speaker Change: So we're well index there we've long had a metrology portion of our business. That's all about validating that that job was done well.
Speaker Change: Even on the on the piece within water that we have that somewhere to semi focused I mean, it's absolutely critical.
Speaker Change: Water purification delivery and heating.
Eric D. Ashleman: We talked about that in our sustainability report as one of the best eco-friendly solutions we have in the whole company. And so, you know, it's a broad market. It's fragmented and segmented into, you know, different uses and technologies. But you can think of us as generally thinking about what are the hardest jobs to do that provide the most critical differentiation when they are done, because, typically, for us, that's where the most economic benefit comes from.
We've talked about that in our sustainability report is one of the best Eco friendly solutions, we have in the whole company.
And so it's a broad market, it's fragmented and segmented into different uses and technologies, but you can think of us as generally thinking about what are the hardest jobs to do that that provide the most critical differentiate and differentiation when they are done because typically for us that's where the most economic benefit.
Speaker Change: It comes from and so we're tracking a lot of that.
Eric D. Ashleman: And so we're tracking a lot of that, those different trends, the size of ships, the way that they're being packaged, and looking for all the ways that we can play there. So just think of that as that's how we're indexed, that's increasing, and so ultimately, as that plays out, I think we're very, very well positioned.
Speaker Change: Those different trends the size of ships the way that they are being packaged and looking for all the ways that we can play there. So just think of that as that's how we're indexed that's increasing and so ultimately as that plays out I think we're very very well positioned.
Robert Cameron Wertheimer: Great. I'll take them all. Thank you very much.
Speaker Change: Great. Thank you very much.
Operator: There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
Eric D. Ashleman: Well, thank you very much. Thanks for everybody joining us today.
Speaker Change: Well, thank you very much thanks for everybody.
Speaker Change: Joining today, we appreciate your interest in IDEXX and look I think no doubt there are some uncertainties out there in the near term, whether it's inflation and interest rates geopolitical tensions. It's obviously an election year, we hear a lot of chatter about that out in the background.
Eric D. Ashleman: We appreciate your interest in IDEX. And look, I think no doubt there are some uncertainties out there in the near term. I think there's some sensitivity to them, but more broadly, I still think the arrows are very positive for businesses like ours and others over time. As we're tracking all that, we think it's helpful to provide that color to you as we do.
Speaker Change: As I said I think there is some sensitivity to it but more broadly I still think the arrows are very positive for businesses like ours and others over time.
Speaker Change: We're tracking all of that we think it's helpful to provide that color to you as we do it.
Eric D. Ashleman: And as you know, we're very good at moving resources around from here to there within this high-quality portfolio to continue to execute for shareholders and customers. But I really step back and say I think we're incredibly positioned for where things are going in the long term. And we've had that discussion here with life science and analytical instrumentation, how powerful that's going to be over time. We just had it here more recently with our discussion around Semicon and the revolutionary aspects of AI and the part we play there.
Speaker Change: And as you know we're very good at moving resources around from here to there within this high quality portfolio to continue to execute for shareholders and customers.
Speaker Change: But I really step back and say I think were incredibly positioned for where things are going in the long term and we've had that discussion here with life science and analytical medical instrumentation, how powerful that is going to be over time, we just had it here more recently with our discussion around semi con and the revolutionary aspects of AI in the part we play there.
Eric D. Ashleman: And then we could go through a host of other applications, more of a niche than not, and take you through that as well. That's what we're building each and every day through our own organic efforts and the efforts of the company. And so we're laser focused on the things that matter, both short term and long term, and look forward to continuing to talk with you along the way in the quarters to come. Have a great day.
Speaker Change: And then we could go through a host of other applications more of the niche than not and take you through that as well and that's what we're building each and every day through our own organic efforts and inorganic.
Speaker Change: So at the company.
Speaker Change: And so we're laser focused on the things that matter, both short term and long term and look forward to continuing to talk with you along the way in the quarters to come and have a great day.
Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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