IDEX Corporation (IEX) Earnings Call Transcript & Summary

Good morning, everyone. For any of those of you who don't know me, I'm Vlad Bystricky, I cover multi-industrials with Andy here at Citigroup. And we are very excited to have the IDEX team joining us today. We've got Eric Ashleman, CEO of IDEX; Abhi Khandelwal, CFO; and Tara Tereso, who's the Group Executive of Health & Science Technologies. So thanks for joining us.

Maybe I'll just start off with one of the near-term questions that we always have. Obviously, you just reported earnings a few weeks ago, and you characterized the environment as I think you said cautious optimism. So can you give us an update or a reminder of what's behind that cautious optimism and what you're seeing in terms of order rates?

Yes. So I mean the cautious or the uncertain part of that is pretty obvious. I mean there's a lot of swirling policy things running around, especially in the U.S. right now. And so I think a lot of people want to understand where is that going to land? What are we going to have to deal with. And so I think all of the uncertainty is very easy to localize. The optimism behind it, though, I do think we've got a lot of folks that think of that same administration as being probably a little bit more friendly business overall, probably have some regulatory relief along the way. Tax policy, we'll see where it goes, but that's why it will be more business favorable as well. So I think when those two things start to work together and we take some of the uncertainty off the page, the other thing that I would put in the category of optimism is there's a lot of capital out there that needs to be deployed or really hasn't been deployed over the last couple of years. It certainly identifiable megatrends. We'll talk through several of those and how they impact our business and what they can do in terms of changing the life as we know it. And I think everybody is anxious to get started there. And then I think the last piece for us, more specifically, you got a couple of sectors in life sciences and semicon, they've had a tough couple of years. They are very uncharacteristic of where those sectors typically are, all of that attributable to the back end of the pandemic. So I think just for us, we get a little bit of a boost there as we start to get closer to a more natural recovery, and I'm sure we'll talk about that, too. Based on the order rates, though, just to finish your question, pretty steady throughout all of this. We have a lot of kind of shorter cycle things closer to consumption. We didn't see them flex much in Q4. We didn't see it as much early in Q1. I think because of the uncertainty quotient that I talked about.

Great. That's helpful. And then I guess just digging into the outlook a bit. Your guidance for the year is 1% to 3% organic growth. 1Q is expected to be minus 4% to minus 3%. So just given historically, we've been more skewed to short cycle book and ship type revenue, can you just help investors understand the ramp in organic growth as the year progresses and any assumptions embedded in your outlook?

Yes, I can take that. So if you kind of think about our 1% to 3% and then compared to where we are for the Q1 guidance, a couple of things are playing out. So if you think about last year, coming into Q1, when we were doing the Q4 call, we had seen our industrial businesses all move at the same time towards the positive, right? And so as the first quarter played itself out, we booked orders, we had some orders in the backlog. And so quite frankly, we burn that backlog through the year, right? As you saw the year play itself out, the interest rate cuts that were one point about 5% on the table went down, the inflation rate was pretty high. So frankly, '24, we got a lot of that backlog in the industrial space. So as you then fast forward and kind of think about Q1, typically going into a quarter, we're about 50% book. And then the other 50% we book internally in the quarter, okay? So if you look at our industrial backlog coming into Q1, it is slightly lower than normal. So part of what you see reflected in the Q1 guide is pressure on the industrial side, back to that lower backlog, okay? So that's Q1. Then if you fast forward and kind of think about the guide for the full year of 1 to 3's, there's a couple of factors. So starting on the organic line, if you think about what we baked in the guide for our core Life Sciences business, so I'm talking about fluidics and optical filters, we are expecting a low single-digit to mid-single-digit growth for the year, partially being offset by the genomics part of the business, okay? But again, a net positive for the year. But if you look at the sequential quarters, it's not a major ramp. It's pretty flat, but that's what you're expecting from a Life Sciences standpoint. The second piece of this is the Water business. If you think about the Water business, there are certain targeted growth path that we have line of sight to that kind of play itself out in the second half, okay? And then the last thing is the MAPI. Now that's inorganic, but just to finish that piece as well, there are some projects that are in the pipeline that they have visibility to that is more second half loaded. Okay? So those are the pieces, nonorganic, but water piece and the life sciences piece is a part of it. And on the semicon piece, it's tied to one particular customer. But as they're going through the inventory calibration, we have line of sight to certain order rates that are more back-end skewed just because they're going through an inventory calibration on their end. So that's the organic growth. And then if you just look at the EPS piece, first half to second half, there's a $40 million ramp on EBITDA that's on the controllable side of the house, and that's tied to price productivity, the cost optimization, delayering work that we're going to do, right, and some stock-based comp that's more first half skewed. That's all controllable that's been executed on that ramps through the year. So that's how we think about the guide.

Got it. That's helpful. Lots to dig in on there. Since you mentioned the delayering and the tailwinds from that, maybe just stepping back, so you highlighted increased scale of 5 of your platforms at 4Q earnings and increasingly leveraging scale in those platforms. So as you're focusing on delayering and sourcing productivity, can you talk about how you approach balancing those opportunities while still maintaining the decentralized nature of IDEX?

So centralized or decentralized those constructs are not the ideal way to think of it. So because that to me always implies the sort of a corporate backbone that is growing and has oversight all over this. Our corporate offices have very few people in it. It's kind of a B&I in a bunch of accounts. So that doesn't change. What we have now is we've got 5 areas of the company that are around $400 million to $500 million in scale that have these interdependencies which do allow us to work productivity in different ways. And so this [indiscernible] a lot of the things that we talked about and embedded into the guide that we just mentioned, most of them are people based. We've got now enough critical mass, a lot of it in HST in tariff's world through acquisitions where we've got businesses that have previously been sort of set up vertically classically, all fully stocked to support themselves singularly but now actually attacking a lot of the same markets, a lot of the same customers. We're working technology together and we can have more of a horizontal framework just with natural resource efficiencies. Back to your question around kind of the IDEX way of doing things, the decision rights are still completely localized within that group. They're not interdependent to the rest of IDEX. We're not controlled by people like us. And even within the organizations themselves, I mean, we're amazingly fluid. We'll rally a team of people around a certain pursuit and a technology intersection with a customer, and we're quite capable of swinging them over somewhere else. And we change organizational constructs probably faster than any company I've ever seen. And so that fluidity that agility is really important. There's another term that we use when we described this productivity work and we call that delayering. Delayering is essentially making sure as we do all of this that we flatten out organizations constantly. So any time we start to see an administrative layer form and we look at it and say, I don't think that actually improves the speed of the business or the way that decisions are made, we're going to take action there and that some of that that's embedded in it as well, which I think is a catalyst, a natural catalyst for how we do work.

Got it. And then in highlighting those 5 platforms, you highlighted material sciences applications as one of the key 5 groups within IDEX. So we have a group is made up of recently acquired assets, including your most recent acquisition, which was Mott. Can you talk about how you see the growth trajectory playing out in that group and whether incremental M&A may be a focus area there?

Yes. So we've now assembled a series of core technologies, the ones that you mentioned that we acquired, we paired them up with our optical technologies businesses, which were already here and part of IDEX. And essentially, what we're trying to do is lever two dynamics. The scale piece that I just walked through is a companion piece to it. But on the growth side, again, we're not going at 1,000 markets here. There's kind of 4 or 5 that are in areas of focus for every one of the businesses that's in that group. High-performance semicon manufacturing and metrology, medical tech and life sciences, space and defense, some of our lower space communications work is all done within this area. And energy transition, Mott brings a lot of that into the game. So there's kind of core markets that every one of the businesses independently was attacking in its own way that we can now do together. That's on the commercial side. On the technology side, this is the most exciting piece of what we're doing because we're bringing technologies together that never touched that actually moved to, to advance the nature of these solutions. So I'll give you one example here. The Mott business does essentially nanofiltration where they take powdered alloys and metals and things and turn them into shapes and you get natural porosity in terms of how they put them together. Right at the right of the edge of doing that work, particularly when you start to go into space applications or some specific things around defense or high velocity, you have to move away from metals into ceramics. So they're already doing that work. We bought STC, which is a high-performance specialty ceramics company. We own that too. It's one state away. And now we're able to fuse the two groups together to start to advance that technology together and capabilities they both have while both leveraging the exact same customer relationship. So the power that's embedded in these combinations, we now have the pieces here to drive mid-single-digit plus, approaching double digits when conditions are right. This is a really, really good part of HST now.

Eric. And then just digging in a bit on HST and on the growth outlook. Abhi, you mentioned HST is expected to be your highest organic grower for the year. It seems like the business has been a bit difficult to forecast over the past few years post-COVID. So can you talk about what's different in '25 for HST that gives you confidence in that growth outlook and how investors should think about potential upside or downside risks?

Do you want to take that one?

I'll take that one. You can jump in. So thanks for the question. So how we're thinking about 2025 is a couple of things. If we reflect on Q3 and Q4 of last year, we look at our order rates, right, and how we saw the growth across the portfolio. We also look at some of the blanket orders that we've talked about, which showed up in areas like Pneumatics and Life Sciences. And then you couple that with the work that we're doing around areas that Eric talked about with regards to space communications and so on. Those are some of the things that I would point to with regards to how we're thinking about the year. And then you think about Life Sciences, which Eric and Abhi touched on, right? We expect that to get back to positive territory, right, as we move through the year and then semicon as well. So you put all of that together, and that's how we're thinking about the year.

Yes, Vlad, just to add a couple more points on that comment. So when you talk about blankets, I know we've touched on it, but these are blanket orders that we book that ship over the next 12 months. So this is going to get shipped in 2025. So when we talk about the pneumatics order as part of Q4, that's about $30 million that has firm ship dates through the year. In Q3, we saw a 20% organic order growth in HST that was more life sciences focused. And those orders as well have shippable dates in '25. So that's part of what's baked in the guide is the certainty around those blankets and the ship dates assigned to it is a portion of what Tara is talking about. And then the Life Sciences piece, the only thing I'll add is we've talked about this a few different times last year. Life Sciences business has been pretty flat sequentially. So when you think about the organic, I'm talking about low single to mid-single, it's on a pretty flat year sequentially. So you're not expecting a big ramp. It's the year-over-year so you start to see that.

Right. But I would just add too, I mean the last couple of years have been massively unusual. I mean I worked in IDEX for 17 years, the Life Science segment has never been hard to forecast. It's generally always been a good grower. People are always sick. It's always innovating. And capital is deployed iteratively. It's not like a semicon kind of world where it goes off in these massive capital-intensive chunks. It's just gone through a crazy event that was frankly health-based in its outcome. I mean that's why it sort of ran as hot as it did for a couple of years. It's taken a few years to get past it. But kind of the learning about it has inherently changed in terms of how it grows, the way it grows and this slight return to more positive dynamics, frankly, it's the return to typical.

That makes a lot of sense. And then maybe just digging in on Life Sciences. So we've heard from some of the bigger players in the life science space that they're seeing positive trends with their instrument sales. Are you seeing similar trends? And is there any impact that we should think about from potential NIH budget cuts? And could that impact recovery in HST or in health and science?

Yes. Yes. Thanks. I'll take that question. So we talked a little bit about this, but I'm not sure if you know my background, but I spent most of my career in the Life Sciences space, specifically on the OEM side, right? So I'm a big believer in this space, and I can see where this space is going and really excited about it. You talked about the signals. Our customers are talking about things like consumables and services, which are usually early indicators of what's to come on the instrument side. And then you think about the conversations that we're having with our customers. So as we talked about areas like our core fluidics business, our optical filters business, right, like Semrock, are really strong brands here. We expect that to start to show that growth that Abhi was talking about earlier, which is exciting. Now you mentioned NIH. In that space, I'd say some of the growth that we expect to see in 2024 may be slightly offset by some of the genomics space, the important work we're doing in the genomics space with our customers because some of that is related to government funding. However, as we look at the genomics space, those customers are innovating with us at a rapid clip. So that's exciting as well. So when I take a step back and I think about the Life Sciences space overall, not only are we moving to a positive territory this year, but I feel good about the long-term prospects because of all of the good work that needs to be done around proteomics, genomics and so on.

And then I think you touched on this, Eric. Just thinking about HST overall, have your views around the cyclicality of the business changed at all given what we've experienced in the past few years?

Yes, absolutely. I mean I think what we've gone through where we've had kind of Life Sciences and Semi together on the exact same sign we occur. I think that's 100% localized around a crazy run-up on the back end of the pandemic and then the deceleration away from it. And to be fair, I do believe the Semicon markets are always going to have a certain amount of cyclicality in them. That's just the way the nature of massive plants and the way that technology shifts and moves and capital is deployed. That reason, we'll always kind of keep it at a relatively low level of IDEX and not over tilt towards it. But I think the Life Science side, as Tara is describing, that isn't how capital is deployed. The innovation there is much more iterative. If you think about things like the weight loss drug phenomenon and it sort of tops out of nowhere, it's a very positive space. We have some tentacles that attach to that are quite good for us in the business. And it's not dependent on the broader whims of that whole segment. That's more typical of how that usually looks. And then the other assets that we pull there, a lot of them in the material science space. I mean there's enough variations within those end markets that I think they're going to travel well together, and they typically don't have a lot of cyclicality in them. We used to describe HST, we would always remind people, we start talking about Life Sciences and then say, don't forget half of it is kind of industrial. That percentage is much lower now. And so even the industrial component of it that used to give it a little flavor of cyclicality is just a smaller percentage as we grow it through acquisition.

Makes sense. And then just sticking with HST for a minute here. Profitability in HST. So you actually had EBITDA margin expansion in 4Q on flat organic revenue basically. So can you talk about how you're thinking about operating leverage at the business and how we should think about EBITDA margins going forward as you return to growth?

Absolutely. So there's a couple of pieces here. So first of all, if you go back to the Q4 call and look at the delayering optimization with the work that we've done around $43 million, 70% of that is tied to HST. It's tied to the conversation that Eric had about scale and the work we're doing, right? That's piece one. Piece 2 is, as you think about organic growth and think about the way our business is levered, as you start to see the organic growth move forward, you're going to see margin expansion on the HST side. Early day incrementals are going to be harder than normal, simply because for the first 3, 4 points of organic growth, you're not going to add a lot of cost, right? So early innings, you should expect it to be 45% to 50% incrementals as HST starts to grow organically. Long term, it's a mid-35% EBITDA business. Again, the cost work that we've done, I'd say it's Chapter 1 of the book. There's more to come behind it. There's footprint consolidation work that can happen. As we start to scale, there's back office work that we can do. A lot of that is going to be tied to HST. So incrementals, I'd say early days, 45% to 50%, long term, mid-30% EBITDA.

And that's specific to HST?

Correct HST and you should expect us to exit the year closer to 30%. So Q4 exit rate, not the full year, but Q4 exit rate.

Okay. That makes sense. And then just more broadly, you have a bigger portfolio than just HST. So you talked about FSDP and HST, I think, narrowing the margin gap versus FMT over time. So can you talk about sort of how you're thinking about time lines for HST to being a low to mid-30 margin business and FSDP around 30%? And then maybe just with respect to FMT, given it's already been running in the 33% range in the past few years, any limitations on potential margin expansion there?

Yes. So let's take it segment by segment. So if you kind of start with FMT, FMT high or low to mid-30s EBITDA is a reasonable place because, again, some of the dollars that you made are going to get reinvested back in the business, right? So 35%-ish in that range for FMT is a pretty good start as we start to reinvest towards growth initiatives towards the growth part of the equation here. FSDP is closer to the 30%. There's a couple of hundred basis points there, but I think it's in a good spot in terms of what the margin profile is. You're talking about HST timing. Look, I think the timing -- all of the timing comes down to acquisitions. So if you think about where Mott was, right, not only $200 million, but it is a part of the HST portfolio, right? So as we start to work the Mott angle and start to get them up to that level, it's a little longer than 12 months or 18 months because we said in 18 months, we'll generate 400 to 600 basis points of EBITDA margin. But I'd say over the next 2 years, I think you should start to see HST margins pretty comfortably north of 30%.

Great. And then just shifting to FSDP. So growth in the segment, I think, has been surprisingly durable post COVID over the past few years. So I know you talked about FSDP growing more toward the middle of your overall outlook for the year. Can you talk about how investors should think about whether there were cyclical tailwinds having contributed to growth at FSDP or more structural growth drivers that you see in the business, things like digital or automation offerings?

So I'd point to one tailwind that's something external to IDEX on the fire side of our fire and rescue platform. We do a lot of stuff for mobile firefighting applications and there's no doubt that in the pandemic, their ability to make those chassis, they're highly customized, configurable and in the supply chain crisis, they were often at the end of the line. So there's a ton of backlog that was kind of caught up there. So we're getting a little bit of lift of just the release of that multiyear backlog and then our wonderful share presence on the back of it. So that is a piece of it but that's a relatively small piece of the entirety of the segment. I did highlight in the fourth quarter, though, this is an aspect of where scale also starts to play for IDEX. Automation in both fire rescue and dispensing, I mean, in other words some interesting critical mass tipping points. So the dispensing story, if you might recall, we were otherwise projecting kind of an off year for dispensing last year because of the absence of North American replenishment stuff. That team found some applications in emerging markets, specifically in India and closed almost the entirety of that gap. They did it on the backs of low-cost automation, meaning essentially, you took gear that used to cost an awful lot for mature markets and found a way to bring that price point massively down and yet still make nice margins for us and bring automation to areas of the world that just have never been able to afford them before. So that growth, frankly, wouldn't happen without automation ability brought together at global scale. On the fire side, I also mentioned that we're now -- the platform sales in the automated suite of certain things that we produce is over 10%. That's an important tipping firm as well. And that helps solve a ton of problems in this industry. Most of the firefighting that you see in the United States is not professional, it's volunteer. And one of the big barriers to people signing up to do that work is the fact that the training loops have taken forever. Think of the senior chrome knobs and dials you see on the side of a typical fire truck. That's now been replaced with a drag-and-drop touchscreen. Anybody in this audience could basically do 80% of the operations after 20 minutes of training, very, very different. And we're starting to see as that backlog releases, some of the growth in automation is being released alongside of it. So some work coming from some industry things, but a lot of work being done because of just the scale presence and what we're doing with those businesses.

Makes sense. And then just flipping to FMT, I know you're expecting FMT to grow more towards the low end of the range. I think you've talked about pressures in Ag that remain a headwind. I think you also mentioned energy is tempering demand there. So can you talk about the specific challenges you're seeing in energy-related demand and any impacts you think the change in presidential administration could have on energy-related investments, demand for FMT?

Well, Vlad. FMT is a small part of IDEX and a relatively small part of FMT. And we're really downstream. So don't think about wellheads and plane in Texas, and that's really not the kind of work we do. We're doing a lot of mobile refueling. So aircraft refueling or bringing propane and fuel oil to people's houses in both North America and Europe. So there is a spillover effect. So if the industry itself is healthy, good oil prices and CapEx is being deployed, it does have a trickle-down perspective for us. So I would say the things that might drive lots more drilling extraction, regulatory relief would generally be positive and would be positive for IDEX. But sometimes it comes down to things like local winners that actually drives a lot of the economics for the people that do home fuel replenishment. They'll spend more money and stop some gear if, in fact, they sold a lot more fuel oil. So we had an unusually warm winter last year, so we have some of the spillover effects of that. I'm happy to say when and I got on the airplane yesterday, it was like minus 5 in Chicago, which is a good sign for us. So a couple of things coming together there. I think just health of industry would be good. Frozen winners would be better.

You might be the only person who's happy to...

[indiscernible].

I want to get back, Eric, to a comment you made around FSDP and the growth you saw there with the team in India, which was there. Can you talk about India more broadly as a growth driver for IDEX and how you're thinking about opportunities in emerging markets generally?

It is amazing. So we -- the way that we kind of work in emerging markets is different than a lot of companies. We have these shared campuses. And so we've got two sites in India in the state of Gujarat. One we've had for a while that filled up quickly. We kept expanding it and then we had to go build another one over in the western part of the state. I opened that 2 years ago. It's at super high rates of utilization already. So growth rates here double digits plus for India. Everything we do there is essentially, it's an incubation center for different technologies that are going to come in and serve local applications. So we don't ship it back to our mature markets for cost relief. We don't do any of that. It's designed for Indian markets or broader Asia Pac. And it's very much in the spirit of what we talked through with dispensing. So doing a job, a typical mature markets job, but in a very different way that fits the evolution of those geographies, very self-sufficient businesses. So we're not dependent on the decision-making of people back where we are and just amazing growth. I mean in many ways, this last trip when I was over there a couple of months ago, reminds me kind of China back in the '90s, tons of cranes and I mean -- and we were one of the first people where we opened this factory and now there's plants all over us. So it's a lot of growth. We use it for -- like I say, a lot of it's for India, but all broader Southeast Asia as well.

It sounds like exciting opportunities.

Yes.

I know one of the other things you've talked about is digitization, which is a topic for many of our companies. So you've talked about, I think, digitizing the front end of FMT in particular, but you also talked about on 4Q a next step of deploying digital tools across IDEX businesses. So can you talk about where the company is on its digital journey, some of the benefits you might be seeing and how you think these digital tools can impact growth and profitability?

So that's a really interesting one, and this is one where I would again say the pandemic is massively accelerating a change that was already going to happen. So a lot of businesses like the ones we're in, I mean, they're in these little custom niche spaces that kind of fly under the radar. They're classically very people dependent. And so there hasn't been a lot of digital tools and applications. It's -- you know somebody and there's a technologist and lots of people on telephones and lots of lunches and things to figure out how to solve problems. That's typically how the work has been done. That's why it's so sticky, it's great. But we -- it's changing. It's changing in the ways that a lot of people as the demographics flip over, as people went through the pandemic experience, they recognize waiting for somebody to show up, that's not an acceptable standard any longer. They're looking for self-service. I want to be able to see how does the product work? I need to see application suites, tools at my disposal. I want to see a ton of videos and things that are going to show me how to use it. And all of those things are coming together. So the digitization efforts that we're talking about here, we started applying them in FMT because it's the most fragmented kind of indirect business that we have. And so it needs these tools more than any other. And then a simple things. I'm not saying we're reinventing the wheel here, but we are reinventing our businesses as we apply them at scale and mass in a way that a lot of our competitors can't because they're smaller to medium-sized and maybe standing up on their own. And so we have been in a lot of them on the customer acquisition, customer interface, ability to see things, but also in a very interesting way that we measure return on investment. So we're able to track and see any time we're booking an order from a customer that we don't know, that's not in our database that we never actually met before on a solution we haven't sold before, and it came in through a digital means, it actually starts to tell us some feedback that's important and help justify further investments. And so I think all of those things, these are again, sensing tools and understanding who's looking for things and chatbots and again, not revolutionary, but for us in mass, they are. Lot of being pilot in FMT, they have applicability in any of the businesses, and I know you're excited to put your hands on them in your space, too.

That's helpful. And then it wouldn't be IDEX fireside without me asking about M&A. So M&A has become a big reemerged, I'd say, as a bigger part of the IDEX story over the past few years and it seems like it's still high on the strategic agenda. So can you just remind investors some of the key parameters you focus on as you cultivate potential acquisitions and how you think about return metrics, cyclicality, growth so on?

Yes. So I mean we have a very specific equation and a feel for kind of what makes a great IDEX business. I mean -- so we kind of start there because there's no argument that goes real well if you don't meet these conditions. We like making things. We like making components or subcomponents that are often hard for other people to identify or appreciate that makes them uniquely specialized to us. We're looking for things that are relatively high in terms of criticality delivered and low in terms of the bill of materials. That drives a ton of the economics that we enjoy in our businesses. It gives us pricing power and all the things that we rely on. And frankly, it gives us a lot of freedom of movement. Just those kind of technologies are really sticky. So once you kind of find a space and carve out your niche in it, it's generally going to stay there if you perform and deliver economic returns like in an annuity stream. And so looking for those kind of things are sort of always in the mix. Increasingly, though, we are looking for ability to build scale around those similar technologies or customer spaces not at a mega level. Again, it's sort of scaled around the sense of IDEX. So these 5 that I articulated in Q4 of around $0.5 billion-ish. And that's a good space in terms of the kind of high-quality niche environments and a reasonable critical mass. And so we're looking for that, too. So going forward, if you think about the materials science solutions space that we were talking about earlier, because we now have that built, the ability to kind of bolt things in there, smaller to medium-sized classic bolt-ons is really -- it's higher now. We've got enough topography there. We've got enough intersection points, customer relationships, things we're trying to do with technology where it just increases, frankly, the size of the funnel and the map and the possibility set. So having these 5 kind of laid out that way does increase our velocity. We think about transactions, 80% of the ones we've done over the last 3 or 4 years of this period of higher intensity, all proprietary. We like that, too. We want to stay kind of longer-term conversations with people. We don't like to be rushed in bake-off processes. You have to be really, really thoughtful as you get to know people and technology in this kind of area. That's a great example. We spent a couple of years getting to know them at this level. Some of our businesses have worked with them in interdependent ways for over a decade. That's pretty classic. And so great opportunities for that kind of work to happen, more of them even because we've now assembled some beachheads.

That's helpful. Any questions from the audience before I get to ask that? I'll continue then. So I'll ask you one question that we're asking all of our companies, which is what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are maybe being overlooked in the current discourse?

I'll just answer with a couple that I've already answered, but put them against this question, and I'm going to ask Tara to talk about some of the things in HST. I do think this fundamental shift that is bringing digitization and digital tools into the mix of customer interactions is super positive for a company like us because we actually have the scale and the resource base to put those kind of tools to use in a way that many others don't. And I think it just opens up a wider universe for us that isn't as people dependent. So I think that's a great thing that's happening. And a more company specific, I think this notion of what a medium-sized scale can mean for the economics of IDEX, both from an M&A side all the way over to the productivity leverage side, I think, is really, really important. But I'll let you talk specifically about some things in the world.

Yes. So I'd say, two come to mind. I talk about -- you may have seen the press release that we had with Quantum SI. This is a customer that we're working with. They came to us because of, again, our connected technology. So this is bringing together our Semlock filters and Melles Griot Optical Modules to help them bring a next-generation proteomics sequencing platform to market. So that's exciting for us. And I'd say that's a space that I want to make sure we keep our eye on because we're excited about the future there. And that's just one example of the various customers that we're working with in that space. The other example I'd give, we talked a little bit about it, and it's probably a smaller part of our business today, but we expect it to grow over time is around satellite communications. So that's where our -- if you think about the portfolio, Eric talked about with Material Science Solutions and the assets that we have, that brings in technologies from our advanced thin film optical coatings business. That business is bringing some tremendous technology that is really playing on these fast-moving low-orbit satellites that are interconnected, and we're essentially making sure that, that noise and that light is going in the places it needs to, to ensure the proper communications. So to Eric's point earlier, these are just some 2 examples. There are many where we're playing in these mission-critical applications that are future growth areas for the company. And that's really what we're excited about around HST specifically with the transformation that we're going through.

That's helpful. And then maybe Abhi I could ask you, you talked about the delayering efforts. And obviously, you've talked about, I think, $0.43 of EPS tailwind this year, which is pretty meaningful. So can you just talk about as you ramp these efforts, is this kind of a onetime this year tailwind that we'll see? Or is there a longer tail of activities that you could go after?

Well, I'd say this is the first chapter of this book. So if you think about the $0.42, this is predominantly tied to people, 70% of which I mentioned is in HST. I'd say Chapter 2 is around footprint optimization, looking at our factory footprint and saying, "Hey, is there opportunity to consolidate factories, right? So there's that. And third piece I'd say is around productivity, sourcing. As you start to put scalable businesses together, you have more purchasing power in terms of being able to go to your supply base, right, and command a better pricing or command better pricing. But you start to think about those things, coupled with back office. So as you start to consolidate footprint, start to think about scale, there's opportunity to go look at take finance, for example, do I need 4 teams at 4 different businesses or do I have opportunities to start to consolidate? So I'd say a step one in this journey. You should expect us for the next couple of years to have different pieces play itself out and start to see that benefit show up in our earnings profile.

Appreciate it. I think we'll wrap up there. Thank you.

Thanks. Good to see you all.

Thank you.