藝達思 (IEX) 2016 Q1 法說會逐字稿

Greetings and welcome to the Q1 2016 IDEX Corporation earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Michael Yates, Vice President and Chief Accounting officer. Thank you. You may begin.

Thank you, Rob. Good morning, everyone. This is Mike Yates, Vice President and CAO for IDEX Corporation. Thank you for joining us for a discussion of the IDEX first-quarter financial highlights. Last night, we issued a press release outlining our Company's financial and operating performance for the three-month period ending March 31, 2016. The press release, along with the presentation slides to be used during today's webcast, can be accessed on our Company's website at www.idexcorp.com.

Joining me today is Andy Silvernail, our Chairman and CEO; and Heath Mitts, our Chief Financial Officer. The format for our call today is as follows: we will begin with Andy providing an overview of the first-quarter's financial results. And then he will provide an update on our markets and what we are seeing in the world, and discuss our capital deployment. He will then walk you through the operating performance within each of our segments. And, finally, we will wrap up with an outlook for the second-quarter and full-year 2016. Following our prepared remarks, we'll then open the call for your questions.

If you should need to exit the call for any reason, you may access a complete replay beginning approximately 2 hours after the call concludes, by dialing the toll-free number 877-660-6853, and entering conference ID 13620004. Or you may simply log on to our Company's home page for the webcast replay.

As we begin, a brief reminder: this call may contain certain forward-looking statements that are subject to the Safe Harbor language in today's press release and in IDEX's filings with the Securities and Exchange Commission.

With that, I'll now turn the call over to our Chairman and CEO, Andy Silvernail.

Thanks, Mike, and good morning, everybody. And I appreciate you joining us here for the discussion of our first-quarter results. As Mike said, I'm going to walk through some overview comments, and then also some conversation around capital deployment, and then we'll get into the financials and the segment results.

From a big picture, as we sit here after the end of the first quarter, it looks an awful lot like -- as we talked about from the end of 2015. The overall economic picture is mixed. As I look at the landscape, in the industrial markets -- whether it's in the US or Europe or Asia -- are relatively weak. That's being offset in many regards by strength in our health and science businesses; municipal is also strong; and we've had very good execution.

I'm going to take you through more detail when I walk through the markets and the segments, but I think it's suffice it to say that the challenges that we talked about at the end of the year are still very much the same picture that we have after the first quarter. With that, I'm very pleased with how we started the year, given the markets, really because of the overall execution by our teams in the field.

The first quarter, when I look at the first quarter, I think about the benefits that our shareholders get by IDEX having diversity in end markets and businesses that allow us, in these questionable economic times, to still drive profitable growth. We saw that with a strength in our health and science business that still saw growth, even though there are some challenges on the industrial parts of the markets. And I'm very happy with our teams focusing on what they can control.

Starting in the midpoint of last year, we put a lot more emphasis on over-driving productivity, making sure our cost structures are in place, while at the same time continuing to invest in the long-term growth that really differentiates IDEX over time. And the teams did a good job.

If we look at the first quarter, EPS was $0.89. That was up $0.05 or 6% from a year ago. Op margin came in at 20.4%, which was 10 basis points ahead of a year ago. And free cash flow was very strong at $62 million, up 45% versus a year ago.

We also completed the acquisition of Akron Brass. It fits very well into our fire and rescue platform. It really fits all the dynamics of what we refer to as IDEX-like business. It fits our operating model. It addresses mission-critical solutions with highly engineered products, and it really faces a niche market that we have excellent positioning in. So we're thrilled to have Akron as part of the IDEX family.

Additionally, as you look at the first quarter, our healthy balance sheet and strong cash flows allowed us to continue to drive capital deployment decisions. Now, we increased our dividend by 6% and we bought back 628,000 shares for about $46 million. So a favorable price, sitting at just under $73 a share.

So, while we look at this lack of underlying economic demand and the challenges that it continues to create, we know that the growth is going to be hard to come by, but we have a philosophy and a discipline of how we run these businesses, and that remains intact and very solid. And we continue to expect to win this year and continue to drive value for shareholders throughout 2016.

I want to take a minute here and just walk through what we're seeing in our core markets and geographies. In terms of markets, I'll start with energy and chemical. We've been touching on this for the last 18 months, the weakness that we've seen specifically around the energy businesses. And the weakness in these markets have hit our energy platform, BAND-IT, and sealing solutions meaningfully, as we've talked about in the past.

We are also seeing the residual impacts of a hit to Warren Rupp, Viking, and Richter, all important businesses for IDEX. And they do touch, in one way or another, the implications from the energy slowdown.

Now, this is being mitigated to a large degree by where we sit in the energy food chain, so to speak. We don't really touch the wellhead. We're not involved in -- deeply in E&P, and so where we sit in midstream and downstream has had significantly lighter impact overall. Not nearly as deeply cyclical, and so we've held up better than a lot of folks who are much further upstream.

If you look at the industrial segment of where we sit, we've really seen a steady and sequentially -- so, if you look at how we came in the third quarter, fourth quarter, and now first quarter, we have seen some consistency, sequentially. Now, we did have tough comps here for the first quarter on the industrial side, so that's driving some of the negatives that you are seeing. But we have seen this level off to some degree, which I think is a solid sign.

Agriculture, everybody knows the story here. Overall commodity prices have been hit hard, and they are expected to remain that way throughout the balance of the year. The hit to farmers' wallets has really slowed OEM demand. And we expect it to be that way for the balance of the year. It is somewhat offset by the strength in the aftermarket, but not enough at the magnitude that we are seeing OEM equipment sales come off.

The opposite of that is scientific fluidics, and really the life sciences markets in general, which have been strong across the end markets, whether you are looking at bio, analytical instrumentation, or IBD. Those were all strong in the first quarter, and they will be for the balance of this year. The same can be said in municipal. We've had consistent, low-single-digit growth across North America and Europe. Municipalities are investing in areas that IDEX touches, and so that has been a solid story for us, and we expect it will be also for the balance of the year.

If you turn now to regions, and we look at North America, Europe, and Asia -- in North America, the story is largely industrial, meaning if you look at where the weakness is, it really comes from industrial distribution, the residual impacts of what has happened in the energy markets, and the fact that we really are sitting at historic low inventory levels within our distribution channels.

In Europe, it's been quite stable. We feel very good about our positioning within Europe for today and in the balance of 2016. We have nice exposure across a number of businesses, specifically in dispensing and water, and have really outpaced the market growth in Europe. And we expect them to do so here for the balance of the year.

In Asia. it's really two different stories. One is China that has been consistently weak; not a new story that we've been talking about. We've been talking about this now for well over a year. And we expect those headwinds to continue. On the other hand, if you look at India, India has been a great story for us. We are really taking advantage of the infrastructure improvements and the expansion at both -- within the country, and our accelerated investments. And that's playing out in many regards in our fire, rescue, dispensing, and also in our energy business. So, India has been a good news story for us.

With that, let me touch on capital deployment for a minute. As we've talked about in the past, we really have a four-pronged strategy around capital deployment. And we've been very focused on continuing to invest in our strategy of long-term organic growth, number one; disciplined M&A; consistent dividends; and opportunistic share repurchases. And what I want to do is just take a minute, and I'll talk about each of these areas.

So on organic growth, we keep investing for the long-term. We've got the capacity to make these investments that drive profitable growth for many years to come. And we all see businesses that, when they face challenging times, start to cut the things that are easy. And often times the things that are easy to cut are the things that you really need for long-term investment. We are fortunate that we've got the cash flows, the balance sheet, that we can continue to really invest in the long-term, and this is going to pay off for IDEX and differentiate us over time.

If we look at dividends, you saw on April 6 that our Board of Directors approved an increase of 6% in our dividend, and we are now paying $0.34 a share per quarter. In share repurchases, I mentioned a moment ago we repurchased 628,000 shares in the quarter for $46 million, at just under $73 a share. And going forward, we're going to continue to be opportunistic. We've talked about this a lot in the past. We have a very disciplined and thoughtful process of when and how aggressively we buy back stock, and we will continue to have that discipline as we go forward.

On the M&A front, as I mentioned, we bought Akron Brass. We spent $224 million for Akron. They had, in 2015, about $120 million of revenue. It's really an excellent strategic fit. We are in the integration process now, and over the first 30 days it has gone very well. So, we're pleased with the asset that we have in Akron and the team there. We're thrilled to have them as part of the IDEX family.

If you look into the future of M&A, the markets, the dynamics, remain pretty similar to what we talked about at the end of 2015. We're going to continue to be a player in the marketplace. We've got a good funnel. And we've got the cash flows and the balance sheet that will really allow us to continue to deploy capital for M&A.

All right. With that, let me switch over here, and let's start talking about the quarterly results. I'm on slide 4. So, in the first quarter, we had revenues that were $503 million. That was flat in total, down 3% organically. We had orders of $526 million that were also flat, and down 3% organically. But, very importantly, we built $23 million of backlog in the quarter. And that puts us in an excellent position as we think about going into the second quarter, giving us visibility into the second quarter. And also as we think about the step up from Q1 to Q2 and then really how the rest of the year flows through, having that $23 million of backlog is a good place to start from.

In terms of organic orders and sales, they were continued to be pressured, as I said, by energy and ag markets. We don't expect that to get meaningfully better as we look at the balance of the year. And also there was one other part there that's a little bit of an interesting comparison, and does put some noise into the numbers. And that's that last piece of the trailer business that we had in 2015, in the first quarter of 2015, that shipped, that we comped against.

So when you look at FSD segment and you see some of the puts and takes in that segment, and specifically around organic orders, that really explains the overall situation there -- excuse me, organic sales -- that explains the situation. The organic orders were quite good in FSD.

Overall for the Company, we had a 20.4% op margin. That was up 10 basis points year-over-year. There are a lot of moving parts in that, and I'm going to go into that on the next slide here in a second.

Overall, I'm very happy with how we've executed and how we're driving profitability and ultimately cash flow in the business. To that end, as I said, cash flow was $62 million in the quarter, up 45% from last year. We had GAAP earnings of $0.89, up $0.05 or 6% for the year.

And with that, what I'd like to do is go to the next page, turn to slide 5. And I want to just take a moment to bridge you from our reported $0.89 against the midpoint of our guidance as we are going into the quarter, which was $0.81. So if you'll flip to slide 5, I'll just walk you through that bridge. So the midpoint of our Q1 guidance, as you recall, that we gave just a couple of months ago was $0.81, and we delivered $0.89 for the quarter, and so let me walk through the puts and takes here.

In terms of operating results, we added $0.03 over our $0.81 guidance, and that was really driven by very solid execution. If you look at the purchase of Akron Brass, the net of that for the quarter was actually negative $0.01. So we owned Akron for just two weeks in March, so we got some operating benefits for owning them for the two weeks of March. But that was offset by $2.2 million of fair value inventory step-up. And so, the net of that was a negative $0.01.

Also we had a $0.03 reversal for a contingent consideration for an acquisition from 2015 that really turned in at $0.03 of benefit. I'd ask you to note, though, that this is handled in the corporate books, so it's not reflected in the segment results. And that will be important as we think about segment margins on an apples-to-apples basis because of how some of these pieces are flowing. And we will make sure that we can bridge you guys; if you have any questions, to make sure that as you go forward, your models are accurate.

Finally, we chose to adopt early the accounting standard for share-based compensation. That gave us $0.03. I think you are all aware, every US company is going to have to adopt that by the end of the first quarter of next year. We simply adopted -- we simply elected to adopt that early.

So all in all, when I look at it, it's a very strong start for us. Operationally, I think we had a solid first quarter. And certainly when we get to Q&A, if you've got questions on these puts and takes, we're happy to spend some time on them.

All right. Let's turn to the segment discussions. I'm on slide 6, and let's start with fluid metering. So, in the first quarter, FMT orders and sales decreased by 6% and 5%, respectively. And operating margins were down 130 basis points. And it was really driven by the lower volume in the energy and the ag businesses. We talked a lot about what we've seen in industrial, energy, and ag, which have been more challenged.

The real good news story here is around water. We had another solid quarter. It was similar to what we saw in the fourth quarter. Municipal markets are solid in North America and Europe, with single-digit growth. The mild winter also helped us some. When you think about the work that has to be done, specifically when you think about the UK and the US, when you get a mild winter you get projects that get pulled forward that would initially be scheduled for the spring or for the summer. So we did see a little bit of business come forward. But, more importantly, we've had terrific new product development and productivity out of that group that has driven the incremental benefits.

As I mentioned before on industrials, order rates at Viking and Warren Rupp, they do remain under pressure, although sequentially have stabilized. And that's really all about the demand levels in industrial distribution. I would not call it destocking. I just think it's the -- what we've seen in industrial distribution is demand has been weak. They have appropriately taken down their inventory levels, and I think they are managing that well.

We have talked about the drivers of this, and it really is around the impacts of oil and gas. But I will give our teams a lot of credit here: they have done a very, very nice job of getting their businesses right-sized, continuing to be highly profitable. These are businesses with very strong incremental margins on the upside and the downside, and they've done a nice job of getting in front of that.

In our energy businesses, we did see a soft start to the mobile market. That's really driven by builds in Class 6 and Class 8 trucks, which has started to slow. It was offset a bit by aviation, which has been stronger and gotten a positive side of lower fuel prices and strong demand. And these guys are going to work through this. Again, much like I said in the industrial side, they've done a nice job of getting their cost structures in place and making sure they've got the appropriate business scope and size for the market.

And then finally just on ag, I've talked about that enough already. But that's going to look like it has for the balance of this year, and we're going to make sure that we're in fighting shape to compete.

If you go to slide 7, on health and science, that's a much more positive tone across the business. Really the life sciences and the scientific markets remain strong. The industrial businesses have stabilized quarter over quarter, which is good. We saw organic orders were down about 4%. But as you know, in this market, very specifically in this segment, you can get some more puts and takes here, quarter to quarter. Organic sales were up, and op margin increased by 90 basis points. And that was really driven by overall volume leverage and nice productivity across the segment.

As you get down into some details, scientific fluidics orders and sales have continued to be strong. The markets are in a good spot. We are really well positioned across analytical instrumentation, bio, and IVD. And we expect this to be a very solid marketplace for us through the balance of this year.

Sealing solutions is a mixed bag. The parts of that business that touch scientific markets, mostly semiconductor, have done very well. The parts that touch oil and gas and heavy equipment have taken a pounding. So, net-net, it has been a challenging year for sealing solutions. Certainly a good news piece of this is our Novotema business that we bought last year. It has integrated well. And they've been able to get on board and be part of IDEX, and build a product portfolio and the operating practices that really help them be part of the IDEX core business.

Optics and photonics, it was stable in the quarter. Profitability improvement once again was very good. And these productivity improvements over the past few years, they really take hold as you get to any uptick in volume at all. We are very pleased with the profitability levels and what they are demonstrating there.

On the industrial side of HST, looks a lot more like FMT, so they are still weak year-over-year but we've seen stability sequentially. And again, I think that's at least a solid story for us.

Material process technology, this is the lumpiest of all of our businesses. Capital projects, really on a global basis, have been challenged. Our team has done a nice job of focusing in places where we really have differentiated technology and capability, and we've had some nice wins in Asia around food and overall in the pharma markets. We do expect that we're going to see some weakness in North America. But, overall, we think Asia should balance that out, and we think MPT has a shot of having a pretty solid year throughout 2016.

Okay. I'm on our final segment. I'm on diversified, on slide 8. So as I mentioned to you before, there are some puts and takes specifically on the sales side because of comping the last piece of that trailer order. But the net of it is organic orders were up 4% in the quarter, while organic sales were down 6%. Now, operating margins decreased 120 basis points. But, overall, if you look at what happened with the step-up charge from Akron, if you exclude that, FSD operating margins actually increased 80 basis points.

So on the core operations, a really nice performance. So Akron, obviously, as it gets a brought into the fold, it's a little bit muddled in terms of how things flow through the P&L and balance sheet. And we'll make sure that we're [real clear] with you again on an apples-to-apples basis.

In terms of dispensing, really nice job. They continue to deliver for the Company. They are winning across North America, Asia, and Europe. X-SMART continues to be a very good story for us. And it's really turned into a high profit business that has terrific positioning for the global markets. So, we think 2016 is going to continue to be strong for dispensing.

Fire suppression, we talked about the impact of trailers; but if you neutralize for that, the core markets are stable in the US and in the UK, and had a nice, solid first quarter. And again, having Akron as part of that team is going to be terrific. That positions us very, very well across the spectrum of those markets.

Rescue -- rescue has been soft, as we have talked about. It's continued to be that way, but we are expecting an uptick later in 2016. There are a number of large projects in Europe and Australia that either have been announced or they are in preparation, and we think we are well positioned against those chunks of business. And those are some of the first, larger chunks of business outside of the US that we've seen here in some time. And so we feel good about going after that business.

And then really finally on rescue, eDRAULIC 2.0 and our StrongArm, two products that we've talked about in the past, both are doing well in terms of growing in our core markets, really specifically in North America, getting off to a nice start. But that market softness in other parts of the world is muting that.

Finally, BAND-IT. BAND-IT has really been hit hard by the impacts of oil and gas and the industrial markets, but they've done a nice job in transportation. So they've had to deal with the headwinds; they've dealt with it well. This is a great business for us. And it will continue to do so, and a great profit generator, and one that will continue to -- will return to growth here in the future.

Okay. I'm on our final slide. And I want to take some time and just walk you through our second-quarter and full-year guidance. I'm on slide 9. All right, so let's talk about Q2. In the second quarter, we're expecting EPS of $0.91 to $0.93. Importantly, this includes the remaining $5.4 million pre-tax inventory step-up charge for Akron, or about $0.05. So the way to think of it operationally is it would be $0.05 better than what we have on the sheet here. But we are going to run through the last of our inventory step-up for Akron here in the second quarter.

Because of all that, you will have a lower operating margin for the quarter. So again, that $5.4 million is about 1.0 of operating margin, so it's $0.20 reported; 21% apples-to-apples. Organic revenue, we think, will be flat in the quarter, and tax rate will be about 27.5%.

If you look at the fiscal year, we are increasing our guidance. We were at $3.60 to $3.70. We are now at $3.70 to $3.75. And this is principally driven by the benefits associated with the new accounting rules for the share-based compensation that I talked about earlier.

It's important to note that we're going to neutralize this year for the impact of Akron. So the way to think of it is the first half charges that we're going to take, relative to inventory step-up, will be offset by the operating benefits you'll get in the second half of the year. But for the full year, you really neutralize the EPS impact of Akron in total.

Full-year revenue, as we said in (technical difficulty) we expect to be flat, with operating margins -- excuse me, organic we expect to be flat, with operating margins in the 20.5% to 21%. Again, we guided at about 21% earlier. The difference between what we're talking about now and the 21% earlier is 100% associated with Akron, and bringing that in as part of the family.

CapEx will be about $50 million; free cash flow at 120% of net income. We are expecting to -- we'd ask you to model about a 2% net decrease in shares. Obviously we had a great start to the year in that, when the share price was depressed, and so we're asking you to model at approximately 2%.

As always, any future guidance does not include the impact of acquisitions, either the cost or the benefits.

So, Rob, with that, I'm going to pause here. And why don't we turn it over for questions?

(Operator Instructions). Matt McConnell, RBC Capital Markets.

Could you discuss the visibility that you have to the flat organic growth next quarter? Because orders are still down, and I know there's a comp issue with the trailers. But especially in FMT, your orders down 50% on an organic basis this quarter. Can you just discuss how you bridge to flat sales next quarter?

Yes, so if you think about the -- where we're ending the quarter in terms of backlog and what we usually go into a quarter with, which -- typically we have a total backlog that's about half the quarter. And we're plus or minus that. We go into it thinking about what the second quarter -- excuse me, first quarter versus second quarter with the amount of backlog that we have today, and the fact that we built $23 million incrementally of backlog. And it gives us a lot of confidence that we'll get to that second-quarter number, plus or minus.

I feel pretty good, going into the second quarter, about where the top line will land. Because we are such a short cycle business, you never know; as you know full well, Matt. But where we stand today with what I'll call stability on the industrial side, and visibility relative to our current backlog and building backlog, it feels pretty good.

Okay, great. And then, yes, when you discuss the improvements in businesses like water and scientific fluidics, some of the parts that are doing better, is there a way that you can differentiate how your markets are doing versus -- I know some of these are the pieces that you've been investing in through a fairly soft demand environment. Is there a way to split out how IDEX is doing versus the market in some of these areas that are going to grow in the back half?

Yes, I think -- not as discretely as I'm sure you'd like, but we can obviously cut it by what we believe to be overall market growth, and then the impact of our initiative, whether they be market penetration or new products. That's a lot easier to do when you are truly entering a brand-new market, which we don't do very often. The new products is really the place where you can really put your finger on, and you can see the acceleration.

So, if you look at the water businesses, we have a series of new products that we've launched. You can look at those discretely, if you look at dispensing or you look at StrongArm or you look at the platforms that we know we're on in HST, you can get your arms around each of those in a pretty discrete way.

The way I would say, across the board, is we are modestly taking share. I don't think it's huge share. But if you look at our relative organic growth rates, market by market, segment by segment against our competitors, we feel pretty good that we are holding up relative to how the markets are, and modestly taking some share.

Okay, great. Thank you.

Nathan Jones, Stifel.

If we could just start on the reversal of the accrual for the earn-out; I think it looks like it was on the CiDRA acquisition. And I know you would have preferred to pay that money out, because it would mean that business was performing better. Can you talk about what caused it to miss those expectations for the earn-out?

Yes, so, that was an acquisition that we did that's a very important acquisition; small, but important for HST, specifically scientific fluidics. And we went into the acquisition with a very specific point of view of what we thought the performance would be of that business. And our partners, who are still engaged and excited about being part of IDEX, and are doing a terrific job, had a more aggressive point of view.

And so, we agreed that we'd put a construct in place, and if they delivered over and above -- meaningfully over and above the base case, that they would receive more consideration. And as always, when you do that, you put that on the balance sheet. And each quarter you have to make an estimate. And so as we sit here today, a part of that -- we don't think they are going to get that, I'll call that accelerated growth on top of what we thought was already a nice chunk of growth and a good piece of business. The accounting rules really dictate that.

Yes, I would have loved for it -- it would be terrific if they had hit their very aggressive case. But the base business is still doing quite well, and very much in line with the model that we put together.

Okay, so it's not out of line with where you thought it would be.

No, no. And sometimes that happens, when you've got a buyer and a seller and you have points of view that are different. And this is a way to figure that out. It gives both real skin in the game around it, and everybody knows what they are getting into. And that's just how it works out sometimes.

Understood. So you did about minus 3% organic growth in the first quarter, flat -- you're forecasting flat in the second quarter. Which means to get to the midpoint of the full-year guidance that was minus 1% to plus 1%, you'd need about 1.5 points [in a backoff]. Is there any assumption of improving markets in the [backup]? Because it doesn't really look like your revenue comps get that much easier as we go through the year.

They do get a little bit easier, and Nat, when we're talking about 1.5 points, you are really talking about $10 million (multiple speakers).

Rounding errors?

Yes, these are real rounding errors. There are some easier comps when you go through the third and the fourth quarter, particularly. So if you remember that the weakening last year really started the midway through the second quarter. We still had a pretty decent second quarter overall last year, but we saw that weakening happen in June. The third and the fourth quarters were comparatively weaker. So as I look forward, the really important ramp for us was going to be -- were we are going to ramp from a weaker first quarter to a stronger second quarter?

And that for us was really the telling sign. And given the backlog that we've built, and given some of the visibility that we have, unless you start to see something deteriorate meaningfully that we don't see today, we feel pretty good about where the top line should end up here for the balance of the year.

Okay. And then just one more, I guess more philosophically on the M&A front. You guys have done a great job over the last several years; earned a premium multiple out there in the market. Are there properties out there that would interest you, that would require the issuance of equity? Is that somewhere that you would be prepared to go? I would say that there is an arbitrage there on your valuation at some point here. Can you just talk about how you think about using equity, and if there's properties even out there that would be big enough to require that for you?

I think the answer to the first part of your question is: yes, we would, but it would be very selectively. Even though we do have a premium valuation arbitrage, that equity is extremely valuable. And being able to use cash or debt tends to be a much better mechanism for us generally. We would really prefer to do that. But if the right thing were there, and that was the requirement, yes, we would consider it.

The reality is, and we talked about this a lot in the past, there just are very few things of the scope and size that would require us to do that. There are some things out there. As we've said in the past, there are some larger businesses that we think would be a great fit with IDEX and we believe could drive a huge amount of value, but there aren't very many. But if that rare circumstance were to happen, as one of our Board members called it, the purple squirrel, if that was to happen, we don't find them very often. But would we do it? Sure, we'd do it.

All right. Thanks very much.

Mike Halloran, Robert W. Baird.

So, first just talking about the signs of stabilization you are seeing out there on the industrial side. Is that in the order book? Is that in the customer conversations? Is it in -- what you are seeing, just maybe more normal sequential starting to play out? Maybe just some color on what the contextual things you are seeing, specifically, that point to the stabilization side.

Sure, Mike. We started to see this, third into fourth quarter. So, as you saw third, fourth quarter developing last year, you were still -- if you went back to -- as I answered Nathan's question -- if you went from middle of the second quarter last year through a good part of the fourth quarter last year, you were seeing sequential downticks. And you were seeing all of the behaviors that go along with that.

And what we've seen now is that sequential stability, call it for the last four or five months. And also that -- maybe I'll call it that sense of anxiety or panic that a lot of people have when you are seeing sequential downticks, you start to see that level off. So, yes, it's happening in conversations. It's happening in how people are setting their inventory kanbans. And we're really principally talking about industrial distribution.

I'm going to call it stability. Now, part of it is we don't have that big exposure, direct exposure, to oil and gas; so places that do still have that, you are still seeing lots of volatility. Even with oil creeping up here over the last few months, there's still a lot of volatility around that marketplace. And as you know, we're still in the midst of rig reductions. We are certainly not experts in that part of the world, but the places that we do touch it, that still has a lot of volatility.

But the base industrial business, both in terms of the numbers and how people are responding subjectively, feels like it has leveled off to a degree.

Okay, that helps. And then a modeling question: when you think about the onboarding of Akron here, how does that change the seasonality on that FSD segment?

Mike, it's Heath. Not a ton; Akron's activity doesn't have a tremendous amount of seasonality to it. Now, once we fully layer in the Akron numbers to our diversified segment, inclusive of all the ongoing intangible amortization and so forth, it will have an impact on operating margins down, as we begin the journey to build up Akron's profitability closer to IDEX-like levels. But, in general, the order book for Akron doesn't have a tremendous amount of seasonality.

So, what that will do, though, Mike, is because we do -- because you do have some volatility in -- you have some volatility across that segment, just more (multiple speakers) others, and you have some more seasonality because of dispensing, that will probably, to some degree -- not huge, but to some degree -- mute that a little bit, the whole segment. It will be a little bit more muted in terms of volatility, but not big numbers.

That makes sense. And then on the HST side, anything new coming from a new product introduction side -- things you are working on with the core customers there that are going to be significant in the near term here?

Nothing that's going to blow the doors off, but the stuff that we are going to launch here this year, next year -- this is stuff we've been working on. If you were to go back and look two years ago, we would have told you that you were going to start to see some stuff coming out in late 2016, 2017, that are really attached to new products that our customers are going to launch. And we're in design cycles with them, and we follow them.

Success now, for those, is really based on -- do they hit their unit volume expectations? And they are pretty good at nailing that down, generally. Nothing that's a barnburner, but really consistent growth around that strategy we've had for a long time, which is more high-value content per platform.

Great. Appreciate the time.

Mike, just to follow on with that, as we think about the second quarter, as I know you are doing your modeling, we do have a little bit of lumpiness on a year-over-year basis in Q2, for HST specifically. And that's not so much related to the instrumentation customers. It's more related to our MPT, the material process technologies, where we had a couple of -- in Q2, we'll have a couple of more difficult comps that we're coming up against in the second quarter that don't repeat later in the year. So, I just guide that help you calibrate.

Thanks, Heath.

Steven Winoker, Bernstein Global Wealth Management.

Just a quick question: how much -- do you have any other acquisition earn-out agreements in place across the portfolio?

We don't.

Okay. And was pricing your typical 1% this quarter positive, or something different?

Steve, (technical difficulty), it was a little bit lower in the quarter, mainly driven by HST. And that's generally because as we've gotten further along with some of the bigger OEM contracts -- and that's become a bigger piece of the pie specifically for HST -- we don't generally reopen those contracts for pricing-related things. But it was a little bit lower than the 1%. But for the year, I think modeling probably just inside of 1% is a good number in total for IDEX.

Okay. And I'm just trying to get my head around SDP organic growth again. Outside that trailer projects, and then last year organic was down 15% because I think the dispensing comps. So, how should I think about, or how are you thinking about, what real underlying organic was in that unit?

Yes, I think if you -- kind of puts and takes and everything, it's basically flattish. We did see year-over-year order rates that were up a little bit. But if you look at the base overall business, it's kind of flattish with strength in dispensing, a decent performance in fire, offset by weakness in rescue and in BAND-IT.

Okay, all right, that's helpful. And then just one more quickly. I suppose with Akron Brass now, are you guys thinking that your cash availability -- cash and debt availability capacity for M&A this year -- is on the $0.5 billion range? Or something (multiple speakers)?

Yes, you hit it on the head. We got about $0.5 billion that we can tap into from our balance sheet. So think of it, over the next three years, as being $1 billion-ish. That's kind of the way to think about.

Okay, I'll pass it on. Thanks, guys.

Allison Poliniak, Wells Fargo.

On water, Andy, you talked about some projects getting pulled forward because of the weather. Is that going to impact the seasonality or lack thereof this year, that we should be thinking about?

No, it's not a huge number, Allison. For IDEX, it's not a huge number; for water itself, it is a few million dollars here or there. So I don't think it impacts us looking forward enough to consider it.

Okay, perfect. And then just bigger-picture, a lot of talk on the stabilization on the industrial side; the panic is behind us. Trying to be positive here. Is there any thoughts or views that maybe we could see an incremental lift as we move in the back half of the year?

No, I actually -- I feel really similar to how I felt when we talked after the fourth quarter. And my commentary is the same. I still think overall there's more downside risk than upside. I know it feels better for a lot of people, and I know equities in our space have run here in the last month or so. But when you just look at the underlying conditions and take away the emotion of it, and just look at the data, the data does not suggest that there is a really strong upside case.

I'd love to be wrong. But as you know, we've always -- we've said this pretty consistently -- we are much better at managing for a tighter scenario and we can move on the upside very quickly. But given the impact of incremental margins, we don't want to be caught on that downside.

So, while I certainly don't feel like the risk has gotten higher in the last quarter, I still think that there is overall more downside than upside.

Great, thanks. That's very helpful.

Charley Brady, SunTrust Robinson Humphrey.

Just back on -- you'd touched on it a little bit earlier, beginning of the year, things look -- disaster; we've had a pretty good snap-back on the industrial space. But [I'm wondering] from your standpoint, in terms of order intake, did you see a really sharp dip into beginning of the year, and you've come back to stabilization or plus, and so it's averaging out to stable? I'm trying to get a sense of the cadence on really the orders through the quarter, first three months of the year.

Well, Charley, let me clarify first. And I think that the overall, just generally, the commentary that I have today versus commentary that I had after the end of the year, it really is the same. The difference is you've got three more months of stabilization. We got a quarter more of a stabilization. We started seeing some of the elements of it as we ended the year.

But that being said, yes, as we ramped from our first month through our third month, things did get sequentially stronger, but they also tend to get sequentially stronger. So if you look at how a normal quarter flows, it's not that different than the normal; maybe a little bit better. Everyone is looking here for a sign of strength. I really don't think it has materially strengthened.

I think what we have is another quarter of stability. And the emotional pieces of it that were really pounding in the early months of the year and the late months of last year -- that real fear is starting to fall off. The data itself is not dramatically different.

Okay, that's helpful. Thanks. And just bigger-picture, on the energy exposure that you guys have had, what do you think, in your mind, that your customers are going to have to see -- is it a function of oil goes back to $50-plus a barrel? Obviously you're not really much in the upstream, so that's less of an impact on you guys. But I'm just trying to get a sense of, from your point of view, when you're looking down the road 12, 18 months, what happens in energy to get things back on track and maybe get some growth there?

Well, I think the radical swing in capital spending and in MRO -- so, if I were going to go back in time and say, what do I think that most of us got wrong, to a degree? I think we got two things wrong that have been more amplified -- that have amplified this downturn more than any of us expected.

The first thing we got wrong was I think people didn't fully appreciate how much the energy capital spending over the last several years was pulling along the things that we defined as general industrial. The reverberation of that, as things got weaker, it hurt the general industrial, I think, more than people expected it was going to. So I think we got that one thing wrong.

The second thing that we got wrong -- and we're really seeing it play itself out now, specifically in that area -- is historically on the MRO side, as the big capital spending has slowed down, the MRO side has stabilized or picked up.

One of the things that we're not seeing in this time is -- or we are seeing differently than necessarily maybe in the past -- is the amount of pirating that's happening for parts off of things that are being taken offline, is pretty dramatic. So, why does that matter? It matters because I think that the overall deficit that we have experienced -- us, less so, than people who have a lot more exposure -- this deficit has been a lot bigger.

So, what changes? Now let me address your question really specifically. What changes is that runs its course, and the capital spending even picks up modestly, and then you have in MRO deficit now that's got to be filled. Now, when that happens, if I knew that, I would be in a different line of work. But it feels like the amount of capacity that's coming out, the supply/demand imbalance, at some point if that turns over, you could see the excess capacity -- or the need for capacity snap back pretty aggressively.

When that happens, if that happens, that's for all the smart people [and know] how to figure out.

Thanks, that's helpful. Appreciate it.

Kevin Maczka, BB&T.

A couple of follow-up modeling questions on Akron. So, you've got it neutral to earnings this year. The contribution is offset by these step-up costs and the interest expense. Can you just talk about where you think margins will be on that business, and what's the associated interest expense here this year?

Kevin, this is Heath. Let's tackle the easy one first. The interest expense is going to be a couple of cents per share. The incremental is what we're anticipating for the year. And that includes potentially what we may or may not do in terms of terming out some of the balance sheet as we think through the second half of the year. So, it's a couple of cents.

The other piece to think about is there's certainly going to be a timing element of that. Andy addressed some of that earlier. We are going to work our way through the total purchase price accounting step-up costs for the inventory in the first and second quarters. So that will have a bigger impact in the negative in the first and second quarters; and then obviously in the third and fourth quarter, we won't have those same costs. So you'll get the full-on Akron Brass operating contribution.

So, in terms of modeling, there is a little bit of difference. It's neutral for the year, but it does have a difference between the first and the second half.

Right. And then thinking about next year in terms of accretion, so there should be more, for two reasons. That $7.6 million of step-up costs goes away that you just mentioned. But also you are expecting to grow and improve the margins on this acquired business.

Can you talk a little bit about the improving of the margins, and where they are now, and what you think your potential is here, now that you own it?

Sure. Absent purchase price accounting, and absent any intangible amortization -- so let's just stick with EBITDA, because I think that's the best apples-to-apples comparison -- it runs about 500 basis points lower than our existing fire suppression business. And our existing fire suppression business is plus or minus, in line with the rest of IDEX, maybe just a tad lower.

So, there is 500 basis points that, as a standalone Akron Brass business, that we are going to tackle out of the gate. I would suggest the timing of that is going to take a couple of years to get it up to speed. There's some operating decisions, some footprint discussions underway, as we bring the two businesses together, our existing fire suppression business with the Akron business.

But as those things happen, and we integrate the commercial teams and go through all that, I think we'll start to realize the synergies in the next two years.

Okay. Thank you.

Scott Graham, BMO Capital Markets.

A question I have is about the energy and chemical impacts that you guys were -- that you laid out at the top, Andy. You named the businesses; we know them all well. Could you tell us, first of all, the percent of sales from chemical and energy right now?

Well, you've got -- so let's break it into its pieces. So, energy in total is somewhere north of kind of 10% of the Company -- so somewhere 10%, 12% of the Company. The upstream piece of it that's gotten pounded is about 2%. It was 3% last year (laughter), so that's just the reality of that. So the stuff that's midstream and downstream makes up the vast majority of what you are looking at, in what we call energy.

And when you think about the chemical piece, the overall chemical piece is a bigger piece, but we're mostly talking about plain and specialty chemicals. It's not a broad base of stuff -- it's not the commodity chemical world. We don't tend to play in that. If you go at chemical and industrial that you put it together, we call that, that's about 25% to 30% of the total business. Pure chemical, out of that, is half to two-thirds of that total.

Got you. Now, on that, you have a business that -- obviously the mobile business. Could you give us a carveout of that, as well? You went out of your way in the slides here to talk about truck builds. And, honestly, I've never heard you talk about that before.

(multiple speakers) the reason we do is -- again, when you talk about energy, people tend to think of energy in a very specific way. And the biggest piece of what's in our energy business is LC, liquid controls. Liquid controls, a good chunk of that overall business is going into these mobile applications. Mobile applications mean meters on trucks. That's the way to think of it. And you split meters on trucks into two things: road applications, and that serving aviation.

Now, the reality is is that we don't follow the Class 8 or Class 6 truck build that you would think about for heavy industry or whatever; people who are experts in that. We don't necessarily follow that trend. But the reality is is that the truck builders and how these guys think about building, in some ways it does connect to that. We are not selling into the average Class 8 or Class 6 truck. We are selling into very specifically mobile energy applications.

But there is some correlation between the truck builders that are producing the general Class 6 or Class 8, and the folks who are selling into these mobile markets. So there is some connection to that. We don't follow the broad trend.

That's very interesting, the way to look at that. Okay. Thank you. That's all I had. Very nice quarter, guys.

Jim Foung, Gabelli & Company.

Yes, I just have one question: I was just wondering if you could size up the amount of business you might have potentially lost due to oil prices. As we look out the next 12 months, with oil firming up and the business coming back, I was just trying to figure out how much you can recover as we see the reverse of this.

So let's talk about the easy piece of that, Jim, which is the piece that is close to the wellhead. As I mentioned, we probably had a total of 1% -- a 1% negative on that. So if that was 3% of our business a year ago, it's now 2% of our business. So it really, truly is, in and of itself, a 1% headwind on IDEX.

And then you probably have another 1% to 2%. If you scope across the rest of IDEX, call it $10 million to $20 million more of incremental revenue that's probably been -- that you could put your finger on directly. So, call it 2 points of organic growth headwind, up to 2 points of organic growth headwind that's just directly tied to that.

Now, it gets a lot more muddled and a lot less clear as you think about that piece, these ripple effects that have impacted everybody. The story that I tell often is a few years ago we looked at this business in North Dakota. It had nothing to do with the energy world. But we looked at this business in North Dakota, and you couldn't drive into the -- you couldn't get a parking spot at the parking -- at the Walmart. You couldn't get a hotel room -- anything, right?

And now you go there today, and the parking lot at the Walmart is empty, and you can get any hotel room you want at half the cost. I guess the reason I tell that story is I think we all, again, underestimated the rippling effect of -- in certain areas -- of that energy cycle. As it comes back, I don't think it's going to be as dramatic. I wish I could pick a time frame. That's for you guys to do.

But I do think that not only do you get the direct impacts of what's happened to the energy industry, I think you'll get some positive residual impact to the general industrial.

You think that number would match that 2% of direct headwind that you see?

Yes, again, I think the upside and the downside were pretty dramatic. So, what you got pre-2015 was pretty dramatic on the upside. And what we lived with last year was pretty dramatic on the downside, and through the first quarter. Do I think it's going to snap back, one-for-one? I think that would be optimistic.

All right. But it's something like -- it's somewhere between $50 million to $100 million of revenues, potential revenues.

No, that's too heavy.

Too big?

Somewhere between $20 million and $40 million.

$20 million and $40 million (multiple speakers). All right, great. Thanks so much.

Bhupender Bohra, Jefferies.

So my question revolves around HST. You've done a good job improving margins here. If I look back historically, this segment underwent some restructuring. Where do we think margins will actually progress in the second half of 2016? Holistically, where health and science [incomes] on lead products, especially with exclusive to MPT, some of the long cycle businesses here -- where do you think 2017 -- as we progress into 2017, if you can give some color on that?

So, Bhupender, I apologize. You broke up a little bit in your question. I think if I heard you right, you were asking, what do we think the back-half HST margin looks like? I heard that clearly. I didn't hear the next part of your question clearly.

Yes. The second part of the question -- holistically, if you look at HST, you've done a good job improving margins here. How do we think -- like, what is actually driving the core sales for the business, in terms of when you have -- when you look at the exposure from MPT and sealing solution businesses?

Okay, so let me -- I'll try to tackle that, and if I don't get your question -- if I don't answer it just right, please reframe it. So, yes, we've done a nice job of getting this business up to speed. The way I'd break it down is on the revenue side, and then let's talk margins. And obviously they are interconnected, but there's a couple of different stories in here.

On the revenue side, we've seen real strength consistently out of those things that are scientific in nature: so, life sciences, semiconductor, some of the electronics world that we touch marginally. Those have been good; and, by the way, have good profitability associated with them. And we have also had strength in improving margin in some parts of the portfolio that were weaker.

So if you look at MPT, or if you look at optics, over the last couple of years we've done a nice job of moving profitability up. So you've seen the op margin move, but the top line is a little bit deceptive. And the reason for that is you've got a good chunk of that overall HST that still really is industrial. You've got a big chunk of -- you've got the Gast and the micropump businesses. You've got good chunk of even the optics business that's more industrial-related. And then you've got a big piece of the sealing business that is touching oil and gas.

So we've had some really nice strength on the scientific side offset by some weakness on the industrial side; but, in total, overall margins that have had nice improvement. So, I think I may have missed your back question about MPT, so if you'd repeat that I appreciate it.

Well, I think you answered the question in MPT. My thinking on MPT was kind of a long cycle business within HST. And when you talked about the capital spending within the industrial business overall, broadly weak right now. How should we think about that in the second half, especially -- your thinking is like there is much more -- still more risk to the economy in terms of spending?

I think so. And I think, to be clear about some things -- because there's a few things here, depending upon how you take it, there could be some mixed messages. The first one is our overall view is you are getting some industrial stability. As that moves to the back half, you end up with some easier comps. And whether or not that is industrial within FMT, or some of the industrial parts of HST, you get moderately easier comps as you get to the back half of the year, because of the real weakness that we saw last year.

So, to me, that's a good news story, but not because the business is materially improving sequentially. So I don't want anyone to walk out of here saying, God, I'm confused; Andy is saying there's more risk to the downside, but we're going to be better in the second half. These are really consistent statements. We've seen stability. We've got a little bit easier comps in the back half of the year.

But, in total, as I look at the global economy, and I look at the puts and the takes and whether there's more upside or more downside, given the underlying fundamentals, we believe that still there remains more downside than upside.

Got it. Thank you.

Jim Giannakouros, Oppenheimer.

So my question is on your organic growth investment dollars and where you are funneling those. I understand it may be early in the year for you to be shifting those, but can you talk about where you are focusing, specifically organic growth investment, currently? What businesses the focus is squarely on improving returns and where growth investment won't be dedicated anytime soon? And if you've shifted your thoughts, just given many surprises over the last six months, whether that's market-based or just the efficacy of execution of internal strategies from the specific business lines. Thanks.

Yes, so Jim, when you look at our investments like this, they tend not to have radical swings in the short term. And the reason I say that is because from the time you decide that you are going to aggressively go after an idea until the time it's launched, and then I'll call it full absorption into the marketplace, those cycles are really long. And that really works to our benefit around when you win market share or you win new applications, the stickiness of those is really the fundamental driver to the economics of IDEX. That stickiness is a big deal.

That being said, it takes a long time for that to happen. Our customers are highly risk-adverse, and they test and they poke for an awful long time before making any kind of radical decision. The reason I say that is that requires sustained, long-term investment, so we tend not to jump around a lot in that. So just behaviorally, I think that's important to understand.

Directly answering your question, which is where we focused, a way to think about that is if you look at our portfolio, at our businesses -- and this is all public stuff we've talked about before at investor meetings -- we've got about two-thirds of our Company in revenue, and about three-quarters of our Company in profit that I would squarely put into the grow category.

These are franchise businesses with clear number-one or really strong number-two positions. And I'm talking about franchise brands like IDEX health and sciences; scientific fluidics business; I'm talking Viking, Warren Rupp, Gast. Even though our rescue business is struggling, if you look at the brands within rescue, they are outstanding. If you look at our BAND-IT brand, even though it's got headwinds from oil and gas, they are a franchise business. I can go down through that list.

And so they've got great positioning, terrific fundamental economics. We are investing for growth. We incent for growth around those businesses, pretty aggressively. And by the way, we differentiate how we think about resource allocation with those businesses. On the flipside -- and by the way, I would say that is much more biased today around new product and new channel than it is anything else.

The other part of it is we've got about one-quarter of our business -- a little bit less than one-quarter -- that I'm going to put into the category of fix, meaning they don't have IDEX-like profitability. Now, to be clear, I think a lot of people would kill for the profitability of what we call fix. You're talking about EBITDA margins that are solidly in the mid to upper teens, but they are not in the mid-20s EBITDA margins, like all of IDEX.

So, there's a series of businesses in there that we still can, we think, can move and can fix. They look like our fire business that has had a 1,000 basis point improvement over the last several years. There's some businesses squarely in there that, boy, we think we can move the margins very substantially. And by the way, a bunch of the performance that you see in here, we've had great performance in those fixed businesses through the first quarter.

And then you've got a small portion of the business that -- we define it as outperform, meaning we want you to win in your markets; we expect you to keep up with the competition; but you are not in either one of those categories today. So that's how we differentiate. And we really think about resource allocation. And we think about the mission that each one of those businesses have, really clearly, upon where they fit in those definitions. And they understand their missions.

That's helpful. Thank you.

There are no further questions.

At this time, I'd like to turn the call back over to Andrew Silvernail for closing remarks.

Thank you, Rob. I appreciate that. Well, everyone, first of all, I appreciate you taking the time to spend with us to talk about the first quarter. Our comments, hopefully everyone is walking away with the clarity of our message, which is we think we are executing quite well in a continued challenging market. There has been some stability in the markets, which is good. But we do still think there's still lots of challenges here ahead, but we're very, very well positioned, and I'm thrilled with how our teams have performed.

Our folks throughout IDEX have really performed well to make sure that we're delivering value for our customers, for the people who work and IDEX, and very importantly for you, our shareholders. So, I appreciate your time, and we look forward to talking to you in the future. Take care.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.