Abhi Khandelwal
Senior Vice President & Chief Financial Officer at IDEX
Thanks Eric, and thanks to everyone for welcoming me back to IDEX. It's great to be here and be rejoining a great organization.
Moving on to the consolidated financial results on slide eight. All comparisons are against the prior year period unless stated otherwise. Orders of $754 million in the fourth quarter were down 6% overall and down 10% organically. We experienced an organic decrease in each of our three segments. FMT and FSDP declined mid single digits, while HST contracted by about 17% as markets stabilized at a new level post recalibration. For the year, orders were down 7% overall and down 11% organically. Our HST segment contracted upwards of 20% as customer experienced a sharp inventory calibration during the year and levels set to new near term demand targets that included stunted growth expectations for China coming out of the pandemic. Our FMT and FSDP segments were down low single digits as they also experienced recalibration, although at a much smaller scale. Fourth quarter sales of $789 million, were down 3% overall and down 6% organically. We experienced a 19% organic decrease in HST while both FMT and FSDP grew by 3% organically.
Full-year sales of $3.3 billion, were up 3% overall and down 1% organically. HST contracted by 10% on an organic basis driven by declining life sciences, analytical instrumentation and semiconductor markets partially offset by price. FMT and FSDP grew mid single digits, driven largely by strong price capture on slightly higher volumes.
Fourth quarter gross margin was essentially flat at 42.7%, while adjusted gross margin, which was also 42.7%, contracted 90 basis points due to lower volume leverage, unfavorable mix and the dilutive impact of acquisitions and divestitures partially offset by strong price cost and operational productivity. Both full-year gross margin and adjusted gross margin of 44.2% contracted 60 basis points for the same reasons I just described. Fourth quarter adjusted EBITDA margin was 25.8%, down 120 basis points. I will discuss the drivers of fourth quarter adjusted EBITDA on the next slide.
On a full-year basis, adjusted EBITDA margin contracted 40 basis points to 27.5%. A bridge of the full year adjusted EBITDA can be found in the appendix of this presentation. Despite a year of significant volume pressure, our teams delivered on price cost and operational productivity, significantly muting the impact of this unprecedented volume declines. On a GAAP basis, our Q4 effective tax rate of 22.7% versus last year's fourth quarter effective tax rate of 20.5% increased primarily due to the absence of one time foreign currency benefits realized in 2022 in connection with the funding of the acquisition of Muon, as well as the impact of the loss recorded on the sale of Novatema during 2023, for which no related tax benefit was realized due to the type of consolidated group in which it participated. Our full-year GAAP effective tax rate of 21.7% was flat with the prior year. However, both 2023 and 2022 included favorable discrete events.
Fourth quarter net income was $109 million, generating EPS of a $1.43. Adjusted net income was $139 million with adjusted EPS of $1.83, down $0.18 from the prior year fourth quarter. Full-year net income was $596 million, resulting in EPS of $7.85. Adjusted net income was $624 million, generating adjusted EPS of $8.22, up $0.10 or 1% from last year.
Finally, free cash flow for the quarter was $179 million, up 22% over the prior year period. We achieved a conversion rate of 129% of adjusted net income, mainly driven by improved working capital performance despite lower adjusted net income. On an organic basis, we drove more than $40 million of inventory reduction in the quarter through our targeted reduction efforts, and we saw inventory turns improve. For the year, we delivered record free cash flow of $627 million, up 28% versus last year and coming in at 101% of adjusted net income, mainly driven by lower net working capital as we reduced organic inventory levels by almost $65 million and achieved higher adjusted net income. We achieved this despite higher year-over-year capital expenditure, as we maintained focus on investing for the future. We will continue to drive inventory levels down and optimize working capital levels further in 2024.
Moving on to slide nine, which details the driver of our fourth quarter adjusted EBITDA. Adjusted EBITDA decreased by $15 million compared to the fourth quarter of 2022. Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by $36 million for flowing through at our prior year adjusted gross margin rate. Price cost was accretive to margins and we drove operational productivity that offset employee related inflation. Mix was unfavorable by $3 million, reductions in variable compensation contributed $3 million of benefit in the quarter. These results yielded a negative 39% organic flow through.
Overall, our team's focus on cost containment and resource reallocation has effectively managed our revenue declines. IDEX is well positioned to recover and grow back stronger than before when market dynamics turn favorable. The impact of FX and acquisitions net of divestitures contributed $5 million of adjusted EBITDA in the quarter. However, the divestiture of Micropump lowered flow through as their margins were higher than those of our newly acquired assets who were experiencing volume deleveraging given the end markets they play in.
With that, I will provide a deeper look at our segment performance. I'm on slide 10. Let me walk you through our outlook as it relates to our end markets. First, as I consider the markets served by our Fluid and Metering technology segment, industrial day rates began to see some sequential improvement in the fourth quarter and we expect continued stability in the near term as our short cycle businesses meet underlying customer demand. We continue to see normalized book and bill order patterns given shorter lead times and normalized supply chain dynamics. As we move into 2024, we are cautiously optimistic as we continue to see tailwinds due to domestic infrastructure initiatives and within mining. We anticipate these patterns will hold, though we will continue to monitor their rates to evaluate longer term expectations as this is the most short cycle market exposure.
Our water businesses continue to be favorably positioned as we enter 2024. Municipal project activity remains strong with no signs of funding delays and the project funnel is healthy with new opportunities, winning share to deliver solutions for critical water challenges. Our energy businesses remain steady even as new well production is down and fuel markets are flat, driven by declining fuel prices and mild heating seasons in North America and Europe. As consolidation occurs within this industry and funding for new projects remain delayed. We see operators doing more with less, using the same infrastructure to drive production. These market dynamics favorably impact our demand profile as our energy businesses meet customers' need for replacements, as they keep existing infrastructure running.
In the chemical market, we continue to see positive results across US and Europe with pharma and battery applications providing opportunities for growth. China softness is being mitigated by the rest of Asia. The one area experiencing pronounced headwinds in FMT is our agriculture business. The size of this market is about 10% of the FMT segment, which equates to mid single digits for overall IDEX. We continue to see headwinds as OEMs have stepped down their projections due to continued destocking and declining net farm income and crop prices. Our KZValve acquisition continues to be a differentiator with its automated actuation valve technology and we are focused on targeted share gain to offset the pressure of current market challenges.
Moving on to the Health and Science Technology segment. We continue to see positive results stemming from our space, broadband laser communication initiatives which are bolstered by Iridian's technological capabilities. We expect this space to grow in 2024. The industrial markets served by businesses in the HST segment are experiencing signals in line with FMT's expectations. Our material processing technology business is gaining share in battery production, with a step up in new orders as we enter the year and we continue to see signs of improvement within biopharma related to new vaccine development where our technologies are uniquely positioned.
We see particular strength in emerging markets. For semiconductor, we began to see initial signs of improvement as we exited 2023. We expect this market will continue to recover somewhat in '24 driven by an improved outlook for memory chips due to demand for devices. Further out, we look forward to continued growth in semicon driven by artificial intelligence, automotive and long term secular tailwinds driven by electrification. While these markets point towards growth, the area within HST that is not yet showing signs of recovery is in our life sciences and analytical instrumentation markets, which represents nearly 35% of HST and about 15% of overall IDEX.
However, the long term growth drivers have not changed. While orders appear to be stabilizing, we have not forecasted a positive inflection yet for 2024. While this industry navigates immediate term challenges, we continue to have our eye on the future. We are closely partnered with our customers across our life sciences businesses and we are actively innovating to white tomorrow solution. With our focus on innovation and operational scale to support customers from prototyping to production, we are uniquely positioned for growth as these markets recover.
Turning to our Fire & Safety/Diversified Products. We expect FSDP will be flattish to down slightly in 2024, driven by headwinds in dispensing as key customers recently completed their multiyear refreshment cycle. We expect Fire & Safety end markets to remain stable and growth to be driven by strategic share gain initiatives our teams are focused on. We continue to win through value added integrated systems and technology and standardized offerings that enable higher OEM throughput. Overall, demand of bandwidth continues to remain strong, and we expect growth on a year-over-year basis.
With that, I'd like to provide an update on our outlook for the first quarter and full year 2024. I'm on slide 11. We expect full-year organic growth of 0% to 2% and with the majority of our end markets stable to growing, as I highlighted in my market outlook commentary. This range reflects low single-digit growth from FMT and includes acknowledgment of the uncertainty in timing and scale of recovery given the short-cycle nature of our business. For HST, we expect low single-digit growth as broader expectations for year-over-year growth across its markets are moderated by the lack of visibility in the life sciences and analytical instrumentation space. And we expect FSDP to be down slightly as the dispensing refreshment cycle has completed and volume in that space will step down. The dynamic is expected to lower overall IDEX organic growth by 1% and offsets the growth expected by Fire & Safety and BAND-IT.
This organic rate guide equals earnings per share contraction of $0.03 to growth of $0.26, depending on top line results and includes price/cost, which we anticipate will be positive for the year and mix pressure stemming from dispensing volumes. Additionally, we expect our operational productivity will more than offset pressure from wage related inflation and provide $0.10 to $0.15 of EPS growth. As always, we're committed to investing in the future growth prospects and expect to make incremental resource investments of $0.05 to $0.09 during the year as we invest in the people needed to champion our growth efforts and drive the next chapter of our outperformance. The reset of variable compensation levels after a challenging 2023 provides a $0.16 headwind, while the impact of recent acquisition and divestitures contributes $0.12 of adjusted EPS growth.
Finally, considering a few non-operational items, lower levels of debt due to paydowns in the second half of 2023 are expected to yield $0.07 of EPS growth, and we expect FX to also provide $0.07 of benefit. These are more than offset by an increase in the effective tax rate on a year-over-year basis, creating $0.19 of headwinds to adjusted EPS. The 2023 effective tax rate includes certain discrete events, which produce $0.09 benefit to adjusted EPS in '23 as compared to 2022. Those benefits do not repeat in 2024 and conversely, the projected 2024 rate of 23% includes a heavier mix of improved performance in geographical regions with higher tax rates as well as certain legislative changes, increasing global tax.
So in summary, we are projecting organic revenue growth of 0% to 2% for the year. The variable compensation and tax rate pressure essentially rewards 4% of EPS growth year-over-year, lending adjusted EPS expectations in the range of $8.15 to $8.45 or down 1% to up 3% over 2023.
Moving to slide 12. I'll provide additional details regarding our 2024 guidance for both our first quarter and full year. In Q1, we are projecting GAAP EPS to range from $1.45 to $1.50 and adjusted EPS to range from $1.70 to $1.75. Organic revenue is expected to decline 6% to 7% year-over-year due to tough comps and adjusted EBITDA margins are estimated to be about 25%. While it is not a factor impacting year-over-year comparability, I would like to remind you that on a sequential basis, when walking from fourth quarter results to first quarter, we have a headwind of $0.10 related primarily to the accelerated recognition of share based compensation in the first quarter of each year.
Turning to the full-year 2024. In summary, we estimate full year organic revenue of flat to up 2% to yield GAAP EPS of $7.15 to $7.45 and adjusted EPS of $8.15 to $8.45. Adjusted EBITDA margin is expected to be approximately 28%. Capital expenditures are anticipated to be about $75 million, normalized upon the completion of certain factory automation investments and emerging market footprint expansion in 2023. And free cash flow is expected to be over 100% of adjusted net income. Corporate costs are also expected to be approximately $95 million, up from 2023 by approximately $10 million as variable compensation resets to current market expectations.
With that, I'll turn it over to Eric for closing remarks.
