Scott Graham

Scott Graham from Seaport Research Partners asked for an update on Itron's 2027 revenue targets, specifically whether the lower end of the previously stated $2.6 billion-$2.8 billion range is now more appropriate due to scope reductions, deployment complexity, and events in 2025. He also inquired about bookings, noting they were down year-over-year and for the full year 2024, asking when bookings might inflect upward and if pipeline movement indicates this.

Answer

President and CEO, Tom Deitrich, clarified that Itron has already achieved its 2027 gross margin, EBITDA, and free cash flow targets in 2025, expressing confidence in maintaining these metrics. He affirmed that the 2027 revenue target still stands, though the pace of network deployments might lead to landing towards the lower end of the range. Deitrich reiterated that pipeline growth is a strong indicator of positive trends, and the business is structurally changing with Outcomes backlog exceeding $1 billion. He described current networking bookings as "normal lumpy" rather than impacted by exogenous delays, maintaining a positive outlook on the business trajectory.

Scott Graham asked for an update on Itron's 2027 revenue targets, specifically if the lower end of the previously stated $2.6 billion-$2.8 billion range is now more appropriate due to scope reductions, deployment complexity, and 2025 events. He also inquired about when bookings are expected to inflect upward, given they were down year-over-year in Q4 and 4% for the full year 2025 compared to 2024.

Answer

Tom Deitrich, President and CEO, confirmed that gross margin, EBITDA, and free cash flow targets for 2027 were already achieved in 2025. He stated the 2027 revenue target still stands but acknowledged it would likely be towards the lower end of the range due to the pace of network deployments. He mentioned plans for an investor day within the next year to reset long-term targets. Regarding bookings, Deitrich reiterated strong pipeline growth and the structural shift with Outcomes backlog exceeding $1 billion, describing the current environment as 'normal lumpy' rather than affected by exogenous delays.

Scott Graham of Seaport Research Partners asked if near-term headwinds affect Itron's long-term 2027 targets, requested specifics on the mix factors driving record gross margins, and questioned the sub-10% growth in the Outcomes segment.

Answer

CFO Joan Hooper confirmed that the 2027 financial targets remain unchanged despite short-term uncertainty. She attributed strong gross margins to the end-of-life of lower-margin products and strong water sales in the Devices segment. Both Hooper and CEO Tom Deitrich stated that the single-digit Outcomes growth was normal quarterly fluctuation and not indicative of a structural change, pointing to strong underlying metrics like DI endpoint adoption.

Scott Graham requested more detail on the $15 million net tariff impact, seeking the gross figure before mitigations, and asked if the Network Solutions gross margin decline was due to tough comps.

Answer

CEO Tom Deitrich declined to provide a gross tariff number, stating the net impact is the most relevant metric as the product mix constantly changes. CFO Joan Hooper clarified that the slight 20 basis point decline in Network Solutions gross margin was not due to comps but was simply immaterial noise caused by product mix.

Scott Graham inquired about the reasons for higher operating expenses in certain segments during the quarter and asked if Itron is hearing from utility customers about potentially rolling back capital spending plans due to developments in AI technology.

Answer

CFO Joan Hooper explained that quarterly operating expenses can fluctuate based on the timing of investments and outside services, but for the full year, expenses were within the company's target range of 22-23% of revenue. CEO Tom Deitrich stated 'not at all' in response to utilities rolling back spending, emphasizing that electricity demand growth is dramatic and driven by multiple factors including AI data centers and manufacturing reshoring, with utilities struggling to keep up.

Scott Graham sought clarification on the implied revenue CAGR for 2024-2027, whether the original guidance contemplated the now-materializing $1 billion pipeline, and the sustainability of recent incremental operating margins.

Answer

CFO Joan Hooper reiterated that the path to 2027 targets is not linear and cautioned analysts to normalize 2024 revenue for a $125 million one-time catch-up. Both she and CEO Tom Deitrich clarified the $1 billion pipeline was a timing issue for bookings within the year, not an unexpected increase in demand. Hooper anchored margin expectations to the 2027 target of 15-17% EBITDA, noting quarterly variability.

Scott Graham sought clarification on the drivers behind the improvement in welding sales, specifically asking if battery-related growth was solely from stationary storage or included electric vehicles (EVs), and what other factors contributed. He also inquired about the purpose and potential for additional product manufacturing at the Huntsville facility. In a follow-up, he asked for a detailed explanation of the applications and end markets for IPG Photonics' micromachining and additive manufacturing segments.

Answer

CEO Dr. Mark Gitin explained that welding growth is driven by both EV (20% year-over-year growth) and stationary storage (50% year-over-year growth), with IPG's differentiated laser technology, in-situ monitoring, and process expertise being crucial for higher-end EV and stationary storage applications, especially with thicker busbars. He clarified that the Huntsville facility is a small site primarily for R&D and small-scale production of Directed Energy products, also providing a footprint for industrial technologies in the growing military/defense region. Dr. Gitin detailed additive manufacturing as the sintering of powdered metal to create complex parts, where IPG's single-mode, high-performance, low-noise, and reliable lasers are highly differentiated across markets from aerospace to consumer devices. For micromachining, he described it as precision cutting, drilling, and material removal for microelectronics (displays, multilayer circuits) and solar cells, involving micron-level processes.

Scott Graham sought a deeper understanding of the improvements in welding sales, specifically asking if the battery-related growth was entirely from stationary storage or included Electric Vehicle (EV) applications, and what other drivers contributed to welding's performance in the quarter. He also asked for more details about the Huntsville facility, specifically if it would be exclusively for Directed Energy or if there's potential to add other product manufacturing there. In a follow-up, he requested clarification on the specific applications and end markets within micromachining and additive manufacturing, areas frequently discussed by IPG Photonics.

Answer

CEO Dr. Mark Gitin confirmed that both EV (20% year-over-year growth) and stationary storage (50% year-over-year growth) are drivers for welding. He emphasized IPG's differentiated technology, including specialized lasers, in-situ weld monitoring, and beam delivery, which is crucial for higher-end EV and stationary storage, especially with higher currents and thicker busbars. He also noted applications in consumer and medical batteries, encompassing foil cutting, specialized welding, and cleaning. Dr. Gitin clarified that the Huntsville site is small and primarily for R&D and small-scale production of Directed Energy products, benefiting from available personnel and cleared airspace for testing. He added that it also provides a footprint to apply IPG's industrial technologies to the growing military and defense sector in that region. Dr. Gitin explained that additive manufacturing involves sintering powdered metal to build parts, enabling production of complex geometries and using diverse materials like titanium and copper. He highlighted IPG's differentiation through single-mode, high-performance, low-noise, and reliable lasers, which are crucial for this growing market spanning aerospace to consumer devices. For micromachining, he described it as precision cutting, drilling, and material removal, important for microelectronics (e.g., multilayer circuits, displays), solar cells (interconnections, window machining), and other applications requiring micron-level accuracy for holes, ablation, or micro welding.

Scott Graham of Seaport Research Partners asked about the progression of the order book during the quarter, requested a detailed breakdown of gross margin factors, and inquired about sentiment from general industrial customers regarding tariff uncertainty.

Answer

CFO Timothy Mammen noted that Q2 bookings were strong year-over-year and less back-loaded than in prior periods. He provided a thorough gross margin analysis, highlighting improved manufacturing absorption and lower inventory provisions as benefits, which were offset by unfavorable product mix and a 115 basis point impact from tariffs. CEO Mark Gitin characterized customer sentiment as 'cautiously optimistic,' aligning with the company's own view amid persistent market uncertainty.

Scott Graham requested a more detailed explanation of the 'optimizing manufacturing' strategy and asked if the guided 150-200 basis point gross margin impact would decline after Q2. He also sought insight into the demand sentiment from customers in general manufacturing markets.

Answer

CEO Mark Gitin clarified that optimization involves moving final assembly between the company's global sites, not changing sourcing from China, as IPG does not manufacture there. CFO Timothy Mammen confirmed the margin impact is concentrated in Q2 and will decline thereafter as supply chains are reconfigured. Regarding demand, Mark Gitin acknowledged that general industrial markets remain slow but noted that IPG's business has stabilized over the last three quarters, with new bookings growth driven by strategic areas like medical and micromachining rather than the broader market.

Scott Graham from Seaport Research Partners sought to quantify the portion of the cutting business under competitive pressure, requested the specific amortization add-back for the Q1 adjusted EPS guidance, and asked if the 2025 outlook is simply for a flat second half.

Answer

CFO Tim Mammen clarified that the amortization add-back is approximately $2.3 million, or just over $0.03 per share. CEO Mark Gitin and Tim Mammen stated the company will vigorously defend its cutting business (less than 15% of sales ex-China) with new products. While not providing a full-year guide, they pointed to potential late-2025 growth from new medical products and other strategic initiatives.

Scott Graham sought to understand Advanced Energy's definition of industrial and medical (I&M) market growth and how the company is positioned to outperform it. He also questioned if operating expense goals (half of sales growth) are still achievable in 2026 with the Thailand facility coming online, given gross margin aspirations haven't changed.

Answer

Steve Kelley (CEO) attributed Advanced Energy's ability to outgrow the I&M market to sustained investments in new product development, digital marketing, and channel development over the past four years, creating a healthy design win pipeline. Paul Oldham (EVP and CFO) confirmed Thailand costs are mostly in COGS and were contemplated in the 43% gross margin goal. He expects OpEx to grow through 2026 to an exit rate of ~$120M by Q4, accommodating Thailand within the OpEx envelope.

Scott Graham asked for Advanced Energy's definition of industrial and medical market growth, given the company's position to outperform it. He also inquired if the goal of increasing operating expenses by half of sales or less is still achievable in 2026 with the Thailand facility coming online.

Answer

CEO Steve Kelley attributed Advanced Energy's ability to outgrow the industrial and medical market to significant investments over the past four years in new product development, digital marketing, and channel development, which have created a healthy design win pipeline. He expects these investments and high-volume design wins to drive faster growth than the overall I&M market in 2026 and beyond. CFO Paul Oldham clarified that the vast majority of Thailand's costs are in cost of sales, with some OpEx contemplated in projected growth. He noted that OpEx grew 7% in 2025 against over 20% revenue growth, well ahead of the model. For 2026, he expects OpEx to grow through the year due to salary increases, targeted investments (including in Thailand), and variable costs, projecting an exit rate of around $120 million by Q4, with total OpEx in the $450-$460 million range, accommodating Thailand's OpEx within this envelope.

Scott Graham of Seaport Research Partners requested a quantification of revenue from new semiconductor products (EVOS, Everest, NAVEX) and asked for details on point-of-sale data from the Industrial & Medical (I&M) channel.

Answer

EVP and CFO Paul Oldham reiterated that revenue from these new semi products is expected to double in 2025 to the "double-digit millions" range, with a more significant ramp in 2026. President and CEO Steve Kelley explained that for five consecutive quarters, sales out of the I&M channel have exceeded sales into it, reducing distributor inventory and creating a favorable trend for future orders.

Scott Graham asked if Advanced Energy is gaining share specifically within the power segment of WFE, not just against the total market. He also questioned the strategy to improve the Industrial & Medical (I&M) business, suggesting an acquisition might be necessary for critical mass.

Answer

CEO Stephen Kelley stated that he is confident the company is poised to gain share in semiconductor power in the coming years, driven by new products like eVerest and eVoS expanding their serviceable market. For the I&M segment, he acknowledged the short-term correction but highlighted long-term strength from a record design-win pipeline. He confirmed that the fragmented I&M market is a prime area for potential acquisitions.

Scott Graham from Seaport Research asked about the timing of expected market share gains in the semiconductor segment, questioning if they would be more pronounced in the second half of the year. He also inquired about the impact of destocking in the Industrial & Medical (I&M) business and the strategic rationale for pursuing acquisitions in that space.

Answer

CEO Stephen Kelley explained that while initial new product ramps will drive growth in the second half, significant market share gains in semiconductor will materialize over the next 3 to 5 years. Regarding I&M, CFO Paul Oldham noted the difficulty in quantifying the destocking impact but suggested the market's underlying change is much smaller than the reported revenue declines. Kelley added that M&A is being pursued in the fragmented I&M market to build critical mass, with valuation being the primary hurdle to completing a deal.

Scott Graham of Seaport Research asked to differentiate between the impact of inventory destocking and end-market demand on the Industrial & Medical segment's performance, and also requested more clarity on the visibility for Data Center sales.

Answer

CFO Paul Oldham explained that the sharp year-over-year decline in Industrial & Medical is primarily an inventory phenomenon, comparing against a record 2023 driven by recovery from the supply crisis, and that underlying end-market demand appears relatively stable. Regarding Data Center, he stated that while visibility is good for the 'next few quarters' due to strong order and design-in activity, predicting a full year out remains difficult.

Scott Graham asked about nVent's productivity efforts beyond acquisition integration, specifically how they would offset potential margin dilution from the liquid cooling capacity ramp in the first half of the year. He also inquired about the dynamics of renewables growth and opportunities in generation within the power sector, and sought an update on the penetration rate of liquid cooling in data centers.

Answer

Gary Corona, Chief Financial Officer, stated that productivity and pricing are expected to offset mid-single-digit inflation in 2026, driven by advancing lean capabilities, investments in transportation and automation, and strong sourcing productivity. Beth Wozniak, Chair and Chief Executive Officer, clarified that nVent's power opportunities are primarily in T&D, especially substations supporting utilities and data centers, rather than generation. She indicated that an update on liquid cooling penetration would be provided at the upcoming Investor Day, reiterating that less than 30% of data centers currently use liquid cooling.

Scott Graham from Seaport Research Partners asked about nVent's productivity efforts outside of acquisition integration, specifically how they plan to offset margin dilution from the ramp-up of liquid cooling capacity in the first half of 2026. He also inquired about the dynamics of renewables growth and opportunities in generation, given nVent's focus on grid T&D. Finally, he asked for an update on the penetration rate of liquid cooling in data centers.

Answer

CFO Gary Corona stated that productivity and pricing are expected to offset mid-single-digit inflation, with efforts focused on advancing lean capabilities, investing in transportation and automation, and strong sourcing productivity funnels. CEO Beth Wozniak clarified that nVent's opportunity in power is primarily through T&D, particularly substations supporting utilities or data centers, rather than direct generation. Regarding liquid cooling penetration, Ms. Wozniak stated that an update would be provided at the Investor Day on February 24th, reiterating that less than 30% of data centers currently utilize liquid cooling but significant growth is anticipated.

Scott Graham of Seaport Research Partners inquired if nVent's M&A pipeline is focused on targets that would help "fill out the box" for its integrated solutions. He also asked for confirmation of its M&A capacity, estimating it at around $500 million, and whether the company would use stock for future deals.

Answer

CEO Beth Wozniak described the M&A strategy as an "acquisition flywheel" focused on high-growth verticals and differentiated products, rather than just "filling a box." CFO Gary Corona confirmed the company has significant M&A capacity within its target leverage range and that deals similar in size to EPG and Tracte could be managed without issuing equity.

Scott Graham asked about the drivers behind the lower-than-usual incremental margin in Q1 and its expected improvement. He also inquired about the current M&A pipeline and deal pricing environment.

Answer

CFO Gary Corona attributed the Q1 margin performance to inflation and investments ramping up for H2 growth. He stated that excluding the dilutive impact of the Avail EPG deal, base business margins are expected to grow modestly in the second half. CEO Beth Wozniak described the M&A market as fragmented with many opportunities, noting the company remains disciplined but has the capital to pursue the right deals in the near term.

Scott Graham asked for clarification on the EPS impact from the Trachte acquisition in Q1 and for the full year 2025. He also inquired if the Q4 inflation figure was a good run rate for 2025 and questioned the timing risk associated with projects included in the organic growth ramp.

Answer

CFO Sara Zawoyski did not provide a specific EPS number for Trachte but reiterated its ~$250M revenue and ~20% ROS profile, confirming it will be a meaningful contributor. She agreed the Q4 inflation number is a good baseline for 2025, with labor being the main driver. CEO Beth Wozniak stated that the timing for major projects in data solutions and Trachte is fairly stable and well understood, expressing confidence in the projected ramp-up through the year, which is also influenced by an easy Q1 comp.

Scott Graham sought additional color on the projected margin decline in 2026, inquiring which businesses are receiving the most investment and if it suggests prior underinvestment. He also asked about the sequential improvement in Diversified Electronics and January performance.

Answer

Tami Newcombe, President and CEO, explained that investments are predominantly in Sensors and Safety Systems, focusing on manufacturing expansion (for defense and utilities growth), sales resources (augmented by AI/digital), and innovation (e.g., Qualitrol's arc detection platforms). She clarified that these investments are for future capacity and growth, not due to prior underinvestment. For Diversified Electronics, she noted the 10% sequential improvement is driven by healthy sell-through, normalized inventory, and increased quoting activity, indicating positive underlying trends despite some seasonality.

Scott Graham asked for additional color on the projected margin decline in 2026, inquiring which businesses are receiving the most investment and if this suggests prior underinvestment. He also asked about the 10% sequential improvement in Diversified Electronics, how much of it is seasonal, and for any comments on January performance.

Answer

Tami Newcombe (President and CEO) explained that the 2026 Adjusted EBITDA margin guidance (18-20%) reflects investments primarily in Sensors and Safety Systems, focusing on manufacturing expansion for defense and utilities, increased sales resources augmented by AI/digital, and innovation platforms like Qualitrol's arc detection. Regarding Diversified Electronics, she noted healthy sell-through and normalized inventory levels leading to higher quoting activity. While there is some seasonality in Test and Measurement, the 10% sequential improvement is part of a broader trend of quarterly sequential growth, with a typical Q1 step-down factored into guidance.

Scott Graham of Seaport Research Partners asked about the significant operating income decline in Test and Measurement, specifically questioning if the EA Electro-Automatick acquisition was operating at a loss. He also requested more detail on new initiatives within the company's key growth vectors of defense, space, and grid modernization.

Answer

CFO Neill Reynolds stated that while the EA business was impacted by the downturn in Europe, it is considered stable and not a primary concern for profitability. He attributed the segment's margin decline to broad volume deleveraging and tariffs. President and CEO Tami Newcombe highlighted strong secular demand in the Sensors and Safety Systems segment, pointing to a new AI-driven arc detection feature for utilities and continued replenishment of long-term defense programs as examples of strategic execution.

Scott Graham inquired about the FALS business, asking if it is expected to stabilize into a mid-single-digit growth algorithm, particularly in the second half of 2026. He also asked for clarification on why ASP, a consumables-heavy business, has been weak despite hospital CapEx concerns.

Answer

Olumide Soroye, President and CEO, expressed confidence in the FALS platform's potential, stating there's no ceiling on its growth and it will contribute to the financial framework, expecting a strong year of continued acceleration. Regarding ASP, he clarified that consumables, services, and software components continued to grow, but capital equipment sales, despite being a smaller percentage, significantly impact revenue recognition and were the source of pressure, though trends improved progressively from Q2 to Q4.

Scott Graham asked about the FALS (Facilities and Asset Lifecycle Software) business growth outlook, specifically if it's stabilizing into a mid-single-digit growth algorithm, given past lowered outlooks and the government shutdown. He also sought to understand the dynamic behind the weakness in the ASP (Advanced Sterilization Products) business, questioning why it was affected by hospital CapEx concerns despite being more consumables-based.

Answer

Olumide Soroye, President and CEO, expressed confidence in the FALS platform's potential, stating there's no ceiling on what's possible and expecting a strong year of continued acceleration. For ASP, he clarified that while consumables, services, and software components continued to grow, the capital equipment portion (despite being a smaller percentage) had a concentrated revenue impact and faced pressure in Q2-Q4, though it progressively improved. He noted ongoing customer caution due to healthcare policy.

Scott Graham of Seaport Research Partners asked about the price-to-cost spread in the quarter. He also inquired about the expected savings from recent restructuring actions and how those benefits would phase in throughout the year.

Answer

Executive Elena Rosman stated that price was 3% in the quarter and gross margins expanded 10 basis points, suggesting the spread was on par with the rest of the year. She noted that $20 million of restructuring was funded in Q4, with benefits expected to materialize gradually over 2025, contributing about $0.01 to EPS in the first quarter.

Scott Graham asked for an update on the Aclara business, specifically regarding its bottoming out, any business Hubbell might have walked away from, and its long-term portfolio fit. He also inquired if the substation business is still early in a multi-year investment cycle and how much of its growth has been aided by data centers.

Answer

Gerben Bakker, Chairman, President, and CEO, clarified that no specific business was walked away from in Aclara. He explained that after challenges serving large IOUs, the business was reshaped and costs were removed to focus on its strong position in munis and co-ops, expecting modest growth and margin improvement from this lower base. Mr. Bakker confirmed that the substation market is very attractive and Hubbell is well-positioned, with recent acquisitions like Systems Control and DMC Power enhancing its scope. He noted that while attractive independently, the substation business is clearly aided by data centers and broader utility investments to interconnect power, with existing infrastructure being quite old.

Scott Graham asked about the Aclara business, specifically if it has truly bottomed, if Hubbell walked away from any business, its repositioning, and its long-term portfolio fit. He also inquired if the substation business is still early in a multi-year investment cycle and how much of its growth has been aided by data centers.

Answer

Gerben Bakker, Chairman, President, and CEO, explained that Aclara traditionally served munis and co-ops well, but efforts to serve large IOUs proved difficult. Hubbell reshaped the business in 2025, reducing costs and refocusing on its strong market position, expecting margin improvement. He noted it's a small part of the utility business. For substations, Bakker confirmed it's a very attractive and well-positioned area, growing through acquisitions like Systems Control and DMC. He stated it's attractive even without data centers but is clearly aided by them, both directly (substations next to data centers) and indirectly (general utility investment for interconnections). He also confirmed that substation infrastructure is still old.

Scott Graham of Seaport Research Partners asked for the specific growth rate of the renewables and data center businesses and sought clarification on whether the 'mid-single-digit' utility demand comment applied to the entire segment.

Answer

Executive Daniel Innamorato confirmed that renewables and data centers grew at a 'strong double-digit' rate. He also clarified that the mid-single-digit demand figure was specific to distribution markets within the utility segment that are not experiencing overstocking.

Scott Graham inquired about the drivers behind AMETEK's 30% Vitality Index, asking for specific contributions from defense and data center sales. He also asked if AMETEK needs acquisitions to broaden its exposure to the potentially growing defense budget.

Answer

Chairman and CEO David Zapico expressed satisfaction with the 30% Vitality Index, confirming contributions from data center sales (reconfigured defense products) and reflecting strong engineering capabilities across businesses. Regarding defense, Mr. Zapico stated that while AMETEK would consider a defense acquisition, the company's existing defense business (18% of sales, with more defense than commercial) is already competitive and growing well organically through niche technologies and strong product lines, particularly benefiting from expanding European defense spending.

Scott Graham inquired about AMETEK's Vitality Index reaching 30%, asking for details on its composition, such as contributions from defense or data center sales, and its impact on organic growth. He also asked about AMETEK's defense business, specifically if acquisitions are needed to broaden exposure to a potentially growing defense budget, or how the current defense business is positioned.

Answer

Chairman and CEO David Zapico expressed pleasure with the 30% Vitality Index, confirming contributions from data center sales (reconfigured products) and highlighting the company's strong engineering capability and viable product development plans. Regarding defense, Mr. Zapico stated that AMETEK does not need acquisitions to continue growing, as its existing Aerospace & Defense business (18% of sales, with more defense than commercial) is competitive with fully developed product lines in areas like computing, advanced cooling, and power systems for UAVs. He also noted growing opportunities from European defense spending.

Scott Graham asked if AMETEK's efforts to improve top-line focus and win new business are now spreading to other end markets as the industrial economy improves.

Answer

David Zapico, Chairman and CEO, stated that AMETEK is extremely well-positioned for growth across all businesses as the industrial economy picks up, noting their consistent model of averaging 4% organic growth over the past nine years. He expects greater participation in organic growth as the industrial economy improves.

Scott Graham, a Senior Equity Research Analyst at Seaport Research Partners, asked for a broader perspective on AMETEK's top-line focus initiatives since David Zapico became CEO, inquiring if the recent business wins and improved industrial economy would lead to organic growth spreading across more end markets.

Answer

Chairman and CEO David Zapico reflected on AMETEK's consistent model, noting an average 4% organic growth over his nine-year tenure as CEO, leading to double-digit top-line, orders, and earnings growth in strong quarters. He expressed confidence that AMETEK is extremely well-positioned for growth across all businesses as the industrial economy recovers from a prolonged period of negative PMIs, expecting greater participation in organic growth.

Scott Graham from Seaport Research Partners asked about the company's pricing actions during the quarter and for the second half, especially in the context of changing tariffs. He also requested a breakdown of the softer-than-expected Process division.

Answer

Chairman and CEO David Zapico stated that AMETEK achieved a positive price-cost spread in the quarter and expects this to continue for the full year, with pricing actions being "selective." For the Process division, he reiterated that headwinds in the semiconductor and research markets offset positive performance in med-tech and food-related businesses.

Scott Graham asked for more detail on the defense business outlook and inquired about capital allocation, noting a more enthusiastic tone on M&A and share repurchases. He also asked if bid-ask spreads for acquisitions are becoming more favorable.

Answer

CEO David Zapico stated they expect growth in the defense subsegment in the second half of the year. On capital allocation, he confirmed AMETEK is well-positioned with low leverage (0.7x net debt/EBITDA) and views the current environment as an opportunity to act on both M&A and opportunistic share buybacks. He noted that while good assets still command good prices, their pipeline is strong.

Scott Graham asked about the drivers behind the outstanding 28% Vitality Index and its future potential, and questioned if production issues at a major aerospace customer could dampen AMETEK's 2025 outlook.

Answer

Chairman and CEO David Zapico attributed the high Vitality Index to consistent R&D investment, which supports product differentiation and premium pricing, noting the ideal range is 20-30%. Regarding aerospace, he acknowledged minor, manageable delays that are factored into the Q4 guide, but emphasized AMETEK's diverse platform exposure mitigates risk from any single customer.

Scott Graham from Seaport Research Partners sought further clarification on the competitive dynamics within the wholesale residential water heater channel, asking if it has become a "jump ball" market or if pressure is concentrated on higher-end products due to retail expansion. He also inquired about the M&A pipeline for the new water management platform following the Leonard Valve acquisition, specifically whether it's a newly built pipeline or one that has been developing.

Answer

CEO Steve Shafer clarified that the wholesale channel is not a "jump ball" but experiences heightened intensity due to a non-growing market (low new construction) and retail inroads with professionals, though these dynamics are not new and are navigable. Regarding the water management M&A pipeline, Mr. Shafer stated it has been visible for some time within the plumbing space, leveraging existing industry knowledge and channel overlaps, and the company is now intensifying its focus on these opportunities while remaining disciplined.

Scott Graham sought further clarification on the competitive dynamics in the wholesale residential water heater channel, specifically whether it's a 'jump ball' or if higher-end products are under pressure, and if the entire wholesale half of residential is a concern. He also asked about the capital strategy post-Leonard Valve acquisition, inquiring if the water management M&A pipeline is established or needs building, given the historical focus on water treatment.

Answer

CEO Steve Shafer clarified that the wholesale channel is not a 'jump ball' but rather a continuation of existing industry dynamics with channel partners dedicated to certain brands and others carrying multiple, leading to share shifts. He noted increased intensity due to low new construction and retail inroads, but emphasized A. O. Smith's experience in navigating these dynamics. Regarding capital, Shafer stated the water management M&A pipeline has been visible, leveraging existing plumbing space knowledge and channel overlaps. He reiterated that this pivot complements water treatment investments and aims to find more growth opportunities by leveraging the core water heater and boiler business, while remaining disciplined in M&A.

Scott Graham asked about the reasons for the reduction in the lower end of the full-year EPS guidance, specifically if it was exclusively due to China or other factors. He also inquired about industry shipments in October, particularly after a drop-off in September.

Answer

Stephen Shafer, CEO, clarified that the more cautious outlook was due to two factors: the revised China sales outlook (down 10%) and softness in the North America residential business, now projected as flat to slightly down. Regarding October, he noted that while industry data isn't out, A. O. Smith's orders, especially on the wholesale side influenced by new home construction, have been a bit weak. Charles Lauber, CFO, added that A. O. Smith gained market share in Q3 due to their level-loading production approach, despite the industry being down.

Scott Graham from Seaport Research Partners inquired whether the reduction to the lower end of A. O. Smith's full-year guidance range was exclusively due to China, or if other factors in North America contributed. Graham also asked about the industry's October shipments, specifically how they compared to September's drop-off and what A. O. Smith was observing in its own orders.

Answer

Stephen Shafer, Chief Executive Officer, clarified that the guidance reduction was due to two factors: the revised China sales outlook (down 10%) and a slightly softer residential side of the North America business (flat to slightly down). Regarding October, Shafer noted that while industry data wasn't available, A. O. Smith's orders, particularly on the wholesale side influenced by new home construction, had not shown resiliency and remained somewhat weak. He reiterated that the company gained market share in Q3 due to its production level-loading strategy despite a down industry.

Scott Graham from Seaport Research Partners followed up on the China review, suggesting it might be more about a major restructuring than a divestiture. He also questioned if the company was rolling back pricing, given that the tariff impact was minimal in Q2.

Answer

CEO Stephen Shafer reiterated that the China review is about exploring a full set of alternatives, including strategic partnerships, to best position the business for future success. CFO Charles Lauber clarified that pricing is not being rolled back, as the full impact of tariffs and a 15-20% increase in steel costs are expected in the second half of the year, and the May price increase was implemented to offset these future costs.

Scott Graham from Seaport Research Partners inquired about the company's assumptions for proactive replacement demand in the residential water heater market and asked what key indicators are needed to signal a recovery in the China business.

Answer

Chairman and CEO Kevin Wheeler responded that recent data shows proactive replacement demand remains stable and resilient at the elevated levels seen since the post-COVID period. President and COO Stephen Shafer explained that the key indicator for China is an improvement in consumer confidence, which is closely tied to the real estate market, as this drives investment in home upgrades and premium appliances.

Scott Graham asked for clarification on a 4% water heater price increase from March 2024 carrying over into 2025. He followed up by asking if another price increase should be expected in 2025, given the forecast for rising steel prices in the second half of the year.

Answer

An executive confirmed that a 4% water heater price increase from March 2024 will have a carryover effect into 2025. In response to the follow-up, CEO Kevin Wheeler stated that the company's historical approach to managing pricing has not changed. He emphasized A.O. Smith's strong track record of offsetting inflation over time but declined to comment on hypothetical future price increases, noting the company acts based on market conditions and cost pressures as they materialize.

Scott Graham asked about the drivers behind the significant negative sales turnaround in China in Q3 and questioned if the weaker-than-expected reception for new tankless products was tied to a softening market.

Answer

CEO Kevin Wheeler attributed the China downturn to a sharp decline in consumer confidence driven by the worsening property market. CFO Charles Lauber added they were also anniversarying a kitchen product launch. On tankless, Wheeler explained the slow start is due to a phased rollout, with only one of three product lines launched, and reiterated confidence in the long-term $100 million sales goal.

Scott Graham inquired about Amphenol's position in the defense market, considering potential budget increases and whether there are areas where the company might not have 'full dibs.' He also expressed concern about the administration's rhetoric regarding NATO and its potential impact on international defense business.

Answer

CEO Adam Norwitt affirmed Amphenol's leadership in defense interconnect due to technology innovation and capacity scaling, stating they 'have dibs on this market.' He highlighted the Trexon acquisition as expanding opportunities. Norwitt explained Amphenol's local operating model, where it functions as a local company in each country, which he believes protects it from political influences and ensures customers receive the best product on time, locally.

Scott Graham inquired about Amphenol's position in the defense market given potential budget increases, and expressed concerns about the administration's rhetoric regarding NATO and its potential impact on international business.

Answer

Adam Norwitt (CEO) asserted Amphenol's leadership in defense interconnect due to technology innovation and capacity scaling, highlighting the Trexon acquisition as expanding opportunities. He explained Amphenol's decentralized, local operating model globally, which he believes protects them from political rhetoric and ensures they remain a trusted local partner.

Scott Graham asked about Amphenol's acquisition strategy, inquiring if there are specific areas or "wish list" items the company is targeting, particularly regarding newer end markets or existing markets where recent acquisitions have significantly increased critical mass. He also asked if future acquisitions might be more focused on these newer verticals.

Answer

CEO Adam Norwitt discussed Amphenol's active M&A strategy, noting increased activity and larger acquisitions that have expanded their offering. He highlighted the highly fragmented, quarter-trillion-dollar interconnect market as providing ample growth opportunities. While declining to name specific targets, he confirmed a long-term, diversified approach to acquisitions across all end markets, emphasizing relationship building and a commitment to acquisitions "for life" rather than short-term trends.

Scott Graham asked about Amphenol's acquisition wish list, focusing on missing areas, newer end markets, or increasing critical mass in existing verticals, and whether future acquisitions might be more tuned towards these newer verticals.

Answer

CEO Adam Norwitt stated that M&A is a core strategy in the highly fragmented interconnect industry. He confirmed looking for great companies across all end markets, taking a long-term view, and developing relationships over many years, rather than chasing short-term trends, to expand offerings and grow market position.

Scott Graham of Seaport Research Partners asked about the significant incremental margin expansion over the past few years, questioning how much of the improvement was driven by organic factors versus the successful integration of acquisitions.

Answer

SVP & CFO Craig Lampo responded that it was a combination of factors. He highlighted that a 'meaningful piece' is organic, driven by higher-technology products and creating more value for customers. However, he also stated there is 'no doubt' that the successful acquisition program and improving the profitability of acquired companies has been a significant contributor to the margin expansion.

Scott Graham from Seaport Research Partners asked if the M&A funnel has increased due to growing economic uncertainty, questioning if more acquisition opportunities are emerging from private equity or other sellers.

Answer

CEO Adam Norwitt stated that Amphenol has a consistently successful acquisition program and does not try to time the market based on macro cycles. While acknowledging the company is a more compelling buyer than ever due to its financial strength and reputation, he did not say the pipeline has necessarily changed due to recent economic headlines, noting the company has been very active even in robust times.

Scott Graham asked whether the accelerating production of electric vehicles (EVs) at the expense of internal combustion engine (ICE) vehicles reduces Amphenol's overall market opportunity in automotive.

Answer

CEO R. Norwitt stated that the company's opportunity remains robust because the vast majority of its automotive business is agnostic to the drivetrain. He explained that both EVs and ICE vehicles have growing electronics content—EVs through electrification of mechanical systems and ICE vehicles through electronics that improve fuel efficiency. The core driver for Amphenol is the overall expansion of electronics in cars, not the specific type of powertrain.

Scott Graham asked for commentary on organic orders during the quarter and requested a breakdown of which end markets were stronger or weaker from an order perspective.

Answer

CEO R. Norwitt clarified that the company does not report on 'organic orders' as a separate metric. He explained that the reported book-to-bill ratio of 1.09:1 is a total figure that reflects the performance of all owned companies, including recent acquisitions, as their bookings are integrated upon purchase.

Scott Graham sought clarification on the expected organic growth rate for H1 2026 relative to H2 2025. He also questioned Badger Meter's capital allocation strategy, specifically regarding potential cost restraint, share repurchases, and the M&A funnel, given the current stock performance.

Answer

Ken Bockhorst, Chairman, President, and CEO, reiterated expectations for lower growth in H1 2026 and higher growth in H2 2026, declining to provide granular numbers. On capital allocation, Ken affirmed continued organic and inorganic investment, no short-sighted cost-cutting, commitment to dividends (33rd consecutive year of increases), opportunistic share repurchases (Q4 buyback, authorization for more), and an exciting M&A funnel.

Scott Graham sought clarification on whether the H1 2026 growth rate would be similarly lower than the long-term high single-digit target, mirroring H2 2025. He also asked about the company's strategy regarding cost restraint and share repurchases in H1 2026, given recent stock performance.

Answer

Ken Bockhorst, Chairman, President and CEO, declined to provide granular H1 2026 growth rates but reiterated expectations for lower H1 growth and higher H2 growth. He affirmed that the company would not engage in short-sighted cost-cutting, prioritizing long-term strategy and organic/inorganic investments. He confirmed continued capital allocation priorities: driving growth, returning value to shareholders (through dividends and potential share repurchases), and pursuing M&A opportunities.

Scott Graham inquired about the performance of software sales in the quarter.

Answer

Bob Wrocklage, Chief Financial Officer, stated that software sales were a driver of core growth. He explained that their software model has a 100% attachment rate to underlying device sales, which have 10-15 year field lives. He referenced a 28% CAGR in software revenue resulting from the success of Orion cellular AMI and network as a service.

Scott Graham inquired about mix, specifically if volume remains the primary driver of the high single-digit long-term growth and if any mix changes in 2025 could carry into 2026.

Answer

CFO Bob Wrocklage clarified that Q1 2025 had an abnormally rich mix. He emphasized the ongoing 'structural mix benefit' where higher average sell price/margin products (ORION cellular radios, E-Series meters, beyond-the-meter technologies) are growing faster, underpinning the raised gross margin range, and this trend is expected to continue. Scott Graham also asked about software sales performance in the quarter. CFO Bob Wrocklage confirmed software sales were a driver of core growth, explaining their software model has a 100% attachment rate to device sales, with ORION radio sales being a leading indicator for robust SaaS growth (28% CAGR), consistent with this quarter's trend.

Scott Graham of Seaport Research Partners sought clarification on SG&A, asking if the deferred compensation expense would be eliminated next quarter. He also questioned the price-cost dynamic, noting that pricing only partially offset tariff impacts and asking if the company expects to be price-cost neutral for the remainder of the year.

Answer

SVP & CFO Robert Wrocklage clarified that the deferred compensation expense was uniquely large in Q2 due to a significant stock price increase but would not disappear entirely. Regarding price-cost, he confirmed the dynamic for the quarter but stated that ongoing uncertainty around future tariff costs is the primary reason the company is not adjusting its normalized gross margin guidance of 38% to 40% at this time.

Scott Graham of Seaport Research Partners sought clarification on SG&A, asking if the deferred compensation expense would be eliminated next quarter and questioning the lack of leverage given the core SG&A increase. He also asked if the company was price-cost negative due to tariffs and if neutrality could be expected for the rest of the year.

Answer

SVP & CFO Robert Wrocklage clarified the deferred comp expense was uniquely large due to a significant stock price increase in Q2. He explained that while SG&A leverage may not occur every quarter, the long-term ability to leverage remains intact, noting the prior year's SG&A percentage was abnormally low. On pricing, he confirmed that price increases only partially mitigated tariff costs in the quarter and that future uncertainty, particularly around potential copper tariffs, prevents the company from updating its normalized gross margin guidance.

Scott Graham asked for the specific triggers that would escalate tariff concerns beyond 'manageable,' such as a USMCA rollback, and inquired if the mix within current orders has changed, particularly regarding technology trade-ups.

Answer

CEO Kenneth Bockhorst identified a potential change to the USMCA or significant, unmanageable price spikes in key materials like copper or bismuth as primary risks. Regarding order mix, he highlighted the 25% growth in the software business as a 'very positive structural change' that is becoming a meaningful part of the portfolio.

Scott Graham of Seaport Research Partners asked about the current dynamics of backlog deployment, whether political uncertainty is causing customer hesitation, the potential for bundling SmartCover into a larger solution sale, and the acquisition's expected impact on 2025 EPS.

Answer

CEO Kenneth Bockhorst described backlog deployment as having a 'normalized uneven' pattern and stated the company is not hearing any customer discussions about pausing orders due to the political climate. He confirmed the strategy is to bundle SmartCover within the broader BlueEdge portfolio. CFO Robert Wrocklage stated the acquisition is expected to be dilutive to EPS in 2025, primarily due to the opportunity cost of interest income and amortization, but will turn accretive in year two.

Scott Graham of Graham & Company asked for clarification on Badger Meter's 'high single-digit growth' outlook for 2025 and inquired about the primary drivers behind the third quarter's strong margin performance.

Answer

Chairman, President and CEO Kenneth Bockhorst explained that the high single-digit growth target is for the strategic cycle and the company is not signaling weakness for 2025, feeling strong about its position. CFO Robert Wrocklage confirmed that the margin improvement was driven by a combination of positive product and customer mix, increased unit volumes, and favorable price-to-cost management.

Scott Graham asked about Pentair's organic growth investments, specifically if the current front-end focus would shift towards new product orientation in improved end markets, or if that would represent incremental growth investment.

Answer

CEO John Stauch categorized growth investments into three areas: driving demand to dealer channels (consumer interest, upgrades), sales excellence (market coverage, incentives), and marketing efforts (value propositions, branding). He added that a fourth component is technology investment (innovative NPI for today and future), with Pool, Water Solutions (commercial), and C&I being the top three businesses targeted for accelerated organic growth.

Scott Graham asked about Pentair's organic growth investments, noting a significant focus on front-end investment given the company's distribution model. He questioned whether, as end markets improve, the percentage of front-end investment would shift towards new product orientation or if it would represent incremental growth investment.

Answer

CEO John Stauch outlined three major categories for growth investments: driving demand to dealer channels through consumer interest in upgrades and new technologies; enhancing sales excellence by improving market coverage and incentivizing sales teams; and strengthening marketing efforts around value propositions and branding. He noted that all these initiatives incorporate a digital lens and increased talent. A fourth component is technology investment for both current and future innovation. He specified that the top three prioritized businesses for accelerating organic growth are PWS (commercial water) and C&I (commercial and industrial).

Scott Graham sought clarification on the phased pricing strategy and asked how the outlook for the pool market's components (new, remodel, repair) has changed, particularly regarding potential demand destruction.

Answer

CEO John Stauch clarified that a significant price increase was actioned in April, with smaller, more modest increases planned for May and June if the tariff situation persists. He stated the forecast assumes flat new pool construction and continued break/fix demand, with any potential softness from price increases likely to appear first in the remodeling or discretionary product categories.

Scott Graham of Seaport Research Partners sought clarification on the Q4 sales guidance, the implied down-quarter for Pool, and whether productivity was negative in Flow and Water Solutions absent transformation benefits.

Answer

President and CEO John Stauch clarified the full-year guidance remains unchanged from the prior forecast. CFO Bob Fishman corrected that the Q4 guide implies Pool sales will be slightly up. Stauch acknowledged productivity challenges in the global Water Solutions business but noted Flow had a nice ROS expansion in Q3.