IDEX CORP /DE/ Q4 2025 earnings call

Good morning, everyone, and welcome to IDEX's Q4 2025 earnings conference call. We released our Q4 financial results earlier this morning, and you can find both our press release and earnings call slide presentation in the Investors section of our website, IDEXCorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX, and Sean Gillen, our Chief Financial Officer. Today's call will begin with Eric providing highlights of our Q4 fiscal year results and a discussion of our current business outlook and strategies. Then Sean will discuss additional financial details and our outlook for 2026. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to slide two of our presentation where we note that comments today will include forward-looking statements based on current expectations.

Actual results could differ materially from these statements due to a number of risks and uncertainties which are discussed in our press release and SEC filings. As IDEX provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Eric.

Thanks, Jim. Good morning, everyone, and thank you for joining us today. Before I dive in, I want to welcome Sean Gillen, who joined us in January as our Chief Financial Officer. Prior to joining IDEX, Sean served as CFO at AAR Corp for over seven years, and he brings extensive experience driving profitable growth, operational execution, and disciplined capital allocation. His expertise and track record of successfully implementing operational efficiencies, optimizing portfolios, and executing on strategic M&A fully complement IDEX's strategy. He's hit the ground running as he finishes up his first month of onboarding, and we look forward to benefiting from his leadership as we continue to shape and execute our enterprise strategy. Welcome to the team, Sean. I'm proud of the results the IDEX team's collectively delivered in the Q4.

We'll go into each of these in more detail, but we delivered organic sales growth and margin expansion for IDEX while also significantly expanding the order book within HST as we closed out 2025. These results show signs that our strategy is working and provide strong momentum as we enter our fiscal year 2026. I'd like to thank our teams around the world for their hard work, agility, and disciplined execution. Turning to slide three. We are progressing well through phase three of IDEX's purposeful evolution as we thoughtfully expand and integrate our capabilities in targeted advantage markets. With the support of our 80/20 playbook, we are making this pivot both organically and through M&A. As a key element of this strategy, we built new scalable growth platforms that allow us to compound our efforts through cross-business unit collaboration.

Please turn to slide four, where I'd like to illustrate how this work is paying off within our HST segment. We've seen acceleration in order rates over the last year and a half, with our strongest mark coming in Q4 of 2025 with organic orders growth of 34%. This has driven organic sales growth towards a mid-single-digit level as we move into 2026. In our Performance Pneumatics group, we are helping customers support data center construction driven by demand from artificial intelligence. Specifically, our Airtech and Gast businesses are collaborating within thermal management applications to support data center liquid cooling and on-site behind-the-meter power generation. We provide blowers, vacuum pumps, valves, and other specialty components to solve key problems in these areas.

As customers have asked us to scale up quickly, our pneumatics teams have leveraged their own global footprints while also utilizing shared Asia-Pacific facilities and capabilities within IDEX. We first talked about this emerging growth potential about a year ago. It's inspiring to see how far we've come since then. We walked through the strategic building blocks of our Material Science Solutions platform on last quarter's call. At the highest level, we've mapped each business's unique capabilities to one of three competitive attributes as we form unique properties from materials, shape and control surfaces, and enable surface function through coatings capabilities. We continue to see strong growth across the platform within space and defense, semiconductor, and data center communication markets.

In 2025, we complemented our organic efforts with a small but meaningful acquisition in Micro-LAM, a very high-quality bolt-on that brings proprietary, difficult-to-machine forming capabilities into our already advantaged optics toolbox. Integration into IDEX is going well, and it's great to see strong growth momentum out of the gate for the business. They are largely booked for 2026 as we work to expand capacity by applying the IDEX operating model. At Mott, which transforms material powders for specialty filtration, we see growth within the same MSS markets for many of the same customers. In fact, our Life Sciences MPT and Mott leaders are expanding the scope of coordinated commercial efforts for maximum focused impact. Our Life Sciences team, operating within our longest chartered integrated platform, continues to win in the pharma space as a key initiative within their long-term growth strategy.

Our Material Processing Technologies group, with strong food and pharma-focused global development and production resources, is also driving favorable growth results for HST. Our Sealing Solutions businesses are seeing nice growth from semiconductor sealing applications, largely in support of the increased demand for data center memory. Our 80/20 playbook, which supports the formal resource choices and segmentation to drive growth in this way, also has a part to play to support margin expansion within the segment. Our teams will be taking advantage of the flywheel effect of HST growth from our 80/20 to support the next round of 20 simplification to help boost overall segment portfolio margin. We'll call out some of these results in the quarters to come as we highlight the top line and bottom line power of 80/20 within our enterprise strategy.

Before I turn it over to Sean for more detailed financial commentary, I'd like to pull back up, quickly restate the highlights for HST, and expand our IDEX Q4 story with some framing comments around the more industrial and municipal-facing businesses within FMT and FSDP. I'm on slide five. IDEX delivered better-than-expected Q4 results despite the continued challenges our businesses face given macro uncertainties. Our Health & Science Technologies segment, as I just covered, grew organic orders and sales 34% and 5% respectively as they capitalized on advantaged growth supporting the AI-related ecosystem within and near data centers. HST is also seeing growth in semiconductor filtration and sealing consumables, space and defense applications, and wins within food and pharma markets. Industrial and auto market exposures within HST, which make up about 20% of segment revenues, remain flattish, and we have not observed any meaningful signs of demand improvement.

HST also drove 60 basis points of margin improvement year-over-year. As we leverage volume growth, apply 80/20 and operational excellence standards in newly acquired entities, and improve mix, we will drive continued margin expansion within HST going forward. In Fluid & Metering Technologies, organic orders and sales grew 4% and 1% year-over-year respectively. Our municipal water-facing businesses remain strong, growing mid-single digits, and mining through our Abel franchise continues to be an area of strength as demand for precious metals increases. While the general industrial landscape all-in continues to trend flattish, FMT is experiencing noticeable softness in chemical, energy, and agriculture markets. Regarding the broad, mature, and fragmented industrial end markets, there does seem to be an emerging consensus that 2026 will see a return to growth after three years of PMI contraction, made more likely if last year's volatile policy headwinds moderate.

But at this point, as we look at our leading indicators, we are not seeing an inflection point in activity, and our guidance reflects this reality. Due to the rapid replenishment nature of our businesses, if there is a return to growth, we'll see it quickly, and we are well positioned to capitalize on it should it occur. Finally, in our Fire & Safety / Diversified Products segment, growth in our North American fire and rescue business was more than offset by pressures outside the U.S. and cyclical softness in dispensing. BAND-IT is trending generally flat alongside our other diversified industrial businesses. And with that, I'll pass it over to Sean to discuss our financials and our 2026 outlook in greater detail.

Thanks, Eric, and good morning, everyone. I appreciate the warm welcome, and I'm thrilled to have joined the IDEX team. In my first few weeks, I am struck by the solid foundation of the IDEX franchise, which is underpinned by a strong focus on 80/20. I am excited to work with this talented team embracing 80/20, targeting key high-growth markets, and continuing to optimize our portfolio, all while maintaining a disciplined approach to capital allocation. With that, I'll turn to the financial results in more detail. All the comparisons I will discuss will be against the prior year period unless stated otherwise. Please turn to slide six. As Eric mentioned, in the Q4 of 2025, IDEX delivered better-than-expected financial performance. Organic revenue growth of 1% came in as expected, with strength in HST more than offsetting negative year-over-year performance at FSDP.

Adjusted EBITDA margin expanded 40 basis points year-over-year on positive price cost and productivity improvements, and adjusted EPS came in higher than our guided range in the Q4. Overall, our orders grew 16% organically in the quarter. Our HST segment reached a record high at $493 million, with orders growing 34% organically in the Q4. FMT orders grew mid-single digit, and FSDP orders were flat year-over-year. Recall that we typically enter any given quarter approximately 50% booked overall. However, the strong order activity and record backlog in HST gives us greater visibility and confidence in our outlook for that portion of the business. In FMT and FSDP, the rapid fulfillment nature of those businesses limits our visibility to approximately midway into a quarter.

Touching on some of the more meaningful business demand trends in the quarter, we saw strong order activity in areas influenced by data centers. For us, as Eric mentioned, that's in power, semiconductor, and optical switching. We also saw strength in municipal water, food and pharma, and space and defense. In Life Sciences, we continued to see low single-digit growth. Organic sales in the Q4 grew 1% as positive price more than offset volume declines. The teams drove positive price across each of the segments. Volumes were flat at HST and declined year-over-year at FMT and FSDP. IDEX adjusted gross margin was flat year-over-year in the Q4 as price cost and productivity benefits were offset by volume deleverage and mix.

Adjusted EBITDA margin expanded 40 basis points versus last year, reflecting productivity gains, favorable price cost dynamics, and cost discipline more than offsetting volume deleverage and negative mix. We were successful in our platform optimization and cost containment efforts as they yielded approximately $60 million of full-year savings. Free cash flow for the full year 2025 of $617 million increased 2% versus last year, and free cash flow conversion for the year came in at 103% of adjusted net income. Our targeted free cash flow conversion of at least 100% at IDEX remains unchanged. We ended the year with strong liquidity of approximately $1.1 billion. And finally, we spent $73 million to repurchase IDEX shares in the quarter, taking our total share repurchases for the year to nearly $250 million or 1.4 million shares. Now, quickly some color on our results by segment. I'm on slide seven.

In HST, organic orders increased 34% and revenue grew 5%. Volumes increased in data center applications, semiconductor consumables, and space and defense. Volume strength in these areas were partially offset by year-over-year declines in Life Sciences, pharma, and general industrial. HST Adjusted EBITDA margin expanded 60 basis points year-over-year as positive price cost and productivity gains more than offset unfavorable mix and higher variable compensation. Turning to Slide eight. In FMT, organic orders increased 4% and organic sales increased 1%. Orders growth was supported by our Intelligent Water platform, which was partially offset by softness in the chemical end markets. Looking at our leading indicator, industrial order rates, they appear range-bound without any indication of a sustainable inflection in demand. Within FMT, we continued to see subdued spending environments within the oil and gas, chemical, and agricultural markets. These exposures make up over a third of FMT.

FMT's Adjusted EBITDA margin declined 20 basis points year-over-year as positive price cost and platform optimization and cost containment actions were more than offset by volume deleverage, higher employee-related costs, and unfavorable mix. Please turn to slide nine. FSDP organic orders were flat year-over-year, and organic sales declined by 5% for the second consecutive quarter. Continued growth in North American fire OEM and stability at BAND-IT were more than offset by continued weakness in fire and safety outside the US and subdued capital spending in dispensing. These headwinds were identified last quarter and continue to persist. FSDP Adjusted EBITDA margin increased 50 basis points year-over-year as productivity gains and favorable mix more than offset volume deleverage. Please turn to slide 10, where I'll touch on capital allocation.

We drove $190 million of Free Cash Flow in the Q4 and $617 million for the full year 2025. During 2025, we reduced our gross leverage position from 2.2 to 2 times. We did this while paying $213 million in dividends in 2025 and, as mentioned previously, repurchasing nearly $250 million worth of shares. Regarding our capital deployment methodology, I view this across 4 key areas: maintaining a strong balance sheet, organic investments to drive growth, M&A, and return of capital to shareholders via dividends and share repurchases. With IDEX's strong financial position and cash flow generation, we can allocate capital to each of these areas. First, we will maintain our investment-grade credit rating, which provides reliable access to capital at attractive rates. Second, we will continue to organically invest in our businesses to drive growth, where we have the highest return opportunities.

Third, regarding M&A, in the near term, we will focus on the integration of recently acquired businesses, and new acquisitions will likely be bolt-on in nature. In parallel, we are doing the work to chart a roadmap for where IDEX goes next. We are looking at what other technologies and market access points could be additive to our portfolio and where potential divestiture could make sense. We expect M&A activity to be an ongoing part of our long-term growth algorithm. Fourth, we will return capital to shareholders via both dividends and share repurchases. Regarding dividends, our target of 30%-35% of adjusted net income paid remains unchanged. On share repurchases, we will look to have a base amount of repurchase that we consistently return to shareholders. We can flex above this amount based on leverage levels and relative M&A activity.

We look forward to executing on this capital deployment methodology and driving value for our shareholders. Now, I'd like to discuss our guidance for 2026. Please turn to slide 11. For the full year 2026, we expect organic growth of 1%-2%. Our overall IDEX organic growth guidance balances approximate mid-single digit growth for HST and flat to slightly down outlooks for FMT and FSDP, mirroring trends we experienced in the second half of 2025 and visibility afforded to us by HST's strong order book in the Q4. Adjusted EBITDA margin is expected to be in the 26.5%-27% range in 2026. While we expect solid leverage and margin expansion of perhaps 50 basis points improvement at HST this year, volume decrementals offsetting price cost and productivity is our base assumption for both FMT and FSDP.

Regarding our effective tax rate, we expect it to be approximately 24% in 2026. Adjusted EPS guidance for 2026 is $8.15-$8.35, representing low to mid-single digit growth year-over-year. For the Q1 of 2026, we expect organic growth of approximately 1%, Adjusted EBITDA margin of approximately 24.5%, and adjusted EPS of $1.73-$1.78, relatively flat year-over-year. As a reminder, the Q1 is typically our seasonally softest, both from a top and bottom line perspective. Within FMT, businesses such as Ag and water are impacted by the winter season, while FSDP and HST experience a reset of budget cycles for larger volume orders. Our initial outlook contemplates a typical low to mid-single digit sequential increase in Q2 sales with a more pronounced step up in earnings given higher volumes and normalization at the corporate expense line.

Our current forecast reflects plans for 80/20 informed reinvestment into our businesses to drive organic growth and continued execution to improve operational performance across all businesses. Lastly, we will maintain a balanced capital deployment plan, near-term skewing towards tuck-in acquisitions and returning capital to shareholders, similar to 2025. With that, I'll turn the call back over to Eric.

Thanks, Sean. I'm on slide 12. We believe our strategies will drive increased growth and sustainable value creation for IDEX going forward. Our bookings in the Q4 are a strong indicator that our strategies are working. 80/20 is at the heart of all that we do at IDEX, and working across integrated business units is a meaningful expansion of our source code. Within our earlier walkthrough of HST momentum, we've highlighted how 80/20 choices can work powerfully for us to drive growth and margin at a single unit level, a collaborative small group, a formal growth platform, and for a few powerful and select applications across the entire segment. 80/20 analytics help us isolate the opportunity and align resources. Our tunable technologies allow us to quickly shift from a pressured to an advantaged area with relative ease.

But it's really our teams and our culture that power this work. We've carefully built and nurtured an open, engaged, and naturally collaborative culture through all phases of our evolution. In fact, this work began formally before we began to apply 80/20 to IDEX. Our values of trust, team, and excellence, powered by a shared purpose of trusted solutions, improving lives, helped our leaders unleash potential across business boundaries with an ability to course-correct as conditions warrant. We have more work to do as we move through phase three, but we're very pleased to see strong performance feedback in the areas where we've spent so much time and effort together. I look forward to sharing more of our story with you in the days ahead. That concludes our prepared remarks. And with that, I'll turn it over to the operator to take your questions.