Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth net sales and income by reportable segment and on a consolidated basis:

Recent Events and Market Conditions

Recent events and market conditions impacting our business include the COVID-19 pandemic, increased material and transportation cost inflation, supply chain constraints, and Russia’s invasion of Ukraine. As a result of these events and conditions, we anticipate a challenging global economic environment for the remainder of 2022. There still remains uncertainty around the COVID-19 pandemic, its effect on labor, government mandated lockdowns and other restrictive measures, and the pandemic's ultimate duration. The recent lockdowns in China have limited our ability to access customer sites, operate certain facilities, and place additional constraints on our supply chain. Beginning in 2021, we experienced inflationary cost increases in material and transportation costs and we expect elevated levels of cost inflation to persist throughout 2022. We have taken steps to mitigate the impacts of inflation by implementing pricing actions. The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. Russia and Ukraine represent an insignificant portion of our business, but a significant expansion of the conflict's current scope could further complicate the economic environment. While the ultimate impact of these events remains uncertain, we will continue to evaluate the extent to which these factors will impact our business, financial condition, or results of operations.

Results of operations for the first quarter of 2022 compared with the first quarter of 2021

For the quarter ended March 31, 2022, the Company posted a record backlog as well as strong sales, operating income, net income, and orders. The Company achieved these results from organic sales growth in both EIG and EMG, contributions from the 2021 acquisitions of Abaco Systems, Inc., Magnetrol International, and NSI-MI Technologies, as well as the Company's Operational Excellence initiatives.

Net sales for the first quarter of 2022 were $1,458.5 million, an increase of $242.8 million or 20.0%, compared with net sales of $1,215.7 million for the first quarter of 2021. The increase in net sales for the first quarter of 2022 was due to a 14% increase in organic sales, a 7% increase from acquisitions, partially offset by an unfavorable 1% effect of foreign currency translation.

Total international sales for the first quarter of 2022 were $744.4 million or 51.0% of net sales, an increase of $127.7 million or 20.7%, compared with international sales of $616.7 million or 50.7% of net sales for the first quarter of 2021. The increase in international sales was primarily driven by strong demand in Europe and Asia during the quarter as well as contributions from recent acquisitions.

Orders for the first quarter of 2022 were $1,702.8 million, an increase of $305.2 million or 21.8%, compared with $1,397.6 million for the first quarter of 2021. The increase in orders for the first quarter of 2022 was due to an 18% increase in

organic orders, a 5% increase from acquisitions, partially offset by an unfavorable 1% effect of foreign currency translation. As a result, the Company's backlog of unfilled orders at March 31, 2022 was a record $2,974.4 million, an increase of $244.3 million or 8.9% compared with $2,730.1 million at December 31, 2021.

Segment operating income for the first quarter of 2022 was $373.0 million, an increase of $61.1 million or 19.6%, compared with segment operating income of $311.9 million for the first quarter of 2021. Segment operating income was positively impacted in 2022 by the increase in sales discussed above, as well as a $7.1 million gain on the sale of a facility. Segment operating margins, as a percentage of net sales, decreased slightly at 25.6% for the first quarter of 2022, compared with 25.7% for the first quarter of 2021. Segment operating margins were negatively impacted in the first quarter of 2022 by the dilutive impact of the 2021 acquisitions. Excluding the dilutive impact of recent acquisitions and the gain on sale of a facility, segment operating margins for the core businesses increased 120 basis points compared to the first quarter of 2021, due to benefits from the Company's Operational Excellence initiatives.

Cost of sales for the first quarter of 2022 was $948.8 million or 65.1% of net sales, an increase of $159.4 million or 20.2%, compared with $789.4 million or 64.9% of net sales for the first quarter of 2021. The cost of sales increase was primarily due to the net sales increase discussed above.

Selling, general and administrative expenses for the first quarter of 2022 were $156.5 million or 10.7% of net sales, an increase of $23.5 million or 17.6%, compared with $133.0 million or 10.9% of net sales for the first quarter of 2021. Selling, general and administrative expenses increased primarily due to the net sales increase discussed above.

Consolidated operating income was $353.2 million or 24.2% of net sales for the first quarter of 2022, an increase of $59.9 million or 20.4%, compared with $293.3 million or 24.1% of net sales for the first quarter of 2021.

Other income, net was $2.6 million for the first quarter of 2022, compared with $1.9 million of other expense, net for the first quarter of 2021, a change of $4.5 million. The first quarter of 2022 includes higher pension income of $2.5 million and lower due diligence expense compared to the first quarter of 2021.

The effective tax rate for the first quarter of 2022 was 19.0%, compared with 19.5% for the first quarter of 2021. The lower effective tax rate in 2022 is primarily due to a favorable foreign tax rate differential.

Net income for the first quarter of 2022 was $272.4 million, an increase of $53.2 million or 24.3%, compared with $219.2 million for the first quarter of 2021.

Diluted earnings per share for the first quarter of 2022 were $1.17, an increase of $0.23 or 24.5%, compared with $0.94 per diluted share for the first quarter of 2021.

Segment Results

EIG**’**s net sales totaled $987.8 million for the first quarter of 2022, an increase of $196.8 million or 24.9%, compared with $790.9 million for the first quarter of 2021. The net sales increase was due to a 15% increase in organic sales, and an 11% increase from acquisitions, partially offset by an unfavorable 1% effect of foreign currency translation.

EIG’s operating income was $244.8 million for the first quarter of 2022, an increase of $37.9 million or 18.3%, compared with $206.9 million for the first quarter of 2021. EIG’s operating margins were 24.8% of net sales for the first quarter of 2022, compared with 26.2% for the first quarter of 2021. EIG's operating margins were negatively impacted in the first quarter of 2022 by the dilutive impact of the 2021 acquisitions. Excluding the dilutive impact of recent acquisitions, EIG operating margins for the core business increased 130 basis points compared to the first quarter of 2021, due to benefits from the Company's Operational Excellence initiatives.

EMG’s net sales totaled $470.8 million for the first quarter of 2022, an increase of $46.0 million or 10.8%, compared with $424.8 million for the first quarter of 2021. The net sales increase was due to a 12% organic sales increase, partially offset by an unfavorable 1% effect of foreign currency translation.

EMG’s operating income was a record $128.2 million for the first quarter of 2022, an increase of $23.2 million or 22.1%, compared with $105.0 million for the first quarter of 2021. EMG's operating income included a $7.1 million gain on the sale of a facility during the first quarter of 2022. EMG’s operating margins were a record 27.2% of net sales for the first quarter of 2022, compared with 24.7% for the first quarter of 2021. Excluding the gain on the sale of a facility, EMG operating

margins increased 100 basis points compared to the first quarter of 2021, due to benefits from the Company's Operational Excellence initiatives.

Financial Condition

Liquidity and Capital Resources

Cash provided by operating activities totaled $201.3 million for the first three months of 2022, a decrease of $83.1 million or 29.2%, compared with $284.4 million for the first three months of 2021. The decrease in cash provided by operating activities for the first three months of 2022 was primarily due to higher investments in inventory to support sales and backlog growth, and also to mitigate inventory supply chain constraints.

Free cash flow (cash flow provided by operating activities less capital expenditures) was $175.0 million for the first three months of 2022, compared with $266.9 million for the first three months of 2021. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $433.6 million for the first three months of 2022, compared with $355.5 million for the first three months of 2021. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the Company.

Cash used by investing activities totaled $14.9 million for the first three months of 2022, compared with cash used by investing activities of $284.5 million for the first three months of 2021. For the first three months of 2022, the Company received proceeds of $11.8 million from the sale of a facility. For the first three months of 2021, the Company paid $263.9 million, net of cash acquired, to purchase Magnetrol International, Crank Software, and EGS Automation. Additions to property, plant and equipment totaled $26.4 million for the first three months of 2022, compared with $17.5 million for the first three months of 2021.

Cash used by financing activities totaled $187.4 million for the first three months of 2022, compared with cash used by financing activities of $84.0 million for the first three months of 2021. At March 31, 2022, total debt, net was $2,536.0 million, compared with $2,544.2 million at December 31, 2021. For the first three months of 2022, total borrowings increased by $20.0 million compared with a $33.0 million decrease for the first three months of 2021. At March 31, 2022, the Company had available borrowing capacity of $2,431.3 million under its revolving credit facility and term loan, including the $500 million accordion feature.

On April 26, 2021, the Company along with certain of its foreign subsidiaries amended and restated its credit agreement dated as of September 22, 2011, as amended and restated as of March 10, 2016 and as further amended and restated as of October 30, 2018, with the lenders, JPMorgan Chase Bank, N.A., as Administrative Agent and Bank of America, N.A., PNC Bank, National Association, Trust Bank and Wells Fargo Bank, National Association, as Co-Syndication Agents. The credit agreement amends and restates the Company’s existing revolving credit facility to add a new five-year, delayed draw, term loan for up to $800 million. The credit agreement places certain restrictions on allowable additional indebtedness. At March 31, 2022, the Company had $150.0 million outstanding on the term loan with a maturity date of June 2026. The Company's ability to draw on the term loan expired on April 26, 2022, with no additional borrowings.

The debt-to-capital ratio was 26.8% at March 31, 2022, compared with 27.0% at December 31, 2021. The net debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 24.1% at March 31, 2022, compared with 24.2% at December 31, 2021. The net debt-to-capital ratio is presented because the Company is aware that this measure is used by third parties in evaluating the Company.

Additional financing activities for the first three months of 2022 included cash dividends paid of $50.8 million, compared with $46.0 million for the first three months of 2021. Effective February 9, 2022, the Company’s Board of Directors approved a 10% increase in the quarterly cash dividend on the Company’s common stock to $0.22 per common share from $0.20 per common share. The Company repurchased $156.7 million of its common stock for the first three months of 2022, compared with $8.0 million for the first three months of 2021. Proceeds from stock option exercises were $8.3 million for the first three months of 2022, compared with $6.9 million for the first three months of 2021.

As a result of all of the Company’s cash flow activities for the first three months of 2022, cash and cash equivalents at March 31, 2022 totaled $340.3 million, compared with $346.8 million at December 31, 2021. At March 31, 2022, the Company had $326.4 million in cash outside the United States, compared with $334.0 million at December 31, 2021. The Company utilizes this cash to fund its international operations, as well as to acquire international businesses. The Company is in compliance with all covenants, including financial covenants, for all of its debt agreements. The Company believes it has

sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future.

Critical Accounting Policies

The Company’s critical accounting policies are detailed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition of its Annual Report on Form 10-K for the year ended December 31, 2021. Primary disclosure of the Company’s significant accounting policies is also included in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of its Annual Report on Form 10-K.

Forward-Looking Information

Information contained in this discussion, other than historical information, is considered “forward-looking statements” and is subject to various factors and uncertainties that may cause actual results to differ significantly from expectations. These factors and uncertainties include risks related to the COVID-19 pandemic and its potential impact on AMETEK’s operations, supply chain, and demand across key end markets; general economic conditions affecting the industries the Company serves; changes in the competitive environment or the effects of competition in the Company’s markets; risks associated with international sales and operations; the Company’s ability to consummate and successfully integrate future acquisitions; the Company’s ability to successfully develop new products, open new facilities or transfer product lines; the price and availability of raw materials; compliance with government regulations, including environmental regulations; and the ability to maintain adequate liquidity and financing sources. A detailed discussion of these and other factors that may affect the Company’s future results is contained in AMETEK’s filings with the U.S. Securities and Exchange Commission, including its most recent reports on Form 10-K, 10-Q, and 8-K. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements, unless required by the securities laws to do so.