IDEX Q4 2022 Earnings Report

IDEX EPS Results

• Actual EPS: $2.01
• Consensus EPS: $1.98
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $1.55

IDEX Revenue Results

• Actual Revenue: $810.70 million
• Expected Revenue: $772.75 million
• Beat/Miss: Beat by +$37.95 million
• YoY Revenue Growth: +13.40%

IDEX Announcement Details

• Quarter: Q4 2022
• Date: 2/1/2023
• Time: After Market Closes
• Conference Call Date: Wednesday, February 1, 2023
• Conference Call Time: 10:30AM ET

IDEX (NYSE:IEX) (NYSE: IEX) is an industrial technology company that designs, manufactures and markets engineered products and systems used in a range of specialized applications. Its portfolio includes pumps, valves, flow meters, compressors, dispensing equipment and other fluid-handling technologies that help customers move, measure and control liquids and gases.

The company operates through businesses focused on Fluid and Metering Technologies, Health and Science Technologies, and Fire and Safety/Diversified Products. Its products serve markets including industrial processing, agriculture, water and wastewater, medical equipment, life sciences, semiconductor manufacturing, transportation and fire protection. IDEX also supplies rescue tools, fire pumps, precision-engineered components and other equipment for emergency response and industrial applications.

Founded in 1987 and headquartered in Lake Forest, Illinois, IDEX serves customers in North America and international markets through a portfolio of specialized brands and operating companies. The company is led by President and Chief Executive Officer Andrew K. Silvernail.

IDEX Q4 2022 Earnings Call Transcript

Key Takeaways

• 2022 was a record year with double-digit organic growth every quarter, record segment sales, $950 M deployed on acquisitions and $148 M in opportunistic share buybacks.
• 2023 guidance calls for 1%–5% organic revenue growth, adjusted EPS of $8.50–$8.80 (5%–8% growth), adjusted EBITDA margin ≥28% and free cash flow >100% of adjusted net income.
• IDEXX faces continued supply chain constraints and limited visibility as a short-cycle business, but expects easing conditions and will leverage its decentralized model to adapt and maintain growth.
• Segment outlook: FMT sees steady industrial day rates and strong municipal water quoting; HST remains highest-growth but Q1 OEM inventory adjustments will shift volume into later quarters; Fire & Safety sees constrained OEM volumes offset by strong rescue and BAND-IT performance.
• Q4 gross margin contracted by 140 bps due to mix, acquisition dilution and inflation, but full-year adjusted gross margin expanded by 10 bps and management expects margin expansion in 2023 from pricing and productivity.

Presentation

[Operator]

Greetings. Welcome to the Fourth Quarter 2022 IDEX Corporation Earnings Conference Call. At this time, all participants 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. Please note this conference is being recorded. I would now like to turn the conference over to Allison Lausas, Vice President and Chief Accounting Officer. Thank you. You may begin.

[Allison Lausas, VP and Chief Accounting Officer at IDEX]

Good morning, everyone. This is Allison Lausas, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX fourth quarter and full year 2022 financial highlights. Last night, we issued a press release outlining our company's financial and operating performance for the three months and full year ending December 31st, 2022. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our company website at idexcorp.com. Joining me today are Eric Ashleman, our Chief Executive Officer and President, and William Grogan, our Chief Financial Officer. We will begin with Eric providing an overview of the state of IDEX's business, including a recap of our recent performance.

[Allison Lausas, VP and Chief Accounting Officer at IDEX]

Bill will provide a segment outlook for 2023 and discuss our fourth quarter and full year 2022 financial results, as well as our guidance for the first quarter and full year 2023. Eric will close the call with our key priorities for 2023. Following our prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877-660-6853 and entering conference ID 13734461, or simply log on to our company home page for the webcast replay. Before we begin, a brief reminder.

[Allison Lausas, VP and Chief Accounting Officer at IDEX]

This call may contain certain forward-looking statements that are subject to the safe harbor language in last night's press release and in IDEX's filings with the Securities and Exchange Commission. With that, I'll now turn this call over to our CEO and President, Eric Ashleman.

[Eric Ashleman, CEO and President at IDEX]

Thank you, Allison, and good morning, everyone. I'm on slide six. 2022 was a record year for IDEX. We experienced double-digit organic growth every quarter, driving all three of our segments to record sales levels and achieved strong record profitability driven by solid execution. This year was not without its challenges. We experienced unprecedented inflation as well as a difficult supply chain environment. Despite these obstacles, we achieved some of the strongest financial results we've ever posted. I'd like to thank our IDEX employees around the globe for their efforts and hard work. We also deployed more capital than ever before, investing in our businesses, acquiring new ones, and returning capital to our shareholders. We deployed a record $950 million for the acquisitions of Nexsight, KZValve, and most recently, the Muon Group.

[Eric Ashleman, CEO and President at IDEX]

We reinvested back into our core business to increase capacity to support growth and drive productivity and made investments in the commercial engineering and M&A resources that enable us to execute on our best opportunities. We also repurchased 795,000 shares of IDEX stock for $148 million as we followed our opportunistic, disciplined approach to buybacks. As we turn to 2023, we are prepared to build upon a very solid foundation. We have strong backlog positions overall, and we continue to leverage innovative technologies to drive targeted growth opportunities. We have healthy price carryover in addition to new price actions to capture the value our products bring to our customers. Finally, we have an opportunity to drive strong productivity as we bring process-driven normalcy back to our operations through the application of the IDEX Operating Model.

[Eric Ashleman, CEO and President at IDEX]

We're a short cycle business, and with that comes limited visibility. The broad-based supply chain constraints experienced last year have created some new dynamics around order patterns and customer delivery timing, and we predict that 2023 will be an uncertain period of transition as we dynamically calibrate with our customers. Additionally, there are likely to be pockets of demand softness due to a variety of intersecting economic and geopolitical factors. Regardless of these challenges, we will execute and deliver growth above market entitlements. The short cycle and decentralized nature of our business supports quick adaptation and alignment to shifting conditions, and we will course correct quickly and effectively when needed. Our balance sheet has ample capacity to support our M&A strategy as well as organic reinvestment.

[Eric Ashleman, CEO and President at IDEX]

Our extended M&A and strategy team continues to build conviction around our best opportunities. Our funnel is strong and of high quality. We've also identified areas where we will deploy capital organically to expand capacity, capture market share, and drive operational productivity. IDEX had a strong finish to an outstanding year in 2022. Our agility, resiliency, and our fundamental ability to execute has IDEX exceptionally well positioned to outperform as we move forward. With that, I'll turn it over to Bill to discuss the outlook for our segments on page seven.

[Bill Grogan, CFO at IDEX]

Thanks, Eric. In our Fluid Metering Technology segment, industrial day rates were steady in the fourth quarter, and we expect they remain at this level in the near term with strong price support. We've seen initial signs that customers are returning to a book-and-bill order pattern consistent with pre-pandemic behavior. We continue to monitor day rates to evaluate longer-term expectations, as this is our most short-cycle market exposure. We expect another strong year in our agricultural business with strong farmer sentiment and high crop prices. We continue to see positive signals from both our OEMs and distributors and a trend towards investing in precision technologies as a means of mitigating higher input costs. We are on our next phase of process automation at Banjo and see continued improvement in delivery and efficiencies, putting us in a good position to capture share.

[Bill Grogan, CFO at IDEX]

Our outlook for our municipal water business continues to be favorable. The healthy quoting activity we experienced over the past few quarters is expected to translate into 2023 growth. We continue to identify opportunities to leverage our technology to capture new programs. The EPA just received record funding. The infrastructure bill could provide a tailwind in the back half of the year. The chemical markets overall are soft. We see opportunities for growth in U.S. green energies and strong project activity in the Middle East. This is offset by softer European demand due to higher energy costs and cuts to production capacity. In our energy business, we see favorable demand for energy exports and natural gas production, as well as continued oil price support. However, customers continue to delay larger investments as they focus on cost, inventory, and supply chain issues.

[Bill Grogan, CFO at IDEX]

The strong price capture and productivity achieved in 2022, as well as new pricing actions in 2023, will continue to drive improvements in FMT margins, with some risk of offset from lost volume leverage depending on the second half volumes. Moving on to the Health & Science Technologies segment, we expect HST to remain our highest growth segment. Our Life Sciences and Analytical Instrumentation businesses will continue to grow in 2023 due to strong Next-Generation Sequencing applications and continued expansion of cell-based therapies in various chromatography and mass spec applications. In the short term, however, several of our OEM customers are holding excess inventory, driving volume out of the first quarter and into the balance of the year. We believe this is a short-term issue, and the overall market outlook remains extremely positive for this sector.

[Bill Grogan, CFO at IDEX]

Our targeted growth initiatives tied to a wide variety of applications, from satellites in space to energy-efficient fuel cells, continue to perform well, and our industrial businesses are seeing market trends similar to FMTs. We are seeing some slowing in semiconductor market driven by higher memory device inventory levels and declining customer chip spending. Fabrication spending and new fab construction are both expected to be down for the year. That said, we provide critical consumable components for our large install base, which tends to be more stable despite end market and CapEx cycles. Where we play in the market and our recent share gains are expected to drive continued outperformance versus the broader market. We are seeing overall signs of slowing demand in pharma and biopharma, particularly around larger projects. Customers are hesitant to make larger investments given inflation and higher interest rates.

[Bill Grogan, CFO at IDEX]

India continues to accelerate. The easing of China restrictions could drive growth and recovery in the region to offset some. Lastly, our auto business is expected to perform well. Global auto production is stable and our presence in premium vehicle segments and EV and hybrids is driving a faster recovery as compared to the overall market. HST margins will expand in 2023 due to pricing, productivity, and volume, partially offset by continued reinvestment in our highest growth businesses and some mix headwinds in the short term due to expected life science AI demand patterns. Finally, we expect our Fire & Safety/Diversified Products segment will experience growth towards the lower end of our guided range. In fire and safety, U.S. and European fire OEM volumes remain constrained by supply chain and throughput issues, but backlogs are strong and volumes are steady.

[Bill Grogan, CFO at IDEX]

We expect continued share gain with smaller builders that are coming online to capture surplus demand. Our rescue business remains positive with strong MPD, and we continue to leverage our integrated model to drive distribution growth. We expect our BAND-IT business to continue to outperform across industrial, automotive, and energy markets as it leverages its inventory and differentiation to capture share. Finally, our dispensing business has achieved strong results for the last two years, but will be down in 2023 driven by lower North American project volume as customer equipment refresh cycles approach their final innings. We continue to see growth in India offset by some moderating demand in Europe and Southeast Asia. For this segment, we expect price cost and operational productivity will drive margin expansion with some offset for mix as we see lower dispensing project volume in the segment. With that, I'll discuss our financial results.

[Bill Grogan, CFO at IDEX]

Moving on to our consolidated financial results on slide nine. Q4 orders of $803 million were up 1% overall and up 1% organically. We experienced continued orders growth in FMT, driven by strong water and energy results, and in FSD due to strong fire and rescue orders, as well as the receipt of a large project order for dispensing in the quarter. HST orders were down 8%, mainly due to the life science and AI OEM orders and softer semi demand I highlighted earlier. For the year, orders were up 8% overall and up 5% organically. We experienced positive orders growth across all three of our segments. Fourth quarter sales of $811 million were up 13% overall and up 12% organically.

[Bill Grogan, CFO at IDEX]

We experienced nearly 20% organic growth in HST and strong growth across both FMT and FSD. Full year sales of $3.2 billion were up 15% overall and up 13% organically. We saw strong double-digit growth across FMT and HST and 9% growth in FSD. Q4 margin contracted by 140 basis points compared to the fourth quarter of 2021. An adjusted gross margin of 43.6% contracted by 40 basis points. This was driven by unfavorable mix within HST and FSD, the dilutive impact of acquisitions, employee-related inflation and unfavorable productivity in HST, partially offset by volume leverage and strong price cost. For the full year, gross margins expanded by 50 basis points and adjusted gross margins expanded by 10 basis points to 44.8%.

[Bill Grogan, CFO at IDEX]

Primarily driven by strong volume leverage, positive price cost and productivity more than offsetting employee-related inflation and engineering resource investments. Fourth quarter adjusted EBITDA margin was 27%, up 10 basis points versus 2021. A bridge of Q4 adjusted EBITDA as well as Q4 adjusted operating income can be found in the appendix of this presentation. Full-year adjusted EBITDA margin of 27.9% is up 20 basis points versus 2021's adjusted EBITDA of 27.7%. This represents record profitability for IDEX. I will discuss the drivers of full-year adjusted EBITDA on the next slide. Our Q4 effective tax rate of 20.5% decreased versus last year's effective tax rate of 22.5%, primarily due to tax benefits realized as we recognize certain foreign currency impacts for tax purposes with the funding of the Muon Group acquisition.

[Bill Grogan, CFO at IDEX]

Our full-year effective tax rate of 21.7% also included tax benefits from the sale of our Knight business and was down from the 2021 effective tax rate of 22.5%. Fourth quarter Net Income was $130 million, which resulted in an EPS of $1.71. Adjusted Net Income was $153 million with an adjusted EPS of $2.01, which was up $0.30 or 18% over prior year. Full year net income was $587 million, which resulted in an EPS of $7.71. Adjusted net income was $618 million, resulting in an EPS of $8.12, up $1.25 or 18% over prior adjusted EPS.

[Bill Grogan, CFO at IDEX]

Finally, free cash flow for the quarter was $147 million, 96% of adjusted net income, mainly driven by improved working capital performance. For the year, free cash flow was $489 million, down 1% versus last year and coming in at 79% of adjusted net income, mainly driven by higher net working capital, partly offset by higher income. As we exit the year, we made progress in reducing core business inventories and have momentum behind us to continue to drive further reduction into next year. Moving on to slide 10, which details the drivers of our total year adjusted EBITDA. Full year adjusted EBITDA increased $119 million compared to 2021. Our 13% organic growth contributed approximately $91 million flowing through at a prior year gross margin rate.

[Bill Grogan, CFO at IDEX]

We levered well on the volume increase and had record price capture to offset record inflation. Price cost was accretive to margins and has returned to historic levels. As we exited the year, all three of our segments posted positive price cost results. We drove operational productivity to offset supply chain driven inefficiencies and realized the benefits of our energy and Italian site consolidations. Mix was a small positive for the year. We saw unfavorable mix pressure in the fourth quarter of about $3 million that reversed a majority of the year date favorability. We invested $20 million, taking the form of engineering and commercial resources in the business and M&A and Diversity Equity Inclusion resources in corporate, tracking to the lower end of the $0.20-$0.25 a full year spend we highlighted at the beginning of the year.

[Bill Grogan, CFO at IDEX]

Discretionary spending increased by $25 million versus last year, closer to the high end of the $0.20-$0.25 range on significantly higher sales than our original guide. We exited the year with a solid 30% organic flow through. ABEL, Nexsight, KZValve and Muon acquisitions, net of the Knight divestiture and FX contributed an additional $14 million of adjusted EBITDA. Inclusive of acquisitions, divestitures and FX, we also delivered 30% flow through. I would like to provide an update on our outlook for the first quarter and full year 2023. I'm on slide 11. We expect full year organic revenue growth to be in the range of 1%-5%. This range reflects the uncertainty in the second half of the year, given the short cycle nature of our business.

[Bill Grogan, CFO at IDEX]

This organic growth rate equates to $0.12-$0.60, depending on the top line results. This range includes price cost, which we anticipate will be positive for the year, and some mixed pressure stemming from HST and dispensing volume in FSD. We expect that our operational productivity will more than offset pressure from employee-related wage and benefits inflation. We operated in a challenging supply chain environment in 2022. We expect that easing of these conditions as well as driving our own internal productivity funnel will deliver $0.06-$0.08 of net productivity for the year. In 2022, we returned to a more sustainable level of discretionary spending post-pandemic and invested in the people needed to drive our strategy.

[Bill Grogan, CFO at IDEX]

Travel and external services did not fully rebound until the second quarter of 2022, and we hired at an increasing rate as we moved through the year. Although our spend is only moderately increased versus our 4Q exit rate, we'll see pressure of approximately $0.09 on a year-over-year basis. This impact is entirely felt in the first quarter of 2023. Although not to the same level as in 2022, we will continue to invest for the future. People, new products, as well as applications for existing products, and these investments will provide up to $0.20 of pressure in 2023, depending on top line results. The range indicates how we will focus on resource allocation in an uncertain period and dial in our investments appropriately.

[Bill Grogan, CFO at IDEX]

Net of the divesture of our Knight business last year, we expect acquisitions to contribute $168 million of revenue and $0.43 of EPS. Now let's look at a couple of non-operational items. Interest expense associated with the Muon acquisition represents a headwind of $0.12, and we expect FX to be a small impact, providing $0.02 of EPS pressure. In summary, we are projecting organic revenue growth of 1%-5% for the year. Adjusted EPS expectations are in the range of $8.50-$8.80, a 5%-8% growth over 2022. The midpoint of our guidance applies a solid 30% adjusted EBITDA flow through. Moving on to slide 12. I'll now provide some additional details regarding our 2023 guidance for both the first quarter and full year.

[Bill Grogan, CFO at IDEX]

In the first quarter, we are projecting GAAP EPS to range from $1.74-$1.79, and adjusted EPS to range from $1.98-$2.03, with organic revenue of 3%-5% and adjusted EBITDA margins of approximately 27%. Our guidance includes $0.07 of pressure from accelerated recognition of share-based compensation, as well as a delay in HST OEM shipments to the latter part of the second quarter that is lowering our organic growth expectations for the quarter. These factors, plus the carryover item I mentioned on the previous slide, mutes our year-over-year flow-through for the quarter, but expect to deliver solid flow-through for the year.

[Bill Grogan, CFO at IDEX]

Turning to the full year 2023, we project GAAP EPS of $7.55-$7.85, and adjusted EPS to range from $8.50-$8.80. We expect full-year organic revenue growth of 1%-5% and adjusted EBITDA margins to be 28% or higher. Capital expenditures are anticipated to be about $70 million, in line with 2022 spending as we continue to identify opportunities to reinvest in our core businesses. Free cash flow is expected to be 100%+ of adjusted net income. With that, I'll turn it back to Eric.

[Eric Ashleman, CEO and President at IDEX]

Thanks, Bill. I'm on the final slide 13. Before we open the call for questions, I'd like to wrap up with a summary of our 2023 focus areas. First, we are refocusing our efforts on a foundational set of practices and tools that link us together, the IDEX Operating Model. As we exit two intense years of double-digit organic growth within an environment of temporal barriers and obstacles, this is a year to double down on the core execution elements that make us an excellent company. The use of daily management, monthly business reviews, goal deployment, and other tools have long been a source of efficiency, innovation, and growth for IDEX. As market conditions, particularly within supply chains, begin to return to historic norms, we must seize the opportunity to optimize our process-driven fundamental business practices to best support future growth and outperformance.

[Eric Ashleman, CEO and President at IDEX]

We are committed to growing our talent at an even faster rate to fuel future IDEX growth. Our excellent execution is led by incredible leaders around the world who are committed to our core values to developing top-performing talent and to creating an inspiring company culture that attracts and retains the best people. Diversity, Equity, and Inclusion continues to be an area of focus, creating environments where people feel they belong and are comfortable bringing their true selves to work each and every day. One talent note I want to address is the recent departure of Melissa Aquino. If you recall from our last session together, I introduced her as the new leader of the FMT and FSD segments. Melissa made a difficult decision to go back to her previous employer to take an opportunity she felt she could not pass up.

[Eric Ashleman, CEO and President at IDEX]

We wish her well in her new endeavors and continue the search for her replacement. In the meantime, the gap has allowed me to step in, get closer to our businesses, and spend time with an outstanding group of business leaders. Lastly, we've deployed $1.5 billion over the last two years on high-quality growth businesses, and we look forward to deploying additional capital in 2023. Our M. & A. teams have made tremendous progress identifying compelling portfolio extensions. Our funnel is in the best shape it's been over my tenure at IDEX, and our strong operating cash flow and balance sheet put us in a great position to continue to capitalize on those opportunities. Although the short-term economic picture might be uncertain, I could not be more excited as I consider the next few years of our story.

[Eric Ashleman, CEO and President at IDEX]

I believe we're headed into an extended period of growth and above market performance fueled by a combination of technology-driven tailwinds and our own high-quality business potential. Our businesses are first-rate, our teams are outstanding, our culture is special. With that, let me pause and turn it over to the operator for your questions.

[Operator]

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two 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 star keys. Our first question is from Allison Poliniak with Wells Fargo. Please proceed.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Hi. Good morning.

[Eric Ashleman, CEO and President at IDEX]

Good morning, Allison.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Eric, just want to go back to your comment on optimizing processes and how we should think about that. You know, inventory is certainly a one that's been a target just 'cause you've had to build it up to deal with some of the supply chain issues. Maybe a little bit more color about how you're thinking about that. Thanks.

[Eric Ashleman, CEO and President at IDEX]

Yeah. That's probably the area with the best example. You know, we're coming off an environment where a lot of even the best intentional processes kinda turn into chasing things, looking for parts, and waiting for the truck to come in at noon, all of that kind of stuff. As that, you know, as that moderates and gets better, we just wanna be intentional to make sure that we're going back and putting in those process-based fundamentals, the right people in the right room having the right kinda conversations.

[Eric Ashleman, CEO and President at IDEX]

That's actually how we're gonna, you know, we frankly made a nice turn here in the fourth quarter on inventory. We got a long way to go, but we're really excited about that potential for us moving forward. I think everybody should be very thoughtful of recognizing that, you know, the way things have worked the last couple of years, if you're not intentional about reorienting back to something, you know, that operates in a higher plane, it's gonna lag. We're taking that opportunity.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Got it. Just turning to free cash flow, it's still a little bit below historical performance for IDEX in terms of that conversion. Is it really just that inventory holding it back? I would say, what would be the lever to drive it higher at this point and sort of back to normal for you guys?

[Bill Grogan, CFO at IDEX]

Yeah. In the fourth quarter, you know, we talked in the third quarter, inventory had stabilized. It wasn't a detriment to cash flow. Here in the fourth quarter, it added about $20 million to free cash flow, the movement we made on our inventory position, and we continue to see that momentum. You know, I think we've got line of sight to a half a turn to a full turn of inventory improvements as we progress through the year. It'll be a significant driver of our cash flow performance as we go from, obviously less than historical averages on a free cash flow conversion to last year being 100+%, which will yield somewhere between 30%-40% increase in free cash flow year-over-year. I think that's a huge win as we progress through the year.

[Allison Poliniak, Director and Senior Analyst at Wells Fargo]

Perfect. Thanks a lot.

[Bill Grogan, CFO at IDEX]

Thanks.

[Operator]

Our next question is from Mike Halloran with Robert W. Baird. Please proceed.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Hi, good morning, everyone.

[Bill Grogan, CFO at IDEX]

Hi, Mike.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Couple questions here. First on the guidance and obviously the commentary on the first quarter and some push-outs, plus a lot of the commentary about basically expected volatility through the year. How have you cadenced that guidance? Is it relative to normal seasonality? I mean, how do you think about first half, back half versus a normal year? Not that we've had a lot of normal years lately, but any kind of context you give to how you're thinking about what that cadencing looks like and how much kind of caution maybe you put in there given what that backdrop looks like.

[Eric Ashleman, CEO and President at IDEX]

Yeah. I think, you know, we're generally first half, second half is fairly close, you know, 49, 50, 51, 49, something like that. This year, I think, you know, the implied guide is a stronger first half with volume starting to decline in the back half. You know, we've got pretty strong price carryover and price capture that will put in place here in the, in the first quarter. That'll carry at least the price side, and then just the implied volumes in the back half are down somewhere between, you know, 2%-4%.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Great. That's helpful. Makes sense. You know, the comment on order volatility expected is, you know, essentially the booking to shipment time period compresses or returns to normal. You know, are you essentially suggesting that you're gonna be seeing some pretty volatile order patterns through the year, but maybe a little bit more linear demand patterns as we work through the year relative to the kind of front half, back half comments you just made, Bill? You know, is that basically a warning sign for, in your view, for what those order rates might be, but don't over extrapolate relative to the underlying demand?

[Bill Grogan, CFO at IDEX]

Yeah. No, I think that's well said. I mean, it's a recalibration year, just like we had dynamic recalibration on the way up and, you know, recovery from the pandemic and supply chain issues and things like that. Stimulus. You know, now I think we're gonna be returning to more normal patterns. Given the nature of IDEX, that's liable to play out at differentiated rates. You know, we see some more of it, as you'd expect, in some of those OEM-centric markets within HST, where we're a lot closer to the customer. It's more high velocity anyways. You can see a bit of a pause there to take a breath, take some inventory out of their system. You know, those are healthy markets on the other side of them.

[Bill Grogan, CFO at IDEX]

Some of our industrial businesses that are, you know, a little further away from the end customer, lots of distribution between us and them, lots more fragmentation. I think you'll see some of those same things play out over time, but probably a little further down the road. What we're kind of expecting here is that, you know, from a high level, you'll see things return to more normal, you know, rates, where often the backlog or the order rates and the sales rates are pretty tightly linked for us, unless we're sort of beginning or ending the cycle. I think that what's a little unusual here is just the way it will play out, the nature of it, given just the differentiated pockets of IDEX. We're prepared for all of that.

[Bill Grogan, CFO at IDEX]

You know, what we're trying to do at, on one side is look at it, adjust to it, course correct, but then always looking on the other side so that we don't overinterpret something in the short end, you know, think it means something that's sustainable for two, three years when it doesn't, and we keep resources aligned in places that have the best growth prospects for us.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Appreciate that. One quick one, just a clarification. Slide seven with the arrows within the range. Are those arrows implying high end and low of the range for the HST and FSDP, or are you suggesting a little bit above, a little bit below, and then the green parity?

[Bill Grogan, CFO at IDEX]

Yeah.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Just clarification.

[Bill Grogan, CFO at IDEX]

Yeah, exactly. HST on the high end of the range, FMT in the middle, and then FSD at the lower end of the range.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Got it. Still in the range. Appreciate it. Thanks, Bill.

[Bill Grogan, CFO at IDEX]

Thanks.

[Mike Halloran, Senior Research Analyst at Robert W. Baird]

Thanks, everyone.

[Operator]

Our next question is from Nathan Jones with Stifel. Please proceed.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

Good morning, everyone.

[Bill Grogan, CFO at IDEX]

Hi.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

I'm gonna follow up on Mike's question, last question there, and follow up on this recalibration of orders and things like that. IDEX doesn't typically have a lot of inventory in a lot of channels.

[Bill Grogan, CFO at IDEX]

Mm-hmm.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

But I'm sure there are some pockets of the business where there are some inventory in the channels. How are you thinking about the potential for your customers to destock some of?

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

Their inventory, and for that to, be a pause in demand for you guys, is that something that you've baked into that down two to four volume in the second half?

[Eric Ashleman, CEO and President at IDEX]

Yeah. I mean, there's definitely some of that in there. I think, you know, as you know, we're kind of low on the food chain. We do a lot of component work for people who then turn it into subsystems and turns it into final systems. At any point along that food chain, there's the potential for accumulation and then frankly, the normalization of it along the way. I think what we're thinking about though is when you think of how order patterns are generated, you know, many of them are actually done in an automated way. There actually isn't a lot of human intervention. The two factors that drive it the most are, of course, lead times and whether or not they're pulling in, and we're seeing that.

[Eric Ashleman, CEO and President at IDEX]

We're seeing that kind of across the supply base. We're experiencing it as well. A factor a lot of people don't consider as much though is volatility or variability. Even when lead times are pulling in, if you still have an inability to count on it will tend to keep driving higher, you know, demand requirements throughout the system. We're kind of monitoring both of those. As any one of them comes to something more normal, almost always you're gonna see an impact on that on the other side for a short cycle business like ourselves. I don't think it's a massive number because as you say, most of the things we make are customized and they don't stock well anyways. You know, we're coming off a pretty robust time here.

[Eric Ashleman, CEO and President at IDEX]

I do think this calibration matters. It will play out over time through, you know, much of IDEX. Again, I think the focus for us is to understand it, make sure that our own inventory positions and resources are calibrated right, but then be very focused on end market demand, what's driving that, what's the actual consumption rate on the other side, 'cause that ultimately is what you wanna dial into.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

I think maybe the question on supply chain, I think over the last couple of years, generally, you know, all of these lead times have stretched out. For IDEX's businesses, the delays have really been up your supply chain because you buy these highly value-added components.

[Eric Ashleman, CEO and President at IDEX]

Yeah.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

There's a number of steps for them to go through. As they compress, that's compressing the order to ship time. Can you talk about, you know, where your supply chain is, you know, relative to where it was in 2019, how much better it's got, how much there is still to go, and what your general assumption is now for getting back to something like normal? Does it happen in 2023?

[Bill Grogan, CFO at IDEX]

Yeah.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

Does it happen in 2024?

[Eric Ashleman, CEO and President at IDEX]

Sure. I mean, I would say in general, it's improved a lot and pretty close to where we were in 2019 with a few commodity exceptions. Probably put electronics still at the top of that list. Frankly, we're not the most electronics intensive business. It matters, but it's not widespread across the company. You know, I think I would also remind everybody on the call, you know, we have a lot of local supply, you know. We're typically dealing with people we've known a long time that are not far away all through, you know, the kind of the worst of it. In many cases, we were helping them. We were kind of sending people over to figure things out, help improve their flow. It's those kind of relationships.

[Eric Ashleman, CEO and President at IDEX]

You know, and given that sort of topology, you know, these are the kind of companies that can course correct a little better and generally have. I would say, you know, we're not yet normalized to 2019 levels all across, all across IDEX. We're, we're definitely past the halfway line. You know, depending on how the year plays out, you could see us basically articulating a normal condition, I think, closer to year-end, certainly as we begin the next year, absent any other, you know, force that we can't see.

[Nathan Jones, Managing Director and Head of Industrials Research at Stifel]

Perfect. Thanks for taking my questions.

[Eric Ashleman, CEO and President at IDEX]

Thanks, Nathan.

[Operator]

Our next question is from Deane Dray with RBC Capital Markets. Please proceed.

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Thank you. Good morning, everyone.

[Eric Ashleman, CEO and President at IDEX]

Hi, Deane.

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

I was hoping we could unpack the margins in HST. I know you gave some of the color in the prepared remarks. You certainly had the top line and... You didn't get the margin read through. It sounded like price cost was positive. You gave some of the other data points. Was mix a factor? Just, you know, and how much of this was temporary versus how you expect it to play out the rest of this year?

[Eric Ashleman, CEO and President at IDEX]

Yeah. I think there's three things there, Dean. One, we continue to face some of the inefficiencies we talked about here as we progress through the back half of the year. You know, some of those businesses have grown 20% and still calibrating on some of the manufacturability of some of this cutting-edge technology that they have. Two was some mix within the portfolio. We talked about some of the short term OEM pushouts. A lot of that has been kind of our book and ship components that are higher margin. The last one, just the addition of Muon. You know, they were only in the portfolio for a month. They were shut down to do a full physical inventory that diluted margins a little bit.

[Eric Ashleman, CEO and President at IDEX]

The Muon will go away in the first quarter. I think we're making progress on the productivity piece, but the mix, I think, is still a component that we'll experience in the first quarter. Yeah, we've got the volume impact and then that mix carrying through at least through the next three months.

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Got it. That's helpful. Just expectations on price cost into 2023. Are there more pricing initiatives you need to put through, or is this all carryover benefit?

[Eric Ashleman, CEO and President at IDEX]

No, we've got carryover and then incremental pricing actions that we took to kick off the year. Obviously, that's part of our normal processing cadence to continue to capture the value for our products. I think we're in a really good position from a price cost. You know, we said in the fourth quarter, we're back to our historic levels, and we think that'll continue here as we progress through the year. If something, you know, were to change, obviously, we'd go back to the customers with an incremental increase. We're well positioned here as we kick off the year.

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Great. Just last question. I'm not sure how specific you can get, and I really appreciate the prepared remarks and the, some of the earlier questions about fleshing out the transition period year. Just, you know, right from the supply chain normalizing changes, order behavior, we get that. You know, we just saw the ISM taking another step down, new orders another step down. With all your short cycle businesses, you know, this is a great canary in a coal mine company to, like, gauge lead time changes, and you've given fabulous color here. If we total up the collection of soft pockets of business, is this a demand deterioration you're seeing broadly? Could it be the early signs of it? Or do you feel like these are more temporary?

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Just kind of step back and say, okay, from seeing these trends, how does it look to you for the businesses that you touch play out for the course of the next couple quarters?

[Eric Ashleman, CEO and President at IDEX]

Yeah, I'd say, Deane, it's still pretty early. I mean, everything we're kind of talking about here near term that, you know, there was some exposure in Q4 and some carry into Q1, that's very much a temporal condition and otherwise very active and strong markets where you can see, hey, people are taking a pause for all the reasons that you just suggested. You know, those bellwethers that we have on the industrial side, most of which, you know, their order side is coming through the small order flow side. Honestly, those are holding up. You know, we're simply, in some cases, projecting that if you combine a couple of things, you know, we kind of know where those inventory levels are. We know how they think about planning. We know where we are from a lead time perspective.

[Eric Ashleman, CEO and President at IDEX]

We're saying at some point, we expect we'll have some of that moderation there, but it really isn't in front of us as we, as we sit here today. back half of the year is more of a macro call than anything else as we think about kind of floor and top end of the range for all of IDEX. I think your question is helpful because it helps us kind of parse that we'll at least put out there, hey, we're seeing some of these things from an early indication standpoint, but most of them are in a temporal spot. We can imagine some things that would be, you know, bigger pieces of IDEX, more industrial in nature, that would kind of follow the same calibration.

[Eric Ashleman, CEO and President at IDEX]

Ultimately, like everyone else, we're kind of thinking about where does the future go back half of the year. It's more of a macro question.

[Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets]

Yeah, that's exactly the color I was looking for. Very helpful. Thank you.

[Bill Grogan, CFO at IDEX]

Thanks, Deane.

[Operator]

Our next question is from Robert Wertheimer with Melius Research. Please proceed.

[Robert Wertheimer, Director of Research at Melius Research]

Thank you. Good morning, everybody.

[Eric Ashleman, CEO and President at IDEX]

Hi, Rob.

[Robert Wertheimer, Director of Research at Melius Research]

Your order commentary has been very clear and helpful, and I appreciate it. I'm sorry to sneak in one more on it, but, just in general, is HST a vertical that had more excess inventory given some of the, I don't know, the disruptions across the whole vertical? Do you have a sense that supply chain's actually gotten a lot better or orders like coming in as people anticipated getting better? I'm just wondering if that's already happened where people can feel more confident in lead times, you know, I guess, across the businesses, or whether it's an anticipation of that. I had an M&A question, if I could.

[Eric Ashleman, CEO and President at IDEX]

I think the first question, I wouldn't say that those businesses in the HST world, you know, have more inventory. I would say that they have more sophisticated planning. You know, I think that.

[Robert Wertheimer, Director of Research at Melius Research]

Mm.

[Eric Ashleman, CEO and President at IDEX]

We've typically seen in any cycle, they're bigger organizations. They're a little bit more formal. They're usually a little quicker to react, you know, to cycles. When they do it, you know, that's more of a concentrated industry anyways. It, it tends to be kind of amplified that way. You know, there's nothing that tells me that somehow that they're sitting on more than anywhere else, and it's in any way, frankly, unusual from some other patterns we've seen when things change. I'd say that's number one. Remind me again on the second question. I wanna make sure I get the exact essence. You talked about supply chain-

[Robert Wertheimer, Director of Research at Melius Research]

I'm sorry. It was.

[Eric Ashleman, CEO and President at IDEX]

-confidence.

[Robert Wertheimer, Director of Research at Melius Research]

Exactly. Yeah. Whether supply chain's already gotten better, and that lets people have more confidence in lead times and thus de-stock a bit or whether that's not happened yet.

[Eric Ashleman, CEO and President at IDEX]

Yeah. No. I, again, I think of it as two variables. One is lead time compression. That's absolute. I think people are seeing that. They're seeing that quoted to them when they call and ask about things. I would say the second component that I mentioned that is important though is the performance against those quotations. Neither one of them yet are kind of back to where they need to be. They're both improved, but they both work together. Frankly, that second piece, you know, the one about sort of assurance and delivery against commitments, has a huge psychological impact. I think it's one of the I think it's actually the more powerful of the two.

[Eric Ashleman, CEO and President at IDEX]

If people say, "Hey, it's still longer, but I know I'm gonna get it exactly when I ask for it," they'll actually make that move in a more fundamental way. If they're still getting surprised from time to time, that tends to fuel a little bit of this, I'm gonna keep some things, I'm gonna protect some things. Both are moving, and as we continue to talk through the year, you'll hear us talk about both sides of that.

[Robert Wertheimer, Director of Research at Melius Research]

That was very helpful. Thank you. Just in general, we've had, I think a reasonably solid level of deal activity. You guys have done great over the last year. Your characterization of, you know, buyers market, just the mood among potential targets for acquisition and whether PE matters for you guys and whether there's less intense competition there. I will stop. Thank you.

[Eric Ashleman, CEO and President at IDEX]

I mean, so in general, our, our story is a good one here. I mean, we've had, you know, we've had some good performance over the last couple of years, some great businesses we brought in. I've talked from time to time about, you know, the intentional work we've done to sort of build strategic conviction in a really, really formal way that contributes to the basic business intelligence that we have from all the businesses across IDEX. The things that we control are in a great spot.

[Eric Ashleman, CEO and President at IDEX]

As we think of then engaging with the outside world, I've always been careful to help people understand that, you know, we're fishing in a very high quality universe. You know, that I think in some ways holds up and it doesn't move around as much, you know, in terms of valuations and even timing of transactions, particularly if you do this work well. On the PE front, they're often competing with us for properties like this. They too are attracted to companies like this. I will say it's probably a little less activity competitively there or people, you know, that have been able to raise funding and be in the game.

[Eric Ashleman, CEO and President at IDEX]

We've long aspired with this work that we're doing to sort of be ahead of that anyways, with, you know, cultivation on a proprietary nature, talking to people that we meet at the trade shows, those kind of things, so that we're not actually in kind of a classic bake off with lots of people anyways. It's an efficient market, it doesn't always happen. When it does, I think the dynamic around PE activity is absolutely true. Valuations overall, still pretty rich, because again, we're looking for high-quality companies like the last three that we've, you know, brought into the business.

[Robert Wertheimer, Director of Research at Melius Research]

Thank you.

[Operator]

Our next question is from Scott Graham with Loop Capital Markets. Please proceed.

[Scott Graham, Managing Director at Loop Capital Markets]

Hey, good morning. Eric, thank you for all that transparency. That was great. The questions maybe I missed it because I was writing away because you were talking, saying so many things. Did you tell us what pricing was in the quarter?

[Eric Ashleman, CEO and President at IDEX]

no one asked it. It was over 5%.

[Scott Graham, Managing Director at Loop Capital Markets]

The gap, was it, you know, that still about like 50-ish?

[Eric Ashleman, CEO and President at IDEX]

On price cost?

[Scott Graham, Managing Director at Loop Capital Markets]

Yes.

[Eric Ashleman, CEO and President at IDEX]

Yeah, we said it was back to our historical level, so right around there.

[Scott Graham, Managing Director at Loop Capital Markets]

Okay. Then the carryover for next year, can you tell us what that would be?

[Eric Ashleman, CEO and President at IDEX]

Yeah. I mean, overall price next year is somewhere around 3% to 4%, about half of it's carryover.

[Scott Graham, Managing Director at Loop Capital Markets]

Got it. Thank you, Phil. I was just wondering also with the step down in the first quarter, organic, is that mostly FMT and, you know, maybe secondarily FSD in the organic?

[Eric Ashleman, CEO and President at IDEX]

No, it's mostly HST. You know, we.

[Scott Graham, Managing Director at Loop Capital Markets]

Okay.

[Eric Ashleman, CEO and President at IDEX]

We highlighted just some of the temporal moves from some of the OEMs as they recalibrate, you know, order patterns and inventory levels. That's the major driver.

[Scott Graham, Managing Director at Loop Capital Markets]

Okay. I guess my sort of last question here is, you know, also, you know, on the M&A environment, I mean, in the past, you guys have, you know, sort of talked about what's available and, you know, a little bit about the funnel. Is there anything more you can say than what you've already said on M&A? Is that still, you know, the spreads still, you know, kind of coming in a little bit or anything changed?

[Eric Ashleman, CEO and President at IDEX]

No, I mean, as I said, just a minute ago that, you know, we're still looking for high-quality properties. Those valuations tend to hold up over time because of the long track record, usually predating our conversation and the expectation you'll have a, you'll have a good trail out on the other side. You know, I just think from an availability front, we've got more than ample capacity, even though we've deployed a lot over the last two years. The great part of being IDEX is we generate that capacity each and every day. Then, you know, I think our targets, we really have not changed. We kind of are comfortable with a band of about half a billion to a billion.

[Eric Ashleman, CEO and President at IDEX]

If Long considered that to be a good target for us here in the next couple of years, sort of regardless of cycle, and they're generating all the right work to go realize that.

[Scott Graham, Managing Director at Loop Capital Markets]

Thank you. Appreciate you taking the question.

[Eric Ashleman, CEO and President at IDEX]

Thanks, Scott.

[Operator]

Our next question is from Bryan Blair with Oppenheimer & Company. Please proceed.

[Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.]

Thanks. Good morning, everyone.

[Eric Ashleman, CEO and President at IDEX]

Morning, Bryan.

[Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.]

I was wondering if you could offer a little more of a profile on Muon Group, maybe a rough breakout of, you know, key end market exposures across semi, med tech, food and beverage, and others, where historical growth rates have been, how the current market environment impacts 2023 expectations and where there's the greatest opportunity to extend or accelerate growth within the IDEX portfolio going forward?

[Bill Grogan, CFO at IDEX]

Yeah, Bryan, we've said about 2/3 of the business is in those major categories you started with on the medical, semi, and food side, the balance in a variety of different applications. You know, we've said it's grown at double digits here the last several years. It's got line of sight to continue to do that here as we progress, even with some of the noise out there in the semicon market, where they play in the space is still healthy. They've got innovative technology that they continue to roll out. We remain bullish on their growth profile, both on core products and some of the MPD applications that we've gotten to know a little bit more as we've progressed through the last couple of months of our ownership.

[Eric Ashleman, CEO and President at IDEX]

Then really past that, I mean, we did say, hey, there's some customer points that we have that they don't have that over time we think are interesting and we could exploit those. That's very interesting things on the kind of co-development fronts, but, you know, the cycle of those are gonna be further out in the future. This always kind of was a game of capitalizing on the near-term strength and success of that business in those markets with sort of this additive element that we're gonna work over time to enrich it with all the IDEX assets.

[Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.]

Definitely makes sense. Given the composition of Muon Group, you know, there, from what I can see, at least five businesses, I'm not certain, you know, divisions or platforms they're in. Are there any unique aspects of integration that you would call out? I guess just the level set, obviously, this is a, you know, growth opportunity, but are there cost synergies?

[Eric Ashleman, CEO and President at IDEX]

I mean, not so much within the IDEX topology and things like that. I mean, there's some certain things we do to leverage back office and being part of the company. It's not kind of a classic story of us kind of putting things together and moving plants around. As you often see in businesses like this, I mean, a lot of that technology is resident in people. You know, I think the single biggest lever that we anticipate pulling here, absent that one is 80/20. I mean, it's just the implementation of that model, and I can absolutely assure you their profile is very IDEX-like out of the gate, which means there are opportunities there to streamline it and simplify it.

[Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.]

Okay, excellent. One last one, if I can. You've called out an increasing project activity in municipal water over recent quarters. There's obviously a lot of funding for domestic projects. Are you willing to offer some finer points on that front? You know, how much the project funnel has expanded, anticipated 2023 growth, anything along those lines?

[Eric Ashleman, CEO and President at IDEX]

Yeah, I mean, it's, you know, of course it manifests itself across a series of franchises and very kind of different technologies that we have. I'd probably just roll back to very, very positive. The quote activity has been strong here at the end of last year, continues into this year for all of the dynamics that you're citing, everything from EPA funding and enforcement possibilities, which has always been a catalyst for the businesses that we own now, as well as, you know, broader infrastructure support over time, which as always takes a little longer to land, but also has the potential to extend some of the growth time frames that we're thinking about into the future. We're well-positioned, you know, we're continuing to kind of work those assets together.

[Eric Ashleman, CEO and President at IDEX]

This is an area of focus for us as we think about deploying some capital too.

[Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.]

Okay. Appreciate all the color. Thanks.

[Eric Ashleman, CEO and President at IDEX]

Thank you.

[Operator]

Our next question is from Brett Linzey with Mizuho Americas. Please proceed.

[Brett Linzey, Senior Analyst at Mizuho Americas]

Hi. Good morning, all.

[Eric Ashleman, CEO and President at IDEX]

Morning.

[Brett Linzey, Senior Analyst at Mizuho Americas]

Just wanted to come back to the excess OEM inventory comment. Any sense in terms of, you know, months or weeks of inventory on hand at those OEs that needs to get worked out? You know, any color or specific product customer segments that you're referring to there?

[Bill Grogan, CFO at IDEX]

No, no, I think from a, from a segment, I think it's most of, you know, we described within some of the comments or within our Life Sciences and Medical Instrumentation, the folks in that group, you know, from a, from a magnitude perspective on what they're holding in from inventory, I wouldn't speak to that other than just conversations with them. There is a calibration period that we're going through. Eric highlighted earlier in the call, this isn't atypical to what we've seen historically, where we've gone through really robust cycles of growth. There's a quarter or two of recalibration to normalize and then back off. You know, I think as you hear any of the external commentary for those large customers, they're still bullish on their equipment deliveries and the growth that they're gonna see in 2023.

[Brett Linzey, Senior Analyst at Mizuho Americas]

Yeah. All right. Makes sense. Just shifting to the resource investment you contemplated for the, for the guide, $0.00-$0.20. I mean, certainly a wide range given the macro and understand that. You know, historically, I'd say IDEX consistently invested regardless of the, you know, the state of the environment. What type of situation really drives you to that lower end? And then maybe just a little color on some of the various projects that are being contemplated there.

[Bill Grogan, CFO at IDEX]

Yeah. Well, absolutely, we always think of investing and investing for the future and investing to grow. One of the great things about a company like ours, though, is we can, we can move things around sideways a lot to help us kinda hit the lower end of that range and still make the right choices for the right businesses. Whenever you see us talking about stuff like a zero, it's actually still very dynamic here. It's just, to be candid, we would take businesses that are in softer parts of the, you know, the universe, and we would quite intentionally, like, pull those down, weed them out a lot, and, you know, redistribute those costs elsewhere to parts of IDEX that are stronger, sometimes literally taking the same people and putting them over in stronger parts of IDEX.

[Bill Grogan, CFO at IDEX]

We actually have that nice optionality down at the lower end of the range, which keeps it all moving and allows us to kind of weather a storm if it happens.

[Brett Linzey, Senior Analyst at Mizuho Americas]

Got it. Appreciate the insight. Thanks a lot.

[Bill Grogan, CFO at IDEX]

You bet.

[Operator]

Our final question is from Joseph Giordano with Cowen and Company. Please proceed.

[Joseph Giordano, Managing Director at Cowen and Company]

Hey, guys. Just a couple follow-ups on orders here. If I look at HST, obviously the orders there on an organic basis, the weakest across the portfolio, but the growth for the year on revenue expected to be the best. When at what point kind of as you get through the year, do you need to see orders start to, like, stabilize or start accelerating again before, like, you get a little bit more concerned about the organic revenue profile going forward?

[Bill Grogan, CFO at IDEX]

Yeah. No, I think we have a while. You know, HST is our biggest backlog. They've built the most backlog out of the three segments, so really comfortable with their position here as we go through the first half of the year. You know, we said this calibration on the OEM inventory levels is generally a quarter. You know, maybe it spreads into the second. We're confident that we're gonna see that, you know, start to pick up and move as we progress into the back half of the year.

[Joseph Giordano, Managing Director at Cowen and Company]

Similar on FMT. I'm sorry, on, Diversified. Dispensing is a headwind this year on a revenue basis, but it looks like orders kind of picked back up to almost, you know, essentially peak levels that you saw, like a year ago. Are you starting to see that? Like, do you feel more comfortable about the visibility? Are those like 24 orders, I guess essentially for dispensing that you're getting kind of now?

[Bill Grogan, CFO at IDEX]

The Q4 order we got for dispensing will book in the second and third quarter of this year. Dispensing orders were up 25%, but their sales were down 20%+ in the fourth quarter. This is, you know, that was the one last order to give us kind of the full set of visibility to, you know, still reasonable performance, but down. You know, that's gonna mask a little bit of the strong organic growth that we expect from Fire & Safety and BAND-IT next year.

[Joseph Giordano, Managing Director at Cowen and Company]

You'd expect the dispensing orders to move back down? I mean, sorry.

[Bill Grogan, CFO at IDEX]

Yeah.

[Joseph Giordano, Managing Director at Cowen and Company]

The diversified orders to move back down from like fourth quarter levels.

[Bill Grogan, CFO at IDEX]

Yes. Yes, definitely.

[Joseph Giordano, Managing Director at Cowen and Company]

Okay, cool. Okay. Thanks, guys.

[Bill Grogan, CFO at IDEX]

Yep, no worries.

[Operator]

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

[Eric Ashleman, CEO and President at IDEX]

Okay. Well, thank you all for joining and listening to our story. You know, I know there were a lot of moving pieces there in a environment that's got some pluses and minuses and things that are playing out, so I'll keep this really, really simple. You know, I wanna, again, thank all the folks from IDEX. You know, 2022 was a great year. I mean, really, really outstanding year, incredible growth, focused on the right things, getting capital to work. We grew our people, we grew our culture. I think 2023 is gonna be an equally great year, and it really sets us up for the future to come. You know, we talked a little bit in my last framing comments there about the power of execution.

[Eric Ashleman, CEO and President at IDEX]

We're really excited about that. We think we've got a chance here to go establish even a little bit more competitive advantage as we jump on this and recalibrate to the world to come. We're all over it. We're doing that actively. Then, just as passionately, we've got a number of teams that are thinking about the future, what comes in five years, what comes in 10 years, and we're gonna make the choices that we have to capitalize on those too. Thanks for your support and interest, and have a great day.

[Operator]

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Participants

Executives

• Allison Lausas, VP and Chief Accounting Officer
• Bill Grogan, CFO
• Eric Ashleman, CEO and President

Analysts

• Allison Poliniak, Director and Senior Analyst at Wells Fargo
• Brett Linzey, Senior Analyst at Mizuho Americas
• Bryan Blair, Managing Director and Senior Analyst at Oppenheimer & Co.
• Deane Dray, Managing Director and Senior Equity Analyst at RBC Capital Markets
• Joseph Giordano, Managing Director at Cowen and Company
• Mike Halloran, Senior Research Analyst at Robert W. Baird
• Nathan Jones, Managing Director and Head of Industrials Research at Stifel
• Robert Wertheimer, Director of Research at Melius Research
• Scott Graham, Managing Director at Loop Capital Markets