Ametek 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

(Mark One)

For the quarterly period ended September 30, 2023

OR

For the transition period from to

Commission File Number 1-12981

_________________________

AMETEK, Inc.

(Exact name of registrant as specified in its charter)

_________________________

Delaware

(State or other jurisdiction of

incorporation or organization)

1100 Cassatt Road

Berwyn, Pennsylvania

(Address of principal executive offices)

14-1682544

(I.R.S. Employer

Identification No.)

19312-1177

(Zip Code)

Registrant’s telephone number, including area code: (610) 647-2121

_________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

_________________________

Securities registered pursuant to Section 12(b) of the Act:

The number of shares of the registrant’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at October 27, 2023 was 230,798,657 shares.

AMETEK, Inc.

Form 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION

AMETEK, Inc.

Consolidated Statement of Income

(In thousands, except per share amounts)

(Unaudited)

See accompanying notes.

AMETEK, Inc.

Condensed Consolidated Statement of Comprehensive Income

(In thousands)

(Unaudited)

See accompanying notes.

AMETEK, Inc.

Consolidated Balance Sheet

(In thousands)

See accompanying notes.

AMETEK, Inc.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)

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Results of Operations

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

For the quarter ended September 30, 2023, the Company posted record operating income, operating margins, net income, and diluted earnings per share. We achieved these results from contributions from the acquisitions of Navitar in September 2022, RTDS in October 2022, Bison Gear & Engineering Corp. ("Bison") in March 2023, and United Electronic Industries ("UEI") in August 2023, as well as our Operational Excellence initiatives. We continue to experience heightened levels of inflation in material costs, supply chain constraints, as well as continued uncertainty in the global economy, including inventory normalization on short-term customer demand. We continue to evaluate the extent to which these factors will impact our business, financial condition, and results of operations. For 2023, our strong backlog, the full year impact of the 2022 acquisitions, the 2023 acquisitions of Bison and UEI, and continued focus on and implementation of our Operational Excellence initiatives are expected to have a positive impact on the remainder of our 2023 results.

Results of operations for the third quarter of 2023 compared with the third quarter of 2022

Net sales for the third quarter of 2023 were $1,622.8 million, an increase of $71.0 million or 4.6%, compared with net sales of $1,551.8 million for the third quarter of 2022. The increase in net sales for the third quarter of 2023 was due to a 4% increase from acquisitions and a 1% favorable effect of foreign currency translation.

Total international sales for the third quarter of 2023 were $731.7 million or 45.1% of net sales, a decrease of $1.3 million or 0.2%, compared with international sales of $733.0 million or 47.2% of net sales for the third quarter of 2022.

Orders for the third quarter of 2023 were $1,550.6 million, a decrease of $107.3 million or 6.5%, compared with $1,657.9 million for the third quarter of 2022. The decrease in orders for the third quarter of 2023 was due to a 10% decline in organic orders, partially offset by a 1% increase from acquisitions and a 3% favorable effect of foreign currency translation. The Company's backlog of unfilled orders at September 30, 2023 was $3,369.7 million, an increase of $151.1 million or 4.7% compared with $3,218.6 million at December 31, 2022.

Segment operating income for the third quarter of 2023 was $462.7 million, an increase of $53.5 million or 13.1%, compared with segment operating income of $409.2 million for the third quarter of 2022. Segment operating margins, as a percentage of net sales, increased to 28.5% for the third quarter of 2023, compared with 26.4% for the third quarter of 2022. Segment operating income and operating margins were positively impacted in 2023 by increased sales in our higher margin businesses, as well as continued benefits from the Company's Operational Excellence initiatives.

Cost of sales for the third quarter of 2023 was $1,020.9 million or 62.9% of net sales, an increase of $16.3 million or 1.6%, compared with $1,004.6 million or 64.7% of net sales for the third quarter of 2022. The cost of sales increase was primarily due to the net sales increase discussed above.

Selling, general and administrative expenses for the third quarter of 2023 were $163.8 million or 10.1% of net sales, an increase of $1.1 million or 0.7%, compared with $162.7 million or 10.5% of net sales for the third quarter of 2022. General and administrative expenses for the third quarter of 2023 were $24.6 million, compared with $24.7 million for the third quarter of 2022.

Consolidated operating income was a record $438.1 million or a record 27.0% of net sales for the third quarter of 2023, an increase of $53.6 million or 13.9%, compared with $384.5 million or 24.8% of net sales for the third quarter of 2022.

Other expense, net was $6.3 million for the third quarter of 2023, compared with $3.2 million of other income, net for the third quarter of 2022, a change of $9.5 million. The third quarter of 2023 includes lower pension income of $5.1 million and higher acquisition-related due diligence expense compared to the third quarter of 2022.

The effective tax rate for the third quarter of 2023 was 17.7%, compared with 19.0% for the third quarter of 2022. The lower effective tax rate in the third quarter of 2023 primarily reflects greater utilization of research and development credits.

Net income for the third quarter of 2023 was a record $340.4 million, an increase of $42.8 million or 14.4%, compared with $297.6 million for the third quarter of 2022.

Diluted earnings per share for the third quarter of 2023 were a record $1.47, an increase of $0.18 or 14.0%, compared with $1.29 per diluted share for the third quarter of 2022.

Segment Results

EIG**’**s net sales totaled $1,136.1 million for the third quarter of 2023, an increase of $82.0 million or 7.8%, compared with $1,054.1 million for the third quarter of 2022. The net sales increase was due to a 3% increase in organic sales, a 4% increase from the recent acquisitions, and a 1% favorable effect of foreign currency translation.

EIG’s operating income was a record $335.2 million for the third quarter of 2023, an increase of $62.5 million or 22.9%, compared with $272.7 million for the third quarter of 2022. EIG’s operating margins were a record 29.5% of net sales for the third quarter of 2023, compared with 25.9% for the third quarter of 2022. EIG's operating margins increased in the third quarter of 2023 compared to the third quarter of 2022 due to the sales increase discussed above, which was primarily driven by our higher margin businesses, as well as continued benefits from the Company's Operational Excellence initiatives.

EMG’s net sales totaled $486.7 million for the third quarter of 2023, a decrease of $11.0 million or 2.2%, compared with $497.7 million for the third quarter of 2022. The net sales decrease was due to an 8% organic sales decrease, partially offset by a 4% increase from the 2023 acquisition and a 2% favorable effect of foreign currency translation.

EMG’s operating income was $127.5 million for the third quarter of 2023, a decrease of $9.0 million or 6.6%, compared with $136.5 million for the third quarter of 2022. EMG’s operating margins were 26.2% of net sales for the third quarter of 2023, compared with 27.4% for the third quarter of 2022. EMG's operating margins decreased in the third quarter of 2023 compared to the third quarter of 2022 due to the sales decrease discussed above. EMG's operating margins in the third quarter of 2023 were negatively impacted 40 basis points by the dilutive impact of the 2023 acquisition.

Results of operations for the first nine months of 2023 compared with the first nine months of 2022

Net sales for the first nine months of 2023 were $4,866.1 million, an increase of $341.2 million or 7.5%, compared with net sales of $4,524.9 million for the first nine months of 2022. The increase in net sales for the first nine months of 2023 was due to a 4% organic sales increase and a 3% increase from acquisitions.

Total international sales for the first nine months of 2023 were $2,306.0 million or 47.4% of net sales, an increase of $107.4 million or 4.9%, compared with international sales of $2,198.6 million or 48.6% of net sales for the first nine months of 2022. The increase in international sales was primarily driven by strong demand in Europe and Asia as well as contributions from the 2022 acquisitions.

Orders for the first nine months of 2023 were $5,017.1 million, an increase of $11.8 million or 0.2%, compared with $5,005.3 million for the first nine months of 2022. The increase in orders for the first nine months of 2023 was due to a 3% increase from acquisitions and a 2% favorable effect of foreign currency translation, partially offset by an organic order decrease.

Segment operating income for the first nine months of 2023 was $1,336.2 million, an increase of $164.5 million or 14.0%, compared with segment operating income of $1,171.7 million for the first nine months of 2022. Segment operating margins, as a percentage of net sales, increased to 27.5% for the first nine months of 2023, compared with 25.9% for the first nine months of 2022. Segment operating income and operating margins were positively impacted in 2023 by the increase in sales discussed above, which was primarily driven by our higher margin businesses, as well as continued benefits from the Company's Operational Excellence initiatives. In the first nine months of 2022, segment operating income included a $7.1 million gain on the sale of a facility which increased operating margins by 20 basis points.

Cost of sales for the first nine months of 2023 was $3,096.6 million or 63.6% of net sales, an increase of $155.0 million or 5.3%, compared with $2,941.6 million or 65.0% of net sales for the first nine months of 2022. The cost of sales increase was primarily due to the net sales increase discussed above.

Selling, general and administrative expenses for the first nine months of 2023 were $507.0 million or 10.4% of net sales, an increase of $26.3 million or 5.5%, compared with $480.7 million or 10.6% of net sales for the first nine months of 2022. Selling expenses increased primarily due to the net sales increase discussed above. General and administrative expenses for the first nine months of 2023 were $73.8 million, compared with $69.0 million for the first nine months of 2022. The general and administrative expenses in the first nine months of 2023 include higher employee compensation costs compared to the first nine months of 2022.

Consolidated operating income was $1,262.5 million or 25.9% of net sales for the first nine months of 2023, an increase of $159.9 million or 14.5%, compared with $1,102.6 million or 24.4% of net sales for the first nine months of 2022.

Other expense, net was $15.3 million for the first nine months of 2023, compared with $7.8 million of other income, net for the first nine months of 2022, a change of $23.1 million. The first nine months of 2023 includes $15.4 million of lower pension income and higher acquisition-related due diligence expense compared to the first nine months of 2022.

The effective tax rate for the first nine months of 2023 was 18.4%, compared with 18.8% for the first nine months of 2022. The lower effective rate for the nine months of 2023 primarily reflects greater utilization of research and development credits.

Net income for the first nine months of 2023 was $970.3 million, an increase of $117.8 million or 13.8%, compared with $852.5 million for the first nine months of 2022.

Diluted earnings per share for the first nine months of 2023 were $4.19, an increase of $0.51 or 13.9%, compared with $3.68 per diluted share for the first nine months of 2022.

Segment Results

**EIG’**s net sales totaled $3,388.0 million for the first nine months of 2023, an increase of $317.9 million or 10.4%, compared with $3,070.1 million for the first nine months of 2022. The net sales increase was due to a 7% organic sales increase and a 3% increase from acquisitions.

EIG’s operating income was $952.0 million for the first nine months of 2023, an increase of $169.4 million or 21.6%, compared with $782.6 million for the first nine months of 2022. EIG’s operating margins were 28.1% of net sales for the first nine months of 2023, compared with 25.5% for the first nine months of 2022. EIG operating margins increased in the first nine months of 2023 compared to the first nine months of 2022, due to the increase in net sales discussed above, as well as continued benefits from the Company's Operational Excellence initiatives.

EMG’s net sales totaled $1,478.0 million for the first nine months of 2023, an increase of $23.3 million or 1.6%, compared with $1,454.7 million for the first nine months of 2022. The net sales increase was due to a 3% increase from acquisitions, partially offset by an organic sales decrease .

EMG’s operating income was $384.3 million for the first nine months of 2023, a decrease of $4.7 million or 1.2%, compared with $389.0 million for the first nine months of 2022. EMG’s operating margins were 26.0% of net sales for the first

nine months of 2023, compared with 26.7% for the first nine months of 2022. EMG's operating margins were negatively impacted by the dilutive impact of the 2023 acquisition. For the first nine months of 2022, EMG's operating income included a $7.1 million gain on the sale of a facility, which increased EMG operating margins by 40 basis points. Excluding the dilutive impact of the 2023 acquisition and the gain on the sale of a facility, EMG operating margins for the first nine months of 2023 increased 50 basis points compared to the first nine months of 2022.

Financial Condition

Liquidity and Capital Resources

Cash provided by operating activities totaled $1,194.6 million for the first nine months of 2023, an increase of $430.2 million or 56.3%, compared with $764.4 million for the first nine months of 2022. The increase in cash provided by operating activities for the first nine months of 2023 was primarily due to improved working capital management and higher net income.

Free cash flow (cash flow provided by operating activities less capital expenditures) was $1,118.1 million for the first nine months of 2023, compared with $683.5 million for the first nine months of 2022. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $1,488.3 million for the first nine months of 2023, compared with $1,340.3 million for the first nine months of 2022. 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 $326.3 million for the first nine months of 2023, compared with cash used by investing activities of $255.5 million for the first nine months of 2022. For the first nine months of 2023, the Company paid $246.7 million, net of cash acquired, to purchase Bison and UEI. For the first nine months of 2022, the Company received $11.8 million from the sale of a facility. Additions to property, plant and equipment totaled $76.5 million for the first nine months of 2023, compared with $80.8 million for the first nine months of 2022.

Cash used by financing activities totaled $364.8 million for the first nine months of 2023, compared with cash used by financing activities of $501.2 million for the first nine months of 2022. At September 30, 2023, total debt, net was $2,160.6 million, compared with $2,385.0 million at December 31, 2022. For the first nine months of 2023, total borrowings decreased by $220.6 million compared with a $26.3 million decrease for the first nine months of 2022. At September 30, 2023, the Company had available borrowing capacity of $2,972.3 million under its revolving credit facility, including the $700 million accordion feature.

The debt-to-capital ratio was 20.6% at September 30, 2023, compared with 24.2% at December 31, 2022. 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 13.6% at September 30, 2023, compared with 21.4% at December 31, 2022. 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 nine months of 2023 included cash dividends paid of $172.7 million, compared with $151.6 million for the first nine months of 2022. Effective February 9, 2023, the Company’s Board of Directors approved a 14% increase in the quarterly cash dividend on the Company’s common stock to $0.25 per common share from $0.22 per common share. The Company repurchased $6.6 million of its common stock for the first nine months of 2023, compared with $331.4 million for the first nine months of 2022. Proceeds from stock option exercises were $40.1 million for the first nine months of 2023, compared with $23.2 million for the first nine months of 2022.

As a result of all of the Company’s cash flow activities for the first nine months of 2023, cash and cash equivalents at September 30, 2023 totaled $841.9 million, compared with $345.4 million at December 31, 2022. At September 30, 2023, the Company had $354.1 million in cash outside the United States, compared with $334.1 million at December 31, 2022. 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.

Acquisitions Subsequent to September 30, 2023

In October 2023, the Company acquired Amplifier Research Corp., for approximately $105 million in cash. Amplifier Research has estimated annual sales of approximately $60 million. Amplifier Research is a leading manufacturer of radio frequency and microwave amplifiers and electromagnetic compatibility testing equipment. Amplifier Research will join EIG.

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, 2022. 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 Company’s ability to consummate and successfully integrate future acquisitions; risks associated with international sales and operations, including supply chain disruptions; 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; changes in the competitive environment or the effects of competition in the Company’s markets; the ability to maintain adequate liquidity and financing sources; and general economic conditions affecting the industries the Company serves. 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.

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. Under the supervision and with the participation of our management, including the Company’s principal executive officer and principal financial officer, we have evaluated the effectiveness of our system of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of September 30, 2023. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

Such evaluation did not identify any change in the Company’s internal control over financial reporting during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Purchase of equity securities by the issuer and affiliated purchasers.

The following table reflects purchases of AMETEK, Inc. common stock by the Company during the three months ended September 30, 2023:

(1) Represents shares surrendered to the Company to satisfy tax withholding obligations in connection with employees’ share-based compensation awards.

(2) Consists of the number of shares purchased pursuant to the Company’s Board of Directors $1 billion authorization for the repurchase of its common stock announced in May 2022. Such purchases may be effected from time to time in the open market or in private transactions, subject to market conditions and at management’s discretion.

Insider Trading Arrangements and Policies

During the quarter ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

• Filed electronically herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.