Good day. And thank you for standing by. Welcome to the Second Quarter 2021 AMETEK, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instruction] Please be advised today's conference is being recorded. [Operator Instructions] I would like to hand the conference over to your speaker today, Kevin Coleman, Vice President of Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, and thank you for joining us for AMETEK's second quarter 2021 earnings conference call. With me today are Dave Zapico, Chairman and Chief Executive Officer; and Bill Burke, Executive Vice President and Chief Financial Officer. During the course of today's call, we will make forward-looking statements, which are subject to change based on various risk factors and uncertainties that may cause actual results to differ significantly from expectations. A detailed discussion of the risks and uncertainties that may affect our future results is contained in AMETEK's filings with the SEC. AMETEK disclaims any intention or obligation to update or revise any forward-looking statements. Any references made on this call to 2020 or 2021 results will be on an adjusted basis, excluding after-tax, acquisition-related intangible amortization, and also excluding the gain from the sale of Reading Alloys in the first quarter of 2020, and the realignment charge taken in the first quarter of 2020. Reconciliations between GAAP and adjusted measures can be found in our press release and on the Investors section of our Web site. We'll begin today's call with prepared remarks by Dave and Bill, and then open it up for questions. I'll now turn the meeting over to Dave.

Thank you, Kevin, and good morning, everyone. AMETEK delivered outstanding results in the second quarter. Strong sales growth and outstanding operating performance let to a high quality of earnings that exceeded our expectations. We established record levels of sales, orders, operating income, and adjusted earnings per share in the quarter. This performance comes as we are still early in our economic recovery, and reflects the outstanding efforts of our teams. We also ended the quarter with a record backlog driven by exceptionally strong and broad-based orders growth, providing strong visibility across our mid and long cycle business profile. The five acquisitions we completed earlier this year are integrating nicely, and are well-positioned to drive strong growth. Given our second quarter results and outlook for back-half of 2021, we have increased our sales and earnings guidance for the year. Now, let me turn to our second quarter results. Our businesses saw robust broad-based sales growth in the quarter. Overall, sales were a record $1.39 billion, up 37% over the same period in 2020. Organic sales growth was 25%; acquisitions added 10 points to growth, while foreign currency added two points. Overall, orders in the quarter were a record $1.91 billion, a sharp increase of 92% over the prior year, while organic orders were an impressive 44% up in the quarter. We ended the quarter with a record backlog of $2.5 billion, which is up over $700 million from the start of the year. Our businesses also delivered exceptional operating performance in the quarter. While global supply chains remain tight, our businesses are doing a fantastic job managing through these challenges, as is reflected in our results. Second quarter operating income was a record $317 million, a nearly 40% increase over the second quarter of 2020, and operating margins expanded 40 basis…

Thank you, Dave. As Dave highlighted, AMETEK delivered outstanding results in the second quarter, with strong sales and orders growth, excellent operating performance, and a high quality of earnings. Let me provide some additional financial highlights for the quarter. Second quarter general and administrative expenses were $22.5 million, up $5.6 million from the prior-year, largely due to higher compensation expense. As a percentage of total sales, G&A was 1.6% for the quarter, versus 1.7% in the same period last year. For 2021, general and administrative expenses are now expected to be approximately $15 million -- or expected to be up approximately $15 million on higher compensation costs. The effective tax rate in the second quarter was 20.6%, compared to 19.5% in the same quarter last year. The higher rate was driven by the impact of a U.K. range and the associated remeasurement of our deferred tax liabilities. For 2021, we continue to expect our effective tax rate to be between 19% and 20%. And as we've stated in the past, actual quarterly tax rates can differ dramatically, either positively or negatively from this full-year estimated rate. Our businesses continue to manage their working capital exceptionally well. For the quarter, working capital was 13.9% of sales, down an impressive 570 basis points from the 19.6% reported in the second quarter of 2020. Capital expenditures in the second quarter were $23 million, and we continue to expect capital expenditures to be approximately $120 million for the full-year. Depreciation and amortization expense in the second quarter was $75 million. For all of 2021, we continue to expect depreciation and amortization to be approximately $300 million, including after-tax acquisition-related intangible amortization of approximately $141 million or $0.61 per diluted share. As Dave highlighted, our businesses continue to generate strong levels of cash given our…

Thank you, Bill. Michelle, we're ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Matt Summerville with D.A. Davidson. Your line is open. Please go ahead.

Thanks. A couple of questions, Dave, you mentioned price costs, but could you talk about what sort of spread you actually experienced in Q2? What your realization was in terms of price year-on-year, and whether you're contemplating any incremental pricing actions or surcharges in the back-half?

Great question, Matt. In the second quarter, we were very pleased that our pricing continues to offset inflation. We achieved about 3% of price across our entire portfolio, and total inflation was about two points. So, we had about a 100 basis point positive spread. And we want to stay in front of it. We want to stay there. And with all the acquisitions that we did and all the costs from those acquisitions, it showed up. We had 170 basis points of core margin expansion. And that pricing really helped us deliver that. So, we're ahead of the game now, we plan on staying there. There is increasing inflation, but with the 3% pricing and the 2% inflation, we were very pleased with our performance during the quarter.

And then just as a follow-up, can you speak to the organic order cadence you experienced over the course of the quarter? And if you can give us a read on maybe what you saw in July? Thank you.

Yes, sure. I mean as we said before, the organic orders were up substantially. During the quarter, they grew every month, with June being the strongest month of the quarter. Sales also grew every month sequentially. And June was also the strongest month of the quarter, and so a very strong trend during the quarter. And then with July, it was a very solid month, and was supportive of our forecast and guide. So, we feel real good about the orders trend in the business.

Great. Thank you, guys.

Thank you, Matt.

Thank you. And our next question comes from the line of Josh Pokrzywinski with Morgan Stanley. Your line is open. Please go ahead.

Hi. Good morning, guys.

Good morning, Josh.

Dave, just on the inflation discussion, I guess the material side is only one piece of it. You have labor, you have logistics costs, there's kind of a cocktail of things in there.

Right.

How should we think of 2Q as being kind of the high watermark of inflation for the year relative to the back-half? Like when does that [indiscernible] or perhaps get a little easier?

Yes, the number that I gave you, the 2%, is total inflation in our business, so that's not just material, that's total inflation. And then in terms of peaking out, I mean it's -- inflation is increasing, we're staying in front of it. I don't think we're ready to say it's peaked yet. I think that there is an element of temporary cost spiking, but it's very difficult to bifurcate that between the underlying inflation and what's happening on a temporary basis. So, the honest answer is we're not sure, but we're going to stay ahead it. And that's the way we're managing the business.

Got it. And then just in terms of the end markets or customer behaviors that are standing out. This recovery seems unusual in a few different ways, but are you guys seeing kind of the classic more CapEx-facing applications or industries bounce back or is it all just sort of in the mix together? Or anything you could sort of comment on that would be helpful.

Yes, great. Yes, what we're seeing is kind of -- we saw this quarter the beginning of what I think is classic mid cycle recovery. So, we're mainly mid cycle and long cycle businesses, and we're seeing the beginning of a mid cycle recovery. And what we saw on our businesses are our automation and engineered solution businesses, those were classic mid cycle. That picked up earlier in the year, and it's staying strong. But we saw during the quarter, our power business really picked up. And the organic growth of our power business was a strong mid 30% organic growth, so that's -- I think the cycle is kind of following along what we think, where our automation businesses would kind of lead us in, and then we have the process and power businesses. And then down the road, maybe even a year or two we have our commercial aerospace business. So, the cycle is kind of following what we think. It's a little bit difficult to bifurcate the classic cycle from customers trying to get in the queue and reacting to supply chain issue, and the COVID rebound that we're all seeing. But I'm feeling really confident. And the underlying demand strength can have a longer tail as part of a broader cycle, because I think the industrial world has not invested a lot over the last five years, and we're well-positioned to benefit from that investment. So, I'm kind of seeing beneath this COVID recovery the -- a classic cyclical recovery, and it's really hitting our businesses at the part of the cycle where we think it would be. Does -- so that help you out a little bit?

Perfect, great color. Thanks, Dave.

Thank you, Josh.

Thank you. And our next question comes from the line of Allison Poliniak with Wells Fargo. Your line is open. Please go ahead.

Hi, good morning.

Good morning.

I just want to go back to your comment on the incremental investment into the business. Could you give us a little bit more color in terms of where that incremental investment is going, is it specific verticals or is it much more broad spread, just any additional color would be helpful?

Sure. As we said, we're putting about $100 million of incremental investment in our P&L. And that was raised about $5 million from the last quarter, so some new opportunities are coming up. And I'd put it in several areas. I mean we're investing in core product development. That's the future of our business, and we want to stay with the best benefits in our products with our customers. That's happening, that's about probably a third of that $100 million. And then the other two-thirds is in sales and marketing and our digitization effort. So, we're doing a lot of things to improve our customer-facing capability. We're doing a lot of things around digital marketing, our sales force effectiveness. And teams are motivated and is working well, and we've able to do continued investing during the depths of the virus, and we're accelerating now. So, it's $100 million, it's in product development, and it's in sales and marketing, but a lot of it is in the digital space.

Great. And then just a little bit -- see if you could give a little color on maybe more the commercial aerospace marketing. I know we're getting a lot of concerns with the Delta variant. Has that altered your view in terms of the recovery of either the MRO or just the commercial aerospace market in general?

Great question. The commercial aerospace is about 7% of our portfolio now. And we're obviously watching that Delta variant very closely, because we're not sure exactly what's going to happen. We haven't seen a downturn yet from the Delta variant. And our commercial aerospace business had a very good quarter. I mean we were up 25% in commercial aerospace. Our aftermarket business and our business jet market were stronger than our OEM markets. And that business, for the year, we haven't changed our outlook for the year. For our whole aerospace and defense business, we're still staying up low-to-mid single digits, so we're not seeing the same kind of traction in that business right now, partially because the aftermarket is doing better than the OE business. But it's stabilized for sure, it's 7% of our business, and we're watching it closely with the Delta variant. I mean we haven't seen a change yet in passenger model, but that could happen. So, that's the best information I can give you.

Great. Thanks so much.

Thank you.

Thank you. And our next question comes from the line of Scott Graham with Rosenblatt Securities. Your line is open. Please go ahead.

Thank you. Hi, Dave, Bill, and Kevin.

Good morning, Scott.

Good morning to you. So, I was just wondering, could you kind of quantify what the add-backs of the temporary reduction costs from last year were in the second quarter and maybe a feel for the second-half?

Yes, the best way I can answer is we talked about, last year; we had about $90 million in temporary costs that we removed from the P&L. Now we're at, fast-forward to the end of Q2, so about a month ago, they came in during the quarter. But by the end of the quarter they were pretty much all backend, except out travel expenses. So there was about $10 million or $15 million of travel expenses. They're bleeding in slower than we anticipated earlier in the year, but largely all the expenses, besides travel, are back in the P&L.

So, correct me, if you would, on the math on that. So, we will see some add-backs in the third quarter and fourth quarter, but on a declining basis?

Yes, that there'll definitely be add-backs because we'll get full quarter effects, and there will also be some headwinds from our compensation system. We're -- we budget, we target our compensation systems, and we're having a good year, so there's a headwind from that too. So, there'll be some additional costs in the second-half of the year that will impact that.

Got it, thank you. Would you mind giving us, Dave, a sketch of what your research market looks like right now?

Yes, the research market is doing well. It's starting to pick up a bit. But that market is probably more impacted than the classic industrial market, because a lot of the research institutions were slow to start up. There's difficulty getting access to the facilities. So, the market is hanging in there, it's doing well. But it's certainly not inflecting up as much as in the general industrial markets.

Okay, thank you. And then, lastly, on the acquisition pipeline. I know you talked about the $2 billion of availability. What does that number look like in terms of the capacity, because, certainly, you can borrow some more, and what have you, and -- but more importantly, what does the quality of the pipeline look like right now? You talked about, on the last call, the possibility of doing in the second-half something close to what you did in the first-half. Could you update us on that thinking? Thanks.

Yes, our teams are very active now. And we certainly -- we'd like to get a deal done between now and the end of the year, but there's no guarantee on that. There's a lot of properties in the market, there's a lot of activity going on right now for sure, but finding those gems that we acquire and end up becoming a part of the AMETEK portfolio is a different story. As we told you before many times, our acquisition strategy is not capital-limited, it's finding the right acquisitions to acquire, and we're very active now, and our teams are doing a great job. In terms of the capacity to-do deals, maybe I'll have Bill comment on that.

Yes. Thanks, Dave. Yes, certainly, you made the point, we could go borrow more, and our banks and others tell us they're more than happy to lend to us. That couple of billion dollars would still only give us a mid-twos kind of leverage. So, still you could even say somewhat underleveraged for the company. So, plenty of opportunity and plenty of resources available to us to do even more than the $2 billion, and I think as Dave mentioned, this isn't a capital-constrained strategy, this is finding the right businesses to fit with our portfolio that we think can generate value for our shareholders over the long-term.

Yes. Okay. Thank you, both.

Thank you, Scott.

Thank you. And our next question comes from the line of Andrew Obin with Bank of America. Your line is open. Please go ahead.

Hi. Yes, good morning.

Good morning, Andrew.

Just a question, just putting a couple of things together, you've said, you are adding to growth investments. And I know what it takes for AMETEK to sort of loosen its first strings. You did talk about underinvestment among the industrials over the past five years. Looking forward, do you see structurally high need for CapEx over the next couple of years from your customers?

Yes, there could be. There could be yet a situation where you had the industrial recession in the 2015-2016 timeframe. And then we had a few years of good growth, but then we had the pandemic. So, clearly, supply chains are stressed and people are going to put -- they're dealing with the current issues, but there's going to be some capacity put in. And I think that that could be one of the outcomes of this economic cycle that we're in. So, we're pretty bullish on the industrial cycle right now. And we think there -- as I mentioned earlier, there is a COVID bounce, and it's pretty difficult to bifurcate the COVID bounce from the long-term growth, but we certainly are seeing customers planning in a way that's different than just a bounce.

Thank you. And then the follow-up question, I mean people ask me about Delta variant impact on aerospace, but I think there are also some headlines in Asia, people trying to figure out if Delta variant is having any impact on rate of growth in Asia, and China specifically. Could you just talk about what it is you're seeing in China, Asia, not only as end market, but also what are you hearing from your supply chain? Is Delta variant sort of something that you're tracking in that region? Thank you.

Yes, during the second quarter we had a pretty good month in Asia -- pretty good quarter in Asia, we were up about 30%. And it was a broad-based strength. It was notable strength in many of our businesses, but our automation business and our process instruments business stood out. And specifically within Asia, China growth was up 27%. So, it remains strong. And in China, our process instrumentation businesses did very well. So, we're still seeing solid growth in China. We've understand the press reports as well as anybody about what's going on in those regions. We're still operating all of our plants. We do have pockets where we're dealing with some COVID issues right now. But it's not unlike it's been the past three or four months, except the fact that there's probably a little more spread in China now. So, we're watching that closely, and -- but to your point, the China growth remains strong for us, 27% was the growth in the quarter.

Really appreciate the answers. Great quarter, thanks a lot.

Thank you, Andrew.

Thank you. And our next question comes from the line of Jeff Sprague with Vertical Research. Your line is open. Please go ahead.

Hi, thanks. Good morning, everyone.

Good morning, Jeff.

Good morning. Just coming around to the deals and actually what you've done year-to-date, I think you were previously thinking about $0.18 or so accretion this year and a carryover benefit of $0.35 to $0.38 and into next year. Just wondering now that these assets are actually fully in-house and you're betting them down, does that outlook change much and does anything in particular stand out?

No, I think the same outlook. It's we haven't changed it at all. And we said, we get about $0.18 of benefit in 2021, and it's looking like that's going to be a good number for us.

Great. And then just coming back to kind of supply chains that, I'm sorry, I was on the call a few minutes late, but was there any place in the portfolio where you were unable to kind of meet demand or there was issues up and down the supply chain somewhere else where perhaps even you could deliver, but the customer didn't necessarily want it because of their own issues with deliverability and availability?

Yes. There were issues like that going on all over Jeff, but I'd say that in general, in the second quarter, our teams did an excellent job and we had the material and we had the labor and we had the execution to get out what we needed to. There are certainly challenges in that broader materials and logistics right now, our guidance reflects the known risks. These issues are going to be with us for some period of time. And we're managing the issue with dedicated business unit personnel. So, each business unit has a team on their supply chain, but we also have an overlay over company-wide resources or global sourcing team and they're doing an effective job right now. The big area of focus for us right now is on semiconductor chip availability. And we're looking at that very closely trying to do secure our supply chains. And you can end up with a situation where you think you have a firm delivery and the day comes from the delivery and it's not there. I think everybody in the industrial world is delivering with that right now. And it causes with me a game of Whac-A-Mole where you're scrambling to get your output out but our people did a good job in the second quarter. And there is an element of prudent judgment in our second-half guide. But our guidance reflects all of our known risks.

Great. I appreciate the perspective. Thanks a lot.

Thank you, Jeff.

Thank you. And our next question on the line of Christopher Glenn with Oppenheimer. Your line is open. Please go ahead.

Thanks. Good morning, Dave, Bill, and Kevin. So I just wanted to clarify Dave, I think you said June had the highest rate of year-over-year orders and sales organic growth. I would've thought the comps got, got steeper from April through June. So one just wanted to clarify and two what's implied there if you're accelerating on steeper comps.

Yes. I may have said the wrong thing if I said acceleration of the orders, both orders and sales grew sequentially every month, but June being the highest strongest month of the quarter. So, that doesn't mean that they're ready to change; accelerated, that means that June was higher the May, May was higher than April, for both orders, and we had a very strong trend in July also.

Okay. Thanks. I might've heard you right. And then just wanting to go into your advanced motion controls, motion solutions, you talked about front end investment there. I'm curious what you're seeing in terms of the types of automation architectures. There are changes going there. Is that coming your way in particular, had increasing front end competitiveness, just curious kind of panoramic of that automation space?

Yes. A lot of what we're doing is discrete automation and we've also done some factory automation and we've invested heavily over the past few years. So position our product portfolio and our capability at the top of the market, and we're benefiting from it now because as customers ramp up, our automation technology is helping them better serve their customer bases and the demand has been strong for many quarters. And we don't expect that to change.

Okay. Thank you.

Welcome.

Thank you. And our next question comes from the line of Rob Wertheimer with Melius Research. Your line is open. Please go ahead.

Thanks. Good morning, everybody.

Good morning, Rob.

So I actually also had a question just on the comments on industrial investment in CapEx, etcetera. I'm a little bit curious if you flush it out. Are you hearing the desire to spend coming back from your customers? There may be some technology changes that are encouraging automation, localization and so forth. And I'm just curious if that's kind of where you think things will go based or whether you're hearing it strongly. And then just maybe a comment on breadth of industry, I don't know if that's focused a little bit more on pharma and medical or wide across the businesses, do you have an insight into. Thank you. Bye.

Yes, the first point is I think localization of manufacturing and people developing more durable supply chains is definitely one of the drivers of the demand we're seeing. What was your second question Rob? It was the

Well, so whether technology changes are also doing it and then breadth of portfolio.

Breadth of portfolio, so again, the first part of the question, we're definitely seeing localization drive demand. Those people look for more durable, more local supply chains. What we're really seeing it, if you go through our portfolio, look let's start with our process businesses with our largest business. It grew mid-20s organic during the quarter. Really strong levels demand essentially all MRs, leading to really robust sales and orders. Our growth was particularly strong in one of our instrumentation businesses called our ultra precision technology business that had a great quarter and they're benefiting from a metrology measurement technology related to automation. And you think about the power and industrial business, that business was up 30% organic in the quarter. The businesses that did well there, both segments power and industrial and particularly strong growth in our Brookfield business and our [indiscernible] business. Again, that was broad-based. And the power and industrial business was kind of one of the lagers on orders to pick up. And we were really pleased to see that. And then we talked about our automation and engineer solutions business. They were up low-20s organic and that's been strong for a period of time with a robust and strong demand continuing. So, all of those are strong. Our aerospace and defense business had a really good quarter. The sales were up high teens on a percentage basis versus the prior year. So this is about 19% of our portfolio. Organic sales were up high teens on a percentage basis, a solid growth across all segments. As I mentioned as an answer to Allison's question earlier, our commercial business was up 25% and our defense business was up about 10%. And for all the 21 that business, we're still not changing. We're continuing to expect low-to-mid single digit organic growth. So if I pulled the aerospace and defense business outside of the portfolio, I'd say that's the one that's, it's bottomed and it's doing well. But we're still looking at that commercial OEM business and watching it bottom, but everything else besides that is showing an uptrend.

Great, thank you.

Thanks, Rob.

Thank you. And our next question comes from the line of Joe Giordano with Cowen. Your line is open. Please go ahead.

Hey, guys, good morning.

Good morning, Joe.

Yes. I was interested in the growth investments, the $100 million and you talked about like, two thirds of it going towards like the sales and marketing and digital aspects of your business. Are you seeing kind of coming out of COVID just given like the kind of bespoke nature of your products and like specialized nature of your products? Is there like a fundamental change in how you sell these? Like, is it going to be, you finding it easier to do it digitally and less like in-person and it just kind of like a -- see change in how you do business going forward?

I think there is a change Joe, and I think that digital transformation is impacting all elements of our business, and we have these different niche of businesses, but some of the technology and the sales and marketing functions applies to all of them. So from digital marketing to e-commerce to augmented reality use to a demo and service our products to the efficiency we're getting out of automating routine clerical tasks and remote process improvement. There's a lot of things going into the digital plans that we have, the digital transformation. So we have and they do impact all of our businesses. And it's kind of a theme across all of our independent niches. So we're focused a lot on improving the business in that area. And we did learn a lot during the pandemic downturn and or taking what we learned and we're making it better and we're institutionalizing some of our best practices.

And then, just a follow-up, in your Asia businesses, at least on the margins more recently, have you seen anything that kind of reflects the macro data, at least in China getting a little weaker here? Are you seeing anything like on the margins that that kind of mirror that, are you kind of changing the way you're operating there a little bit to kind of get ahead of that?

Yes, we're not changing anything yet. And we're not seeing a downturn. But China has been very strong, they were one of the first economies out of the pandemic. So we're looking at it closely. And as I mentioned, our growth was up about 27%. It remains strong, and we have strong quotation activity. I've seen all the reports about the Chinese economy slowing down, and there's probably some of that going on. But in our particular niches where we're playing, we have notable strength.

Thanks guys.

Okay, thank you.

Thank you. And our next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Deane.

Hey, just in terms of some of the second-half dynamics, on some of the temporary costs coming back in, as well as higher incentive compensation, what does that do for expectations on incrementals?

Yes, I think the core incrementals for the year are 35%. But in that second-half, we're going to have some costs coming back into the P&L. So the margins during the second-half can be down a bit, that is reflected in our guidance, but the acquisitions are margin dilutive, our temporary costs are coming back into the cost structure. And also, there's a bit of us being cautious in terms of our guide related to the dynamics of the supply chain. And as you may remember, Deane, we had a very tough, very difficult tough comparison in Q4. I think our EBITDA margins were over 30%. So we have tough comp also. So, there's going to be -- there can be a bit of margin dilution in that second-half, we got some of the one-time costs for the acquisitions working through the system. Those temporary costs we talked about are coming back in, but it's all reflected in our guidance.

That's very helpful. And Dave, I think the key question that everyone would love to hear your comments on the supply chain challenges and you said, you expected to last for some period of time, just from what you're seeing today, across your businesses, how do you think this plays out, is this a multiple quarter, is it carry in to 2022, you're handling it well on price costs. But just your expectation here, how long these conditions last?

That's a great question, Deane, I think the semiconductor element of it can last longer, so that can go out to two, three, four quarters as capacity gets put in place. Not specific to semiconductor, but to broader supply chain challenges. Yes, I can see those moderating in a couple of quarters. But semiconductor could last a little bit longer.

And are you carrying any more buffer inventory in your businesses just to kind of protect yourself from the surprises about, you expected the delivery, and it's not there. But is that and are we seeing that in the working capital?

Yes, the working capital was down about more than 500 basis points, but actually embedded in that was about $50 million more in inventory. So, we've allowed the operating teams guide and secure the parts that they need, and we're certainly not scrimping in that area. But at the same time, it's tough. They get the parts that you need. So we're managing it closely and as I said, we have a good team, both within our local business units combined with our corporate oversight, we're getting good results. But that is a big challenge for us right now.

That's all good to hear. Thank you.

Thank you, Deane.

Thank you. And our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hey, good morning, guys. It's Ken Newman on for Steve.

Hey, Ken good to hear you.

Thanks. I just wanted to touch back on the semiconductor market comments you just made. Can you just remind us how big that market is for you today? And I'm curious if you just talk to the outlook for the sub sector in terms of capital investments from your customers?

I'll do that, Ken. But I want to be clear, what I was talking about was the semiconductor chips that are supplied to AMETEK, when I was talking about the supply chain tightness, but the semiconductor market is an important market for AMETEK. So we do participate in it from the viewpoint of sales and it's about 6% of our business. So, little under $300 million and we're seeing some solid growth there because we participate both in the research market and the ramp in chip production and application areas we're seeing particular strength would be the EUV optics market, the semiconductor research market, our businesses named CAMECA and ZYGO are doing quite well there and we expect our semiconductor sales to be up in the mid-teen 20% level this year.

Understood. And then, just touching back on the incremental R&D investments for new product development for the year, can you give us some color on where your Vitality Index has trended through the quarter? And I'm just curious if you have any thoughts on how are you seeing that, how you see that the Vitality Index change, as these new investments start to monetize?

Yes, our Vitality Index in the quarter was a little better than 23%. So it was a good number. And we have to get our system put in place with some of these acquisitions that we've done. So there's the tracking systems that we put in place aren't in all the acquisitions yet. So we can't look at those businesses the same way, we look at our current businesses, but in general, we have a strong vitality, we have a number of in the low 20s, we're happy. And we think there's good opportunities for our businesses, and we're funding them and it's a big area for us is important for us as they get our product development teams, working together, introducing new products, because that's fundamental for both the AMETEK pricing story to be able to stay in front of inflation and also growing organic growth in the niche markets that we're leaders in. So it's really important to us.

Thanks for the color.

Thank you, Ken.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Kevin Coleman for any further remarks.

Thank you, Michelle. Thank you everyone for joining our call today. Have a wonderful day.

This concludes today's conference call. Thank you for participating. You may now disconnect.