Greetings and welcome to IDEX Corporation's Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone needs Operator assistance during the conference, please ask. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Allison Lausas, Vice President and Chief Accounting Officer. Thank you. You may begin.

Good morning, everyone. This is Allison Lausas, Vice President and Chief Accounting Officer for IDEX Corporation. Thank you for joining us for our discussion of the IDEX Fourth Quarter and Full Year 2021 financial highlights. Last night we issued a press release outlining our company's financial and operating performance for the three months and year ending December 31, 2021. The press release along with the presentation slides to be used during today's webcast can be accessed on our company website at idexcorp.com. Joining me today is Eric Ashleman, our Chief Executive Officer and President, and Bill Grogan, our Chief Financial Officer. The format for our call today is as follows. We will begin with Eric providing an overview of the state of IDEX's business, including a recap of our recent performance and our 2022 outlook. Bill will then discuss our fourth quarter and full-year 2021 financial results, and will conclude with our outlook for the first quarter and full-year 2022. Lastly, Eric will close with comments around our focus areas for 2022. Following our prepared remarks, we will open the call for your questions. If you should need to exit the call for any reason, you may access a complete replay beginning approximately two hours after the call concludes by dialing the toll-free number 877-660-6853 and entering conference ID 13724802, or simply log on to our Company homepage for the webcast replay. Before we begin, a brief reminder. This call may contain certain forward-looking statements that are subject to the safe harbor language in last night's press release and in IDEX's filings with the Securities and Exchange Commission. With that, I'll now turn this call over to our CEO, Eric Ashleman.

Thank you, Allison. I'm on Slide 6. 2021 was another record year for IDEX. We hit all-time highs on most of our key metrics. Demand for our differentiated technology remains strong. This underlying momentum, combined with our targeted growth initiatives and ability to capture price, drove a strong rebound from 2020. Across most of our portfolio, we saw an expansion beyond pre-pandemic revenue levels. In the fourth quarter, we achieved a record for orders and sales, and our backlog position is very strong as we enter 2022. We expanded our margins in a highly inflationary environment. We leveraged well in the previous investments we made to optimize our cost position and executed on our productivity funnel. We maintained positive price-cost, albeit at a compressed level versus historical performance. We remained diligent in controlling our discretionary spend and used our 80/20 principles to allocate resources to our most promising opportunities. Our strategic focus, purposeful resourcing, and strong operating cash flow enabled us to deploy record capital. We acquired ABEL Pumps and Airtech and made a collaborative investment in a technology company driving advancements in connected products. We also invested across the portfolio to support growth and productivity. We optimized our cost position within our Fluid & Metering Technology segment through a consolidation of our Italy facilities and our energy businesses and delivered on operational productivity projects across the segment. All of this drove a record year in orders, sales margins, earnings, and capital deployment. We said in the past that we built IDEX to outperform through a cycle, and we continue to find ourselves in a very challenging one, characterized by supply chain disruptions and labor scarcity exacerbated throughout the year by the emergence of new COVID-19 variants. Our view continues to be that we don't see gradients of bad; rather, the supply chain environment is very tough and numerous challenges persist. As pockets of issues improve, they tend to be replaced by new obstacles. Our teams have done an excellent job navigating these day-to-day operational issues, and I'd like to take a moment to thank our IDEX employees around the globe for their dedication and perseverance throughout this prolonged period of disruption. The agility of our teams, adjusting to new issues almost every day, has been and continues to be outstanding. As we look forward to 2022, we did not see any near-term signs of diminishing supply chain-related headwinds, and the impact of COVID-19 remains highly variable. In the short term, these conditions have and will impact our ability to efficiently ramp production and have created significant pockets of disruption for our customers and suppliers as well. We expect that these challenges will remain at a high level, at least through the first half of 2022. Regardless of the near-term challenges, our overall IDEX strategy remains focused on the horizon. The core of what makes IDEX strong, highly engineered, specialized products used in mission-critical applications, remains a solid driver for long-term success. We will continue to deploy capital and invest in the resources necessary to drive organic growth in order to capitalize on a robust demand environment. Our balance sheet has ample capacity, and we will leverage that strength to continue to play offense in M&A. To that end, we expect to close on the acquisition of Next Site later this quarter. The technologies and capabilities within their business segments will nicely complement our water platform within FMT. With that, I'll turn to our outlook for our segments on page seven. In our Fluid & Metering Technology segment, we anticipate growth in our industrial day rate businesses in 2022 with a return of larger projects towards the latter half of the year. In the short term, large projects continue to lag as our customers have limited capacity to execute larger upgrades or expansions. Agriculture is expected to perform well due to high crop prices, strong farmer sentiment, and limited availability of new equipment driving aftermarket demand. Our municipal water business is stable. We see improved optimism in the market and project planning activities increasing. We are expecting an uptick in the energy and chemical markets. The North American mobile truck market is improving due to a strong construction market and home heating oil prices, and North American pipelines are reporting modest increases in capital budgets for 2022. We see international oil and gas quote activity outpacing domestic demand, an opportunity we are well-positioned to capitalize on. FMT continues to be in a strong position to realize price, and we expect this to drive improved margins in 2022. Likewise, the projects we completed last year to optimize our cost position, as well as new operational productivity projects, will yield strong flow-through in 2022, tempered by a discretionary spending rebound and continued resource investment in the segment. Moving to the Health & Science Technology segment, we expect the strongest growth in HST of all our three segments, and we plan to make the largest resource investments in HST to support that growth. We anticipate margin improvement driven by volume leverage, partly offset by these resource additions. HST continues to have robust demand across all their major end markets; Semiconductor, Food and Pharma, Analytical Instrumentation, and Life Sciences are all expected to perform well. Next-gen sequencing instrument demand is growing, with research and clinical applications outpacing COVID detection and surveillance. Our ability to execute in the current environment continues to distinguish us from our competition and improve our share position. On the Semiconductor side, we continue to capitalize on tailwinds generated from global broadband and satellite communication trends. In auto, supply chain issues at our customers, especially around semiconductors, mute our growth. Underlying market demand remains favorable, and we expect our results to improve as supply chain issues ease. The industrial businesses within the segment face similar trends to FMT. Finally, we expect that our Fire & Safety Diversified Products segment will be our most challenged next year. In Fire and Safety, North American OEMs are experiencing significant supply chain constraints around chassis and component availability, which limits their production. On the rescue side, we anticipate that larger tenders will lag, compounded by localization policies that are driving delays. We do not anticipate near-term easing of these conditions and see the potential for recovery towards the latter part of 2022. In our branded business, like in HST, we see auto supply chain issues dampening current demand. Despite this pressure, our business continues to outperform the broader market due to our content on key vehicle models. Lastly, in the near term, we expect continued momentum within our dispensing business as customer capital investments are deployed in early 2022. However, for the year, we will see a non-repeat of North America projects as we reach the end of the replenishment cycle this year, as compared to last year. We anticipate that the unfavorable price-cost position we experienced last year will rebound this year as annual contracts are renewed at current pricing. We see this improvement tempered a bit by some mix pressure as dispensing volumes reduce and we make some targeted investments. To summarize, we see favorable conditions across the majority of our end markets. However, the degree to which our customers and our facilities will be impacted by rolling supply chain and COVID-related disruptions remains highly variable. We'll continue to monitor conditions and be as prepared as we can for potential interruptions. Despite the short-term headwinds, we are optimistic about our growth potential and the trajectory of our end markets. With that, I'd like to turn it over to Bill to discuss our financial results.

Thanks, Eric. I'll start with our consolidated financial results on Slide 9. Fourth quarter orders of $795 million were up 17% overall and up 13% organically. Organic orders increased across each of our segments. For the year, orders were up 26% overall and up 21% organically. We experienced a strong rebound in demand for our products across all our segments, and steadily built our backlog in each quarter of 2021 totaling $266 million for the year. Relative to full year 2019, organic orders were up 15%. Q4 sales of $715 million were up 16% overall and up 11% organically. We experienced a strong demand rebound from 2020, but our results were tempered by supply chain and COVID production limitations. Full year sales of $2.8 billion were up 18% overall and up 12% organically. We saw favorable results across all our segments and again, strong performance relative to full year 2019 with organic sales up 4%. Fourth-quarter gross margins expanded 20 basis points to 44%. For the full year, gross margins expanded 60 basis points, and adjusted gross margins expanded 80 basis points to 44.7%, primarily driven by strong volume leverage. Q4 operating margin was 22.7%, up 10 basis points compared to prior year. Adjusted operating margin declined 60 basis points driven by a rebound in discretionary spending, targeted resource investments, and the dilutive impact of acquisition-related intangible amortization, partially offset by volume leverage. Full-year operating margin was 23%, up 90 basis points compared to the prior year. Adjusted operating margin was 23.9%, up 110 basis points compared to prior year. I'll discuss the drivers of adjusted operating income on the next slide. Our fourth-quarter effective tax rate was 22.5%, relatively flat compared to the prior year ETR of 22.2%. Our full-year effective tax rate was 22.5% compared to 19.7% in the prior year due to lower tax benefits associated with executive compensation and the non-repeat benefits associated with the finalization of the global intangible low-income tax regulations in 2020. Q4 net income was $119 million, which resulted in EPS of $1.55. Adjusted net income was also $119 million, with adjusted EPS of $1.55, which was up $0.18 or 13% over prior year adjusted EPS. Full-year net income was $449 million, which resulted in EPS of $5.88. Adjusted net income was $482 million, resulting in an adjusted EPS of $6.30, up $1.11 or 21% over prior year adjusted EPS. The tax rate movement I mentioned drives a $0.23 differential in EPS as compared to the prior year. Said differently, our EPS would have expanded by $1.34 or 26% had 2021 been taxed at the 2020 rate. Finally, free cash flow for the quarter was $136 million, 115% of adjusted net income. For the year, free cash flow was $493 million, down 5% versus last year, and was 102% of adjusted net income. This result was impacted by a volume-driven working capital build and higher CapEx, partially offset by our higher earnings. We spent over $70 million on capital projects this year, an increase of over $20 million versus 2020. Moving on to Slide 10, which details the drivers of our adjusted operating income. Adjusted operating income increased $125 million for the year compared to 2020. Our 12% organic growth contributed approximately $106 million flowing through at our prior year gross margin rate. We leveraged well in this volume increase and our teams drove operational productivity to help mitigate the profit headwinds we experienced from increased supply chain costs and the associated inefficiencies. Although we have maintained positive price-cost for the year, inflation continues to ramp, and we saw a compressed price-cost spread versus historic levels, which pressured our up-margin rate and flow-through percentages. The positive mix is primarily a result of the portfolio and business mix normalizing to pre-pandemic levels that had a negative impact on our results last year. We reinvested $35 million back into the businesses, taking the form of a partial rebound in discretionary spending to pre-pandemic levels, higher variable compensation expenses, and targeted reinvestment in resources to drive growth. Despite this incremental spend and a challenging supply chain environment, we achieved a solid 38% organic flow-through for the year. Flow-through is then negatively impacted by the dilutive impact of acquisitions in FX, getting us to our reported flow-through of 30%. With that, I'd like to provide an update on our outlook for the first quarter and full-year 2022. I'm on Slide 11. As a reminder, going forward, we will be adjusting EPS for acquisition-related intangible amortization in both our guidance and results. Our fourth-quarter adjusted EPS under this definition would have been $1.71 per share, while our full-year 2021 adjusted EPS would have been $6.87 per share. Under this new definition for the first quarter of 2022, we are projecting GAAP EPS of $1.57 to $1.60 and adjusted EPS to range from $1.73 to $1.76. We expect organic revenue growth of 6% to 7% for the first quarter and operating margin of approximately 23%. Q1 expected results incorporate headwinds arising from COVID-driven absenteeism and supply chain production constraints. The first-quarter effective tax rate is expected to be approximately 22.5%. We expect FX to be unfavorable to our top line by 1% and acquisitions to provide a 4% benefit. Corporate costs in the first quarter are expected to be around $19 million. Turning to the full year 2022, we project GAAP EPS of $6.70 to $7 and adjusted EPS to range from $7.33 to $7.63. We expect full-year organic revenue growth of 5% to 8% and operating margins to be around 24%. We expect FX to be unfavorable to our top line by 1% and acquisitions to provide a 2% benefit. The full-year effective tax rate is expected to be around 22.5%. Capital expenditures are anticipated to be around $90 million, an increase over 2021 as we continue to identify opportunities to reinvest in our core businesses. Free cash flow is expected to be approximately 105% of adjusted net income and corporate costs are expected to be approximately $80 million for the year. Our earnings guidance excludes impacts from future acquisitions and any future restructuring charges. Nextsite is excluded from the figures above, as the transaction has yet to close. Next, I will provide some additional details regarding our 2022 guidance for the full year. I'm on Slide 12. On an operational basis, we expect supply chain constraints to mitigate our output for the first half of the year, muting an otherwise strong demand environment. Therefore, we are projecting organic revenue for the year to be up 5% to 8%, which translates to an EPS impact of $0.60 to $0.95 depending on the top line results. This range also assumes improving price-cost. We continue to drive operational productivity across the portfolio and expect to see benefits from our 2021 restructuring actions. This will drive $0.20 to $0.25 of favorability next year. We also continue to invest in the resources required to grow in the current year and beyond. These investments will reduce EPS by $0.20 to $0.25 and are funded by the productivity gains I mentioned previously. Our discretionary spend partially recovered to pre-pandemic levels in 2021, and we expect this spending to be fully recovered by the end of 2022. The unfavorability impacts EPS by $0.20 to $0.25. I will note that we're ramping spend to pre-pandemic levels, but with 20% higher revenues. ABEL has 1 partial quarter and Airtech has 2 quarters of inorganic results included in our guidance. We expect acquisitions to contribute $54 million of revenue and $0.08 of EPS. The incremental amortization that we see in 2022 versus 2021 is largely related to these acquisitions and will provide an additional $0.05 of EPS. Now let's take a look at a couple of non-operational items. First, our guide assumes no impact from taxes; our guided rate is flat year-over-year. Second, we expect a 1% headwind from FX, providing $0.07 of EPS pressure. So in summary, we are projecting organic revenue growth of 5% to 8% for the year. Adjusted EPS expectations are in the range of $7.33 to $7.63, a 7% to 11% growth over 2021 implied in our guidance is mid to high single-digits year-over-year flow-through on the low end and 30% on the high end. With that, I'll throw it back to Eric for some final thoughts.

Thanks, Bill. I'm on the final slide, Slide 13. Before we open the call up for questions, I'd like to wrap up with a summary of our most critical 2022 focus areas. In an environment characterized by uncertainty and disruption, it's important not to lose sight of who we are as a company. First and foremost, we are a portfolio of great businesses that leverage the 80/20 principle with an obsessive focus to serve our customers. We refer to that simple model as the IDEX difference. We're committed to navigating the challenges of the short-term landscape, but remain focused on the longer term. We must continue to utilize our 80/20 toolkits to create efficient, innovative, value-creating businesses. In a world with this level of variability, the simpler you are, the more successful you will be. We remain committed to investing in the resources needed so our businesses are poised to take advantage of the growth potential in front of us. We are a company committed to its core values and we'll continue to develop top-performing teams as part of an inspiring company culture. Diversity, equity, and inclusion continue to be an area of focus, creating environments where people feel they belong and are comfortable bringing their true selves to work every day. Our strong operating cash flow and balance sheet put us in a great position to continue to put capital to work, and we've already identified several high-return organic investment opportunities across the company that will push us past our 2021 CapEx record levels. We have invested in new industrial automation that will improve efficiency and expand capacity for growth. We're supporting focused digitalization efforts across our installed base to solidify our superior positions and expand share of wallet. Our facility expansions in China and India are well underway, effectively doubling future capacities to support growth across the regions. Lastly, our M&A opportunity pipeline continues to be strong, and we look forward to deploying additional capital in 2022, welcoming new businesses to the IDEX family. With that, let me pause and turn it over to the operator for your questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. A confirmation tone will indicate your line is in the question queue. Our first question comes from Allison Poliniak with Wells Fargo. Please proceed with your question.

Good morning. Eric, you mentioned that projects were falling behind in the first half at FMT. Can you provide some insight into your discussions with customers? Are there concerns about the potential for delays to extend indefinitely, and what is the urgency regarding the initiation of these projects? I would appreciate any thoughts you have on this.

Yeah, good to talk, Allison. So I mean, it's a bit of a continuation of the theme that we've seen now for a while. There's plenty of confidence out there that there's a lot of demand support to get things done. It is really difficult to just bring together all the resources that you need to take a really complex project and take it from beginning to end. Lining up material and lining up resources, things like that. So what we are starting to see, frankly, are smaller to medium-sized versions of that. Slight expansions; things you can kind of do on the fly. And then continued staging for projects that are of those slightly larger incremental scale aspects, as people talk about that. I mean, quite honestly, it's the same thing that we're going through in our own business and we've got a couple of critical big projects that we've deployed that were really hard to put together. And then all over the place we're running, doing those things that give you that little bit of 3% to 5% output let as we go. So I'd summarize it that way. And of course, it varies depending on certain markets that are further out ahead of that, a little more positive, some are lagging even further because they inherently involve larger chunks of infrastructure.

That's helpful. Regarding the free cash flow guidance, you mentioned capital expenditures and the increased spending, which makes sense. I noticed that working capital showed some increases in 2021. Should we anticipate a similar trend in 2022, considering the ongoing challenges your team is facing? I'm looking for some additional insight on this.

Allison, it's Bill. I think it tapered down a little bit, obviously, here, and as we progressed through the year, a little bit of inventory build to support the higher revenue load, but I don't think it'll be as big of a build as we experienced last year. Our efficiency metrics are down a little bit, but some of that's just related to increased inventory to buffer extended lead times that we have across our vendor base.

Got it, and I guess along with that, you guys are still on the message, but it's probably not a fair question. But are you guys kind of revisiting some of your processes to deal with some of these shocks that we have to go through at time-to-time? Just any thoughts on that?

Allison, you're asking about the supply chain shocks in general?

The supply chain shock, I mean, are you guys trying to think things differently going forward just to kind of avert some of this stuff?

It's an excellent question and one we've been continuously examining. Overall, we are in a strong position. We rely heavily on local supply and have established close relationships with people we've known for many years, fostering deep trust and collaboration. I appreciate this existing setup and don't foresee any need to change it or distance ourselves further. Additionally, any changes at this moment are challenging due to limited resources. There are a few areas we are actively exploring for improvement, which are driven by the need for a different approach and dedicated resources. One key focus of our efforts, as I mentioned earlier, is simplification. It's evident that the segments of our business that have embraced simplification are navigating challenges more effectively. Our highly customized model presents an ongoing challenge, so we've been learning to identify simpler, more modular designs that can be easily replicated with a relatively consistent supply base as we move forward.

Got it. Thanks so much. I will pass it along.

Our next question comes from the line of Mike Halloran with Robert W. Baird. Please proceed with your question.

Good morning everyone. Kind of related to Allison's first question, early to tack onto it. When you think about some of the issues you’re seeing on some of these CapEx decisions just because of bandwidth or you also put into the context of the supply chain challenges and everything seeming to linger a little bit longer than people were thinking. How do you think about the risk of demand degradation or at least pipeline degradation that could materialize related to all of those moving pieces?

There is always a bit more risk as timelines are extended since various external factors can influence decisions along the way. As we evaluate the projects we are involved with, the ones that seem most assured are those where we clearly see a lack of capacity or significant labor challenges; these issues are unlikely to resolve in the long-term. For instance, in a food market scenario, it is evident there is strong demand that is hard to fulfill, and this demand isn't going away anytime soon. Although project timelines may be pushed back and extended, the discussions remain active. The transfer of documents and data continues, allowing us to categorize these projects differently. On the other hand, projects that are prone to disruptions due to new technology or dependent on specific conditions are more variable. Overall, I believe that in the long run, there is much more potential in the former category, which everyone would pursue if possible. We have observed, and discussed earlier in this call, the effects of not having these projects implemented as we attempt to recover, bringing us to levels slightly above where we were before the pandemic.

That's super helpful. And then sticking with the concept of moving pieces and how you're thinking about guidance for the year. Obviously, you have these first-quarter challenges with absenteeism and everything else, and then the price cost curve and how that works itself out through the year in context and everything. So when you think about the guidance specifically, both on the margin side as well as on the revenue side, how would you think about profitability versus call it a normal sequential curve through the year? Is it a little bit or sloped to normal? And best guess for when you think you can start getting to something more normalized and not necessarily saying back to '19 levels of smoothness, but at least more repeatable or a better understanding of what the process can look like?

Hey Mike, it's Bill. Some of that's to be determined how the year plays out. But what's implied in our guidance is you will see ramp as we progress through the year. It is obviously more weighted towards the latter part of the year, but if you look at the second quarter, it's kind of a couple of percent ramp and output versus the first quarter and it has to hold there for the balance of the year. Relative to where we're at here and the challenges we have in the first quarter, there is an assumption that those are resolved. We do have some of the discretionary costs that have just built through 2021 that are in our current run rate for the second quarter. As we ramp volume, we will lever on those incremental costs; I think you'll see our margin profile continue to expand sequentially as we progress through the year.

So the point, Bill, is that there's not a massive assumption that there's normalization throughout the year. There's a step-up in Q2 because there are some identifiable things that normalize out. But beyond that, it's a little bit more wait-and-see and pretty normal sequential from Q2, right?

Yes, as I said, there's not some huge switch that needs to be flipped. I think we're comfortable with the ramp that we see here in the short-term. The second quarter seasonally always goes up for us, so we've got that on top of just the output relief, I think we'll get, and then unless something created some headwind to decelerate, we should be in a reasonable position.

Appreciate it, Bill. Thanks, Eric.

Our next question comes from the line of Deane Dray with RBC, please proceed with your question.

Thank you. Good morning, everyone.

Hi, Deane.

I would like to emphasize the areas of discretionary spending reinvestment and growth investment. Can we clarify how much of that was included in the fourth quarter? On slide ten, was the $35 million front-loaded into the fourth quarter, or was that level maintained throughout the year?

No, Deane, it ramped throughout the year. I think Q3 and Q4. There's marginal increase in the fourth quarter. We talked about that in the Q3 call that some things had moved from Q3 to Q4. That's one of the issues we have with the first quarter, is just last year. We were still extremely diligent and then spend a whole heck of a lot and then ramped 2, 3, and 4. So there's a little bit of ramp here as we progress from Q4 to Q1, but it's not overly material.

Got it. And then on Slide 12 for year '22 bridge, you've got the two buckets: growth investments and discretionary spend rebound. I mean, collectively that $0.40 to $0.50 in your guide, they both feel a little bit discretionary by definition, right? Where and how is that being targeted? Is that level throughout the year? Is it contingency in any way? And what would be the expected returns that you would get on some of these growth investments? Thanks.

Sure. So a couple of things there. One, in general, the nature of this kind of spend, let's say today versus where it was three years ago, there are some differences. There's actually some productivity that we're all going to enjoy as we've learned how to work in different ways. Travel won't be as high as it ever was. Certainly, marketing and digital ways to get messages out to customers, much more efficient than we've seen before. And so that's one of the reasons, even with the slight increases here in the ramp up, we're basically at a level we were three years ago with $400 million more dollars of sales in the Company. What it's targeted towards is a lot of our investments, frankly, it's people, and it's people on the front-end of business and the technology side of the business tied to the parts of the Company that we think have the most favorable wind at their backs in terms of our positioning in the end markets that they are sitting in. So we talked before about kind of the top 25 bets across IDEX, that list ebbs and flows from year to year, but about 2/3 of it holds constant. In many of the resources that are here, some ways they're identified a year, year-and-a-half ago. We let the last year play out. We're really careful with things, but at some point, you start to see that we've got some real momentum here. And the nature of people driving the investments, they've got to get in, they've got to learn the company, they've got to learn the markets and then start to add some value. So I think the return, as it often is in anything we do when we're supporting organic growth, is really strong. On investments of that type because it's people-dependent. It also makes it pretty easy to be careful with as you go forward. So as Bill said, if we start to see things all of a sudden take a turn or there's something that comes into the mix that none of us expected. By nature, we can hold off, we can do more with less, we can ask people that we deployed towards other areas across IDEX. So I think what you're seeing here a little bit is probably we would have liked to have more of that onboard and a more even ramp through the year last year. Again, because a lot of its people, as everybody knows, it's hard to find. When you find them, I think you want to be careful and make sure you bring them on board when you can. That's part of the mix too.

That's really helpful. In terms of the building backlog, I may have missed it, and I apologize, but could you clarify how much in potential revenue could not be shipped? This could be due to not having the products available or customers not being ready. You have finished goods, but have you assessed what the potential revenue loss would have been?

Yeah, we haven't. But in the fourth quarter it's probably 3% to 5% organic that we could have had incrementally to what we delivered if we had full availability of parts and labor.

Got it. That's really helpful. And have you given the quick overview of Nextsite? It sounds like a really interesting addition to your water business.

Yeah. I mean, it's a business we've known for a long, long time, and we've partnered with them with our sewer robots franchise there. They've been kind of closer to the customer and a partner for us. Frankly, they are our predominant partner over the years. So essentially, they're going to market here in North America predominantly. They do a lot of things around sewer inspection and have a few other answered products that go with that. There's some tremendous software capability embedded within that business that's used in that space and we think has appropriation abilities elsewhere in the water technology area. And a couple of other interesting nascent extensions that they've launched that we also are interested in potentially opening a door for us. So it's a really nice fit for a partner that we've known for a long time. It was just that the time is right to bring them into the IDEX family.

Great. We're hearing lots and lots of focus on storm water from municipalities, and there's just such a need right now with loss regulatory pressures as well fines that will be imposed on municipalities that they don't address it. So it's a hot area and nice to see that investment. Thank you.

Compliance is a driver for our businesses in that space. Yes.

Thank you.

Thanks, Deane.

Our next question comes from the line of Rob Wertheimer with Melius Research. Please proceed with your question.

Thanks. Good morning, everyone. So my question is a pretty simple one. You had positive price-cost in two segments, negative in Fire Safety, and maybe some of the distinctions are obvious there, but could you just kind of walk through the pace of how things flow through on pricing changes. If it's all due to that, if there's any inherent pricing power differentials, that'd be helpful too, but maybe just talk through the dynamics and what you do there. Thank you.

Sure. So the dynamics of price-cost obviously varies across the portfolio between the segments and the businesses. Holistically, FMT's strongest price-cost relative to a lot of their business goes through channel; our ability to move price through there is favorable. Obviously, they've got more exposure to heavy casting metal and motor inflation, but they have the power to offset at HSTs, which were OEM-focused. So there's opportunities but more on an annual basis on that side of it, and the stuff that looks like the FMT, the industrial parts of it, similar dynamics. FSD has been the challenge, primarily in our Fire and Rescue businesses. We talked about the flare OEM challenges and the large backlogs that they're sitting on in excess of 12 months to 18 months. And what we've priced that on, we haven't been able to re-price it. So we continue to work through the lower-margin profile on that through the back half of the year and most likely through the first half of this year. They've gone out with significant price increases recently on any of the annual contracts that they have. So they are poised for a large recovery and margin improvement as we progress through the year, but still challenged in the first half. Dispensing has a fairly strong outlook relative to their steel exposure and their automotive and aerospace customer base, but they were challenged as well. They were significantly under on the price-cost, weighing down the overall organization, but a lot of good effort from the teams to manage through it. I think we are much better positioned as we stand here today to progress through the rest of the year.

Okay, that's helpful. And is there anything sort of structurally changing on how you think about those long lead times backlogs and how you price? And then just one more quick one on Macron, you mentioned sick outs, which is universal exposure in Q1. Is that all requested in savings so that you're until the next wave you see the risk continued to Q1 or maybe January, February, and I'll stop there. Thank you.

Yes, Rob. So the nature of pricing, I mean, I will say I think we and everybody else are looking at the historical ways that long-term pricing has been done and are finding ways to make sure that we've got more opportunities for investment along the way. As you suspect that given that the pressure and volume and it's just the nature of that space, that's probably going to take a while, but that is in the mix in terms of innovation in different ways to handle it. On the virus, I'd say we're plateaued, slight decrease. But we've got such a global topology that is, it decreases in one area and comes up in another one, so I'd say it's level right now, not increasing anywhere but still at a higher rate than we've seen in any of the other episodes that have come across.

Thank you.

Thanks, Rob.

Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Good morning, everyone.

Hi, Nathan.

Wanted to start with a couple of questions following up on Deane's line on the growth in discretionary spend rebound. Those are really the two large buckets in 2022 that are dragging the incremental down from the level that we would normally expect from IDEX. Specifically, you guys said that you're back to 2019 investment levels, on $400 million more revenue; IDEX has always been a big investor in growth. Does that mean that we should expect potentially more incremental growth investments in 2023, or are you able to leverage those growth investments better? And do you think it's a one-year ramp up? And I assume the discretionary spend rebounded is probably anticipated to be back to normal levels by the end of 2022?

Yeah. I mean, again, because of the nature kind of our model and what those investments usually are in terms of people. I mean, to be honest, there's a bandwidth limit on the upper side that also governs some of this. These are not the kind of businesses where you can just endlessly pull people in there, and it all works better. These are super, super targeted around and aligned highly to the best that we're talking about. And then sort of everything else, we leverage a lot of that productivity to actually support those investments and run the company that way. It's a pretty consistent level, so I really do think of this more along the lines of rebuilding a basic base to fuel growth of the company in the highly targeted way that we do it more than let's say a next chapter of spend profiling for the company. We don't need to do that.

So long-term I think you guys have always talked about when you were at low single-digit, you get 35% incremental margins, maybe getting to 40% if you got mid-to-high single-digit organic growth; nothing has changed structurally in that outlook over the long-term wage? In a period of bringing investments back up there a period of under-investment boost on new by COVID.

Exactly. Nathan, I think you're pointing to discretionary. Is that being somewhat of a catch-up here as we progress through the last two years that will fall off? There will be nominal increases on that going forward. And then as Eric said, it's our normal investment profile. So if you normalize for the discretionary ramp, we're at our traditional mid-30s type of flow-through.

I wanted to discuss capital deployment. There was a record level of acquisition spending in 2021, but there are still issues with an under-levered balance sheet. It will take several years of spending at that record level on acquisitions to achieve a more optimal balance sheet structure. Is the pipeline strong enough, and are there sufficient opportunities at the right prices for you to deploy a similar amount of capital in 2021 as we look ahead to the next few years?

Yeah, Nathan. I mean, that's exactly the target and the expectation here. I mean, we talked, I know for the last several quarters about the intentionality we've put on this. Some of the investments in resources are focused in this particular area because they have to be. The achievements that we made in '21, I think was a direct result. They're all high-quality. I can assure you we looked at a lot more than those companies to get the ones that we brought onboard, and that's the way we're thinking of it going forward. We'll consider evaluations will be high, competition will be fierce, and we have to make sure we get plenty of that vast as we go at it and hold our discipline at the same time. But we talked our ideal spot here would begin to lever at this high, and the minimum is a higher level of deployment that actually helps you build a more uniform resource basis to do the work. We're always looking for the potential to expand it. If, in fact, we can do that efficiently and manage the change across the company. So it is definitely an intentional travel to a higher level? Yes.

Thanks very much for taking my questions.

Thanks, Nathan.

Next question comes from the line of Matt Summerville with D.A. Davidson, please proceed with your question.

Thanks. Given some of the pluses and minuses you talked about with respect to the margins as we progress through the year across the segments, how should we be thinking about the incremental margin at the segment level relative to the full-year guidance range you talked about, Bill, at the high-end, low-end? Can you give a little more color there?

Our first quarter is expected to resemble the fourth quarter. With the ramp-up, we anticipate an improvement in the margin profile, particularly in FMT, which is likely to see the highest margin enhancement. We did face challenges in the FMD business this year due to reduced capital expenditures and significantly lower volumes. We also had multiple site consolidations, which incurred additional costs. However, that business performs very well as it progresses. I expect FMT margins to improve throughout the year; HST remains strong, though it's moderated compared to the investments we are making in that area. Additionally, FSD is recovering on the price-cost front, which is a key factor driving their margin improvement for the full year, despite some pressure in the first half, as I mentioned earlier in response to Rob's question.

And then just as a follow-up, just to be clear. How much price do you anticipate achieving in '22 versus maybe what you achieved in '21? Thank you.

So more, I mean last year we were about 200 basis points, and we will be in excess of that here in 2022.

Got it. Thank you.

Sure.

Our next question comes from the line of Andrew Buscaglia with Birenberg, please proceed with your question.

Good morning, everyone. Delving a bit deeper into your HST segment, your guidance suggests some solid growth despite facing challenging comparisons this year. I'm curious about what factors are contributing to this. We are indeed dealing with tough comparisons in semiconductors and life sciences. It appears there could be potential for upside, but are there other areas that haven't fully recovered yet and still have significant potential?

I don't believe the scenario revolves around people emerging from the pandemic. Rather, these are fundamentally robust sectors that we anticipate will persist, as evidenced by the positive growth we witnessed in 2021. The market dynamics will truly drive this growth in 2022. The pharmaceutical sector, which you didn't mention, is particularly promising. We are actively involved in enhancing the effectiveness of vaccines, and that effort is yielding positive results. This is where we observe several medium-term capital projects, which may not be the largest but are focused on smaller to medium-sized expansions. Our optical technologies are also well-suited for significant applications, including broadband access and other innovative technologies. Additionally, we have solid prospects with next-gen sequencing, where growth has always been expected. However, it's important to note that COVID surveillance and variant detection are significantly impacting this market globally. Overall, we are looking at well-positioned strong markets that are more necessary than ever.

Okay. A similar question though, I think FMT and probably IDEX seem to have been somewhat influenced by energy in that EBITDA, even if it may not be a direct exposure, it's this indirect impact that now seems to be more topical. We think it's coming back. So what about FMT within energy recovery helping that business possibly exceed your expectations? What are your thoughts on that?

Well, I mean so a couple of things. Energy in general; I mean, our single-digit exposure there is localized largely in FMT. That is a story of recovering off of pandemic loss. No doubt because of commodity pricing and some other things and just delayed investments. It's a little different than it was 2, 3 years ago, but it's positive and that'll help. And you're also right; it's always hard to identify, but no doubt there are derivative impacts of that sector in terms of just the up and down the street industrial businesses that are throughout FMT. So we do think we have that factored in the mix, but to the extent any of that overachieves, that's the area that we'd see upside.

Okay. Got it. Thank you.

Our next question comes from the line of Connor Lynagh with Morgan Stanley. Please proceed with your question.

Thank you. I would like to revisit the topic of capital allocation, specifically the increase in M&A allocation that you are aiming for in the coming years. Can you provide some insight into whether there are particular end markets that you are focusing on right now? How do you assess your position in terms of being over or underweight in those markets, and how does that align with your views on market cycles?

It probably doesn't map as cleanly as you might imagine. When we think about the markets that we're going after, they are often defined by niche application sets. You can see those in any one of our three segments, and in some ways they might even strike you as counterintuitive. In general, we're obviously looking in areas that we think have more fundamental growth tailwinds behind them, and so a lot of it just would be exactly where you think it would. Lots of focus in the HST world, lots of focus, as we've just seen here, in water technology and spaces like that. But there are some great industrial franchises that have done a great job of targeting into certain applications that make a lot of sense too, that are sitting in places you might not otherwise think. The two other examples in '21 are actually great examples of that. ABEL Pumps, for example, tied to mining as one of its core markets. That's actually really attractive now, because of all the mining that's going on to support alternative energy applications. Then you look at Airtech, which from far away looks like kind of just an industrial compression business or blower business, and yet they've tuned very nicely to some alternative energy applications as well. So it really does, it plays out at that kind of specific work to be done. And then how well that lines up often to a high-level macro trend. But we very quickly kind of bring that down into the niche kind of environments that we're comfortable with and we could see that across any one of our overall segments.

Got it. Maybe switching gears a little bit here, you mentioned labor being a constraint. I am just curious, is some of the increase in costs you're targeting related to outright increases in wages, or are you just saying availability is more the issue? How are you thinking about that as we move through 2022 here?

So a couple of things there. I mean, I always remind people we have a pretty light intensity in terms of labor. It's important, but it's not a huge driver in our P&L. That being said, I think everybody expects a little bit more wage inflation we have is well here this year. To be honest, we probably see more of it tangibly in terms of premium costs and things that we're doing with the existing basis. We're scrambling to try to make things on Saturdays or Fridays in a disruptive manner, here today. So it matters for us, but it's not a massive driver on the P&L. It is a driver, of course, as it comes in and supply components where that same dimension is applying to businesses outside. So it's certainly we’re not immune to it. We kind of acted with pricing, price capture on the top and manage it that way.

Understood. Thanks for the color.

You bet.

Our next question comes from the line of Jeff Sprague with Vertical Research, please proceed with your question.

Thank you. Good morning, everyone.

Morning.

Couple from me if I could. Just first on FMT. The segment color you provided in the appendix at the annual headwind from Flow MD, was it also a headwind in Q4, or is that business now stabilized?

Yes. It's fairly neutral in the fourth quarter. I believe their current run rate bottomed out in the third quarter, and we expect progression as we move into the next few quarters.

And then on Nextsite, could you just provide a little bit of color on the expected accretion, and also just a little modeling guidance on what we should expect on the amortization that comes into the adjusted EPS equation as a result.

Jeff, once we close, we'll add that to the guide. We have said it's a $50 million business with about 20% EBITDA margins to frame it out a little bit for you, and then we'll nail it down once we close later this quarter and include it in our revised guidance in April.

Great. And then just finally, just back to labor. Appreciate that additional color. Could you just size it though, roughly as a percent of COGS? The cost of labor.

And Eric prefers our direct labor. So things are directly associated with the product builds about 7% or 8%.

Right, thanks for the caller. I appreciate it.

You bet.

Our next question comes from the line of Vlad Bystricky with Citigroup, please proceed with your question.

Good morning, everyone. Thank you for joining the call. I wanted to revisit your comments about capacity constraints and lead times. During the third quarter, you mentioned some extended lead times, but also indicated that you felt competitively positioned compared to others in the industry. Could you provide an update on your performance relative to key competitors across the portfolio, and are there any specific areas where you feel more challenged compared to your peers?

I appreciate the question. I mean, this is something you have to kind of gauge every single business one-by-one. So we do that when we're talking with them and when we go out there. I mean, our model is generally designed to be more reactive and quicker than almost any competitor we have. That's why we have local supply and all the things that we've talked about here. I would say from a performance perspective, probably just like everybody else where we're most challenged just inherently are those places that are more electronics-specific where we're dependent on that probably most constraining single commodity that everybody is customized it's very hard to scramble and get something different. Things like spun boards and those things. Now, the people we're competing against, they've got the same electronic content that we do, so I don't see that as a net competitive disadvantage. There is a great example there, frankly, in that space where I know we outperformed our dispensing business had really, really strong back half push. It's some of the most electronic intensive products that we have in the entire company they did a phenomenal job largely because their suppliers are very local and it's done a great job simplifying the architecture over time. So they go down the list, don't see too many places where folks are pointing to conversion and suppliers that are beating us. There are a couple of dimensions, I do think we performed very, very well. It's frustrating right now, but I think we're still in a good spot. We're super well-positioned and a lot of what goes into an IDEX solution, it's customized nature, the long history of it. There's kind of a natural defense that's part of it.

Okay. That's really helpful color. And then just maybe one more from me. Just going back to the CapEx ramp that you're expecting again here in '22. Can you talk about where you're seeing the best opportunities to deploy this capital? Is it mainly in areas like automation for productivity? And then how should we think about this ramp? Is it reflective of some chunkier onetime things, or is this a more sustainable level of time?

Well, there's definitely a piece of it in there that's a little chunky in our nature because it's related to facility expansion that we have talked about here for the emerging markets. I mean, we're simultaneously effectively doubling capacity over there to support growth at costs all of Asia that we wouldn't do all the time. I will say though that it is stepped up a bit as things like industrial automation become more important for companies like us and others. There are not too many places you can go automate away from people standing on a production floor in our environment, but where there are, it's quite cost-effective to deploy that technology and we're doing it more than we have before. There's some great CapEx related to supporting growth in some interesting ways, digitalization as a chapter is something that wouldn't have been in there 10 years ago or 20 years ago, it is a chapter now. So I think it's a fairly typical profile, certainly reasonable capacity expansion, you'd expect given the growth that we had last year and we project to have in the future, but there are a couple of these extra chapters in there. One sort of onetime-related to facility, but I think the other ones will become part of the mix as we go forward.

Great, that's really helpful. Thanks.

Our next question comes from the line of Brett Linzey with Mizuho America. Please proceed with your question.

Thanks. And good morning, everyone. I wanted to come back to the wins you called out in Life Sciences and Semiconductor. Are the Life Science wins COVID-related or something outside that spectrum? And I was hoping you could put a finer point on how IDEX might be positioned with some of this forthcoming capacity build-out within Semiconductor. Any quantification would be great too.

There are a few things to note. From a life science perspective, while the ongoing impact of COVID is still relevant, it isn't the main focus. We mentioned Next-Gen Sequencing and variance surveillance as part of our work, but that's not the majority of what drives us. The central themes remain quick cancer detection and point-of-care medicine, which have long been significant and are becoming even more crucial as we concentrate on healthcare. I don't consider the current pandemic a major influence; our opportunities are broad-based, and we believe there's substantial potential for growth in that area. Regarding the Semiconductor sector, we engage in two main aspects: first, in the conventional infrastructure build-out where we contribute from a manufacturing standpoint, and second, on the optical side, where we focus more on metrology and post-production quality. We have a dual perspective on this. As for the development timeline, it's clear that there's much progress still to be made before capacity meets the demands of this sector. Exciting announcements are emerging, and we anticipate that this trend will persist for a considerable time, with most of it associated with our HST segment.

Thanks for that and other question on orders and other strong year and really finish to 21. Just curious, as your teams drill down on the order book, are there any signs of double ordering in any of the businesses or pull-forward as customers try to secure a spot in line? Any color would be great.

I believe it's a small percentage mainly due to the highly customized nature of our products. This situation presents a certain level of risk since everyone is operating at capacity, which may not be sustainable given our approach to product development and structure. Typically, this volume is very low, almost negligible on most days. It could represent a small percentage at current levels, which seems consistent. While there may be some instances in high-volume products that people rely on, it's not the predominant focus of our operations, and it has never been.

Okay. Great. Appreciate it.

Thanks.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.