Ametek Stock

Good day, and thank you for standing by. Welcome to the Q2 2026 AMETEK Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to your first speaker today, Kevin Coleman, Vice President, Investor Relations and Treasurer. Please go ahead.

Thank you, Stephanie. Good morning, and welcome to AMETEK's Second Quarter 2026 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC.

AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to historical results will be on an adjusted basis, excluding after tax, acquisition-related intangible amortization and excluding acquisition-related costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open it up for questions.

I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK delivered fantastic results in the second quarter with double-digit organic sales growth, excellent orders growth, strong core margin expansion, outstanding cash flow generation and record earnings ahead of our expectations.

We also raised our full year sales and earnings guidance to reflect our outstanding first half results and our positive outlook for the balance of the year. Second quarter sales were a record $2.04 billion, up 15% from the same period in 2025.

Organic sales were up 10%. Acquisitions added 5 points with foreign currency flat. Orders were again exceptional in the quarter with continued broad-based growth across all AMETEK divisions. Overall orders were a record $2.3 billion, up 28% versus the prior year, with organic orders up sharply at 25%, being to a record backlog of $4.1 billion. This outstanding second quarter orders growth follows the first quarter's 22% organic growth, reflecting the strength across our attractive end markets.

Operating income for the quarter was a record to $544 million, an 18% increase over the second quarter of 2025. Our operating margins were excellent in the quarter at 26.6%, up 60 basis points from the prior year. Core margins were 27.1%, up a very strong 110 basis points versus last year's second quarter.

EBITDA was a record $644 million, up 14% versus the second quarter of 2025 with EBITDA margins in impressive 31.5%. We also generated strong cash flow in the quarter with free cash flow up 37% to $452 million and free cash flow to net income conversion of very strong 111%, reflecting our outstanding operating performance and working capital management.

Diluted earnings per share were a record $2.09, up 17% versus the second quarter of 2025 and above our guidance range of $1.96 to $2 per share.

Now I will share some additional details at the operating group level. Starting with the Electronic Instruments Group. EIG generated outstanding second quarter results with excellent sales growth, strong operating performance and robust orders growth. EIG sales in the quarter were $1.32 billion, up 14% from last year's second quarter.

Organic sales were up 7% and acquisitions added 7 points with foreign currency flat. Orders for EIG were again outstanding with overall orders up 23% and organic orders up 20% in the quarter. Growth in both sales and orders was broad-based across all EIG divisions with our process instrumentation, aerospace and power businesses all benefiting from their strong positions in attractive markets.

EIG's second quarter operating income was $385 million, up 12% versus the second quarter of 2025. Core operating margins were 30.1%, up 40 basis points from the prior year. The the Electromechanical Group delivered exceptional results in the second quarter with excellent sales growth, sizable orders growth, strong operating performance and impressive core margin expansion. EMG's second quarter sales were a record $723 million, up 17% versus the prior year.

Organic sales were again up double digits at 15% with acquisitions contributing approximately 2 points to growth. EMG sales growth in the quarter was balanced across our aerospace, defense, med tech and automation businesses. EMG organic orders were once again exceptional up 35% versus the prior year. EMG operating income for the second quarter was a record $191 million, up 32% compared to the prior year.

EMG's core operating margins were 26.2%, a 290 basis point increase versus the second quarter of 2025. Overall, I'm very pleased with our performance this quarter and in the first half of the year. Our colleagues continue to deliver exceptional high-quality results and position AMETEK for continued growth. Together, we have delivered an exceptional long-term track record and have created meaningful shareholder value.

I'm equally pleased with the work we have done to strategically position and align our portfolio with many powerful secular growth drivers. AI is driving sizable demand for advanced semiconductors that require ultraprecise optics, 3G metrology systems and expanded power infrastructure. At the same time, recent geopolitical uncertainties and volatile energy prices are increasing the focus on defense modernization and energy security creating broad-based demand for our businesses.

In addition, innovation-led momentum in medtech sustained strength in commercial aerospace and improving demand across precision automation are complementing these secular tailwinds.

Looking ahead, we believe these broader investment themes will continue to drive meaningful growth. With that said, I would like to spend a few minutes highlighting how AMETEK's businesses are aligned with key areas of strong demand.

Our TDS technologies a leader in real-time digital simulation of power system infrastructure and hardware in the loop testing recently received a key order from a data center hyperscaler to help derisk the power profile of a broader data center build-out. RTDS real-time simulators enabled detailed power system analysis, helping engineers anticipate system and device behaviors that can impact electrical system stability, resilience and performance.

As data center power ecosystems grow increasingly complex, operators must ensure their power architectures can meet evolving requirements across operating conditions, low cycles and infrastructure changes. RTDS is well positioned to support this critical need.

Additionally, our Zygo business, a provider of advanced metrology systems and optical components is supporting accelerated investment in AI infrastructure with its precision metrology and optical solutions. These solutions are designed into leading semiconductor platforms used to manufacture advanced chips the power AI and next-generation computing. As semiconductor complexity increases, precision becomes more critical.

Our customers rely on Zygo's technology to meet tighter tolerances and improve manufacturing yields. Alongside this, demand across the broader semiconductor ecosystem, including memory, logic, advanced packaging and photonics remains strong. Zygo is positioned to benefit from ongoing investment in these infrastructure enabling technologies.

I also want to note the exceptional growth we are seeing within our Paragon Medical business. Continued support orders growth is being driven by attractive new design wins tied to orthopedics drug delivery systems and highly engineered medical components. More broadly, Paragon is performing extremely well and delivering outstanding growth and profitability. Excellent job by our RTDS, Zygo and Paragon teams.

Now turning to acquisitions and capital deployment. As I have regularly noted, our top capital deployment priority is strategic acquisitions. Our strong balance sheet and consistent robust cash flow provide us the ability to deploy a meaningful amount of capital for acquisitions. We continue to maintain a robust pipeline of acquisition opportunities across deal sizes and expect to remain active in executing on this pipeline.

We remain excited for the acquisition of Indoor Instrumentation. Our teams are working through the integration planning and we continue to expect the acquisition to close in the second half of the year. In addition to our acquisition and capital deployment strategy, we are committed to invest in our businesses to ensure they are well positioned for long-term sustainable growth.

In the second quarter, our new product vitality was a strong 25%. These investments in new products help continue to drive organic growth. Our used trailer business, a leading provider of advanced heat exchangers and thermal management solutions for mission-critical aerospace and defense applications, recently introduced micro foil, a next-generation lightweight heat exchanger technology. This new product delivers a compelling combination of exceptional heat transfer performance in an ultra low weight design, providing customers with a unique solution to address their most demanding applications.

Micro foil's innovative architecture can be easily adapted to curved and conformal spaces, providing exceptional thermal performance for use in aerospace, defense and industrial cooling applications. Congratulations to the huge trailer team on this outstanding achievement.

I would also like to congratulate our AlphaSense business for receiving AMETEK's Annual Innovation Award. The AMETEK Innovation Award recognizes our businesses efforts to develop and advance next-generation technology, products and solutions for the markets we serve and celebrates the most innovative product development from across the company. AlphaSense, which is part of our Process and Analytical Instruments division, is a leading provider of advanced sensors used in environmental health and safety applications.

The latest product, the A2 GLF oxygen sensor was named the recipient of our Innovation Award. This sensor, the world's first Galvanic lead-free oxygen sensor is designed for accurate oxygen gas measurement in demanding environments targeted to OEMs of portable and fixed gas detectors seeking regulatory compliance and environmental controls without sacrificing performance.

The sensor is designed to retrofit a large installed base, along with next-generation instrument development. Well done to the Alphasense team for this outstanding achievement.

Now shifting to our outlook for the balance of the year. Our increased sales and earnings guidance for the year incorporates our strong second quarter results and positive outlook for the balance of the year. For 2026, we now expect overall sales to be up approximately 10% on a percentage basis with organic sales now expected to be up mid- to high single digits versus the prior year.

Our diluted earnings per share for the year are now expected to be in the range of $8.20 to $8.30, up 10% to 12% compared to last year's results. This is an increase from our prior full year guide of $7.94 to $8.14 per diluted share. For the third quarter, we anticipate overall sales to be up high single digits on a percentage basis with adjusted earnings of $2.08 to $2.10 per share, up 10% to 11% versus the prior year.

To summarize, AMETEK delivered an outstanding second quarter. Our exceptional results reflect our well-positioned portfolio and the disciplined approach of the AMETEK growth model to capitalize on a broadening infrastructure investment environment. AMETEK's mission-critical niche solution position us as a prime beneficiary of a changing macroeconomic environment. and will enable us to continue to deliver superior growth for our shareholders.

I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter, then we'll be glad to take your questions. Dalip?

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK delivered another excellent quarter with strong orders, sales and earnings growth, robust core margin expansion and outstanding free cash flow generation.

Now let me provide some additional financial highlights for the second quarter. Second quarter general and administrative expenses were 1.5% of sales, in line with last year's second quarter. Second quarter interest expense was $20 million. Second quarter other operating expenses were $6 million compared to $3 million in the second quarter of 2025 due to higher acquisition diligence spend in the quarter.

The effective tax rate for the quarter was 17.5%, down from 19% in the second quarter of 2025. For 2026, we now anticipate our effective tax rate to be between 18.5% and 19%. As we have stated in the past, actual quarterly tax rates can vary above or below our full year expected rate due to the timing of discrete tax items.

Capital expenditures in the second quarter were $32 million. For the full year, we expect capital expenditures of approximately $160 million or about 2% of sales. Depreciation and amortization expense in the quarter was $106 million. For the full year, we expect depreciation and amortization to be approximately $430 million, including after-tax, acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share.

Operating working capital in the second quarter was 16.4% of sales, an impressive 220 basis point improvement versus 18.6% in last year's second quarter. The improvement reflects excellent operational execution across all working capital components, led by strong inventory discipline and improvement in inventory turns, an outstanding company-wide operational achievements.

Operating cash flow was exceptionally strong in the second quarter at $484 million, up 35% versus the second quarter of 2025. Free cash flow was also strong up 37% to $452 million with outstanding free cash flow conversion of 111% for the quarter.

For 2026, we continue to expect strong free cash flow conversion of 110% to 115% of net income. Total debt at June 30 was $2 billion, down from $2.3 billion at the end of 2025. Offsetting this debt was cash and cash equivalents of $495 million. At the end of the second quarter, our gross debt-to-EBITDA ratio was 0.8x, and our net debt-to-EBITDA ratio was 0.6x.

During the quarter, we also completed the renewal of our committed revolving credit facility. As part of the renewal, the size of AMETEK's revolver facility increased to $3.5 billion and the maturity was extended until June 2031. This renewal strengthens our liquidity profile, lowers financing costs and positions us well to support future growth initiatives.

As Dave noted, we expect to deploy $5 billion on the acquisition of Indicor in the second half of the year. Following the closing of the acquisition, we will continue to have substantial financial capacity including approximately $2.5 billion of cash and available credit facilities to support our growth initiatives and strategic acquisitions.

In summary, AMETEK delivered another outstanding quarter. with excellent orders, revenue and earnings growth, robust margin expansion and strong free cash flow conversion. Our leading positions across attractive market segments combined with our global operating capabilities and strong track record of execution leaves us very well positioned to drive further growth and value creation in '26. Kevin?

Thank you, Dale. Stephanie, can we please open the lines?

[Operator Instructions]. Our first question comes from Deane Dray from RBC Capital Markets.

Dave, I was hoping you could take us through your typical end market and regional data points and color. And as you do that, we're seeing a number of the industrial companies reporting this quarter. Some significant positive inflection in the nondata center part of the industrial economy.

We're really in this 2-speed economy. But I would love to hear whether you're seeing some data points, color like that, we saw it with the ISM. So as you take us through the end markets and regions, anything that you could add there would be great.

Sure, Deane. Before I answer your question, I wanted to take a moment to congratulate you on your retirement. It's been a complete pleasure working with you. You are a true pro at what you do and the entire AMETEK team appreciates all of the support you provided us through all the years, really all the best team to you and your family.

I really appreciate that, Dave. And I'm wishing you and the team all the best, as I watch from the sidelines after this quarter. But great, let's dig into your quarter here, if we could.

I get your question. So I'll start with I'll walk around the end markets, and I'll start with our Process business. Overall sales for our Process businesses were up high teens, driven by contributions from recent acquisitions and excellent high single-digit organic sales growth Process orders were again outstanding as project activity remains strong. While growth was broad-based.

We are seeing the strongest growth across semiconductor and energy-related instrumentation businesses. And for the full year of 2026, we now expect sales for our Process segment to be up mid-single digits.

Next, I'll go to aerospace and defense, where demand across our A&D businesses remains robust with mid-teens organic sales growth in the quarter. Growth was again broad-based. All segments of the A&D markets see continued strong demand, notable strength in our commercial OE and commercial aftermarket segment.

Our businesses are very well positioned to benefit from increased defense spending and the continued strong commercial aerospace super cycle. We now expect our aerospace and defense businesses to be up low double digits versus last year, balanced growth across commercial and defense businesses.

And our Power businesses delivered mid-single-digit organic sales growth in the quarter, along with strong orders momentum. The orders momentum and growing pipeline are in support of the broader buildout of the power grid. And for 2026, we continue to expect organic sales for our power businesses to be up mid-single digits.

And finally, our Automation & Engineered Solutions growth was again outstanding, mid-teens organic growth in the quarter. We are seeing continued excellent and broad-based growth, the businesses are well aligned with attractive growth applications in med tech, semiconductor and automation for 2026.

We now expect organic sales for automation and Engineered Solutions to be up high single digits organically. Okay. That's the walk around the company.

The next thing I'll do is I'll answer your question about the looking at the geographies. And really, we were strong in all major regions of the world. The U.S. and Asia were the strongest. In the U.S., we were up low double digits. The strongest growth was in Process, also good growth in our A&D business.

Europe was up mid-single digits, driven by strength in power and Asia was up low double digits with automation and process doing well. So it was a really good quarter and really strength across all major regions. And in terms of the question that you had about the where is the growth coming from? Is it broadening? Yes, that's a great question. When I think about it, we have AI infrastructure. You have the needs for semiconductor manufacturing to build the chips. And in the first quarter and the second quarter, we received substantial orders for our highly differentiated unique products in semiconductor optics and metrology and advanced computing technology. that's one area of growth.

In terms of power as a second area, we're well positioned for the power grid build-out. We're providing critical fail safes. We talked about our ruggedized UPS systems for microgrids. We manufacture natural gas turbine sensors that are enabling the electric power build out. So we have successfully monitor their power grip with our power instrumentation business.

And we have the RTDS business that I talked about, helping hyperscalers build out local power grids when they can't wait for the utilities to do it. So just another example of a growing area that's positioned to help the critical -- build out the critical physical layer for the AI build-out.

But in addition to that, we have our Aerospace and Defense, which remains a structural growth driver. We have -- in the commercial market, we have the continuing aerospace super cycle, an almost decade among backlog. And with the ongoing conflicts in the geopolitical situation, we have really a nondiscretionary demand for global defense modernization.

We talked about the last quarter, the UAV programs and missile launcher programs in our last call where we supply ruggedized thermal management systems and power systems and advanced sensing technology. The combination of this very active defense modernization combined with the commercial and aerospace super cycle provides another secular growth driver for us.

So when I look at this thing, we're really -- there's durability because the underlying capital spend our customers is driving a multiyear infrastructure build-out, and we are supplying mission-critical essential products for new semiconductor fabs, new power plants, the A&D market, defense modernization. So I believe we're in the beginning stages of a multiyear infrastructure built on, and we're incredibly well positioned. And to your point, it's great that we're diversified across multiple thematic growth drivers and not dependent on any one single driver.

Dave, that was a great comprehensive answer. And I did ask what turned out to be a lengthy topic, I'll leave it there. And thank you again for the send off. Really appreciate it. All the best.

Thank you, Dean. All the best.

Our next question comes from the line of Matt Summerville of D.A. Davidson.

Can you maybe talk about the build you're seeing in your backlog and how the duration in your backlog, i.e., visibility compares now to maybe the longer-term AMETEK historical average? And then I have a follow-up.

Sure. Our backlog was now $4.11 billion, up about 21% from the end of the year, and we had a positive book-to-bill of 1.12 in the quarter, both groups positive -- and we also are executing very well. We saw an acceleration of organic growth from Q1 to Q2. And what you really have is our customers are related to the infrastructure buildout or placing orders with us. And our products are customized unique products. So there's some engineering that design that goes into this, these are not commodity products. So what we really have is probably 80% of that backlog will ship within the next 12 months.

We have the second half of the year filling in very nicely, and we're starting to fill in to '27. So it's very positive, and we're executing very well. Our businesses are performing well, strong execution, disciplined operations, excellent momentum across the portfolio. So what you really have is through our recent acquisitions, we probably have a little mid- and long-cycle performance portfolio than prior, but it's filling nicely, and we have specialized products, and our customers are getting the orders in place so that we can deliver the products for them.

And then just as a follow-up, how much of your business would you say today is tied to thematics involving data center infrastructure build AI. And when you think about AMETEK's broader business and the level of inbound demand you're seeing, does that inform a greater ability to capture price.

Yes. Yes, I think the -- yes. In terms of pricing, we have a highly differentiated, highly engineered IP-driven product portfolio. And we put in healthy levels of RD&E investment and it results in high vitality in our products. It was 25% in the quarter, as I said in my prepared remarks. So we're niche leaders, mission-critical products we saw some of our customers' most difficult problems.

And when you put all that together, in addition, they're in environments that are high switching costs and regulatory-driven market. So the price of failure is high. So all these factors give us the ability to offset inflation and tariffs with price. And in the quarter, we offset inflation in tariffs a little more than price, and we continue to expect to do that. And it's really given the unique portfolio construction of focusing on these products and this heavy level of R&D investment that go together and provide that we have a special place in our customers' value chain. That's all I would explain it.

And then the question on how much of your business today would you roughly estimate is tied either directly or indirectly to data center infrastructure build-out/AI?

Yes. I think the data center/AI part of it, along with the military modernization along with the the commercial aerospace, along with the power infrastructure, I put that whole bucket together, and it's about half of our business.

In terms of data center, in the data center, it's actually smaller but in all the related parts of it in terms of semiconductor, in terms of the power grid, in terms of the items that I talked about is actually quite broad and broadening to Deane's question and his point. But in the data center, it's not big enough to report on a specific segment. But what's happening now is the growth is expanding from that, and we're very well positioned.

Our next call is from Nicole DeBlase of Deutsche Bank.

Maybe we could just start with double-clicking a little bit on orders, really strong result there. Anything notable with respect to like large or lumpy orders? Just trying to think about the sustainability of the strength that you guys have seen in order growth into the second half?

And maybe, Dave, if you're willing to share anything about what you've seen in the month of July, that would be helpful, too.

Yes. The -- as I mentioned, the orders were excellent in the quarter, 28%, organic 25%, Book-to-bill was solid at 1.12 and both groups were positive. In terms of cadence, June was the strongest month for orders in the quarter at all time. So we had a record for the month of June. And we just finished July, and the orders were very good. So it's continuing.

So I would say that there's a bit of a lumpy nature to the order. But as I mentioned, prior to Deane's question, I mean, we really have what I believe is organic growth for ability because the underlying capital spend by our customers is driven by this multiyear investment infrastructure build-out. And we're kind of locked into these opportunities with our our pedigree and regulatory mandates and security priorities. So it's very encouraging.

And again, it's not just the AI build-out. It's not just the power build-out, it's not just the defense modernization. It's not just energy security with our energy business is doing very well. It's not just the the commercial A&D business supercycle, it's kind of all of them. We're in the right places. We're in the right places. We have unique capability and we think we're in the early innings of mission-critical infrastructure build-out and it feels pretty good.

Excellent. And then as a follow-up, I guess, just considering the strong order growth that you guys seen for the past 2 quarters, you are modeling a bit of a decel in organic revenue growth to high single digits in the third quarter. Is there maybe just some conservatism baked in there? I know that prior year comps are a little bit tougher, if you could maybe double click on not a bit. And then any big differences in EMG versus EIG within that 3Q expectations?

Yes. I think that what you're seeing there is in the second -- in the -- we flowed through the Q2 sales and earnings beat, and we also increased our sales and earnings in the second half. So the revised H2 organic sales guide is between 1.5 to 2 points stronger with the EPS flowing through. So we increased the second half of the year from our prior guide. I think for sure, we're very confident in the guide, and it has a bit of AMETEK prudence or conservatism built into it. So we're confident we can deliver the second half.

Our next question comes from the line of Daniel Pacheco, BMO Capital Markets.

Great. Just in terms of the end markets, I mean, just in the quarter, where did you see the most acceleration? And then did any of the markets maybe come in below expectations? I know it sounded like everything was pretty strong.

No, I think it was -- everything was pretty strong. If I had to point to a couple of markets, I'd point to the semiconductor market, especially in -- and I actually point to the med tech market in EMG, where Paragon had just an outstanding quarter. So those will be the 2 standouts. So we the aerospace was obviously very strong, and the power orders were good. But in EIG, it was the semiconductor orders that stood out.

And to me, and then in EMG, it was the the med tech orders from Paragon that stood out. And Paragon is an interesting great example of the AMETEK growth model in action. And many of you know that soon after we acquired Paragon. We ran into a pandemic-driven inventory destock. And it was a little more significant than we modeled, but we utilized that downturn when the sales volume was lower to accelerate our integration activities. And this allowed us to absorb the integration friction when the volume is low. And now they won't use back.

So we're getting excellent leverage on our growth -- now very importantly, we continue to invest in all the new product development opportunities at Paragon and disallowed for phasing in of new product wins and allowed us to capture outsized margin expansion in EMG, -- that was a key driver of the margin. So I just think that the whole Paragon and how well they're doing now and the tremendous order growth they have because they want new products, that's not really a market trend. It's a great business to want new products. It just shows you that the AMETEK growth model is relentless, the relentless implementation of the Imatra growth model really delivers over time and our teams are continuing to do an outstanding job.

Great. Great. And then just a quick follow-up. I know you've been working on a number of AI pilot programs internally across the businesses and various functions. I was just hoping for an update there and potentially some opportunities, whether that's internal or maybe on the commercial front.

Great question, Daniel. We're using AI to improve efficiency and accelerate growth across the entire company. And it impacts all functions. It helps us speed up due diligence.

We have agents that are automating document processing agents to improve customer service. They're helping us to predict and mitigate supply delays are improving our products, the predictive maintenance nature of our products, really having a substantial effect in improving the custom engineering design processes. So really all functions of our business. And we're looking at really automating the AMETEK growth model. So all elements of their growth model are being impacted by this. So we're going to get stronger at this in the future.

In terms of the deployment, it kind of matches the decentralized nature of the company where our businesses are empowered to deliver AI solutions that are tailored specifically to their needs. But Enterprise-wide, the company provides overall governance technology platforms and policy frameworks. We've had some things that have worked. We have some things that haven't. So we've learned to something is not worked, just move on to the next thing.

And we had a wave of 50 projects that I talked about before, some great results. And now we're on to wave to -- and we recently started Wave 2. There's another list of projects across the company. We have strong momentum. It's a very exciting time I think that as we learn about the technology and we get good at deploying it, then we look for a specific instance or something and then deploy it company-wide. So we're in the beginning stages of seeing the benefits and -- but we have a whole growth model here that is ripe for automation, and we're looking at applying it to it. At the same time, we're deploying in our products.

We mentioned a call or 2 ago that we have used in our Vertec business that detects critical defects in materials and using AI algorithms to do that. And we mentioned before 1 of our EIG businesses uses it to improve the predictive maintenance of the businesses. So it's showing up with enhanced products. It's showing up in really the AMETEK growth model, it allows us to build an AI-enabled company. And when you think about our products, they're inherently low obsolescence risk.

Our niche portfolio of mission-critical differentiated technology solutions with market-leading specifications combined with these requirements in all these markets on these long-cycle platforms, we have low obsolescence risk. So I think we're in a good position where we're active on getting the tools to make our business -- improve our business where we don't have an obsolescence risk right now.

And at the same time, we're enhancing our new products. So it's really important, and we're spending a lot of time on it as many companies are, but I'm pleased with the results that we're seeing.

Our next question comes from Scott Graham of Seaport Research Partners.

Dave. Great quarter. Thank you for the rundown so far. I wanted to get at maybe 2 things internally. The core margin expansion of 110 basis points was pretty impressive. Certainly, the organic was part of that, but -- what were the other features there? Was it mix? And if so, which businesses or otherwise?

Yes. It was -- we had an excellent operating quarter, great margin quarter we had on the face of it, margins up 60 basis points. But when you look at the core, it was up 110 basis points. And when you look at the 2 groups, EIG margins were up 40 basis points. And yes, core margins were up 40 basis points and EMG core margins were up 290 basis points. And EMG is benefiting from what I had talked about earlier in terms of Paragon with new products phasing in with lean-out cost structure. So -- and that drove the bulk of that.

But when you look across it all, we had strong incrementals, about 40% and both groups were near 40%. We had, as you mentioned, the sales growth, good incrementals. But really, we had excellent productivity, too. So we increased our productivity enterprise-wide productivity target to $160 million this year. I think it was $155 million last quarter. So we had $5 million more in productivity that we got confident in forecasting because of performance during the quarter.

And again, as the question that Matt asked earlier, we had positive price where we more than offset inflation and tariffs. So with the solid incrementals with the excellent productivity and the positive price inflation, it all drove the core margin expansion.

I was also hoping you could maybe update us on Indecor. -- you've had the company sort of in tow here waiting for the closure of the deal? And has -- have you identified maybe some new synergies? Is there excitement a little bit higher across those 10 business units?

Yes. I think the excitement is high within the quarter. I mean -- we're progressing well through the integration and the regulatory approval process, and we continue to expect it, as I said in my opening remarks in the second half of the year. But to your point, we're very excited about the acquisition. We're acquiring an outstanding group of high-quality businesses with leading market positions in attractive niche markets very differentiated technologies, strong IP positions, deep domain expertise, similar characteristics to AMETEK with high switching costs, but they have a higher profitable recurring revenue stream of 50% of revenue.

So tractor growth profile, excellent profitability. It's just a great strategic fit. In terms of are we finding more things to get excited about as we work with the team. Teams are working very well, and we have to follow the requirements. We don't own the company now. So we're working on integration planning and working on the closing of the business, the typical cost structures that we have, we're getting very confident that we bought some premier assets.

At the same time, they run very independently without an overriding business system, and we're highly confident that the proven AMETEK growth model is going to add value to this acquisition. And global sourcing, typically one of the largest growth drivers we confirmed the opportunity. The international sales and service facilities we run them as one AMETEK facility in a region that everyone operates out of.

Essentially, we provide the hotel that everyone operates out of. And so there's opportunities there for facility rationalization while still letting the business units have their independence. We have a global shared service infrastructure in place like -- in places like India, Malaysia, Mexico, Serbia, Poland, and that is not available.

So there's cost reduction opportunities there. We have a growth philosophy that you operate in a local market to grow locally, a little bit different. And then we have the talented people to help implement it all. So we are getting more confident with the 10% to 12% cost synergy -- and we think this is going to be a great acquisition for our shareholders. We're going to deliver exceptional value to them.

[Operator Instructions]. At this time, we do have a question from Joseph Giordano of TD Callon.

This is Chris Grange on for Joe. You had highlighted the UAV opportunity. And I was just curious if you could provide a little bit more color on how activity in that market has trended and how you're seeing the scope of opportunities continue to expand. Are there any particular size class of UAV that AMETEK is best positioned for? And do you see any opportunities in other domains beyond unmanned aerial.

Yes, there's a tremendous opportunity. And I highlighted -- I think it was last quarter, we had won 3 new UAV programs. One was a U.S.-based program 2 were with NATO allies. We often provide sensing for fuel sensing. We provide power distribution, lightweight power distribution -- we provide cooling for the electronics in the system.

So it's been an area of strength for us historically. And as this -- as the UAVs grow, we're well positioned to do well. The other areas that we talked about were in the advanced computing, some of the things that we do with our Abaco business, where data analysis is becoming more important the cooling systems related to electronics implementation. We're very successful in -- with the Rotron and PDT businesses.

So we're well positioned in niches where we're the market leader, and the opportunities are growing, and we have established pedigree in these markets, and we specialize in areas and the customers -- our customers recognize that. So it's a positive for area -- positive area for us and defense modernization is an area that I think is nondiscretionary and we're well positioned to execute on it.

And we've talked -- you talked about the strength in med tech. And just curious if you could provide any more color, as we've heard increasingly constructive commentary across broader life sciences, recently, just in terms of what you're seeing in terms of customer spending patterns and any improvement within life sciences, in particular.

Yes. The point that I talked about at Paragon is more in the med tech directly. In Life Sciences, we were out visiting our -- one of our automation businesses, and they build the automation systems for life sciences equipment. And their businesses are doing extremely well. So the life sciences is definitely picking up, and this medtech increase that we have for Paragon is a market improvement, but we also won significantly -- a significant amount of new programs. So that's why that's a little bit outsized.

Our next question is from Andrew Obin of Bank of America.

Just maybe a question on this ramp. When does capacity utilization stand today? I think CapEx guidance is up 22% year-over-year from 25%. How much of the $160 million is growth CapEx?

Yes. I think the growth CapEx is probably about 2/3 of it. And remember that we're largely IP drives our business. So it's not like we have a lot of fixed assets. We were at 2% of sales as CapEx. And over the past couple of years, we've built infrastructure. We added capacity in multiple U.S. plants in Serbia and Mexico, and we're doing some more work in full in. So capacity-wise, it's -- we're not at the limit of capacity because the traditional CapEx is really not what our business is based on. We have a return on tangible capital of about 100%. So that's kind of unique in the industrial world, and it's easy for us to ramp up and wrap down. You've seen that before when you scale up and you've also seen us to be very flexible when we when we scale down. So we saw an acceleration in sales, organic sales in both groups this quarter.

And we're also -- we increased our guide for the second half of the year and next year, it's filling in nicely. So I think the -- and one of the things I talked about earlier is in our AI prototypes, we took a product line that took us about 1 year to design a custom new product, and we do it now in a month. And that's an example of using AI to shorten the design cycle.

So I think the capacity is well in hand, and you can see that by how efficiently we're operating. We reduced working capital. We we generated over 35% more cash flow. So we're operating very, very well, and we have a low CapEx business. And I think in an environment like this, we're going to shine.

And maybe a follow-up, again people ask on M&A, but maybe can you give us an update on what's happening at Ferro?

Yes, sure. Ferro as a reminder, designs and develops advanced 3D metrology and digital reality solutions. And we have now a leadership position and measurement arms, laser scanners, laser trackers, and it was an excellent strategic fit with our Creaform business as the Ferro products, we really complement the existing AMETEK preformed metrology capabilities. And the team are doing great.

We were just up there as part of our North American regional operating review and -- the teams are working well. The integration is on plan. I think you'll see the businesses with some substantial margin upside over the next 6 to 12 months. So everything is going very well. And all of our plans are intact. And it is going to be an acquisition that pays off for the long term for AMETEK as we put together a couple of market leaders, and we feel really good about it.

The next question is from Christopher Glynn of Oppenheimer & Company. Chris

So the 35% organic orders number for EMG, I just wanted to revisit that for us to make sure I heard it right. And second, I think you drilled down on maybe med tech and defense being particular accelerators, but the 35% maybe means more than a couple accelerators. Curious if automation took more of a second.

Yes, automation was, Chris. And that's why I mentioned the Life Sciences part of our automation business really accelerated. So that was another big growth driver. It was a bit lower than the med tech and the defense, but it was right up there.

Okay. Great. And then on the defense side, are you seeing comparable input from U.S. and NATO Allies?

We're seeing more input from the U.S. given the size of the defense infrastructure, but the -- there's a notable increase with NATO allies off a smaller base.

Okay. Great. And just a clarification. Were there any tariff refunds impacting the margins in the quarter?

No.

Our final final question will come from Andy Kaplowitz of Citigroup.

Dave, you talked about your power business. from our vantage point, there continues to be a large pipeline of opportunity there, particularly as you know in the U.S. So maybe talk about why mid-single-digit organic sales growth in 2016 is the right number? And could you grow faster than that in the future?

We could grow faster. We could grow faster. It's more tied to the grid expansion and we talked about the orders were very strong. So that's an area where you're going to see increased sales growth going forward because the orders growth received the sales growth. But it is -- the orders momentum and the growing pipeline really in support of the growing build-out of the power grid.

Got it. And I just wanted to double click on EIG margin for a second. You just talked about Faro and how it's tracking. So that would get -- I mean your core margins were obviously good up 40 basis points. But if Faro continues to improve, that's going to help with overall margins, right? That's how we should think about the overall margin trajectory moving forward in that segment?

Yes, we almost have lapped the 1-year Ferro ownership. So I'm not sure if it's next quarter or the quarter after, I think it's next quarter. this quarter. Okay. It's in July. So Ferro will show up in our core margins going forward. And there's a lot of opportunity there. So after 1 year, the acquisitions have become core, Andy.

This concludes the question-and-answer session. I would now like to turn it back to Kevin Coleman for closing remarks.

Thanks, Stephanie, and thank you for joining our call today. As a reminder, a replay of today's webcast may be accessed in the Investors section of ametek.com. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your operator today. At this time, I would like to welcome everyone to AMETEK acquisition of Indicor Instrumentation Conference Call. [Operator Instructions].

I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Kevin, please go ahead.

Thank you, Christa. Good morning, and thank you for joining us to discuss this exciting acquisition. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements.

This morning, we announced that AMETEK has entered into a definitive agreement to acquire the instrumentation group of businesses from Indicor LLC. We will refer to the acquired businesses as Indicor throughout this call. The press release and the presentation slides to be used during today's call can be accessed on the Investors section of our website. We'll start the call with some prepared remarks, and then we'll open it up for questions.

I'll now pass the call over to Dave.

Thank you, Kevin, and good morning, everyone. We are very pleased to be with you today to announce our pending acquisition of Indicor. I'm excited to share more details on the strategic merits of the acquisition and the meaningful value creation this acquisition will provide.

Starting with Slide 3. This is a highly strategic acquisition and is a result of AMETEK's disciplined approach to capital deployment and is a compelling and unique opportunity to acquire a portfolio of outstanding industrial technology businesses in one transaction. These businesses provide highly differentiated mission-critical solutions to a diverse set of customers within attractive niche markets. Indicor's strategic approach to niche market segmentation and technology innovation, along with their deep domain expertise and strong embedded customer relationships fit very well with AMETEK's long-term strategy. We have identified meaningful opportunities to create value through integration of the Indicor businesses into AMETEK's operating model and our distributed operating structure.

Integration is our secret sauce, and we have created substantial value over time with our well-defined and proven process. This value creation will provide for accelerated growth and market expansion as well as improved profitability, cash flow and strong returns on capital. Additionally, we are excited about the opportunity to further innovate and support our customers' critical applications given the complementary nature of Indicor's product and technology profile.

Indicor generates approximately $1.1 billion in annual sales with strong profitability, providing a unique opportunity to acquire highly profitable niche differentiated technology businesses at scale. And one last point on this slide, we included the logos of the individual Indicor businesses on the right-hand side of the slide. These businesses each strategically align with different AMETEK businesses, allowing for a distributed efficient integration into AMETEK's operating model.

Now turning to Slide 4. As noted, the fit between Indicor and AMETEK's existing businesses is compelling and perfectly aligned with our mission-critical niche market strategy. Each of the businesses is well positioned within their respective markets and applications where technological capability is paramount. These businesses nicely complement AMETEK's end markets with balanced geographic exposures. Indicor's strong customer relationships and intellectual property help support a sizable aftermarket services capability with approximately 50% of their sales derived from recurring proprietary aftermarket sales and services.

As noted, there are compelling sales and cost synergy opportunities, which will drive us to further improve their profitability. We anticipate annualized synergies of 10% to 12% of sales, in line with AMETEK's typical synergy levels. Altogether, we are excited about the opportunity to acquire a high-quality portfolio of industrial technology businesses of scale and are confident that this portfolio of businesses will generate attractive year 1 cash earnings accretion and strong returns on capital.

Switching to Slide 5. As I mentioned, Indicor is very closely aligned with AMETEK's portfolio with the businesses fitting within both our EIG and EMG reportable segments. Our end market exposures following the acquisition are largely consistent with our current exposures as noted in the table on the right. The close strategic alignment of Indicor businesses within AMETEK's existing group and divisional structure will provide for an efficient and low-risk integration. Integration responsibility will be distributed amongst experienced group presidents and division general managers who will provide ownership of the results. Each of the Indicor businesses will be placed in our structure where they fit best for long-term growth. So while we are acquiring a large business, it will look like a number of smaller distributed integrations led by experienced AMETEK business leaders.

On Slide 6, I'll spend a few moments walking through the transaction details. The total cash consideration for the transaction is $5 billion, which represents an approximate 14x multiple of EBITDA. We expect to fund the transaction with a combination of borrowings under AMETEK's credit facility and new debt issuance. At transaction closing, we expect our ratio of debt-to-EBITDA to be roughly 2.3x, providing us with continued capacity to support our growth initiatives and capital allocation strategy. As noted, we expect the transaction to be solidly accretive to cash earnings in year 1 with solid returns on capital. The transaction is subject to customary closing conditions and regulatory approvals, and we expect closing in the second half of the year.

On Slide 7, we include a 1-page summary of the 10 Indicor businesses to provide more background on each of the businesses in key end markets. The summary highlights diversity of their end market exposures and the fit within each of the AMETEK segments.

Moving to Slide 8. So in summary, this transaction represents a disciplined deployment of capital on a highly strategic return accretive acquisition of a high-quality portfolio. Indicor provides AMETEK with further scale and diversification, niche differentiated technologies and a sizable recurring revenue stream. We're excited about the opportunity to add value through integration into AMETEK's operating model and to create meaningful shareholder value.

With all that said, I'd like to take a quick moment to thank my AMETEK colleagues who spent considerable time supporting the acquisition process. And I would also like to thank the Indicor team for their support during this process. We're excited about the future and what it will bring together.

I'll now turn it back to Kevin.

Thank you, Dave. Christa, can we please open the line for questions?

[Operator Instructions] Your first question comes from Matt Summerville with D.A. Davidson.

So David, I was curious, if you look at the group of brands you're acquiring, are there 1 or 2 that drive the overwhelming majority of that aftermarket revenue? Or is that aftermarket revenue would you say fairly distributed across the 10 or so businesses you're acquiring? And then I have a follow-up.

Yes. I think it's a relatively broad distribution. The businesses are in size-wise from a little over $200 million to slightly below $50 million, but they're all about that $100 million level and the aftermarket is relatively evenly distributed.

And then would you say if you think about maybe just -- walk through a couple of examples where you -- the larger sort of portions here, so maybe those that are around that couple of hundred million range. How you plan to drive some -- the cost synergy, I understand, but where you see -- maybe in some of the bigger divisions you're acquiring, where you see maybe more of the opportunity to drive commercial revenue synergy? And is the price capture typically seen in these businesses? Is that also pretty similar to the price power AMETEK has in the market?

Because of their niche differentiated market leadership, Indicor has substantial ability to capture price similar to AMETEK. I just -- there's a lot of businesses. So I'll give you an example. Struers is one of the larger businesses, and they focus on material prep. So preparing a sample before it's analyzed. Well, our equipment does the analysis, and they do the material prep before it's analyzed. So it's a sequence of a customer's unit process that's a perfect fit for our Materials Analysis division. That's an example, and that's the largest business that we're acquiring, but they all have a similar type of fit with AMETEK. It fits like a glove. And then as we integrate these into businesses, we're putting them in the places where they can capture the fit the most. So there will be sales synergies by the integration into different parts of EIG and EMG.

Your next question comes from the line of Andrew Buscaglia with BNP Paribas.

Are you able to share historically how this business has grown or some of these businesses have grown relative to maybe AMETEK's core business? And then how have margins trended based on corporate average currently, but maybe you can just give us a little context on that history.

Yes. I mean these businesses over the last 4 years have grown in the 6%, 7% range. And we have built into our model, we are a little bit more conservative, we have a 6% number. So these are mid-single digits growers in that 5% to 7% range, 6% is what we settled on.

Yes. Okay. And then it looks like yes, it's in both EIG and EMG. Are there like what you consider like sister businesses that you have already that align really well with some of these names. Could you talk a little bit more about that, like where do you feel like complementary.

I mentioned the Struers business that's really complementary. I mean it's amazing the impact that we have. If you take the things that we're putting into EMG -- for example, one of the businesses is named AMOT. And we're putting the businesses into EMG versus EIG really because of product and customer fit. But AMOT is really in the -- they're automating their customers' processes. They have actuation systems, and there's other businesses that have valves and safety shutdown systems. We put those businesses in our automation business in EMG.

It's a really, really close fit there. I mentioned Struers. I mean, we have our P&A, process and analytical instruments is very strong in the energy market. The PAC business is a complementary fit. Those businesses are going to go tremendously well together. I can go through the whole thing. There's a great fit, and our people are very excited on both sides to be able to serve our customers at a different level.

Your next question comes from the line of Deane Dray with RBC Capital Markets.

Congratulations on the deal. Covered some good ground here already. And I just wanted to probe a little bit further on your approach to the integration. So these -- we're familiar with the businesses having covered Roper. And so they are not in the category of what we would call fixer-uppers. They're kind of just the opposite. So in aggregate, the restructuring of these businesses would be less on the scale of the businesses that you typically acquire, less restructuring needed. But in aggregate, because there are so many businesses, there could be a restructuring lift. So how are you approaching -- the thought would be pay as you go? Just any help there for starters?

Yes. I mean we're -- it's a great question because these are very high-quality businesses. The management teams understand accountability. The management teams understand how to run businesses and generate cash flow. So we're getting some premier assets. At the same time, the businesses are run very independently like AMETEK, but they don't have an overriding business system that we use and we've had a tremendous amount of value by adding our business system. So that's something that we're highly confident in our ability to add the typical synergy levels.

And I'll give you some examples. When we look at deals, the AMETEK global sourcing is an incredible delivery mechanism for deal synergies. There really wasn't much of aggregation of spend across the businesses that we're acquiring. So that's -- we'll leverage our global sourcing organization immediately. I mean that's been typically the largest driver of synergy in the deal, and we understand what prices are being paid and what we're paying, and we think there's a lot of room there.

The second thing is our international infrastructure facilities. We run them as one AMETEK facility. Essentially, we have a hotel that everybody operates out of. And these businesses were so independent that they went and established their own sales and service infrastructure. So without changing how the business operates, there's really 130 sales and service offices that we're going to shrink and run our model that's going to generate significant synergy.

We have a global shared services infrastructure, places like India, Malaysia, Mexico. There really wasn't a shared infrastructure. We get cost reductions out of G&A in relatively short order. We have a philosophy about localized production for local market growth. That's different than the acquired businesses. We have talented country managers in each country of the globe, if you're not successful in a market, our country managers can get involved and help you grow. And this is a small, very talented team that the businesses that were acquired didn't really have.

So I think all these standard AMETEK tools will be used to support the Indicor synergy plan. We've done it successfully over many times. And when you combine the premier assets, the well-run businesses that we're acquiring with our growth model, with the synergy capabilities that we have, it's a financial home run.

That's really good to hear. Can you help size for us the acquisition in total. We can see it adds roughly 14% to the revenue base, but how many P&Ls are actually coming in? So how many P&Ls do you have today, just to kind of size organizationally how that fits? And how many senior leaders, group presidents will be involved in this? Just kind of give us that dimension.

So AMETEK has about 40 P&Ls, and they're a little bit bigger than Roper's or than Indicor's because we've consolidated some businesses over time. So we have 40. We're bringing in 10 separate P&Ls. So that would make 50 in total. One of the things I'm very pleased with is we have all 10 of these talented business leaders signed up with AMETEK. They're signed up to take us forward. So we're really pleased that we've got the management on board that was critical for me. So we're basically going from 40 to 50. They're a little bit smaller than our business units, but we're perfectly comfortable with that. And about 80% of the businesses are in EIG and about 20% of the businesses are in EMG.

All right. That's really helpful. And just a last quick one for me is have you been able to calculate the new product vitality index from the Indicor businesses? I mean that's a real high priority for AMETEK, but it gives us also a dimension of what kind of emphasis and investment in new products that they had and what upside that might be?

Yes, it's much lower than ours. And we think we can move the needle there.

Your next question comes from the line of Jamie Cook with Truist Securities.

Congrats on the acquisition. I guess two questions. One, I mean, I think you talked about the long-term organic growth of the company being between 6% to 7%, and you're assuming 6%. But can you talk about the cyclicality within that range, if there is any? I'm just wondering if we're in a world where PMIs and industrial short cycle is improving, do you get some benefit there?

And then I guess my second question, just how the deal came about. It looks like you -- if the press is right, maybe it wasn't a competitive bid situation. And I don't think so, but do we need to be concerned about any antitrust issues?

Yes. Great questions, Jamie. The first one is, was really your question about the cycle and -- it's our experience that mission-critical products may be delayed in the short term, but they'll eventually be purchased because they're a necessity. And when I think about this business, they have a 50% recurring revenue profile that will help provide a buffer if there is or when the next industrial downturn comes. I mean, right now, the business has some very healthy backlog. So we're very optimistic on that.

And as you know, AMETEK has a very good track record of managing businesses in all market conditions. And if I go back and I look at an example, during the 2020 downturn, our margin and cash flow actually improved. So we have contingency plans to put in place if something happens, but we're not -- we go into this with open eyes. And what I think about is the 50% recurring revenue profile really helps buffer any downturn.

And you asked about the regulatory approvals. Yes, they're progressing through standard regulatory process. We do not anticipate any issues. It will just take some time because of all the government agencies around the world that we need to get their approvals from, I mean, we expect closing in the second half of the year.

And then just -- sorry, the last was just how the deal came about. I mean there was a lot of press speculating this, but if you could give any color there.

Yes. I'm not going to speculate on press reports. But I can just tell you that Indicor is run by a premier private equity firm, and we have relationships with them, and they knew we were a logical buyer, and we've been talking about them for some time. And when you have a transaction like this, that we have the management capability to do it. We have the financing to execute from a really leverage -- underleveraged balance sheet, and we're 2.3x post transaction, and it just came together, and we're very pleased with it.

Your next question comes from the line of Andrew Obin with Bank of America.

Congratulations. How long do you think it will take you to delever? And what leverage level at which you'll start contemplating M&A again?

Let me take that one, Andrew. So as you know, we're going to fund this acquisition through a combination of cash on hand and new debt. Pro forma leverage at the close is expected to be about 2.3x. So still conservative levels. The combined businesses are going to throw up a lot of cash. So we'll have the ability to delever quickly. But as Dave mentioned in his remarks, we're still very much focused on our key capital allocation priority, which continues to be acquisitions.

And even though we're buying a big asset with this transaction, we'll continue to have considerable firepower. In terms of the deleveraging, it will be about 0.2 to 0.3 of a turn each quarter. So we have the ability to delever quickly if we wanted to.

And then what's the time line on this 10% to 12% synergy? Is it by year 3, by year 4?

It's exactly -- it's by year 3.

Your next question comes from the line of Chris Snyder with Morgan Stanley.

Is there anything you could provide on Indicor's gross margin profile? It seems like at an operating margin level, the business has run quite well with similar margins to your own. So just trying to see if there is -- if it is coming in a premium gross margin, which could make that pathway a bit more clear.

Yes. Yes. It's greater than 50%, Chris. So it's a premium business with premium gross margins.

I appreciate that. And then if I could just follow up on the 10% to 12% synergy combination. Is that a combination of both revenue and cost synergies? And I guess this seems like it's the typical AMETEK expectation to drive that 10% to 12% by year 3. So just how does that typically split between revenue and costs?

Yes. We've learned over time to value cost synergies much more than sales synergies. So that number is a cost synergy number. There's a model that has sales synergies that's much greater than what we're talking about, but we don't value that just based on history. We just -- the cost synergies for us have been a certainty, and that's what we rely on when we price a deal.

Your next question comes from the line of Joe Giordano with TD Cowen.

Is the 14x EBITDA multiple that you mentioned, is that inclusive of the synergies? Or is that like as of today?

That's year 1.

Year 1, okay. And then was this like a package deal? Like did you get to go in there and kind of pick the assets that you wanted out of the larger portfolio? Or is this already kind of prepackaged as this group of assets?

We didn't buy all of Indicor and the decision to acquire only the businesses that we acquired reflects our discipline to only acquire businesses that fit best with us.

Your next question comes from the line of Julian Mitchell with Barclays.

Congratulations on this news. I guess I was focused on Slide 4. It's a very non-U.S., a very global business here. And so in that light, the sort of 6%, 7% organic sales growth rate you mentioned in recent years is particularly impressive. Just wondered sort of -- have you seen the growth of this business be very U.S.-centric or it's been pretty diverse, even including that large slug in Europe? And maybe any color on what the China exposure is of the business, please?

Yes. I mean the business has grown well. It's growing well globally. It's grown well in China. It's a really balanced geography. I mean it is levered to some of the industrial themes now. There's an energy transition theme. There is a bit of a data center power theme in the business. The business, in particular, in the European businesses of Struers is a global business. Technolog primarily drives a lot of revenue from critical infrastructure in the U.K. So that business has done well, and they have a kind of a locked-in revenue stream by U.K. government programs that we're excited about.

So they have some businesses that are -- in the infrastructure world in the U.K., there's a business there. But mainly, it's a global business. It's differentiated technology. When you have differentiated technology businesses, you sell in the U.S. and you sell in Germany and you sell in Japan and you sell in China, those are all the places that we look at to understand the differentiation of the technology, and they're selling well in all of them.

That's helpful. And then just following up on the point around sort of reinvestment. So it sounds like NPI, you can do a lot more with it there. But I guess the organic growth rate also tells us that it's probably not been underinvested in. Just wondered any sort of comfort you could provide around that point. I think most investors looking at a business that came out of Roper and PE would say it probably hasn't been overinvested in. So just how you're thinking about any kind of true-up needs on CapEx or R&D or anything like that? Or you feel those should be pretty minor after the close?

Yes. I think they're pretty minor after the close. I think we're going to focus on new product development, and I think we can improve the vitality of the businesses for sure. And we have some -- we've done that successfully with our businesses over time. The PE firm, their focus was to improve growth. So they've done a few smaller acquisitions to really augment the growth profile, really additive to the business in terms of acquiring technology, small technology deals that really build nice technology that the core business didn't have.

So they've done that work to improve the growth profile. And we just think it's a great fit for us, and there's -- AMETEK is run by a lot of technical people in a lot of different places. And we think there's great opportunities to take the current portfolio of Indicor and the AMETEK portfolio, put them together, let's look at what's happening, and we think there's growth opportunities that will drive that weren't there before as separate companies.

Your next question comes from the line of Rob Mason with Baird.

Congratulations as well, Dave. I'm just curious, conceptually, after you get 3 years into this with the synergy capture as it is, I know maybe not one answer here, but if you could summarize, what would you attribute the source to the premium margins? Is it market structure these businesses in? Is it a higher aftermarket mix than maybe AMETEK overall? Or just what would you attribute that to?

I think it's the basic mission-critical niche strategy. I mean they're leaders in market niches. They do a good job of servicing their customers. And because of that, they can get some good pricing for the unique capability and unique value add that they have. And that's AMETEK's strategy. In a way, it's a perfect fit. And we are very pleased on the recurring revenue side. They have a 50% aftermarket mix that's a bit -- that's higher than ours, and we're pleased about that. And as I mentioned before, that's a buffer in difficult times. So the 50% aftermarket mix that's reinforced by strong IP, embedded customer relationships, and it's a key part of the deal.

I see. And just as a follow-up, within the 10 businesses, since they went into private equity, how has the leadership been, I guess, has there been much leadership turnover since they've been owned by private equity at the top?

No. They had some retirements and things like that over a period of time. But we're acquiring experienced leaders of businesses. They're very familiar with the businesses and the markets, and they're all signed up to stand with AMETEK. So we have a seasoned mature leadership team, and I think they're going to adapt to the AMETEK growth model and the tools we have very well, and we're looking forward to working with them. And as I said before, it was important to have them all signed up with AMETEK, and we have all 10 of the leaders signed up to take the businesses forward.

Your next question comes from the line of Christopher Glynn with Oppenheimer.

Congratulations. So a lot of ground covered. And one was any portfolio moves since Roper sold. And I think you covered that. I didn't recognize Alpha or AGR. So I assume those were the pickups you're referring to, but...

AGR was a new acquisition that was added during that period of time. Alpha, I believe, was existing, and there were some other smaller brands that they added to augment the technology profile of the business.

Okay. And yes, just the other one was just the idea of folding into your existing P&L. I was surprised to hear you put out the equation of 40 plus 10 equals 50. I would have maybe thought it might have been a net 4 new platforms, but just want to kind of organize my thinking around that.

Yes. I mean, as things logically make sense, they may come together over time. But we're going to take our time on the integration, make sure it's going well, and we're perfectly comfortable with that. When I started with AMETEK, I think we had 30 business units, and we are about less than $1 billion in sales. So now we're a lot bigger, and we have 40 going to 50. So as we acquire businesses, we integrate them, and that's been a key thing for us. But we have some good businesses, and it is 40 going to 10 equals 50.

And we have no further questions in our queue at this time. I would like to turn the call back over to Kevin Coleman for closing comments.

Great. Thank you, everyone, for joining our call today. And as a reminder, a replay of today's webcast can be accessed in the Investors section of ametek.com. Have a great day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the First Quarter 2026 AMETEK Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Kevin Coleman, Vice President, Investor Relations and Treasurer. Kevin, you have the floor.

Thank you, Stacy. Good morning, and welcome to AMETEK's First Quarter 2026 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward-looking statements which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties and that may affect our future results is contained in AMETEK's filings with the SEC.

AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to historical results will be on an adjusted basis, excluding after tax, acquisition-related intangible amortization and excluding acquisition-related costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open up the call for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK delivered an excellent first quarter, highlighted by double-digit sales growth, exceptional orders growth, robust core margin expansion, record EBITDA and a high quality of earnings that exceeded our expectations. We also raised our full year earnings guidance to reflect our first quarter results and the outlook for the balance of the year.

Today, we also announced that we signed a definitive agreement to acquire First Aviation Services, an attractive acquisition, which strategically broadens our defense aftermarket capabilities. I'll provide more details on first aviation shortly.

Now let me turn to our first quarter financial results. First quarter sales were $1.93 billion, up 11% from the same period in 2025. Organic sales were up 5%. Acquisitions added 5 points with foreign currency tailwind.

Orders were outstanding in the quarter with broad-based and meaningful growth across all AMETEK divisions. Overall, orders were a record $2.2 billion, up 23% versus the prior year organic orders were up 22%, leading to a record backlog of $3.87 billion.

Operating income in the quarter was $517 million, a 14% increase over the first quarter of 2025. Operating margins were 26.8% in the quarter and core margins were an impressive 27.9%, up a robust 160 basis points versus the prior year.

EBITDA in the quarter was a record $620 million, up 11% versus the prior year, with EBITDA margins a strong 32.1%. Our excellent operating performance led to strong cash generation with free cash flow to net income conversion of 107%. Diluted earnings per share were $1.97 and up 13% versus the first quarter of 2025 and above our guidance range of $1.85 to $1.90 per share.

Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. EIG had an excellent first quarter with double-digit sales growth, strong operating performance and a meaningful inflection in orders. EIG sales in the quarter were $1.26 billion, up 11% from last year's first quarter. Organic sales were up 2% and acquisitions added 7 points with foreign currency, the balance of the growth.

Organic orders for EIG were up an impressive 25% in the quarter. This growth was broad-based across all EIG divisions and end markets with notable growth within our defense, power, in semiconductor businesses.

EIG's first quarter operating income was $376 million, up 6% versus the prior year. Core operating margins were outstanding 31.4%, up 40 basis points from the prior year.

The Electromechanical Group also delivered excellent results in the quarter. with continued strong sales and orders growth along with exceptional operating performance leading to sizable core margin expansion. EMG's first quarter sales were a record $664 million, up 13% versus the prior year. Organic sales were again up double digits at 11% with foreign currency at 2-point tailwind. Sales growth was broad-based with our Automation Engineered Solutions and Aerospace and Defense businesses, all delivering excellent growth in the quarter.

Additionally, EMG organic orders were again outstanding, up 16% versus the prior year. EMG's operating income in the first quarter was $171 million, up 33% compared to the prior year period. While EMG's first quarter core operating margins were up sharply to 26%, a considerable 410 basis point increase versus the first quarter of 2025.

I wanted to take a moment to expand on the strength and breadth of AMETEK's order growth in the quarter.

The 22% organic orders growth reflects the ongoing strength within our aerospace and defense markets as well as the continued strong growth across our automation and engineered solutions markets. Importantly, it also reflects a meaningful inflection in orders for our process instrumentation and power businesses in the quarter. As the strong pipeline of opportunities we have been highlighting is translating into substantial orders growth.

Contributing to the order strength were several large orders in the quarter, which help fill in our full year sales outlook. These large orders are aligned with attractive market segments, including defense, space, power and semiconductor, all markets where AMETEK is poised to benefit from strong and growing demand.

Within defense, we are seeing broad-based strength, including within our -- within missile defense, UAVs and naval applications. The growth in defense budget is being driven by modernization of defense capabilities and the ongoing geopolitical conflicts, creating a strong global growth outlook for defense spending, including from NATO allies.

Our Aerospace and Defense businesses was recently selected to provide a range of technologies in support of three UAV programs, one program in the U.S. and two with NATO allies. Products being provided on these programs include ruggedized thermal management systems, power distribution equipment, advanced sensors and embedded computing app solutions.

Our EMIP business also provides highly engineered specialized fluid transfer solutions for critical military and defense applications. And in the first quarter saw strong orders growth across many key defense platforms, including in support of nuclear submarines.

Within nuclear, we're also seeing strong commercial nuclear demand in orders. AMETEK businesses provide a range of highly specialized products to this market, including fluid transfer solutions, radiation detection equipment and uninterruptible power solutions in support of nuclear power facilities.

Switching to space and satellite communications market. Our current micro technique business recently received a sizable order to provide ultraprecision machining solutions and manufacturing services in support of critical RF components used in low earth orbit satellites. Kern's advanced precision machining solutions are targeted for mission-critical applications, which require maximum accuracy, stability and repeatability.

And lastly, our Abaco business, a leading provider of ruggedized embedded computing solutions continues to see strong demand with a significant win in the semiconductor capital equipment market. Abaco recently secured an agreement to provide advanced computing technology to support AI-driven demand for advanced semiconductor tools. Abaco's orders were excellent in the quarter, with strong defense orders in addition to strength in the semiconductor market.

Overall, the breadth and strength of our orders in the first quarter reflect the continued trust of our customers and our continued delivery of key technology-driven products that meet our customers' most critical needs.

Before we move too far off the topic of key programs and our ability to deliver and the most critical and demanding of applications, I want to take a moment to highlight a particularly timely example of our differentiated technology.

AMETEK Sensors and Fluid Management Systems, a leader in advanced specialized sensing solutions for the aerospace, defense and space markets provided critical solutions used on the recent ARTEMIS 2 mission that eclipsed the record for the furthest man space mission. Our [ SFMS ] business provided thin-film pressure transducers that supported mission-critical life support infrastructure on the [ ORION ] multipurpose crew vehicle. This application demonstrates our ability to serve even the most demanding of applications and our ongoing commitment to reliability, precision and accuracy.

Congratulations to the AMETEK Sensors and Fluid management systems team on this exciting success and also to the four other AMETEK businesses, FMH, UEI, NSI and Zygo [ Pixellink ] that also supported the ARTEMIS platform of specialized technology.

Now turning to acquisitions and capital deployment. With our robust balance sheet, Strong cash flows and disciplined approach to capital deployment, AMETEK is well positioned to continue driving long-term value through our disciplined acquisition strategy. We are managing a very strong pipeline of acquisition opportunities across a wide range of deal sizes and markets and are encouraged by the strong pipeline of high-quality acquisition candidates.

As Dalip will touch on, our significant financial capacity provides the opportunity to deploy well over $5 billion in capital while maintaining an investment-grade credit rating. Our top priority for capital deployment remains acquisitions and we expect to remain active in this area.

We were pleased to announce this morning that we have signed a definitive agreement to acquire First Aviation Services, a leading provider of defense and aviation MRO services as well as proprietary part design and manufacturing. The combination of First Aviation with AMETEK's MRO business will provide attractive market expansion opportunities and additional scale for our A&D aftermarket businesses.

First Aviation is privately held and has six U.S.-based centers of excellence. They have approximately $80 million in annual sales. And the acquisition is subject to customary closing conditions, including regulatory approvals.

Alongside this acquisition and capital deployment strategy, we continue to invest in our businesses to ensure AMETEK is strategically positioned for long-term sustainable growth.

For 2026, we continue to expect to invest an incremental $100 million to support our growth initiatives, with the majority of this investment going into RD&E and sales and marketing initiatives. These investments continue to deliver excellent returns. In the first quarter, our vitality index which measures sales of new products introduced over the last 3 years was an outstanding 25%.

Now we'll take a moment to highlight an example of an exciting new product from our RTDS Technologies business. RTDS is a leader in real-time digital simulation of power systems, infrastructure and hardware testing in the loop. The real-time electromagnetic transient simulators enable detailed studies of power systems, allowing engineers to anticipate system and device behaviors that threaten stability, resilience and performance of the power grid. RTDS recently updated their simulator platform with new features, including a data center module and an updated workflow that provides more accurate representations of third-party power solutions. This innovation helps data center operators model the power electronics required for key components, such as the uninterruptible power supply systems and the variable frequency drive used in power and cooling systems.

This new product led to two new notable orders in the first quarter in support of data center testing applications from large power equipment providers. Congratulations to the RTDS Technologies team on this exciting new product development.

I'd like to take a moment to discuss the conflict in the Middle East and how AMETEK is navigating this evolving dynamic. AMETEK has only a small sales exposure to the region with approximately 2% of sales into the Middle East. Most of that small exposure is within our EIG process subsegment and is tied to energy markets. We do not expect a meaningful direct impact on AMETEK given the small exposure.

However, like everyone, we are not immune to the broader macroeconomic uncertainty. We are continuing to monitor developments in the region especially for impacts on the energy market and potential spillover effects. With all that said, I am confident that AMETEK will continue to navigate this period of increased uncertainty based on the flexibility and durability of our operating model and our proven track record of performing well in challenging environments.

Now shifting to our outlook for the balance of the year. For 2026, we now expect overall sales to be up high single digits on a percentage basis with organic sales now expected to increase mid-single digits versus the prior year. With the strong results from the first quarter, Diluted earnings per share for the year are now expected to be in the range of $7.94 to $8.14, up 7% to 10% compared to last year's results. This is an increase from our prior full year guide of $7.87 to $8.07 per diluted share.

For the second quarter, we anticipate overall sales to be up high single digits on a percentage basis with adjusted earnings of $1.96 to $2 per share, up 10% to 12% versus the prior year.

To summarize, AMETEK delivered an excellent first quarter. Our outstanding results reflect the strength of our portfolio and the resilience of our operating model. Our businesses are aligned with attractive secular growth trends and are well diversified across end markets, customers, technologies and geographies. We are leaders in niche markets where our differentiated technology solutions play a mission-critical role in our customers' most demanding applications.

Our highly engineered products are designed into applications governed by strict regulatory and compliance requirements, creating high switching costs. We primarily serve customers in long cycle industries with long asset life spans, resulting in a low obsolescence risk.

Taken together, these advantages position AMETEK for sustained long-term success and we see significant opportunities for continued value creation. Our culture is deeply ingrained across the organization, our competitive positions are strong and continuing to expand. Our operating model is durable, flexible and scalable.

Finally, we are supported by an experienced and proven team that has consistently performed through a wide range of market conditions.

I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter, then we will be glad to take your questions. Dalip?

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK delivered an outstanding start to the year, highlighted by excellent orders, sales and earnings growth, robust core margin expansion and strong cash flow generation. .

Now let me provide some additional financial highlights for the first quarter. First quarter corporate general and administrative expenses were $30 million or 1.5% of sales. For the full year, we continue to expect corporate general and administrative expenses to be approximately 1.5% of sales.

First quarter other operating expenses were $1 million, largely in line with the first quarter of 2025. First quarter interest expense was $21 million, up $2 million from the first quarter of 2025. The effective tax rate in the quarter was 19%.

For 2026, we continue to anticipate our effective tax rate to be between 18.5% and 19.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate.

Capital expenditures in the first quarter were $25 million, and for the full year, we expect capital expenditures to be approximately $160 million or about 2% of sales.

Depreciation and amortization expense in the quarter was $105 million. For the full year, we expect depreciation and amortization to be approximately $430 million, including after-tax, acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share.

For the quarter, operating working capital was 17.5%, and a 60 basis point improvement versus 18.1% in last year's first quarter. Operating cash flow was $452 million, up 8% versus the first quarter of 2025. Free cash flow was also up 8% year-over-year to $426 million. Free cash flow conversion was strong at 107% for the quarter.

For 2026, we continue to expect free cash flow conversion to be approximately 110% to 115% of net income. Total debt at March 31 was $2.2 million, down from $2.3 billion at the end of 2025. Offsetting this debt is cash and cash equivalents of $481 million.

At the end of the first quarter, our gross debt-to-EBITDA ratio was 0.9x, and our net debt-to-EBITDA ratio was 0.7x. We continue to have excellent financial capacity with flexibility to deploy well over $5 billion on growth initiatives and our active acquisition pipeline while retaining an investment-grade credit rating.

While acquisitions remain our #1 capital allocation priority for use of our free cash flow, we also seek to provide our shareholders with opportunistic share buybacks and a consistently increasing dividend.

In February, we announced a 10% increase in our quarterly cash dividend to $0.34 per share, our seventh consecutive year of 10% plus annual increases in our dividend payout.

I would also like to note that we have enhanced our financial reporting this quarter by including AMETEK's gross margin reporting and a related reconciliation on our Investor Relations website, with adjusted gross margin at a strong 51% in the quarter, this enhanced disclosure provides investors with greater visibility into AMETEK's margin performance and additional details to better understand our cost structure, and the underlying drivers of our profitability. Going forward, we will provide an updated gross margin disclosure quarterly on our website.

In summary, our businesses had a great start to the year. Our exceptional operating capabilities delivered excellent revenue and earnings growth, robust margin expansion and strong free cash flow conversion. With a proven strategy, significant capital deployment capacity and a strong track record of execution, we are confident in our ability to drive further growth and value creation in 2026. I'll now pass it back to Kevin.

Great. Thank you, Dalip. Stacy, can we please open the line for questions? .

[Operator Instructions] Our first question comes from the line of Deane Dray with RBC Capital Markets.

Dave, you normally, at this point, take us for a tour of the key end markets, but your prepared remarks really covered that well, so I appreciate it. But maybe just -- and you also highlighted the really small exposure to the Middle East. But how about just the rest of the regions and maybe the idea of -- are you seeing anything at the margin in terms of buying hesitancy? You certainly don't see it in the orders, but take us through the regions and any kind of sentiment in terms of macro pressures that you might be seeing?

Sure. I'll start with the performance around the geographies. And we really had balanced growth. U.S. and international markets were both up mid-single digits. The strongest growth was in Asia. In the U.S., we were up mid-single digits, had very strong growth in our A&D and Materials Analysis business. Europe was up low single digits.

That's where we had strength and power, strength in our automation businesses, but modest headwinds from the Middle East, we had about, I'd say, $15 million of discrete orders that due to safety reasons and disruptions that didn't ship during the quarter. So that would have ended up a little bit higher, but that occurred.

And we have not seen any cancellation in orders from the Middle East. In fact, we're seeing quotations to really rebuild infrastructure, the energy infrastructure. So it's going to be when this thing settles down.

In terms of getting back to the geographies, in terms of Asia, Asia was up low double digits, driven by strong China. China was up high teens, and it was driven by our process and power markets. So across the board, it was a balanced growth solid in all geographies really performing well.

Good to hear.

Yes. And we're not seeing any cancellations or delays or anything at all. In fact, March was an all-time record of any quarter for orders at AMETEK. So it's strong. It feels extremely good, and April is not over yet, but I just looked at it and it's on target for another good month. So we're in full steam ahead.

Great to hear. Now just a follow-up question, and you are likely limited in what you can say. There were some unconfirmed media reports about a potential sizable deal you all are looking at. And David, I don't often see your name in the Wall Street Journal.

But this is an asset we're familiar with, but the size would be bigger than what you typically do. We know you have that capacity. But just implications on a larger deal for AMETEK. Was it -- would it box you out of doing bolt-on deals over kind of the near term, but whatever you can share with us would be helpful. There's a lot of interest.

AMETEK policy is not to comment on market rumors or speculation related to M&A activity. I just go back to what I said before, our pipeline is strong. There is a mix of larger, medium and small technology deals and we're looking to create great deals for our shareholders.

We announced the MRO deal today, First Aviation service. We're really happy about that. We have -- as Dalip said, we have significant financial capacity that provides the opportunity to deploy well over $5 billion in capital and still maintain an investment-grade credit rating.

And M&A is our top priority for capital deployment. And I mentioned a few quarters ago that that's the way we're going to differentiate our performance over the next few years. So we are really engaged with a lot of different businesses and a lot of different opportunities, and we're going to make good disciplined deals for our shareholders, for sure.

And as you know, at AMETEK, acquisitions are the combination of a set of process, well-defined processes, integration is our secret sauce and returns are very important for us.

That's all really good to hear, best of luck.

And for our next question. Our next question comes from Andrew Obin of Bank of America.

Just a question. You highlighted large orders, and I appreciate that maybe some of them fairly lumpy. But do you get a sense that there's any pull forward from second quarter in terms of orders and there's going to be something unusually weak about second quarter orders given the strength in Q1?

Yes. I don't think there was much pull ahead at all. In fact, if you go back and look at my last couple of calls, we were signaling that this was going to happen. And what you really saw is continued strength in our EMG businesses, and EIG businesses just popped and we were talking about them usually following EMG about 6 months or 9 months and has happened.

So I don't know, some of the orders that we've got are for shipments to fill out the year. But I don't see any kind of pull forward or any kind of slowdown, that doesn't mean that we're going to have a 25%, 23% orders in the next quarter. But the markets for us, we've created a business that's in niche markets or technology is really, really needed for key infrastructure for key technologies for key mission-critical platforms, and we're just in the right place, and we're feeling good about the business.

And David, how do you think about -- given your order cadence, your top line outlook is fairly conservative as it always is, that's what AMETEK does. But what are you thinking about sort of risk consumer risk and just overall macro risk in the second quarter, you said orders are good, but any red or yellow flag that you're seeing in your end markets so far quarter to date? And are you adjusting the behavior in business units, any sort of business plans to maybe prepare for some turbulence.

Yes, that's a good question. And I'd start with, we're obviously performing very well. We've had strong execution, disciplined operation, and we're gaining momentum across the portfolio. We feel very good about our businesses performing. But there's obviously some ongoing geopolitical uncertainty, and we're remaining prudent with our guidance.

We have places in our business, we're laser-focused on material input costs. We believe we're going to be able to offset any inflationary costs with pricing. So we expect to offset inflation, including tariffs with pricing but we feel good. But we're laser focused on changes in the macro. And with our distributed structure, we have business leaders out there close to their customers looking at everything, and we're making sure that we have the right focus on it. So from what we know now, it feels good to us, but we're laser focused on what could be a bigger change. And -- but as I said, we're confident in our guide, and we feel really good about the momentum in the portfolio.

Our next question. The next question comes from Nicole DeBlase with Deutsche Bank.

I guess maybe just kind of piggybacking on the questions that were asked about orders already, sorry to dive into this further, Dave. But just on the large orders, I think you mentioned that there were a few that came in during the quarter, but you're basically saying that you don't think that this order results should be viewed as onetime. So does that mean that the large -- if we look at like your pipeline of large order activity, it's similarly strong and you expect to book further large orders as we move forward?

Yes, I would expect the bookings to continue to reflect some larger orders. And I think that what we're seeing is we had a period where the industrial economy at below 50 PMI is for an extended period of time. That's changing. We were signaling that's changing. And our EMG business picked up. And historically, EIG has picked up 6 or 9 months later. And we said that the last couple of quarters, and it's just happening like we thought it would. And EIG is just beginning to pick up.

So I think the order strength will continue, but I wanted to highlight some of the orders to somewhat lumpy, and I wanted to highlight them both to let people understand the areas that we're in and they are great technology and also to understand some of that is for shipments throughout the rest of the year.

Got it. Okay. Clear. And then I just wanted to spend a little bit of time on the medical end market. I don't think that was mentioned a whole lot in the prepared remarks. Dave, could you just talk a little bit about what you're seeing there?

Yes. I mean it's about a little over 20% of our exposure. In Q1, we had a great quarter. It was up low double digits. And once again, it was led by Paragon. Paragon is just performing extremely well. And for that full year, there's some tougher comps in the rest of the year. So we have the full year we expect mid-single digits largely due to the comps.

But -- we have other business in there like our Record business. It also had a very good quarter. So Paragon and Record led us and the strength in Paragon continuing is notable.

Our next question. The next question comes from Andrew Buscaglia with BNP Paribas.

I wanted to get your take on just kind of what's going on in the world. related to your Aerospace and Defense businesses given the heightened geopolitics. I know you guys have a number of mesh offerings. So it's hard to know in real time what you see going forward. But can you comment on any impact positive or negative to A&D?

Yes. Well, I think what we saw in the quarter, our A&D business continued strong activity, high single-digit growth in the quarter, and the growth was broad-based. All segments continued strong demand with notable strength in our defense markets.

And our A&D businesses are very well positioned to benefit from growing demand given our broad portfolio of differentiated technologies. And we now -- we increased our outlook for the year. We increased it to from high single digits to up approximately 10%. And that's what balanced commercial and defense activity.

And the way I look at it is, if you look at our 18% of the -- in A&D, about 60% of that is defense and about 40% of that is commercial. Defense is knocking it out of the park. The [ OE ] part of commercial and the business jet market are doing very good. Our M&A -- or MRO businesses that service airlines had an excellent quarter for orders. So the one area that we're watching closely is some of the international markets related to aviation fuel availability and fuel costs. That's a small part of our portfolio, less than 2%. But at the same time, we're watching it. But right now, we don't see -- we have good backlogs, good execution and I think that if we see something, it will come in the flying airlines flying public first, but right now, we're not seeing it. But the key thing is the vast majority of our aerospace portfolio, we're taking our whole portfolio up. And even the part that we're watching closely had a fantastic first quarter.

Yes. Good to hear. And along those lines, you make an acquisition in the quarter, First Aviation on the MRO side, which is interesting. I didn't see did you disclose the price you paid or deal price? And then is there any other details. I think I saw $80 million in revenue, but any other details you can disclose on that.

Yes, sure. I'll provide some more details on it, Andrew. And at the high level, our MRO businesses were largely commercial biased. And we were looking for something that really added a defense aspect to it because of the strength in the market, and we're really pleased to find First Aviation services. It's engineering-driven provider of aftermarket services and proprietary parts.

The primary markets defense. They also have some business jet and commercial pieces of it, but it's primarily a defense business. They have about 2/3 of our business are on MRO service and they actually have about 1/3 of it is on proprietary parts that we have businesses that have the parts and the services together, we typically do best with them. So they're really into [ PMA ] and [ DER ] approved repairs. They had new capability to us. Rotorcraft and fixed-wing platforms. There are a lot of good military programs. It expands our military -- our MRO capabilities to additional critical systems includes propeller blades, rotor assemblies, landing gear, some advanced electronics. So it's a sizable and growing proprietary aftermarket solutions business, strong engineering capabilities nicely expands our defense MRO and just fits like glove and with our existing MRO capabilities. So we're really excited and getting this business to closing and welcoming the First Aviation team to AMETEK.

Our next question comes from Scott Graham with Seaport Research Partners.

Congratulations on the quarter. Dave, could you continue the matrix as you just did for A&D with that first quarter organic and full year for process power and automation.

And then secondarily, I don't know if this is possible to do this, but would you be able to maybe carve out some of the larger projects that were in the orders? And maybe tell us what sort of maybe the trend line for bookings was on that basis?

Yes. I'll start with the -- I'll finish the walk around the company. I did it for aerospace and defense and covered some of it in my opening remarks, but there's some details still that it's probably you're interested in.

I'll start with the Process business. And it was up mid-teens in the first quarter and driven by acquisitions and low single-digit organic growth. And we have a solid pipeline of orders we highlighted during our last earnings call. These translated into broad-based order growth in the quarter, and we remain encouraged by continued momentum and a growing pipeline of opportunities across our process markets.

So now for the full year 2026, we're increasing our guide for process. We now expect organic sales for Process segment to be up low to mid-single digits, so increasing it from low to low to mid.

We talked about aerospace. We're increasing it from high single digits to approximately 10%. Go into power, next. Power subsegment deliver low single-digit sales growth with strong record level orders. Our power business continues to see strong demand across a growing pipeline of opportunities for power generation, backup power, data center microgrids and power simulation systems. I highlighted one of the new products in the orders received for power simulation systems in my prepared remarks.

Looking to 2026, we continue to expect organic sales to be up mid-single digits for that subsegment. And finally, our Automation & Engineered Solutions, excellent quarter, again, with high single-digit organic sales growth, broad-based, both our automation and engineered solutions business and our EMIP business and demand across attractive niche markets remains solid. And we continue to expect organic sales for Automation & Engineered Solutions business to be up mid-single digits.

In terms of digging in on the orders, I was trying to -- in my prepared remarks, do that a little bit. We talked about a big order in the semiconductor market from Abaco, we're providing computing solutions. That's -- we talked about the space satellite market that is really doing well with we have specialized machining solutions that can make precision components like no one else. So we're actually building machines, and we're doing some contract manufacturing for the lower orbit satellite systems.

I talked a bit about defense and what's going on in defense and our strength in UAVs and our strength in missile defense systems. I talked about the nuclear industry and both on the commercial and the civil and defense very strong for us, and we've got a substantial order for the submarine program. And these are -- these programs are things we're winning because of our technology because, we work with customers. These are highly engineered technologies. There are not a lot of people that can do these things, and we just think we're well positioned for where the world is going. We're in the right places, and we feel really optimistic right now.

And if I could just add, in terms of the order strength, as we said, it was broad-based. And is there were some large orders in the aerospace and defense area, but every subsegment saw double-digit organic orders growth. and every division was up at least 5%. And automation was very strong. And really in process, our metrology and material analysis business is also a really strong order growth. So it's really broad-based. It really wasn't any -- it wasn't driven by lumpiness in orders in certain areas.

Our next question comes from Joe Giordano with TD Cowen.

There seems to be emerging concerns that potentially aerospace aftermarket, I guess, on the commercial side is peaking. It doesn't seem like there's real evidence in your business of that. But what are you kind of hearing seeing? And what would you really be looking at to see if something like that was starting to form?

Yes. As I mentioned before, that's the third-party aftermarket, the smallest part of our MRO businesses, and we watch it very closely, and we have some specialized capability and the U.S. is extremely strong right now. We're involved in some retrofit programs that are driving the business. So there may be a bit of a counter market there.

And in Europe, Europe and Asia, the MRO. If there's a place that turns down, it will probably be that area, so we're watching that closely. But again, this is less than 2% of our sales. And the fact is we had an incredibly strong first quarter. The order rates are continuing to have strength. But as the conflict goes on in the Gulf, and there's a bit of a shortage in aviation fuel. We think it will -- the weakness may show up first in Asia, second in Europe and the U.S. seems pretty insulated right now, but it will be last. But that can all change in a week. So we're making the call the best we can. And right now, we feel good. And if we think there's any downside, it's extremely modest.

And then I was interested, you mentioned Abaco, computers into semiconductors. I tend to think of that more as like defense-oriented field applications. Can you talk about like where -- what you guys are doing there on semis and how that business is sitting in?

Yes. So Abaco makes advanced computing solutions. And when you have the most precision applications have to work in the most durable environments, use the Abaco equipment. And along with the needs and the data explosion in defense right now where everybody is more data to process an RF systems and things like that. It's a great demand driver.

Abaco also has a business where we're selling that technology to the semiconductor market. So really in the quarter, there was a semiconductor tool manufacturer that's using the semiconductor pool manufacturers dealing with a ramp-up in demand from AI and everything that's going on in the semiconductor market, and they're using the Abaco computing technology to control their tool. So we were pleased to book that order in the quarter.

[Operator Instructions] Our next question comes from Nigel Coe with Wolfe Research.

Obviously, a lot grand covered here, but thanks for the question. So the guide increase from mid- to high singles to high singles and the -- obviously, the bump in corporate as well. Is that in the realm of 2 points of sales accretion versus the prior plan? That's how I think about it.

And what I'm going with this is twofold. One, the $0.07 increase in the guide, obviously, a nice surprise. But seems like if it is a 2-point increase in sales? And then secondly, with the EIG, I'm just curious, given the order strength and the broad-based nature of the order strength, I'm just wondering how we should think about the second half core growth profile for EIG.

Yes. The first point is probably an increase more like 1.5 points, and it was really driven by process and [ era ]. So that kind of puts that in the bucket. And really, I go back to my original comments, it's a conservative guide. We have a strong start to the year. excellent execution. Orders were outstanding. But then you have the geopolitical uncertainty. And we balanced it all, and we're very confident in our guide. We think it's prudent to do what we did.

Okay. No, it does seem conservative. And then maybe going back to Deane's question at the front end around -- obviously, you don't speculate on press rumors. But I'm just curious, AMETEK has evolved from doing a lot of bolt-on deals to much larger deals under your leadership. I'm just wondering how you view the risk reward of larger deals versus small bolt-ons? Just I'll leave it open at that.

Yes. I think the -- there's an important risk reward. And you have to make sure what you're buying is -- matches our strategy, matches what we're trying to do and we can add value to it. So we have naturally increased the size of deals over the past 10 years. We're still focused on niche markets. we're still focused on the areas that we're currently operating in. And I think that I plan on continuing to expand a lot. And it's, again, an unblemished record. We've never had a write-off of goodwill. We're very conservative. We're -- we look to get a return on every deal, returns on capital are very, very strong for us. It's part of our basic operating model. That's what we do. Our growth model is to add M&A to our portfolio of niche businesses.

We don't have any over-dependency on any one market, any one technology, any one customer. So we just think we have a bulletproof model that's robust, and we'll continue to add acquisitions in no way are we going to do at an acquisition that's the size of AMETEK and no way where we had an acquisition is half the size of AMETEK. So we're still looking at these I'll call them bite-sized deals that are a small percentage of our market capitalization, and we're going to continue to do that. And the environment for us is providing a lot of opportunities for us. So we're assessing a lot of opportunities. We haven't made a decision on any of them, but we're going to pick the ones that we add the most value for our shareholders.

Our next question comes from Julian Mitchell with Barclays.

Maybe just moving away from the top line for a second, looking at operating leverage and kind of incremental margins, is the sort of guide based off a steady improvement year-on-year in operating leverage as you go through 2026. Just wanted to clarify that. And if you see any movement in kind of price net of cost within the year moving around?

Right. So if you want to dig into margins, Julian, in the first quarter, we had an excellent operating quarter. So our reported margins were up 50 basis points. But our core margins, so we take out acquisitions and we take out FX, they were up 160 basis points, just outstanding. And if you look at both of our groups. EIG had core margins up 40 basis points, driven by excellent productivity and EMG reported core margins up 410 basis points. So they got month productivity plus leverage from the excellent sales growth.

If you want to dig into that and say, what were the incrementals on the dollar of sales over the incrementals. Our incrementals were greater than 50% for the company, core incrementals. So when you back out the acquisitions and you back out FX, core incrementals were up 50%, both on the whole company. EIG core incrementals were greater than 50%, and EMG core incrementals were greater than 50%. So really strong.

And related to the guide for the year, we're expecting 35% incrementals, and core margins will be up around 50 basis points. So -- and again, I'll go back to -- it's a prudent guide. There's a lot of uncertainty out here related to potential inflation and things like that, we're laser-focused on. So performing extremely well, plan to continue performing very well for the year, and those are the numbers that are outstanding in the quarter. And we plan to continue driving it forward. And we have a track record of being able to navigate through changing conditions, and we're laser-focused on what we think we need to do.

That's very helpful. And then just to circle back to the EMG segment and the top line outlook there. So as you noted earlier, for medical specifically, you've got tough comps later in the year. And the overall EMG segment, the comps very tough on sales in the second half. But at the same time, your orders are growing double-digit organic still. So I just wondered sort of are you kind of baking in like a mid-single-digit exit rate on organic growth for EMG just because of the comps. Is that the right way to look at it? .

Yes, you're in the ballpark. You're in the ballpark. That's the way I look at it.

This concludes the question-and-answer session. I would now like to turn the call back over to Kevin Coleman for closing remarks.

Thanks, everyone, for joining our call today. And as a reminder, a replay of today's webcast can be accessed in the Investors section of ametek.com. Have a great day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Q4 2025 AMETEK Inc. Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker Kevin Coleman, VP of Investor Relations and Treasurer. Please go ahead.

Thank you, Crystal. Good morning, and welcome to AMETEK's Fourth Quarter 2025 Earnings Conference Call. Joining me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements.

Any references made on this call, historical results will be on an adjusted basis, excluding after tax, acquisition-related intangible amortization and excluding acquisition-related costs, Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open it up for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK completed a strong year with excellent results in the fourth quarter, highlighted by double-digit growth in sales, orders and operating profit, robust core margin expansion, strong cash flow growth and earnings per share ahead of our expectations. In the quarter, we established records for sales, orders, operating income, EBITDA and diluted earnings per share, operating cash flow and free cash flow. We also ended the quarter with a record backlog. And today, we announced the acquisition of LKC Technologies, an attractive technology acquisition, which broadens our MedTech exposure. I'll provide more details on LKC shortly.

Now let me turn to our fourth quarter results. Fourth quarter sales were a record $2 billion, up 13% from the same period in 2024. Organic sales were up 5%. Acquisitions added 7 points in the quarter and foreign currency was a 1 point tailwind. Orders were very strong in the quarter, with overall orders up 18% to a record $2 billion and organic orders up 7% versus the prior year, leading to a record backlog of $3.58 billion. Sales and orders growth consistently improved throughout the year, with the fourth quarter growth, the strongest of the year.

AMETEK delivered excellent operating results in the quarter. Operating income was a record $523 million, a 12% increase over the fourth quarter of 2024. Operating margins were 26.2% in the quarter. Core margins were an impressive 27.6%, up 100 basis points. EBITDA in the quarter was a record $618 million, up 10% versus the prior year and EBITDA margins, a strong 30.9%. Our excellent operating performance led to a strong cash generation with free cash flow, a record $527 million in the quarter, up 6% versus last year's fourth quarter, and free cash flow to net income conversion of 132%. Diluted earnings per share were a record $2.01, up 7% versus the fourth quarter of 2024 and above our guidance range of $1.90 to $1.95 per share.

Adjusting for an abnormally low tax rate in last year's fourth quarter, diluted earnings per share would have increased 11% in the quarter on a 5% increase in organic sales, reflecting strong incremental margins.

Now let me provide some additional details at the operating group level. First, the Electronic Instruments Group. EIG delivered excellent operating performance in the fourth quarter with record sales and operating profit along with impressive core margin expansion. EIG sales were $1.37 billion, up 13% from last year's fourth quarter. Organic sales were up 2%, acquisitions added 10 points. Foreign currency was a 1 point tailwind. We were encouraged by the organic sales growth in the quarter and the steady improvement in EIG growth rates throughout 2025. EIG's fourth quarter operating income was a record $413.7 million, up 7% versus the prior year.

Core operating margins were a robust 32.3%, up 50 basis points from the prior year. The Electromechanical Group completed an outstanding year with very strong broad-based growth and excellent operating performance in the fourth quarter. EMG's fourth quarter sales were $629 million, up 15% versus the prior year. Organic sales were up an impressive 14% and foreign currency was a 1 point tailwind. Sales growth was strong across all EMG divisions, with each growing double digits organically in the quarter.

EMG's operating income in the fourth quarter was $142.5 million, up a sizable 28% compared to the prior year period, while EMG's fourth quarter operating margins were 22.7%, up 240 basis points versus the fourth quarter of 2024.

Now for the full year results. AMETEK delivered excellent overall results in 2025, establishing annual records for sales, operating income, operating margin, EBITDA and diluted earnings per share. Overall sales for the year were $7.4 billion, up 7% from 2024. Operating income for 2025 was $1.94 billion, up 7% and operating margins were 26.2%, up 10 basis points from the prior year period, while core margins were up a very strong 80 basis points. EBITDA for the year was $2.33 billion, up 7% with EBITDA margins a very strong 31.5%.

Full year 2025 earnings were $7.43 per diluted share, up 9% versus the prior year. We also delivered strong cash flows in 2025 providing us with significant capital to deploy on strategic acquisitions with free cash flow to net income conversion of 113%. I'm very proud of our performance in 2025. Our businesses successfully navigated through sluggish industrial markets and ongoing macroeconomic uncertainty and delivered excellent results.

Thank you to all AMETEK colleagues for your outstanding contributions and hard work and delivering on our commitments to our customers and shareholders. AMETEK is well positioned for continued long-term success, given your efforts.

Now turning to acquisitions and capital deployment. In 2025, we completed the acquisitions of FARO Technologies and Kern Microtechnik for approximately $1 billion, acquiring approximately $400 million in annual sales. The integration of both businesses is going well as they integrate the AMETEK growth model into their businesses.

Now switching to our most recent acquisition, LKC Technologies. LKC is a leading provider of innovative technologies that enable effective diagnosis and management of ophthalmic conditions. Their advanced technology solutions help doctors test and monitor eye health and are designed to detect early signs of diabetic retinopathy and other serious eye conditions that can lead to vision loss. A combination of LKC with our Ultra Precision Technologies [indiscernible] record business provides attractive market expansion opportunities and creates a broader ophthalmic portfolio.

LKC was privately held and headquartered in Germantown, Maryland. I'm excited to welcome all LKC Technologies' colleagues to the AMETEK family. With our robust balance sheet, strong cash flows and disciplined approach to capital deployment, AMETEK is well positioned to continue driving long-term value through our acquisition strategy. We are encouraged by our strong pipeline of high-quality acquisition candidates and our significant financial capacity provides us with the flexibility to deploy over $5 billion in capital while maintaining an investment-grade credit rating. Our top priority for capital deployment remains acquisitions. While our strong cash flow provides us with the flexibility to opportunistically repurchase shares and pay a consistently increasing dividend. We also continue to focus on ensuring AMETEK is strategically positioned for long-term sustainable growth through continued investments back into our business.

These investments have strengthened our leadership position within our niche markets help open up new growth markets and attractive adjacencies and accelerated our new product development and technology innovation. For all of 2025, we invested an incremental $90 million in support of these growth initiatives with the majority of these going into our research, development, engineering, sales and marketing and digital initiatives. And in 2026, we expect to invest an incremental $100 million. We are seeing great results from these investments.

In the fourth quarter, our Vitality Index, which measures sales of new products introduced over the last 3 years was an outstanding 30%. This is an impressive result and reflects the great work of our businesses and colleagues. I wanted to highlight a couple of examples of how our businesses are leveraging their technology innovation efforts and broad product portfolios to help strategically expand their presence within attractive market segments. The first business is AMETEK SPECTRO. SPECTRO is the leading provider of advanced analytical instrumentation for using critical industrial, environmental, research and academia applications. SPECTRO's products and solutions provide highly accurate, reliable and efficient elemental analysis. SPECTRO has recently introduced a new product family of elemental analysis instruments broadening their technology, product capabilities and market reach.

These new products, the SPECTRO Max and the [indiscernible] have seen outstanding demand as rapidly rising commodity prices have increased the importance of precise and accurate metals analysis within a wide range of applications.

We are also seeing growing demand across our defense businesses. in particular, within our European defense businesses as our differentiated technology capabilities and product portfolio are well positioned to benefit from the expanding defense spending in the region. Our defense businesses provide a wide range of ruggedized high-performance solutions for a diverse set of mission-critical defense applications, and we continue to win content on new programs given our strong design and engineering capabilities.

To share a few examples, AMETEK's [indiscernible] and Air technology businesses are providing advanced cooling solutions for use on a number of European air defense systems. Our [indiscernible] business is providing integrated high-performance computing systems for European aircraft and communications platforms. And our power and data systems businesses is supplying power generation systems for a number of UAV platforms. Great work by our businesses in developing the critical products and technologies needed by our customers.

Now shifting to our outlook for the year ahead. For 2026, we expect overall sales to be up mid- to high single digits on a percentage basis with organic sales expected to increase low to mid-single digits versus the prior year. Diluted earnings per share for the year are expected to be in the range of $7.87 to $8.07, up 6% to 9% compared to last year's results. For the first quarter, we anticipate overall sales to be up approximately 10% versus the prior year's first quarter, with adjusted earnings of $1.90 to $1.95 per share, up 6% to 9% versus the prior year.

To summarize, AMETEK delivered a strong finish to the year with excellent performance in the fourth quarter reflecting the strength of our portfolio and our ability to execute our growth strategy. We entered 2026 with a record backlog and solid momentum given the strong sales and orders growth we saw in the second half of 2025. Our differentiated technologies and deep industry expertise continue to position us well in attractive niche markets. Additionally, we have significant capital to deploy on strategic acquisitions and a track record of delivering strong returns on capital.

Lastly, our proven operating capabilities allow us to deliver strong incremental margins and manage through economic or geopolitical uncertainties. With a focus on innovation, operational excellence and disciplined capital allocation, we are confident in our ability to drive continued growth and create long-term value for our shareholders in 2026 and beyond.

I will now turn it over to Dalip Puri, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions. Dalip?

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK had an excellent finish to the year, establishing records for orders, sales, operating income, earnings per share and free cash flow in the quarter.

Now let me provide some additional financial highlights for the fourth quarter, the full year as well as some additional guidance for 2026. Fourth quarter general and administrative expenses were $33 million, up $4 million from the prior year due to higher charitable donations in the period. For the full year, general and administrative expenses were up $10 million. As a percentage of sales, full year G&A expense was 1.6%, up slightly from 2024 levels. For 2026, general and administrative expenses are expected to be approximately 1.5% of sales. Fourth quarter other expenses were up $6 million compared to the fourth quarter of 2024. For 2026, we expect other operating expenses to be largely in line with 2025 levels.

The effective tax rate in the quarter was 16.3%, up from 12.8% in the fourth quarter of 2024. For the full year, the effective tax rate was 17.8%. For 2026, we anticipate our effective tax rate to be between 18.5% and 19.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate. Capital expenditures were $57 million in the fourth quarter and $130 million for the full year. Capital expenditures in 2026 are expected to be approximately $160 million or about 2% of sales. Depreciation and amortization expense in the quarter was $106 million, and for the full year was $423 million.

In 2026, we expect depreciation and amortization to be approximately $430 million, including after-tax acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share. For the quarter, operating working capital was 16.5% of sales, a 30 basis point improvement versus the fourth quarter of 2024. Operating cash flow in the quarter was a record $584 million, up 6% versus the fourth quarter of 2024.

Free cash flow was also a record in the quarter, up 6% to $527 million, with outstanding free cash flow conversion of 132% for the quarter. Free cash flow for 2025 was $1.7 billion, with full year free cash flow conversion also very strong at 113% of net income.

For 2026, we expect free cash flow conversion to be between 110% and 115% of net income. Total debt at year-end was $2.3 billion, up $200 million from the end of 2024 due to the acquisition of FARO Technologies. Offsetting this debt is cash and cash equivalents of $458 million. During the quarter, we spent approximately $285 million on share repurchases, bringing our total share repurchases for the year to approximately $443 million. We continue to have significant financial capacity and flexibility to support our growth initiatives and capital deployment strategies. We demonstrated our financial flexibility in 2025 by deploying over $1.8 billion on acquisitions, share repurchases and dividends, all while maintaining our financial capacity and a conservative balance sheet.

At the end of 2025, our gross debt-to-EBITDA ratio was 1x and our net debt-to-EBITDA ratio was 0.8x, essentially unchanged from the end of 2024. In summary, we delivered strong fourth quarter and full year operating results highlighted by record revenue, record earnings, robust margin growth and excellent cash flow generation. With a proven strategy, significant capital deployment capacity and a strong track record of execution, we are well positioned to continue delivering exceptional results in 2026. Kevin?

Thanks, Dalip. Crystal, could we please open the lines for questions?

[Operator Instructions]

And our first question will come from Matt Summerville from D.A. Davidson.

David, I was hoping you could drill deeper into the medical portfolio and their performance there in across both EIG and EMG and how we should be thinking about kind of the medium- to long-term algorithm associated with Paragon and Rauland and some of the bigger buckets in medical? And then I have a follow-up.

Sure. It's about 21% of our business now, the broader health care exposure. If you look at the health -- across both groups, Paragon and Roland driving the results, they were up low double digits in Q4. So that was a very good quarter, up low double digits. And for the full year '25, they were up high single digits. And we're thinking for '26, we'll be up mid-single digits. So our initial guide is mid-single digits, more challenging comps, but still very healthy businesses and performing well. And what's the follow-up, Matt?

I was wondering if you could talk about how you're thinking about strategic price capture kind of going forward after passing through this multiyear period where you had pretty meaningful inflation. And then obviously, you had the tariff pressure. So what's kind of the go-forward price algorithm? What does that look like for AMETEK now?

For the fourth quarter of '25, we had a positive price/cost spread. So we -- our pricing offset both inflation and tariffs. So we think that, that is going to be what's going to happen in '26. So for the full year '26, we're confident we can offset inflation and the existing known tariffs. So we're getting -- we have highly differentiated businesses of AMETEK product portfolio, leadership in niche markets around the globe, these are mission-critical products and the pricing is not going backwards, it's going to stick. The vast, vast majority of it is price increases, not just kind of offsets.

So we had a good pricing situation. As I mentioned in my prepared remarks, we have a refreshed product portfolio, 30% Vitality mission-critical products. So we really have done this for quite a while and don't see any change. So I think we'll be positive when you take into account inflation and tariffs for the year.

Our next question comes from Deane Dray from RBC Capital Markets.

Maybe we can step back and they do your typical run through the end markets, key platforms. It sounds like everything in medical, we're certainly hitting expectations. And if you could touch on any kind of regional dynamics as well?

Sure, Dean. The Process business, I'll start there. Overall sales for our Process businesses were up mid-teens in the fourth quarter, driven by the contribution from recent acquisitions. So we acquired the FARO business, the current business and we bring those in, they're lower margins, and we're improving them as we go. But that group grew low single digits organically in that quarter. So that's the first time we saw a low single-digit organic growth in process. We're pretty happy with that. We saw continued improvements throughout the whole year.

As I said, they're most positive in the fourth quarter. We're encouraged by that finish to the year. And we talked about before, we see a very strong pipeline of growing opportunities in our broader process and analytical instrumentation markets. For the full year 2026, we expect organic sales for our Process segment to be up low single digits. Talk about our Aerospace and Defense businesses, they completed an outstanding year with low double-digit growth in both overall and organic sales in the quarter.

Similar to the full year growth was broad-based, strongest orders, strongest growth across our commercial OE and aftermarket businesses in the quarter. Our businesses are well positioned with strong and expanding content on a wide variety of aerospace and defense platforms.

Looking ahead, we expect another strong year high single-digit organic growth in 2026 and really balanced across both our commercial and defense businesses. Jumping next to our Power business, delivered solid growth in the quarter, both overall and organic sales were up mid-single digits. Growth in the quarter was strongest within our RTDS and Power instruments businesses. It's driven by global grid modernization and applications supporting the data center buildout. Talked a little bit in the last meeting, we have applications in Power generation, backup power, micro [indiscernible], power systems simulation services, all supporting their broader data center ecosystem and delivering power to the ecosystem.

Looking ahead to 2026, we expect organic sales for our Power businesses to be up mid-single digits. And finally, our Automation & Engineered Solutions businesses delivered another outstanding quarter with low double-digit overall and organic sales growth. Growth was again broad-based across our Automation & Engineered Solutions businesses with our Paragon Medical businesses delivering the strongest growth.

For 2026, we expect sales for Automation & Engineered Solutions businesses to be up mid-single digits organically. And I think you asked about the geography also, Dean.

Yes.

Yes, we have -- both U.S. and international sales were up mid-single digits. So it's kind of good strength across the board. In the U.S., we were up MSD, mid-single digits, driven by strength in our Automation & Engineered Solutions business. In Europe, we were up low single digits driven by strength in Aerospace and our Automation businesses. And Asia was up 10%. We were very pleased that China was up low double digits for us, driven by our Process, Power and Automation businesses. And again, Asia was up 10%. If we take China out of Asia, Asia was up high single digits. So Asia was pretty much strong across the board. So pretty good performance geographically across the board.

That's all good to hear. Just a quick follow-up. You talk about record backlog. What kind of conversion should we expect in 2026 of backlog. I mean, I know typically, you're at like a 30% conversion, but with the recent kind of expansion that's been closer to 50%, how does that shape up for '26?

It's in the same ballpark. It's -- with our long-cycle businesses, our aerospace, defense business with our process businesses, some of those are multiyear. But there's plenty for us to ship near term. So we're pretty optimistic about the order pipelines. We had good orders throughout the quarter. December was the strongest quarter. December was the strongest record quarter for us in 1 month, and we also started the year strong. So orders are good. We're -- again, the backlog is with our multiple industries, it's a little bit difficult. But you're right, it's between that 30% and 50% number. But we're in good shape and is feeling good with the strength.

Our next question comes from Andrew Buscaglia from BNP Paribas.

Hoping to focus on EIG, just that it sounds like the organic growth of 2%, a little bit below kind of what you had expected because you expect for the full year to grow year-over-year. So I imagine in process and analytical instrumentation that maybe didn't come to growth in come to fruition the way you thought it would. What are your expectations into 2026 for that segment or subsegment and activity converting?

Yes. Just -- if you go back to the beginning of 2025, we actually had negative organic growth in the first couple of quarters in our Process businesses and those improved. So we actually were positive in Q4. So we're pretty pleased with the performance of EIG turning positive in Q4 on the back of the process of business performance. If I look at 2026, we have -- our overall sales, I already mentioned in the prepared remarks, is up mid- to high single digits with organic up low to mid-single digits. And we think both of our businesses will have low to mid-single-digit organic growth. So both EIG and EMG, overall will be up mid- to high single digits and both will have organic growth of low to mid-single digits.

Okay. Got it. And that outlook in EMG, your sales were so strong in Q4. Was there something out of the ordinary, unusual that would drive that 15% growth that this won't repeat going forward?

No, I think that, as I mentioned in the prepared remarks, every division within EMG had double-digit growth in sales. So there's really a lot of strength there. I mean there's -- if you going to get some tougher comps next year. But we're performing well. We have strong execution, disciplined operations. We're gaining momentum in the portfolio. EMG recovered nicely, Automation and MedTech are solid. A&D remains strong with good backlogs. So I think what you might be seeing there is the guide is a little bit prudent or this early in the year, but we feel good about EMG in 2026.

Our next question comes from Brett Linzey from Mizuho.

I wanted to just come back to the kind of the pricing dynamic. I know there's a lot of fits and starts on tariffs last year and subsequent pricing. Any signs of prebuy or prebuild in some of those channels as maybe some of that destock has turned to restock and customers are maybe looking to get ahead of some of the price last year?

No, I think it seems like we've -- there's a lot of macroeconomic things we're dealing with and uncertainties and related to the broader deglobalization, but I think all that stuff happened in 2025. And I think we're more of a more normalized -- it feels like it's more normalized now where you're not -- you don't have buy [ ahead ], you don't have things like that. And so it feels more normal than it did in '25 at the beginning of '26.

Okay. Great. And then just a follow-up on price and cost. Maybe discuss your actual pricing expectation for 2026. And then how are you thinking about price cost spread for the year? I know we're getting a little bit of metals inflation here.

Yes. We're not giving a specific target, but what we will say is in the fourth quarter, as I mentioned to Matt, we offset -- price offset inflation plus tariffs plus -- [ and about ] 50 basis points. So it was very strong. And I expect a similar kind of performance next year. That's our target. So there's in our different businesses or different levels of inflation, there's dynamics. But we have a strong history of -- because of the product portfolio and the special place in the value chain we have with our customers and being able to offset inflation in tariffs with price. So that's going to continue.

Our next question comes from Andrew Obin from Bank of America.

Can we just get an update on FARO acquisition? What are you seeing? What's the progress has been? What are the key learnings?

Good question. Remember, everybody, it designs and develops advanced 3D metrology and digital reality solutions. These include product families like measurement arms, laser scanners, laser trackers, integrated process and analytics software, and it's an excellent strategic fit with our Creaform business.

So we have a business that's complementary to it and complements our metrology capabilities. So it's -- and we acquired the business, and we think we can add meaningful value to FARO. So along with the elimination of the public company costs and the integration of AMETEK's global infrastructure, we think there's a tremendous amount of synergies. So we acquired the business for about 2.7x, and we feel that the cost synergies will allow us to more than double EBITDA margins from the current mid-teens level to a 30% level and achieve a 10% return on invested capital by year 3. And that was the plan going in, and it's still -- we're more confident than ever. We're going to be able to do that. We have made moves on integrating the business. We formed 2 business units. One is more of the metrology business unit and one is more the digital reality business. So those are people coming from legacy AMETEK and FARO in both businesses, and that's going extremely well.

You'll see in the press release we put out. We have some onetime charges with that. It was about $17.6 million, I believe. So that's allowing us to get the kinds of improvements that we're getting in the business. And that's why there's quite a big gap between the -- our core margins that I mentioned and the reported margins. You got the -- along with being a less profitable business, and we're doing some work on improving the business. But I'm very, very bullish with the business.

I mean there's a great coverage throughout the world. We didn't have overlap and capability are really complementary and the team is extremely motivated. So the AMETEK leadership style is having a positive effect on FARO. So we're very pleased with it.

And then last, '25 was a year where I think we all waited for a short cycle recovery that never happened. And you've clearly stressed that your orders improved into the year and then continue to be strong in January. What kind of conversations are you having with your customers? Do you feel better that what's happening right now is not maybe a flash in the pan but maybe more substantive recovery. I would appreciate any color.

If you go back and listen to our last couple of conference calls, we were feeling better through the quarters too. We could see momentum building and it seems to continue to build. And we've had a fantastic pipeline of opportunities and more of those are starting to happen. And I just -- we had 3 years of negative PMI [indiscernible], I think it's changing. It feels good for us. And you have a lot of -- we got the positive segments that we talked about. And we got the power business now is well positioned, and it's going to benefit from the build-out of power capacity. The process business is seeing steady improvements, and we're managing a strong pipeline. Our future project activity remains extremely healthy. If you look at the -- a little bit of macro uncertainty around the broader deglobalization, but at the same time, conditions remain constructive. Interest rate policies are positive. M&A environment looks favorable. The industrial renaissance across the west should help us offset any kind of drag from the tariffs.

So we're working on our business, and we're feeling pretty good right now. So you never know if it's long-lasting, but right now, it's feel solid, and we're certainly being prudent with our guide because something like you mentioned happens and it weakens later in the year, but we don't see it right now.

Our next question comes from Jamie Cook from Truist Securities.

I guess my first question, Dave, can you just obviously did FARO, you did Kern. Just sort of an update on how you're thinking about the M&A pipeline in 2026? And are there any sort of sizable deals that are out there? And then my second question, just on the implied margins for 2026 relative to the top line guide. We talked about price cost being positive. Obviously, I think FARO is still going to weigh on margins a bit. Is there any other factors that we should consider as we're thinking about margins across your segments that are unusual.

No, I think, Jamie, I'll take the margin question first. I mean we're firing on all cylinders in terms of margins. If you look at our core operating margins were up 100 basis points in the quarter. So if you back out all the things you mentioned, they were very strong. Both groups, EIG was up 50 basis points.

EMG on a core margin was up 310. And if you look at incrementals, our core incrementals were 45% in Q4. So that's very strong. And for '26, we've been a little more conservative, we're saying 35% reported -- incremental margins and 30 basis points of margin expansion. So 30 basis points of margin expansion, which is pretty typical for us going into each year, and we're thinking we can get 35% incrementals. And that will be a little bit less than we got in '25, but it's more prudent. We're feeling good about it. There shouldn't be any surprises.

With a business like ours, I think we -- 31% EBITDA, every time we acquire businesses, they're coming in at a lower profit margin. So yes, that's why we try to give the core margins and we communicate them, we go through it all and you have to think about it. But if we add a business that has a lot lower margins, like Zygo had essentially 15% -- I mean FARO had essentially [ 50% ] EBITDA margin. So there's going to be initial dilution. But we have a tremendous capability of bringing those margins up.

And the best way to look at that long term is our return on capital. If you look at our balance sheet, it doesn't lie. We had between a 12% and 13% return on capital, and that's how we know we're creating value for our shareholders.

Okay. So that was the genesis of my question. So it's you being prudent versus anything else?

Yes, I think so. It really is. And then you talked about M&A and we're excited about the businesses that we got done because we really can add a lot of value to FARO and Kern. But we really have the opportunity to differentiate our performance with M&A in the next year or 2. Because with our ability to operate businesses are disciplined and really a key change in the pipeline. We really have a strong pipeline of deals right now. And as Dalip said, we have a balance sheet ready to act, ready to put the work and the pipeline remains strong. We're actively looking at a number of high-quality deals. We could spend $5 billion and still maintain our investment-grade credit rating. So the team is active and we're excited, and it's really going to be a way for us to differentiate our performance over the next couple of years.

Our next question will come from Nicole DeBlase from Deutsche Bank.

Maybe just circling back on China. Really encouraging to see see [indiscernible] turn positive and nicely positive in the quarter. Dave, do you think we're seeing a turn in that market? If we could maybe double-click on what you're seeing in the individual businesses there? And what your expectation is for 2026 as well.

Right. China is a little different for us. I mean, we have -- first of all, we have a fantastic team over there. We have just great long-term AMETEK employees over there and you do a great job of managing it. And we have products that are used by our customers in China to improve their manufacturing processes, high-value manufacturing processes. We have products that used to automate their processes. We have products that make their environment cleaner. We have products to help them build out their nuclear power infrastructure. We have products that help them test their electric vehicle industry. So a lot of our products are really suited to our customer base over there. So it's -- the overall the overall market, the overall country, I think you're seeing some deflation.

I think you're seeing -- you still have a real estate hangover. But in the places that we're playing, we still have strong positions. And we're being conservative on how we're looking at that business, but it was good to see the change and you get a level of low double-digit growth. and driven by our process businesses, our power businesses and our automation businesses, all firing on all cylinders in China.

That's great. And then just maybe following up on Jamie's question on M&A. It sounds like you're pretty fired up about the pipeline. Would you say like if you kind of think about your time running AMETEK and compare today's pipeline versus what you've seen over the years, is this like a stronger pipeline than normal? Or is it just, okay, our pipeline is always strong, and this has been a focus of AMETEK for some time?

Yes. The pipeline has always been strong. But I think right now, the pipeline is filled with a good mix of normal quality deals and larger deals. So I think there's the -- there's probably more larger deals that have been in our pipeline in a while. And larger deals, we've -- we're not looking to buy a business that's our size or even half our size or even 1/4 of our size.

I mean we don't think you add value that way. But there's a good bunch of businesses there that are of good chunky sizes for us. So as we get bigger, we've expanded the types of businesses we're looking at. And we're very pleased with -- I mean we're very disciplined. So what looks good today may not happen tomorrow because we're not going to overpay. But at the same time, if we buy a business, you know we're going to get the returns on capital. And we're optimistic. We're working very hard. We have a great team in M&A. We have about 11 people dedicated to M&A. We're a very few companies of -- in the industrial world that have the dedicated people to it. And all of our operators are also involved.

So we have a good process. It's a well-defined processes the processes that work on deal sourcing, deal modeling, diligence integration. And I think the secret sauce of AMETEK is we have very strong business operators, well ingrained in the AMETEK culture, long-grained in the AMETEK business system, providing ownership for the delivery of financial metrics for each individual deal. So -- and we learn something new from every deal. It's -- we're experienced at it, but we're humble and we learn something new from every deal, and we share the knowledge and it just makes us better.

Our next question comes from Chris Snyder from Morgan Stanley.

I wanted to follow up about the 2026 margin guide. It seems like on the math that Q1 margins would be down year-on-year again. I'm just looking at the 10% top line growth versus -- or EPS up mid- to high singles. So I guess, does that reflect some of the M&A headwinds still coming through in that year-on-year compare. And obviously, you guys are guiding margins up for the year. So do you think they will turn back to expansion in Q2? Or is that more of a back half event? Any just color on the trajectory there would be helpful.

Yes. Chris, I think in Q1 specifically, we got overall sales of 10%. And you got FARO in there that's running at a lower margin, pretty sizable deal running at a lower margin. So if you just look at Q1 and you look at the year-on-year increase in sales and you apply a mid-20s contribution margin to it. You'll get work out to our guide. I mean I think below the line items essentially offset and we're getting mid-20s on the contribution margin on the incremental business, and that will be right in line with what we did.

Yes, Chris, if you adjust for the acquisitions, you look at core margins, we do expect Q1 margins to expand like we guided for the full year in that same ballpark.

I appreciate that color. And then just a follow-up, I'm staying on margins. And I guess maybe the inorganic margin opportunity or maybe the synergy opportunity on FARO and Paragon is the better way to phrase it. Can you talk about where we are on that? FARO, I think you guys said comes on mid-teens EBITDA. You guys see a pathway to, I think, double that to about 30. Any color on the past? And then Paragon is obviously closer to final state margins, but I think you guys have talked about maybe another there. Can you just maybe kind of provide any sort of timeline on how those businesses are progressing against those targets?

Yes, I'll start with Paragon. Paragon is already at EBITDA margins that are now in line with AMETEK. So it's a very positive work by the people that are doing the work in that business, very happy with them, but there's more room to go. So I think there's a whole next leg of margin improvement in Paragon that is going to occur over the next 12, 18 months, and it's going to -- it's going to occur incrementally. We do things incrementally at a low risk, and that's going to happen.

And then with FARO, we're kind of in the beginning stages of it. And you saw some pretty heavy restructuring done early in the year. We're still doing some organizational work. There's an international infrastructure that we haven't dealt with yet in terms of duplication. So I think you'll see some benefits from Paragon in this year, and FARO is going to approve, but it's going to take us a couple of years to get it to 30. And it's going to be in some chunky improvements, but it's going to take us a couple of years to get it there.

Our next question comes from Julian Mitchell from Barclays.

Just maybe wanted to start with the orders sort of trends in recent months. As you said, things felt better into year-end, December was good, but I suppose the absolute organic orders growth rate was, I think, steady year-on-year in the third and the fourth quarters at about 7%. So were there things sort of maybe help us understand the things moving around on specific markets within the orders or something geographically? Any color as to how maybe orders look different in the fourth versus the third quarter?

I think it was pretty broad-based. I mean we had we look at the fourth quarter, we had organic orders of 7%, as you said. Both groups were up. So EIG and EMG. So was broad-based, and there was a similar pattern from Q3 and the book-to-bill of AMETEK was 1.02, and it was pretty broad-based.

And when we're looking at the organic sales...

I think the -- what you see is the EMG businesses picked up first and the EIG businesses, the process part of the EIG businesses are following later. And that's a typical pattern that we've had throughout history. So there's some time during the 2026, when we think the EIG, the process part of EIG is really going to inflect positive. And historically, we've had great contribution margins when that happens. But that's how it's happening. EMG happens first. EIG happens later. When you look at aerospace, it's been strong all along, and you look at that separately.

That's helpful. And Dave, I just wanted to follow up on your point just now on thinking about the phasing of the segments. So when we look at organic sales growth for AMETEK in 2026. Maybe clarify what degree of sort of deceleration just from tougher comps, you're dialing in inorganic growth through the year with that prudent framework in mind. And are we assuming then that the EIG business kind of exits the year maybe organically growing a little bit faster because of that later pickup?

I would -- I don't know what's going to happen exactly because we're looking a long way out. But I think if you get into the second half of the year, EIG organic could be stronger and EMG organic could have a tougher comp.

Our next question will come from Joe Giordano from TD Cowen.

Apologies if someone asked this, I'm kind of multitasking here a bit. But Dave, can you -- on the guide for process, I know you'd like to be cautious in the beginning of the year and market's far from certain here, but it feels a little conservative, low single digits coming off like an acceleration throughout the year and now going positive. Can you kind of frame maybe the puts and takes that's driving that view on -- initial view on process?

I can see that. I mean it was -- we grew low single digits in Q4, and we've guided low single digits for the year. So Q4 was the first quarter process at positive low single digits. So we're being a bit prudent, but one quarter does not make a year.

Is there a big spread in that segment between like what's getting better and what's kind of stable but not accelerating? Can you maybe -- if there's a little bit more granularity we can get there?

Yes. I think in that segment, what you see is the semiconductor business is positive. And the instrumentation sold the metals businesses are positive. And the Rauland business that we talked about earlier response. So a lot of things are positive. And the places that are the oil and gas and the research are a little bit less than those positive segments.

Yes. That makes sense. Could you maybe give us a little color on the new deal, like in terms of the size of the business and the -- maybe the margin opportunity there?

Yes. It's really a technology deal and we're not disclosing terms. We have an agreement that we're not disclosing terms. It's a smaller deal. It's a technology deal. And it's a really, really interesting business. They're a leading provider of advanced eye care testing instruments and optometrists are trying to find the initial signs of diabetic [ retinopathy ]. And they're doing that with structural testing and they're testing your eye, they're looking at your eye. They're trying to see things. But this is an actual electrical response and it's on a portable device.

There's a technique that you used to do the test. The test was expensive. It was a very large piece of equipment, but they -- innovation was to make it a really portable instrument and it's really going to help a lot of people. And it's kind of a technique that's very, very -- growing rapidly, small, but growing rapidly. And most of the sales are in the U.S., and there's about 60 employees near D.C. in Germantown, Maryland. And it fits right into our [indiscernible] business.

Our Ultra Precision Technology business has a business that sells this type of equipment is just an additional product line. So we're really happy about it. We got -- it's adjacent technology. It broadens our portfolio, it lets us leverage our channels and leverage their channels. And this business has a recurring revenue of nearly 40% from these tests from the center strips that are placed on the eye. So it's a really good technology. We're pleased with it and -- we're not going to disclose the terms though. It's a smaller technology deal.

Our next question comes from Steve Barger from KeyBanc Capital Markets.

This is Christian [indiscernible] on for Steve Barger. I just have one question. A few years ago, EMG operated in a mid- to high 20s percent operating margin. With the recent acquisitions and current mix, is it possible for you guys to get back there organically? Or does that likely come from acquisitions? Just really trying to get any thoughts on how you're thinking about EMG broadly and what you're targeting over the next few years?

Yes. I think seasonally, EMG is usually a little bit lower in Q4 than the other quarters because of some dynamics in the business. But I don't think there's any reason that we won't be operating at that level. And I think we did operate at that level in the third quarter.

Yes. Yes. I think if you go back a couple of years, like you stated, we were probably mid-20s, right, before the Paragon acquisition and now if you look at where we are, we've kind of retract back maybe 60%, and I think we're on track to hit those mid-20 margins at '26 in EMG and grow further from there.

Our next question comes from Scott Graham from Seaport Research Partners.

There's actually two of them. I don't remember, Dave, the last time we saw a Vitality of 30%. I was hoping you would unbundle that. Maybe a little bit tour, maybe is there some defense in there? Is there maybe chasing some data center sales in there, kind of tell us maybe where some of those are going specifically if you could and their impact on the organic.

Yes, 30% is a good number, Scott. We're very pleased with that. There are some data center sales on that. We talked about in the last call that we've reconfigured some of our products for that market that were sold to defense markets. Those are certainly contributing to that. But there's just the engineering capability of the company is on questions they're really developing some good things.

Our customers are very pleased with them with the uptick and it makes us feel confident going into a strengthening market that we got the right products that you need. But it's really -- it's bottom up. As you know, so it's all our businesses, and we're not telling a business to develop this or develop that. It's organic. And there's just very, very viable product development plans, technology road maps and we're optimistic about what we've done with our products and our technology.

Okay. The follow-up is simple is the defense budget potentially reaching $1.5 trillion at some point in next couple of years. Do you need acquisitions maybe to get you a little bit more -- is more broadly exposed to sort of have dibs on some of that? Or how do you feel about your defense business? Well, I know that there's nothing specific in the budget on it, it's just a number. But how do you feel about maybe getting after some of that business? Do you need a couple of deals to help you?

Yes. We'd love to do a deal in the defense industry, but that doesn't -- where we have fully developed product lines and the business cases for what we have. And I mentioned the Abaco business and the computing area, I mentioned air technology. I mentioned [indiscernible] business and the advanced cooling. I mentioned our power business, selling power systems to UAVs.

So we're really competitive, and that business is doing very well. So we don't need an acquisition to continue growing and we actually have a little -- our Aerospace & Defense business is about 18% of sales. We have a little more defense sales than commercial sales. So we're in a pretty good position there. Legacy centers on aircraft selling to both commercial and defense aircraft to some of the more -- lately, some of the modern more things we've done in the recent years. So it's pretty wide range, the same strategy.

We're focused on niche technologies, things we're really good at. And we have plenty of people knocking on our door. And as I mentioned, the European the Europeans starting to focus on their own defense and their own protection, definitely creating opportunities for us.

Our next question comes from Rob Wertheimer from Melius Research.

I know we're getting towards the end of the call. I had sort of a general question that you touched on with Andrew, I guess. But on Paragon, it seems like a lot of things have gone well. And this maybe is a question as much about AMETEK is about Paragon. But I wonder if you could just just give us insight into what you've done and what has made the most positive improvements there as sort of a way of learning about the company again.

Yes. Well, I think the most important thing is we bought a very good business. And if you remember, when we bought it, that was in the middle of a destock. And people were worried about it. We weren't worried because we knew we got a good business, we knew we had a good team. And the consumable surgical instruments that they manufacture are good recurring revenue. They're a leader in implantable components. So we bought a good business. And we bought a business that, quite honestly, was under-managed on the operations side. So we've done a lot of good work to improve that operation, combine it with one of our businesses who has a great capability in another part of this market.

So similar to the FARO model, we have -- we bought a business in a market we knew. We have some capability. We've restructured the business to be more focused on customers, more focused on understanding the P&L, and we're bringing AMETEK's global capabilities to it. So it's kind of a playbook that we apply quite often, and Paragon is going to lead the way, but FARO's right behind them.

And our next question will come from Robert Mason from Baird.

Just one question. Dave, if you go back to the process business, it does sound like your industrial business is they're more likely to lead on growth, and you made a comment just around some of the research areas. How are you expecting those research areas, R&D exposed areas, to play out through the year? Do you think they have a chance to be flat or even up a little this year, start to see some turn?

I do. And there's always time for you, Rob. So we'll always squeeze you in. Yes. I think in the research area, what you really saw in the U.S. was there was a little bit of a -- during the Doug's time, there was a little bit of dysfunction, and that's right at itself. So in a lot of areas of research. So we happen to be particularly biased to. There's a lot of nuclear research going on in the materials area, there's a lot of research going on to find new materials to replace other materials with the rare earth metals, a lot of research going on there. So in our CAMECA business, there's high-end research. There's high-end research going into nuclear. And the other thing that caused us some problems in 2025, which has gone away was that when we had tariffs originally were put in place, they caused substantial pricing disconnects for us and our customers, and now we've worked through that.

So as long as tariffs stay in about the same range, that won't be an issue. So I do think that we have the potential to grow our research business in '26 just as an answer to your question.

And I am showing no further questions from our phone line. I'd now like to turn the conference back over to Kevin Coleman for any closing remarks.

Thank you again, Crystal, and thanks, everyone, for joining our call today. And as a reminder, a replay of the webcast may be accessed in the Investors section of ametek.com. Thanks all.

Thank you. This concludes today's program. Thank you for your participation. You may now disconnect.

Hello, and welcome to the AMETEK Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

It is now my pleasure to introduce Vice President of Investor Relations and Treasurer, Kevin Coleman.

Thank you, Andrew. Good morning, and welcome to AMETEK's Third Quarter 2025 Earnings Conference Call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Dalip Puri, Executive Vice President and Chief Financial Officer.

During the course of today's call, we will be making forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements.

Any references made on this call to historical results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization and excluding acquisition-related costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks, and then we'll open it up for questions.

I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK delivered outstanding results in the third quarter with double-digit growth in sales, orders, operating profit and diluted earnings per share. Organic sales growth was strong in the quarter, leading to outstanding margin expansion and earnings well ahead of our expectations. Given these excellent results and our outlook for the remainder of the year, we are increasing our full year earnings guidance.

Now let me turn to our third quarter financial results. Sales were a record $1.89 billion, an increase of 11% from the third quarter of 2024. Organic sales were up 4%, acquisitions added 6 points and foreign currency translation was a 1-point benefit. Orders were also very strong in the quarter with overall orders up 13% to a record $1.97 billion and organic orders up 7%, leading to a record backlog of $3.54 billion.

Our operational performance in the quarter was excellent with strong margin expansion and double-digit earnings growth. Operating income in the quarter was a record $496 million, an 11% increase over the third quarter of 2024. Excluding the impact of recent acquisitions, margins were 27%, up 90 basis points versus the prior year. EBITDA in the quarter was a record $592 million, up 11% versus the prior year, with EBITDA margins an outstanding 31.3%. This operating performance led to record earnings of $1.89 per diluted share, up 14% versus the third quarter of 2024.

Now let me provide some additional details at the group level. First, the Electronic Instruments Group. EIG delivered outstanding operating performance in the third quarter with strong margin expansion and operating margin levels that reflect the differentiated nature of our products and solutions. EIG sales were a record $1.25 billion, up 10% from last year's third quarter. Organic sales were flat. Acquisitions added 9 points and foreign currency was a 1-point tailwind. EIG operating income was $360 million, up 6% versus the prior year. Operating margins, excluding the impact of recent acquisitions, were 30.4%, up 50 basis points versus the prior year.

The Electromechanical Group had an excellent quarter, delivering outstanding sales growth, record operating income and sizable margin expansion. EMG's third quarter sales were a record $646 million, up 13% versus the prior year. Organic sales were up 12% and foreign currency was a 1-point tailwind. Growth was broad-based across all EMG businesses in the quarter. EMG's operating income in the third quarter was a record $164 million, up 25% compared to the prior year. EMG's operating margins were up sharply to 25.4%, a 250 basis point increase from the third quarter of 2024.

Our results in the third quarter and thus far this year are a powerful demonstration of the AMETEK growth model in action. Our distributed operating structure and embedded operational excellence culture has allowed our businesses to quickly react to changing market dynamics and deliver excellent results. While there is still macroeconomic uncertainty, given the ongoing trade conflicts, AMETEK is well positioned.

We are seeing positive inflection in our Automation & Engineered Solutions markets, along with continued strength across our Aerospace & Defense businesses. Additionally, we are managing a growing pipeline of opportunities within our Power businesses and are benefiting from the strong secular trends driving that market. We are also seeing some improved visibility across our Process markets. Although as noted, we are closely monitoring the trade dynamics and impact on demand timing.

Our recent acquisitions, FARO, Virtek, Kern and Paragon are integrating very well into AMETEK and delivering strong results. As Dalip will cover, we have significant balance sheet flexibility, providing us with ample firepower to deploy on strategic acquisitions. Lastly, our operating model continues to shine with our colleagues doing an outstanding job leveraging our global infrastructure and operating systems to drive outstanding performance. Thank you to all colleagues for your tremendous efforts.

Now switching to capital deployment. As noted, our integration efforts with recent acquisitions are progressing very well. Strategic acquisitions continue to be a core element of our growth strategy and the primary focus for our capital deployment. We are managing a strong pipeline of attractive acquisition candidates and expect to be active in pursuing strategic opportunities going forward.

Complementing our proven acquisition strategy is a consistent commitment to investing in our businesses to best position them for long-term success. For 2025, we now expect to deploy an incremental $90 million toward organic growth initiatives with this investment focused primarily on research and development, sales and digital marketing initiatives. The tangible results of this focus are clear with our third quarter Vitality Index, a strong 26%. The benefits of these investments coming to fruition can be seen in the many new product innovations across the company.

I wanted to highlight a few of these new product innovations, the first one from our Virtek Vision business. Virtek Vision is a leading provider of 3D laser projection and quality control inspection systems for critical aerospace and industrial applications. Virtek recently introduced a new AI-powered camera and software monitoring system that complements its advanced 3D laser projection system, further advancing their intelligent real-time inspection capabilities.

The IRIS AI Inspection camera addresses customers' critical need for improved quality control and real-time documentation in complex manufacturing workflows. The AI-powered camera captures and documents every step of the build process, creating a complete digital record for each part. A notable feature of this new solution is the ability for users to create custom AI inspection models that can automatically detect anomalies, allowing for real-time process corrections. With this new product launch, Virtek makes powerful digital manufacturing tools intuitive and operator-friendly, helping customers improve quality and productivity.

Our NSI-MI Technologies business, the global defense tech leader in advanced RF and microwave test and measurement solutions is also doing an outstanding job developing highly differentiated custom solutions for their customers' critical applications. NSI is aligned with strong secular growth themes tied to advancements in satellite systems, autonomous vehicles and defense systems and as a result, are seeing excellent demand for their advanced measurement solutions.

NSI's recently introduced new product, the Vector Digital Receiver advances their antenna, radome and electromagnetic field measurement capabilities, directly supporting the development of next-generation communication systems and advanced sensors for air, land, space and sea applications.

I also wanted to congratulate our Rauland business on an impressive recent industry recognition. Rauland is a global leader in advanced clinical communications and workflow solutions for hospitals and health care systems worldwide. For the second consecutive year, Rauland has won the prestigious MedTech Breakthrough Award for Best Clinical Administration hardware device. This award recognizes Rauland's Responder platform for its critical role in addressing key challenges in modern health care, such as nursing shortages and clinician workload stress.

The new Responder Enterprise Converge simplifies and coordinates care by improving direct staff to staff and patient-to-staff communication, which leads to faster response times, enhanced patient safety and better staff efficiency. This recognition underscores Rauland's technology leadership and its commitment to developing solutions that empower health care professionals and improve patient outcomes. This is a fantastic example of how our businesses are translating their technological innovation efforts into market-leading award-winning solutions for our customers.

Finally, an update on the global trade environment. The situation continues to be very fluid and ever changing. We remain vigilant in monitoring developments and proactively managing potential impacts. As we have discussed, our businesses continue to execute their well-defined mitigation plans, which include targeted pricing, strategic supply chain modifications and utilizing our global manufacturing footprint to adapt to changing demand patterns.

Our teams also continue to leverage our U.S. manufacturing presence to support global customers adapting their own supply chains. AMETEK's culture and decentralized operating structure remain key advantages, providing flexibility to implement these actions quickly and effectively. Our proven playbook for navigating these uncertain environments continues to serve us well, and our teams are executing effectively.

Now turning to our outlook for the remainder of the year. We continue to expect full year sales to be up mid-single digits on a percentage basis compared to 2024. Given our strong third quarter performance and outlook for the fourth quarter, we are increasing our earnings guidance for the year. Diluted earnings per share for the year are now expected to be in the range of $7.32 to $7.37, up 7% to 8% versus the prior year. This is an increase from our previous guidance range of $7.06 to $7.20 per diluted share.

For the fourth quarter, we anticipate overall sales to be up approximately 10% with earnings in the range of $1.90 to $1.95 per share, up 2% to 4% versus the prior year. Fourth quarter earnings growth would be 6% to 9% adjusting for last year's lower-than-normal tax rate.

To summarize, AMETEK delivered an excellent third quarter with strong sales and orders growth, robust margin expansion and earnings well ahead of our expectations. Our businesses continue to execute exceptionally well, delivering our differentiated technology solutions across a diverse set of niche markets.

The durability of our operating model and our strong cash flow provide us with the flexibility to navigate through challenging market conditions and continue to proactively invest in our businesses and in strategic acquisitions. As a result, we remain firmly positioned to deliver long-term sustainable growth and create value for our shareholders.

I will now turn it over to Dalip Puri who will cover some of the financial details of the quarter, then we'll be glad to take your questions. Dalip?

Thank you, Dave, and good morning, everyone. As Dave noted, AMETEK had an excellent third quarter with strong growth and outstanding operating performance. This allowed us to deliver several financial records as well as double-digit growth in orders, sales, operating income and earnings per share in the quarter.

Now let me provide some additional financial highlights for the third quarter. Third quarter general and administrative expenses were $28 million or 1.5% of sales, essentially in line with last year's third quarter. Third quarter interest expense was $23 million. Third quarter other expense was $17.9 million, with the increase versus last year's third quarter primarily due to onetime acquisition-related costs for FARO Technologies.

As I noted during our previous earnings conference call, we are excluding onetime acquisition-related costs from adjusted earnings. This approach will be consistently applied to future acquisitions, ensuring comparability and clarity in our non-GAAP financial reporting.

The effective tax rate in the quarter was 17.2%, down from 18.8% in the third quarter of 2024. The reduction was driven by a lower effective international tax rate. For 2025, we now anticipate our effective tax rate to be between 18% and 18.5%. As we have stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full year estimated rate.

Capital expenditures in the third quarter were $21 million. We expect capital expenditures to be approximately $150 million for the full year or about 2% of sales. Depreciation and amortization expense in the quarter was $103 million. For the full year, we expect depreciation and amortization to be approximately $425 million, including after-tax acquisition-related intangible amortization of approximately $210 million or $0.91 per diluted share.

Operating working capital in the third quarter was 18.9% of sales, a slight improvement from the third quarter of 2024. Operating cash flow was $441 million in the quarter, and free cash flow was $420 million. Free cash flow conversion was a strong 113% in the quarter. For 2025, we expect free cash flow conversion of approximately 110% to 115% of net income.

Total debt at September 30 was $2.5 billion, up from $2.1 billion at the end of 2024 due to the acquisition of FARO Technologies. Offsetting this debt was cash and cash equivalents of $439 million. At the end of the third quarter, our gross debt-to-EBITDA ratio was 1x, and our net debt-to-EBITDA ratio was 0.9x.

We continue to have significant financial capacity and flexibility with over $2 billion in cash and available credit to support our growth initiatives and our capital deployment strategies. In the third quarter, we demonstrated this financial flexibility by deploying approximately $920 million on the acquisition of FARO, $150 million on share repurchases and $71 million in dividends, all while maintaining our financial capacity and a conservative balance sheet with gross leverage around 1x. The share repurchases in the quarter resulted in approximately 800,000 shares of our common stock being repurchased in the open market.

In summary, AMETEK delivered an excellent third quarter with strong top line growth, robust margin expansion, outstanding earnings growth and a meaningful increase to full year earnings guidance. Our differentiated technology portfolio, our global manufacturing capabilities, along with our strong cash flow and balance sheet provides us with the foundation to successfully execute our growth strategy and to continue delivering exceptional results.

Kevin?

Thank you, Dalip. Andrew, could you please open the lines for questions?

[Operator Instructions] And our first question comes from the line of Deane Dray with RBC Capital Markets.

That was really good earnings quality, cash flow and margins. So congrats to the team. Maybe we can start with the tour of your key platforms and regions and what stands out in particular. It looks like Paragon really had a strong quarter as well.

Yes, Paragon did have another strong quarter. I'll take us the whole way around the horn, and I'll start with our Process market segment. Overall sales were up low teens in Process, driven by contributions from recent acquisitions with organic sales down just slightly in the quarter. We remain encouraged by the strong pipeline of activity across our process end markets. Although trade uncertainty continued to lead to slower decision-making and delays, as I talked about in my prepared remarks, there's very strong project activity and visibility is improving across some of our key markets. For the full year, we expect overall sales for our Process segment to be up mid- to high single digits and continue to expect organic sales to be flat to down low single.

I'll go to A&D. Now Aerospace & Defense businesses. They just delivered another excellent quarter with overall organic sales increasing low double digits on a percentage basis. Growth remains strong and balanced across commercial OEM, aftermarket and defense markets, and our businesses continue to win content on new programs and expand content on a wide range of platforms. We continue to expect sales for our A&D businesses to be up high single digits for the year.

Power & Industrial businesses delivered strong results in the third quarter with both overall and organic sales up mid-single digits. We have increased our outlook now and expect full year organic sales to be up low to mid-single digits for our Power & Industrial businesses. So we took that from -- we increased it a click to low to mid-single digits for Power. We're benefiting from demand across our grid modernization and electrification applications, including in support of the power build-out needed for AI data centers.

And I'll talk about one product there. Our IntelliPower business is a business that provides uninterruptible power systems for data center microgrids and the rugged UPS systems, which are proven in defense and other critical -- mission-critical applications are perfectly suited for the harsh conditions and high reliability requirements of data center microgrids. So similar, other AMETEK businesses are identifying attractive opportunities to expand their current technologies into this market, and we had some initial successes with both the IntelliPower, and we talked about last time, the RTDS simulation systems.

And then finally, I'll talk about the Automation & Engineered Solutions business. Another excellent quarter with high single-digit organic sales growth, robust orders growth. Growth was broad-based across our Automation & Engineered Solutions businesses in the quarter. But again, notable strength from Paragon Medical on orders input was outstanding. And we are maintaining our full year forecast for mid-single-digit organic growth in the quarter.

And then you asked about the geographies also, Deane. So I'll do that also. Yes, we had -- sales were up mid-single digits in the U.S. And internationally, total international, we're up low single digits with strength in Europe partially offset from Asia -- to help them in Asia. So -- and in the U.S., we have some broad-based strength. We were really solid there. Europe was up low double digits, and it was our automation, our EMIP business and our MAD business that did really well there.

And in Asia, it was kind of a tale of 2 stories. We were down mid-single digits driven by China. But if you take China out of it, Asia, excluding China, was up mid- to high single digits. So a changing dynamic there. And with China, we had more of the export issues and things we're dealing with. So we're feeling good about the momentum in a lot of regions of the world, and China was an exception to that.

That's a great update. Just last one, and it's related to the last point, Dave. Any comments about tariffs, the offset? And is that what's driving the softness in China as well?

Yes. I'd say what's driving is the tariff renegotiation of price. So the tariffs need to be renegotiated. They need to be included in the pricing and our Chinese customers are going back to the government entities and getting higher prices to pay for our products, and that's causing a delay. And there's a lot of -- I can call it the tariff games in ship where they're trying to time the situation to get a lower price, lower tariff, but we're competitively very strong there.

We're not -- our products that we sell are benefiting from -- there aren't viable competitors for most of the things we build. We make high margins when we sell there. So we're kind of -- we have good customers. We have a good team over there, and it's just going to be delayed, but we're solid on the long term.

And our next question comes from the line of Matt Summerville with D.A. Davidson.

I was wondering if you could maybe double-click a little bit on Paragon. Obviously, that business had been a little bit of a source of concern for some coming out of the gate with the whole medical destocking. So can you give a little bit more granularity on the type of organic sales performance and order growth you saw and kind of remind us how we should think about the go-forward organic algorithm for that business as well as maybe how it's trending from a profitability standpoint relative to what your view would have been when you bought it?

Excellent question, Matt. I mean just to remind everybody, Paragon, single-use and consumable surgical instruments and implantable components and attractive medtech markets with good long-term growth rates, very good long-term growth rates. So these are mid- to high single-digit long-term growth rates, growing markets, excellent engineering capability, numerous new product wins, which provide upside for years to come. And they just had another excellent quarter. I mean the EMG orders led the company, and they were substantially up and Paragon led EMG. So it was another quarter of just outstanding double-digit plus-plus orders.

And we're in a situation now where we're probably about a little more than halfway done with the restructuring that we're doing. So that's happening, and there's some plant closures involved with that, and I don't want to get into a lot of details, but the cost structure is being reduced. And at the same time, all of that's happening. We're winning new programs and phasing them in, and we were out there about a month ago to see everything, and it's really going great. The margins are now in line with AMETEK's margins, and we think there's more upside.

So we think this business is going to be a 35-plus EBITDA business. And when we're done working on it, which will take another year. But I couldn't be more pleased with what's going on with the deal. It outstanding work by the entire Paragon team. I hope some of you can get out there sometime because they're quite an impressive manufacturing facility that we visited last month, and we're very bullish, very bullish on what's happening at Paragon.

And then maybe just as a follow-up, you expressed, I think, a couple of times in your prepared remarks, a little more optimism with respect to process. Can you just peel back an additional layer and give a little bit more granularity on sort of end markets and whether or not you feel like there's a flush for lack of a better word, that's going to happen here as it relates to maybe some pent-up demand?

Yes. It's a very interesting dynamic and it's perceptive for you to pick up on that, Matt. I mean we looked at Process and Process improved just about everywhere sequentially on all the markets and all the geographies except China. So China was the one area that it didn't improve, and we got the tariff repricing negotiation going on. But everywhere else, it's on the right trend.

So we're getting more visibility there. And I think that as that business comes back sometime in next year, we're really -- we have a business that's leveraged to succeed because the cost structure is really well controlled. The new product innovation is there. So on the upside, Process is going to have an excellent 2026, I think so.

And our next question comes from the line of Andrew Obin with Bank of America.

I think I was missing 3 slides on nuclear. Sorry for the joke. Can you just talk -- fantastic quarter. Can you just talk about strength in Europe? Can you just talk about the verticals and geographies? It was a nice surprise to hear that.

Yes. Our teams in Europe, it's pretty positive what's happening there. And we saw a couple of different places. I mean we saw an improvement at our Dunkermotoren business. So our Automation segment did extremely well. The Paragon elements of Europe did extremely well. Our Materials Analysis division that was selling analytical instruments to the research market did extremely well, and our Aerospace business was solid. So it just was -- it wasn't 1 or 2 things. It just always positive in Europe, and it led us in growth. It was up low double digits. So we're very happy to see that strength.

That's terrific. And maybe could you talk about order numbers was another positive surprise in the quarter. Can you just talk about the progression of the order patterns throughout the quarter? And frankly, what happened in October? Did you sustain the momentum into the year-end?

Right. Well, October is not over yet, but I'll give you the month-to-date. And -- but overall, it's a pretty simple story. September was the strongest month of the quarter and year. So strongest month of the quarter and year-to-date on both sales and orders. So we had a really good September indicative of momentum, as you suggested. And October isn't over, but it's very solid. I checked it before the meeting, and it's very solid. So it's -- we don't see a slowdown on the order side.

And our next question comes from the line of Chris Snyder with Morgan Stanley.

I wanted to ask about the Q4 top line guide, up 10% but Q3 was up 11%. And I thought that we were going to see maybe more M&A contribution in Q4, which would then imply like an organic step back versus an easier comp. So I guess, am I just helping unpacking of the organic and the M&A and even, I guess, maybe the FX as we kind of build into that 10% number for Q4?

Yes. I think that it's approximately 10% and we could do a little better, we can do a little worse, but we're certainly feeling confident. So I think the acquisitions are in there at a mid- to high single-digit number, and it gets to about 10%. But with some of the trade dynamics, we get a range on the earnings, but I think it's -- we feel very, very confident in Q4.

I appreciate that. And then -- sorry...

I was just going to say that on the foreign exchange side, we're obviously a very global business, but we're primarily dollar-centric. So as a result, we're not expecting any foreign exchange impact on the top line in Q4 or on the bottom line. And as you've seen in the past quarters, we're very insulated from FX volatility. So that shouldn't be a factor.

Got it. I appreciate that. I wanted to ask about the Industrial & Power business, which showed better organic growth in Q3 and you guys raised the guide. Is this all data center power tied? Or are you seeing positive rate of change on more of the industrial kind of typically focused businesses?

Yes, I'd say it's more the Power side. It's more the Power side. And the areas that we talked a little bit about, we're seeing backup power systems and microgrids and their solar racks and -- we also sell to the nuclear industry, and they're putting power systems in. So it's that backup power system business in the U.S. that's doing quite well. And the business that I highlighted last quarter, RTDS, they do the real-time simulations for resilient, high-performance power additions to the grid. So they're the company you go to when you want to expand your power, and they're working with the hyperscalers to define the new power additions that they have to put in to power the data center. So those are the 2 areas that we have most traction.

The Industrial side of the business is solid. It's not a drag, but the upside is on the Power side. And keep in mind, Chris, we do have a decent sized part of that Power business that sells the traditional transmission and distribution infrastructure. So as the U.S. has to build out the T&D and you get some of the local microgrids, we're in a pretty good position to benefit from that.

[Operator Instructions] Our next question comes from the line of Julian Mitchell with Barclays.

Maybe I'd start with the FARO business. And if you could help us understand kind of the progress there in terms of organic trends. I understand it's still in the sort of acquisition calculus, but maybe help us understand any movement there around sort of organic orders and sales and how you feel about that sort of trending into next year, please?

Yes. Well, -- as you know, FARO wouldn't show up in our organic because we don't show up in organic until we've owned it for a year. So -- but FARO, they hit their number, and they hit their number on the top line and the bottom line and had a really good quarter. So that integration is doing well. We have a very good team at FARO. Just to remind you, FARO designs and develops 3D metrology and digital reality solutions. We're #1 or #2 in a bunch of niches in that market. And it's an excellent strategic fit with AMETEK and our Creaform business.

So those teams are really getting after it, and they're working on some new products and working on some new channels, and I'm very optimistic about what they're going to be able to do. So it's all arrows are up right now in terms of the acquisition integration. I spent some time with the team. Dalip and I spent some time with the team just within the last couple of weeks. And it's -- we're very pleased with it. They won't show up in organic, but they did meet sales and they did meet their profit commitment for the quarter.

And then just my second question would be around, I guess, 2 parts. One is on the Process Industries side. I think it's still sluggish right now, but you sounded more optimistic on next year. So I just wondered if there's something you've seen turning in the orders in the Process Industries side. And secondly, in the U.S., good growth. I wondered if any government shutdown effects weighing in recent months.

I'll take the government shutdown first. I mean, so far, to be honest, it hasn't been much of an issue for us. Obviously, if it continues for [indiscernible] or something, it might become a bigger issue. But it's really a nonevent at this point.

You talked about Process orders. Yes, they're definitely trending up. Process orders are trending up in all areas and the one distinction was the China part of the business. And China is heavily part of it is research, too. So there's an academia research element to it and the China business. But in other areas, it's all trending up. And we have told you before, we have a good pipeline of new orders, and we'll make money when power and when the organic growth comes back because that business is powerful. You haven't followed us for a long time, but Process business is a powerful business.

And so I don't know when it's going to turn up, but when it does, we've run it in the right way, and we keep investing in new products, and we've got the capability what our customers need, and it's going to eventually turn and be positive on the contribution margin basis for sure.

And our next question comes from the line of Rob Wertheimer with Melius Research.

You've touched on some of the dynamics here, but it's still a little bit interesting, the broad-based, I think you said growth across EMG versus EIG on core growth. And I wondered if you might simplify for us whether that's geographic, end market, selling cycle. Maybe just your thoughts on that gap, which is wider than some [indiscernible].

Yes. I think the biggest thing to understand, Rob, is you got to go back to the pandemic. And you had a supply chain crisis, and we have specialized products there and they're OEM products. They're not directly sold to the end user like they are in EIG. So it's mainly an EMG issue with specialized products. So everybody wanted to go out and get a bunch of products that put them on the shelf because they needed to supply their customers.

So we had a period of 18%, 20% quarters in terms of orders. And now that -- then we went through a period of destock where people had some excess inventory and now the destocks in. So what you're seeing is that whole destock end is flowing through the EMG business, and it's showing up in places like Paragon. It's showing up in our EMIP businesses. It's showing up in our automation businesses. And also in that EMG group, we have our aerospace, part of our aerospace business there, and that business is going well. So all those businesses are kind of hitting on all cylinders, and that's why everything is up so high. So the one thing that's different, we didn't really have a destock in EIG. We had in EMG. Now we're working through that.

That was perfect. And then I just wanted a little mini teach-in on uninvitable power supply where you mentioned some of the crossover in data centers. I don't know how much business you had in data centers before and whether this is a fully nimble shift to capitalize or some of that, but a little bit less. I'll stop there.

Yes. I mean we have, I'll call it, hundreds of millions of dollars in uninterruptible UPS systems. And they're sold to places like nuclear power plants or offshore oil and gas wells or the most difficult applications that you can go into where you cannot fail. And that business has been a good business for us for a long period of time. We have one product that's used on -- usually -- it's basically used on every part of the naval fleet, very industrialized rack mount product. And what we did is we took that product and I don't want to say dummy it down, but we made it work for the data center market.

So it's -- they want mission-critical. They want those kind of applications. So we're finding some applications where data centers want to buy the best. They want to find the most -- they need a product that's more durable. And I think on that product, we have a backlog of -- it's not a tremendous amount. It's north of $25 million and a pipeline of another $30 million, something like that. So that's for that product. And we have another product in the RTDS space for the simulation systems.

So we have some places that we're going to be able to play now where they're willing to pay for our technology. And our teams have got -- done a good job of identifying attractive opportunities to expand in current technologies while staying true to the AMETEK differentiated technology, because we think in the long run, we don't want to sell things that are -- end up being low margin where you have perfect competition and no one makes money. So it's a low base we have now, but very high growth in that segment.

And our next question comes from the line of Andrew Buscaglia with BNP.

So some of your positive commentary is very interesting. Some companies are still talking about just like kind of customer hesitation to spend and ongoing delays, especially in Automation. So maybe like what are your conversations with customers like that seem to be a little bit different or where you're seeing a little more confidence? Yes, but just could you talk a little bit more about that and elaborate?

Yes. I mean the automation market has been historically a great market for AMETEK, and we pick and choose our customers. These are people that pay for our performance. And there was a slowdown in the market driven by the pandemic effect and the supply chain crisis and the buying. We kind of talked about this for several quarters when we predicted it. So we kind of called bottom last quarter, talked about it a couple of quarters. So it's kind of expected for us.

So I really can't comment on what's going on in other areas. I'm not sure I'd have to look at that stuff. And -- but what I know is it kind of played out as we thought it would, and we're on record talking about it, too. So it's pretty much what we thought it was going to happen.

I guess that's more like your customers are probably comfortable with getting more comfortable with the tariff situation and at least have some -- we have some more clarity relative to 6 months ago maybe.

I think that's true, Andrew. I think that's true.

Okay. Yes. Interesting. I don't know if you said or you mentioned your price versus cost or how that shook out this quarter?

Yes. Pricing offset inflation and tariffs. So we're very happy with that. So our price offset total inflation and tariffs, and we had a positive spread on top of that. So we have a highly differentiated nature of the AMETEK product portfolio. We have leadership in these niche markets around the globe. And as we talked about today, these are mission-critical products. That's the nature of our products, and we invest a lot in R&D, and we're doing a good job of servicing our customers and at the same time, offsetting some of the negative events of -- from inflation and tariffs and with a positive spread.

Our next question comes from the line of Nigel Coe with Wolfe Research.

I wanted to just dig into the Automation. I think you called out high single-digit organic growth there, David. Obviously, the comps there are quite easy, but it's still quite strong growth. So I'm actually wondering, could you maybe just parse out what you're seeing? I mean, I think a lot of that's in Europe, inventory adjustments versus end market demand? Any end market color, customer demand would be really helpful.

Yes. We talked about several quarters how the European market was lagging. We talked about how we had an incredibly strong position with German machine builders. We talked about the situation. It was just a matter of time. And I think it's just changing. I mean the one thing that would be different for us is we've talked about before, when a lot of people talk about automation, you have to make a distinction between discrete automation and process automation, okay? So you're doing factory automation, I'll call it. We play in the factory automation, but that's not our largest market. We're really in discrete automation where you have to move things very quickly and very precisely.

So all the precision machines that are doing things in the different end markets, they have to be very precise. That's our sweet spot. And there's a certain set of customers there that we deal with. It's the medical customers. It's very precise research equipment. It's very -- it's like the S&P 500 in terms of the end markets, but it's the most precise equipment, and it's mainly discrete automation. So we may be seeing -- the factory automation may still be slower and discrete automation as a subset or as a distinct niche for us is strong. And we have kind of the best products there. And those customers are coming back, and we had a great performance this month, and we were coming off the bottom there with some of the destock. So I take your point that it's an easy comp, but it is what it is.

Yes, yes. I think I was trying to dig into is -- sorry, how much is just destock comps, easy comps versus a real inflection in customer demand. I'm not sure if you've actually got the sell-through data there. But my second question is really around the EMG margins. Obviously, really great momentum there, 25%. It's pretty close to where EMG margins have peaked in the past. But with Paragon, where do you think that sort of margin objective or target might be for EMG going forward?

I think Paragon gives us the opportunity to increase it further. And when we sit down and we talk about that business, we'll set a target for next year. But certainly, I would expect we have the capability to have record margins in EMG going forward.

And our next question comes from the line of Robert Jamieson with Vertical Research.

Congrats on the quarter today. Just want to get your overall view on overall short-cycle exposure. Last quarter, you talked about short cycle bottoming. Just curious how you're thinking about this as we head into next year, what you saw in the quarter and what you're seeing so far in early 4Q?

Yes. Yes. When we talk about our business, we're more of a mid-cycle than short cycle, just maybe a little change in just to make sure we're on the same page. But yes, I think this is a result of the pandemic, the supply chain crisis, and I think that we're in an upward trend now. I think it's still early to talk about next year, but these automation, these EMG areas and MedTech, they're solid and Aero & Defense remains strong. So it feels really good on some of these businesses with solid positions, and we are winning businesses. We are winning new share for these businesses. So EMG is kind of firing on all cylinders now. So...

Great. And then I just wondered with a lot of capacity, just can we get an update on the M&A pipeline? Anything that you -- areas that you're particularly interested in? Anything like that would be helpful.

Our pipeline remains very strong. We're actively looking at a number of high-quality deals. We have the -- Dalip talked about our capacity to fund them. It's strong. We remain disciplined looking at our returns on capital. We've done it for a long period of time, and it's -- there's no change in that. The pipeline includes a variety of deals, and there are different deal sizes, and they're in different end markets or all end markets that we're in now, though. And our teams are as active as they've ever been working on deals.

And I really think that we have the opportunity to differentiate our performance with the M&A element of our growth strategy, combined with our balance sheet and cash flow positions. And it's a good time for us. When you combine our operational excellence capability and our M&A capability, I'm looking to use those 2 factors to drive performance over the next couple of years.

Our next question comes from the line of Joseph Giordano with TD Cowen.

This is Michael on for Joe. So I wanted to unpack the A&D performance. Previously, you mentioned high single-digit organic in the quarter, related content growth in that area. Is that content growth mainly related to FARO? And then can you just maybe unpack for us expectations for a normalized growth range for A&D going forward? You had several years, whether it's on the EIG side or EMG side of high single-digit growth. So just trying to understand how to map that going forward.

Yes. First of all, FARO is not in the A&D segment. So 0 contributes to the A&D performance. The other thing is in the quarter, organically, we're up low double digits. So not -- but for the year, we're continuing to confirm high single digits. And in the quarter, the thing about me the truck, it was balanced. I mean we had -- commercial OEM was very strong. We had aftermarket was very strong. The defense markets were very strong, and we're continuing to win content on programs to expand where we're going in the future.

So we're not talking about next year right now. But when I think about the Aerospace group, when I think about the Aerospace business, when I think about the Aerospace team, their backlog remains strong, and they have strong positions on key programs. So it looks optimistic.

Our next question comes from the line of Scott Graham with Seaport Research.

Congratulations on the quarter, Dave. I wanted to maybe step back in 40,000 foot this. And I know when you came on board back 8 years ago, one of the big things that you were going to champion was an improvement in the front end and the top line focus as opposed to what has historically been more of a kind of margin lean, let's put it that way. I know you've done a lot of things internally, but it's been sort of an up and down industrial environment.

So I was just hoping you indicated just now you won some business I know A&D has been a good market for you since that time. But again, Industrial, other areas have been up and down. Would you see now that winning of business starting to spread out into other end markets given the work that's been done on top line initiatives on a going-forward basis as the industrial economy improves?

It's an interesting point. If you had a couple of years of below 50 PMIs, and I don't remember the last time that happened. I think I was at an investor conference and he told me it never happened. So -- and I think that we're extremely well positioned for growth, and it's across all of our businesses. So I'd say as the industrial economy picks up and you recover from having negative PMI for basically 2, 2.5 years. I think you'll see some improvements.

The other thing I'd point you to is I've been CEO, I've been with AMETEK for 35 years. I've been with CEO for 9 years. And over those 9 years, we've averaged a 4% organic growth. So this quarter right now, when you have 4% organic growth, you have double digit on the top line, you have double-digit orders, you have double-digit earnings. That's pretty much what we've done for the last 9 or 10 years. And if you go back, it's further than that. So we're -- we have a model. It's consistent. We have a great team working on it. And I do think that we're going to participate in a greater way in terms of organic growth as the industrial economy improves.

I'll now hand the call back over to Vice President of Investor Relations and Treasurer, Kevin Coleman, for any closing remarks.

Thank you again, Andrew, and thanks, everyone, for joining our call today. And as a reminder, a replay of the webcast can be accessed in the Investors section of ametek.com. Have a great day.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.