The operator introduces the Fourth Quarter 2023 AMETEK Earnings Conference Call and hands it over to Kevin Coleman, Vice President of Investor Relations and Treasurer. The speakers will make forward-looking statements and reference 2022 and 2023 results. Dave Zapico, Chairman and CEO, shares the news of changes in financial leadership announced on January 16.

After 36 years at AMETEK, Chief Financial Officer Bill Burke is retiring, and Dalip Puri has been appointed as the new Executive Vice President and CFO. Dalip brings a wealth of experience and expertise to the role and is expected to continue the company's financial success. Bill will stay on as a senior adviser until April 2025. The company had record results and outstanding operational execution in the fourth quarter, setting records for sales, operating income, earnings per share, EBITDA, and cash flow, and ending with a record backlog.

In the third quarter, AMETEK saw success with strategic acquisitions and record-breaking sales and backlog. The company's operational performance was outstanding, with strong margin expansion and impressive EBITDA and free cash flow. This led to record earnings per share and above-guidance results. The company credits its success to the dedication of its employees and the strength of its growth model and differentiated businesses.

The Electronic Instruments Group had a strong quarter with record sales of $1.24 billion, a 7% increase from the previous year. Their operating performance was impressive with record operating income of $359 million and a 250 basis point increase in operating margins. The Electromechanical Group also had a strong quarter with sales of $495 million and operating income of $112 million. Overall, the company had an outstanding year with record sales of $6.6 billion, a 14% increase in operating income, and a 150 basis point increase in operating margins. EBITDA for the year was $2 billion and earnings were $6.38 per diluted share, a 12% increase from the previous year.

AMETEK's strong performance in the fourth quarter and full year is a testament to their growth model, with differentiated businesses aligned with diverse and attractive markets and a distributed operating structure that allows for quick adaptation to changing market dynamics. Their asset-light business model and operational execution result in exceptional cash flow, which, combined with a strong balance sheet, provides them with the resources to support growth initiatives and make strategic acquisitions. In 2023, they successfully completed five acquisitions, including Amplify Research and Paragon Medical, which will expand their product offerings and presence in highly attractive markets such as renewable energy and medical technology. Looking ahead to 2024, their acquisition pipeline remains robust.

AMETEK has a strong balance sheet and plans to continue making strategic investments in organic growth initiatives and acquisitions. The company's portfolio has shifted towards more sustainable markets and their operational success positions them for continued growth. For 2024, they expect low double-digit sales growth and a 5% to 7% increase in earnings per share. In the fourth quarter and full year of 2023, AMETEK's performance was exceptional, with all elements of their growth model contributing to their success. Bill Burke will now provide financial details and then they will take questions.

The article's author, Bill, is retiring after 36 years with AMETEK. He expresses his gratitude and thanks to the company and its leadership, and announces that he will remain as a senior advisor until April 2025. Dalip, the new EVP and CFO, also expresses his thanks and excitement for his new role. The fourth quarter results were better than expected due to strong operating performance.

In the fourth quarter, general and administrative expenses were $26.3 million, up $3 million from the previous year but consistent with 2022 levels. For the full year, expenses were up $7 million and remained at 1.5% of sales. In 2024, expenses are expected to be around 1.4% of sales. Other income and expense in the fourth quarter was an additional expense of $7 million due to higher due diligence costs and lower pension income. For 2024, this is expected to be similar to 2023. The effective tax rate for the quarter was 17.8%, down from the previous year due to statute expirations. For 2024, the rate is estimated to be between 19% and 20%. Capital expenditures were $60 million in the quarter and $136 million for the full year. In 2024, they are expected to be around $160 million or 2% of sales. Depreciation and amortization expense in the quarter was $92 million and $338 million for the full year. In 2024, it is expected to be around $400 million, including acquisition-related intangible amortization. Operating working capital was 17.2% of sales in the quarter. Operating cash flow was a record $541 million, up 40% from the previous year, and free cash flow was also a record at $481 million with a conversion rate of 140%.

The company's free cash flow increased significantly in 2023 and is expected to continue growing in 2024. The total debt also increased due to recent acquisitions, but the company remains financially strong with a large amount of cash and credit facilities. The company's businesses performed well in the fourth quarter and throughout the year, setting them up for continued success in 2024. During the earnings call, the company's CEO also clarified the outlook for 2024, stating that diluted EPS is expected to be between $6.70 and $6.85.

The speaker corrects a previous statement and addresses a question about OEM parts and destocking. They expect destocking to continue in the first half of the year but have positive forecasts for the second half. They also discuss price capture and inflation, stating that they expect a decrease in inflation and a 3% price capture in 2024. The speaker also mentions positive sales for new products. A question is then asked by Deane Dray from RBC Capital Markets.

The speaker congratulates Bill and Dalip on their distinguished careers, and asks Dave about the key end markets and demand orders. Dave explains that the Paragon acquisition has increased their sales in the medical field to 21%, and they plan to continue growing in that area. He also discusses the organic sales growth in their Process and Aerospace & Defense businesses, with expectations for low single digit growth in the next two years.

The paragraph discusses the expected organic sales growth in various business segments for the year 2024. The Aerospace & Defense businesses are expected to see high single-digit growth, with similar growth in both commercial aerospace and defense. The Power & Industrial businesses are expected to see low to mid-single digit growth, with a focus on renewable energy and modernization of the power grid. The Automation & Engineered Solutions segment is expected to see low single-digit growth, with stronger growth in the second half of the year due to normalization of inventory levels. Overall, the company expects to see continued momentum from 2023 into 2024.

The speaker is asked about the $100 million in growth investments and how it compares to previous quarters. They mention that new product vitality is at 29% this quarter and 26% last quarter, with a target of 20-30%. The $100 million is spread across the business units and is focused on the best growth opportunities. The speaker also mentions that as they acquire higher technology businesses, the R&D investment will increase modestly. This year, they expect to spend $400 million on R&D.

The company is able to offer competitive pricing because they provide unique value to their customers. They are not expecting a significant increase in pricing, but are continuously evolving their portfolio to offer higher technology products. The company has had a successful year in terms of mergers and acquisitions, with a strong pipeline and a focus on high-quality deals. They will remain disciplined and utilize their balance sheet and cash flow to differentiate their performance in a potentially slowing market.

The market is expected to evolve in the second, third, and fourth quarters of this year, with a strong pipeline and optimistic outlook. For Paragon, there will be some muted growth in the first half of the year due to an inventory correction and potential changes in product areas, but the second half is expected to be strong with new product introductions. The company expects 8-10% accretion in 2024, with integration costs being back-end loaded. In the semi-related markets, the company is seeing signs of improvement and expects a positive outlook for 2024.

David Zapico discusses the dynamic in the semiconductor industry and how their company, CAMECA and Zygo, have been able to offset the weakness in the core memory part of their portfolio. For 2024, they expect to grow in the mid-single digits due to their technology. The guidance for revenue growth in 2024 is low double digits, with about 9% coming from M&A and 2-3% from organic growth. There is no specific mention of incremental margins for 2024, but margins were up in 2023.

In the fourth quarter, core margins were up by 200 basis points, while reported margins increased by 120 basis points. EIG had a successful quarter, while EMG saw a dip due to acquisitions. For 2024, core margins are expected to grow by 30 basis points and core incremental to increase by 30 basis points. Geographically, the US and Asia saw growth, while Europe experienced a decline, driven by automation. China sales were up by 22% in the quarter, with strong performance in the Materials Analysis and Ultra Precision Technology divisions.

The company expects to see growth in Asia in 2024, but they anticipate a flattish market in China due to the impact of the economy. The recent acquisition of Paragon has driven a 16% increase in total orders, with a 3% increase in EIG orders and a 43% increase in EMG orders. Organically, orders were down 2%, but the company expects orders to outpace sales in the second half of the year. The company's guidance for organic growth is higher than expected.

The company is expecting low to mid-single-digit organic growth for the year, with the aerospace and defense businesses leading the way. The aerospace business is expected to grow at a high single-digit rate, driven by strong military and commercial markets. The company is optimistic about growth in 2024 and beyond. In terms of pricing, the company expects to be in a 3% world, with potential for stronger volume in the second half of the year. The company has been conservative in their second half outlook.

The speaker discusses the potential for growth in the second half of the year, particularly in the medical technology sector. They mention recent acquisitions and their success in the market, and expect a low double-digit growth rate in the next few years. They also mention confidence in the potential for a rebound in the second half, similar to other short cycle companies.

David Zapico, CEO of a company, is confident about the second half of the year despite being conservative with their forecasts. He believes that their Automation segment will see low single-digit growth due to positive feedback from customers and a decrease in backlogs. The company has also made efforts to diversify their supply chain and has invested in capacity expansion in the past few years within their 2% of sales guideline.

AMETEK has an asset-light business model and can quickly ramp up capacity in its Malaysian and Serbian facilities. This allows them to grow sales and adjust to downturns without significant investments. The company regularly prunes its portfolio through M&A deals and will be doing the same with the recent acquisition of Paragon. They are confident in their ability to keep up with growth and will continue to rationalize their portfolio. There was also a question about OpEx versus CapEx.

The speaker is discussing the current customer spending environment and how it has changed in the past few months. They mention a record number of projects in clean energy, power grid, and semiconductor industries, largely due to government spending. The speaker is optimistic about these projects but notes that they are not factored into their current model. They also address the decline in orders for many companies, attributing it to supply chain adjustments rather than underlying conditions. The speaker is not worried about this because it is a result of the pandemic and their own businesses in healthcare, aerospace and defense, and power and energy are performing well due to projects.

The speaker is optimistic about the industrial market and believes that the current inventory will be worked off and growth will return. They mention being prepared for a potential recession and their success in reacting to market changes. In terms of the semi business, they have some exposure to advanced packaging but are looking for more through M&A. They also mention improvement in pricing and utilization rates in the memory market.

David Zapico, CEO of Ametek, believes that the company's process business will see low single digit growth in the upcoming year. This is due to a mix of factors, including strong sales in the energy sector and a focus on developing state-of-the-art projects. However, there may be some weakness in international markets, particularly in China. Overall, the process business is expected to be driven by the research and optics markets, as well as some medical applications.

The speaker, Kevin Coleman, thanks Tanya and the participants for joining the conference call and reminds them that a replay of the webcast can be accessed on their website. He concludes by thanking everyone and the operator ends the call.

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