Scott Graham: Okay, so sequentially you’re expecting sales dollars to be up.
Dave Zapico: Q1 will be a bit higher than Q2, Q3 will be a bit higher than Q2 and Q4 will be a bit higher than Q3.
Scott Graham: Okay, and the last one is just sort of back on the orders. I know you do have a pretty significant comp that you’re up against when you stack them. What were orders in the quarter in dollars and in organic?
Dave Zapico: Yes, the orders were minus 8 and organic orders were minus 10. And again, we had a tough comp and I went through the process of they sequentially grew low single digits the last couple of quarters when you take out the comp. I think in Q1 of ‘23, we had exceptional orders from some project business and EIG in particular. So when you take that out and you look at what’s going on sequentially, we get more comfortable.
Scott Graham: Yes, no, I get it. ‘22 and ‘21 were also exceptional organic periods for you. So, okay, thank you.
Operator: Our next question comes from the line of Andrew Obin of Bank of America.
Andrew Obin: Hey, guys. Good morning. Just a question how to think about the Paragon Medical integration costs. So what’s the payback on this restructuring that’s now because I assume it’s extra. So what’s the payback on this restructuring that’s embedded in ‘24 guide and how much of it should I add to ‘25?
Dave Zapico: Yes, well, in ‘24, we had told you in a prior meeting that Paragon was going to contribute $0.8 to $0.10 to AMETEK’s EPS, and that still holds. When I look at that $22 million charge, we said the payback is going to be less than two years and at run rates, so it’ll take us a couple of years to get there. But the run rate, we have $70 million of benefits. So we spent approximately $29 million and we’re going to get approximately $70 million of benefits. The payback is less than two years. So that really tells you what a great return it has. And it’s just there wasn’t a lot of focus and we can run things really efficiently. And I’m just excited that the management team sees it that way, too. We’re really going to make Paragon an exceptional business from an operating perspective.
Regarding 2025, I think we’ve come out and said that we should see a substantial increase in operating earnings related to Paragon in 2025. But I’m not willing to quantify what’s going to happen in 2025. We’re much too far away to do that. But again, the metrics I point you to are we spent $29 million. We’ll see $70 million in benefit at max run rate. And the payback for the project is a little less than two years. So we feel really good about it, good pay back for our shareholders.
Andrew Obin: Sorry, I probably and I should probably take it offline. But just to make sure. So I thought the Paragon restructuring was extra because you saw incremental opportunities. So you’re saying that I should have — that was embedded all along. But was not in the guide? I’m sorry –.
Dave Zapico: I just think that it’s a larger deal. And we saw a lot of opportunities over, it’ll take us a few years to do it. So we pulled it forward.
Andrew Obin: Okay, I’ll take it offline because I’m not sure if I, so I should have had it in my numbers or this $0.10 is extra on top of what you are thinking just confirming that I apologize. And I’m happy to take it offline with Kevin. I apologize.
Dave Zapico: Yes, I don’t know what you have in your numbers, Andrew. I don’t really look at them. But I can tell you that we’re expecting to get $0.08 to $0.10 of benefit from Paragon. And this restructuring doesn’t change that.
Andrew Obin: Got you. That makes sense. And then just on revenue, and you did give a very good color, was basically the destock what drove again I guess you were expecting anything. You guided for low double digit revenue in the first quarter, a little bit below. So it’s just you said it’s destock pulled forward, correct?
Dave Zapico: Yes.
Operator: Our next question comes from the line of Christopher Glynn of Oppenheimer and Co Incorporate.
Christopher Glynn: Thanks. Good morning, everyone. Dave, was curious just to go into the topic of a little bit of the long term multiyear kind of secular trends where you see an impact. It occurs to me maybe the power business could be on your leading edge with energy transition and electrification. But curious your comments in general on the kind of secular trends and in particular what you’re seeing is kind of street level evidence on the re-shoring type trend.
Dave Zapico: Yes, I think the when I think about the long term secular growth drivers and we talked about a little few of them in my talk, but a lot of project activity around the semiconductor market and that’s finally, we’re moving closer and closer to the point where that’s going to start turning into business for us in the west. There’s a lot of project work on semiconductors. The power market, as you said, and there are really two drivers there, the driver for renewables energy, but also the driver for investments in the power grid. So our RTDS business, our power instrumentation business is really levered to those. So that’s starting to happen as we work its way through. When I think about the aerospace and defense business, again, we had a great quarter again and that’s continuing and I think both Airbus and Boeing have a nine-year backlog for the commercial market for the good or defense.
We’re in the right position in defense, we had another good quarter in defense. So I think about those kinds of markets and those trends, I feel good about the future and a lot of fiscal stimuli in the US, which has not been there in the past, but it takes time to work through the system. So we think longer term, I think we’re in the right places to do well.
Operator: Our next question comes from the line of Joe Giordano of TD Cowen.
Unidentified Analyst : Your line is now open. Hi, good morning. This is [Zane] on for Joe. Sorry, I know destocking and bottoming of orders within automation has been discussed a few times. Just a quick follow-up, this is obviously something a lot of companies have been struggling with in the past few quarters. Some of them also been talking about changing their internal processes to gain more visibility of end market and end users. Is there anything that you guys have done potentially more frequent conversations or reaching out to end market users to understand a bit better their demand going forward? Anything you’ve changed recently?
Dave Zapico: I can’t point to anything we changed. I mean, if you go back and you follow us, we kind of called exactly what happened. And we talked about the first half a year of sales outpacing orders. So that means you’d have a slightly below one book-to-bill. We talked about the destock in the first half and we thought it would turn positive in the second half. We did that before this quarter. I think we have a pretty robust communication system with our field, but there’s always opportunities to get better and we work on those and continuously improve our businesses. But I feel like the information that we got from the field is pretty accurate, and we’re on top of it, but there’s always rooms to improve, and we’re always looking at ways to improve.
Operator: Our next question comes from the line of Nigel Coe of Wolfe Research.
Nigel Coe: Thanks. Good morning, everyone. Thanks for the question. Hey, David. I just want to come back to the order math. I think you said down 8% and then down 10% organic. We’ve got about nine points of contribution from Paragon in our numbers. So just wondering, what am I missing? Because I’ve expected there to be a significant contribution from Paragon in the order numbers. So just help me out with that math, please.
Dave Zapico: Yes, we had 9% acquisition growth, and Paragon is in the acquisitions, not the organics. So the Paragon sales, excuse me, yes.
Nigel Coe: Okay. But then the orders 8% organic to, down 8% — down 10% reported organic. Was there no material impact from Paragon there?
Dave Zapico: Yes, with Paragon, we had obviously the large book to backlog of the orders in Q4. And then in Q1, there’s a timing issue because Paragon is going through the same destock that the EMG businesses are. So there’s a bit of a destock there. That impacts the order. So the medical market, it’s in both our EMC business and Paragon. We’re seeing this same kind of destock in the EMG businesses. If we look at the medical procedures, they’re all growing at mid to high single digits, but the medical devices [inaudible] are destocking their inventory, correcting their inventory. It’s kind of a widely communicated piece of information, and we monitor them and procedures, and they’re growing, so this destock, we think, is going to run in space through the first half of the year.
Nigel Coe: Okay. Does that impact the full year forecast? I think we’ve got close to [inaudible] sales Paragon. Does that destock impact that outlook? But also, I do, no. Please, go ahead, Dave.
Dave Zapico: Yes, I think for the year, when we bought Paragon, it was a little less than $500 million, and the first year we talked about the mid-single digit growth, so that’s still exactly what we have in our model. So we think that we get out of this year, and we think it’ll be a double digit grower the next couple of years, but the Paragon model from the viewpoint of what we had going into the year and what it is now is pretty much identical.
Nigel Coe: And then, just sorry, a follow-up on the $29 million. Is that all restructuring, or is this inventory and accounting, write-downs?
Dave Zapico: Yes, I’d say the vast majority of it was restructuring. And there was a small part of it that were other integration costs, but the vast majority.
Nigel Coe: And does some of that come into 2Q as well? Do you think about that into 2Q?
