AMETEK (NYSE:AME) Q3 2026 Earnings Call

0:00 Good day and thank you for standing by. Welcome to Q3 2026 AMETEK earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. 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, VP, Investor Relations and Treasurer.

0:40 Thank you, Stephanie. Good morning and welcome to AMETEK's third 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 risk 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.

1:26 Any references made on this call to historical results will be on an adjusted basis, excluding after-tax, acquisition-related and tangible amortization, and excluding acquisition-related transaction and integration costs. Reconciliations between GAAP and adjusted measures can be found in our press release and on the investor 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.

1:56 Thank you, Kevin, and good morning, everyone. Emetech delivered superb results in the third quarter with double-digit organic sales growth, outstanding orders growth, robust operating profit, excellent core margin expansion, sizable cash flow generation, and a high quality of earnings that exceeded our expectations. During the quarter, we also announced the closing of the end-of-core instrumentation acquisition. Integration is progressing well and we are excited for the meaningful value creation this acquisition will provide. We also raised our full year sales and earnings guidance to reflect our outstanding results in the quarter and our outlook for the fourth quarter.

2:42 Turning to our third quarter results. Third quarter sales were a record $2.22 billion, up 17% from the third quarter of 2025. Organic sales were up 10% and acquisitions added seven points to growth. Overall orders were $2.65 billion, up 35% versus the prior year, driven by the continued robust organic orders growth and contributions from Indicor. Organic orders were up 17% in the quarter, with growth remaining broad-based across our businesses. We ended the quarter with a record backlog of $4.54 billion, up 27% from the beginning of the year.

3:28 Operating income for the quarter was a record $595 million, up an outstanding 20% from the third quarter of 2025. Operating margins were excellent in the quarter at 26.8%, up 60 basis points from the prior year. Core margins were 27.3%, up a very strong 110 basis points compared to the same period of 2025. EBITDA was a record $704 million, up 19% versus the third quarter of 2025, with EBITDA margins and outstanding 31.7%. Free cash flow for the quarter was very strong at a record $527 million, up 26% from the third quarter of 2025.

4:17 Our free cash flow to net income conversion was also excellent at 124%. Diluted earnings per share were a record $2.21, up 17% versus the third quarter of 2025, and above our guidance range of $2.08 to $2.10 per share. Now I'll share some additional details at the operating group level, starting with the electronic instruments group. EIG delivered exceptional third quarter results with excellent sales and orders growth and strong operating performance. EIG's third quarter sales were a record $1.44 billion, up 16% from the third quarter of 2025.

5:03 Organic sales were up 9% and acquisitions added seven points to growth. EIG overall orders were up 37% versus the prior year, driven by excellent organic orders growth and contributions from Indicor. Organic orders were up 17% in the quarter with broad-based strength across our EIG businesses. Our process instrumentation, semiconductor, aerospace, and power businesses continue to benefit from the leading position supporting markets with strong secular tailwinds. EIG's third quarter operating income was a record $415 million, up 15% versus the same period of 2025.

5:48 Core operating margins were 29.5%, up 60 basis points from the prior year. Turning to the electromechanical group, EMG generated outstanding results in the third quarter with exceptional sales growth, continued superb orders growth, and impressive operating performance and core margin expansion. EMG sales in the third quarter were a record, $778 million, up 20% versus the prior year. Organic sales were up double digits for the third straight quarter at 13%, with acquisitions adding approximately seven points to growth. Sales growth in the quarter was well balanced across our aerospace, defense, medtech, and automation businesses.

6:38 EMG's overall orders were up 31% year over year, driven by contributions from the IndiCor acquisition and 17% organic orders growth. EMG operating income for the third quarter was a record $212 million, up sharply at 29% compared to the third quarter of 2025. EMG's core operating margins were a record 27.5%, a sizable 210 basis point increase versus the prior year. As our third quarter results demonstrate, our businesses are performing exceptionally well and delivering tremendous results. Overall, I'm pleased with how Ametek is positioned today and for the future. Our outstanding portfolio, strong momentum across attractive end markets, disciplined operating model, and value creating acquisition strategy continue to drive our long-term success.

7:36 I would like to take a few moments to walk through these elements in more detail. We have a strategically constructed portfolio of high quality businesses with leadership positions in attractive niche markets. These businesses provide highly differentiated technologies supporting mission critical applications required for the global infrastructure build out. Through our close relationships with customers and deep domain expertise in niche markets, our solutions are often designed directly into critical applications, creating high barriers to entry and significant switching costs. In recent years, we have further strengthened our portfolio through organic investments and strategic acquisitions, which has increased our exposure to attractive secular growth markets and enhanced our long-term growth opportunities.

8:25 The breadth of our portfolio also provides significant end-market diversification, limiting reliance on any single customer, technology, or market. We remain exceptionally well positioned and continue to see strong momentum across our markets. Our growth is supported by many strong, powerful secular trends, including investment in AI-related infrastructure, increasing focus on defense and energy security, and strengthening demand across medtech, commercial aerospace, and precision automation. Another important factor driving our strong performance is our proven and disciplined operating model. Our asset-light businesses and global operating capabilities enable us to efficiently manage our cost structure while remaining highly responsive to changing market conditions.

9:19 We can support growth with moderate capital investments and have consistently and reliably demonstrated our ability to successfully navigate changing economic environments and evolving business cycles. Importantly, the highly differentiated nature of our products and our leadership positions in niche markets enable us to effectively offset inflationary pressures with pricing. These strengths continue to be reflected in our operating performance, excellent margin expansion, and robust cash flow generation. This cash flow supports a proven capital deployment strategy and a world-class acquisition process that continues to create substantial value for Ametek shareholders. The M&A environment remains constructive. Our acquisition pipeline is robust, and we continue to see attractive opportunities that align with our strategic priorities.

10:14 Overall, we feel confident about the positioning of our businesses and our ability to continue delivering sustainable growth for our shareholders. Alongside these core strategic elements, we remain committed to investing in our businesses to strengthen our competitive position. Continued investments in innovation and new product development help drive our strong organic growth. As evidence of this, new product vitality this year remains strong at 25%. I would like to highlight just one example of how Ametek is supporting critical power infrastructure investments and meeting increasingly complex requirements across demanding industrial, data center, and process control environments.

11:01 Ametek solid-state controls recently introduced the next generation of its digital process power uninterruptible power supply platform. The DPP Plus builds on prior platforms with enhanced reliability, diagnostics, monitoring, and service capabilities for the most difficult mission-critical applications across power, energy, and broad industrial markets. DPP Plus helps meet more advanced application requirements by combining true online, double conversion, uninterruptible power supply technology with modern digital controls, enhanced communications capabilities, and a Compact Footprint. As customers continue to prioritize power quality, uptime and operational resilience, Solid State Controls is well positioned to address these evolving requirements with its differentiated power solutions.

11:58 As I have touched on, we were pleased to complete the acquisition of Indicor in the third quarter. As a reminder, Indicor is a portfolio of exceptional industrial technology businesses that provide highly differentiated mission critical solutions to a diverse set of customers across a complimentary set of end markets. Indicor is an excellent fit with Ametek given their mission critical niche market strategy and highly differentiated technology. While our integration process is still in its early stages, we are encouraged by the progress we have made to date. We remain confident in our ability to add meaningful value as the Indicor businesses integrate into the Ametek growth model.

12:44 I would also like to add that we recently conducted a special Ametek University session specifically designed for our Indicor colleagues in support of their onboarding into Ametek. Ametek University is our flagship three-day leadership development program where we provide colleagues with a deep dive into the key elements of the Ametek growth model, our culture, operating structure, and leadership approach. We also combine the learnings with practical breakout activities and direct exchanges with executive level Emetech leadership. The passion and excitement from the Indicorp colleagues was notable. The program only further strengthened my belief in the quality of the Indicorp businesses and colleagues and the strength of their leadership teams.

13:32 Moving to our outlook for 2026 in the fourth quarter, we are raising our sales Earnings and cash flow conversion guidance for the year to incorporate our excellent performance in the third quarter, the contributions from the Indicor acquisition, and our positive outlook for the fourth quarter. For 2026, we now expect overall sales to be up mid-teens on a percentage basis, with organic sales now expected to be up high single digits versus 2025. Our diluted earnings per share for the year are now expected to be in the range of with $8.53 to $8.57, up 15% compared to last year's results. This is an increase from our prior four-year guide of $8.20 to $8.30 per diluted share and includes approximately $0.08 of contribution from the Indicor businesses.

14:29 For the fourth quarter, we anticipate overall sales to be up in the low 20% range with adjusted earnings of $2.26 to $2.30 per share, up 12% to 14% versus the prior year. To summarize, Emetech delivered an exceptional third quarter, reflecting the strength of our businesses and the continued effectiveness of the Emetech growth model. Our outstanding performance highlights the quality of our market-leading portfolio of businesses and our ability to leverage competitive positions to capture opportunities and deliver meaningful value to customers. With mission-critical technology solutions and leadership positions across niche markets, Emitek remains well-positioned to benefit from favorable secular growth trends and to continue generating strong and sustainable long-term value for shareholders.

15:26 I will now turn the call over to Dalip Puri, who will cover some of the financial details of the quarter. Then we'll be happy to take your questions. Dalip.

15:36 Thank you, Dave, and good morning, everyone. As Dave noted, Ametek delivered an excellent third quarter with strong growth and outstanding operational performance. We set records across most of our key financial metrics alongside 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 1.4% of sales, down from 1.5% in the third quarter of 2025. Third quarter interest expense was $40 million. This was an increase of $17 million from the third quarter of 2025, reflecting incremental borrowings related to the acquisition of Indicor.

16:27 Third quarter other operating expenses were $5 million. Down from $6 million in the third quarter of 2025. The effective tax rate for the quarter was 18.5%, up from 17.2% in last year's third quarter. For 2026, 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 vary above or below our full year expected rate due to the timing of discrete tax items. Capital expenditures in the third quarter were $33 million. For 2026, we continue to expect capital expenditures of approximately $160 million or 2% of sales.

17:17 Depreciation and amortization expense for the quarter was $116 million. For the full year, we now expect depreciation and amortization to be approximately $470 million, including after-tax acquisition-related intangible amortization of approximately $240 million, or $1.05 per diluted share. Operating working capital in the third quarter was 17.3% of sales, an excellent 160 basis point improvement versus the same period of 2025. reflecting outstanding work by our businesses in managing key working capital components.

18:03 Operating cash flow was exceptionally strong in the third quarter at $561 million, up 27% versus the third quarter of 2025. Free cash flow was also strong, up 26%, to a record $527 million, with excellent free cash flow conversion of 124% in the quarter. We are increasing our full-year cash flow expectations and now expect free cash flow conversion to be between 115 and 120% of net income, reflecting the high quality of our earnings throughout the year and our expectations for continued strong performance in the fourth quarter. Total debt at September 30th was $6.7 billion, up from $2.3 billion at the end of 2025.

18:54 due to the acquisition of Indicor Instrumentation. Offsetting this debt was cash and cash equivalents of $667 million. At the end of the third quarter, our gross debt to EBITDA ratio was 2.3 times and our net debt to EBITDA ratio was 2.1 times. As Dave noted, the M&A environment remains constructive and our pipeline of acquisition opportunities is strong. We continue to have significant financial capacity and flexibility with $2.7 billion in cash and available credit facilities to support our growth initiatives and strategic acquisitions. In summary, Ametek delivered another outstanding quarter, delivering record results across sales, orders, earnings, and free cash flow conversion in the quarter.

19:46 With leadership positions across attractive market segments, a differentiated technology portfolio, Thank you, Dalip. Stephanie, could we please open the line for questions? Yes. Thank you. And at this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.

20:34 Our first question is from Nicole DeBlasi of Deutsche Bank. Your line is now open. Yeah, thank you. Good morning, guys.

20:43 Good morning, Nicole.

20:44 Just wanted to start, David, maybe if you could do the usual rundown of the organic order trends that you saw by end market and anything on geography, too, would be really helpful. Okay.

20:54 Good way to start, Nicole. In the process segment, we had organic sales up high single digits in the quarter. Project activity remained strong and broad-based across our process instrumentation businesses. We had notable strength across our semiconductor and energy related businesses. So for the full year for process 2026, we continue to expect organic sales up mid single digits. I'll move to aerospace and defense. Delivered just another excellent outstanding quarter with organic sales up mid teens. Growth was strong and well distributed across subsegments with the strongest growth and our commercial OEM and aftermarket businesses.

21:42 For 2026, we continue to expect organic sales for our A&E businesses to be at low double digits versus the prior year. Next, I'll talk about the power segment. Up mid-single digits in the quarter. Very pleased with the continuation of excellent orders growth in the quarter. The order's growth is tied to broad-based build-out and investments in the power grid and data center infrastructure. For 2026, we continue to expect to be up mid-single digits for the year. And finally, our automation and engineer solutions subsegment growth was again excellent with mid-teens organic sales growth in the quarter.

22:27 Growth was balanced across our businesses with the strongest growth within the semiconductor and medical end markets. And for 2026, we now expect organic orders for our A and ES businesses to be up low double digits. That's around for the markets. And then in terms of the geographies, Nicole, balanced US and international growth. The US was up low double digits, and the international growth was up high single digits. In the U.S., it was really balanced growth across the markets. I'd highlight our UPT business and Paragon has a little bit of outstanding performance. And when I look across the globe, Asia was the strongest.

23:16 Asia was up in the mid-20s. And that's a view around the horn, Nicole.

23:23 Thank you, Dave. That's tremendously helpful. I don't want to take up too much time because You were pretty thorough there, but just maybe one follow-up on orders. If you look at the order trend through the quarter, was that 17% kind of pretty stable across the month? And then anything that you would give us on what you're seeing in October?

23:41 Thank you. Sure. Yeah, the cadence, first of all, we had orders up 35% in the quarter with strong organic orders up 17%. So we were very pleased with that. And when you look at the cadence, September was the strongest month for orders so it stair-stepped up to September. September was the strongest month for orders in the quarter and September was also an all-time monthly record so we're very happy with that. So September was very strong and we started off Q4 on plan so October was extremely solid and an important point is sequentially we also grew from Q2. So very pleased with the orders, very pleased with the order's momentum.

24:28 Both EIG and ENG happen to be up 17% organically, so it's rock solid.

24:34 That's great to hear. Thanks, Dave. I'll pass it on.

24:37 Thank you. Thank you. Our next question is from Matt Somerville of DA Davidson. Your line is now open.

24:48 Thanks. A couple questions, maybe just first on Indicor. You mentioned $0.08 of accretion kind of factored into the guide for 26. I was curious if you were willing to share maybe early thoughts on incremental accretion from that business in 2027, and can you remind us what you're targeting for year one synergies with that business, and then I have a follow-up. Thank you.

25:14 Yeah, in terms of Indicor, We have $0.08 for the balance of this year. There's very little accretion in the five weeks that we owned it in Q3, so the balance of that's in Q4. I think that you have a situation where this is a business that doesn't really have a lot of seasonality, so you can get a good sense of what Q4 looks like. In terms of next year, we're really going to follow our typical budgeting process and and you know as we always do we'll take a deep dive with each business in November and December as part of that process to get an annual operating plan that'll give us a clear view of 2027 and we'll share a detailed outlook with you next year but in general it's a you know 1.1 billion dollar annual revenue stream it's a 30 percent EBITDA business and we're off to a good start any other questions Matt

26:18 Matt, you mentioned year one synergies as indicated when we announced the IndiCore acquisition, I guess it was about six weeks ago, seven weeks ago. We talked about 10% to 12% being our synergy target. That's over three years. And we're going to track, probably from your perspective, think about that cadence as being ratable.

26:41 Okay, perfect. That's very helpful color. And then can you put a finer point on what you're seeing from an M&A perspective? We're very active.

27:23 Okay. Thank you. Our next question is from Andrew Aubin of Bank of America. Your line is now open.

27:34 Yes, good morning. How are you? Andrew. Just a question on orders. We've had very strong organic order pace year to date. How should we think about sort of this actually translating to organic revenue? And I know we're not here to provide a 27 guide, but historically, orders become revenue six to nine months later. How much visibility do you have at this point into sustainability of growth into first half of 27? And how much visibility do you have into second half of 27? Thank you.

28:08 It's a great question, Andrew. And we're going to get details on our budget process. But the one rule of thumb that I've always followed that ends up being very accurate is 80% of our backlog is is shippable in the next 12 months. So we have a really good backlog of $4.54 billion, and 80% of that will be shippable over the next 12 months. And it's pretty ratable going into next year. It looks pretty good by quarter. So the way I think about it is we're going to enter next year with a strong backlog. As you know, part of our business is longer cycle and part of it is shorter cycle, and we still need to get strong orders. But we're entering next year with a very strong backlog. That's a good factor for us in terms of 2027.

28:51 And maybe just a bit of a modeling question. So acquisitions and Forex, I think, was 7% to sales, but 17% to orders. So how does the backlog from acquisition shows up? Do we front load the backlog from the acquisitions?

29:11 Yeah, sure. The order input in the quarter The next question is from Jeffrey Sprague of Vertical Research. Your line is now open.

29:48 Hey, thank you. Good morning, everyone. Good looking results here. I just want to come back to Indicor again. Maybe my modeling was off a little bit, but it looks like you got more revenue in the quarters anyhow than I was thinking. Are you still thinking about $350 million in revenue for 2026? And do you have any, you know, kind of color on how Indicor itself grew in the quarter, separate and apart from the revenues coming in? I don't know if you have a good baseline on what they actually did last year, but is the, you know, is the organic growth of that set of businesses sort of tracking to the Ametek average here?

30:30 Yeah, the first point is Indicor did a little greater than $100 million in the quarter, so that may help you square your model. We also had, you know, 15 to 20 million of contributions from other acquisitions. So, yeah, and I think the Indicords, it's hard to get a clean number on it, but organically it looks like they performed in line with what we thought they would do. They were a strong mid-single-digit grower for the short time we had them. So that all lines up, and, you know, I think we have the – Yeah, I think you're right. It's not a very high seasonality business at all. There's a lot of aftermarket components. So, you know, you can figure that out for Q4, but you're in the ballpark.

31:19 Great. And then this UPS solid state product you mentioned, is that a data center related application or what sort of application is it? And of course, You know, in data centers, right, there's a lot of focus on solid state moving towards 800 volt DC and the like. So I was just wondering if you could elaborate on actually what that application is and what the opportunity is there.

31:43 Yeah, that is our highest end flagship UPS system. So that goes into the most difficult applications. You can think about a nuclear power plant where failure is not an option. The price of that product will be $100,000 apiece. So it's a new product. It's durable. It's very, very, delivers tremendous value to our customers. And there are some data center applications for that, but they're in the most rugged type applications. We have other products that are tied to, that I talked about prior, that are tied to other parts of the data center build out. And we also have some 800-volt experimentations going on with customers right now in a different product category. So we're not really... We're all around it, and the 800-volt work that we're doing now is the one we're most excited about.

32:36 Interesting. Thanks. I'll follow up on that later.

32:38 Thank you. Thank you. Our next question is from Brett Lindsey of Mizuho. Your line is now open.

32:50 Hey, good morning, all. Congrats. Just a bigger picture question. Order sales, obviously, very robust. I guess, where have you seen the most incremental change over the last, you know, call it three, four, five months on the demand side? Is it customers actually getting more confident to put capital on the ground on projects and whatnot? Or is this sort of pent-up release on, you know, activity or MRO or spending that was maybe put on hold for several months as companies and customers were sorting through tariffs and other geopolitical items?

33:28 Yeah, it's a good question. And we talked about this all about a year ago when I started seeing a tremendous pipeline of potential orders. And the biggest change that I'm seeing right now is what we thought was going to happen is our EIG business is accelerating. So if you look at the orders of EIG and EMG both being organic 17, that's a function of that project activity being acted upon. So the things that were in our pipeline that were quotations, that we're working with customers, and EIG specifically, that's accelerated.

34:05 Thanks for that. And then just a follow-up on price and cost. What was the price contribution in the quarter, and how did that fare relative to inflation? Obviously, the whole industry is dealing with a pretty heavy bout of inflation. Any preliminary expectation on what you think that spread could look like here in the coming quarters in the early part of 27th?

34:27 I'll tell you Brett, we had a positive price inflation spread again. Our inflation number was about 3% and pricing was in excess of that. The results speak to the highly differentiated nature of the Emetech product portfolio and we got leadership positions in these niche markets around the globe. So as I said in my prepared remarks, we have a track record of being able to offset inflation with pricing and inflation and Tariffs with Pricing. So very good performance. We have highly customized businesses. We're solving the most difficult mission critical applications and we're getting price to protect ourselves in this inflationary environment.

35:11 Thanks, Dave.

35:12 Thank you, Brett. Thank you. Our next question comes from Andrew Buscaglia of BNB Paribas. Your line is now open.

35:26 Good morning, everyone. Good morning, Andrew.

35:29 I was hoping to get an update on life sciences in that I think last quarter it sounded like things are really picking up. And if you could tie in how Paragon's trending over the last year, and similarly in ferro technologies, I think that you're implying that things are strong in that area, but wondering if you could talk about those trends you're seeing with that deal.

35:55 Okay, you had Paragon, you had Life Sciences, and I'll start with Paragon. Healthcare is our largest market, and within our healthcare, 20% exposure, and Paragon led us. So Paragon was up low double digits in sales, another extremely strong quarter, and we're very pleased with that business. So Paragon continues to perform exceptionally well. In terms of FARO, we completed our one-year anniversary during the quarter, and we were reviewing that with our board this week, and we're very pleased to say that the model that we built, the profitability on the model, we exceeded it.

36:41 So very happy with that, and I think there's still more work to do with FARO during year two, but all of our expectations are in line with what we thought initially. So very pleased with the integration. and the teams are working hard on putting that together. And the third question was around our life sciences business and what we're seeing now is probably the strength of that most shows up within our automation business because we're building motion control systems, subsystems for all these life sciences and medical equipment and that's our fastest growing segment within that automation business. So it's strong, it's getting stronger and We're doing a good job of servicing our customers in that business.

37:27 Got it. Very helpful update. Thank you. Can you talk a little bit more? I mean, presumably the trends in Americas are very strong. But I'm wondering if you're noticing any changes or differences in the other regions like Europe and APAC. We're just hearing a little bit of potential change, other companies that reported. Just curious if you could update us on the two regions.

37:56 Yeah, I mean, as I said, U.S. is the strongest. Asia was the strongest and was up mid-20s. And China was up more than the average, so very strong in China. Europe was the weakest of the three. And some challenging comps there and some timing issues, so it was down a bit. But really strong in the U.S., really strong in Asia. and yours has been like it's been for the past several quarters. It's hanging in there, but we're not seeing a big growth up yet. All right, thank you. Okay. Thank you. Next question is from Scott Graham of Seaport Research Partners.

38:43 Your line is now open.

38:46 Hey, good morning and congrats on the earnings. I wanted to ask about Indicor maybe in a little bit of a different way. I know it's being moved as you integrate it to 10 businesses to probably 8 to 10 business units within AME, but I was just wondering how you're managing the risk. It's a very big deal. It has a lot of markets, and I was just wondering, Dave, how you're managing that risk, and then I have a follow-up.

39:19 Yeah, it's a great question. And that's part of the reason we had the Ametek University session with all the leaders of Indicor. But it goes back to what I talked about initially. Although it's a big acquisition, these acquisitions ends up being 10 individual businesses that fit into different parts of Ametek. And they honestly fit like a glove. So we have very seasoned leaders working with the Indicor team, integrating it into Ametek. We went through a lot of the expectations and a lot of the ways we do business. The IndyCorp people were very pleased to see the practicality of our business system and how they could use that to improve their business. So I'm pretty optimistic with IndyCorp. And we got some real good people running businesses that know how to run businesses.

40:07 So, you know, the capability of the IndyCorp people, the experienced nature of the Emetech integrators, combined with this thing is going to various parts of Ametek where no individual business sees a $1.1 billion integration. It's built into smaller integrations. It's a good way to disperse the risk. And they're performing very well. They're obviously contributing. It's a cash generative business, so we're excited.

40:39 Thank you for that. My follow-up question was simply around The conflicts around the world and the hypothetical, hopeful, but unfortunately hypothetical situation that they all end at some point in the next six months. What does that do to your defense in energy sales? You've been calling out energy a couple of times this year, kind of the first time we've heard that in a little bit of a while. And I know it wasn't a big business for you, but still you've been calling it out. So what is the end of the conflicts due to those sales?

41:14 I don't think it does much at all. I think we're dealing with, I consider energy, I mean, the defense market changed from discretionary spend to required spend. And so it's expanding from just the U.S. to also Europe, where we have a very strong distribution system and a very strong business, so very well positioned. I talked in past calls about some We're very well positioned in that market, and we include space in that market, but there's a very strong ordering pattern. So I don't see that giving way. It's become required spend, and it was discretionary.

42:01 Obviously, it's project-based. It's a bit episodic. You have funding things with governments that you have to deal with, but overwhelmingly, It's positive and we're in the right places with our focus and niche technologies in areas where we're the clear leader and we have a lot of people that want to do business with us. Thank you. Thank you. Our next question is from Andy Kaplowitz of Citigroup. Your line is now open.

42:37 Good morning, everyone. Hi, Andy. Dave, can you give more color into what you're seeing in aerospace and defense? I know you just talked about defense, but earlier you mentioned the biggest piece of the strength that you've seen is in commercial OE and aftermarket. Maybe just talk about the visibility of that growth continuing, given there are some supply chain and macro concerns out there.

42:57 Yeah, the first thing is about 17% of our business overall is split about evenly between commercial and defense businesses. And we are seeing higher growth right now in the commercial OE and aftermarket businesses, but our defense business is also strong. We're on just about every commercial plane. Commercial backlogs are very, very solid. The aftermarket business is one of the fastest growing in EMETEC. We talked about that being a concern a couple of quarters ago. It didn't happen. We added the first aviation acquisition as a defense-based business.

43:44 About half the business is defense. That's really bolstered our capability. And so with some unique capability in that business. So in general, we're not seeing any slowdown at all. And I realize that the big OEs are going to go up a little bit or down a little bit. But we're keeping up with their demands. And because we're not dependent on any one aircraft or any one platform, Our demand looks solid to us as we go forward.

44:13 Yeah, that's helpful. And then your power-focused business continues to be in that sort of mid-single-digit growth area, and I know, Dave, you said it could grow faster. Does it start to grow faster in 27, or maybe why isn't it growing a bit faster now?

44:25 Yeah, we're tied more to the grid expansion versus data center growth. So we have some data centers I talked about before, but it's mainly grid expansion, and It is, you know, we grew mid single digits in the quarter, but our orders were up double digits. So we're starting to grow faster and we have a couple of businesses, our RTDS business, the real time system business is, you know, it's a T&M business, a test and measurement business, but it's growing nicely. We have good businesses and they're providing sensors to the power, nuclear power and the natural gas infrastructure. So, I mean, it's, you know, it takes the power market is very conservative.

45:12 It takes time to grow. But again, I think the double digit orders growth was is a trend of what we'll see in the fourth quarter of this year and next year.

45:19 Appreciate all the color.

45:22 Thank you.

45:25 Thank you. Our next question is from Christopher Glenn of Oppenheimer Company. Your line is now open.

45:36 Good morning. Thanks for taking my question. Hi, Chris. Hi, Dave. Wondering about, you know, over the years as you've scaled, you've evolved the M&A sourcing infrastructure. Not revolutionary, but evolutionary. Just curious, any developments culturally in that sense? I haven't heard you expound on the topic in a while, but obviously you continued scaling. Paragon come in the anchor of the medical piece. Do they have a particular role in sourcing, for instance?

46:10 I think our M&A team has done an excellent job, Chris. I think we have some of the best people in the industry. We have a dedicated team. We have a dedicated investment of 12 M&A professionals. They work closely with our businesses and our operators to identify Strategic Acquisitions. They own our process. The acquisitions at Ametek are a culmination of a set of well-defined processes. They're not a single event. And we have excellent capability that includes well-defined processes for deal sourcing, for deal modeling, for diligence and integration. And as I've talked about many times, integration is our secret sauce with very strong business operators. Well ingrained in the Emetek business system, providing ownership to deliver the results that they committed to up front in the acquisition.

47:03 So we have clear metrics, clear deliverables for each deal. And I have people managing those deals that have delivered over and over again. We've done over 120 deals. So we're very good there. Our capital allocation strategy remains consistent. Our number one priority and number 1A and 1B is to deploy our free cash flow on strategic acquisitions It remains a clear priority. Priority two is opportunistic buybacks. And as we have shown in the past, if we see a dislocation in our evaluation, we're poised to act. And the third priority is a modest but ever increasing dividend. So that's going to stay consistent and our M&A team is outstanding.

47:43 Thanks, appreciate that. And then I'm curious on semiconductor markets, any shifts in cadence geographically, moving into some of the greenfield initiatives at all, and research versus field equipment, if you could have any comments there. Thank you.

47:59 Yeah, I think the semiconductor market is really, it's strength on strength. I mean, it's, I think for the quarter, you know, we had the I'll get the number for you here. Yeah, we grew mid-teens, but the orders growth was greater than 30%. So it's about 6% of Ametek, and the orders were about 30%. So orders outpaced sales, and we're very strong in certain areas. I mean, if you're trying to make yield improvements with the latest technology and you want to find defects in your process, you're going to buy an instrument from Kameka. These are multi-million dollar instruments and they're kind of unique and just about every expanding fab has one and wants more.

48:50 The other area that we're specialized in is EUV optics and the semiconductor fabrication. That's with our Zygo business. And then the third area is with the semi-cap-X expansion, our Abaco business, which is mainly an A&D business, has made a good penetration into the CapEx equipment. They want more durable electronics and control electronics to do their data analysis. So Abaco is having quite a good year in semiconductors. So really from the detection of imperfections, we have a good presence there. EV optics, we're very unique and very few people can do the kinds of things that we can do. And we also have very durable products to do a data analysis and one of our businesses expanding there. So it's, as I said, it's up greater than 30% and it's about 6% exposure and it's positive for us.

49:51 Awesome, thank you. And our next question is from Michael Anastasio of TD Cohen. Your line is now open.

50:08 Good morning. This is Michael on for Joe. Hello, Mike. Hi. I have a two-parter. So when you look at the businesses acquired over the last, you know, five to ten years, you know, how has their organic growth rate evolved under your ownership? And then, you know, if there's any assets you'd like to call in particular, that would be great. And then the second part, you know, I just realized organic orders have been high double digits the last several quarters. How do you parse out specific growth through Ametek versus the underlying market growth? Any color there would be great.

50:47 Yeah, I think that we're in niche markets, and because we're in niche markets, very specialized technology, we spend quite a bit on RD&E, and we're introducing new products. So bifurcating the market growth from the Ametek Unique growth is sometimes difficult, but I think we benchmark ourselves against our competitors, and I think we benchmark very, very well. We do that during our strategic planning session. And I think another thing that helped us back during COVID seems like a long time ago, but we were able to deliver when other people couldn't. So you really combine the Emetech operational excellence with a continuing research, development, and engineering focus.

51:34 and then our technology that we have in these niches that really differentiates ourselves. If we look back in the last 10 years, our organic growth has been a step above what it was the five years before that. So that's one thing that we look at and quite honestly, we're focused on serving our customers now and we're growing now and we see more opportunities.

52:04 Great, thank you. Thank you. Our next last question is from Quinn Fredrickson of Baird. Your line is now open.

52:18 Hi, good morning. I just wanted to double click on MedTech and Paragon. Could you discuss what your exposure looks like to elective procedures versus other procedure types and consumables?

52:30 whether you're seeing any impact from elective procedure deferrals this year? I mean, it sounds like not based on your performance in the quarter, but I'm not sure if that's just based on your mix or outsized growth in a few areas offsetting. Yeah, it's a good question, Quint. And really, it's driven by new product wins. So there's an element of procedure growth, but it can go up or down. But when you're winning share and you're winning business like we are, That drives us a bigger component of it. So to recap, Paragon is really single use and consumable surgical instruments, implantable components, and the markets that we're in have good growth rates, but adding to the good growth rates is the excellent engineering capability and the new programs one through one.

53:18 So that's what's driving Paragon's performance.

53:22 Thanks, Dave.

53:24 Second, I was just wondering if you could further unpack the 210 basis points of core margin expansion in EMG in the quarter, which so that is really strong. Obviously, the strong top line growth helps, but just any details on price cost or mix or any other factors that enable that as well as any thoughts around fourth quarter for that segment would be helpful. Yeah, I think we had an excellent quarter in terms of margins. So overall, we reported up 60 basis points margins, but our quarter margins, which backs out the acquisitions, were up 110 basis points. So very strong. And EMG, the quarter margins were up 210 basis points, and it was driven by excellent productivity and very solid positive price inflation, price cost.

54:17 So that drove it. And we had a similar performance in EIG. We had good productivity and we had good price cost. One of the things that I look at are always the incrementals. We had core incrementals. Both groups were greater than 35%. EMG was a little stronger than EIG, but they were both strong. Those core incrementals drive revenue. For the full year, we expect 35% to 40% core incrementals. with quarter margins up about 100 bps. So it's been really good margin performance all year. It's good execution. In terms of the fourth quarter, in terms of EMG, I mean, I think EMG and EIG will have low 20s overall sales and EIG might be a bit stronger than EMG related to the The M&A because Indicor has a bigger contribution there, but it'll be low 20s.

55:24 EIG may be low 20s and EMG may be high teens. It's that kind of number. So strong across both of them. Great. Thanks, Dave. Thank you, Quinn. Thank you. This concludes the question and answer session. I would now like to turn it back to Kevin Coleman for closing remarks.

55:46 Thank you, Stephanie. Thanks, everyone, for joining our call today. And as a reminder, a replay of today's webcast can be accessed in the investor section of emetek.com. Have a great day. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.