Allison Lausas
Interim Chief Financial Officer and Chief Accounting Officer at IDEX
Thanks, Eric.
Moving on to our third quarter consolidated financial results on Slide 9. All comparisons are against the third quarter of 2022, unless otherwise stated.
Orders of $712 million were down 9% overall and down 11% organically. We experienced an organic decrease within our HST and FMT segment and organic growth in FSD. Sales of $793 million were down 4% overall and down 6% organically. We experienced a 15% organic decrease in HST and a 1% decrease in FMT. FSD revenues grew organically by 3%.
Gross margin of 44.1% decreased by 220 basis points compared with last year. Adjusted gross margin decreased 90 basis points, primarily due to lower volume leverage and unfavorable mix, which was partially offset by strong operational productivity and price costs. Adjusted EBITDA margin was 28.4%, down 30 basis points. I will discuss the drivers of adjusted EBITDA on the next slide.
On a GAAP basis, our Q3 effective tax rate of 20.2% was lower than our effective rate in the third quarter of 2022 of 21.8%. The rate was driven down by both the finalization of research expenditure capitalization treatment that served to increase tax benefits on foreign source income and a tax election related to the Muon acquisition that reduced our minimum tax on foreign earnings. These favorable rate items were partly offset by tax recorded on the gain from the Micropump divestiture and are not expected to have a significant impact on our fourth quarter rate.
Net income was $209 million, which resulted in GAAP EPS of $2.75. Adjusted net income was $161 million, with adjusted EPS of $2.12, which is down $0.02 or 1%. The lower tax rate contributed $0.11 of adjusted EPS favorability in the current quarter compared to both the prior year and the midpoint of our third quarter guidance.
Finally, cash from operations of $227 million was up 14%, primarily due to lower working capital, driven by inventory reductions. Free cash flow for the quarter was $207 million, up 14% versus last year and achieved a conversion rate of 129% of adjusted net income. We drove over $25 million of inventory out of the business in the third quarter through our targeted reduction efforts, and we saw inventory turns remain consistent with last quarter due to lower sales.
Moving on to Slide 10, which details the drivers of our third quarter adjusted EBITDA. Adjusted EBITDA decreased by $6 million compared to the third quarter 2022. Our 6% organic sales reduction unfavorably impacted adjusted EBITDA by $37 million, 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 $6 million, mainly centered in HST, due to continued volume declines in our analytical instrumentation, life science and semiconductor components. Resource and discretionary spending was favorable versus last year, as we continue to execute on our cost containment plan given the top line pressure we are experiencing. Reductions in variable compensation expense contributed $8 million of benefit in the quarter. These results yielded a negative 31% organic flow-through.
Overall, our team's focus on cost containment and resource reallocation has effectively managed our revenue decline. Ensuring continuity of our most valuable resources had IDEX well positioned to recover and grow back stronger than before when market dynamics turn favorable. Muon and Iridian acquisitions, net of Knight and Micropump divestitures and FX, contributed an additional $9 million of adjusted EBITDA.
With that, I'll provide a deeper look at our segment performance. I'm on Page 11. In our Fluid & Metering Technology segment, orders decreased by 5% organically, mainly due to an expected slowdown in our industrial businesses and continued customer destocking in our agriculture business. Sales decreased by 1% organically, driven by this destocking impact, partly offset by favorable energy, chemical and water performance.
We began to see our industrial order day rates decline in the second quarter of this year, and they remain steady at that level throughout the third quarter. Although our customers continue to exercise caution due to recession concerns and lower energy prices, we see tailwinds tied to domestic infrastructure initiatives and within mining. Within agriculture, we continue to experience the impact of distribution destocking, exacerbated by declining net farm incoming crop prices. Our delivery continues to outperform our competitors, and we are focused on targeted share gain to offset this pressure. Additionally, the acquisition of KZValve and the adoption of its automated actuation technology is delivering strong results.
On the energy side, we continue to execute well, driving down backlogs and lead times. Underlying market demand remains steady, but we expect to see revenue declines versus third quarter as our backlog position normalizes. In the chemical market, we continue to see positive results across the U.S., Europe and Asia, with pharma and battery applications providing opportunities for growth. Our water business continues to exhibit growth. Our opportunity funnels are increasing, and we see no signs of municipal project funding delays as we approach 2024.
Adjusted EBITDA margin expanded 50 basis points compared to last year, primarily due to strong price cost and favorable operational productivity more than offsetting lower volume leverage.
Moving to the HST segment. We experienced a 24% organic orders decrease and a 15% organic sales decrease, mainly due to pressure across the life sciences, analytical instrumentation and semiconductor markets, as well as industrial market performance similar to that within FMT. Adjusted EBITDA margins contracted by 410 basis points, primarily due to lower volume leverage and unfavorable mix, partially offset by strong price cost and favorable operational productivity.
Our analytical instrumentation business continues to experience customers destocking, which remains driven by China softness, lower pharma/biopharma spending and overall caution around the global economy. We expect that performance will remain stable at this level in the fourth quarter, with improvement in 2024. We see a similar trend within our Life Science business. Semiconductor continues to experience softness with the expectation that the market has reached a bottom in the third quarter. We anticipate a broader market will begin to recover at some point in 2024.
We continue to see positive results stemming from our space, broadband laser communication initiatives, which are bolstered by Iridian's technological capabilities. Our material processing technology business continues to experience softness across pharma markets, but are seeing some early signs of improvement within biopharma, food and nutrition, as well as tailwinds connected to leveraging our technology and battery production application. Industrial markets and HST slowed in the quarter, in line with FMT's results.
Finally, turning to our Fire & Safety Diversified Products segment. Organic orders grew by 2% versus third quarter last year and organic sales grew 3%, with strong fire and safety results more than offsetting destocking at BAND-IT. Adjusted EBITDA margins expanded by 150 basis points, primarily due to strong price cost and favorable operational productivity, partially offset by unfavorable mix and lower volume leverage. The paint market remains mixed. The uncertain global macro environment is driving consumer confidence lower, while at the same time, the construction market in North America remains strong.
Within our fire business, we do not see any significant changes to North America fire OEM production capacity. We continue to win through value-add integrated systems and technology and standardized offerings that enable higher OEM throughput. Our Europe and Asia businesses remain steady.
Rescue performance remains steady as well, although we are seeing some signs of North American budget delays and inventory reduction due to high borrowing costs. BAND-IT continues to outperform a relatively flat U.S. auto market due to having content on high-priority vehicles. There is some pressure on the energy side, driven by lower oil prices, and we experienced some destocking within aviation.
With that, I would like to provide an update on our outlook for the fourth quarter and full year 2023. I'm on Slide 12. In Q4, we are projecting GAAP EPS to range from $1.50 to $1.55 and adjusted EPS to range from $1.74 to $1.79. Organic revenue is expected to decline 8% to 9%. And adjusted EBITDA margins are expected to be about 26%. We expect that our HST revenues will be slightly unfavorable versus our previous guide, offset by FMT volumes landing better-than-expected. Equally, our strong execution in the third quarter allowed us to work through our backlog faster than expected. This is driving an equal and offsetting $0.05 of impact to third quarter results and fourth quarter expectations.
Turning to the full year 2023. We are maintaining our full year organic revenue guidance of down 1% to 2%. At the midpoint, we have raised our EPS guidance by $0.20, with approximately $0.11 driven by lower third quarter effective tax rate and the remainder coming from third quarter operational outperformance, partly offset by $0.05 of revenue timing due to accelerated backlog burn in the third quarter.
In summary, we estimate full year organic revenue contraction of 1% to 2% to yield GAAP EPS of $7.91 to $7.96 and adjusted EPS of $8.13 to $8.18. Adjusted EBITDA margin is expected to be approximately 27.5%. Capital expenditures are anticipated to be about $80 million, and free cash flow is expected to be 100-plus percent of adjusted net income.
With that, I'll turn it over to the operator for your questions.
