Alarm.com Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2022

There are 12 speakers on the call.

Operator

Welcome to the First Quarter 2022 AMETEK Earnings Conference Call. My name is John. I'll be your operator for today's call. Now I'll turn the call over to Kevin Coleman, Vice President of Investor Relations and Treasurer.

Speaker 1

Thank you, John. Good morning, and thank you for joining us for AMETEK's Q1 2022 earnings conference call. With me today are Dave Zepico, Chairman and Chief Executive Officer and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will make forward looking statements, which are subject to change based on various risk factors and uncertainties That may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC.

Speaker 1

AMETEK disclaims any intention or obligation to update or revise will be in any forward looking statements. Any references made on this call for 2021 or 2022 results will be on an adjusted basis, excluding after tax acquisition related intangible amortization. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our website. We'll begin today's call with prepared remarks by Dave and Bill and then open it up for questions. I'll now turn the meeting over to Dave.

Speaker 2

Thank you, Kevin, and good morning, everyone. AMETEK delivered outstanding results in the Q1 with strong sales growth and excellent operating performance, are driving robust core margin expansion and earnings, which exceeded our expectations. We are also seeing continued strong demand. This demand remains broad based across our diverse set of niche markets, leading to outstanding orders growth and a record backlog.

Speaker 3

All participants

Speaker 2

I'm very proud the way our teams are managing a challenging and uncertain macro environment. AMETEK's flexible operating model allows our businesses to quickly adjust and adapt to changing economic conditions and deliver exceptional results. Before I provide more details on the results for the quarter, I wanted to comment on the ongoing geopolitical events in Ukraine. We are deeply saddened by the tragic events continuing to unfold in Ukraine. Our hearts and thoughts with all those affected.

Speaker 2

To assist with the immediate needs of this mass humanitarian crisis, the AMETEK Foundation has made donations to several charities that are actively providing food, shelter and medical supplies to those impacted. Additionally, many AMETEK colleagues and our businesses have mobilized to help in whatever way they can through donations to charities supporting the crisis. Thank you to all employees who are supporting those in need. Now let me turn to our Q1 results. 1st quarter sales were $1,460,000,000 up 20% over the same period in 2021.

Speaker 2

Organic sales growth was 14%, acquisitions added 7 points and foreign currency was a 1 point headwind in the quarter. All participants are in the Q1 were $1,700,000,000 an increase of 22% over the prior year period, While organic orders were up 18% in the quarter, book to bill was 1.17% in the 1st quarter, reflect continued robust and broad based demand. Backlog at quarter end was a record $3,000,000,000 are up approximately $1,200,000,000 from the end of 2020. Operating income in the quarter was $353,000,000 have a 20% increase over the Q1 of 2021. Operating margins were 24.2% in the quarter, up 10 basis points from the prior year.

Speaker 2

Core operating margins were 25.5%, up an impressive are 140 basis points versus the Q1 of 2021 with strong core margin expansion in each operating group. This outstanding margin expansion is a testament to the strength of our operating capability and the great work of our teams in managing inflationary and supply chain impacts across our business. All participants. EBITDA in the Q1 was $434,000,000 up 22% over the prior year with EBITDA margins up 29.7%. This outstanding operating performance led to earnings of $1.33 per diluted share, up 24% versus the Q1 of 2021 and above our guidance range of $1.24 to 1.28 Next, let me provide some additional details at the operating group level.

Speaker 2

1st, the Electronic Instruments Group. Sales for our Electronic Instruments Group were $987,800,000 up 25% from last year's Q1. Organic sales were up 15% in the quarter, while recent acquisitions contributed 11% and foreign currency was a 1 point headwind. Organic growth was particularly strong across our Ultra Precision Technologies division with CreoForm, Reicher Technologies and TMC Precitech Businesses leading the growth. EIG's operating income in the Q1 was $244,800,000 are up 18% versus the prior year, while EIG operating margins were 24.8% in the quarter.

Speaker 2

EIG's core margins were up a very strong 130 basis points over the prior year to 27.5%. The ElectroMechanical Group also had a great quarter with excellent organic sales growth, driven by broad based demand and strong operating performance. EMG's 1st quarter sales increased 11% versus the prior year to $470,800,000 Organic sales growth was 12% and foreign currency a 1 point headwind. Demand within our automation businesses remains excellent, reflecting AMETEK's highly differentiated motion control capabilities and leadership positions within our niche applications. EMG's operating income in the Q1 was a record $128,200,000 up 22% for the prior year period.

Speaker 2

EMG's operating margins expanded an exceptional 2 50 basis points to 27.2 percent, which includes an approximate $7,000,000 gain on the sale of the facility in the quarter. On a core basis, excluding this gain, EMG margins were up a very strong 100 basis points versus last year's Q1. Our teams continue to deliver outstanding performance in a very challenging and dynamic operational environment. In addition to ensuring we successfully navigate the current macro environment, we are focused on ensuring AMETEK is positioned for long term success are participating in sustainable growth by making investments in our organic growth initiatives. In 2022, we expect to invest are participating in the call.

Speaker 2

At this time, all participants are participating in support of these growth initiatives, including strong growth across our research, development and engineering groups. AMETEK's leadership positions in our niche markets are driven by deep industry expertise and the differentiation of our technology. Our research and engineering teams do a wonderful job developing innovative next generation products and technologies to support their customers' applications. For the full year, we now expect to invest more than $345,000,000 or over 5.5 percent of sales in RD and E. Are in the Q1.

Speaker 2

Our vitality index, which reflects the level of sales from products introduced over the past 3 years, was a very strong 26% in the Q1. One way we recognize and celebrate the great work of our businesses' new product development efforts is through the AMETEK Innovation Award. This award provided annually to the AMETEK businesses who best demonstrates breakthrough innovation of new technology driving expanded growth opportunity. The most recent innovation award winner was our used Trailer Rotron Business Unit, a leading provider of advanced thermal management systems for use in support of critical aerospace, defense, are participating in the industry. Utilizing various elements of the AMETEK new product development process, The team developed a highly innovative heat exchanger that provides meaningful improvements in aircraft engine performance versus the incumbent technology.

Speaker 2

This new product will deliver strong incremental sales for AMETEK, while providing important sustainability benefits through the reduction of approximately 1,000,000 tons of carbon dioxide over a 10 year period due to an advanced more thermally and aerodynamically efficient design of the heat exchanger. Driving such benefits aligns with AMETEK's core value of social responsibility by using innovative solutions to help our customers create a more sustainable future. Congratulations to the used trailer, Rotron team and all the AMETEK colleagues contributing to the development of outstanding new products and technologies. Now switching to our acquisition strategy. We had a record year of capital deployment in 2021 deploying approximately $2,000,000,000 on the acquisition of 6 businesses.

Speaker 2

Those businesses are integrating nicely and we expect contributions from the acquisitions in the coming years as they will further implement key elements of the AMETEK growth model. Our acquisition pipelines remain strong and our M and A teams remain busy in identifying attractive acquisition opportunities. We have ample balance sheet capacity and strong cash flows to support our acquisition strategy and expect to remain active over the coming quarters. Now, let me touch on the supply chain issues. All participants.

Speaker 2

Overall, the global supply chain and logistics channels remain tight and unreliable. The supply chain and logistics environment in the Q1 were similar to what we experienced during the Q4 with extended lead times for a broad range of materials and components. These issues are leading to higher inflation, but given our product differentiation, we were able to more than offset this inflation with higher pricing, leading to a strong price inflation spread and outstanding margin expansion. Now to our outlook for the remainder of the year. All participants are

Speaker 4

in the future. While we

Speaker 2

are bullish on the future, we remain cautious in the short term given uncertainty related to the supply chain challenges, participants are confident in our ability to manage these ongoing headwinds. Additionally, our record backlog And leadership positions across attractive mid and long cycle markets position us well for continued strong growth. For the full year, we continue to expect organic sales growth to be up mid to high single digits. While overall sales growth are expected to be up high single digits, down slightly versus our prior guidance given increased foreign currency headwinds. Given our Q1 results, we are increasing our full year earnings guidance.

Speaker 2

Diluted earnings per here for the year are now expected to be in the range of $5.34 to $5.44 are up 10% to 12% compared to 2021. This is an increase from our previous guidance range of $5.30 are subject to $5.42 per diluted share. While confident in our increased outlook for the year, The COVID-nineteen lockdowns throughout China are expected to shift some sales from the Q2 into the second half. For the 2nd quarter, overall sales are expected to be up low to mid single digits compared to the same period last year and second quarter earnings are expected to be in the range of $1.27 to $1.30 per diluted share, up 10% to 13% versus the prior year. All participants.

Speaker 2

To summarize, AMETEK delivered a strong Q1 with solid orders and sales growth, strong margin expansion and a high quality of earnings, are allowing us to increase our earnings guidance for the year. These outstanding results speak for the strength of the AMETEK growth model along with the resilience of our world class workforce. Our differentiated technology solutions and market leading positions across diverse niche applications have allowed us to navigate through these difficult economic cycles. While we expect these challenges will continue throughout 2022, we remain well positioned for continued long term growth. I will now turn it over to Bill Burke, who will cover some of the financial details of the quarter, Then we'll be glad to take your questions.

Speaker 4

Phil? Thank you, Dave. As Dave noted, AMETEK delivered outstanding results to start the year, highlighted by strong sales and orders growth, excellent operating performance and a high quality of earnings. I'll provide some additional financial highlights for the quarter. All participants.

Speaker 4

1st quarter general and administrative expenses were $19,700,000 up $1,000,000 from the prior year due to higher compensation expenses in the quarter. For 2022, general and administrative expenses are expected to be roughly in line with 2021 levels and approximately 1.5% of are

Speaker 3

in the range of sales.

Speaker 4

The effective tax rate in the quarter was 19%, down from 19.5% in the Q1 of 2021. For 2022, we anticipate our effective tax rate to be between 19% 20%. As we've stated in the past, actual quarterly tax rates can differ dramatically either positively or negatively from this full year estimated rate.

Speaker 3

All participants. Capital

Speaker 4

expenditures in the Q1 were $26,000,000 For the full year, capital expenditures are expected to be are approximately $125,000,000 or approximately 2% of sales. Depreciation and amortization expense in the quarter was $78,000,000 In 2022, we expect depreciation and amortization to be approximately $320,000,000 including after tax acquisition related intangible amortization of approximately $150,000,000 or $0.64 per diluted share. All participants. For the quarter, operating working capital was 17.1 percent of sales, operating cash flow was $201,000,000 And free cash flow was $175,000,000 Our first quarter working capital and cash flow results reflect our strategic decision to add inventory in certain areas to support continued strong customer demand and as a hedge against longer lead times we are experiencing across the supply chain. While this investment resulted in lower cash flows and free cash flow conversion in the Q1, We continue to expect a strong 110% free cash flow to net income conversion for the full year.

Speaker 4

During the Q1, we repurchased approximately 1,200,000 shares of stock in the open market for approximately $152,000,000 Total debt ended the Q1 at $2,540,000,000 unchanged from the end of 2021. And offsetting this debt is cash and cash equivalents of about $340,000,000 At the end of the Q1 gross debt to EBITDA ratio was 1.5 times and the net debt to EBITDA ratio was 1.3. We continue to have excellent will support our growth initiatives. As a reminder, our top priority for capital deployment remains strategic acquisitions as we believe it provides AMETEK and our shareholders with the best returns on our capital. In summary, our businesses drove excellent are in the Q1 delivering strong earnings growth in a very challenging environment.

Speaker 4

We remain well positioned to manage ongoing economic challenges while continuing to strategically in our long term growth initiatives. Kevin? Thank you, Bill. John, can

Speaker 1

we please open the lines for questions?

Operator

Thank you. We'll now begin the question and answer session. And our first question is from Matt Summerville from D. A. Davidson.

Speaker 5

Thanks. Good morning. Good morning, John. Dave, can you maybe talk about where you were in Q1 from a price

Speaker 2

Sure, Matt. In the Q1, our pricing continued to more than offset inflation. Pricing was about 5% and inflation was about 4%, so the spread was a little over 100 basis points. And for 2022, we expect price to be in the 4.5% to 5% range and the Inflation to be the 4% to 4.5% range, so about a 50% positive spread in our guide. And the results speak to the highly differentiated nature of the AMETEK product portfolio and our leadership positions and niches participants will be in the last year or so when we saw it coming down the line.

Speaker 5

Got it. And then Dave, given your Q2 guidance in kind of the normal in a more normal year, typical cadence would dictate 2nd quarter being At least a few cents above where you're at in Q1. Obviously, you're not guiding that way this year. So I guess I'm trying to understand maybe how much contingency you're factoring in disruption, if you want to call it that. Can you kind of parse that out a little bit?

Speaker 5

Thank you.

Speaker 3

All

Speaker 2

participants. Yes, it's a good observation, Matt. And it's fundamentally driven by the China lockdown scenario. All participants. We have about 9% of our sales are out of China and we've been successful running a profitable growing operation there for many years.

Speaker 2

We have Tremendous customer base, improving manufacturing processes, making the environment cleaner, improving research and development capabilities, and that's going to continue. Right now, several of our major facilities are in the Shanghai area and they're in a lockdown situation either are not operating or operating in a significantly reduced capacity. And that's impacting a lot of our business and our best assessment of what we know right now is about a half of our China sales will be impacted in the quarter. So that's about 4% or 5% of our sales are $65,000,000 or $70,000,000 So if you take that out of the guide, you'll see that The balance of AMETEK is going off in Q2. So it's really the fact that Of lower business activities in China because of the lockdown situations and because of our proximity to Shanghai and some of our major operations.

Speaker 2

All participants. Now those sales are just going to be delayed. They're going to get delayed from the second quarter to the second half of the year. And so we have to get through the lockdown in Q2.

Speaker 5

Understood. Thank you very much, David.

Speaker 2

Thanks, Matt.

Operator

And our next question is from Our next question is from Deane Dray from RBC Capital Markets.

Speaker 6

Thank you. Good morning, everyone.

Speaker 2

Good morning, Deane.

Speaker 6

Hey, appreciate all the color. Could you take us through the key end markets and regional updates? We certainly just got the China update on the lockdowns. That's understood, but anything else, especially on European exposures. Thank you.

Speaker 2

Sure, Dean. I'll take you through the Your markets first, our process businesses were up 20% in the quarter, strong demand, organic sales growth, contributions from the acquisitions of Magnetro and Altasense. So organic sales for process were up mid teens in the quarter. Growth broad based, I mentioned in the prepared remarks, the Ultra Precision Technologies business really saw excellent growth in the quarter. End market demand remains strong.

Speaker 2

All key end markets, including semiconductor, research and medical are very strong. Additionally, we're seeing increased demand for our solutions serving sustainability initiatives with our instrumentation being used to reduce Harmful emissions and process improve of process efficiency. So if we look at process, our biggest segment for all of 2022, We continue to expect organic sales for our process businesses to be up mid to high single digits. Next, our Aerospace business. Our Aerospace business was organically up low single digits in the quarter, up 20 percent up in the mid-20s range for the Q1 and overall sales.

Speaker 2

In the quarter, we saw strength in commercial aerospace being partially offset by delays in defense shipments caused by U. S. Government spending. So our commercial side of that business was up low double digits and our defense side of that business was down mid single digits. And for the full year, we expect to be up mid single digits with commercial up high single digits and defense up low single digits for Aerospace.

Speaker 2

Next, Power and Industrial. Overall sales were also up in the mid-20s, so good quarter at Power and Industrial. We had mid teens organic sales growth and the contributions from our acquisition of NSI MI. So strong, balanced sales growth across both Power and Industrial, and we expect organic sales for our Power and Industrial businesses to be up are in

Speaker 3

the mid

Speaker 2

single digits with similar growth across both segments. And finally, our Automation and Engineered Solutions, both overall and organic sales for Automation and Engineered Solutions businesses were up mid teens on a percentage basis in the quarter with solid demand continuing across our end markets. For the full year, we expect we continue to expect organic sales to be up for our Automation and Engineered Solutions business up mid to high single digits with similar growth across each business. Strong performance across the entire business. I'll talk about the geography.

Speaker 2

You asked that question too. Strong broad based growth across all geographies, are up mid teens in Europe, U. S. And Asia. China, we were up 10% on an as reported basis, so all participants are there also.

Speaker 2

So when you look across the globe, there's really not a blemish in terms of growth. So we're feeling good about that also. With our orders, we think there's strong growth ahead.

Speaker 6

That's Really helpful. And just last one, just to clarify, I understand the push out from the Q2 that may be China related. I might have missed this, but were there any revenues pushed out of the Q1?

Speaker 2

There really wasn't. The Closure of China occurred late in the quarter, very late in the quarter, and we had a heads up that that was happening. So we were able to really meet our demand requirements in the Q1. But at the same time, overall for the company, there continued to be orders that did not ship in the Q1 And they were in that $50,000,000 plus range. So, if we were operating at 100% of supply chain And everything else that was going on, we probably would have shipped another $50,000,000 plus in the Q1.

Speaker 6

That's real helpful. Thank you.

Speaker 3

Thank you, Dean.

Operator

And our next question is from Allison Poliniak from Wells Fargo.

Speaker 7

Hi, guys. Good morning.

Speaker 2

Good morning. Good morning, Allison.

Speaker 7

So just poking on sort of that end market are in the line. Is there any sort of change in behavior that's sort of causing you a little bit of pause with a specific business or vertical That kind of leading to you that things might be shifting a little bit or is it still quite strong across the board here?

Speaker 2

All participants. It's quite strong across the board. I think over 90% of our business units had double digit sales and double digit orders and the ones that didn't were in the high single all participants So the orders are good. The sales are good. There's absolutely no slowdown that we see.

Speaker 2

All participants. As I told you a couple of quarters ago, customers are giving us an early look into their demands that's continuing. And But I really see no slowdown at all and that's we had 22% orders and 18% orders growth. And it's broad based and I think On an orders basis, organic orders, EIG was 19 and EMG was 15, so both very strong.

Speaker 7

Great. And then you talked about the pipeline for M and A being quite filled at this point, which is not atypical for you. All participants. Would you describe sort of kind of the things that you're seeing? What's kind of holding things back?

Speaker 7

Is pricing still high at this point? Just any incremental color on the pipeline and what you're seeing out there today?

Speaker 2

Sure. We remain active. We're looking at multiple deals. As always, we are focused on long term returns. The one point that's it's a factor right now as you look at private company multiples and public company multiples.

Speaker 2

And with the stock market, obviously, public company multiples have come in a bit, but The private company multiples are above public company multiples and they're being stingy are in the reflecting what's happened in the public markets. So there's a bit of a delay in some of the private businesses. We're looking at premium multiples and I think that's causing some transactions to get pushed to the right. The difference between private and public multiples and the fact that the owners of the private businesses are holding on right now to for higher multiples in the public market.

Speaker 7

Perfect. Thank you. I'll pass it on.

Speaker 2

Thank you.

Operator

Our next question is from Rob Wertheimer from Melius Research.

Speaker 8

Howdy. Thank you. Hi, Rob. I was just going

Speaker 9

to follow on. All participants. The last statement you just made was an interesting one. I just wanted to see if

Speaker 2

you would

Speaker 9

characterize acquisition, pipeline funnel, backlog and size. You guys had a record year last year, maybe some of that was because of 2020 was a little slower. But then was your statement meant to imply that things have to kind of normalize between public and private before acquisition activity picks up or is it more situational and that's a comment not a forecast see what I mean on the price line.

Speaker 2

Not a forecast as a comment, but it is a factor that's impacting valuations. All participants We have a very, very good pipeline, both smaller deals, public and private, and I expect that you'll be hearing from us this year. And as you know, we're always focused on long term returns. So we have to see value in what we're buying and we're very active right now.

Speaker 9

Okay, perfect. And then I think your comments have been really clear, the 90% in double digits is an amazing stat in some ways. There's a lot of consternation around Europe, whether there's going to be a slight in the recession or just uncertainty on spending, etcetera. I assume from your comment, you're not seeing any of that in your orders and backlog speak to Europe and I'll stop.

Speaker 2

Yes. Europe was up 16% in the quarter, broad based strength. We had notable strength in our process businesses. Clearly, there is some impact in the energy area and with the Ukraine crisis, the war In Ukraine, some of our products are used to help people get fuel efficiency. Some of our products are used in applications that are actually helping those customers deal with higher energy costs.

Speaker 2

So, right now, we're not seeing a slowdown. We've read the press clippings like you have, but right now, we're Okay.

Operator

And our next question is from Scott Graham from Loop Capital Markets.

Speaker 10

So I have two questions. One is on the price cost and I know that we came into this year with that 4th quarter, I think you had 100 basis point gap in in the Q4. I think you mentioned that you were expecting that gap to start to narrow and it really didn't in the Q1. All participants. Is it possible that you can get pricing enough to keep it at 100 for

Speaker 2

the rest of the year? It is possible, Scott. I mean, that's our guidance is it for it to narrow a bit, but certainly we've been doing an excellent job. And I think our intention will be to try to maintain the same thread, but our guidance is for that to narrow a bit.

Speaker 10

All participants. Understood. Thank you. Next

Speaker 2

question is

Speaker 10

on aerospace. And commercial, you said, was up low double and I was hoping maybe you could unbundle that OE versus MRO.

Speaker 2

Yes. What drove the growth In our commercial, the upload low double digits was really the aftermarket and the business jet that those markets both outperformed the OE.

Speaker 10

Participants. Okay. And from if I could just extend that last comment, all participants. What are you hearing from the big guys because they're obviously, these guys are certainly mum on 23. Are you hearing any changes in build rates for next year?

Speaker 10

Certainly it costs a lot to take a flight these days, Tom, thinking that they're kind of padding things their pockets a little bit. What is your sense there?

Speaker 2

My sense is from our perspective that market is going to continue to improve and It's one of our longer cycle exposures and we're looking for a good continued growth in commercial in 2023.

Speaker 10

Got it. And if I could just sneak this last one in. I know that your vitality has been at about 25% for quite some time. Honestly, correct me if I'm wrong, this is the first time I've heard 26%. And I was all participants.

Speaker 10

That's a really awesome number of 3 years and what have you. And I hearing you talk more and more about new products on these calls. Could that number continue to creep up this year?

Speaker 2

Yes, it can continue to creep up and we've got an incredible are in a range of new products were being introduced. And there are also you think about where the heat exchangers I talked about from our used trailer business, we're saving 1,000,000 tons of CO2. That's almost the entire carbon footprint of AMETEK over 10 years. All participants. It's an incredible design.

Speaker 2

It reduces weight. It's just a fantastic design and we're already designed in and It's really bullish for the future. So we have the engineering capability to meet the needs of the customers in these changing times where sustainability is a more important factor. And are very excited about our product development. That's why we're investing heavily in that area and we have good things to come.

Speaker 10

Very good. Dave, thanks.

Speaker 2

Thank you, Scott.

Operator

And our next question is from Andrew Obin from Bank of America.

Speaker 11

Good morning. This is David Ridley Lane on for Andrew Obin. I know AMETEK is a sizable U. S. Exporter.

Speaker 11

Given the U. S. Dollar appreciation, is that a drag on margins? And can you remind us of your overall hedging strategy?

Speaker 2

Sure. The first point is we are a sizable U. S. Exporter all participants And that's a correct statement, but our products are also very differentiated. So as evidenced by our price inflation spread, So far, we're able to offset the higher U.

Speaker 2

S. Dollar

Speaker 3

in our

Speaker 2

cost structure. All participants. The second point is our hedging strategy and actually we don't have hedging strategy because we're naturally hedged. So all participants. Pretty much across the board, we spent a lot of time and this is about 10 years worth of time.

Speaker 2

It's a long period of time. Were naturally hedged in each of our locations that we operate. So our revenues and expenses naturally offset. And to give you an example, in this quarter, we're, you had a strong dollar and there was some currency implications. It did impact our top line, participants But our bottom line across the whole enterprise, it was less than a penny impact on earnings.

Speaker 2

So We've got this natural hedging strategy and through the past 10 years, you can go back and look at it, it works very well. We are a U. S. Exporter, but we got the pricing leverage to our differentiated technology. So a strong dollar is not usually all

Speaker 11

participants Understood. And a quick follow-up on Abaco, Are you seeing any sort of incremental demand out there from international defense budgets, which are going up? I know this is probably more of a 2023, 2024 story, but has the sort of pipeline for your defense businesses changed meaningfully? Thank you.

Speaker 2

Participants Yes. The pipeline is improving in international markets. We have businesses located in the UK besides Abigail that are also benefiting. So the fact that the international defense market is improving is a good thing for our Aerospace and Defense business.

Operator

And our next question is from Joe Giordano from Cowen.

Speaker 1

Participants. Good morning. This is Michael in for Joe.

Speaker 2

Hello, Michael.

Speaker 1

Hi. Continuing with the defense can you provide

Speaker 4

any color regarding the new U. S. Defense budget

Speaker 1

now that it's been finalized?

Speaker 2

Yes. The U. S. Events budget is good from our perspective. It's in areas that we're investing.

Speaker 2

I mean, when you look at the whole thing, It was probably flattish to up a bit. So but there's ample spending going on for us and we're really It's a budget that we can work with. What hit us a bit in the Q1 and I talked about our defense businesses being down where the delays from the continuing resolution where no one has funding. So what we're seeing now is an uptick in order patterns and the second half of the year we expect that market to improve substantially.

Speaker 1

Great. Thank you.

Speaker 2

Thank you.

Operator

And we have no further questions at this time. I'll now turn it back over to Kevin Coleman for closing remarks.

Speaker 1

Thank you, everyone, for joining our call today. And as a reminder, a replay of the webcast may be accessed in the Investors section of ametek.com. Have a great day.

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