Robert Wertheimer : Your order commentary has been very clear and helpful. And I appreciate it. I’m sorry to sneak in one more on it. But just in general, HST, a vertical that had more excess inventory given some of the, the disruptions across the whole vertical. And then do you have a sense that supply chain has actually gotten a lot better or orders like coming in as people anticipated getting better? I’m just wondering if that’s already happened, where people can feel more confidence in lead times, I guess, across the businesses, or whether it’s an anticipation of that? And then I had an M&A question, if I could.
Eric Ashleman: Okay. Well, I think the first question, I wouldn’t say that those businesses in the HST world, have more inventory. I would say that they have more sophisticated planning. I think that we’ve typically seen in any cycle, there’s just — they’re bigger organizations, they’re a little bit more formal, they’re usually a little quicker to react to cycles. And when they do it, that’s a more of a concentrated industry anyways. So it tends to be kind of amplified that way. So there’s nothing that tells me that somehow that they’re sitting on more than anywhere else. And it’s in any way, frankly, unusual from some other patterns we’ve seen when things change. So I’d say that’s number one. Remind me again on the second question, I want to make sure I get the exact essence. You talked about supply chain confidence.
Robert Wertheimer: Exactly. Yes. So whether spy chain has already gotten better and that lets people have more confidence in lead times and thus destock a bit or whether that’s not happened yet?
Eric Ashleman: Yes. No, again, I think, think of it as 2 variables. One is lead time compression, that’s absolute. And I think people are seeing that. They’re seeing that quoted to them when they call and ask about things. I would say the second component that I mentioned that is important, though, is the performance against those quotations. Neither one of them yet are kind of back to where they need to be. They’re both improved, but they both work together. And frankly, that second piece, the one about sort of assurance and delivery against commitments, has a huge psychological impact. And I think it’s one of the — I think it’s actually the more powerful of the two. So if people say, hey, it’s still longer, but I know I’m going to get it exactly want to ask for it, they’ll actually make that move in a more fundamental way.
If they’re still getting surprised from time to time, that tends to fuel a little bit of this. I’m going to keep some things, I’m going to protect some things. So both are moving. And as we continue to talk through the year, you’ll hear us talk about both sides of that.
Robert Wertheimer: That was very helpful. Just in general, we’ve had, I think, a reasonably solid level of deal activity you guys have done great over the last year. Your characterization of buyers market just among potential targets for acquisition and whether PE matters for you guys and whether there’s less intense competition there. And I will stop.
Eric Ashleman: Yes. I mean — so in general, our story is a good one here. I mean we’ve had some good performance over the last couple of years, some great businesses we brought in. I’ve talked from time to time about the intention of work we’ve done to sort of build strategic conviction in a really, really formal way that contributes to the basic business intelligence that we have from all the businesses across IDEX. So the things that we control are in a great spot. As we think of them engaging with the outside world, we’ve always been careful to help people understand that we’re fishing in a very high-quality universe that I think, in some ways, holds up and it doesn’t move around as much in terms of valuations and even timing of transactions, particularly to do this work well.
So — on the PE front, they’re often competing with us for properties like this. They too are attracted to companies like this. And I will say it’s probably a little less activity competitively there or people that have been able to raise funding and be in the game. But we’ve long aspired with this work that we’re doing to sort of be ahead of that anyway with cultivation on a proprietary nature, talking to people that we meet at the trade shows, those kind of things so that we’re not actually in kind of a classic bake-off with lots of people anyways. It’s an efficient market, so it doesn’t always happen when it does. I think the dynamic around PE activity is absolutely true. Valuations overall still pretty rich because, again, we’re looking for high-quality companies like the last 3 that we’ve brought into the business.
Operator: Our next question is from Scott Graham with Loop Capital Markets.
Scott Graham : And Eric, thank you for all that transparency that was great. So the question is — maybe I missed it because I was writing away because you talk — saying so many things. Did you tell us what pricing was in the quarter?
William Grogan: No, no one asked it. It was over 5%.
Scott Graham : And the gap was it that still about like 50-ish?
William Grogan: On price cost?
Scott Graham : Yes.
William Grogan: Yes. We said it was back to our historical level, so right around there.
Scott Graham : Okay. And then the carryover for next year, can you tell us what that would be?
William Grogan: Yes. I mean overall price next year is somewhere around 3% to 4%, about half of it is carryover.
Scott Graham : Got it. So I was just wondering also with the — thank you, Bill. I was just wondering also with the step-down in the first quarter organic, is that mostly FMT and maybe secondarily, FSD in the organic?
William Grogan: No, it’s mostly HST. We highlighted just some of the temporal moves from some of the OEMs as they recalibrate order patterns and inventory levels, that’s the major driver.
Scott Graham : Okay. And then I guess my sort of last question here is also on the M&A environment, I mean, in the past, you guys have sort of talked about what’s available and a little bit about the funnel. Is there anything more you can say than what you’ve already said on M&A? Is that still the spreads been kind of coming in a little bit? Or anything changed?
Eric Ashleman: No. I mean, as I said just a minute ago that we’re still looking for high-quality properties. Those valuations tend to hold up over time. because of the long track record usually predating our conversation and the expectation you’ll have a good trail on the other side. I just think from an availability front, we’ve got more than ample capacity, even though we’ve deployed a lot over the last 2 years. The great part of being IDEXX is we generate that capacity each and every day. And then I think our targets, we really have not changed. We kind of are comfortable with a band of about $0.5 billion to $1 billion. And if long considered that to be a good target for us here in the next couple of years, sort of regardless of the cycle and they’re generating all the right work to go realize that.
Operator: Our next question is from Bryan Blair with Oppenheimer & Company.
Bryan Blair: I was wondering if you could offer a little more of a profile on the lung group, maybe a rough breakout of key end market exposures across semi, med tech, food and beverage and others. — where historical growth rates have been — how the current market environment impacts ’23 expectations and where there’s the greatest opportunity to extend or accelerate growth within the IDEXX portfolio going forward?
William Grogan: Brian, we said about 2/3 of the business is in those major categories you started with on the medical, semi and food side, the balance in a variety of different applications. We’ve said it’s grown at double digits here the last several years. It’s got line of sight to continue to do that here as we progress even with some of the noise out there in the semicon market, where they play in this space is still healthy. They’ve got innovative technology that they continue to roll out. So we remain bullish on their growth profile both on core products and some of the NPD applications that we’ve gotten to know a little bit more as we progress through the last couple of months of our ownership.
