The operator welcomes participants to the AMETEK's Third Quarter 2023 Earnings Conference Call and introduces the speakers, Kevin Coleman, Vice President of Investor Relations and Treasurer, Dave Zapico, Chairman and CEO, and Bill Burke, Executive Vice President and CFO. The speakers will be making forward-looking statements and any references to results or guidance will be on an adjusted basis. The third quarter saw excellent results with strong operational execution, margin expansion, cash flows, and earnings exceeding expectations.

The company had a strong quarter, setting records for operating income, margins, earnings per share, EBITDA, and cash flows. They increased their earnings guidance for the year and made several acquisitions, including United Electronics Industries and Amplifier Research. Sales were up 5% from the previous year, with flat organic growth. The backlog remained strong at $3.4 billion. Operating income and margins were exceptional, with a 14% increase and a 220 basis point increase, respectively. EBITDA and operating cash flow were also at record levels. The Electronic Instruments Group was the top performing operating group.

The Electronic Instruments Group (EIG) and Electromechanical Group (EMG) both had strong operating performance in the third quarter, with EIG experiencing impressive sales growth and record operating income and margins. EMG also had solid performance despite a decrease in sales due to inventory normalization. This success is attributed to the AMETEK growth model, which includes a diverse range of businesses aligned with attractive markets and a distributed operating structure for flexibility and quick reactions.

AMETEK's asset-light business model and strong operational execution result in excellent cash flow, which is used for value-enhancing acquisitions. The company has recently acquired United Electronic Industries and Amplifier Research, and has signed a definitive agreement to acquire Paragon Medical. Paragon is a leading manufacturer of medical components and instruments, and the acquisition will expand AMETEK's presence in the med tech space. UEI, acquired in August, provides ruggedized test, measurement, simulation, and control solutions for diverse data acquisition needs.

AMETEK has recently acquired two companies, UEI and Amplifier Research, which complement their existing businesses and expand their capabilities in data acquisition and RF instrumentation. These strategic acquisitions are expected to contribute to the company's growth, along with their commitment to investing in their businesses and new product development. Additionally, their ORTEC business has acquired innoRIID to enhance their technology capabilities in the Radiation Detection market.

The article discusses InnoRIID's success in developing innovative solutions using Artificial Intelligence for radiation detection. It also mentions AMETEK's strong performance in the third quarter, with a positive outlook for the rest of the year and an increase in earnings guidance. The company's asset-light business model and strong cash flows allow it to navigate challenging economic environments and enhance shareholder value. The financial details of the quarter are covered by Bill Burke.

The company's third quarter financial highlights include stable general and administrative expenses, a $9 million headwind in other income and expense, a lower effective tax rate, and strong cash flow and free cash flow. They expect their full year effective tax rate to be between 18.5% and 19%, with quarterly rates potentially varying significantly. Capital expenditures are expected to be around $145 million for the year, and depreciation and amortization are expected to be approximately $330 million. The company's operating working capital was 19.1% of sales in the third quarter, and their total debt at the end of the quarter was $2.2 billion.

AMETEK had a strong third quarter, with significant margin expansion and high-quality earnings. They have a strong position in key market segments and a very strong backlog, positioning them well for continued success. They have been active in acquisitions, including UEI, innoRIID, Amplifier Research, and the pending acquisition of Paragon Medical. After the acquisition of Paragon, they will still have significant financial capacity available. An analyst asked about Paragon, and the CEO provided some information on the company, including its focus on precision medical robotics and the percentage of consumables in their business.

The author discusses their view of Paragon, a leading provider of medical components and instruments. They highlight key market drivers for the company, such as an aging population and a trend towards outsourcing by OEMs. The portfolio consists of single-use and consumable surgical instruments, with 40% of the business being recurring. Paragon has a strong customer base and is considered a top-quality provider with excellent customer service and design and development capabilities. The acquisition of Paragon will increase AMETEK's exposure to the medical technology industry to over 20%, which has been a goal for the company.

The acquisition of Paragon by EMG is expected to bring in $500 million in revenue and aligns with AMETEK's business model. There is potential for growth and improved margins with the application of AMETEK's growth model. The deal was made at a good price and both companies are excited about the partnership. Regarding EMG's end markets, there has been some destocking but overall the business grew 5% in line with expectations. The duration of the inventory normalization is uncertain.

Dave Zapico, CEO of AMETEK, discussed the company's full year sales guidance and organic growth, which is expected to be mid-to-high single digits. He also mentioned that the Aerospace and Defense business is strong, while automation is weaker, but they are offsetting each other. In the third quarter, there was faster destocking in the automation businesses than anticipated, and this is expected to continue through the end of the year. Zapico believes this is largely an inventory correction and not a downturn, as demand remains constructive with new projects in various industries. He also mentioned that the company will sit down with their teams to understand the situation and remain positive post-destocking. In terms of the EIG margin, it significantly improved in the quarter, with a $28 million increase in profitability despite flat revenue. Zapico did not provide specific drivers for this improvement, but mentioned that they will continue to analyze the situation and remain constructive for 2024.

Dave Zapico, CEO of a company, discusses the strong performance of their EIG division in the last quarter, with margins up 360 basis points due to growth and price cost. He also mentions their acquisition of Paragon and expects a modest cash EPS accretion in the first year and strong accretion in the second year. He also mentions the possibility of breaking out acquisition costs in the future. A question is asked about automation.

The speaker clarifies that the current market trend is due to industry destocking and expects it to continue until the end of the year. They also mention plans for growth investments in 2024, but will discuss specific details with their teams before making any announcements. They plan to review market dynamics, growth opportunities, and cost reduction opportunities before making any comments on their 2024 plan.

Jeffrey Sprague from Vertical Research Partners asks about the profit improvement plan for Paragon, the recent acquisition by AMETEK. Dave Zapico, CEO of AMETEK, confirms that the company has a plan in place to improve margins and that it will take some time to achieve. He also mentions that there may be synergies with their existing engineered medical components business. Lastly, he characterizes the medical technology industry as a double-digit secular grower despite recent challenges.

The company is not affected by market forces and is growing nicely due to their deployment of resources. They are winning new business and surveys show they have a good reputation. The working capital percentage last year was 18.4. The $1.5 billion availability is net of Paragon and the leverage post-Paragon is only 1.5 times EBITDA at the gross level. This gives the company substantial financial flexibility and they are still under-levered.

The company is looking to continue its acquisition strategy and has plenty of opportunities available. They are not constrained by capital and have the capability to integrate new businesses. The company's balance sheet is strong and they can spend $2.6 billion on acquisitions. They take current borrowing rates into account when making acquisition decisions. The Process division saw mid-single-digit sales growth, with low single-digit organic growth and contribution from the acquisition of Navitar. Demand in this division is strong, particularly in markets related to the energy transition and healthcare.

The company experienced strong growth in the third quarter, particularly in their high-end optics business and Aerospace & Defense segment. They also saw solid results in their Power & Industrial and Automation & Engineered Solutions businesses, with expectations for continued growth in the future. The decrease in sales for AE&S was due to inventory normalization and challenging comparisons from the previous year. Overall, the company believes demand is solid.

The speaker discusses the current state of the Automation & Engineered Solutions markets, noting that they remain constructive but expect inventory normalization to continue through the end of the year. They anticipate a mid-single-digit decline in organic sales for the full year. They also provide a breakdown of sales by geography, with the US seeing solid growth and international markets slowing. In the fourth quarter, they expect sales to be up mid-single-digits, with growth in revenue.

The paragraph discusses two factors impacting earnings in Q4: a higher tax rate and acquisition integration costs. The company is confident in their guidance for Q4, with expected low to mid-single-digit core growth. The acceleration in growth is driven by strong demand in the EIG business, particularly in aerospace and process. The company is also optimistic about their M&A pipeline, with a strong interest in potential acquisitions.

Dave Zapico, CEO of Paragon, discusses the company's recent acquisition and its focus on medical components and instruments. He mentions that the company primarily sells to OEM customers but also has some direct sales to end customers. Paragon was purchased from American Securities and has a strong management team and growth strategy. The company's orders have been strong for an extended period of time, with 12 consecutive quarters of positive book-to-bill and a near record backlog.

During a conference call, CEO Dave Zapico and CFO William Burke discussed the company's performance and answered questions from analysts. Zapico stated that the company's performance is in line with their expectations and that they have seen some delays in projects in China due to higher interest rates, but it has not had a significant impact. He also mentioned that the company is not currently supply chain constrained in their Aerospace and Defense businesses. Analyst David Ridley-Lane asked about the impact of the Paragon acquisition, and Zapico stated that it will increase their medical-related revenues to about 20% of sales.

During a Q&A session, AMETEK CEO Dave Zapico addressed questions about the company's plans for the medical end market and its approach to M&A. Zapico stated that the company likes the balance of its current end markets and will continue to look for attractive opportunities in the medical space. He also mentioned that AMETEK does not have a set amount of capital allocated for specific markets, but rather evaluates potential acquisitions based on their quality and fit with the company. Zapico also stated that the company expects the medical end market to potentially increase from its current 20% share of total revenues, but AMETEK plans to maintain a diversified revenue base. The Q&A session was moderated by Michael Anastasiou, who thanked Zapico and turned the call back over to AMETEK's Kevin Coleman for closing remarks.

In this paragraph, Kevin Coleman thanks everyone for joining the conference call and reminds them that a replay of the webcast can be accessed on ametek.com. He concludes by thanking the participants and informing them that the call has ended.

This summary was generated with AI and may contain some inaccuracies.