Welcome to the Second Quarter 2022 AMETEK Earnings Conference Call. My name is Richard, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session. I will now turn the call over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Mr. Coleman, you may begin.

Thank you, Richard. Good morning, and thank you for joining us for AMETEK's second quarter 2022 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will be making 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 2021 or 2022 results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill, and then we'll open it up for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK had another excellent quarter, with stronger-than-expected organic sales growth, outstanding operating performance, robust margin expansion, and record earnings. Importantly, demand remains strong and broad-based across our diversified niche markets, leading to impressive organic order growth and a record $3.1 billion backlog. Given our second quarter results and our outlook for the back half of 2022, we have increased our earnings guidance for the year. Second quarter sales were a record $1.51 billion, up 9% over the same period in 2021. Organic sales were up 12%. Acquisitions added a point, and foreign currency was a 3-point headwind in the quarter. Organic orders were up a very strong 11%, despite a highly challenging prior year comparison. Book-to-bill was 1.09 in the second quarter, our eighth consecutive quarter of positive book-to-bill. Operating income in the quarter was a record $365 million, a 15% increase over the second quarter of 2021. Operating margins were 24.1% in the quarter, up 130 basis points from the prior year with strong incremental margins. EBITDA in the quarter was a record $444 million, about 15% over the prior year with EBITDA margins of 29.3%. This outstanding performance led to record earnings of $1.38 per diluted share, up 20% versus the second quarter of 2021 and above our guidance range of $1.27 to $1.30, driven by stronger-than-expected sales and excellent operating performance. Let me provide some additional details at the operating group level. First, the Electronic Instruments Group. Sales for our Electronic Instruments Group were $1.03 billion, up 10% from last year's second quarter. Organic sales were up 12% in the quarter, with foreign currency headwinds more than offsetting acquisition contributions. Organic growth remains very strong across our EIG businesses with particularly impressive growth across our Ultra Precision Technologies and P&I division. EIG's operating performance was impressive, resulting in record operating profit and robust margin expansion in the quarter. Second quarter operating income was $265.1 million, up 70% versus the prior year, and operating income margins were 25.8% in the quarter. The Electromechanical Group also delivered strong sales growth and excellent operating performance in the quarter. EMG's second quarter sales were a record $486.3 million, up 7% versus the prior year with organic sales growing 11% in the quarter. EMG's growth was also broad-based, with strong growth across both our EMIP and automation businesses. EMG's operating income in the second quarter was $124.4 million, up 11% compared to the prior year period. EMG's margins were excellent at 25.6%, up 70 basis points versus the prior year. Overall, outstanding results in the quarter, reflecting the quality of our differentiated businesses, the strength of our operating model, and the tremendous efforts of our employees. I would like to thank all AMETEK colleagues for your commitment to AMETEK and for the many important contributions you make to our sustained success. Now let me touch on the supply chain. Overall, the global supply chain remains constrained, with the largest challenging issues continuing to be the availability of electronic components. As we noted previously, we have strategically decided to hold additional inventory of select components to support the strong customer demand and as a hedge against the tight supply chain. Additionally, AMETEK's global sourcing teams are doing an outstanding job working to identify additional sources of supply. While these supply chain issues are leading to higher inflation, we have been able to more than offset this inflation with higher pricing, leading to a strong price inflation spread again this quarter and outstanding margin expansion. The combination of our global supply chain capabilities and pricing power provides us the confidence in our ability to manage through these uncertain times. During our first quarter earnings call, we noted that the COVID-driven lockdowns across parts of China were expected to delay some sales from the second quarter into the second half of the year. These lockdowns caused less impact on the business in the quarter than we anticipated. Due to the excellent efforts of our China team, we were able to operate in a closed-loop system and adjusted our logistics and supply chain networks to support production and shipments. Additionally, during the last two weeks of the quarter, as restrictions were lifted, we were able to resume multi-ship production and recover much of the delayed shipments. The impact of China's zero-COVID policy is something we are closely watching as we need to react and adjust in the future. Thank you to our entire team in China for your tremendous commitment and resilience during this time. Now switching to our acquisition strategy. Our top priority for capital allocation remains the value-enhancing strategic acquisitions. Our M&A pipeline is very strong. Our business unit and corporate development teams are busy managing an active pipeline of attractive acquisition candidates. As Bill will highlight in a moment, we have a strong balance sheet and excellent cash flow providing us with meaningful capacity to support our acquisition strategy, and we expect to be active in the second half of the year. We also remain focused on driving higher levels of organic growth by consistently investing in our businesses to support their strategic growth initiatives. We're seeing the benefits of these investments in stronger organic growth. Our investments in research, development, and engineering continue to yield advanced technology solutions, allowing us to expand our leadership position across our niche markets. One measure of the success of these efforts is our vitality index, which was a very strong 26% of sales in the second quarter. This level of vitality reflects our business' ability to develop new products aligned with compelling growth opportunities. One example of this is AMETEK's expansion into the high-growth areas of precision optics. AMETEK's Zygo business, based in Middlefield, Connecticut, provides leading-edge extreme precision optics for the design and protection of very large complicated aspheric lenses. These capabilities supported the manufacture of 18 hexagonal-shaped mirrors, which make up the James Webb Space Telescope's primary mirror. The James Webb Telescope recently produced the deepest and sharpest infrared images of the deep universe. Truly amazing images due in part to Zygo's capability. Zygo also provides advanced optical systems for use in the next generation of semiconductor production equipment. Their incredibly precise mirrors are playing an important role in supporting the development of extreme ultraviolet optics for the next generation of semiconductor technologies. Just two of the many examples across AMETEK of the unique and highly differentiated capabilities and technologies we provide our customers. Now turning to our outlook for the remainder of the year. With our strong results in the second quarter, continued solid order momentum, and record backlog, we have increased our full-year earnings guidance. For the full year, we expect overall sales to be up high single digits, with organic sales now also expected to be up high single digits versus our prior guidance of up mid-to-high single digits. Diluted earnings per share for the year are now expected to be in the range of $5.46 to $5.54, up 13% to 14% compared to 2021. This is an increase from our previous guidance range of $5.34 to $5.44 per diluted share. For the third quarter, we expect overall sales to be up in the high single digits compared to the same period last year, and third quarter earnings are expected to be in the range of $1.36 to $1.38 per diluted share, up 8% to 10% versus the prior year. While we are closely monitoring the various macroeconomic headwinds, we are not seeing slowing in our businesses as demand remains solid and our businesses are operating well. We are confident in our ability and improved outlook for the year, given our strong backlog, ability to offset inflation with price increases, and outstanding operating capability. In summary, AMETEK's second quarter results were excellent. Our businesses are well-positioned with differentiated technology solutions serving a diverse set of growing niche markets. Our organic growth initiatives are driving higher levels of growth, and our portfolio is aligned with attractive mid- and long-cycle markets. Additionally, our asset-light business model and strong cash flow provide us the flexibility to navigate challenging environments while continuing to deploy capital and drive increased shareholder value. AMETEK remains firmly positioned to deliver long-term sustainable growth. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, and then we'll be glad to take your questions.

Thank you, Dave. As Dave noted, AMETEK delivered excellent results in the second quarter led by strong sales and orders growth and tremendous operating performance. Let me provide some additional financial highlights for the quarter. Second quarter general and administrative expenses were $24.6 million, up $2 million from the prior year. As a percentage of total sales, it was 1.6%, in line with the second quarter of 2021. For the full year, general and administrative expenses are expected to be up modestly from 2021 levels and approximately 1.5% of sales versus 1.6% of sales in 2021. The effective tax rate in the second quarter was 18.5%, down from 20.6% in the second quarter of 2021. The lower rate this quarter was driven by lower tax on foreign income. For 2022, we anticipate our effective tax rate to be between 19% and 19.5%. As we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively, from this full year estimated rate. Capital expenditures in the second quarter were $26 million, and we continue to expect capital expenditures to be approximately $125 million for the full year, or about 2% of sales, reflecting our asset-light business model. Depreciation and amortization expense in the quarter was $77 million. For the full year, we expect depreciation and amortization to be approximately $315 million, including after-tax acquisition-related intangible amortization of approximately $148 million or $0.64 per diluted share. For the quarter, operating working capital was 18% of sales. Operating cash flow was $236 million, and free cash flow was $210 million in the second quarter. We expect approximately 100% free cash flow to net income conversion for the full year. Our working capital and cash flow results reflect our strategic decision to add select inventory in certain areas to support continued strong customer demand and to hedge against the longer lead times we are experiencing across the supply chain. During the second quarter, we repurchased 1.44 million shares of stock in the open market for approximately $173 million. Year-to-date, we've repurchased approximately 2.6 million shares, for a total of $330 million. As a reminder, our top priority for capital deployment remains strategic acquisitions as we believe it provides AMETEK and our shareholders with the best returns on our capital. Total debt ended the second quarter at $2.5 billion, down slightly from $2.54 billion at the end of 2021. Offsetting this debt is cash and cash equivalents of $349 million. At the end of the second quarter, our gross debt-to-EBITDA ratio was 1.4 times, and our net debt-to-EBITDA ratio was 1.2 times. As Dave noted, AMETEK has a robust balance sheet with no material debt maturities due until 2024, modest levels of leverage, and strong cash flows. As a result, we are well positioned to deploy meaningful capital investment in our acquisition strategy with approximately $2.3 billion of cash in existing credit facilities to support our growth initiatives. To conclude, our businesses performed exceptionally well in the second quarter, delivering strong sales growth, outstanding operating performance, and a high quality of earnings in a very challenging environment. We remain well positioned going into the back half of the year, and we'll continue to invest strategically in our long-term growth initiatives.

Great. Thank you, Bill. Richard, could we please open the lines for questions?

And our first question on the line comes from Allison Poliniak from Wells Fargo.

Just going back to you, and obviously, very strong orders. You mentioned you're really not seeing any slowing. But has there been any change in the cadence intra-quarter in terms of what you're seeing coming in, whether region or end market? Just any color there?

We had strong orders every month of the quarter, with June being the strongest. We just finished July, and our results were robust and aligned with our expectations. There continues to be order strength across both groups, with EIG up 11 and EMG up 9. Overall, organic growth increased by 11. We're experiencing healthy growth in all major regions worldwide, and all the sub-segments we operate in are performing well. Additionally, we have a record backlog of $3.1 billion, which is up about 80% compared to just before the COVID pandemic. We're feeling optimistic and aren't seeing any weakness at this time.

And then there was obviously a step-up in inventory again this quarter sequentially. I suspect that's due to some of the orders that you're seeing coming in. How should we think about inventory level as we look to the back half of the year? Is it stabilized? Or is it really just dependent on the orders coming in and some of those supply chain issues that are still out there?

Yes, I think you've hit on it there, Allison. With the strong order rate coming in, we've got to make sure we have the inventory to support those orders. And we are still concerned about supply chain, and we're going to continue to react to that. So I would say you've hit the nail on the head, and I think we've increased them now. And we'll continue to manage it closely. Obviously, you know we're very focused on running lean, but we've got to make sure we're supporting the orders that are in place.

Our next question on the line comes from Mr. Josh Pokrzywinski from Morgan Stanley.

Just I guess first question on Europe. I guess the totality of AMETEK is doing well. You mentioned the orders growth. Anything, I guess, underneath the surface or a KPI that you're watching there? Because obviously, more than macro challenges, things like energy costs just up a lot. Just wondering any way that, that's manifesting itself in your business?

Last quarter, orders were up 9% in Europe. And we had notable strength in our automation and aerospace businesses, and the aerospace businesses really started to accelerate. So it feels pretty good from a demand perspective right now, but with the geopolitical things going on in Russia and Ukraine and the fuel costs in Germany, we're certainly watching that very closely as that may be a sign of the first place for it to turn down for us. But right now, it's not. Europe is strong, and we had a good quarter there. Again, Europe was up 9%.

On the aerospace and defense side, I've noticed that many supply chain bottlenecks are worsening. While this may not directly impact what you are producing, are you experiencing any disruptions in your supply chain? Are your customers requesting you to slow down deliveries because they are waiting for other components and do not want to accumulate inventory unnecessarily?

Right now, it’s quite the opposite. Our orders in our aerospace & defense business were up low double digits in the quarter. Our commercial business was up stronger, and it grew mid-teens, with the strongest growth within the commercial aftermarket. The defense market was up low single digits for us, better than in the first quarter. So we're looking at a very strong second half, and most of the interactions we have with our customers are asking us for more. So we're not seeing any slowdown in demand or anything. I think that market, because of pent-up demand, has a long cycle of growth ahead of it.

Then just one more question if you don't mind. What was the price in the quarter?

Right. So in the second quarter, our price continued to more than offset inflation. Pricing was about 6% and inflation was about 5% of sales. So we maintained about a 100 basis point spread. The results speak to the highly differentiated nature of the AMETEK product portfolio and our leadership position in niche markets. We think about it as we had 6% volume growth, 6% price growth, and 12% organic growth. So we think it was a really good quarter from that viewpoint.

Our next question on the line comes from Nigel Coe from Wolfe Research.

I certainly echo those comments. So just on the third quarter outlook for mid-single-digit sales growth in the context of 12% this quarter. Just wondering, especially with the order rates pretty strong as well, what's covering that mid-single-digit outlook? I'm just wondering if we should be looking at the upper end of the mid-singles if you can be a bit more specific there.

If you dig into it, the guide actually reflects mid-to-high single digits because we have some currency headwinds. Really, quarter three is kind of a carbon copy of quarter two. We have a little bit of seasonality in quarter three because of the European exposure. The difference between quarter two and quarter three, we're expecting a little higher tax rate. So we would consider it appropriately conservative, but there are some dynamics with tax sequentially and the organic rate is mid-to-high, so it's not mid currencies holding us back a bit.

The comparison is more challenging, but if you adjust for it, 12% might drop to around 9%. I'm curious about your management approach to this. Regarding the margins, they appear to be quite strong. It seems that the price-cost relationship is at least neutral to margin rates, not in terms of dollars, but in margin rates specifically. Can you confirm that? Additionally, I'm interested in whether there was any geographic impact on the margins this quarter, considering Europe is performing well.

No. I mean, when I look at the margins for the whole business, it was up 130 basis points as reported and 140 basis points core. You really see strong flow-through from price. When you look at total cost of sales, I think the margins improved there. EMG's margins were up 70 basis points, and EIG margins were up 150 basis points as reported. We had very healthy core incrementals of 40% and reported 38 core incrementals at 40%. It feels like we're more than offsetting inflation with price, and we're getting margin expansion. So I think it's a great margin story, and our teams are really executing in their business as well.

Our next question on the line comes from Brett Linzey from Mizuho Americas.

First question is just on inventories and more channel inventories. I know a lot of your businesses tend to be two to three linkages upstream from end use or final assembly. Just curious what level of visibility you might have into some of those value chains and your assessment versus those levels relative to end demand?

Yes. In our Electronic Instruments Group, we primarily sell directly to end users, which gives us clear visibility of the end user. Our products are tailored specifically, so we're not facing issues with double ordering; while there may be some overordering, it's not for the purpose of stocking up since our products are costly and highly specialized. Regarding our EMG business, it operates a few levels back in the supply chain as you mentioned. There could be potential backups there, but we are not currently observing any, as shown by our strong growth in orders. It seems we are focusing on the right areas, and demand continues to increase, making us optimistic about the second half of the year.

And then just back to price cost. So price is 6%. How are you thinking about some of the wraparound price into early '23 based on some of the mid-year actions? And just curious on price cost, what that might look like in terms of a tailwind as we get into '23 and what the kind of volume or incrementals or decrementals could look like for the algorithm for '23?

Right. It's a little early to start talking about 2023, but the same pricing strategy that we've employed will continue. When we think about the second half of the year, we want to maintain that 100 basis point spread that we had in the second quarter. The difference between 6% and 5% of sales is 100 basis points. We want to continue that. The second half of the year, and the future pricing is going to be a big part of our budget discussions, and we think inflation is going to be here for a while. So that's going to influence our thought process, and I would expect to maintain a positive spread into next year also.

And just a quick follow-up. Would you say the complexion of a lot of your pricing actions is more list normal course versus surcharges? Or anything you can share there?

It's a combination of both. While we have a list price, in many cases we are linked to specific indexes and shipping costs, which could lead to some fluctuations in commodity prices. However, the majority of it is reflected in the base price. We aim to incorporate these costs into the base price, but there are times when we need to be transparent with our customers and adjust prices when costs decrease. Nonetheless, we plan to maintain that 100 basis point spread for the second half of the year.

Our next question on the line comes from Jeff Sprague from Vertical Research.

I just want to talk about the kind of the deals that were done last year that have sort of kind of anniversary here in the last month or two or three. How they're performing now as they kind of last year and our anniversary into the portfolio? And any change in your view of kind of the accretion outlook for those businesses?

No. I think the outlook for all the businesses is positive, and we're really pleased to have bought them all. The management teams are now getting embedded into AMETEK. The business has had the same problems with the supply chain that we've experienced across our businesses, and those problems were more experienced in the Electronic Instruments Group. They were impacting us a lot. But the second half of the year, we took the opportunity to realign those businesses and get them integrated into AMETEK. For the second half of the year, I really think we're going to have some significant momentum related to those deals, so we made a lot of progress during the first year. I think into the second half of this year and also 2023, I really see significant momentum.

And I missed the first couple of minutes of the call, David. Did you say anything about kind of the current deal pipeline or kind of potential actionability on things as you look here into the balance of the year?

No, that's a good question, Jeff. We remain very active and are exploring multiple deals. As always, our focus is on long-term returns. I’m excited about our debt profile, with about 86% of our debt being long-term and fixed at a 3.2% interest rate. If interest rates increase, it will have limited impact on us. As Bill mentioned, we have no debt maturities in the next couple of years. We also recently upsized our revolver, putting us in a strong position to execute our M&A strategy. Our pipeline is robust, and I expect to share updates on M&A in the second half of the year.

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

Just another question on price and volume. In terms of your guide raise, how much of it was price and how much was better volumes in the second half? And I appreciate that there is an FX headwind there as well.

Yes. So, we're not giving that information out. It's really tough to understand that. What we're saying is we'll maintain a spread of 100 basis points positive. It's very complicated when you take into account FX and our different mix of businesses and what's happening in the market with some commodities starting to come down. But what we're saying is we'll maintain a 100 basis point spread between price and inflation in the second half of the year.

And just to follow up on Jeff's question on M&A. You have a sort of bottoms-up; a lot of your M&A activity is sort of bottoms-up in the organization. Are you hearing anything new from your business units as they chase these market leaders? Do you take a look at stacks? Are you seeing private equity back away, any change in behavior, anything different about this market versus where we were maybe 6 to 12 months ago?

I mentioned in a prior call that the multiples were very high. For quality assets, they're still attracting a bit of a premium. However, the multiples between public and private markets are converging. If you need to finance a deal and AMETEK can utilize its balance sheet, it gives us an advantage right now since there are challenges in obtaining financing that are affecting some private equity potential buyers and sellers.

Our next question on the line comes from Mr. Matt Summerville from D.A. Davidson.

This is Will Jellison on for Matt Summerville. So on the call, you mentioned the supply chain actions that you're taking, including some supply diversification. I was wondering, bigger picture, across the last year plus of supply chain challenges you faced. Are there any best practices that you've learned about throughout the organization that you would want to sustain even when supply chains reach more normalized levels in the future?

It's a great question. We learned several things. Our business model is fundamentally sound because our distributed business model, having those committed P&L managers running their business units, they drive their businesses effectively. There's a good interaction between them and the centralized corporate supply chain team. We also learned that our engineering capability is first-rate, and they saw shortages through redesign and qualified component substitutions through this whole time. We did probably one thing that will change is how we purchase electronics going forward. We're looking to leverage our spend more and develop closer relationships with both the semiconductor chip manufacturers and the distributors. So it will be a little bit of a change in that area. The key from my view is our distributed business model. We have people owning these businesses and making good decisions, and our strong engineering capability is a key factor to help us solve these shortages and redesign, and find qualified component substitutions.

Yes, that was great. And absolutely. And then as a follow-up, I was wondering to the point that you made about having content on the James Webb Telescope, I was wondering if events like that, that are highly visible and of historic nature, do those start to meaningfully increase the visibility of what a business like Zygo offers to the extent that it catalyzes more orders than you might otherwise have?

I think in the research community, it really stands out and it does drive customers to us. The other thing I mentioned in the EUV market, designing and developing optics there, there's really only a couple of people that can do it. Zygo is already well known, but those type of events do help us, and they drive customers to us because they see our expertise. It also is positive for our employees to see that kind of thing and how we're improving the world. So it does help, and we have a lot of businesses like that around AMETEK.

Our next question comes from Mr. Joe Giordano from Cowen.

I'm curious about your perspective on the chips. How do you view the impact? Are you indifferent about where a plant is built globally, or do you find it beneficial that the U.S. isn't specifically incentivizing it?

Yes. I'd say in general, we're agnostic. Wherever it's built in the world, we're going to have our shot at it. What's happening now is there’s probably going to be some incremental capacity put in to satisfy things like security and national defense. With more opportunities, we’ll certainly get a fair share of our business there. Yes, I think on our process businesses, organic sales for process were up low double digits in the quarter. They had very broad-based growth across essentially all process businesses. Growth in the quarter was particularly strong across Taylor Hobson, Zygo, and our fluid analysis businesses. Now we're expecting organic sales for process businesses to be up high single digits. So we raised that. Aerospace & defense: Organic sales for our aerospace & defense businesses were up low double digits growth across each segment. Total commercial sales were up mid-teens in the quarter, with strong growth across commercial OEM and aftermarket; defense sales were up low single digits, so stronger in commercial, but defense was growing also. For the full year, we now expect organic sales to be up high single digits for our A&D businesses with growth in both commercial and also defense. Looking at our power & industrial businesses: excellent in the quarter, up mid-teens on a percentage basis with notable strength in our programmable power business, and we now expect organic sales in our power & industrial business to be up high single digits. So that was raised also. Finally, our automation & engineered solutions are also seeing strong growth. We raised the year for that segment also to be high single digits.

Our next question comes from Mr. Scott Graham from Loop Capital Markets.

Yes, so thanks for doing that just now. You saved me a question. Dave, can you just give us the productivity number in the quarter and the expectation for the year?

Yes. Cost savings in the quarter was $35 million, so a really good quarter. We're getting a lot of that through value engineering. We're redesigning some of these things and getting them designed at a lower cost level. That’s helping us a lot. For the year, the cost savings number is $125 million.

No change there?

No change. About half of it's OpEx and half of it's materials.

You provided a more detailed response regarding acquisitions than I've heard before. It seems you are indicating an expectation for more deals in the second half. Could you clarify if there are multiple deals lined up for closing? Do you think your comment was aimed at a specific deal? How close are we to finalizing any? Did we miss out on any? I would appreciate more insight into your thoughts on the second half.

You never can tell with deals, Scott. Things can happen and things can change. But I feel really confident right now because the volume of deals that we're looking at and processing, having some positive interactions are high. They are both the typical deals that AMETEK has and there are some that are on the bigger side within the constraint of the types of deals we look at. We're busy with deals, and our people are really busy. The situation I talked about with our strong balance sheet, the fixed debt, the strong cash flow: we think that's going to be a differentiator for us as we look into the second half of the year.

Our next question on the line comes from Mr. Brett Hardman from Melis Research.

You've already given good color on price cost, but I just wanted to get more of a sense of what you're seeing in terms of cost inflation, particularly in your outlook going forward. Sorry if I missed this, but inflation impact was 4% last quarter, 5% this quarter. You said supply chain is so bad for electronic components in particular, and that inflation will be here for a while. But I'm just wondering, do you expect the inflation impact in general across your business to continue to increase? Or is it plateauing or decreasing as we move through the rest of the year?

That's a good question. What you really see is some things are coming back in, decreasing in price like inflation, like the commodities. But at the same time, you have wages and other areas that are increasing. The net effect is inflation is still increasing. It went from 4% to 5% sequentially in the quarter. Right now, I think that's going to stabilize at that, but it's difficult to predict. That's why we have things in place. We're going to maintain that 100 basis point positive spread. There are different dynamics that are happening right now, where some things are coming back in and some things are still inflating. The net is still increasing costs. But we've got a good system to manage that, but that may change over the next quarter, and we'll tell you about it. But right now, that's where it is.

We have no further questions at this time. I will now turn the call over to Kevin Coleman for closing remarks.

Thank you again, Richard, and thanks, everyone, for joining our conference call today. 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.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.