The operator greets participants and introduces Wendy Palacios, Vice President of FP&A and Investor Relations for IDEX Corporation. Wendy thanks everyone for joining the call and directs them to the company's website for financial and operating performance information. CEO and President Eric Ashleman and CFO Abhi Khandelwal will also be speaking. The call may contain forward-looking statements.

In Q1, our core execution capabilities led to strong results in our Fluid & Metering Technologies and Fire & Safety/Diversified Products businesses. We saw an increase in orders from our industrial and municipal markets after a period of destocking, and our lead times and responsiveness improved. Our Health & Science Technologies segment met expectations, and we are focusing on growth initiatives that align with markets showing potential for growth. We have expanded our technical capabilities in areas such as AI, low orbit space broadband, and national defense through inorganic efforts and plan to continue leveraging our balance sheet for M&A. We are monitoring the life sciences and analytical instrumentation markets for signs of recovery and are well positioned to capitalize on growth opportunities.

The company has confidence in their ability to outperform in the future, despite current market uncertainties. They credit this to their three core tenets, including a strong team, focus on key priorities, and proximity to customers. They also mention their strategy of driving organic growth, making acquisitions, and generating strong cash flow. The company's financial results for the first quarter were strong, with profitability and free cash flow despite a decrease in sales compared to the previous year.

In the first quarter, the company saw a decrease in organic sales for HST and FMT, while FSDP saw a slight increase. Gross margin and adjusted EBITDA margin both declined, but showed improvement compared to the previous quarter. The effective tax rate decreased due to a favorable discrete item. Net income and adjusted net income also decreased, but free cash flow increased. The company achieved a high conversion rate of adjusted net income to free cash flow. Inventory reduction and improved inventory turns were also achieved. The driver of the decrease in adjusted EBITDA was mainly due to the decrease in organic sales, but this was partially offset by price/cost and operational productivity.

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. The FMT segment saw strong municipal project activity in the water business, stable performance in the energy business, and expected cyclically down performance in the agricultural business. The Health & Science Technologies segment performed as expected, with sequential orders improvement and a focus on strategic customers. The material processing technology business saw strength in certain areas, while the semiconductor business saw orders improvement. Overall, the HST industrials are steady.

The adjusted EBITDA margins improved in the fourth quarter, with a decline from the previous year driven by volume leverage, partially offset by price/cost and operational productivity. The Fire & Safety/Diversified Products segment saw stability, with a focus on strategic share gain initiatives and strong demand in the automotive sector. The outlook for the second quarter includes a projected decline in organic revenue and an adjusted EBITDA margin of 27.5%. The full year outlook remains the same, with a focus on driving growth bets. The company's value equation centers around achieving organic growth outperformance through targeted bets.

The company is focused on growth initiatives within its Applied Technologies and Intelligent Water groups. They are integrating recently acquired assets and deploying digital tools to enhance the customer experience and gain market share. They also plan to use M&A to support faster-growing markets and expand margins. The company's decentralized environment and collaborative culture support speed and agility, and they aim to drive double-digit earnings growth using the five basic IDEX operating model tools. The CEO looks forward to updating investors on their progress.

Mike Halloran asks Eric Ashleman about any changes in the market since the last guidance was given. Ashleman notes that there has been some sensitivity in the market due to factors such as inflation, interest rates, and the election. However, the overall outlook remains the same, with some growth seen in certain sectors such as food production and battery material handling. The core pharma market is still expected to see growth in the future.

The company has seen a slight increase in consignment orders for memory chips, but is still waiting for a broader lift in the highest quality semiconductor offerings. They expect modest support in the industrial landscape, with a focus on higher-growth potential markets in HST such as life science and analytical instrumentation. The company is aiming for a 30% EBITDA margin once volumes are back, compared to the previous range of 25-27%.

The speaker, Deane Dray, thanks the team and congratulates Wendy on her new role. He asks about the beginning of the year and how day rates and bellwether businesses like BAND-IT and Warren Rupp are doing. Eric Ashleman responds, saying that the year is playing out as expected, with a strong start in January and February, a slight dip in March, and stabilization in April. He notes that there is more sensitivity to news and current events, but overall the situation remains largely unchanged.

The speakers discuss the normalization of the supply chain and how it has led to faster turnaround times for orders. They also mention the slow recovery of the life sciences analytical instruments market, with a focus on the lag between OE sales and component supply. The company has been able to quickly fulfill orders despite the destocking cycle that began in Q4 of 2022.

The speaker discusses the potential for signs of life in the market and the company's ability to quickly respond to changes in demand. They also mention the importance of considering instrument sales, as well as consumable streams, when analyzing market signals. In response to a question, they mention the price versus cost in the quarter and expectations for the year, as well as inflationary pressures and their initial expectations.

Abhi Khandelwal, speaking on behalf of IDEX, explains that the company's pricing for 2024 is expected to be around 2%, with a price/cost spread of 80-100 basis points. This is higher than historical levels, which typically range from 0.8% to 1.2% for pricing and 30-40 basis points for the price/cost spread. Inflation is slightly favorable compared to previous assumptions. Regarding HST, the organic sales decline is due to exaggerated comparisons from rapid destocking last year. Life science and analytical instrumentation, which make up over a third of the segment, are expected to remain flat for now. Semiconductors, on the other hand, have potential for high single-digit growth and early signs of recovery are starting to show.

The speaker discusses the progress of the company's HST (high-speed train) orders and mentions that they have a better understanding of the market in the back half of the year. They also mention that the industrial space is seeing modest growth, and another speaker adds that it's important to look at the sequential order trends rather than comparing year-over-year due to changes in the market. They also mention the growth in emerging markets, specifically India, and the importance of looking at the business cycle. A question is then asked about the HST order patterns and the sequential improvement seen.

In the third quarter of 2023, HST has seen a significant increase in orders due to customers destocking their inventory. However, this trend is mostly past in the industrial sector, but still present in other areas such as life science and analytical instrumentation. The visibility into customer inventories is murkier in these areas, but there may still be some minor effects. In semicon, the destocking trend varies depending on the specific sector.

The speaker discusses how the company's memory-related inventory is starting to move and that they are waiting for a stronger demand catalyst for their higher tech products. They also mention that their target EBITDA margin is 30% and that they have been careful not to downsize their highly skilled labor during the downturn. As a result, they expect high operating leverage and incrementals for the HST segment as the industry recovers.

The speaker is responding to a question about the potential growth of the tools and life science segment of their business. They mention the impact of China's position in the market and potential regulatory changes, but also note the positive impact of technology advancements. They suggest that the long-term potential may need to be adjusted due to these factors.

The speaker discusses the potential for growth in their company's work with customers, particularly in relation to global populations. They mention the importance of tracking innovation and mention China and global demand as key factors. They also note the company's global reach and scale and their ability to adapt to regional shifts. The speaker believes that long-term demand for their technology is assured and that their company is well positioned to pursue it. A question is then asked about the potential for global demand to shift in the near term.

The speaker was asked about the M&A pipeline and provided more details on what types of businesses and end markets they are focusing on. They have been looking for complementary pieces that attach well to other areas of IDEX and have been successful in doing so in the past. They are particularly interested in the optics, water, and material-intensive processing on small form factor spaces. The speaker also mentioned that valuations remain high and they have been disciplined in their approach to capital deployment.

The speaker mentions that there are positive aspects to the current market environment, such as having private conversations with potential clients and being focused on specific niches. They also mention being cautious about valuations. When asked about the duration and strength of the muni water and wastewater cycles, the speaker believes it will be durable due to intentional funding and reinforcement of the need for improvements. They also mention the importance of confidence in getting projects approved and completed.

IDEX's water business involves a lot of analysis and infrastructure work, making them well positioned to assist with large capital projects. The company is currently in the beginning of a multiyear cycle and is helping to extend the cycle through their work. During the Q&A portion, the CEO mentioned the company's exposure to the semiconductor industry and how it is a growing portion of their business, particularly through recent acquisitions. The company is focused on this industry and has incorporated it into their portfolios, with a particular interest in the hardest tasks within the revolution.

IDEX is well-positioned in the lithography market, with a strong focus on metrology and water purification. They are tracking trends in chip architecture and packaging and are confident in their ability to provide economic benefits in these areas. There are uncertainties in the near term, such as inflation and geopolitical tensions, but IDEX is prepared to handle them.

The speaker believes that the current market trends are positive for their business and they are constantly adapting to these changes. They are focused on long-term growth and have a strong portfolio in various industries such as life science, analytical instrumentation, and semiconductors. They are committed to discussing their progress with shareholders in the future.

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