IDEX Corporation (IEX) Q3 2026 Earnings Call Transcript

Operator: Hello, everyone. Thank you for joining us. And welcome to the IDEXX Corporation Third Quarter 26 Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to James Giannakouros, Vice President of Investor Relations. Jim, please go ahead.

James Giannakouros: Good morning, everyone, and welcome to IDEX Third Quarter 26 Earnings Conference Call. We released our third quarter financial results earlier this morning. And you can find both our press release and earnings call slide presentation in the Investors section of our website. idexx.com. On the call with me today are Eric D. Ashleman, President and Chief Executive Officer of IDEXX and Sean Gillen, our chief financial officer. Today's call will begin with Eric providing highlights of our third quarter results and an update on our business outlook and strategies. Then Sean will discuss additional financial details and our updated outlook for 2026. Following our prepared remarks, we will open the line for questions. But before we begin, please refer to Slide 2 of our presentation where we note that comments today include forward looking statements based on current expectations. Actual results could differ materially from these statements, due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. As IDEXX provides non GAAP financial information, we have provided reconciliations between GAAP and non GAAP measures in our press release and in the appendix of our presentation materials. Which are available on our website. With that, I will turn the call over to Eric.

Eric D. Ashleman: Thanks, Jim. Good morning, everyone, and thank you for joining us today. I am on slide 3. IDEXX delivered another strong quarter with Q3 results ahead of our expectations on sales, margins, and earnings. James and adjusted EPS were both records. Organic sales grew 8%, Adjusted EBITDA margin expanded 50 basis points year over year to 27%, and adjusted EPS grew 15% to $2.33. Year to date, organic sales are up 6%, adjusted EBITDA margin is up 50 basis points, and adjusted EPS is up 14%. These results are consistent with our long term growth expectations and reflect deliberate choices to build integrated growth platforms and tune our capabilities toward advantaged markets guided by 20. In addition to the strong sales and earnings performance, Orders were again a highlight in the quarter. growing 13% year over year, reaching nearly $1 billion. We saw organic order growth in all 3 segments with continued strong growth in HST and broadening growth across our industrial businesses in FMT. We are raising our full year 2026 outlook due to the strong Q3 results and are expecting to close out the year with momentum. Sean will get into greater detail on our results and guidance later in the call. Before turning it over to him, I would like to provide an update on our performance in certain advantage markets. Please turn to slide 4. As discussed on previous calls, data centers, semiconductor, space and defense, and water continue to lead the way for growth at IDEXX. The order and sales numbers inflected noticeably in 2026, this is a story that is been building for a few years, confirming the original strategic thesis powering so much of our post pandemic capital deployment. Thoughtful eightytwenty is shaping both growth and profitability as we apply it along the way. We will touch a bit more on that in the next slide. In data centers, our teams win by solving increasingly more difficult technical problems as the industry scales. Primary solutions include thermal management technologies for clean, behind the meter power generation and solutions that improve reliability of liquid cooling systems. We expect demand in this space to remain healthy. Semiconductor, we are seeing strong demand across several applications including filtration, sealing, optics, and thermal management solutions that sit inside process tools and metrology equipment. Roughly half of our semiconductor business is tied to consumables that provide a more recurring revenue stream. And in FMT, we sell high purity pumps and heaters that support ultra pure water applications and wafer fabrication. In space and defense, our optics help satellites transmit, receive, and filter signals across low Earth orbit. We are helping set critical specifications in these growing markets, And once established, these specifications can support revenue streams for decades. We are also seeing growth in optical solutions supporting next generation defense applications. Space launch and lift capacity is reaching an inflection point, supporting even more robust growth in the years to come, and Matt is solving problems to help make that possible through bespoke filtration solutions. They are also involved in a number of development projects within defense applications that are moving at speeds not previously seen within those markets. Finally, in our FSDP segment, BAND-it is engineered clamping products are growing strongly across commercial aerospace, defense, and spacecraft platforms. Our intelligent water platform within our FMT segment can continues to grow nicely and profitably, up high single digits in the third quarter. Last month at WEFTEC, North America's largest annual water show, we hosted investor and showcased how we have brought together leading positions in flow monitoring, robotic pipe inspection, AI enabled software, and rehab tools. All connected through iDx, our cloud based platform. Our ultimate product here is analytics and information. We help municipalities diagnose their problems before they commit capital to fix them. Please turn to slide 5. I want to spend a moment on an underappreciated driver of our growth within integrated platforms. Which we have deployed within the fast growing advantage markets I covered on the last slide. Our ability to tune our solutions laterally and quickly to faster growing verticals is a distinct competitive advantage that is unique to IDEXX. First, we take advantage of our fundamental component orientation to deliver powerful solutions at relatively low levels of total systems cost. This has always powered our superior profitability and cash generation, and our ability to command price ahead of cost while opening doors to top customer technical talent. Next, we have connected teams carefully within integrated-- Platforms where a tight band of technical capabilities aligns with specific targeted advantage markets. We apply our proprietary eightytwenty playbook across this matrix to pinpoint areas where resources should be augmented or reduced. Finally, we lean on our entrepreneurial culture, flat organizational structure, and celebration of local decision making autonomy to fuel agility and speed as we dynamically shift resources and capital to best optimize growth and value across the platform. I would like to take you through 3 examples of this important competitive advantage so you can best appreciate its impact on current performance. At Mott, our command of porous metal filtration has long served both legacy and transformational energy markets. Those same basic technical capabilities solve atomic level purity challenges in semiconductor manufacturing. This market has experienced significant growth, our teams have swung resources and incremental capital quickly to meet customer requirements. All within the same 4 walls in Connecticut. At MUON, our electroforming expertise, which has long been deployed in critical care respiratory applications, now enables fast, accurate fiber alignment for optical circuit switching in data centers. The component level technology and process methodology are the foundation with our best in class engineers applying their know how to tune them to a new application. The team saw the opportunity made the commitment to an identified eighties market, dedicated talent and capacity, and aligned incentives to make it happen. Great win for IDEXX. Finally, Muon's laser etching of glass and ceramics has been reengineered to produce precision RF antennas for space applications. This came about from a customer access point elsewhere within the platform. It simply would not have happened without the cross business communication that we formalized within our Material Science Solutions platform. This tunability, which clearly helps us grow faster, also helps us optimize profitability as we do it. Recall that we lifted the muon business to HST's average segment margin level in Q3 last year. This year, the business has grown 20% organically year to date driven by strength in our eighties markets, and margins have advanced further. At Mott, we shifted resources towards fast growing and highly profitable areas within semiconductor and space and defense, we are enjoying growth rates above the segment average in those 80 markets and have driven meaningful improvement in margin. We still have a few larger calls to execute on some legacy business that will set us up well for 2027 and beyond. Why does tunability ultimately matter? It allows us to respond quickly to unpredictable shifts in today's most dynamic markets, while also supporting margin expansion in a dimension that is additive to basic growth leverage. Please turn to slide 6. Switching gears, I would also like to highlight the overall FMT segment for a moment. Coming into 2026, we plan for a relatively flat revenue year in the segment. Orders and sales have tracked ahead of that plan all year, and organic sales growth stepped up to 4% in the third quarter. This performance goes beyond the dynamics in water that I just discussed. We are seeing a broadening of demand in our industrial businesses and stabilization with indicators of future growth in areas like ag and energy. Lastly, I wanna touch on inflation. It has proven stubborn, and elevated energy prices continue to push input costs higher but the IDEXX model is built to handle this. Components perform mission critical functions at a small share of our customers' total system cost, so we can price for the value we deliver. We do that in a measured way as conditions warrant. Rather than in large calendar driven steps. Combined with continuous improvement in the benefits of eightytwenty, that enables us to manage effectively through inflationary environments. Price cost was positive on a dollar basis again this quarter, and our teams expanded margins while absorbing higher costs. With that, I will turn it over to Sean to walk through the quarter in more detail including segment performance and our updated outlook.

Sean Gillen: Thanks, Eric. Good morning, everyone. I will first add some detail on the consolidated results Eric covered. I am on slide 7. Third quarter results exceeded our guidance on every key measure. Organic revenue grew 8%, above our 5% to 7% range, with notable strength again in HST and solid contribution from FMT and FSDP. Adjusted EBITDA margin of 27.8% was above our 27% to 27.5% range and adjusted EPS of $2.33 was above our $2.20 to $2.25 range. Orders totaled nearly $1 billion, up 13% organically with growth in all 3 segments. HST orders grew 21% and FMT orders grew 11%. Book to bill remained north of 1 times in the quarter. As expected, orders stepped down sequentially from a very strong second quarter primarily due to timing in data center order activity, but was still up significantly year over year. Order activity remained strong in areas influenced by artificial intelligence as well as continued strength in municipal water, mining, space and defense, and commercial aerospace. Organic sales grew 8% with HST up 13%, FMT up 4%, and FSDP up 6%. Growth was driven primarily by volume with a positive price contribution. Price cost remained positive on a dollar basis with targeted pricing and productivity keeping us ahead of inflation, and we expect that to continue. Adjusted gross margin expanded 70 basis points to 45.2%, driven mostly by volume leverage and productivity. Adjusted EBITDA margin expanded 50 basis points to 27.8%. Free cash flow was $214 million up 14%, representing 124% conversion. We ended the quarter with liquidity of over $1.2 billion Now some color by segment. I am on slide 8. In HST, organic orders grew 21% to $468 million, a third quarter record organic sales grew 13%. Volumes increased in our advantaged markets, including semiconductor OE and consumables, data center applications, and space and defense. Nearly all of this growth is coming from businesses we acquired over the past several years and in areas where we focused our integrated growth strategies. That momentum continues to build visibility into 2027. Our life sciences business trended in line with our expectations. Overall, growth was flat with base analytical instrument demand growing mid single digits, which was partially offset by the expected roll off of the legacy platform. Which we expect to largely lap by year end. HST adjusted EBITDA margin expanded 110 points to 28.8%, driven mostly by volume leverage. Flow through was in the high 30s, in line with expectations, and eightytwenty work in our highest yielding areas is underway. Mott, the largest acquisition in IDEXX's history, contributed positively on strong mix and early traction on continuous improvement work the teams are executing. Please turn to slide 9. In FMT, organic orders grew 11% to $349 million, a third quarter record, and organic sales grew 4%. Order strength reflects continued momentum in longer lead time areas, as well as in our base industrial businesses. Additionally, we saw some improvement in order activity in energy and agriculture compared to last year's quarter. James growth was led by semiconductor and municipal water, as well as year over year growth at our leading industrial pumps businesses. We continue to see year over year declines in chemical valves and agriculture, but have seen sequential improvement in each. FMT adjusted EBITDA margin expanded 20 basis points to 33.9% as productivity and volume leverage more than offset some headwinds in mix. Turn to slide 10. In FSDP, organic sales grew 6%. All 3 businesses in FSDP grew in the third quarter. Bandit led this growth as it continues to benefit from strong aerospace demand. As expected, dispensing returned to growth in the quarter as its comparisons are easier in the second half. FSDP adjusted EBITDA margin expanded 140 basis points to 28.5% driven by productivity, volume leverage and mix. Please turn to slide 11, where I will touch on capital deployment. Gross leverage improved to 1.8 times from 2.1 times a year ago on strong cash flow and earnings growth. We continue to invest in our business with CapEx up from last year to support growth. We also returned capital to shareholders paying $54 million in dividends and repurchasing $75 million of shares in the quarter. We plan to maintain repurchases at around $75 million per quarter through the rest of 2026, and we can flex above that based on leverage, bolt-on M&A and eightytwenty led portfolio decisions. Our M and A pipeline remains active focused on bolt ons that attach to our growth platforms. Now to our updated guidance for 2026. Please turn to slide 12. We are raising our full year outlook to reflect our third quarter outperformance and continued momentum we are seeing in several areas. We now expect organic growth of 6.5% to 6.8%, up from 5% to 6%. We are tightening our adjusted EBITDA margin expectation for the full year to 27.1% to 27.3%. And we are raising adjusted EPS by $0.16 at the midpoint to $8.91 to $8.96 up from $8.70 to $8.85 At the midpoint, this represents double digit growth year over year. A couple of fourth quarter specific notes. Consistent with prior years, we expect fourth quarter margins to step down sequentially. This is largely driven by fewer production days and planned maintenance shutdowns that result in lower sales and margin. We saw the same pattern last year. Below the line, lower debt balances and higher interest income provide a modest tailwind. Our outlook reflects the visibility we have in our advantage markets and stable to improving short cycle industrial demand. We continue to expect CapEx of approximately $110 million and free cash flow conversion of at least 100% for the full year. Looking further out, we continue to view high-30s to 40% incrementals net of reinvestment as the right framework for IDEXX. FMT has long shown it drives those levels of positive volumes, HST is there this year through volume leverage and eightytwenty in our acquired businesses. We will, of course, get into more granular details when we share our 2027 outlook on the fourth quarter call. With that, I will turn the call back over to Eric.

Eric D. Ashleman: Thanks, Sean. I am on slide 13. Stepping back, what I am most pleased with this quarter is not any single number. it is the compounding effect of our everyday execution and the reshaping of our portfolio. The businesses we have acquired in advantaged markets have shaped our deployment of integrated platforms that are leading the way for growth. Now with the margin profile, we expect at IDEXX. Our premier industrial businesses are lean and well positioned. As demand improves, they will do what they have always done, expand margins and generate strong cash flow on incremental volume. This is the algorithm we want our portfolio to deliver. HST growing high single digits through a cycle and our industrial businesses outgrowing their markets. With that growth, we expect high 30s to 40% incremental margins resulting in sustainable double digit earnings growth. Capital allocation is a key part of that algorithm. Our strong cash flow funds investment in our businesses and acquisitions in advantaged areas to extend our growth platforms. Alongside that, we will continue to return capital to shareholders through our dividend and share repurchases. Deployed with discipline, that capital builds on the earnings growth our businesses generate on their own. Our strategy is working, and there is significant runway ahead. I want to close by recognizing our teams across IDEXX, whose focus and discipline continue to turn our strategy into results. To participants on the call, we appreciate your continued interest in IDEXX and I will now turn the call back to the operator for your questions.

Operator: We will now begin the question and answer session. Please limit yourself to 1 question and 1 follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Halloran with Baird. Mike, your line is open. Please go ahead.

Michael Halloran: Hey. Thank you. Good morning, everyone. Morning, Mike. So a couple questions. Eric, maybe just spend a little time talking about that broadening of growth comment. What are the great indicators of growth that you are seeing Where are you seeing the broadening most specifically? And then in those areas that are still down over year in stabilizing, maybe just touch on what you are seeing there. there is actually signs of improvement, or we are just at the point where we bottomed out enough to talk about a sustainable floor that you can build off over time.

Eric D. Ashleman: Yeah. Well, you know, we have seen we have seen nice little step ups in the in the broader kind of small volume order rates. Throughout the year. You might recall we noted some that we would seen in June as we ended Q2. Saw that continue into July. Kind of saw the same phenomenon in September, with continuation in October. So just nice step up. As we talked about those diagnostic businesses for us, when they move together it generally tells us something. You know, it tells us that there is there is a driver out there, so we have seen that as well. These are modest rates, but they are nice incremental step ups. And best reflected in kind of the daily order requirements. A lot of them coming from distributors and people like that. To the second part of your question, you know, we have kind of pointed to 3 fatigued areas for us. Chemicals, ag, and energy. And I would say 2 of the 3, we are seeing-- we kind of stage orders now, ahead of next year's planning season. some indicators pointing to better days ahead. Ag, it is been a certainly a tough cycle there, but we do a lot of preseason ordering, you know, because of the seasonality of that business. And that is improved for us this year. Again, it is kind of a modest number, but it is been a while since we have seen it. We think it is being driven by some of the commentary we have heard out of the industry, lower dealer inventories for heavy equipment, better crop pricing in certain areas. Still a lot of challenges for farmers but we do see some signs of life there. And I would say energy is the other 1. You know, we have we have got some terminal automation business we have not had in a while. there is some things we are doing in pipeline work with our FMD business. Still a lot of uncertainty around it. But again, indicators pointing to better days there. Chemicals is probably the 1 area I would say continues to be very fatigued. Think, largely because of the dependence on input pricing at an elevated level.

Michael Halloran: that is great. that is helpful. And then and then maybe just on the M&A side of things, you know, I know there is been a little less activity for you lately, somewhat intentional, but you know, you are below the-- kind of that 2% gross leverage levels Any change in the thought process on how aggressive you want to be particularly because a lot of the acquisitions you have done over the last 3, 5 years have really proven out to be beneficial. And, also, maybe just some thoughts on the pipeline and what you are seeing out there.

Eric D. Ashleman: Well, we are certainly aggressive in the activity level. You know, recall, kind of our model is to have a lot of proprietary conversations with folks that may not think that the time is the, you know, time is good to sell, but we try to convince them otherwise. We are doing a lot of that work around those recently acquired businesses. So in some cases, we are me meeting people for the first time. So those conversations are happening aggressively and in earnest. And, you know, I mentioned the tunability factor and how that drives our business. That. that is the kind of stuff we are looking for. You know, other technologies, other capabilities, other access points that allow us to do even more of that. So lots of work happening there, but the nature of proprietary discussions like that they can take a little longer. And so activity level really, really high. I would say, you know, from kind of a. On a larger front, we are always thinking about other capabilities or things we might wanna bring into IDEXX in a-- you know, in a larger way. Quite honestly there, the pricing and the valuation levels are still pretty robust and maybe not necessarily as reflective as they should be. Given some of the factors that are still out there in the macro environment. We are gonna be disciplined and careful, but still doing the work. Great. Really appreciate it, Eric. Helpful as always. Thank you. Thanks, Mike.

Operator: Your next question comes from the line of Bryan Blair with Oppenheimer. Bryan, your line is open. Please go ahead.

Bryan Blair: Thank you. Good morning, everyone.

Eric D. Ashleman: Hi, Bryan.

Bryan Blair: I would like to drill down on HST Momentum and near term outlook a bit, We know you know, quarterly orders are going to be volatile. But if we look at the last 4 quarters, you know, high 480s average, You know, that. that is quite robust. You are obviously below that. Albeit narrowing the gap in terms of revenue trajectory? Based on current visibility inclusive of you know, project timeline and the phasing, is it fair to expect HST to get to that kind of revenue level the average of trailing orders by the early part of 2027, or is that visibility not quite there?

Eric D. Ashleman: Yeah. Well, it is a good question. I think maybe I will step back a little bit and just talk about order flow generally at IDEXX and then get quickly to where you are at HST. I mean, in all of our segments, still the vast majority of the orders we bring in are kinda like they have always been. You know, we have quick lead time as we, you know, offer rapid replenishment, and people do not have to order a lot of things ahead of time. that is still the case in all 3 segments. it is changed most notably in HST around the, you know, the 3 areas that we talked about on the slide. And, really, in that bucket, only the data center piece has kind of gotten this phenomenon of large pieces that come in kind of an unpredictable way. We saw that a couple of times here. We have got more than enough backlog there know, to kinda run that out. Think for the. From an operating perspective at ground level, you know, we are more focused on the conversations that we are having every day, every week about you know, requirements in the next quarter, that we are gonna probably have to do next year. I would say data centers in particular, Honestly, the order streams as they come in large tranches, they are pretty unpredictable. I think a lot of those are calibrated for their supply chains at large. They are often not pinged because of our componentry. And so look, I think for us moving up sequentially, continue to grow the business, continue to supply against that backlog is the key. And I think like, we are we are well. We are ahead of schedule in terms of setting up HST overall at kind of a high single digit rate, which we described as our algorithmic targets here. I think that will continue for a while as we do close that gap. But I think you were right to note that the data center piece in particular is gonna be a little lumpy, a little unpredictable, But at the moment, we are very assured in terms of what we have and what we need for continued growth.

Bryan Blair: Understood. Very helpful color. And you mentioned WEFTEC and the launch of Paraspec for the intelligent water platform. Maybe speak to you know, trends for Intelligent Water in general it seems like high single digit growth has sustained. And maybe offer a little bit more on the value prop of iDx. We saw that in person and met with your team. We were we were impressed overall.

Eric D. Ashleman: Yeah. Well, well, a couple of things. When we when we look at the reportable water group for our business, we always have to remind people there is a municipal water dimension that is there. there is also a high purity business that. that is associated with that is very, very tied to the semi world. Both are growing well. The semi world in particular is strong. I imagine that your comments are kind of moving towards the municipal side, and I remind people of the work that we do there. it is essentially dirty water overflow mitigation, stormwater runoff, things like that. So we provide that visibility into the system when it does not perform the way it is supposed to. And then as I said in my prepared remarks, our product is essentially analytics. cities want it to, we kind of hype-- we help them isolate as to what is wrong, Whether or not they choose to spend capital is a separate decision that we do not really participate in, but we give them the viewpoint to see it. under 1 common software platform What iDx does is it takes the different businesses that we have had for years and here recently acquired and essentially brings them together. 1 of the most difficult jobs for a for a municipality to do is to do its own rationalization of all those inputs. And then use it to drive their own analytic understanding. it is hard enough with any 1 data feed, but to do it on their own disparate systems is very, very difficult. So, again, this is a specialized area. It does not cover everything they do, within the water sphere. But in our world, it does. It comprehensively brings it together and gives that sort of diagnostic answer in a simple, easy to understand way. that is very, very useful for them. Again, helpful. Thank you.

Operator: Your next question comes from the line of Jeff Sprague with Vertical Research. Jeff, your line is open. Please go ahead.

Analyst: Hey. Thank you. Good morning, everyone. Hey. Hey. Good morning.

Eric D. Ashleman: Eric, something you mentioned just kinda piqued my interest here. You know, this idea of you know, kinda tuning the portfolio. I mean, it you know, it sounds like you are discovering sort of maybe adjacencies you did not even know were adjacencies as you worked through this process, and maybe it is opening the aperture further on know, on sort of, you know, kind of bolt on opportunities relative to where you play. Like, do you see a-- you know, like, a significant increase in your TAM unfolding as you work through this you know, kind of, you know, platforming internally and the tuning of the portfolio and just the opening up of these adjacencies. Yeah. Well, it is a it is a great question. it is kind of why we highlighted this particular point. it is a little nuanced, and we want to make sure people understand it. These intersections points where you take just think of it as an x y grid. You have capabilities on the 1 side. that is the things that we can do technically. Then you have spaces on the other you are really trying to mine those intersection points. What this tuning ability gives us is it does absolutely elevate the potential TAM of things to do there. And all the examples that I walked through if we have gone back 3 to 5 years, I mean, they really were not things we were thinking about. Either because of customer access points or because we were working with current customers and solving different problems with an existing component based technology, we are actually able to make that step. The reason I put culture in there is an important attribute we are kind of leaning on what we have always done, know, which. it is largely still a decentralized place where when leaders see that opportunity, they can go capitalize on it fast without a bunch of bureaucratic overreach from our side. And so all of those ingredients I think, are super, super important. And, into the growth path for us as a company and exactly the way that you just referenced. It does give us a lot more opportunities, but also linking it back to the M and A side gives us a lot more things to consider in terms of assets we might want to acquire to make that better. Great. Thank you for that. And then just back around the life sciences, if we could. So we are about to be done lapping the headwinds here in Q4. Is there anything just on the horizon product cycle-wise where you know, we have got some visibility of just kind of a know, better growth trajectory as we look into 2027 or into 2028. I mean, it. it is hard to answer with any 1 specific piece. You know, we. We have got very broad coverage there with kind of all the major suppliers of devices and instrumentation in that world. So all I can say is I kind of look overall at the level of innovation whenever we go to the businesses, we take a look at what is in the labs, where are we, what part of the process, how close to launch are we. that is been really, really healthy. For well over a year. And so I would not point to any 1 thing other than to say we feel very good about that space. That sector, and the innovation stream that we can see going on in our businesses each 1 of the major, customers that we partner with. Great. Thank you for the color.

Operator: Your next question comes from the line of Joe Giordano with TD Cowen. Joe, your line is open. Please go ahead.

Joseph Giordano: Hey, guys. How are you doing? Good morning, Joe. We are hearing, like, a lot more now. About the next, like, kind of wave of AI being in terms of, like, diagnostics and life science and things like that. it is clearly, like, impacting the story around some of your customers and the stock price around some of your customers? I am just curious is like when you think about trends like that, and try to marry that with conditions on the ground, You know, your customers sound better on volumes. and, like, the market getting better. But how do you kind of connect what you are actually seeing on the ground near term kind of visibility with some of these higher-level, like, overarching themes that may have, like, you know, pretty material impact on, on those markets over time?

Eric D. Ashleman: That was certainly the subject you are talking about. I think it is particularly exciting for this sector. You know, it is going to impact it is gonna impact innovation in a whole bunch of ways. I think the probably-- the 1 that comes to mind for our teams is speed. And so being able to do things and crunch data and interpret results in a way that used to depend on a human interpretation and that. and was paced in that way. Obviously, you can think of that much differently now. And in that world in particular, speed of analysis, speed of decision making, speed of regulatory, all of those things have been big inputs into the current pacing and the historic pacing. I think probably in that 1 aspect, the opportunity to move faster probably the most exciting piece. Now is that a direct 1-for-1 correspondence to, you know, feeling better in the industry today, it is probably in there in an indirect way, but I think generally what we are seeing in terms of optimism is just we are further and further away from the pandemic. Even the institutional pressures were lapping at this point, and they are slightly better than they were. And the innovation that was kind of teed up as we came out of pandemic is now starting to reach market introduction stages. So I think all of those things together are the current ingredients, but, boy, I am I am, like, probably where you are. I think the potential for AI and what it can do in this space is very exciting.

Joseph Giordano: And just. And forgive me if you touched on this before in the beginning of the prepared remarks. I had to join a couple minutes late. But the, you know, the data center semiconductor space elements of HST, know, obviously, pacing growth there have you been able to parse out, like, the split of what is driving this year then as you think into next year, does that does the aggregate really change a whole lot, and does the like, the composition of that growth change within those 3?

Sean Gillen: Yeah. So as you mentioned, we and we did touch on it in the prepared remarks, you know, a lot of the growth, particularly in HST, continues to come from those advantage areas, data center, semiconductor, and space and defense. You know? And in those in aggregate, they are now over a third of the portfolio. And really driving a lot of the growth in the HST segment in particular. You know, overall, probably around, you know, kind of year to date 50% type growth year over year in those areas. And I think as you look into next year, a lot of those trends are durable, like we talked about. 1, the trends are durable. 2, you know, we have the orders and backlog, that help with the visibility. Yeah. We will start to get into, you know, tougher comps year over year as we move into that. I think all the things that are driving growth there continue to be additive as we look into 2027. Thanks, guys. Thank you.

Operator: Your next question comes from the line of Nathan Jones with Stifel. Nathan, your line is open. Please go ahead.

Nathan Jones: Good morning, everyone. Hey, Nathan. Maybe just to maybe just follow-up on that. You know, you talked about 50% growth in the advantaged areas contributing most of the HST growth. Maybe we could talk about the other pieces of HST that are maybe not contributing to growth at the moment. And yeah, how you are feeling about the prospects for those areas to start contributing to growth in 2.73 thousand?

Sean Gillen: Yeah. Yeah. I think the biggest piece there of kind of the you know, other parts of HST outside of those advantage 3 areas would be would be life sciences. We just talked about, which we do still consider an advantage area. And for all the reasons that, you know, Eric touched on, expect growth to continue to return there. You know, for us specifically, starting to see that other than this 1 program that is sunsetting. And I think all the characteristics and demand attributes as we look into next year, are positive. So you think about kind of the HST portfolio overall, you know, that is 1 that is been a drag for a few years now, kind of even today. And as you look into next year, you know, should be additive to the growth. that is kind of the single biggest other piece of HST. About a third of the portfolio is life sciences. You have more than a third from the advantage 3. Life sciences being another third. And the balance of it starts to be some of the more kind of industrial leaning type products, whether it is in our ceiling solutions business or in the gas part of performance pneumatics. Some of those, I think, continue to just perform in line with overall activity, and that will probably be the case as we look into next year as well.

Nathan Jones: Well, I guess I will ask a question on incremental margins. IDEXX has historically been a business that the higher the growth goes, the higher the incremental margins go. As you are saying, you know, this really strong growth in HST and improving growth in FMT, should we expect to see the incremental margins get a little bit better as the growth gets a little bit better?

Sean Gillen: Yeah. I think overall, you know, that is fair. And I think in a way, that is what you saw in Q3. Because you started to see volume growth in the FMT and FST portions of the business as well, you know, in flow through there was quite strong in the quarter. As we talked about, kind of that high the whole company, that high thirties to 40% flow through range is still the right ZIP code, and that is with HST in the high thirties, FMT kind of 40% plus or minus depending on where the volume's coming from. And FSDP somewhere in between the 2. You will have a little bit of kind of from a consolidated standpoint, a bit of a headwind, from the corporate line, you know, year over year that eats into consolidated flow through. But those are the pieces I think about in terms of overall flow through, which I think Q3 was a good proxy for as well.

Eric D. Ashleman: And then, Nathan, you know, as you think of those numbers, they are inclusive of, you know, probably an environment we are heading into where we are gonna put some growth investments on the board. We have largely now for a few years, kind of frankly, lived off of 8.02 thousand and moving resources left and right largely. You know? But we have now got some sectors of the business that are growing and growing really strong, and we could-- we need to put some talent in there to make sure we can keep it going. But the what Sean referenced is inclusive of that work that is still to come. Great. Thanks for taking the questions. You bet.

Operator: Your next question comes from the line of Vladimir Bystricky with Citigroup. Vladimir, your line is open. Please go ahead.

Vladimir Bystricky: Hey. Good morning, guys, and thanks for taking my call. Or my question, I should say. Appreciate all the color. Maybe just 1 sort of more detailed question. Just if I think about your comments around inflation and some of the pricing actions you have taken to offset that. Can you quantify how much of a tailwind pricing is to top line in 2026? And how you are thinking about that evolving in 2027?

Sean Gillen: Yeah. I can touch on that. You know, pricing, for 2026 is around 2% of overall top line. You know, that is what it was in Q3. You know, Q2 had some noise with the IEPA tariffs, but if you strip that out, you are around in the 2% zip code. I think overall, that continues to be the right place for us to think about pricing overall for the company. You know, tend to be a little bit heavier in the more established markets. Like FMT and FSDP. They are a little bit lighter in the higher growth, higher innovation portions of HST. But we continue to look to price in excess of cost You know, the IDEXX businesses are set up well. Air talked about the pricing dynamic across the businesses that we have. I think it is set up well for us to continue to price in excess of cost. We have obviously been in a kind of unusually inflationary environment for the past couple years, both with tariffs as well as just overall inflation. Particularly on some commodities that we see. Who knows what will happen there? But I think continue to expect that we will price in excess of cost. And keep our margins intact.

Vladimir Bystricky: Got it. that is really helpful, Sean. Appreciate that. And I guess then, you know, just stepping back, given the momentum you are seeing in advantaged markets, given the order strength you have had and then some of the broadening into industrial as we start to think about puts and takes into 2027, are there any sort of emerging headwinds or negatives that we should be thinking about that could potentially offset this positive momentum that we are seeing build through 2026?

Eric D. Ashleman: I mean, there is, you know, nothing really on the board that. that is pinging for us in the near term that we are worried about. I mean, probably like everyone else, as we look at some of the most aggressively growing markets, data center probably being at the top of the list. We are always keeping an eye on kind of overall aggregate capacity of the system. Remember, we are we are putting a small component into a pretty complex ecosystem. So far, there is some noise out there. Clearly in pockets. None of it caused by us, and none of it really disruptive to us. But, you know, looking at that as a governor of ultimate rates of expansion, I think that is something you always have to keep an eye on. Probably have to do it as in -- As well in some of the areas that are growing and those advantage spaces for us for different inputs. But again, we pride ourselves on. With our own uptick in capital, we are not gonna be the cause of any of that. And, again, at present, do not really see anything that would distort it. Those would probably be the items that would be at the top of our list to just keep an eye on. As well as the usual things around environmental, you know, macroeconomics. Understood. Appreciate it. Thanks, Eric.

Operator: As a reminder, if you would like to ask a question, please press star 1 to raise your hand. Your next question comes from the line of Daniel DiCicco with Bank of Montreal Capital Markets. Daniel, your line is open. Please go ahead.

Daniel DiCicco: Great. Thank you for taking my question. Maybe just a little bit bigger picture, which business or end market has exceeded your expectations the most this year? And then as we look to 2027, you know, where do you feel like visibility has improved the most? As well? Thanks.

Eric D. Ashleman: Well, it is an interesting question. you know, I think our teams within Material Science Solutions would probably say the work that they are doing there has been particularly impressive. You know? that is where we-- we have got the 2 large businesses that we acquired are pretty near that. That universe. there is newer applications in there that we are just meeting for the first time in the speed that they have moved on those and made progress. Teams at Muon right next to them, the teams at Mott, as I referenced in my comments earlier, I am pretty particularly impressed with our output there and what is happening. In terms of the second part of your question, look, I think again, we are kind of-- focused in the in the way that I described in the beginning. We are those advantaged markets are sort of leading the way. that is where a lot of our time and attention is being spent. We will keep an eye on those as we go. And we are we are excited about the broadening industrial side of this too. it is been a while since we have been able to flex some growth muscles and get the leverage levels that we have talked about here, and that is a really important part of IDEXX as well. So it is all interesting, fascinating for us, and doing very, very well. Great. that is it for me. Thank you.

Operator: We have reached the end of our Q&A session. I will now turn the call back to Eric D. Ashleman, chief executive officer, for closing remarks.

Eric D. Ashleman: Thank you, and thanks for joining the call today, everyone. I have just 4 key messages to sum up, our time together. You know, 2026, I think, has really been a validation of our strategic thesis. That drove the acquisition strategy over the last 5 years. I mean, we are really, really happy with the performance of the businesses we acquired. Number 2, we continue to see durability and strength in those advantage markets we covered today. Our teams are innovating with customers every day, and as we talked about when we referenced tunability, we wanna extend our reach and impact. Within those demand streams. I am confident we will. Very encouraged by the broadening of demand in industrial businesses as I just talked about. We have seen small steps each quarter, some positive indicators pointing to better days ahead and those businesses perform so well when they are growing in that way. And then finally, you know, our teams are executing in a great way. that is a expected, of course, but I never take it for granted. I wanna thank them again. Thanks for all your time with us today. I look forward to talking about where we are going in future calls. Have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.