QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12981
_________________________
AMETEK, Inc.
(Exact name of registrant as specified in its charter)
_________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
1100 Cassatt Road
Berwyn, Pennsylvania
(Address of principal executive offices)
14-1682544
(I.R.S. Employer
Identification No.)
19312-1177
(Zip Code)
Registrant’s telephone number, including area code: (610) 647-2121
_________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
_________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock
AME
New York Stock Exchange
The number of shares of the registrant’s common stock outstanding as of the latest practicable date was: Common Stock, $0.01 Par Value, outstanding at April 29, 2024 was 231,469,581 shares.
The accompanying consolidated financial statements are unaudited. AMETEK, Inc. (the “Company”) believes that all adjustments (which primarily consist of normal recurring accruals) necessary for a fair presentation of the consolidated financial position of the Company at March 31, 2024, the consolidated results of its operations for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023 have been included. Quarterly results of operations are not necessarily indicative of results for the full year. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the U.S. Securities and Exchange Commission.
2. Recent Accounting Pronouncements
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosure of significant segment expenses and other segment items on an annual and interim basis under ASC 280. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. Early adoption is permitted and the amendments in this ASU should be applied on a retrospective basis to all periods presented. The Company has not determined the impact ASU 2023-07 may have on the Company’s financial statement disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), which improves income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The ASU indicates that all entities will apply its guidance prospectively with an option for retroactive application to each period in the financial statements. The Company has not determined the impact ASU 2023-09 may have on the Company’s financial statement disclosures.
3. Revenues
The outstanding contract asset and liability accounts were as follows:
2024
2023
(In thousands)
Contract assets—January 1
$
140,826
$
119,741
Contract assets – March 31
146,948
127,412
Change in contract assets – increase (decrease)
6,122
7,671
Contract liabilities – January 1
432,830
398,692
Contract liabilities – March 31
439,365
432,695
Change in contract liabilities – (increase) decrease
(6,535)
(34,003)
Net change
$
(413)
$
(26,332)
The net change for the three months ended March 31, 2024 was driven by contract liabilities, specifically growth in advance payments from customers being largely offset by the increase in contract assets. For the three months ended March 31, 2024 and 2023, the Company recognized revenue of $219.0 million and $199.3 million, respectively, that was previously included in the beginning balance of contract liabilities.
Contract assets are reported as a component of Other current assets in the consolidated balance sheet. At March 31, 2024 and December 31, 2023, $47.5 million and $57.3 million of Customer advanced payments (contract liabilities), respectively, were recorded in Other long-term liabilities in the consolidated balance sheets.
The remaining performance obligations not expected to be completed within one year as of March 31, 2024 and December 31, 2023 were $596.3 million and $607.5 million, respectively. Remaining performance obligations represent the transaction price of firm, non-cancelable orders, with expected delivery dates to customers greater than one year from the balance sheet date, for which the performance obligation is unsatisfied or partially unsatisfied. These performance obligations will be substantially satisfied within two to three years.
Geographic Areas
Net sales were attributed to geographic areas based on the location of the customer. Information about the Company’s operations in different geographic areas was as follows for the three months ended March 31:
Three months ended March 31, 2024
EIG
EMG
Total
(In thousands)
United States
$
568,897
$
343,860
$
912,757
International(1):
United Kingdom
26,707
28,192
54,899
European Union countries
142,242
114,986
257,228
Asia
298,045
50,199
348,244
Other foreign countries
120,888
42,164
163,052
Total international
587,882
235,541
823,423
Consolidated net sales
$
1,156,779
$
579,401
$
1,736,180
________________
(1) Includes U.S. export sales of $473.8 million for the three months ended March 31, 2024.
Three months ended March 31, 2023
EIG
EMG
Total
(In thousands)
United States
$
561,896
$
247,119
$
809,015
International(1):
United Kingdom
28,038
31,062
59,100
European Union countries
135,658
116,807
252,465
Asia
283,892
50,905
334,797
Other foreign countries
107,763
33,977
141,740
Total international
555,351
232,751
788,102
Consolidated net sales
$
1,117,247
$
479,870
$
1,597,117
______________
(1) Includes U.S. export sales of $434.2 million for the three months ended March 31, 2023.
The Company’s major products and services in the reportable segments were as follows:
Three months ended March 31, 2024
EIG
EMG
Total
(In thousands)
Process and analytical instrumentation
$
791,538
$
—
$
791,538
Aerospace and power
365,241
152,452
517,693
Automation and engineered solutions
—
426,949
426,949
Consolidated net sales
$
1,156,779
$
579,401
$
1,736,180
Three months ended March 31, 2023
EIG
EMG
Total
(In thousands)
Process and analytical instrumentation
$
794,433
$
—
$
794,433
Aerospace and power
322,814
143,050
465,864
Automation and engineered solutions
—
336,820
336,820
Consolidated net sales
$
1,117,247
$
479,870
$
1,597,117
Timing of Revenue Recognition
Three months ended March 31, 2024
EIG
EMG
Total
(In thousands)
Products transferred at a point in time
$
945,998
$
503,585
$
1,449,583
Products and services transferred over time
210,781
75,816
286,597
Consolidated net sales
$
1,156,779
$
579,401
$
1,736,180
Three months ended March 31, 2023
EIG
EMG
Total
(In thousands)
Products transferred at a point in time
$
935,308
$
413,601
$
1,348,909
Products and services transferred over time
181,939
66,269
248,208
Consolidated net sales
$
1,117,247
$
479,870
$
1,597,117
Product Warranties
The Company provides limited warranties in connection with the sale of its products. The warranty periods for products sold vary among the Company’s operations, but the majority do not exceed one year. The Company calculates its warranty expense provision based on its historical warranty experience and adjustments are made periodically to reflect actual warranty expenses. Product warranty obligations are reported as a component of Accrued liabilities and other in the consolidated balance sheet.
Changes in the accrued product warranty obligation were as follows:
Three Months Ended March 31,
2024
2023
(In thousands)
Balance at the beginning of the period
$
37,087
$
26,487
Accruals for warranties issued during the period
4,867
3,411
Settlements made during the period
(5,761)
(3,224)
Warranty accruals related to acquired businesses and other during the period
32
133
Balance at the end of the period
$
36,225
$
26,807
Accounts Receivable
The Company maintains allowances for estimated losses resulting from the inability of customers to meet their financial obligations to the Company. The Company recognizes an allowance for credit losses, on all accounts receivable and contract assets, which considers risk of future credit losses based on factors such as historical experience, contract terms, as well as general and market business conditions, country, and political risk. Balances are written off when determined to be uncollectible.
At March 31, 2024, the Company had $983.9 million of accounts receivable, net of allowances of $13.3 million. Changes in the allowance were not material for the three months ended March 31, 2024.
4. Earnings Per Share
The calculation of basic earnings per share is based on the weighted average number of common shares considered outstanding during the periods. The calculation of diluted earnings per share reflects the effect of all potentially dilutive securities (principally outstanding stock options and restricted stock grants). The number of weighted average shares used in the calculation of basic earnings per share and diluted earnings per share was as follows:
Three Months Ended March 31,
2024
2023
(In thousands)
Weighted average shares:
Basic shares
231,097
230,126
Equity-based compensation plans
938
1,103
Diluted shares
232,035
231,229
The calculation of diluted earnings per share for the three months ended March 31, 2024 excluded an immaterial number of stock options because the exercise prices of these stock options exceeded the average market price of the Company’s common shares, and the effect of their inclusion would have been antidilutive. There were no antidilutive shares for the three months ended March 31, 2023.
5. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used
to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table provides the Company’s assets that are measured at fair value on a recurring basis, consistent with the fair value hierarchy, at March 31, 2024 and December 31, 2023:
March 31, 2024
Total
Level 1
Level 2
Level 3
(In thousands)
Mutual fund investments
$
12,427
$
12,427
$
—
$
—
Foreign currency forward contracts
(733)
—
(733)
—
December 31, 2023
Total
Level 1
Level 2
Level 3
(In thousands)
Mutual fund investments
$
11,922
$
11,922
$
—
$
—
Foreign currency forward contracts
2,035
—
2,035
—
The fair value of mutual fund investments is based on quoted market prices. The mutual fund investments are shown as a component of investments and other assets on the consolidated balance sheet.
For the three months ended March 31, 2024 and 2023, gains and losses on the investments noted above were not significant. No transfers between level 1 and level 2 investments occurred during the three months ended March 31, 2024 and 2023.
Foreign Currency
At March 31, 2024, the Company had a Euro forward contract for a total notional value of 50.0 million Euros. The foreign currency forward contract is valued as a level 2 liability as it is corroborated by foreign currency exchange rates and shown as a component of other current liabilities on the consolidated balance sheet. For the three months ended March 31, 2024, realized and unrealized gains and losses on the foreign currency forward contracts were not significant.
Financial Instruments
Cash, cash equivalents and mutual fund investments are recorded at fair value at March 31, 2024 and December 31, 2023 in the accompanying consolidated balance sheet.
The following table provides the estimated fair values of the Company’s financial instrument liabilities, for which fair value is measured for disclosure purposes only, compared to the recorded amounts at March 31, 2024 and December 31, 2023:
March 31, 2024
December 31, 2023
Recorded
Amount
Fair Value
Recorded
Amount
Fair Value
(In thousands)
Long-term debt (including current portion)
$
(2,179,727)
$
(2,072,710)
$
(2,197,538)
$
(2,087,607)
The fair value of net short-term borrowings approximates the carrying value. The Company’s net long-term debt is all privately held with no public market for this debt, therefore, the fair value of net long-term debt was computed based on comparable current market data for similar debt instruments and is considered a level 3 liability.
6. Hedging Activities
The Company has designated certain foreign-currency-denominated long-term borrowings as hedges of the net investment in certain foreign operations. As of March 31, 2024, these net investment hedges included British-pound-and Euro-denominated long-term debt. These borrowings were designed to create net investment hedges in certain designated foreign subsidiaries. The Company designated the British-pound- and Euro-denominated loans as hedging instruments to offset
translation gains or losses on the net investment due to changes in the British pound and Euro exchange rates. These net investment hedges are evidenced by management’s contemporaneous documentation supporting the hedge designation. Any gain or loss on the hedging instruments (the debt) following hedge designation is reported in accumulated other comprehensive income in the same manner as the translation adjustment on the hedged investment based on changes in the spot rate, which is used to measure hedge effectiveness.
At March 31, 2024, the Company had $284.3 million of British-pound-denominated loans, which were designated as a hedge against the net investment in British pound functional currency foreign subsidiaries. At March 31, 2024, the Company had $558.3 million in Euro-denominated loans, which were designated as a hedge against the net investment in Euro functional currency foreign subsidiaries. As a result of the British-pound- and Euro-denominated loans designated and 100% effective as net investment hedges, $16.2 million of pre-tax currency remeasurement gains have been included in the foreign currency translation component of other comprehensive income for the three months ended March 31, 2024.
7. Inventories, net
March 31, 2024
December 31, 2023
(In thousands)
Finished goods and parts
$
147,747
$
136,003
Work in process
167,751
165,914
Raw materials and purchased parts
811,830
830,554
Total inventories, net
$
1,127,328
$
1,132,471
8. Leases
The Company has commitments under operating leases for certain facilities, vehicles and equipment used in its operations. Cash used in operations for operating leases was not materially different from operating lease expense for the three months ended March 31, 2024 and 2023. The Company's leases have a weighted average remaining lease term of approximately 7 years. Certain lease agreements contain provisions for future rent increases.
The components of lease expense were as follows:
Three Months Ended March 31,
2024
2023
(In thousands)
Operating lease cost
$
17,604
$
14,677
Variable lease cost
3,191
3,230
Total lease cost
$
20,795
$
17,907
Supplemental balance sheet information related to leases was as follows:
March 31, 2024
December 31, 2023
(In thousands)
Right of use assets, net
$
219,887
$
229,723
Lease liabilities included in Accrued Liabilities and other
60,058
61,055
Lease liabilities included in Other long-term liabilities
Maturities of lease liabilities as of March 31, 2024 were as follows:
Lease Liability Maturity Analysis
Operating Leases
(In thousands)
Remaining 2024
$
45,287
2025
49,818
2026
40,043
2027
28,987
2028
21,126
Thereafter
85,921
Total lease payments
271,182
Less: imputed interest
37,313
$
233,869
The Company does not have any significant leases that have not yet commenced.
9. Acquisitions
The initial accounting for the December 2023 Paragon Medical acquisition is being finalized, including the measurement of the acquired tangible and intangible assets and liabilities, as well as, the associated income tax considerations. All amounts could change, potentially materially, as there is significant additional information that the Company must obtain to finalize the valuations of the assets acquired and liabilities assumed, and to finalize the value of the intangible assets.
The Company finalized its measurements of tangible and intangible assets and liabilities for its August 2023 acquisition of United Electronic Industries, which had no material impact to the consolidated statement of income and balance sheet. The Company is in the process of finalizing the measurement of the intangible assets and tangible assets and liabilities, including accounting for income taxes, for its October 2023 acquisition of Amplifier Research Corp.
10. Goodwill
The changes in the carrying amounts of goodwill by segment were as follows:
EIG
EMG
Total
(In millions)
Balance at December 31, 2023
$
4,365.0
$
2,082.6
$
6,447.6
Purchase price allocation adjustments and other
11.8
0.6
12.4
Foreign currency translation adjustments
(16.0)
(5.3)
(21.3)
Balance at March 31, 2024
$
4,360.8
$
2,077.9
$
6,438.7
11. Income Taxes
At March 31, 2024, the Company had gross uncertain tax benefits of $244.1 million, of which $195.1 million, if recognized, would impact the effective tax rate.
The following is a reconciliation of the liability for uncertain tax positions (in millions):
The additions above primarily reflect the tax positions for foreign tax planning initiatives. The Company recognizes interest and penalties accrued related to uncertain tax positions in income tax expense. The amounts recognized in income tax expense for interest and penalties during the three months ended March 31, 2024 and 2023 were not significant.
The effective tax rate for the three months ended March 31, 2024 was 18.5%, compared with 19.5% for the three months ended March 31, 2023. The lower effective tax rate in the first quarter of 2024 is primarily due to lower foreign and state taxes compared to the first quarter of 2023.
12. Share-Based Compensation
The Company's share-based compensation plans are described in Note 11, Share-Based Compensation, to the consolidated financial statements in Part II, Item 8, filed on the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Share Based Compensation Expense
Total share-based compensation expense was as follows:
Three Months Ended March 31,
2024
2023
(In thousands)
Stock option expense
$
3,509
$
3,584
Restricted stock expense
4,797
5,040
Performance restricted stock unit expense
635
1,655
Total pre-tax expense
$
8,941
$
10,279
Pre-tax share-based compensation expense is included in the consolidated statement of income in either Cost of sales or Selling, general and administrative expenses, depending on where the recipient’s cash compensation is reported.
Stock Options
The fair value of each stock option grant is estimated on the grant date using a Black-Scholes-Merton option pricing model. The following weighted average assumptions were used in the Black-Scholes-Merton model to estimate the fair values of stock options granted during the periods indicated:
Three Months Ended March 31, 2024
Year Ended December 31, 2023
Expected volatility
28.2
%
26.0
%
Expected term (years)
5.0
5.0
Risk-free interest rate
4.31
%
3.54
%
Expected dividend yield
0.62
%
0.72
%
Black-Scholes-Merton fair value per stock option granted
The following is a summary of the Company’s stock option activity and related information:
Shares
Weighted Average Exercise Price
Weighted Average Remaining Contractual Life
Aggregate Intrinsic Value
(In thousands)
(Years)
(In millions)
Outstanding at December 31, 2023
2,741
$
101.20
Granted
231
181.93
Exercised
(321)
79.67
Forfeited
(8)
139.23
Outstanding at March 31, 2024
2,643
$
110.77
6.9
$
190.7
Exercisable at March 31, 2024
1,962
$
96.35
6.1
$
169.8
The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2024 was $30.0 million. The total fair value of stock options vested during the three months ended March 31, 2024 was $14.5 million. As of March 31, 2024, there was approximately $26.5 million of expected future pre-tax compensation expense related to the 0.7 million non-vested stock options outstanding, which is expected to be recognized over a weighted average period of approximately two years.
Restricted Stock
The following is a summary of the Company’s non-vested restricted stock activity and related information:
Shares
Weighted Average Grant Date Fair Value
(In thousands)
Non-vested restricted stock outstanding at December 31, 2023
296
$
135.39
Granted
144
181.93
Vested
(135)
132.65
Forfeited
(3)
139.47
Non-vested restricted stock outstanding at March 31, 2024
302
$
158.83
The total fair value of restricted stock vested during the three months ended March 31, 2024 was $18.0 million. As of March 31, 2024, there was approximately $43.2 million of expected future pre-tax compensation expense related to the 0.3 million non-vested restricted shares outstanding, which is expected to be recognized over a weighted average period of approximately two years.
Performance Restricted Stock Units
In March 2024, the Company granted performance restricted stock units ("PRSU") to officers and certain key management-level employees. The PRSUs vest over a period up to three years from the grant date based on continuous service, with the number of shares earned (0% to 200% of the target award) depending upon the extent to which the Company achieves certain financial and market performance targets measured over the period from January 1 of the year of grant to December 31 of the third year. Half of the PRSUs were valued in a manner similar to restricted stock as the financial targets are based on the Company’s operating results, which represents a performance condition. The grant date fair value of these PRSUs are recognized as compensation expense over the vesting period based on the probable number of awards to vest at each reporting date.
The other half of the PRSUs were valued using a Monte Carlo model as the performance target is related to the Company’s total shareholder return compared to a group of peer companies, which represents a market condition. The Company recognizes the grant date fair value of these awards as compensation expense ratably over the vesting period.
The following is a summary of the Company’s non-vested performance restricted stock activity and related information:
Shares
Weighted Average Grant Date Fair Value
(In thousands)
Non-vested performance restricted stock outstanding at December 31, 2023
239
$
131.90
Granted
77
181.93
Performance assumption change 1
24
121.91
Vested
(99)
121.91
Forfeited
—
—
Non-vested performance restricted stock outstanding at March 31, 2024
241
$
151.05
_________________________________________
1 Reflects the number of PRSUs above target levels based on performance metrics.
As of March 31, 2024, there was approximately $17.9 million of expected future pre-tax compensation expense related to the 0.2 million non-vested restricted shares outstanding, which is expected to be recognized over a weighted average period of approximately one year.
13. Retirement and Pension Plans
The components of net periodic pension benefit expense (income) were as follows:
Three Months Ended March 31,
2024
2023
(In thousands)
Defined benefit plans:
Service cost
$
730
$
740
Interest cost
6,989
7,501
Expected return on plan assets
(13,632)
(12,996)
Amortization of net actuarial loss and other
2,337
2,821
Pension income
(3,576)
(1,934)
Other plans:
Defined contribution plans
14,595
13,516
Foreign plans and other
1,689
2,571
Total other plans
16,284
16,087
Total net pension expense
$
12,708
$
14,153
For defined benefit plans, the net periodic benefit income, other than the service cost component, is included in “Other (expense) income, net” in the consolidated statement of income.
For the three months ended March 31, 2024 and 2023, contributions to the Company’s defined benefit pension plans were $1.5 million and $1.4 million, respectively. The Company’s current estimate of 2024 contributions to its worldwide defined benefit pension plans is in line with the range disclosed in Note 12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
The Company (including its subsidiaries) has been named as a defendant in a number of asbestos-related lawsuits. Certain of these lawsuits relate to a business which was acquired by the Company and do not involve products which were manufactured or sold by the Company. In connection with these lawsuits, the seller of such business has agreed to indemnify the Company against these claims (the “Indemnified Claims”). The Indemnified Claims have been tendered to, and are being defended by, such seller. The seller has met its obligations, in all respects, and the Company does not have any reason to believe such party would fail to fulfill its obligations in the future. To date, no judgments have been rendered against the Company as a result of any asbestos-related lawsuit. The Company believes that it has good and valid defenses to each of these claims and intends to defend them vigorously.
Environmental Matters
Certain historic processes in the manufacture of products have resulted in environmentally hazardous waste by-products as defined by federal and state laws and regulations. At March 31, 2024, the Company is named a Potentially Responsible Party (“PRP”) at 12 non-AMETEK-owned former waste disposal or treatment sites (the “non-owned” sites). The Company is identified as a “de minimis” party in a majority of these sites based on the low volume of waste attributed to the Company relative to the amounts attributed to other named PRPs. The Company is participating in the investigation and/or related required remediation as part of a PRP Group and reserves have been established to satisfy the Company’s expected obligations. The Company historically has resolved these issues within established reserve levels and reasonably expects this result will continue. In addition to these non-owned sites, the Company has an ongoing practice of providing reserves for probable remediation activities at certain of its current or previously owned manufacturing locations (the “owned” sites). For claims and proceedings against the Company with respect to other environmental matters, reserves are established once the Company has determined that a loss is probable and estimable. This estimate is refined as the Company moves through the various stages of investigation, risk assessment, feasibility study and corrective action processes. In certain instances, the Company has developed a range of estimates for such costs and has recorded a liability based on the best estimate. It is reasonably possible that the actual cost of remediation of the individual sites could vary from the current estimates and the amounts accrued in the consolidated financial statements; however, the amounts of such variances are not expected to result in a material change to the consolidated financial statements. In estimating the Company’s liability for remediation, the Company also considers the likely proportionate share of the anticipated remediation expense and the ability of the other PRPs to fulfill their obligations.
Total environmental reserves at March 31, 2024 and December 31, 2023 were $35.6 million and $37.1 million, respectively, for both non-owned and owned sites. For the three months ended March 31, 2024, the Company recorded $3.3 million in reserves. Additionally, the Company spent $4.8 million on environmental matters for the three months ended March 31, 2024.
The Company has agreements with other former owners of certain of its acquired businesses, as well as new owners of previously owned businesses. Under certain of the agreements, the former or new owners retained, or assumed and agreed to indemnify the Company against, certain environmental and other liabilities under certain circumstances. The Company and some of these other parties also carry insurance coverage for some environmental matters.
The Company believes it has established reserves for the environmental matters described above, which are sufficient to perform all known responsibilities under existing claims and consent orders. In the opinion of management, based on presently available information and the Company’s historical experience related to such matters, an adequate provision for probable costs has been made and the ultimate cost resulting from these actions is not expected to materially affect the consolidated results of operations, financial position or cash flows of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following table sets forth net sales and income by reportable segment and on a consolidated basis:
Three Months Ended March 31,
2024
2023
(In thousands)
Net sales:
Electronic Instruments
$
1,156,779
$
1,117,247
Electromechanical
579,401
479,870
Consolidated net sales
$
1,736,180
$
1,597,117
Operating income and income before income taxes:
Segment operating income:
Electronic Instruments
$
352,940
$
309,747
Electromechanical
90,691
120,504
Total segment operating income
443,631
430,251
Corporate administrative expenses
(26,415)
(24,710)
Consolidated operating income
417,216
405,541
Interest expense
(35,254)
(20,569)
Other (expense) income, net
(633)
(5,373)
Consolidated income before income taxes
$
381,329
$
379,599
For the quarter ended March 31, 2024, the Company posted record sales. Contributions from the acquisitions of Bison Gear & Engineering Corp. ("Bison") in March 2023, United Electronic Industries ("UEI") in August 2023, Amplifier Research Corp. ("Amplifier Research") in October 2023, and Paragon Medical ("Paragon") in December 2023, as well as our Operational Excellence initiatives, had a positive impact on the first quarter of 2024 results. In the first quarter of 2024 , the Company recorded pre-tax integration costs related to the Paragon acquisition totaling $29.2 million, of which $22.4 million is employee severance. The integration costs reduced net income by $22.2 million ($0.10 per diluted share). The full year impact of the 2023 acquisitions, including the continued integration of Paragon, and focus on and implementation of our Operational Excellence initiatives are expected to have a positive impact on our 2024 results.
Results of operations for the first quarter of 2024 compared with the first quarter of 2023
Net sales for the first quarter of 2024 were $1,736.2 million, an increase of $139.1 million or 8.7%, compared with net sales of $1,597.1 million for the first quarter of 2023. The increase in net sales for the first quarter of 2024 was due to a 9% increase from acquisitions.
Total international sales for the first quarter of 2024 were $823.4 million or 47.4% of net sales, an increase of $35.3 million or 4.5%, compared with international sales of $788.1 million or 49.3% of net sales for the first quarter of 2023. The increase in international sales was primarily driven by contributions from recent acquisitions.
Orders for the first quarter of 2024 were $1,662.7 million, a decrease of $149.4 million or 8.2%, compared with $1,812.1 million for the first quarter of 2023. The decrease in orders for the first quarter of 2024 was due to a 10% decline in organic orders and a 2% unfavorable effect of foreign currency translation, partially offset by a 3% increase from acquisitions. The Company's backlog of unfilled orders at March 31, 2024 was $3,460.7 million, a decrease of $73.4 million or 2.1% compared with $3,534.1 million at December 31, 2023.
Segment operating income for the first quarter of 2024 was $443.6 million, an increase of $13.3 million or 3.1%, compared with segment operating income of $430.3 million for the first quarter of 2023. Segment operating margins, as a percentage of net sales, decreased to 25.6% for the first quarter of 2024, compared with 26.9% for the first quarter of 2023. Segment operating income and operating margins for the first quarter of 2024 included $29.2 million of integration costs related to the Paragon acquisition, which negatively impacted segment operating margins by 160 basis points. Segment operating margins were also negatively impacted in the first quarter of 2024 by the dilutive impact of the 2023 acquisitions. Excluding the dilutive impact of recent acquisitions and the Paragon integration costs, segment operating margins increased 200 basis
points compared to the first quarter of 2023, due to the continued benefits from the Company's Operational Excellence initiatives.
Cost of sales for the first quarter of 2024 was $1,144.7 million or 65.9% of net sales, an increase of $122.2 million or 11.9%, compared with $1,022.5 million or 64.0% of net sales for the first quarter of 2023. Cost of sales for the first quarter of 2024 included $29.2 million of Paragon integration costs discussed above. Excluding the impact of the Paragon integration costs, the cost of sales for the first quarter of 2024 was 64.2% of net sales.
Selling, general and administrative expenses for the first quarter of 2024 were $174.3 million or 10.0% of net sales, an increase of $5.2 million or 3.1%, compared with $169.1 million or 10.6% of net sales for the first quarter of 2023. General and administrative expenses for the first quarter of 2024 were $26.4 million, compared with $24.7 million for the first quarter of 2023.
Consolidated operating income was $417.2 million or 24.0% of net sales for the first quarter of 2024, an increase of $11.7 million or 2.9%, compared with $405.5 million or 25.4% of net sales for the first quarter of 2023. Operating income and operating margins for the first quarter of 2024 included $29.2 million of integration costs related to the Paragon acquisition, which negatively impacted operating margins by 170 basis points. Operating margins were also negatively impacted in the first quarter of 2024 by the dilutive impact of the 2023 acquisitions. Excluding the dilutive impact of recent acquisitions and the Paragon integration costs, operating margins increased 180 basis points compared to the first quarter of 2023.
Other expense, net was $0.6 million for the first quarter of 2024, compared with $5.4 million of other expense, net for the first quarter of 2023. The decrease of $4.7 million in the first quarter of 2024 is primarily driven by higher pension income of $1.5 million, as well as higher interest income of $1.2 million.
The effective tax rate for the first quarter of 2024 was 18.5%, compared with 19.5% for the first quarter of 2023. The lower effective tax rate in the first quarter of 2024 is primarily due to lower foreign and state taxes compared to the first quarter of 2023.
Net income for the first quarter of 2024 was $310.9 million, an increase of $5.2 million or 1.7%, compared with $305.7 million for the first quarter of 2023.
Diluted earnings per share for the first quarter of 2024 were $1.34, an increase of $0.02 or 1.5%, compared with $1.32 per diluted share for the first quarter of 2023.
Segment Results
EIG’s net sales totaled $1,156.8 million for the first quarter of 2024, an increase of $39.6 million or 3.5%, compared with $1,117.2 million for the first quarter of 2023. The net sales increase was due to a 1% increase in organic sales and a 3% increase from the recent acquisitions.
EIG’s operating income was $352.9 million for the first quarter of 2024, an increase of $43.2 million or 13.9%, compared with $309.7 million for the first quarter of 2023. EIG’s operating margins were a record 30.5% of net sales for the first quarter of 2024, compared with 27.7% for the first quarter of 2023. EIG's operating margins increased in the first quarter of 2024 compared to the first quarter of 2023 due to the sales increase discussed above, as well as continued benefits from the Company's Operational Excellence initiatives.
EMG’s net sales totaled $579.4 million for the first quarter of 2024, an increase of $99.5 million or 20.7%, compared with $479.9 million for the first quarter of 2023. The net sales increase was due to a 25% increase from the recent acquisitions, partially offset by a 4% organic sales decrease. The organic sales decrease for the first quarter of 2024 is due to customer inventory normalization in our automation and engineered solutions core businesses
EMG’s operating income was $90.7 million for the first quarter of 2024, a decrease of $29.8 million or 24.7%, compared with $120.5 million for the first quarter of 2023. EMG’s operating margins were 15.7% of net sales for the first quarter of 2024, compared with 25.1% for the first quarter of 2023. EMG's operating income and operating margins for the first quarter of 2024 included $29.2 million of integration costs related to the Paragon acquisition, which negatively impacted segment operating margins by 500 basis points. Segment operating margins were also negatively impacted in the first quarter of 2024 by the dilutive impact of the 2023 acquisitions. Excluding the dilutive impact of recent acquisitions and the Paragon integration costs, segment operating margins decreased 100 basis points compared to the first quarter of 2023, due to the organic sales decrease discussed above.
Cash provided by operating activities totaled $410.2 million for the first three months of 2024, an increase of $23.7 million or 6.1%, compared with $386.5 million for the first three months of 2023. The increase in cash provided by operating activities for the first three months of 2024 was primarily due to higher net income, net of noncash depreciation and amortization expense related to recent acquisitions.
Free cash flow (cash flow provided by operating activities less capital expenditures) was $382.6 million for the first three months of 2024, compared with $366.5 million for the first three months of 2023. EBITDA (earnings before interest, income taxes, depreciation and amortization) was $512.8 million for the first three months of 2024, compared with $481.7 million for the first three months of 2023. Free cash flow and EBITDA are presented because the Company is aware that they are measures used by third parties in evaluating the Company.
Cash used by investing activities totaled $21.4 million for the first three months of 2024, compared with cash used by investing activities of $122.2 million for the first three months of 2023. For the first three months of 2023, the Company paid $99.3 million, net of cash acquired, to purchase Bison Gear & Engineering Corp. Additions to property, plant and equipment totaled $27.7 million for the first three months of 2024, compared with $20.0 million for the first three months of 2023.
Cash used by financing activities totaled $417.5 million for the first three months of 2024, compared with cash used by financing activities of $215.0 million for the first three months of 2023. At March 31, 2024, total debt, net was $2,933.2 million, compared with $3,313.3 million at December 31, 2023. For the first three months of 2024, total borrowings decreased by $363.1 million compared with a $155.5 million decrease for the first three months of 2023. At March 31, 2024, the Company had available borrowing capacity of $2,187.5 million under its revolving credit facility, including the $700 million accordion feature.
The debt-to-capital ratio was 24.6% at March 31, 2024, compared with 27.5% at December 31, 2023. The net debt-to-capital ratio (total debt, net less cash and cash equivalents divided by the sum of net debt and stockholders’ equity) was 22.2% at March 31, 2024, compared with 25.0% at December 31, 2023. The net debt-to-capital ratio is presented because the Company is aware that this measure is used by third parties in evaluating the Company.
Additional financing activities for the first three months of 2024 included cash dividends paid of $64.7 million, compared with $57.5 million for the first three months of 2023. Effective February 9, 2024, the Company’s Board of Directors approved a 12% increase in the quarterly cash dividend on the Company’s common stock to $0.28 per common share from $0.25 per common share. The Company repurchased $6.9 million of its common stock for the first three months of 2024, compared with $6.5 million for the first three months of 2023. Proceeds from stock option exercises were $23.6 million for the first three months of 2024, compared with $10.4 million for the first three months of 2023.
As a result of all of the Company’s cash flow activities for the first three months of 2024, cash and cash equivalents at March 31, 2024 totaled $373.8 million, compared with $409.8 million at December 31, 2023. At March 31, 2024, the Company had $337.3 million in cash outside the United States, compared with $375.9 million at December 31, 2023. The Company utilizes this cash to fund its international operations, as well as to acquire international businesses. The Company is in compliance with all covenants, including financial covenants, for all of its debt agreements. The Company believes it has sufficient cash-generating capabilities from domestic and unrestricted foreign sources, available credit facilities and access to long-term capital funds to enable it to meet its operating needs and contractual obligations in the foreseeable future.
Critical Accounting Policies
The Company’s critical accounting policies are detailed in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition of its Annual Report on Form 10-K for the year ended December 31, 2023. Primary disclosure of the Company’s significant accounting policies is also included in Note 1 to the Consolidated Financial Statements included in Part II, Item 8 of its Annual Report on Form 10-K.
Forward-Looking Information
Information contained in this discussion, other than historical information, is considered “forward-looking statements” and is subject to various factors and uncertainties that may cause actual results to differ significantly from expectations. These factors and uncertainties include risks related to the Company’s ability to consummate and successfully integrate future
acquisitions; risks associated with international sales and operations, including supply chain disruptions; the Company’s ability to successfully develop new products, open new facilities or transfer product lines; the price and availability of raw materials; compliance with government regulations, including environmental regulations; changes in the competitive environment or the effects of competition in the Company’s markets; the ability to maintain adequate liquidity and financing sources; and general economic conditions affecting the industries the Company serves. A detailed discussion of these and other factors that may affect the Company’s future results is contained in AMETEK’s filings with the U.S. Securities and Exchange Commission, including its most recent reports on Form 10-K, 10-Q, and 8-K. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements, unless required by the securities laws to do so.
Item 4. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management in a timely manner. Under the supervision and with the participation of our management, including the Company’s principal executive officer and principal financial officer, we have evaluated the effectiveness of our system of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of March 31, 2024. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level.
Such evaluation did not identify any change in the Company’s internal control over financial reporting during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchase of equity securities by the issuer and affiliated purchasers.
The following table reflects purchases of AMETEK, Inc. common stock by the Company during the three months ended March 31, 2024:
Period
Total Number of Shares Purchased (1)(2)
Average Price
Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan (2)
Approximate
Dollar Value of
Shares that
May Yet Be
Purchased Under
the Plan
January 1, 2024 to January 31, 2024
—
$
—
—
$
816,130,993
February 1, 2024 to February 29, 2024
73
168.50
73
816,118,693
March 1, 2024 to March 31, 2024
41,228
167.42
41,228
809,216,260
Total
41,301
$
167.42
41,301
________________
(1) Represents shares surrendered to the Company to satisfy tax withholding obligations in connection with employees’ share-based compensation awards.
(2) Consists of the number of shares purchased pursuant to the Company’s Board of Directors $1 billion authorization for the repurchase of its common stock announced in May 2022. Such purchases may be effected from time to time in the open market or in private transactions, subject to market conditions and at management’s discretion.
Item 5. Other Information
Insider Trading Arrangements and Policies
During the quarter ended March 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.