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

The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and related notes in this quarterly report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under Item 1A, “Risk Factors” in the Company’s most recent annual report on Form 10-K and under the heading “Cautionary Statement Under the Private Securities Litigation Reform Act” discussed elsewhere in this quarterly report.

This discussion includes certain non-GAAP financial measures that have been defined and reconciled to the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the headings “Non-GAAP Disclosures” and “Free Cash Flow.” This discussion also includes Operating working capital, which has been defined under the heading “Liquidity and Capital Resources.” The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

Overview

IDEX is an applied solutions company specializing in the manufacture of fluid and metering technologies, health and science technologies and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets across a wide range of industries throughout the world. Accordingly, IDEX’s businesses are affected by levels of industrial activity and economic conditions in the U.S. and in other countries where it does business as well as by the relationship of the U.S. dollar to other currencies. Levels of capacity utilization and capital spending in certain industries and overall industrial activity are important factors that influence the demand for IDEX’s products.

Third Quarter Highlights

Select key financial results for the three months ended September 30, 2023 when compared to the same period in the prior year are as follows:

			Three Months Ended September 30,
(Dollars in millions, except per share amounts)			2023						2022						% / bps Change
Net sales			$	793.4					$	824.0					(4%)
Adjusted net sales*			793.4						806.1						(2%)
Organic net sales growth*															(6%)
Gross profit			349.6						381.8						(8%)
Adjusted gross profit*			350.8						363.9						(4%)
Net income attributable to IDEX			209.1						178.7						17%
Adjusted net income attributable to IDEX*			160.6						161.9						(1%)
Adjusted EBITDA*			225.5						231.4						(3%)
Diluted EPS attributable to IDEX			2.75						2.36						17%
Adjusted diluted EPS attributable to IDEX*			2.12						2.14						(1%)
Cash flows from operating activities			226.6						198.1						14%
Free cash flow*			206.5						181.8						14%
Gross margin			44.1%						46.3%						(220) bps
Adjusted gross margin*			44.2%						45.1%						(90) bps
Net income margin			26.3%						21.7%						460 bps
Adjusted EBITDA margin*			28.4%						28.7%						(30) bps

*These are non-GAAP measures. See the definitions of these non-GAAP measures and reconciliations to their most directly comparable GAAP financial measures under the headings “Non-GAAP Disclosures” and “Free Cash Flow.”

During the three months ended September 30, 2023, the Company delivered strong operating performance. While continued customer inventory recalibration, largely within the Company’s Health & Science Technologies segment, resulted in lower sales volumes, the Company realized strong price/cost and achieved favorable operational productivity across its segments. Net income attributable to IDEX also reflects a $71.1 million gain, net of tax, on the divestiture of the Company’s Micropump business, which was sold in August 2023. Cash flow from operating activities was $226.6 million during the quarter, an increase of 14% compared to the same prior year period, driven primarily by inventory reduction efforts. Strong operating cash flow resulted in record free cash flow of $206.5 million during the quarter.

The Company believes its customer destocking efforts are largely complete and expects orders to begin to stabilize and lead times to return to more normalized levels during the fourth quarter of 2023.

Results of Operations

The following is a discussion and analysis of the Company’s results of operations for the three and nine months ended September 30, 2023 compared with the three and nine months ended September 30, 2022.

			Three Months Ended September 30,																		Nine Months Ended September 30,
(Dollars in millions, except per share amounts)			2023						2022						% / bps Change						2023						2022						% / bps Change
Net sales			$	793.4					$	824.0					(4		%)				$	2,485.0					$	2,371.2					5		%
Cost of sales			443.8						442.2						—		%				1,374.9						1,290.0						7		%
Gross profit			349.6						381.8						(8		%)				1,110.1						1,081.2						3		%
Gross margin			44.1		%				46.3		%				(220) bps						44.7		%				45.6		%				(90) bps
Selling, general and administrative expenses			165.9						161.9						2		%				529.9						483.7						10		%
Restructuring expenses and asset impairments			4.1						17.7						(77		%)				8.2						21.1						(61		%)
Operating income			179.6						202.2						(11		%)				572.0						576.4						(1		%)
Gain on sale of business			(93.8)						(34.8)						170		%				(93.8)						(34.8)						170		%
Other (income) expense - net			(2.1)						(1.0)						110		%				5.6						(3.3)						(270		%)
Interest expense			13.7						9.6						43		%				40.1						28.6						40		%
Income before income taxes			261.8						228.4						15		%				620.1						585.9						6		%
Provision for income taxes			52.8						49.7						6		%				132.8						129.2						3		%
Effective tax rate			20.2		%				21.8		%				(160) bps						21.4		%				22.1		%				(70) bps
Net income attributable to IDEX			$	209.1					$	178.7					17		%				$	487.5					$	456.9					7		%
Diluted earnings per common share attributable to IDEX			$	2.75					$	2.36					17		%				$	6.42					$	6.00					7		%

Net Sales

Net sales for the three months ended September 30, 2023 decreased 4% as compared to the same prior year period. Organic sales decreased 6% driven by the impact of current market conditions on volumes in the Health & Science Technologies businesses, partially offset by price capture across all segments. This decrease, combined with the acceleration of previously deferred revenue related to the exit of a COVID-19 testing application in 2022 that did not reoccur in 2023 (see Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail), was partially offset by acquisition-related growth, net of divestitures, of 3% (see Note 2 in the Notes to Condensed Consolidated Financial Statements for further detail on acquisitions and divestitures) and a favorable impact from foreign currency translation.

Net sales for the nine months ended September 30, 2023 increased 5% as compared to the same prior year period driven by a 5% increase in acquisitions, net of divestitures, and a 1% increase in organic sales. Price capture offset the impact of lower volumes in the Health & Science Technologies segment as well as the acceleration of previously deferred revenue in 2022 that did not reoccur in 2023, both of which are discussed above.

In the three months ended September 30, 2023, net sales decreased 10% domestically and increased 4% internationally, and sales to customers outside the U.S. were approximately 49% of total sales in the third quarter of 2023 compared with 46% during the same period in 2022. In the nine months ended September 30, 2023, net sales were flat domestically and increased 10% internationally, and sales to customers outside the U.S. were approximately 50% of total sales in the first nine months of 2023 compared with 48% during the same period in 2022.

Cost of Sales

Cost of sales for both the three and nine months ended September 30, 2023 increased due to acquisitions, net of divestitures, inflation and higher employee-related costs, partially offset by lower sales volume.

Gross Profit and Gross Margin

Gross profit and Gross margin for the three and nine months ended September 30, 2023 were positively impacted by strong operational productivity and price/cost and negatively impacted by lower volume leverage, unfavorable mix and higher employee-related costs. While acquisitions, net of divestitures, as well as the acceleration of previously deferred revenue related to the exit of a COVID-19 testing application in 2022 that did not reoccur in 2023 also positively impacted Gross profit, they resulted in a dilutive impact to overall Gross margin.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in the three months ended September 30, 2023 increased primarily due to the $11.0 million impact from acquisitions, including amortization, net of divestitures. Excluding this impact, selling, general and administrative expenses decreased by $7.0 million as compared with the same prior year period primarily due to lower employee-related costs, including the impact of executive forfeitures recorded during the current year period as well as the timing of retirement eligibility of participants.

Selling, general and administrative expenses in the nine months ended September 30, 2023 increased primarily due to the $40.0 million impact from acquisitions, including amortization, net of divestitures, as well as increases in employee-related costs, which include accelerated stock compensation costs for retiree eligible participants.

Restructuring Expenses and Asset Impairments

Restructuring expenses and asset impairments decreased in both the three and nine months ended September 30, 2023 primarily due to an asset impairment charge of $16.8 million related to the exit of a COVID-19 testing application in 2022, partially offset by higher severance costs in 2023 incurred in conjunction with cost mitigation efforts as a result of current market conditions. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

Gain on Sale of Business

In the third quarter of 2023, the Company completed the sale of Micropump for proceeds of $110.3 million, net of cash remitted, resulting in a pre-tax gain on the sale of $93.8 million. In the third quarter of 2022, the Company completed the sale of Knight for proceeds of $49.4 million, net of cash remitted, resulting in a pre-tax gain on the sale of $34.8 million.

Other (Income) Expense - Net

Other (income) expense - net increased to $2.1 million of income in the three months ended September 30, 2023 compared to $1.0 million of income during the same period in 2022. The increase was primarily due to higher interest earned in 2023.

Other (income) expense - net decreased to $5.6 million of expense in the nine months ended September 30, 2023 compared to $3.3 million of income during the same period in 2022. The increase in expense was primarily due to a $7.7 million credit loss reserve on a note receivable from a collaborative partner (see Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail), higher foreign currency transaction losses and $2.7 million of gains on the sale of assets in 2022 that did not reoccur in 2023, partially offset by higher interest earned in 2023.

Interest Expense

Interest expense for the three and nine months ended September 30, 2023 increased compared to the same period in 2022 due to the borrowings incurred under the Revolving Credit Facility and the Term Facility in connection with the Muon Group acquisition in November 2022 as well as higher interest rates on the Company’s indebtedness.

Income Taxes

The effective tax rates of 20.2% and 21.4% for the three and nine months ended September 30, 2023, respectively, decreased as compared with the effective tax rates of 21.8% and 22.1% during the same periods in 2022 primarily due to the

finalization of both research expenditure capitalization on foreign derived income as well as the reduction of tax related to the treatment of the acquisition of Muon Group acquisition.

Results of Reportable Business Segments

The Company has three reportable segments: Fluid & Metering Technologies (“FMT”), Health & Science Technologies (“HST”) and Fire & Safety/Diversified Products (“FSDP”). For a detailed description of the operations within each segment, refer to Note 4 in the Notes to Condensed Consolidated Financial Statements.

Within its three reportable segments, the Company maintains 12 reporting units where the Company focuses on organic growth and strategic acquisitions. Management’s primary measurements of segment performance are sales, adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and Adjusted EBITDA margin.

FMT						HST**(1)**						FSDP
Pumps						Scientific Fluidics & Optics						Fire & Safety
Water						Sealing Solutions						Dispensing
Energy						Performance Pneumatic Technologies						BAND-IT
Valves						Material Processing Technologies
Agriculture

(1) The results of operations of Micropump (sold on August 3, 2023) have been included in the Company’s Condensed Consolidated Statements of Income through the date of disposition.

The table below illustrates the share of Net sales and Adjusted EBITDA contributed by each segment on the basis of total segments (not total Company) for the three and nine months ended September 30, 2023.

			Three Months Ended September 30, 2023																								Nine Months Ended September 30, 2023
			FMT						HST						FSDP						IDEX						FMT						HST						FSDP						IDEX
Net sales			38		%				39		%				23		%				100		%				38		%				40		%				22		%				100		%
Adjusted EBITDA(1)			43		%				35		%				22		%				100		%				42		%				37		%				21		%				100		%

(1) Segment Adjusted EBITDA excludes the impact of unallocated corporate costs of $15.3 million and $63.7 million for the three and nine months ended September 30, 2023, respectively.

Fluid & Metering Technologies Segment

			Three Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic						Acq/Div**(1)**						Foreign Currency						Total
Domestic sales			$	168.4					$	178.4					(6%)
International sales			132.7						129.2						3%
Net sales(2)			301.1						307.6						(2%)						(1%)						(2%)						1%						(2%)
Adjusted EBITDA			$	103.6					$	104.4					(1%)						—						(1%)						—						(1%)
Adjusted EBITDA margin			34.4		%				33.9		%				50 bps						50 bps						—						—						50 bps

			Nine Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic**(3)**						Acq/Div**(1)(3)**						Foreign Currency						Total
Domestic sales			$	525.9					$	498.9					5%
International sales			422.1						380.6						11%
Net sales(2)			948.0						879.5						8%						6%						2%						—						8%
Adjusted EBITDA			$	323.9					$	287.8					13%						11%						2%						—						13%
Adjusted EBITDA margin			34.2		%				32.7		%				150 bps						170 bps						(20) bps						—						150 bps

(1) Divestitures included Knight sold in September 2022.

(2) Net sales to customers outside the U.S. were approximately 44% of total segment sales in the third quarter of 2023 compared with 42% during the same period in 2022 and approximately 45% of total segment sales in the first nine months of 2023 compared with 43% during the same period in 2022.

(3) Based on the timing of the acquisitions, Nexsight results for the first three months of 2023 and KZValve results for the first four months of 2023 are reflected in the acquisitions/divestitures column while the remaining year-over-year impact is included in the organic column.

• Organic net sales for both the three and nine months ended September 30, 2023 was positively impacted by the following:

◦Water reporting unit driven by price capture, favorability in the municipal water market, targeted growth performance and operational execution;

◦Energy reporting unit driven by operational execution related to backlog reduction, improved supply chain conditions, price capture and growth initiatives; and

◦Valves reporting unit driven by strong price capture and demand in Asia.

Organic net sales for both the three and nine months ended September 30, 2023 was negatively impacted by the Agriculture reporting unit driven by distribution inventory recalibration, partially offset by positive OEM demand.

In addition, within the Pumps reporting unit, strong price capture only partially offset the impact of softness in the industrial market during the three months ended September 30, 2023, while strong price capture and operational execution more than offset the impact of softness in the industrial market during the nine months ended September 30, 2023.

• The increase in Adjusted EBITDA margin for both the three and nine months ended September 30, 2023 was primarily due to strong price/cost, favorable operational productivity and lower discretionary spending, partially offset by lower volume leverage and higher employee-related costs. In addition, unfavorable mix negatively impacted the nine months ended September 30, 2023.

Health & Science Technologies Segment

			Three Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic						Acq/Div**(1)**						Other**(2)**						Foreign Currency						Total
Domestic sales			$	139.2					$	175.0					(20%)
International sales			174.0						170.0						2%
Net sales(3)			313.2						345.0						(9%)						(15%)						10%						(5%)						1%						(9%)
Adjusted net sales(4)			313.2						327.1						(4%)						(15%)						10%						—						1%						(4%)
Adjusted EBITDA			84.4						101.4						(17%)						(25%)						8%						—						—						(17%)
Adjusted EBITDA margin			26.9		%				31.0		%				(410) bps						(370) bps						(40) bps						—						—						(410) bps

			Nine Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic						Acq/Div**(1)**						Other**(2)**						Foreign Currency						Total
Domestic sales			$	437.3					$	484.7					(10%)
International sales			566.4						501.5						13%
Net sales(3)			1,003.7						986.2						2%						(6%)						10%						(2%)						—						2%
Adjusted net sales(4)			1,003.7						968.3						4%						(6%)						10%						—						—						4%
Adjusted EBITDA			278.8						304.8						(9%)						(18%)						9%						—						—						(9%)
Adjusted EBITDA margin			27.8		%				31.5		%				(370) bps						(370) bps						(10) bps						—						10 bps						(370) bps

(1) Acquisitions included Iridian acquired in May 2023 and Muon Group acquired in November 2022. Divestitures included Micropump sold in August 2023.

(2) Includes the impact of the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Consolidated Financial Statements for further detail.

(3) Net sales to customers outside the U.S. were approximately 56% of total segment sales in the third quarter of 2023 compared with 49% during the same period in 2022 and approximately 56% of total segment sales in the first nine months of 2023 compared with 51% during the same period in 2022.

(4) Adjusted net sales is a non-GAAP measure. Adjusted net sales is calculated as net sales less the acceleration of previously deferred revenue related to the exit of a COVID-19 testing application. See the reconciliation of adjusted net sales to its most directly comparable financial measure under the heading “Non-GAAP Disclosures.” Adjusted net sales is used in the calculation of Adjusted EBITDA margin for the three and nine months ended September 30, 2022. See Note 12 in the Notes to Consolidated Financial Statements for further detail.

• The decrease in organic net sales for both the three and nine months ended September 30, 2023 was attributed to decreases in the following:

◦Scientific Fluidics & Optics reporting unit driven by lower demand from Analytical Instrumentation and Life Science original equipment manufacturers due to customer inventory recalibration and market slowing, partially offset by price capture;

◦Sealing Solutions reporting unit driven by softness in the semiconductor market; and

◦Material Processing Technologies reporting unit driven by lower demand in the pharma/biopharma and food/nutrition markets, partially offset by operational execution related to backlog reduction and price capture.

In addition, within the Performance Pneumatics Technologies reporting unit, price capture only partially offset the impact of softness in the industrial market during the three months ended September 30, 2023, while targeted growth performance and price capture more than offset the impact of softness in the industrial market during the nine months ended September 30, 2023.

• The decrease in Adjusted EBITDA margin for both the three and nine months ended September 30, 2023 was primarily due to lower volume leverage and unfavorable mix, partially offset by strong price/cost, favorable operational productivity and lower discretionary spending. In addition, higher employee-related costs negatively impacted Adjusted EBITDA during the nine months ended September 30, 2023.

Fire & Safety/Diversified Products Segment

			Three Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic						Acq/Div						Foreign Currency						Total
Domestic sales			$	94.4					$	93.5					1%
International sales			86.2						78.9						9%
Net sales(1)			180.6						172.4						5%						3%						—						2%						5%
Adjusted EBITDA			52.8						47.8						10%						8%						—						2%						10%
Adjusted EBITDA margin			29.3		%				27.8		%				150 bps						150 bps						—						—						150 bps

			Nine Months Ended September 30,																		Components of Change
(Dollars in millions)			2023						2022						Change						Organic						Acq/Div						Foreign Currency						Total
Domestic sales			$	280.5					$	255.0					10%
International sales			259.3						253.3						2%
Net sales(1)			539.8						508.3						6%						7%						—						(1%)						6%
Adjusted EBITDA			157.0						137.3						14%						14%						—						—						14%
Adjusted EBITDA margin			29.1		%				27.0		%				210 bps						210 bps						—						—						210 bps

(1) Net sales to customers outside the U.S. were approximately 48% of total segment sales in the third quarter of 2023 compared with 46% during the same period in 2022 and approximately 48% of total segment sales in the first nine months of 2023 compared with 50% during the same period in 2022.

• The change in organic net sales for both the three and nine months ended September 30, 2023 was attributed to an increase in the Fire & Safety reporting unit driven by price capture, continued demand for rescue tools, improved supply chain conditions and operational execution. This increase was partially offset by a decrease in the Dispensing report unit driven by timing of deliveries within Europe and Asia, partially offset by higher North American project sales. In addition, within the BAND-IT reporting unit, continued share gain in an otherwise flat automotive market positively impacted the three months ended September 30, 2023 while a decline in the aerospace and energy markets negatively impacted the three and nine months ended September 30, 2023.

• The increase in Adjusted EBITDA margin for both the three and nine months ended September 30, 2023 was primarily due to strong price/cost and favorable operational productivity, partially offset by unfavorable mix as well as higher employee-related costs and discretionary spending. In addition, lower volume leverage negatively impacted the three months ended September 30, 2023, while higher volume leverage positively impacted the nine months ended September 30, 2023.

Liquidity and Capital Resources

Liquidity

Based on management’s current expectations and currently available information, the Company believes current cash, cash from operations and cash available under the Revolving Credit Facility will be sufficient to meet its operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements, share repurchases and quarterly dividend payments to holders of the Company’s common stock for the foreseeable future. Additionally, in the event that suitable businesses are available for acquisition upon acceptable terms, the Company may obtain all or a portion of the financing for these acquisitions through the incurrence of additional borrowings.

Select key liquidity metrics at September 30, 2023 are as follows:

(In millions)						September 30, 2023
Working capital						$	1,030.7
Current ratio						3.1 to 1
Cash and cash equivalents						$	562.7
Cash held outside of the United States						427.7
Revolving Credit Facility capacity						$	800.0
Borrowings						76.9
Letters of credit						7.2
Revolving Credit Facility availability						$	715.9

The Company believes that additional borrowings through various financing alternatives remain available, if required.

Operating Working Capital

Operating working capital, calculated as Receivables plus Inventories minus Trade accounts payable, is used by management as a measurement of operational results as well as the short-term liquidity of the Company. The following table details operating working capital as of September 30, 2023 and December 31, 2022:

(In millions)						September 30, 2023						December 31, 2022
Receivables						$	430.6					$	442.8
Inventories						446.6						470.9
Less: Trade accounts payable						176.3						208.9
Operating working capital						$	700.9					$	704.8

Operating working capital decreased $3.9 million to $700.9 million during the nine months ended September 30, 2023. Acquisitions, divestitures and foreign currency translation contributed $3.7 million to the decrease in Operating working capital. Reduced inventory levels were largely offset by lower levels of accounts payable and strong price capture partially offset the impact of lower volume on Receivables.

Cash Flow Summary

The following table is derived from the Condensed Consolidated Statements of Cash Flows:

						Nine Months Ended September 30,
(In millions)						2023						2022
Net cash flows provided by (used in):
Operating activities						$	515.7					$	390.1
Investing activities						(90.0)						(224.4)
Financing activities						(286.7)						(274.6)

Operating Activities

Cash flows provided by operating activities increased $125.6 million to $515.7 million in the nine months ended September 30, 2023 primarily due to lower investments in working capital in 2023 as a result of efforts to recalibrate inventory levels in response to normalizing market conditions. The prior year period included investments in operating working capital related to higher volumes and increased inventories to support production amid supply chain challenges.

Investing Activities

Cash flows used in investing activities decreased during the nine months ended September 30, 2023 primarily due to the purchase of Iridian in 2023 for $110.3 million as compared with the purchases of Nexsight and KZValve in 2022 for $232.6 million as well as proceeds of $110.3 million in 2023 from the sale of Micropump as compared with $49.4 million in 2022 from the sale of Knight. These decreases in cash flows used in investing activities were partially offset by higher capital expenditures of $68.3 million in 2023 as compared with $48.0 million in 2022 and the purchase of marketable securities in 2023 for $24.6 million.

Financing Activities

Cash flows used in financing activities during the nine months ended September 30, 2023 primarily consisted of payments of $150.0 million on the Term Facility and dividends of $142.3 million paid to common shareholders. Cash flows used in financing activities during the nine months ended September 30, 2022 primarily consisted of the repurchase of 788,623 shares for $146.3 million and dividends of $132.2 million paid to common shareholders.

Free Cash Flow

The Company believes free cash flow, a non-GAAP measure, is an important measure of performance because it provides a measurement of cash generated from operations that is available for payment obligations such as operating cash requirements, planned capital expenditures, interest and principal payments on all borrowings, pension and postretirement funding requirements and quarterly dividend payments to holders of the Company’s common stock as well as for funding acquisitions and share repurchases. Free cash flow is calculated as cash flows provided by operating activities less capital expenditures.

The following table reconciles free cash flow to cash flows provided by operating activities:

						Nine Months Ended September 30,
(Dollars in millions)						2023						2022
Cash flows provided by operating activities						$	515.7					$	390.1
Less: capital expenditures						68.3						48.0
Free cash flow						$	447.4					$	342.1
Free cash flow as a percent of adjusted net income attributable to IDEX						92.3		%				73.5		%

The increase in free cash flow as compared to 2022 is due to lower investments in working capital in 2023 as discussed above as compared with 2022, partially offset by higher capital expenditures.

Cash Requirements

Capital Expenditures

Capital expenditures generally include machinery and equipment that support growth and improved productivity, tooling, business system technology, replacement of equipment and investments in new facilities. The Company believes it has sufficient operating cash flows to continue to meet current obligations and invest in planned capital expenditures. Cash flows from operations were more than adequate to fund capital expenditures of $68.3 million and $48.0 million in the first nine months of 2023 and 2022, respectively.

Share Repurchases

During the nine months ended September 30, 2023, the Company repurchased 5,400 shares at a cost of $1.1 million. As of September 30, 2023, the amount of share repurchase authorization remaining was $562.8 million. For additional information regarding the Company’s share repurchase program, refer to Note 14 in the Notes to Condensed Consolidated Financial Statements.

Dividends

Total dividend payments to common shareholders were $142.3 million during the nine months ended September 30, 2023 compared with $132.2 million during the nine months ended September 30, 2022.

Covenants

The key financial covenants that the Company is required to maintain in connection with the Revolving Credit Facility, the Term Facility, the 3.37% Senior Notes and the 5.13% Senior Notes, are a minimum interest coverage ratio of 3.0 to 1 and a maximum leverage ratio of 3.50 to 1. At September 30, 2023, the Company was in compliance with these financial covenants, as the Company’s interest coverage ratio was 18.62 to 1 for covenant calculation purposes and the leverage ratio was 1.42 to 1. There are no financial covenants relating to the 2.625% Senior Notes or the 3.00% Senior Notes; however, both are subject to cross-default provisions.

Credit Ratings

The Company’s credit ratings, which were independently developed by the following credit agencies, are detailed below:

• S&P Global Ratings reaffirmed the Company’s corporate credit rating of BBB (stable outlook) in August 2023.

• Moody’s Investors Service affirmed the Company’s corporate credit rating of Baa2 (stable outlook) in December 2021.

• Fitch Ratings reaffirmed the Company’s corporate credit rating of BBB+ (stable outlook) in April 2023.

Critical Accounting Estimates

As discussed in the Annual Report on Form 10-K for the year ended December 31, 2022, the preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. There have been no changes to the Company’s critical accounting estimates described in the Annual Report on Form 10-K for the year ended December 31, 2022.

Non-GAAP Disclosures

Set forth below are reconciliations of Organic net sales, Adjusted net sales, Adjusted gross profit, Adjusted gross margin, Adjusted net income attributable to IDEX, Adjusted diluted earnings per share (“EPS”) attributable to IDEX, Consolidated Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and Consolidated Adjusted EBITDA margin to their respective most directly comparable U.S. GAAP measure. Management uses these metrics to measure performance of the Company since they exclude items that are not reflective of ongoing operations, as identified in the reconciliations below. Management also supplements its U.S. GAAP financial statements with adjusted information to provide investors with greater insight, transparency and a more comprehensive understanding of the information used by management in its financial and operational decision making.

This report references organic sales, a non-GAAP measure, that excludes (1) the impact of foreign currency translation and (2) sales from acquired or divested businesses during the first 12 months of ownership or prior to divestiture and (3) the impact from the exit of a COVID-19 testing application. The portion of sales attributable to foreign currency translation is calculated as the difference between (a) the period-to-period change in organic sales and (b) the period-to-period change in organic sales after applying prior period foreign exchange rates to the current year period. Management believes that reporting organic sales provides useful information to investors by helping to identify underlying growth trends in the Company’s business and facilitating easier comparisons of the Company’s revenue with prior and future periods and to its peers. The Company excludes the effect of foreign currency translation from organic sales because foreign currency translation is not under management’s control, is subject to volatility and can obscure underlying business trends. The Company excludes the effect of acquisitions and divestitures because they can obscure underlying business trends and make comparisons of long-term performance difficult due to the varying nature, size and number of transactions from period to period and between the Company and its peers. The Company excludes the impact from the exit of a COVID-19 testing application because it is not reflective of ongoing operations and can obscure underlying business trends.

Management believes that Adjusted EBITDA, which is EBITDA adjusted for items that are not reflective of ongoing operations, is useful as a performance indicator of ongoing operations. The Company believes that Adjusted EBITDA is useful to investors as an indicator of the strength and performance of the Company and its segments’ ongoing business operations as well as a way to evaluate and compare operating performance and value companies within the Company’s industry. Management believes that Adjusted EBITDA margin is useful for the same reason as Adjusted EBITDA. The definition of Adjusted EBITDA used here may differ from that used by other companies.

This report also references free cash flow. This non-GAAP measure is discussed and reconciled to its most directly comparable U.S. GAAP measure in the section titled “Free Cash Flow.”

The non-GAAP financial measures disclosed by the Company should not be considered a substitute for, or superior to, financial measures prepared in accordance with U.S. GAAP. Due to rounding, numbers presented throughout this and other documents may not add up or recalculate precisely. The financial results prepared in accordance with U.S. GAAP and the reconciliations from these results should be carefully evaluated.

1. Reconciliations of the Change in Net Sales to Organic Net Sales
			Three Months Ended September 30, 2023
			FMT						HST						FSDP						IDEX
Change in net sales			(2		%)				(9		%)				5		%				(4		%)
Net impact from acquisitions/divestitures			2		%				(10		%)				—		%				(3		%)
Impact from foreign currency			(1		%)				(1		%)				(2		%)				(1		%)
Impact from the exit of a COVID-19 testing application(1)			—		%				5		%				—		%				2		%
Change in organic net sales			(1		%)				(15		%)				3		%				(6		%)

			Nine Months Ended September 30, 2023
			FMT						HST						FSDP						IDEX
Change in net sales			8		%				2		%				6		%				5		%
Net impact from acquisitions/divestitures			(2		%)				(10		%)				—		%				(5		%)
Impact from foreign currency			—		%				—		%				1		%				—		%
Impact from the exit of a COVID-19 testing application(1)			—		%				2		%				—		%				1		%
Change in organic net sales			6		%				(6		%)				7		%				1		%

(1) Represents the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

2. Reconciliations of Reported-to-Adjusted Gross Profit, Net Sales and Gross Margin (dollars in millions)
			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Gross profit			$	349.6					$	381.8					$	1,110.1					$	1,081.2
Impact from the exit of a COVID-19 testing application(1)			—						(17.9)						—						(17.9)
Fair value inventory step-up charges			1.2						—						1.2						0.4
Adjusted gross profit			$	350.8					$	363.9					$	1,111.3					$	1,063.7
Net sales			$	793.4					$	824.0					$	2,485.0					$	2,371.2
Impact from the exit of a COVID-19 testing application(1)			—						(17.9)						—						(17.9)
Adjusted net sales			$	793.4					$	806.1					$	2,485.0					$	2,353.3
Gross margin			44.1		%				46.3		%				44.7		%				45.6		%
Adjusted gross margin			44.2		%				45.1		%				44.7		%				45.2		%

(1) Represents the acceleration of previously deferred revenue of $17.9 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

3. Reconciliations of Reported-to-Adjusted Net Income Attributable to IDEX and Diluted EPS Attributable to IDEX (in millions)
			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Reported net income attributable to IDEX			$	209.1					$	178.7					$	487.5					$	456.9
Fair value inventory step-up charges			1.2						—						1.2						0.4
Tax impact on fair value inventory step-up charges			(0.3)						—						(0.3)						(0.1)
Restructuring expenses and asset impairments			4.1						—						8.2						2.8
Tax impact on restructuring expenses and asset impairments			(0.9)						—						(1.8)						(0.7)
Net impact from the exit of a COVID-19 testing application(1)			—						(1.1)						—						(1.1)
Tax impact on the exit of a COVID-19 testing application			—						0.3						—						0.3
Gain on sale of business			(93.8)						(34.8)						(93.8)						(34.8)
Tax impact on gain on sale of business			22.7						5.5						22.7						5.5
Gains on sales of assets			—						—						—						(2.7)
Tax impact on gains on sales of assets			—						—						—						0.6
Credit loss on note receivable from collaborative partner(2)			—						—						7.7						—
Tax impact on credit loss on note receivable from collaborative partner			—						—						(1.6)						—
Acquisition-related intangible asset amortization			23.8						17.0						70.6						49.2
Tax impact on acquisition-related intangible asset amortization			(5.3)						(3.7)						(15.8)						(11.0)
Adjusted net income attributable to IDEX			$	160.6					$	161.9					$	484.6					$	465.3

(1) Represents the net impact of the acceleration of previously deferred revenue of $17.9 million and an impairment charge of $16.8 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

(2) Represents a reserve recorded on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

3. Reconciliations of Reported-to-Adjusted Net Income Attributable to IDEX and Diluted EPS Attributable to IDEX (continued)
			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Reported diluted EPS attributable to IDEX			$	2.75					$	2.36					$	6.42					$	6.00
Fair value inventory step-up charges			0.02						—						0.02						—
Tax impact on fair value inventory step-up charges			—						—						—						—
Restructuring expenses and asset impairments			0.06						—						0.11						0.04
Tax impact on restructuring expenses and asset impairments			(0.01)						—						(0.03)						(0.01)
Net impact from the exit of a COVID-19 testing application(1)			—						(0.01)						—						(0.01)
Tax impact on the exit of a COVID-19 testing application			—						—						—						—
Gain on sale of business			(1.24)						(0.46)						(1.24)						(0.46)
Tax impact on gain on sale of business			0.30						0.07						0.30						0.07
Gains on sales of assets			—						—						—						(0.03)
Tax impact on gains on sales of assets			—						—						—						0.01
Credit loss on note receivable from collaborative partner(2)			—						—						0.10						—
Tax impact on credit loss on note receivable from collaborative partner			—						—						(0.02)						—
Acquisition-related intangible asset amortization			0.31						0.23						0.93						0.65
Tax impact on acquisition-related intangible asset amortization			(0.07)						(0.05)						(0.21)						(0.14)
Adjusted diluted EPS attributable to IDEX			$	2.12					$	2.14					$	6.38					$	6.12
Diluted weighted average shares outstanding			75.9						75.8						75.9						76.1

(1) Represents the net impact of the acceleration of previously deferred revenue of $17.9 million and an impairment charge of $16.8 million as a result of a customer’s decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

(2) Represents a reserve recorded on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

4. Reconciliations of Net Income to Adjusted EBITDA and Net Sales to Adjusted Net Sales (dollars in millions)
			Three Months Ended September 30,
			2023																														2022
			FMT						HST						FSDP						Corporate						IDEX						FMT						HST						FSDP						Corporate						IDEX
Reported net income			$	—					$	—					$	—					$	—					$	209.0					$	—					$	—					$	—					$	—					$	178.7
Provision for income taxes			—						—						—						—						52.8						—						—						—						—						49.7
Interest expense			—						—						—						—						13.7						—						—						—						—						9.6
Other (income) expense - net			—						—						—						—						(2.1)						—						—						—						—						(1.0)
(Gain) on sale of business			—						—						—						—						(93.8)						—						—						—						—						(34.8)
Operating income (loss)			92.1						54.7						48.4						(15.6)						179.6						94.5						85.6						43.6						(21.5)						202.2
Other income (expense) - net			1.1						1.3						0.2						(0.5)						2.1						0.2						1.1						0.5						(0.8)						1.0
Depreciation			3.1						9.0						2.3						0.3						14.7						3.9						6.2						2.1						0.1						12.3
Amortization			5.6						16.7						1.5						—						23.8						5.8						9.6						1.6						—						17.0
Fair value inventory step-up charges			—						1.2						—						—						1.2						—						—						—						—						—
Restructuring expenses and asset impairments			1.7						1.5						0.4						0.5						4.1						—						—						—						—						—
Net impact from the exit of a COVID-19 testing application(1)			—						—						—						—						—						—						(1.1)						—						—						(1.1)
Adjusted EBITDA			$	103.6					$	84.4					$	52.8					$	(15.3)					$	225.5					$	104.4					$	101.4					$	47.8					$	(22.2)					$	231.4
Net sales (eliminations)			$	301.1					$	313.2					$	180.6					$	(1.5)					$	793.4					$	307.6					$	345.0					$	172.4					$	(1.0)					$	824.0
Impact from the exit of a COVID-19 testing application(1)			—						—						—						—						—						—						(17.9)						—						—						(17.9)
Adjusted net sales (eliminations)			$	301.1					$	313.2					$	180.6					$	(1.5)					$	793.4					$	307.6					$	327.1					$	172.4					$	(1.0)					$	806.1
Net income margin																											26.3		%																												21.7		%
Adjusted EBITDA margin			34.4		%				26.9		%				29.3		%				n/m						28.4		%				33.9		%				31.0		%				27.8		%				n/m						28.7		%

(1) The net impact in the Adjusted EBITDA reconciliation represents the acceleration of previously deferred revenue of $17.9 million less the impairment charge of $16.8 million related to a customer's decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023, while the impact in the Adjusted net sales reconciliation represents only the acceleration of previously deferred revenue of $17.9 million discussed above. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

4. Reconciliations of Net Income to Adjusted EBITDA and Net Sales to Adjusted Net Sales (dollars in millions) (continued)
			Nine Months Ended September 30,
			2023																														2022
			FMT						HST						FSDP						Corporate						IDEX						FMT						HST						FSDP						Corporate						IDEX
Reported net income			$	—					$	—					$	—					$	—					$	487.3					$	—					$	—					$	—					$	—					$	456.7
Provision for income taxes			—						—						—						—						132.8						—						—						—						—						129.2
Interest expense			—						—						—						—						40.1						—						—						—						—						28.6
Other (income) expense - net			—						—						—						—						5.6						—						—						—						—						(3.3)
(Gain) on sale of business			—						—						—						—						(93.8)						—						—						—						—						(34.8)
Operating income (loss)			291.9						199.7						145.0						(64.6)						572.0						257.8						255.7						124.0						(61.1)						576.4
Other income (expense) - net			2.0						0.8						(0.3)						(8.1)						(5.6)						2.0						2.5						2.6						(3.8)						3.3
Depreciation			10.3						24.1						6.7						0.8						41.9						12.0						18.4						6.3						0.3						37.0
Amortization			17.3						48.5						4.8						—						70.6						15.1						29.2						4.9						—						49.2
Fair value inventory step-up charges			—						1.2						—						—						1.2						0.4						—						—						—						0.4
Restructuring expenses and asset impairments			2.4						4.5						0.8						0.5						8.2						1.7						0.1						1.0						—						2.8
Net impact from the exit of a COVID-19 testing application(1)			—						—						—						—						—						—						(1.1)						—						—						(1.1)
Gains on sales of assets			—						—						—						—						—						(1.2)						—						(1.5)						—						(2.7)
Credit loss on note receivable from collaborative partner(2)			—						—						—						7.7						7.7						—						—						—						—						—
Adjusted EBITDA			$	323.9					$	278.8					$	157.0					$	(63.7)					$	696.0					$	287.8					$	304.8					$	137.3					$	(64.6)					$	665.3
Net sales (eliminations)			$	948.0					$	1,003.7					$	539.8					$	(6.5)					$	2,485.0					$	879.5					$	986.2					$	508.3					$	(2.8)					$	2,371.2
Impact from the exit of a COVID-19 testing application(1)			—						—						—						—						—						—						(17.9)						—						—						(17.9)
Adjusted net sales (eliminations)			$	948.0					$	1,003.7					$	539.8					$	(6.5)					$	2,485.0					$	879.5					$	968.3					$	508.3					$	(2.8)					$	2,353.3
Net income margin																											19.6		%																												19.3		%
Adjusted EBITDA margin			34.2		%				27.8		%				29.1		%				n/m						28.0		%				32.7		%				31.5		%				27.0		%				n/m						28.3		%

(1) The net impact in the Adjusted EBITDA reconciliation represents the acceleration of previously deferred revenue of $17.9 million less the impairment charge of $16.8 million related to a customer's decision to discontinue further investment in commercializing its COVID-19 testing application in 2022 that did not reoccur in 2023, while the impact in the Adjusted net sales reconciliation represents only the acceleration of previously deferred revenue of $17.9 million discussed above. See Note 12 in the Notes to Condensed Consolidated Financial Statements for further detail.

(2) Represents a reserve recorded on an investment with a collaborative partner that may no longer be recoverable. See Note 3 in the Notes to Condensed Consolidated Financial Statements for further detail.

Cautionary Statement Under the Private Securities Litigation Reform Act

This quarterly report on Form 10-Q, including the “Overview,” “Results of Operations” and “Liquidity and Capital Resources” sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, anticipated changes in the fourth quarter of 2023, anticipated future acquisition behavior, expectations regarding customer destocking efforts and future order stabilization and lead time, availability of cash and financing alternatives and the anticipated benefits of the Company’s recent acquisitions, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “guidance,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this report.

The risks and uncertainties include, but are not limited to, the following: levels of industrial activity and economic conditions in the U.S. and other countries around the world, including uncertainties in the financial markets and adverse developments affecting the financial services industry; pricing pressures, including inflation and rising interest rates, and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company’s results; the impact of health epidemics and pandemics and terrorist attacks and wars, which could have an adverse impact on the Company's business by creating disruptions in the global supply chain and by potentially having an adverse impact on the global economy; the Company’s ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; capacity utilization and the effect this has on costs; labor markets; supply chain conditions; market conditions and material costs; risks related to environmental, social and corporate governance issues, including those related to climate change and sustainability; and developments with respect to contingencies, such as litigation and environmental matters.

Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K and the Company’s subsequent quarterly reports filed with the Securities and Exchange Commission (“SEC”) and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this report, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.