IDEX - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered top-line and EPS beats versus consensus: revenue $814.3M vs $806.3M estimate and adjusted EPS $1.75 vs $1.64 estimate; GAAP diluted EPS was $1.26. Bold beats reflect stronger-than-expected sales and margins across segments. EPS/Revenue estimates marked with an asterisk in tables; Values retrieved from S&P Global.
• Record orders of $871.9M and backlog built by ~$60M, supported by HST strength and a large clean water project win at Mott; organic orders +1% YoY.
• Full-year 2025 guidance maintained (organic growth 1–3%; GAAP EPS $6.56–$6.95; adjusted EPS $8.10–$8.45) and Q2 2025 guide set (organic 0–2%; GAAP EPS $1.60–$1.72; adjusted EPS $1.95–$2.05); management added an incremental $20M cost containment to offset potential tariff-related/demand pressures.
• Key catalysts: tariff pass-through pricing (3–4% price to offset 5–6% COGS inflation), portfolio optimization/delayering savings, and continued momentum in municipal water, space/defense, data center power solutions via Airtech/Mott collaboration.

What Went Well and What Went Wrong

What Went Well

• Record orders ($871.9M, +6% YoY) and backlog build (~$60M), with HST and FSDP segments setting order records; “all segments exceeding our expectations” and building backlog, notably HST via Mott’s clean water project win.
• Gross margin expanded 70 bps YoY to 45.3% on productivity and price/cost, despite volume deleverage; adjusted gross margin up 30 bps YoY to 45.3%.
• Strategic wins: Mott secured a multiyear ~$40M custom wastewater filtration project; Airtech/Mott collaboration targeting next-generation scalable solutions for data center power and emerging space sector optics (“teams … designing new prototypes together”).

What Went Wrong

• Organic sales fell 1% YoY; adjusted EBITDA margin compressed 50 bps to 25.5%; adjusted EPS down 7% YoY to $1.75; GAAP EPS down 21% YoY to $1.26, driven by higher interest expense, depreciation, and tax rate (prior-year discrete benefits).
• FMT organic sales declined 4% on softness in agriculture, chemical, energy, and semiconductor; HST margin dilution from Mott and volume deleverage; free cash flow fell to $91.4M (69% conversion) amid inventory builds and interest payments on 4.950% notes.
• Semiconductor wafer fab recovery pushed out; headwinds persist in high-cost machine tools; near-term strength mostly in MRO/consumables exposure (Mott gas filters) rather than cap equipment.

Transcript

Operator (participant)

Please note this conference is being recorded. I will now turn the conference over to your host, Jim Giannakouros. Thank you. You may begin.

Jim Giannakouros (VP of Investor Relations)

Thank you. Good morning, everyone, and welcome to IDEX's first quarter 2025 earnings conference call. We released our first quarter financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX, and Abhi Khandelwal, our Senior Vice President and Chief Financial Officer. Today's call will begin with Eric providing highlights of our first quarter results and a discussion of our current business outlook, and Abhi will discuss additional financial details and our updated outlook for 2025. Following our prepared remarks, we will open up the line for questions. Before we begin, please refer to slide two of our presentation where we note that comments today will include forward-looking statements based on current expectations.

Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the Appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric.

Eric Ashleman (CEO)

Good morning, everyone, and thank you for joining us today. Before I dive in, I want to welcome Jim Giannakouros, who joined us in March as our VP of Investor Relations. We're thrilled to have Jim in this role with the experience he brings. Welcome to the team, Jim. Now moving to slide three, our IDEX teams delivered better-than-expected results in the First Quarter of 2025, with revenue and profitability coming in slightly above plan in each of our business segments. I'd like to thank our IDEX teams across the globe for all their contributions, staying focused on serving our customers and executing through an environment of intensifying policy-driven uncertainty. I'm especially encouraged by our orders' performance this quarter. Orders increased both sequentially and versus last year to record levels. Additionally, this represents our fourth consecutive quarter with positive year-over-year organic growth in our order book.

This, combined with underlying stability in our day rates, sets a firm foundation for growth near-term. The trade and geopolitical situation continues to be fluid, with the ultimate impact on global demand unknown. We are proactively managing what we can control and have been both quick and very thoughtful in actions designed to absorb the impact of tariffs introduced this year. Even though we have yet to see indications of a slowdown, we have proactively identified another $20 million in savings targets for this year. This amounts to a cumulative $80 million of support for 2025 when combined with the savings expected from our previously discussed Platform Optimization, Organizational Delayering, and Baseline Productivity initiatives. Abhi will discuss this later in the call. Now I'd like to take you through our first quarter highlights.

We're seeing momentum build in our businesses serving Space, Defense, Energy Transition, Municipal Water, and North American Fire & Safety. Our analytical instrumentation businesses within IDEX Health and Science continue to exhibit improving performance, trending towards low single-digit growth for the year, and our semiconductor MRO-facing businesses provide a slight tailwind. On the industrial side, our rapid-turn businesses that often serve as leading indicators of economic change were steady in the first quarter, and that stability continued through the month of April. We recognize the potential for customer caution going forward and will continue to actively monitor inbound order trends as our customers adapt to this fluid environment. We continue to see some offsetting headwinds in our businesses serving Agriculture and Automotive industries. Additionally, the inventory adjustment we are working through with a large semiconductor wafer fab customer continues to be a headwind.

As you might expect, there is some hesitancy for customers to commit to larger projects, but it's at a level that matches both our recent experience exiting 2024 and supports assumptions within our 2025 Annual Guidance. We believe that the emerging order strength described here is a function of the active portfolio shape and driven over the last five years. We'll continue this work moving forward as we seek to grow through more increased exposure to advantage markets. To achieve the next level of growth performance, we continue to drive our own luck by tuning our technologies towards high-velocity applications. We support these efforts with focused cross-business collaboration wherever possible as customers push us to innovate faster. We lean on our intuitive understanding of 80/20 to pull organizations together in pursuit of clear objectives and outcomes. Here are some examples.

Our Richter business, facing headwinds in its core European chemicals markets, has adapted its severe-duty valves for fast-growing pharmaceutical applications where they've won in a big way. Our Abel Pump business is winning in extremely difficult environments supporting mining of strategic minerals. They have another segment of the business focused on marine defense applications. Both of these 80/20 verticals are extremely advantaged at the moment. A number of our optics businesses are working together to help solve the most challenging problems for the emerging space sector, from low-orbit satellite communication support to critical components within hypersonic systems. Our Airtech business within Performance Pneumatics is helping their customers solve power requirements for the rapidly growing Data Center market in a way that best supports sustainable solutions. They have recently brought some of Mott's technologies into discussions on next-generation solutions to help solve critical problems of scalability.

Speaking of Mott, our latest acquisition and our largest to date, I'm pleased to report that the teams there continue to deliver against our expectations. Mott recently entered into a $40 million multi-year agreement to deploy a custom wastewater filtration solution for a large U.S. dairy farm operation that'll treat over 2 million gallons of wastewater a day. To give you a sense of timing, roughly 25% of this order has been booked in Q1, and it's expected to be delivered to sales in the second half of the year. At IDEX, our teams are laser-focused on speed and increased agility to meet the evolving needs of our customers. Our teams are fully committed to not only execute on our collective near-term commitments but drive sustainable Value Creation for all Stakeholders in the long run.

With that, I'll turn it over to Abhi for first quarter financial highlights and some more specifics around our 2025 outlook.

Abhi Khandelwal (CFO)

Thanks, Eric, and good morning, everyone. Let's go to Slide 4. As Eric mentioned, we outperformed our guidance for the first quarter across revenue, margin, and adjusted earnings per share. Now, all comparisons I will discuss will be against the prior year period unless otherwise listed. In the first quarter, organic sales declined 1% as we faced difficult comps in our semiconductor, agriculture, chemical, and energy businesses, which more than offset positive results in space, defense, and municipal water-facing businesses. We continued to see resilient demand all in for IDEX, with organic orders up 1% and backlog building by about $60 million. Adjusted EBITDA margin declined 50 basis points to 25.5% given year-over-year volume deleverage and near-term margin dilution from our acquisition of Mott. These were partially offset by positive price cost and productivity, including our announced platform optimization efforts.

First quarter 2025 adjusted EPS of $1.75 came in 10 cents better than the high end of our guided range, given better-than-expected sales and margins across segments and timing of corporate cost, most notably share-based compensation. We generated $91 million of free cash flow in the quarter, which included short-term investments in working capital to support higher sales in the second quarter, as well as some modest purchasing ahead of inventory intended to slow tariff impact. Additionally, we deployed $50 million to repurchase IDEX shares in the first quarter, and we have $490 million left with our current authorization. I'm on slide five. Turning to the drivers of our adjusted EBITDA, a decline in volume resulted in an $8 million reduction flowing through at our prior year adjusted gross margin rate.

We additionally experienced unfavorable overhead leverage, which was more than offset by platform optimization savings and favorable price cost, which was accrued to margins. Acquisitions, divestitures, and FX benefited adjusted EBITDA by $3 million. Now, quickly, some color on our results by segment. I'm on slide six. In HST, organic sales in the first quarter declined 1%, while our organic orders actually increased 3%. We are seeing solid activity in our performance pneumatics group, driven by growth in data center power solutions and in space and defense with a number of our optics businesses. We see steady trends in life sciences with an uptick in analytical instrumentation, more than offsetting lower DNA sequencing orders. Our semiconductor business, specifically where we provide solutions that support wafer fabrication, faces headwinds. Adjusted EBITDA margins of 25.6% were slightly better than we anticipated, primarily due to benefits from higher-than-expected volumes in the first quarter.

Turning to slide seven, in FMT, organic sales declined 4% and organic orders declined 3%. While we continue to see relative strength in municipal water and downstream energy markets and relative stability in our core industrial markets, we are also experiencing near-term pressures in our chemicals and ag businesses. Finally, our business supporting pure water applications within semiconductor fabs has slowed. Adjusted EBITDA margin of 32.8% declined 80 basis points as volume deleverage was only partially offset by price, cost, and productivity improvements, including platform optimization savings. I'm on slide eight. FSD turned another solid quarter with organic sales increasing 5% and organic orders up 2%. Our fire and safety business continues to benefit from both strong OEM demand and adoption of integrated solutions. Band-It experienced growth in energy, with aerospace remaining stable. We continue to build upon our leadership position in dispensing.

Their overall global trends are stable, and auto remains pressured. Adjusted EBITDA margin of 29.4% increased 50 basis points due to favorable volume leverage, price cost, and productivity. Now, please turn to slide nine for our updated full year and second quarter guidance. We are maintaining our full year organic growth guidance range of 1-3% and adjusted EPS of $8.10-$8.45. Although the situation is still evolving, we believe we can fully absorb the impact of the tariffs introduced this year based on our current assumptions. I will provide our detailed tariff assumptions on the next slide. We expect to fully mitigate tariff pressure largely through incremental pricing actions. We're navigating a fluid and uncertain environment, and the impact of this on underlying demand is challenging to predict, particularly in the short lead time or rapid replenishment areas of our business.

While we have not observed any immediate signs of demand softening through April, we acknowledge that it could manifest as the year plays out, given policy-driven uncertainty. We have proactively identified an additional $20 million of savings that we are deploying against scenarios of up to 3-4% back half volume pressure. For the second quarter, we anticipate organic revenue growth of flat to 2%. We expect second quarter adjusted EBITDA margin to be between 26.5%-27%, up 100 basis points or more sequentially on higher volumes, positive price, and greater traction on our platform optimization and delayering savings. This generates expected second quarter adjusted EPS of $1.95-$2.05. Please turn to slide 10, which outlines our tariff exposure as it stands today. We expect tariffs to drive $100 million of annualized impact based on 2025 volumes, with two-thirds of that amount to be recognized in 2025.

On an annualized basis, we expect that tariffs will add 5-6% inflation to our cost of goods sold, which can be offset by price increases of 3-4%. I want to take a moment to emphasize how IDEX thrives during times of disruption. In particular, IDEX benefits from its local-for-local manufacturing footprint, the flexibility provided by its 80/20 principles, and the strength of its long-standing customer partnerships. Additionally, as Eric previously mentioned, we have the ability to adapt our technology to new applications, which further positions us for success. Now, I'd like to pass it back to Eric.

Eric Ashleman (CEO)

Thanks, Abhi. Please turn to slide 11. I'm excited about the IDEX we're building. Today, over half of IDEX has found ways to collaborate, sell, and leverage scale within thematic growth platforms. This is an important strategic shift we've made to elevate our long-term performance in advantage spaces with combined total addressable markets of just over $20 billion. We've identified a series of specific integrative threads that we believe support higher growth and expanded margins as we come together within these groups in a unique IDEX way. We deploy flat organizational structures with autonomous decision rights, sharp 80/20 segmentation, while solving the most critical customer solutions with quick, iterative bursts of innovation. I'm on slide 12. We have a strong balance sheet supported by superior cash flow generation to explore multiple avenues of capital deployment. Our corporate development team, alongside our business leaders, continues to work an active M&A pipeline.

We'll continue to deploy capital to expand and deepen our capabilities within our growth platforms, and we remain committed to returning capital to shareholders. Finally, turn to slide 13. We believe IDEX is advantaged and therefore prepared to navigate an increasingly uncertain trade and geopolitical environment. We generally ideate, engineer, source, produce, and sell our products locally. Our businesses are well-positioned within attractive markets, and we enjoy long and productive relationships with outstanding customers. As the world becomes more regionalized, we can adapt with customers and position local-for-local support across the globe with speed. 80/20 is deeply embedded in our diverse set of businesses. We are constantly looking to tune our solutions to apply them in new applications and markets, and we can shift resources quickly from areas with developing Slack capacity to structurally advantaged markets.

Putting it all together, we are improving and leveraging each of our key value drivers: organic growth, inorganic growth, and margin expansion. We collectively believe that change and uncertainty, no matter how unsettling they can be in the near term, ultimately present opportunities for our trusted solutions as we help our customers win. With that, I'll turn it over to the operator for your questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Mike Halloran with Baird. Please proceed with your questions.

Mike Halloran (Associate Director of Research and Senior Analyst)

Hi, thank you. Morning, everyone.

Eric Ashleman (CEO)

Hey, Mike.

Mike Halloran (Associate Director of Research and Senior Analyst)

Hey, Mike.

I just want to make sure I understand the puts and takes and the guidance here and what's embedded. I mean, I think the punchline is I think you feel really comfortable with the guide and the ability to have some flexibility to manage some of the inputs depending on what materializes. One, is that right? And then two, could you just go through those puts and takes? I mean, it seems like FX is slightly more of a tailwind. You put the incremental $20 million of cost savings, a little lower volume, a little higher price. I mean, maybe just kind of walk through those two different assumptions I talked to there.

Abhi Khandelwal (CFO)

Yeah, Mike, I can do that. I'll break it up for you and kind of follow the sequential pattern here. Just starting with Q1, again, recalibrating everybody on the call here. As I think about our performance for Q1, our organic came in better than what we had provided, which was down three to four. We came in down about a point. Good start to the year in terms of EPS. As I kind of look forward and think about the cadence of Q2 and then the rest of the year, and I'll touch on tariff in a second, coming into any given quarter, we're about 50% booked. As I look at our outlook for Q2, coming into this quarter, and Eric alluded to it in his remarks, we haven't seen our order pattern shift in April.

As of last night, our orders continue to remain in line with expectations. As I think about Q2 and the current outlook of 0-2%, our backlog supports that, which then translates into $1.95-$2.05. As I then fast forward into Q3 and Q4 and think about the back half of the year, what this outlook incorporates is a Q3 HST ramp from 2 to 3 of $10 million, $10 million from 3 to 4, FMT staying at the same levels and FSDP staying at the same levels, which then gets you to the 1-3% for the year. From a tariff standpoint, what we resumed in the guide is the two-thirds impact of the $100 million, so call it $60-$65 million impact in this outlook, and we're going to offset that one-for-one with price.

The incremental $20 million of cost out is a proactive measure. Even though we haven't seen our volumes move, we have proactively deployed those in the likely event that we see our quick lead times, rapid replenishment cycle businesses slow.

Mike Halloran (Associate Director of Research and Senior Analyst)

Perfect. That's super helpful here. Maybe just talk about, I mean, look, we're in a little different scenario relative to normal, right? If we get some pressure points from a macro perspective on your businesses, normally that happens after a period of expansive growth, not as much frequency happening against the periods of headwinds you've seen over the last couple of years here. Maybe talk about how you see the portfolio shaping up if we do get some sort of pullback, what that resilience looks like, how you frame it. I know you have a lot of those offsets that you have from a growth initiative perspective, and how does that balance things out?

Eric Ashleman (CEO)

Yeah. Obviously kind of unprecedented times in a number of respects, as you said. Look, as I said on the slide that highlighted how we've sort of set ourselves up with five very, very strong growth platforms, we've got them lined up. We're talking with customers and innovating in areas that, in many ways, I think are in markets that are rapidly developing kind of irrespective of some of these forces. We've got a lot of resources and weight tilted towards delivering on those solutions. All of IDEX right now has been leaned out and optimized through multiple rounds of productivity. Just to recap that, I mean, we came into the year, we always have baseline productivity lined up that starts on January 1.

We added that layering, delayering, and platform optimization work, a lot of it in these areas of growth platforms, a lot of it in HST. We had that ready to go early on. Candidly, we just thought, "Hey, this is an environment that says we can do more with less. We know how to do that here." We laid that in for kind of mitigation and protection in the back half of the year. When you look at it, you have a bunch of franchises that are well-positioned. We deliver critical, incredibly valuable solutions at, frankly, low price points. We protected ourselves from the impact of tariffs, at least the ones that have been announced here today.

We're engaging in a way that we always do via 80/20, super sharp places in areas that are advantaged and probably hold up better to any of the shocks that are running around at times just because of the nature of the solutions that we're after. I think this is where 80/20, kind of our credibility and reputation as operators, the two things come together and put in about as much resilience as we can imagine at a time with, no doubt, a lot of uncertainty.

Mike Halloran (Associate Director of Research and Senior Analyst)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Nathan Jones with Stifel. Please proceed with your questions.

Nathan Jones (Senior Equity Analyst)

Good morning, everyone.

Eric Ashleman (CEO)

Good morning, Nathan.

Nathan Jones (Senior Equity Analyst)

I guess I'll start with a question about tariffs and pricing. I mean, talking about two-thirds of the tariffs falling within the year and pricing falling within the year kind of implies that the market has not seen tariff impacts or pricing impacts yet. Is that fair? Are those coming down the pipe probably in May or June, potentially the catalysts that, I mean, it sounds like you are anticipating some of the short-cycle business demand drops off. Is that kind of when you expect to start seeing that impact of customers actually seeing the dollars on their invoices?

Abhi Khandelwal (CFO)

Yeah, Nathan, this is Abhi. Let me take a stab at it. If you kind of think about the $100 million, that's, of course, an annualized figure, and we provide the details in terms of what it is by region. That said, as I kind of take a step back and think about where we are, we're sitting here in April, end of April, first day of May. What we have seen so far is, and we do hold some inventory, what we have seen so far is a small impact in Q2, with the majority of this impact we're going to see in Q3 and Q4. If you think about the cadence of the $60-$65 million, I'd say $10-$12 million is what we're expecting in Q2, and the balance $25 and $25 in Q3 and Q4. That's how we're thinking about it.

Keep in mind, it's also about what you're buying, when you're buying it, and how much do you hold in inventory.

Eric Ashleman (CEO)

I think I get the spirit of parts of your question here. I mean, through much of April, I think a lot of this is kind of off the radar. It's something that everybody knows is coming. It's been announced by us and others. You'll see the IDEX side of it take hold probably faster just because of the nature of just don't have as much inventory, and we turn things with quicker lead times, and we were pretty urgent and aggressive on price capture that we thought we had to have. I think you will see this start to cascade and build as we go through May and probably especially into June, just giving inventory positions and announcements and things, and then really kind of full steam on the back half.

That's where I think we and others will be looking for, okay, what's the collective impact of that? I mean, remember, that's sort of two parallel tracks that are working together.

Nathan Jones (Senior Equity Analyst)

Okay. Thanks for that. I'm going to ask one that's not related to tariff. I wanted to have you guys talk a little bit more about the combining of some of these businesses into these strategic growth platforms. I think probably I certainly didn't understand until I was out with you guys on the road in the first quarter and talked more about it. I think it's probably a little bit misunderstood by investors as well about what the potential benefits, what the potential growth outcomes are longer term from combining these businesses, delayering these businesses. I am hoping you could just go into a little more detail and explain the rationale behind it and what you think the benefits are going to be.

Eric Ashleman (CEO)

Sure, sure. We're always careful with this at IDEX. This absolutely still leaves decision rights locally with these businesses and these platforms, and we're super careful about the integrative threads that we weave between them in terms of what dimension and where that adds value. What this isn't is a massive bureaucracy with multiple organizational layers. It's, in fact, actually the opposite. In my prepared remarks, there were actually two examples of this starting to come together. On the growth side, I'll kind of highlight those and give you a bit more insight. I talked about our performance pneumatics business and our recent acquisition, Airtech, and the work that they're doing around power solutions, frankly, sustainable power solutions for the data center market.

That business singularly has done great work over the years and is continuing to evolve it, and it was a decent part of the story in Q1. They are actually able to now bring in Mott and some of the technology that they have there for a different and related specific application that actually helps scalability to the next level in a way that, frankly, the Airtech business never could by themselves. No other company really could because those two technologies typically do not exist in a way that they do at IDEX. It is still early days. We will see where that goes. It absolutely is, it takes that whole frontier and moves it forward. I would say that aspect right at the tip of the sphere of technology is probably front and center, what we are really after more than any other thing.

I talked about it in optics, as we talked about low-orbit space communication and hypersonic travel. We've got great optics franchises that we've assembled over time, Iridian being the last. They have multiple points where they're playing in that space. Picture this as engineers working together in complementary ways where one business's 20 years of legacy is now teamed up with another business's 20 years to develop something that, again, is pretty novel. It doesn't really exist, and it doesn't really have a competitive offering or offset just simply because of the advantage scale that we've put together there. Again, it's relative to kind of our world and our size, but it is important in these markets.

As we talked about the multiple tranches of productivity that we've laid out, and we talked about this last quarter, just this organizational ability to span things and span functions a little differently gives us a kick in productivity that helps fuel the innovation on the other side. If we're selling, let's say, to a single customer here and doing it across multiple businesses, and kind of the old IDEX that would have had to have been supported with standalone commercial organizations, and then the cartoon version of this would have had multiple people in the same lobby calling on the customer, we don't have to do that anymore. That's actually advantaged and preferred by the customer, and it's a lot cheaper to run on our side. We can take those resources and funnel it right back into technology.

It is those little extensions and those connection points between businesses, think of them as sparks and lightning bolts, that's what we're celebrating, but doing it in a very, very IDEX way, flat organizational structure, local decision rights, everything we kind of know and expect with IDEX, but we've been able to amplify it in this way.

Abhi Khandelwal (CFO)

Yeah. Nathan, just to build on what Eric said, he touched on the delayering work that we did as part of year-end, but there's more chapters to it. As you think about the five scalable platforms that Eric's talking about, there's a second chapter around footprint consolidation, around looking at that landscape and really starting to consolidate some footprint, which will be the second layer of this, cost allocation towards growth. The third piece is around, with this level of scale, we get an opportunity to go after sourcing savings and drive more productivity. That's Chapter Two and Three. More to come on that as we move forward, but this is the advantage of having this level of scale and being able to drive the level of integration that Eric's talking about.

Nathan Jones (Senior Equity Analyst)

Very helpful. Thanks very much for taking my questions.

Abhi Khandelwal (CFO)

Thanks, Nathan.

Operator (participant)

Thank you. Our next question has come from the line of Vlad Bystricky with Citigroup. Please proceed with your questions.

Vlad Bystricky (VP and Equity Research Analyst)

Good morning, guys. Thanks for taking my question here, I guess. Maybe just to start off for me, I think the Mott project one that you highlighted was actually quite interesting. Can you just talk about whether that is something that's fairly unique or whether you see that opportunity as something that could be repeatable and meaningful for other customers? Do you see other similar opportunities out there for Mott?

Eric Ashleman (CEO)

Yeah. This is actually kind of a small technology acquisition that Mott made before our acquisition. The thesis very much was in line with what this project represents. It is really, really advanced filtration that is being deployed in this particular case at pretty massive scale in a livestock application. Essentially, we are processing the waste stream of dairy cows and things like that, and you kind of get two products at the end of it. You have got pure fertilizer on one side and very, very clean water on the other side. You essentially are delivering environmental friendliness with resultant products that have their own potential for productivity. That is the core thesis of what this business and business model represents.

I must admit, this is probably at the right edge and the higher edge of the scale just simply because of where this is being applied in this particular case. I mean, it's an outstanding reference case. It's going to take us a while to engineer it, put it out there, but get it in place. That's why we talked about the specific timing of the bookings and the way it's going to run out in the back half of the year. It does support partially that HST ramp that Abhi talked about later. It is going to be an outstanding reference case for a business that's just kind of starting to launch within Mott. This is right down the fairway of kind of the core argument, the core fundamental argument of what we're trying to achieve.

Vlad Bystricky (VP and Equity Research Analyst)

No, it definitely sounds interesting. Appreciate that, Eric. Maybe just a quick follow-up for me. I think you mentioned that you did take in a little extra inventory here in Q1 just ahead of tariffs. I guess the follow-up question to that, have you seen any evidence from your customers of them pulling forward any order activity, if you will?

Eric Ashleman (CEO)

Yep. Look, that's always a tricky one for us across all businesses with a pretty customized product. It's never been the best inventory to stack on shelves anyways. We absolutely went looking for it just because you can imagine the same dimension that we responded to. I mean, for us, it was a pretty modest amount for much of the same reasons. We found a couple of pockets of it. I think when we went and talked to people, talked to distributors and others, I think in the end of the day, Abhi, what did we say?

Abhi Khandelwal (CFO)

We said $6 million-$8 million.

Eric Ashleman (CEO)

I think, I mean, we went to places, looked for box levels where we go, where we hang out a lot, and just didn't see a ton of it, but we allow that there's probably that level. Honestly, it's pretty equivalent to the little bit that we did.

Abhi Khandelwal (CFO)

Yep.

Vlad Bystricky (VP and Equity Research Analyst)

Great. That's helpful. I'll get back in queue.

Operator (participant)

Thank you. Our next questions come from the line of Joe Giordano with Cowen. Please proceed with your questions.

Joe Giordano (Managing Director)

Hey, good morning, guys.

Abhi Khandelwal (CFO)

Hey, Joe.

Joe Giordano (Managing Director)

I wanted to talk on the—and apologies if you mentioned this in the very beginning of your prepared remarks—but the confidence now in the semiconductor recovery, or at least the resumption of those orders in the second half that we talked about last quarter. I mean, I feel like the updates that we've been getting on semi is generally negative so far this earning season. Just curious, if there's any update on that?

Eric Ashleman (CEO)

Yeah. There are kind of two things going on. I think we would agree with the overall sentiment, the industry. There have been more headlines about restrictions and things like that. If you think of our business, it's split. We do a fair amount of it, and the majority of it is kind of right in the heart of essentially the machine tool and the wafer fab, and then a companion piece on the metrology and inspection side. I did mention in the prepared remarks, though, that we saw some pretty good performance. We had some growth tailwinds on the MRO-facing side of the business. That has historically for us been in the sealing areas. These are consumable items. They wear out over time, and they're reflective of just using the system.

It's a little better now because as Mott has come into the picture, Mott's exposure in this space has a—it's essentially a gas filter, so it's a consumable element as well. They both win new platforms and then have this recurring revenue stream. It tilts us a little bit more in that direction, and that was favorable for us. I alluded to that, but I did say on the backside, same thing that you're seeing here. We probably see a push out, an extension of ultimate recovery here on high-cost, cutting-edge machine tools. I think we're seeing the same thing as we talk to our customers. They do not necessarily balance themselves out. We have a little bit of net pressure in the back half of the year from that space, but are certainly happy to have this higher level of MRO exposure.

Abhi Khandelwal (CFO)

Hey, Joe, just to kind of bring it all together in terms of outlook, because I think your question towards that will eventually turn into outlook. Let me just recalibrate. If I take a step back, again, think about Q1. As I mentioned earlier, we came in better than expected. Our EPS performance was better than expected. Coming into second quarter, as I look at our outlook, look at the forward-looking where we're headed from Q2 and beyond, our backlog position in Q2 supports the 0-2% organic, right? As I look forward and kind of think about sequentially Q3, Q4, HST is a $10 million ramp from Q2 to Q3, Q3 to Q4.

That is really driven by the backlog that we built for Mott that is going to ship in the back half of the year, the strength that we are seeing in pharma, space, and defense, okay? FMT is pretty much going to be at the same levels and FSDP at the same levels of Q2 revenue to be able to get to our outlook of 1%-3%. That is on the top line. On the bottom line, though, if you think about it, a third of our bottom line outlook is driven by the volume pieces I just articulated for you, but the two-thirds is tied to things that are in flight, in motion, i.e., cost optimization, delayering, stepping up in the back half. The cost piece that we laid out for $20 million as part of this conversation, that is back half.

The timing of share-based comp from first half to second half is pretty significant, which is almost $0.12. Again, a third of this first half-second half earnings ramp is tied to the revenue pieces I just laid out. Two-thirds is tied to in-flight controllable actions that are part of this outlook.

Joe Giordano (Managing Director)

Before I get to my follow-up, just maybe if I can clarify what you just said there. Are you saying that some of that semi ramp with maybe like MUAN and the large customers is effectively being replaced with Mott and the Q1 beats and things like that? We arrive at the same place, but maybe it's not as dependent on those large orders?

Eric Ashleman (CEO)

That is correct.

Joe Giordano (Managing Director)

Okay. And then just a question on the strategic growth platforms. I mean, that's somewhat new. Is there any sense of rebranding companies as a go-to-market as one entity or as one kind of overarching team? I know that's not how this is typically done in the past, but it sounds a little bit more like that just in the commentary. So just curious how you think about individual brands versus an IDEX franchise that goes to customers.

Eric Ashleman (CEO)

No, it's a good point. In actual fact, this part has been evolving alongside for a while now. I mean, to be honest, a lot of the thinking here is actually built on kind of what happened in IDEX Health and Science over the last 10 years. We do and have for a while now branded that as IDEX Health and Science. At the same time, we still celebrate the individual brands and the brand equity that we have there. It is a bit of a hybrid. As we move through this and evolve, you see that today in IDEX Fire and Safety. I mean, we very much present ourselves that way out in the market, but at the same time, then celebrate Hurst, Jaws of Life, Hale, those individual sub-brands. We're doing the same thing probably in an emerging perspective with an intelligent water.

Two, three years ago, you would go to a WEFTEC or one of the trade shows and see five different booths. We actually have brought those together over the last couple of years, but never lose sight of the individual accumulated brand equity. It's a much lighter touch in severe duty flow control. That is where, frankly, those individual equity stories are the highest. All we are really integrating there is kind of front-end customer acquisition through digitization at this point. That is light to none. Over on the material sciences solution side, that is just purchased, just accumulated. There is no point in branding that at this level. I think that matters, but for us, it is indicative of when you reach a state of evolution where, frankly, the customers are starting to say, "This is what we want. We actually want the capitalization that IDEX provides.

We recognize now that these solutions could only happen because IDEX exists and has brought them together. Even when we introduce and put IDEX on the side of the box, we never subordinate completely those individual brands.

Vlad Bystricky (VP and Equity Research Analyst)

Great color. Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Bryan Blair with Oppenheimer. Please proceed with your questions.

Bryan Blair (Managing Director)

Thank you. Good morning, guys.

Abhi Khandelwal (CFO)

Hi. [audio distortion]

Vlad Bystricky (VP and Equity Research Analyst)

You've referenced steady day rates a few times, so I imagine directionally, and I know what the response will be, but I was curious if you could offer some detail on order trends at Warren Rupp, Gast, and Band-It over March and April. Just curious what the real-time reads have been from those canary-type businesses pre versus post tariff implementation.

Abhi Khandelwal (CFO)

Yeah. I mean, look, as I think Eric mentioned it, I alluded to it. As I think about the businesses you're talking about, Eric and I track them on a weekly basis, daily basis. We look at the order trends, compare them to last week, last quarter. What we've seen in Q1, and thank you to 5:00 P.M. of last night, is order trends that have been steady and are in line with our expectation. We have seen no movement, if you will, on those order trends.

Eric Ashleman (CEO)

Really, really nothing identifiable based on news of the day externally where the next day it pivots or changes. I mean, they always ebb and flow a bit day-to-day, but we look at the kind of moving average, and we look at how it tracks across them. That actually tells you more. When they line up and move the same way, given the breadth and the difference in businesses, that's where we get the most intel. This time of year as well is also good for us. We have a fair amount of distributor conferences where we bring everybody together into different businesses, and we get the opportunity to then have three-dimensional conversations around those day rate data. We just had one of those, the biggest one last week. Same story. It's kind of consistently people saying, "Hey, things are holding up.

My customers are doing well. They're still requiring things. The systems are working. There is hesitancy on bigger projects. I talked about that, but honestly, that's been pretty consistent for a while now. Lots of captive energy about, "I wonder what comes next." That's absolutely there too.

Vlad Bystricky (VP and Equity Research Analyst)

Yeah, of course. That's helpful color. Thank you. I understand at any point in time there's only so much that your team can discuss on this front, but maybe just a high-level update on the M&A environment and how, if at all, the uncertainty of this backdrop has affected your team and your M&A strategy.

Eric Ashleman (CEO)

Yeah. I think there's no question that in terms of people looking to transact quickly and legitimize where their business is going to go and all the things you would need to do to make a transaction move fast in the near term, I think you're seeing that pretty slow for not just us, but for everybody. We always kind of divide this activity into buckets. I would say the lion's share of all the work that people are doing is really at that conversational diligence level of getting to know people. Remember, about 80% of the deals we've done in the last few years have been proprietary. That's the way we prefer it. We like taking our time, getting to know a business like Mott. That was a multi-year conversation.

We have other conversations like that going on, and they do not change or ebb and flow. In fact, in some ways, they get more intensive around changes like this and how that shapes how a team thinks about its business. A big category of work that does not get affected. That work around near-term transactions, I think you can imagine it is slower now. I mean, the number of people offering us things from out of the blue is certainly slower for all the reasons you would expect, but that really is not a feed or stock for us anyways. I think that this is a speed bump in many ways, but it does not interrupt the overall quality of the work or the work that we are doing and, frankly, our future vision for what we can deploy.

Vlad Bystricky (VP and Equity Research Analyst)

That makes sense and encouraging. Thanks again.

Operator (participant)

Thank you. Our next questions come from the line of Deane Dray with RBC Capital Markets. Please proceed with your questions.

Deane Dray (Managing Director)

Thank you. Good morning, everyone.

Abhi Khandelwal (CFO)

Hey, Deane.

Deane Dray (Managing Director)

Hey, maybe you can expand on your earlier comment on the strength in municipal water. I mean, the idea here is that's probably the most defensive of defensive verticals just because so much of it is OpEx and non-discretionary and projects are locked in and so forth. Just any color there in terms of the outlook. Thanks.

Eric Ashleman (CEO)

Yeah. Yeah. No, I think you're right. It's very, very defensible business. Then, again, the work that we do is very localized around the wastewater side of things and critical analytics as we examine that infrastructure and help our customers dig into how it's working. That kind of protects—there's some natural resiliency there on two fronts. One, the things that thunderstorms and things that could be affected by climate, I mean, they're not affected by trade policy. The need for people to understand that, mitigate it. I think last night I saw there were floods again in Oklahoma. That's the work we do. A lot of our businesses are helping with flow monitoring and understand where the system broke down and how it should be remediated. That's really unaffected. There's some natural resiliency from, frankly, some probably unfortunate variable inputs.

On the other side, remember, to the extent there's funding support for this, it's broad and it extends over multiple years. Our end customer for a lot of these businesses is actually specification engineers, which are putting together the capital projects that goes and grabs some of that funding. If we're in a multi-year wave of stronger strength within municipal water, our positioning at the front end of it has got some natural resiliency as well just because we're helping people figure out how that they're going to appropriate those funds, ask for them, request them, and put them to work. I think some of it is just sector-driven, as you said, Deane. I think a lot of it is just the nature of what we do, what we've localized around, and the natural resiliency of that kind of work.

Deane Dray (Managing Director)

Yeah. From what we can see, the stormwater management is one of the fastest-growing water sector verticals, both because of the funding, but also the fines that the EPA is pursuing against cities if they're not addressing it. Are you seeing both of these driving the stormwater management?

Eric Ashleman (CEO)

Yeah. The sort of regulatory side of this has always been a driver for this business. Yep.

Deane Dray (Managing Director)

Good. Just separately, anytime there's heightened uncertainty, it has a fallout on M&A in terms of if there's a falloff in multiples, the sellers have a way of being pretty sticky and remembering what their business was worth just a few months ago. They'll even pull some transactions until things settle out. Just what's been your perspective here, real-time on the kind of funnel and multiples?

Eric Ashleman (CEO)

Yeah. I think you're right. The quality businesses tend to be very sticky around those valuation expectations. If anything, uncertainty then tends to draw things out to wait for good times to return so that everything can be back to normal again. The timing probably more than valuations, I would say, being impacted by something like this, this round of uncertainty. For us, I mean, we're just at a period with—I mean, we're really doing two things in this area. We're spending a lot of time kind of optimizing, building, and integrating on, frankly, the higher activity that we've brought into the company through M&A. We're doing a lot of work there. Around these growth platforms, I mean, as I talked about in the comments, there's a lot of room to run. We're doing a lot of exploratory work, initial conversations.

That whole chapter, as I said before, does not really go down at this point. In fact, in some ways, people are more available for it now. On the other side, we are looking at some interesting bolt-ons. We have got a framework here with over half of the company with natural attachment points. I think a round of some nice bolt-on work that could happen here over the next couple of quarters would be very good.

Deane Dray (Managing Director)

Terrific. I was remiss at not welcoming Jim to the team, and best of luck.

Eric Ashleman (CEO)

Thanks, Deane.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next questions come from the line of Brett Linzey with Mizuho. Please proceed with your questions.

Brett Linzey (Managing Director)

Hey, good morning, all. Hey, wanted to come back to the organic sales outlook, the one to three unchanged from the previous outlook. Sounds like the composition has maybe changed a little bit. I was hoping maybe you could just mention that. You're getting the three to four points of incremental tariff-induced pricing. I imagine you had some price embedded in the original assumption. Is it fair to say price is up and you're taking a little bit more hedge on the volume side? Any thoughts there?

Abhi Khandelwal (CFO)

Absolutely. I can walk you through it. The original outlook that we had laid out of one to three implied a price of a point and a half. As you kind of think about the full year outlook, the way we see it today, that hasn't changed. What that does incorporate is an additional point and a half of price on a full year basis. If you think about the current outlook, it is assuming three points of price for the full year and the volume being down 2% at the low end and being flat at the high end. Okay. As Eric alluded, as I mentioned, we've not seen our April order rates move, but proactively, we have gone out and identified an incremental $20 million of cost that we're taking out, which then gives us protection from 3-4% volume decline in the back half of the year.

Brett Linzey (Managing Director)

All right. Got it. I appreciate that. Just a follow-up on some of the government spending or the austerity measures under DOGE in the new administration. Are you seeing any spending reductions or impact on grants driving customer spending decisions at this point? Maybe any update on the core life science customer base and what you're seeing there from an order perspective?

Eric Ashleman (CEO)

Yeah. On your first question, I mean, not a lot directly. I mean, the kind of work we do is more iterative and not massively project-dependent. To the extent there's some impact there, it's harder to read, and it hasn't really presented itself. We've talked about that in our daily rates. Life science is an area where it does come up because there's obviously been some work towards NIH funding, but that's a pretty low percentage ultimately for our customers. The read-through for us is kind of low percentage as well. Frankly, in our life science markets, the strength in pharma sort of offsets it. That's one area where the headline, you can hear about it, hear about a little closer to home, but it's at a low impact level and we offset it.

I would say generally in places that it might be presenting itself elsewhere in the business, again, I think it's probably being offset by some of the strength we've seen in defense applications space. It is netting out at present if it's there. Again, because of the nature of sort of project work that we do or the lack of it, it does not present itself as a big impediment at present. It is sort of one of those things that I think people are speculating about direction and ultimate impact, but really has not landed anywhere near us yet.

Brett Linzey (Managing Director)

All right. Got it. Appreciate the detail. Best of luck.

Eric Ashleman (CEO)

Thank you.

Operator (participant)

Thank you. Our next questions come from the line of Matt Summerville with D.A. Davidson. Please proceed with your questions.

Matt Summerville (Managing Director and Senior Research Analyst)

Thanks. Just maybe first, just to follow up, I want to make sure I understand this. You're basically saying that through this incremental proactive cost out, you can absorb a 3-4% organic sales decline in the second half of the year, but that is not how you've guided the top line. Do I have that correct?

Abhi Khandelwal (CFO)

When you said 3-4% year over year, what I'm saying is if you think about the $20 million of cost out and think about our prior outlook to our current outlook, it will absorb a 3-4% top line decline with that $20 million. It is an outlook to outlook shift.

Eric Ashleman (CEO)

It would absorb the volume component of it. We would get some of the price capture would stand in for some of the revenue.

Matt Summerville (Managing Director and Senior Research Analyst)

Okay. As you look at kind of the—and maybe you can comment too—as the year has unfolded through the first four months, realizing that inbound orders have been healthy, have you seen any discernible trend in sequential cadence in orders? Are you getting any sort of sense that you have customers, especially in kind of your more distribution-facing businesses, are buying ahead? If so, can you maybe try to quantify that? Thank you.

Eric Ashleman (CEO)

I'd say the cadence has been pretty uniform through each of the four months in the majority of our business, maybe elevating and growing a little bit with more strength in HST, but largely that's because of the wins that we saw at places like Mott and defense and space. I mean, they're attributable to things you'd want to see in a business. Everything else pretty stable. We talked a little earlier about the buy ahead. I mean, we looked and looked and looked and think it's at relatively low levels. I think we talked—what did we say just a second ago? It would be?

Abhi Khandelwal (CFO)

Six to eight million.

Eric Ashleman (CEO)

Yeah. Something like that. It kind of matches the same percentage that we did. It's unusual for us to do it, kind of unusual for our customer base, but we found evidence that we're sort of in line on that. We don't think it's a big number, but wouldn't say it's zero.

Matt Summerville (Managing Director and Senior Research Analyst)

Got it. I missed that six to eight. Thanks for clarifying, guys.

Operator (participant)

Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to Eric Ashleman for closing comments.

Eric Ashleman (CEO)

Thank you very much, Seth, and thanks for everybody for joining the call today. Obviously, as we discussed this morning, it's a dynamic and fluid situation as global trade relationships are reset and redefined. I just ask that we remember that some things don't change at IDEX. Our businesses are really strong. I mean, they're just outstanding. We deliver a ton of critical value at price points that are low relative to the total cost of the customer solution. We enjoy really long and productive relationships with world-class customers. I think our number one job now is to support those same customers as they navigate the same uncertain waters that we're looking at with innovation, agility, and global breadth.

As we do that, we'll keep our fingers on the pulse of prevailing economic trends and control what we can control, adjust where we need to, and clearly communicate our latest thinking as we move through the next phase of change. Thanks again for your interest and support at IDEX, and have a great day.

Operator (participant)

Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.