Good day, and welcome to AMETEK’s Fourth Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Kevin Coleman, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Rocco. Good morning and thank you for joining us for AMETEK’s fourth 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 risk 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 or 2023 guidance 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. I'm very pleased with AMETEK's results in the fourth quarter, and for all of 2022. AMETEK's continued excellent performance reflects the quality of our niche-differentiated businesses, the strength of the AMETEK growth model, and the expanding impact of our organic growth initiatives, and most importantly, the outstanding efforts of our global employees. Thank you to all AMETEK colleagues for your many contributions to our success. We have navigated many challenges over the last few years only to emerge stronger and even better positioned for sustained growth. Our results in the fourth quarter were outstanding. Stronger-than-expected sales growth and excellent operating performance led to a high quality of earnings which exceeded our expectations in the quarter. We ended the year with a record backlog as demand remains solid across our diverse end markets. Organic growth was again very strong in the quarter as our teams are successfully driving key organic growth initiatives across their businesses and expanding their presence serving attractive growth markets. Operationally, we're performing exceptionally well and offsetting inflation with price increases, resulting in strong margin expansion. Additionally, cash flow in the quarter was outstanding, providing us the flexibility to invest in our businesses and deploy capital on strategic acquisitions. Now, on to the results of the fourth quarter and all of 2022, fourth quarter sales were $1.63 billion, up 8% over the same period in 2021. Organic sales growth was 9%, acquisitions added two points, and foreign currency was a three-point headwind in the quarter. Orders were solid in the fourth quarter against a challenging comparison, resulting in a record backlog of $3.22 billion. Operating income in the quarter was a record $398 million, a 10% increase over the fourth quarter of 2021. Operating margins were 24.5% in the quarter, up 50 basis points from the prior year. EBITDA in the quarter was a record $489 million, up 12% over the prior year. And EBITDA margins were an impressive 30.1%. This outstanding operating performance led to record earnings of $1.52 per diluted share, up 11% versus the fourth quarter of 2021, and above our guidance range of $1.45 to $1.47 per share. Now, let me provide some additional details at the operating group level; first, the Electronic Instruments Group. The Electronic Instruments Group delivered continued strong sales growth and excellent operating performance. Sales for EIG were a record $1.16 billion in the quarter, up 10% from the fourth quarter of last year. Organic sales were up 9%, acquisitions added 3%, and foreign currency was a three-point headwind. EIG growth was broad-based with particularly strong growth across our Aerospace & Defense and Ultra Precision Technologies businesses in the quarter. EIG's operating income in the fourth quarter was a record $307 million, up 10% versus the prior year, while EIG margins were a very strong 26.5% in the quarter. The Electromechanical Group also finished the year with outstanding performance. EMG's fourth quarter sales were $466 million, up 4% versus the prior year, with organic sales growing 8%, and foreign currency a three-point headwind. Growth was again broad-based across EMG, with our Aerospace & Defense businesses leading the growth. EMG's operating income in the fourth quarter was $115 million, up 9% compared to the prior year period. EMG's fourth quarter operating margins were 24.6%, up an impressive 100 basis points versus the prior year. Now for the full-year results; overall, performance was outstanding in 2022, establishing annual records for essentially all key financial metrics. Overall sales for the year were $6.15 billion, up 11% from 2021. Organic sales increased 11%, acquisitions added 2%, and foreign currency was a three-point headwind. Operating income for 2022 was $1.5 billion, up 15%. And operating margins were 24.4%, up 80 basis points versus the prior year. While core margins up an impressive 130 basis points, reflecting our ability to successfully manage inflation and supply chain challenges. EBITDA for the year was $1.83 billion, up 15% from 2021, with EBITDA margins a very strong 29.7%, up 100 basis points from the prior year. Full-year earnings were $5.68 per diluted share, up an impressive 17% versus the prior year. AMETEK's performance in a challenging operating environment highlights the proven strength and flexibility of the AMETEK growth model and our ability to successfully navigate through uncertain economic times. Our businesses continue to leverage the key elements of the AMETEK growth model to accelerate global growth, develop innovative new products, and identify and execute on operational efficiency improvements. Additionally, our businesses worked closely with our corporate development team to manage our acquisition pipeline, resulting in a continued strong deployment of capital on strategic acquisitions. In 2021 and 2022 combined, we deployed over $2.4 billion in capital on eight acquisitions, and acquired over $600 million in annual sales. We expect to remain active in 2023 as our deal pipeline remains very strong, and our balance sheet provides us significant financial capacity to deploy capital. In addition to our acquisition strategy, we remain committed to investing in organic growth initiatives and are very pleased with the impact these investments are having on AMETEK's growth. As I highlighted during our last earnings call, AMETEK's portfolio has strategically evolved with increased exposure to higher growth market segments. This portfolio evolution has been driven by our acquisition strategy and by the organic investments we are making in our businesses. In 2023, we expect to invest an incremental $90 million in support of these growth initiatives, including investments across research, development, and engineering, and sales and marketing. One way we measure the success of these investments is through our Vitality Index, which was an outstanding 27% of sales in 2022. Our increased investments in RD&E continue to yield innovative advanced technology solutions, including within our Zygo business. Zygo, which is based in Middlefield, Connecticut, designs and manufactures advanced optical metrology systems and ultra-precise optical components and assembles for a diverse set of end markets, including defense, research, and semiconductor. Zygo partnered with the Lawrence Livermore National Laboratory's National Ignition Facility to provide high-end precision optics in support of their inertial fusion energy testing program, which provides a significant leap forward in the realization of sustainable fusion energy. Achieving these heights of energy production requires the use of highly precise optics and scalable manufacturing processes that were developed in partnership with Zygo. I want to congratulate the Zygo team for their tremendous contributions supporting important advancements in research and technology. Lastly, let me briefly touch on the supply chain issues and inflation. While tightness remains in certain areas, we're seeing improvements in the global supply and logistics. Additionally, although inflation remains elevated, we are also seeing modest improvements versus levels experienced in 2022. As we look ahead to 2023, we will continue to proactively manage our supply chain and remain confident in our ability to offset inflation with price increases. Now, shifting to our outlook for the year ahead, while macroeconomic uncertainties remain, we are confident in the quality of our businesses, the flexibility of the AMETEK growth model, and our ability to navigate through these uncertain times. Additionally, given our record backlog and proven operating capability, we are confident in our outlook for 2023. For 2023, we expect both overall and organic sales to be up mid-single-digits versus 2022. Diluted earnings per share for the year are expected to be in the range of $5.84 to $6, up 3% to 6% compared to last year's results. For the first quarter, we anticipate overall sales up mid-single-digits with adjusted earnings up $1.38, of the $1.38 to $1.42, up 4% to 7% versus the prior year. In summary, AMETEK's fourth quarter and full-year results were excellent, our record backlog, the strength and flexibility of the AMETEK growth model, and a world-class workforce position us nicely for 2023. 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, Bill?

Thank you, Dave. As Dave highlighted, AMETEK had a very strong fourth quarter to complete an outstanding year. In the quarter, we delivered record-level operating performance at a high quality of earnings. Let me provide some additional financial highlights for the fourth quarter and for the full-year along with some additional guidance for 2023. Fourth quarter general and administrative expenses were essentially flat versus the prior year and for the full-year general and administrative expenses were up $6 million, driven largely by higher compensation costs. And as a percentage of sales were 1.5% versus 1.6% of sales in 2021. For 2023, general and administrative expenses are expected to be up modestly versus 2022 levels and remain at approximately 1.5% of sales. The effective tax rate in the fourth quarter was 18.9%, up from 17% in the fourth quarter of 2021. For 2023, we anticipate our effective tax rate to be between 19% and 20% and 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 were $58 million in the fourth quarter, and $139 million for the full year. Capital expenditures in 2023 are expected to be approximately $114 million, or about 2% of sales. Depreciation and amortization expense in the quarter was $89 million, and for the full-year was $320 million. In 2023, we expect depreciation and amortization to be approximately $325 million, including after-tax, acquisition-related intangible amortization of approximately $154 million or $0.66 per diluted share. For the quarter, operating working capital was 18.9% of sales. Cash flow in the fourth quarter was excellent with operating cash flow of $385 million, up 37% versus the fourth quarter of 2021. Free cash flow was also up 37% to $327 million in the quarter, while free cash flow conversion was 106% of net income. Total debt at year-end was $2.39 billion down from $2.54 billion at the end of 2021. Offsetting this debt is cash and cash equivalents of $345 million and during the fourth quarter, we deployed approximately $240 million on the acquisition of RTDS Technologies. Gross debt-to-EBITDA ratio at year-end was 1.2 times and our net debt-to-EBITDA ratio was 1.1 times. As Dave noted, we remain active on the acquisition front with a solid pipeline of acquisition candidates. Given our strong cash flow and modest levels of leverage, we're well-positioned to deploy additional capital. We have approximately $2.3 billion of cash and existing credit facilities to support our growth initiatives. In summary, our businesses performed exceptionally well in the fourth quarter and throughout all of 2022 delivering strong growth and high quality of earnings in a challenging operating environment. AMETEK is well-positioned for 2023, given our strong financial position, our proven growth model, and our world-class workforce.

Thank you, Bill. Rocco, can we please open the lines for questions?

Absolutely. Today's first question comes from Allison Poliniak with Wells Fargo. Please go ahead.

Hi, good morning.

Good morning, Allison.

Can we turn organic investments, the $90 million, if I recall, I think that's a step-down from what you did in '22, just any color there, is there just some conservative nature just given the uncertainty out there, are there unusual projects in '22, just any thoughts on that side?

Yes, that's to start off the year, and there's a potential to do more, but the $90 million was a good number, and it's incremental; keep in mind, incremental over what we've done in 2022. So, it's incremental, and we're making healthy investments in R&D, it's up double digits for the year, and healthy investments for sales and marketing. So, we think the $90 million is appropriate. And, obviously, that can be flexed up or down if required.

Great. And then a lot of concerns, I mean, out there about potentially some weakness showing up in H2. Just any thoughts on your end, what you're seeing in terms of that? Is there anything concerning or sort of popping out that has you a bit worried as we enter the back-half of '23 and into '24?

Not really. Our growth is slowing, but we have record backlogs and are executing well, and we're getting the prices we want, which feels strong and positive to us. Looking towards the second half of 2023, there's less visibility since it's further out, but our backlog is at a record level, usually around 30% of annual sales, and it's currently at about 50% of annual sales. We feel very optimistic and have not seen any signs of a slowdown yet.

Perfect, thank you.

Okay, thank you, Allison.

And the next question today comes from Deane Dray with RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Deane.

I was hoping you'd take us through the key end markets. And then also on the regional updates, it's been interesting, maybe people got too negative on Europe. So, I'd like to know how Europe did. And then China reopening, how does that impact you all?

Sure, Deane. I'll begin with your second question regarding the geographical outlook. We experienced strong, broad-based growth across most regions. The Asia region was flat due to challenges in China. However, our fastest-growing market was Europe, which saw a 12% increase, particularly strong in both our process and aerospace defense markets. In the U.S., we had a robust performance with a 10% organic increase, driven by broad-based strength, especially in our process divisions. As for Asia, it remained flat, but we saw notable strength in aerospace and defense, as well as in process sectors. China experienced a decline in the low double digits during the quarter, impacted by a challenging comparison to the previous year and the Zero COVID policy. Looking ahead, we believe the situation in China will improve with upcoming reopening efforts, and we remain optimistic for the second half of the year. In summary for Q4, we saw strong broad-based growth, with Europe leading, followed by the U.S. While most of Asia performed well, China faced some challenges. Now, regarding the market segment summary, I'll give an overview of the company. In our process segment, overall business grew by high single digits in the quarter, with organic sales increasing by 10%. This growth included contributions from the acquisition of Navitar but was partially offset by foreign currency headwinds. Throughout last year, we experienced broad-based growth in our process businesses, particularly in the Ultra Precision Technologies sector during the quarter. For 2023, we anticipate organic sales in our process businesses to rise by mid-single digits for the year. Next, focusing on Aerospace & Defense, our businesses exhibited a strong finish to the year, with overall and organic sales growing by mid-teens. This marked the highest growth rate of the year for this segment, driven mainly by our commercial offerings, which grew in the high teens percentage-wise, while Defense also performed solidly with low double-digit growth. For all of 2023, we expect organic sales in Aerospace & Defense to increase by mid-to-high single digits, with commercial aerospace growth likely to outpace defense growth. Moving on to Power & Industrial, overall sales grew by high single digits in the fourth quarter, supported by mid single-digit organic growth and the acquisition of RTDS. The quarter saw particularly strong expansion in our programmable power sector. For 2023, we project organic sales for Power & Industrial to be up mid single digits, with similar growth anticipated across both segments. Lastly, I’ll address our Automation & Engineered Solutions segment. Overall sales increased by low single digits in the fourth quarter, accompanied by solid mid-single-digit organic growth, although we faced some currency headwinds in this area. I was very pleased with the growth and performance of Automation & Engineered Solutions in 2022, as they continue to expand into attractive niche markets. Notably, our Engineered Medical Components business observed strong growth during the quarter. In 2023, we expect organic sales for Automation & Engineered Solutions to rise by mid single digits, with similar growth forecasted across both the Automation and Engineered Solutions divisions. That wraps up the company overview. Deane, do you have any further questions?

Yes, as a follow-up, how would you describe the pace of orders, industrial demand, and the size of orders in relation to the normalization occurring for AMETEK's businesses?

That's a great question, Deane. Our overall orders increased by 1.5% during the quarter, and the demand environment feels strong. This is our 10th consecutive quarter with a positive book-to-bill ratio, and we've reached an all-time record backlog, which represents 50% of our annual sales, significantly higher than the usual 30%. It's also an increase of 78% from the end of 2020, putting us in a solid position as we move into 2023. Regarding the nuances you've mentioned, we've previously discussed certain factors affecting our order growth. Firstly, we face challenging comparisons, as our orders have been strong for a long time, with over 20% growth each quarter for the last nine quarters, which has helped build our backlog. Secondly, we anticipated customers would return to more typical ordering patterns now that supply chain issues are easing, and we've begun to see this shift in the fourth quarter. Overall, we are pleased with our order levels for Q4. January started strong, exceeding our expectations and showing solid growth compared to January 2022. Therefore, we feel optimistic about our strong backlog and steady orders, leading us to expect a good year ahead.

It's all really helpful. Thank you.

Okay, thank you, Deane.

And our next question today comes from Brett Linzey with Mizuho. Please go ahead.

Hey, good morning, all.

Good morning, Brett.

Hey. And just wanted to come back to the inventories, some of your peers have been talking about some elevated inventory in some of the OEM channels. Just curious what you're seeing there in some of your served businesses, served markets, and if there's any area of concern there?

Yes, the first point I'd like to make is that when you're looking at customer inventories, a lot of our products are customized, and they're high-value products. So, we don't really have a lot of distributor stocking issues to worry about. That's particularly true in EIG. In EMG, there's more of an OEM deal with the customer base, and that's where you're seeing a bit of the customer ordering patterns normalize. But overall, we think we've got a good handle on it, and we feel pretty good about where we're at.

Yes, okay, that's great. And just shifting to the 2023 outlook, I was hoping maybe you could put a finer point on just the underlying assumptions. How much price do you expect versus volume? And then anything specific on the quarterly phasing, I mean do you think you'll get growth in both the first-half, second-half, or as you work down the backlog, does it begin to decline there in the second-half?

Yes, that's a great question. Our budget model indicates a traditional first quarter, which isn't biased toward the second half. We anticipate growth in each quarter this year. Regarding pricing, we project about four points of price increase, while assuming around 3.5 points of inflation. This means we'll offset price and inflation by approximately 50 basis points. This is down from 2022, where we had six points of price and offset about five points of inflation. This is our guidance for the entire year, and we are taking a somewhat conservative approach. We might start off slightly better than this, but that’s our plan for 2023. Additionally, we expect supply chain shortages to improve, and our working capital levels will normalize to a healthy 110% to 115% conversion of free cash flow to net income. We also anticipate that our longer cycle aerospace and defense businesses will perform stronger than the rest of the portfolio. In the mortgage segment, we've noted a mid- to-high outlook, which we believe will continue, especially as we saw acceleration through each quarter of 2022. We expect both of our groups to grow in the mid-single digits, and historically strong backlog assumptions informed our budget. Do you have any questions?

No, that’s it. Great quarter, and I appreciate all the insight.

Thank you, Brett.

Thank you. And our next questioner today is Scott Graham from Loop. Please go ahead.

Hey, good morning all. And really congrats on that Zygo, that’s a pretty big deal.

Hey, that’s a really interesting, that's really helping, but that team did a great job. And it’s working on fusion energy is a great thing. And, it just shows our capability.

Yes, for sure. Thank you. The orders you said were up 1.5 in the quarter. Was that organic? And can you also tell the split by segment?

Yes. That was overall worse. Organic was down minus 2. And so, overall orders were up 1.5. Organic was minus 2. And both segments were about at that same 1:1 book-to-bill. So, there wasn’t a distinct difference between the segments, and as I said, the overall demand environment showed a solid 10 straight quarter of book-to-bill. So, we have a strong backlog. And as we have this dynamic of customers returning to more normalized ordering patterns, we have a strong backlog. So, we feel pretty good about it.

Okay, great. Thank you. Based on your answer to the prior question, is it possible then that sales volumes could sort of flatten out in the second half of the year. And your growth organic is essentially all price? Is that what you are what you are thinking cadence wise?

I don’t think in the second half of the year. I mean we are going to have some healthy price. But I think it’s going to actually increase a bit in the second-half. And, if you think about our order rates we have that mid single digit sales growth forecasted. We think we are going to grow orders also. So, orders are going to grow a little bit less than sales as our forecast. But, they are going to grow. And really by the end of the year, our backlog is still going to be at elevated levels. It will be down a bit, but at elevated levels historically. So, we are clearly done with our strong backlog which will provide a buffer is there is some kind of downturn. We don’t see it right now. And our orders will be up, but it will be up a little less than sales. And again, at the end of 2023, we have historically elevated levels of backlog similar to now.

Yes, great. Hey, thank you.

Yes, Scott.

Our next question comes from Matt Summerville at D.A. Davidson. Please go ahead.

Hi, good morning. This is Will Jellison on for Matt Summerville today.

Hello, good morning.

I was curious about your recent acquisitions with Navitar and RTDS. And just about your first observations with those companies as part of the AMETEK portfolio. How did things unfold related to expectations? And how are things going with bringing them into the fold?

Yes, they are going very well. I mean Bill and I have met with both of the acquisition integration teams and really positive. Just to recap a little bit, RTDS provides real-time power simulations used by utilities and various strategic acquisitions that broadens our power instruments businesses with differentiated testing and measurement and simulation capabilities. So, it's an attractive position in a high growth market. Really good team, I mean, just experts in the field. And it's kind of fun interacting with them. And they're really adopting AMETEK and feel good about that one. Same with Navitar, Navitar is in some good growth markets. The optics market is doing quite well with us. And even in the semiconductor space, where they play, their main customers are one that's very differentiated and has unique capabilities. So, that along with Life Sciences along with machine vision, there's a very good outlook there. And that business is a little bit different as being integrated into our Zygo business. So, it has new capability for Zygo. Much-needed capacity for Zygo and the integration is going very well.

Great, thank you. And then, as a follow-up, staying on the theme of M&A, you mentioned your pipeline is very strong at this juncture. And I'm curious about what your observations are in the market overall, with respect to the level of competition for assets and where multiples seem to be moving in your observation?

Right, yes, I think with the interest rates increasing, and with money not as free as it was, is actually an advantage to us. So, we have a good pipeline and a good balance sheet. And we remain very active with a solid pipeline of deals, the valuations have come in a bit. We're looking at some quality assets, though. So, they're still a bit elevated from historical levels, but no doubt they've come in. And important for us in our pipeline, we have a very disciplined acquisition process. And these deals are going to meet our traditional financial hurdles, which is primarily a return on invested capital of 10% by the third year of ownership. These are important thresholds for us as we want to ensure we're providing a strong level return on the capital we deploy for our shareholders. And that's been a hallmark of AMETEK's acquisition program for a long period of time. We do this all with cash and debt; don't use equity. And there's a bigger pipeline right now than has been historically because when there's less money around the system to bid up deals. So, we feel pretty good with where we're at. And if we do something, and I believe we will, we will be talking to you about deals in the near future; they're going to meet all of our traditional hurdles. And we're committed to having an investment grade credit rating, and we've got plenty of about $2.3 billion of capital and financing capacity available. So, in this environment, discipline is going to be a key word as it's always been for AMETEK. But have been very key in terms of executing our forward-looking M&A strategy.

That's great. Thank you for taking my questions.

Yes, okay.

And our next question today comes from Andrew Obin with Bank of America Merrill Lynch. Please go ahead.

Hi, this is David Ridley-Lane on for Andrew Obin.

Hi, David.

Good morning. How much of the one-time costs around supply chain disruptions last year, the higher freight costs, the spot buys and electronics, all those things fall off in 2023? I'm guessing I'm wondering is this a meaningful tailwind in kind of your forecasts?

Yes, I think that what you're going to see, there's still an elevated level of inflation. But at the same time, some of the one-time distributor purchases of inventory are going to go away. So, there's going to be some natural tailwinds for us in terms of margins; we expect that working in the P&L in our budget model, our productivity/cost savings of about $110 million. So, we think it'll be substantial. And that's where we're starting out the year, but we think there's maybe even some upside to that. And it's largely related to a couple of opposing forces; you're dealing with inflation, and some costs of things are still going up. But at the same time, some of the supply chain issues are working the other way, especially the higher prices that we paid on a one-time basis to some of the electronics distributors to continue shipping products.

Got it and then you have been adding capacity through 2022, I guess in the CapEx, what's kind of growth versus maintenance or whatever framework you want to use to discuss kind of how you're thinking about capacity additions here in 2022?

We added a lot of capacity in 2022, we brought some low-cost region facilities online, we've talked about that. For 2023, we expect our capital expenditures to be flat, a little bit more than 2% of sales, as we've done historically. So, and it's a good balance between growth CapEx, maintenance CapEx, and CapEx funding cost reductions.

Then, if I could get one more in, what is your expected EPS contribution from Navitar and RTDS?

Yes, I'm not going to break out the deal, but there'll be slightly accretive.

Thank you very much.

Okay, thank you, David.

And our next question today comes from Joe Giordano with Cowen. Please go ahead.

You mentioned that customers are normalizing their behavior and ordering patterns. Can you provide more details on this? Are you seeing actual orders being delayed, or are they simply placing orders more in real-time?

Yes, if you think about it from the customer's view, they've kind of got trained by the pandemic, to order things early. And now, most companies are getting including AMETEK is getting back to being able to deliver in lead time. And in fact, that's part of the reason that we grow our businesses at a faster rate during the pandemic period, we were able to ship and deliver and we had the inventory buffer. So, what's happening is, as customers normalize their buying patterns, they don't have to order early anymore. And that's what's really happening, I think across the broader supply chain, and we're seeing that. So, that's the main normalization that we're talking about.

And then when you mentioned the M&A pipeline looks good. How do you think about timing of execution, just given the macro year, given it looks like industrial is getting lighter, is getting weaker and are you relying on trailing 12 results that might be different than forward 12 for acquired for companies that you're looking at. So, how does it impact your desire to do be actionable right now, given where we are in the business cycle?

AMETEK has historically bought through both upcycles and down cycles. And sometimes you can get your best deals during a down cycle. And you have to be cognizant of what the forward-looking EBITDA is, not really the trailing, but the forward. So, it's something that we've been keenly aware of for years, and we're focused on it.

Thanks, guys.

Thank you, Joe.

And our next question today comes from Rob Mason of Baird. Please go ahead.

Yes, good morning.

Hello, Rob.

Hey, Dave. Good morning, good morning. Dave, I'm just going to see if you could drill into the process segment a little more, you called out Ultra Precision with relative stronger growth, does that carry forward into '23 just in terms of what leads that part of the business? And then just maybe higher level anyway to cut the mix of what that process segment, that sales into more of an R&D function versus more of a production environment?

Yes, that's a good way to think about it. I’ll elaborate on that. In 2022, our healthcare component was particularly notable. It constitutes about 50% of our overall sales and plays a significant role across all of AMETEK. For instance, in Q4, our rolling business saw a 20% organic growth, demonstrating strong performance. The hospital spending has been excellent for us, especially as new systems are being implemented post-pandemic. Additionally, the semiconductor sector accounts for about 6% of sales, with most of that related to process. In Q4, this market grew in the high single digits, although we anticipate a slight decrease in 2023. However, we expect low-to-mid single-digit growth as we have numerous applications in research and in areas that are expanding. Our position in the semiconductor market is solid. Alongside healthcare and semiconductors, our research market, particularly through our CAMECA business, shows promising results, with labs worldwide needing our atom probes and SIMS products. Their backlog is strong, and performance is positive. Moreover, the traditional oil and gas sector in process also performed well, with a high single-digit increase in Q4 and a low double-digit increase for the full year of 2022. We project high single-digit growth for this segment in 2023 as well. Overall, the process segment is performing very well, and we believe this momentum will continue in the future.

Excellent. That's very helpful. Just as a follow-up, could you speak to how you think the incrementals will look for EIG versus EMG, in '23 they were, EMG was certainly very strong in '22. But just how did those look going forward comparatively?

Good question. In terms of incrementals, in both groups, I think the core incrementals will be up 30% to 35%. And I think the core and reported margins will be up 30 to 40 basis points. So, we really think we have a clear line of sight to grow margins. Again, there'll be healthy incrementals. And we'll be able to increase our core margins as we go forward.

Very good. Thank you.

Thank you, Rob.

And our next question today comes from Steve Barger at KeyBanc Capital Markets. Please go ahead.

Hey, good morning, guys.

Hello, Steve.

Some automation and robotics OEMs have recently talked about distribution channel bottlenecks being a hindrance to growth, can you just talk about what you're seeing in that market, both near-term and expectations for how that market grows in the future?

Yes, I think for 2023, we think that business will be at mid-single-digits. And both our automation and our engineering solutions will be up mid-single-digits. I think that we're selling to mainly OEM customers there. So, you're going to have a bit of the effect of the ordering patterns, a change in ordering patterns there, but we have a really healthy backlog. So, it's really what we talked about customers are changing ordering patterns. We're really good at delivery. So, we're meeting our customer commitments, so they're now ordering at normal lead times. So, you'll see a little bit of the order corrections that we talked about in Q4 continuing. But we still have a record backlog, and all the comments that I made hold for that part of the business also.

Got it. Thanks. And obviously semiconductor demand has been under pressure, especially on the memory side. But you just said you're in the right places to grow. That mean, you're supplying the makers of tools that go to foundry and logic or just how will you grow this year in the context of what's a pretty tough memory side?

Right, it's pretty tough. And again, we grew mid-teens in 2022. So, that growth for 2023 is up low-to-mid. So, it's a substantial decline. But we're still growing, and the reason we're growing in the key application areas at our CAMECA business, they're really involved in semiconductor research and development and staying ahead and getting the next generation. And we have some tools that are must-haves for the semiconductor market; and really strong backlogs and orders are continuing well. And then, the second area is we're in the EUV optics area for used in semiconductor fabrication. So, the EUV market is kind of separate from the memory market and really strong. So, those two areas are the good part of our semiconductor business and they're really strong. And that's why we think we'll still be able to grow low to mid single digits in an environment where you have some of the headwinds.

That's great detail. Thank you.

Okay, thank you, Steve.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Kevin Coleman for any closing remarks.

Great. Thank you again, Rocco. And thank you, everyone for joining us for our conference call. As a reminder, a replay of today's webcast can be accessed in the Investors section of ametek.com. Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.