Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter 2020 AMETEK, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded.

Thank you, Andrew. Good morning. And thank you for joining us for AMETEK’s fourth quarter 2020 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. AMETEK’s fourth quarter and full year results were released earlier this morning and are available on market systems and in the Investors section of our website. This call is also being webcasted and can be accessed on our website. The webcast will be archived and made available on our site later today. During the course of today’s call, we will make forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK’s filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2019 or 2020 results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization, and also excluding the gain from the sale of Reading Alloys in the first quarter of 2020, and the realignment charge taken in the first quarter of 2020. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We will begin today with prepared remarks by Dave and Bill, and then open it up for questions. I will now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK concluded 2020 with a strong fourth quarter, delivering record operating results despite ongoing challenges presented by the pandemic. Our businesses saw solid sequential sales and order improvements in the quarter, while year-over-year growth turned positive across several of our businesses. We also drove exceptional operating performance in the quarter, leveraging our broad set of operational excellence initiatives. These efforts led to record backlog, margins, and cash flow, as well as a high quality of earnings that exceeded our expectations, positioning us extremely well as we look ahead to 2021. The safety of our employees remains our number one priority. We continue to adjust our practices and enforce our safety protocols across our businesses to help limit the possible spread of the virus. While we are cautious in the short-term, given COVID-19 and ongoing travel restrictions, we are highly confident in the strength of our businesses and our ability to deliver exceptional growth and shareholder returns over the long-term. The AMETEK growth model continues to provide the framework for long-term sustainable success, and our performance in 2020 was a testament to the strength and flexibility of the model. Now, let me return to our results for the quarter. Sales in the quarter were $1.2 billion, down 8% compared to the fourth quarter of 2019. Organic sales were also down 8% with a divestiture of Reading Alloys of 3%, the acquisition of IntelliPower contributing 1% to growth, and foreign currency added 2%. As we saw in prior quarters, our commercial aerospace business was the most impacted by the pandemic with sales down approximately 35% in the quarter. Orders continue to improve with our book to bill at 1.07 for the fourth quarter. This led to a record backlog of $1.8 billion, providing us with a positive line of sight into 2021. Operating income in the fourth quarter was $298.1 million, up slightly from the fourth quarter of 2020 and operating margins were a record 24.9%, up an impressive 210 basis points compared to the prior year period. EBITDA in the fourth quarter was a record $360.7 million and EBITDA margins were also a record of 30.1%, up a robust 300 basis points over the fourth quarter of 2019. This operating performance led to earnings per diluted share of $1.08 matching last year’s fourth quarter results and comfortably ahead of our guidance for the quarter. Our business has also delivered outstanding cash flow during the quarter, with operating cash flow up 13% to a record $386 million and free cash flow conversion exceptional 158% of net income. Now, let me provide additional detail of the operating group level for the fourth quarter. The Electronic Instruments Group delivers superb operating performance despite challenging market conditions. EIG sales in the fourth quarter were $819.4 million, down 7% from the prior year and in line with our expectations of solid sequential improvement. Organic sales were down 10% while the acquisition of IntelliPower contributing 2% and foreign currency contributing 1%. Commercial aerospace remained the largest driver of the sales weakness; our other EIG businesses saw improvements versus prior quarters. Our materials analysis division returned to growth in the fourth quarter while other EIG businesses, including Zygo and Telular are also again getting year-over-year growth. Despite the overall sales decline, EIG’s operating income in the fourth quarter increased 3% over the prior year to a record $236 million and operating margin has reached a new high of 28.8%, expanding an exceptional 270 basis points over the same period in 2019. Our Electromechanical Group also delivered strong operating results in the quarter. EMG sales were $379.5 million down 11% from the fourth quarter in 2019, driven in large part by the divestiture of Reading Alloys. Organic sales were down 4% with a divestiture an 8 point headwind and foreign currency adding 2 points. In addition to continued strong growth across our defense businesses, we were pleased to see our automation business generate solid organic growth in the quarter. Fourth quarter operating income for EMG was $79.8 million and operating margin expanded an impressive 110 basis points to 21%. Now for the full year results. Despite very difficult end market conditions and significant top-line headwinds in 2020, AMETEK was able to expand full year operating margins while delivering record levels of operating and free cash flow, truly outstanding performance. Overall sales for the year were $4.5 billion down 12% from 2019. Organic sales declined 13% with acquisitions adding 4%, the divestiture of Reading Alloys a 3% headwind, and foreign currency flat for the year. Operating income in 2020 was $1.1 billion and operating margins were a record 23.6% expanding 80 basis points over 2019. EBITDA for the year was $1.32 billion and EBITDA margins were a record 29.2% up 230 basis points from last year. This led to full year earnings of $3.95 per diluted share down 6% versus the prior year. As Bill will highlight, our businesses did a fantastic job managing our working capital, which helped drive a record level of cash flow while full year operating cash flow was up 15% to $1.28 billion. In summary, while 2020 was very challenging, I'm extremely proud of the way AMETEK colleagues managed through the pandemic and delivered tremendous results. Before I cover the outlook for 2021, I wanted to highlight certain key elements of the AMETEK growth model and how each positions us for long-term success. First and foremost, AMETEK’s proven operational excellence stood out in 2020 with our businesses doing an incredible job, driving our operational excellence initiatives. In the fourth quarter, we generated $60 million in total cost savings with $50 million in structural savings and $10 million in temporary savings. For the full year, total incremental savings versus the prior year were $235 million with approximately $145 million of structural savings and $90 million in temporary savings, including furloughs, travel reductions, and temporary pay actions. As we look ahead to 2021, we expect a much more modest level of temporary savings versus 2020 as the economy continues to recover from the worst of the pandemic and we continue to add back these temporary costs. However, we do expect to drive meaningful, incremental structural savings across our various operational excellence initiatives, including across our global sourcing activities. For the full year 2021, we expect approximately $140 million of incremental operational excellence savings. Shifting to new product development. Even through this downturn, we remain committed to investing in new products and solutions that help our customers solve their most complex challenges. In 2020, we invested $246 million in research, development, and engineering, approximately 5.5% of sales. These investments led to outstanding innovation and dozens of new product launches. In the fourth quarter, our Vitality Index, or the percentage of sales generated from products introduced over the last three years, was an impressive 25%. In 2021, we expect to invest approximately $270 million or 5.5% of sales in research, development, and engineering to enhance our position as a global technology leader. This is a 10% increase over 2020 RD&E spend. Finally, I want to touch on our acquisition strategy. Prior to the onset of the pandemic last year, we acquired IntelliPower, a leading provider of high reliability, ruggedized uninterruptible power systems for mission-critical defense and industrial applications. IntelliPower has integrated nicely into our power systems and instruments division and is performing well. While deal flow in 2020 was impacted by the pandemic, we are seeing continued improvements in the M&A markets and are managing a strong pipeline of acquisition targets across a broad set of markets. As Bill will discuss shortly, AMETEK has significant balance sheet capacity, and when combined with our robust cash flow generation, provides us with meaningful capital to support our acquisition strategy, which remains our number one priority for capital deployment. Now shifting to our outlook for the year ahead. While we remain cautious in the short-term, given the uncertainty and the timing and pace of the recovery, we're confident in the strength of our businesses and our ability to manage through these uncertain times. We continue to manage our businesses safely and prudently while ensuring continued investments in key growth initiatives. For the year, we expect both overall and organic sales to be up mid-single digits versus 2020. Diluted earnings per share for the year are expected to be in the range of $4.18 to $4.30, up 6% to 9% compared to 2020. For the first quarter, we anticipate continued year-over-year impact from the pandemic with overall sales down low to mid-single digits and first quarter earnings of $0.97 to $1.02 per share, flat to down 5% versus the prior year. In summary, the strength of the AMETEK growth model, the asset-light nature of our businesses, our leading positions in attractive niche markets, and our world-class workforce will continue to drive long-term sustainable success. I'm confident that we are emerging from this unprecedented economic environment even stronger than we were before. Again, I would like to thank all of our employees for their continued hard work and tremendous efforts as we manage the ongoing global crisis. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter. Then we'll be glad to take your questions.

Thank you, Dave. As Dave highlighted, AMETEK had an outstanding finish to 2020 with record operating performance and a high quality of earnings in the fourth quarter. I would also like to thank and recognize all of my AMETEK colleagues for their significant contributions in 2020. The way our teams persevered through the challenges of the past year was truly impressive. With that I will provide additional financial highlights for the fourth quarter and the full year, but we'll also provide some additional guidance for 2021. Fourth quarter general and administrative expenses were $17.7 million, up modestly from the prior year. For the full year, G&A was down 11% from 2019 due to lower compensation costs and other discretionary cost reductions. As a percentage of total sales, G&A was 1.5% in both years. For 2021, general and administrative expenses are expected to be up approximately 10% due primarily to the return of temporary costs, including compensation. The effective tax rate in the fourth quarter was 20.1%, up from 17.6% in the fourth quarter of 2019. The difference in tax rate was due primarily to the finalization of tax returns in each of the years. For 2021, assuming the current tax regime, we anticipate our effective tax rate to be between 19% and 20%. As we stated in the past, actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate. Our businesses continued to manage their working capital exceptionally well. Operating working capital was an impressive 14% in the fourth quarter, down 330 basis points from the 17.3% reported in the same quarter last year, reflecting the outstanding work by our teams. Capital expenditures were $37 million in the fourth quarter and $74 million for the full year. Capital expenditures in 2021 are expected to be approximately $110 million. Depreciation and amortization in the quarter was $65 million and for the full year was $255 million. In 2021, we expect depreciation and amortization to be approximately $260 million, including after-tax acquisition-related intangible amortization of approximately $117 million or $0.50 per diluted share. As Dave highlighted, our businesses continue to generate tremendous levels of cash flow. Operating cash flow in the quarter was a record $386 million, up 13% over last year's fourth quarter. Free cash flow was also a record $349 million, up 16% over the same period last year, resulting in a free cash flow conversion of 158% of net income. Cash flow for the full year also set new record levels. Operating cash flow for 2020 was $1.28 billion, up 15% over the prior year and free cash flow was $1.21 billion, a year-over-year increase of 19%. Full year free cash flow conversion was 158% of net income adjusted for the Reading Alloys gain. Total debt at December 31st was $2.41 billion, down from $2.77 billion at the end of 2019. Offsetting this debt is cash and cash equivalents of $1.2 billion. Our gross debt to EBITDA ratio was 1.8 times and our net debt to EBITDA ratio was 0.9 times at year-end. We enter 2021 with approximately $2.6 billion in liquidity to support our growth initiatives. This liquidity, along with our strong balance sheet and no material debt maturities until 2024, enables us to manage the continued effects of the economic downturn, while also deploying meaningful capital on strategic acquisitions. To conclude, our businesses performed exceptionally well in the fourth quarter and throughout the year, delivering a high quality of earnings in a very challenging environment. Our outlook for 2021 and beyond remains positive, given our strong financial position, our proven growth model, and our world-class workforce.

Thank you, Bill. Andrew, we're now ready to take questions.

The first question comes from the line of Allison Poliniak with Wells Fargo.

Hi guys, good morning.

Good morning, Allison.

Just obviously ending the piece on the $2.6 billion of liquidity, as you think of that M&A pipeline today, 2020 and even the beginning of 2021 there have been a lot of noted challenges. Has that caused you to alter sort of what's attractive in your mind and towards the AMETEK portfolio?

That's a great question, Allison, and not really. I mean, M&A remains our top priority for capital allocation and we feel there's going to be substantial opportunity for us. As you mentioned with the liquidity and our cash flow, we have a very strong balance sheet and we're really positioned to use that as a lever to increase our earnings. We're seeing an uptick in pipeline opportunities. You started to see some of the pent-up demand happen in Q4; the market is very hot, we're maintaining our discipline, but we're working on deals of all sizes. We have some larger deals we're working on and we have some AMETEK typical size deals. We even have a couple of small technology acquisitions we're looking at. So, I would say we've never been busier on M&A and we're looking at it the same way. We think deploying our capital on M&A is the best way to get our shareholders return.

Now within that, are there any verticals that have, I guess, increased in importance in your view just given what's happened?

Yeah, I think we have 42 business units and they all develop an acquisition plan and we're looking at all of those. We're certainly seeing properties come available in all areas. We're also looking at some places where we can get a high return on capital. So I'd say that our bias is toward more technology deals, but not necessarily a vertical market. We're looking at all of them right now.

Agree. And then just last, on that temporary cost savings, I know Bill you talked about G&A being up 10%. Should we layer that in more so in the back half, how should we think of that cadence of that coming back?

I'd say primarily that the temporary costs with some small exceptions in the first quarter as we continue to see the effects of the pandemic, they're going to be coming back basically I'd say evenly across the year, a little bit lower in the first quarter.

Great. Thank you.

Thank you.

Thank you. And our next question comes from the line of Deane Dray with RBC Capital Markets.

Thank you. Good morning, everyone.

Good morning, Deane.

Hey, nice, strong finish to the year. I would like to hear what the approach was this time to providing guidance, I mean, there's still so much COVID uncertainty in the macro so what was different this time as you frame guidance and maybe give us some insight into how the cadence of the monthly sequential improvement that you saw this year?

Sure. Thank you for your comments on the quarter. We sat back near the end of the year and into January. There were situations that occurred where you had to close down your plants for a couple of days, get everyone tested, clean it, and people were bringing the virus to work, I'll say. It created a difficult operating environment. And certainly, it made us think through giving guidance for the quarter and for the year. But as we thought through it, and we were executing well, so well that we got confident that we're able to operate and execute with the virus and we have good processes and protocols in place. We're seeing demand pick up later in the year and we are assuming and that all went into a discussion. We talked about it several times, but we feel comfortable with the guidance that we're giving and we feel confident that we're going to be able to execute, and we feel the processes and procedures we've developed are allowing us to operate safely. We're also feeling an uptick and we're looking for the short cycle businesses and markets and seeing them trend up and we're assuming that's going to happen for us a couple of quarters later.

That's helpful. And if we're looking at the first quarter guide, is there any of the usual seasonality in effect? I mean, just with COVID it's uncertain how much is a reaction to coming back the recovery, but is there any of the usual seasonality in effect?

In Q1, our processed businesses typically perform better in Q4, leading to a revenue drop in Q1 due to seasonality. Additionally, we see an impact on the bottom line from the contribution margin effect, reduced Reading, and adjustments in compensation and G&A costs. Consequently, our top line guidance for Q1 is down by low to mid-single digits, with an earnings range of $0.97 to $1.02. Regarding the cadence, it followed a typical trend for us, with orders increasing sequentially each month, peaking in December as our strongest month of 2020. Sales reflected a similar pattern, with December also being a strong month. In January, orders and sales ended up solidly supporting our Q1 and full-year guidance. Looking back, we had organic growth of about minus 22% in Q2, which improved to minus 14% in Q3 and reached minus 8% in Q4. Moving from minus 8% organic growth to low to mid-single-digit organic growth indicates ongoing improvement. While we have a seasonality issue to consider, overall, there's a steady sequential improvement in our business.

Yeah, that really sounds and looks like a V-shape recovery to us. I know there is a lot of hard work in getting that done; I appreciate it. You also answered my question about January, so I'm all set. Thank you very much.

Thank you, Deane.

Thank you. And our next question comes from the line of Josh Pokrzywinski with Morgan Stanley.

Hey, good morning guys.

Hey, Josh.

Dave, just on the incremental margin expectation. I know there's a lot of moving pieces, some of what you touched on and probably chief amongst those is maybe to start the year, organic growth no need to get out ahead of yourself on expectations, but as the year progresses or as growth starts to accelerate, what should we think of as kind of the underlying incremental margin for AMETEK right now? I know that with small numbers on the growth, it kind of gets distorted by other items, but what's the real number as we move forward?

Yeah, I think that's a great question. And you will recall that we talked about it last quarter. We had about $90 million of temporary costs that we're going to have to fit back into the budget model this year. What it turns out is that we got really strong OPEX cost reductions of $140 million. On top of that, we have continued stronger pricing and when you take the organic growth combined with OPEX structural savings combined with the pricing, we're able to absorb the temporary costs coming back to the P&L and end up with an incremental margin of about 35%. Now, typically AMETEK would have a bit higher incremental margin, but the 35% is a solid number and it includes absorbing all the temporary costs. We feel comfortable with the margin forecast that we have for 2021. We think core operating margins will be up about 40 basis points. We believe the incremental margins will be up about 35%.

Got it, that's helpful. And then just on the end markets themselves, obviously a pretty heady cocktail of businesses inside the portfolio. Given that this has been such an atypical downturn and recovery, anything that you would call out as maybe being ahead of normal kind of recovery trajectory or behind for that matter relative to some of these early mid and late cycle markets that you guys participate in?

Not really. I think the military market has been very strong for us, and we expect that to continue into 2021. We're observing an increase in the semiconductor market, which is not unusual. Many are noticing this, but we have some technology that is more connected to EUV, the next innovation in semiconductors. We're seeing some research demands in that area, and the business appears solid for us. Overall, everything is performing as we anticipated, and we also have mid and long cycle businesses alongside aerospace. We do not expect the commercial aerospace business to recover significantly; it's projected to remain flat to slightly up in low single digits for 2021. Most of the other markets are expected to rise in mid-single digits.

Yeah, that's great detail. Thanks, Dave.

Sure.

Thank you. And our next question comes from the line of Nigel Coe with Wolfe Research.

Good morning. I wanted to sort of pick up on the FY 2021 outlook; anything by geography that you've called out next year in your plant process? I'd be particularly interested in what your views are on the U.S. and China markets.

Yeah, good question. I'll start with Q4. In Q4 there were really mixed trends across geographies with Asia returning to strong growth and Europe and U.S. seeing continued sequential improvement, but still showing negative organic growth. Talking about Asia first, we had a great quarter in Asia. We were up low double-digits, with strong growth in both our process and automation businesses. China in particular grew 22% with us in the quarter. So a really big pickup there in the process and automation. In terms of prior quarters, automation picked up, the process business followed, and that had a big impact on EIG margins as you can see in the accounts. When we think about the U.S. we were down low double-digits on broad-based weakness, other than the defense market. Defense market was strong, and when we think about Europe, we were down mid-teens on broad-based weakness, other than the automation business. In the U.S. and in Europe, it was down except for small parts of our portfolio that were bright spots, but in China we really excelled. Looking ahead, we expect incremental improvements in 2021 to continue in Europe and the U.S. The sequential improvements that we've been seeing are going to continue.

Great, thank you. Regarding the M&A pipeline, you talked about a variety of different sizes in there. How do big multiples and multiples currently seen in the public markets affect your confidence in making deals that make sense?

Yeah, we've been able to do it so far, and we have a very strong pipeline, so I'm pretty confident that we're going to be able to keep doing that. There's a lot of yields. The thing that's happened is we're able to drive more synergy than we were a few years or five or 10 years ago. We have a great synergy capability to improve businesses, and we're disciplined. Returns matter to us, and I'm confident that we're going to be able to deploy the cash on M&A.

Right, thanks again.

Thank you. And our next question comes from the line of Brett Linzey with Vertical Research.

Hey, good morning everybody.

Good morning, Brett.

Hey, I wanted to come back to the structural cost programs. Obviously, you guys have done quite a bit over the last couple of years to navigate the pandemic, but also integrate acquired businesses. As we think about the programs in 2021, do those continue on a structural basis or do you think you've got the businesses where they need to be from a cost structure standpoint?

I think there are still structural programs that we're going to execute in 2021. It's ongoing because we're combining businesses and we're implementing acquisition synergies. We've got that $140 million in structural costs and there's $80 million of structural savings. Remember we have spillover from 2020, but there are ongoing programs. The way I look at it is we have over 150 operating facilities and we have a strategic plan on OPEX, and we take the advantages to combine and make things more efficient all the time. 2021 will be no different.

Got it, that's great. And just back to the price cost question, what are you embedding for price via gross price realization for 2021 and how are you thinking about freight, steel, and other raw material inflationary pressures against that? Any items in terms of the supply chain that are a worry point that we should be thinking about or constraining your ability to serve customers?

Good question. For all of 2020, we had about 1.5 points of price and total inflation was about 1 point, so it was a 50 basis point spread for all of the year. In Q4 of 2020, our pricing ticked up a bit; it was a little higher than 1.5%. That added to margins. For 2021, we see slightly higher pricing than 1.5%, but we're going to have slightly higher inflation. So you think about it as a 50 basis point spread, a little higher price, a little higher inflation. We're seeing commodity price inflation and we are seeing transportation costs, but we've got them under control. We have very good supply chain people and we've got that factored in, and with our highly differentiated portfolio and our leadership position in these niche markets, we have those kinds of costs; we're typically able to pass them on to the customer. I've been pleased to see our pricing hold up throughout the pandemic. Now in terms of material shortages, there are some issues in the semiconductor market; we've seen the automotive industry's challenges recently and our supply chain people are on top of that and working it, but it hasn’t cost us any missed deliveries or anything like that. It's something to manage, and an issue we are working on.

And just one more on prices, is it fair to say with the exit of Reading that your volatility on price up and down has dampened somewhat as part of the total portfolio? Is that fair?

That’s exactly right, Brett. You are spot on.

Got it, okay. Great, I will pass along. Thanks.

Thank you. And our next question comes from the line of Christopher Glynn with Oppenheimer.

Hey, thank you. Good morning, everybody.

Good morning, Chris.

Nice numbers, I think the balance sheet might look the most ample I have ever seen. So, in my understanding, you usually guide kind of base case revenue with some hedge in the implied margin outlook, and you went through that with Josh’s question. In this case, you're entering 2021 with record backlog and minus 13% organic comp for the full year. I think it suggests mid-single-digit pretty in the bag barring significant macro disruptions. Just want to reconcile the organic comp with the backlog numbers if you could.

Yeah, the backlog number is customer confidence; they're placing orders for the year. It is not just one quarter; customers are getting their orders in for the first couple of quarters of the year. AMETEK, you've covered a long time, we are mid and long cycle businesses, so we typically see the uptick a couple of quarters later. Our automation business is seeing it now, but the long cycle businesses in aerospace and oil and gas are not seeing an uptick. The fact that we have negative organic growth in Q1 and you have four numbers for the year, when you have one number that is negative and you add them up, you're at mid-single digits.

Got it, thanks for that.

Okay.

Thank you. And our next question comes from the line of Scott Graham with Rosenblatt.

Hey, good morning. Great job on the cost side as usual and supply chain. I wanted to ask maybe a little bit more on the cost add backs. Dave, is the plan to add back the entire 90 that you took out? If so, how does that go into the segments?

I don’t think we will restore the entire 90, but I can give you an example. The temporary cost savings in Q4 were $10 million, and by that point, we really ramped up. In Q1, the savings are significantly lower. We will adjust that as we move through the year, but I believe that the temporary costs will become negligible as the year progresses, making them less meaningful. Ultimately, it’s the structural savings that will drive the margin improvement.

Got it, thank you. Would you mind if I squeeze in one more?

Yeah, sure.

In terms of the liquidity number, I mean, Christopher's comment was like, I haven't seen this level of liquidity in your balance sheet in my time. Is there room for some share buybacks if the first half of the year is maybe a little bit slower on M&A than you're hoping? Because I know how disciplined you are there; is there room for share buybacks in that?

Clearly, our number one priority is M&A. I really think we're going to be able to deploy the capital on M&A but if we can't, we'll find a way to get the cash back to you, either through buybacks or dividends. We have a consistently increasing dividend and we've been opportunistic on share buybacks. But I'm not feeling that way right now. I think there's an incredible acquisition opportunity for us given our liquidity position; we're at a level we haven't been at before. So it's very exciting for me, and I'm very optimistic about the pipeline.

Great, thank you.

Thank you.

Thank you. Your next question comes from the line of Richard Eastman with Baird.

Yes, good morning.

Hey Rick, we don't hear you.

So Andrew, why don’t we go to the next question.

Certainly. Our next question comes from the line of Andrew Obin with Bank of America.

Hi guys, good morning.

Good morning, Andrew.

Hey, congratulations on another great quarter.

Thank you.

Just a question for you on orders; we sort of tried to back into the number from your book to bill. We calculated something like down around 8%. I was wondering if we could talk about the order rates and just maybe give us color by market. I mean, I think it’s sort of highlighted, China, and aerospace, but maybe a little bit more color there?

Yeah, I'll give you the numbers. Our overall orders were down 8%. But organic were down 2%. EIG organic were down 2% and EMG organic were down 1%. So what you backed into with the overall orders was correct, and we had a good organic month at minus two.

Got you, that makes a lot of sense. Thank you. Can you just talk about how you guys are thinking about your own CAPEX spending into 2021 and how you have changed in any way, shape or form, how you think about where you will spend CAPEX on, what you spend CAPEX on in the aftermath of the pandemic?

We plan to spend $110 million on capital expenditures this year. We see opportunities that will yield great returns in terms of growth, efficiency improvements, and expanding our presence in emerging markets. In 2020, we mentioned that we had some expansion projects in these markets that were delayed due to travel restrictions. We ended up spending $74 million that year, although our initial plan was $102 million. Consequently, we spent slightly less than 2% of our budget in 2020, and in 2021 we expect to spend just over 2%. We intend to catch up on some of those delayed projects, as the opportunities are still present, along with new possibilities in other areas. Our target remains around 2% of sales for capital expenditures, and we have a significant number of projects lined up.

And just are you spending anything different on what kind of equipment you're buying? Are you spending more on software? Are you changing your suppliers?

Yeah, I think there's a mix of all that in there, and it's bottoms up from the businesses. Definitely software or digital strategy is driving a lot of that. I think the emerging market infrastructure we're putting in place is driving that. You're right on in the areas. We have a particularly large group of projects, and we're going to get those done this year and we got great returns on them.

Fantastic, great to hear. Thank you very much.

Thank you, Andrew.

Thank you. And our next question comes from the line of Andrew Buscaglia with Berenberg.

Good morning everyone. I wanted to discuss M&A further because I'm interested in your approach post-pandemic. Do you anticipate more medium to large-sized deals being likely? Additionally, is your strategy focused on acquiring undervalued assets or are you looking for opportunistic acquisitions wherever favorable deals arise?

I believe it's a combination of factors. We have raised our revenue targets and are considering acquisitions that fall in the $200 million to $400 million range, which we classify as significant deals. However, we are not looking at acquisitions the size of AMETEK or even half of that. We believe larger deals are more challenging to create value from. While there are smaller deals, as our company grows, so does the focus on technology acquisitions that can enhance our organic growth. We are also considering opportunities that are closely aligned with our current positions, which can yield high returns on capital. Additionally, there are some larger transactions in adjacent markets that could work for us. We have multiple opportunities in each of these areas. We are staying active, cautious in our strategy, and I am hopeful that we will effectively deploy our capital to strengthen our business.

Okay. Can you remind us what was medical as a percentage of sales this year in 2020? And then can you just highlight what that area I think is pretty interesting as a budding platform for you guys? What are you thinking about that going forward?

Yeah, medical sales for 2020 were in the range of 15% of sales, approximately $700 million. We have businesses that are doing very well in that area and their niche positions like all of AMETEK, and there are expansion opportunities there. We are actively looking at the healthcare medical space, and we'd like to see that grow as a bigger percentage of the company.

Thank you guys.

Thank you.

Thank you. And our next question comes from the line of Joseph Giordano with Cowen.

Hey guys, good morning. This is Francesco on for Joe.

Hello Francesco, good morning.

Can you guys talk a little bit about your expectations on aerospace? Do you think this is coming to a bottoming out soon, and what are the mix implications going forward?

Yeah, it's a great question. Our aerospace business is one of our more profitable businesses. It is definitely greater than the company average. That was before the pandemic and right now. The team has done an excellent job of realigning the cost structure; lower volume, but still very profitable and more profitable than the average AMETEK business. So we think any change in volume is going to result in high contribution margins because we have reduced the cost structure. The second point is there's a distinctly different demand pattern that we've been talking about all along. About half of our business in aerospace and defense is in the military space. That business was up mid-teens in the fourth quarter. We think we still see growth in 2021, but it'll be more mid-single digits. In the commercial space, that business was down about 35% in the fourth quarter, down about 30% for the entire full year. For 2021, we're saying the commercial aerospace business is flat to up low single-digits. The commercial aerospace business is impacted by many variables impacting demand, including government support, airline capacity decisions, and overriding all the competence of the flying public; it's very difficult to predict that when the pandemic is still ongoing. We're pretty conservative about how we are looking at that. The management team we have in aerospace is outstanding. Eventually, the commercial business is going to come back; I don't think it's going to be 2021; I think it's going to be beyond that, and our guidance reflects that. We've really done the hard work and right things in our aerospace business. We're poised even for small incremental sales growth to deliver good margins and eventually that long cycle business will pick up and drive the earnings of the company.

Great, that's extremely helpful. Thank you very much.

Okay.

Thank you. And our next question comes from the line of Richard Eastman with Baird.

Alright, thank you. Try this one more time.

Rick, I think we lost you again.

Not sure what happened there. Hey, just a quick thought, Dave, when we talk about reconciling our segment growth to the AMETEK core growth outlook for 2021. We're kind of at 3% to 5%. Is EIG, I presume EMG, with process coming back stronger, does EMG end up at the high end of maybe a 3% to 5% core 2021 growth rate?

Yeah, we gave a mid-single-digit range. For me, that says between 4% and 6%, not 3% to 5%. But in that 4% to 6% range, both of the businesses are going to be in that range. Certainly EMG is going to probably start out a little better in the year, but we think when we end the year, they're both going to be plus mid-single-digit growth.

Dave, when I run that math through the numbers here, I look at both segments of the business perhaps being at a revenue rate at the end of 2021 that's below 2019. And I guess my thought is there that the longer cycle, mean aerospace would be below and then would oil and gas still be projected to be below 2019 level; are there any other?

Oil and gas is expected to be lower, but we are anticipating a strong 2022. Currently, in the fourth quarter, our defense business showed positive organic growth, along with some of our research units like the materials analysis division, which was also positive organic. Our UPG business Zygo, the Telular business, and our automation business all reported positive organic growth as well. As we progress through the year, this may change. However, despite a strong second half and performance in some markets, we will not return to 2019 levels in 2021.

Yes, fair enough. When you talk about defense, Dave, is that all aerospace defense, or is there anything else that you're capturing in that?

No, it is aerospace defense; we do have some land-based programs within aerospace, but it’s all part of that business, that's right.

Okay, thanks again. Thanks for tolerating the problems.

Great, thank you, Andrew. As a reminder, a replay of today's webcast may be accessed in the investor section of ametek.com. Thanks and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.