Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to the IDEX Corporation Second Quarter 2026 Earnings Conference Call. I will now hand the conference over to Jim Giannakouros, VP Investor Relations. Jim, please go ahead.
Good morning, everyone, and welcome to IDEX's Second Quarter 2026 Earnings Conference Call. We released our second 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, idexcorp.com. On the call with me today are Eric Ashleman, President and Chief Executive Officer of IDEX; and Sean Gillen, our Chief Financial Officer. Today's call will begin with Eric providing highlights of our second 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 will 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 IDEX provides non-GAAP financial information, we 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.
Thanks, Jim. Good morning, everyone, and thank you for joining us today. I'm on Slide 3. Continuing the momentum established coming into the year and in the first quarter, IDEX delivered strong second quarter results. Organic sales grew 5%, adjusted EBITDA margin expanded 70 basis points year-over-year to 28.1%, and adjusted EPS grew 12% to $2.32. These results exceeded our expectations, driven most significantly by higher volumes from our growth platforms supported by outstanding operational execution. Our results this quarter were modestly impacted by IEEPA tariff refunds, which reduced organic growth a bit and provided slight favorability to margins and earnings. Sean will walk through those details later in the call. In addition to the strong sales and earnings performance, orders came in better than expected, growing 28% organically for IDEX overall. We experienced double-digit year-over-year order growth across all three segments with our Health & Science Technologies segment, or HST, once again leading the way with organic order growth of 47%. Please turn to Slide 4 to provide some additional context on key drivers. The HST order growth is predominantly coming from growing demand in three areas: data center, semiconductor and space and defense markets. Year-to-date, these application sets collectively have grown to represent over one-third of HST revenue. Our Performance Pneumatics group continues to win as we support primary and standby power generation applications currently fueled by rapid data center build-outs as well as liquid cooling flow control solutions that deploy within the data center infrastructure. Within semiconductor, our material science expertise helps us engineer high-purity gas filtration, sealing, optical detection and thermal management solutions that support process tools, inspection systems, metrology equipment and many other applications. Our critical components in this area follow the classic IDEX business formula. We provide maximum solutions impact as a small percentage of overall systems cost while retaining flexibility to move laterally across markets to exploit the widest set of commercial opportunities. Additionally, with the rapid growth of Mott's filtration business, we now have approximately 50% recurring revenues within HST's semicon portfolio. Finally, in space and defense, we provide highly engineered components that support demanding applications in these rapidly growing end markets. The pace of collaborative innovation within this sector is amazing as our teams race to set foundational specification points that define how an emerging technical job will be done today and in the future. Claiming this territory for IDEX launches strong annuity streams to fuel customer beneficial investments and shareholder value creation for decades to come. Within the Fluid & Metering Technologies segment, or FMT, we saw double-digit growth from our water platform. IDEX Intelligent Water provides critical insights for municipal wastewater management, delivering analytics with speed, precision and actionable data. Also, our ultra-high purity pumps, heater and fluid management solutions provide differentiated environmentally sustainable support for semiconductor fabrication facilities. The strength in these areas, alongside other pockets of improving demand within the portfolio, collectively drove record orders of over $1 billion. We are managing and investing to meet our customers' needs, including investments in throughput improvements, supply chain readiness, higher staffing and select capacity expansions. Also 8020 is a critical tool to effectively allocate resources toward these highest value opportunities. Orders performance year-to-date not only gives us greater confidence in our 2026 outlook but also provides greater visibility to sustain this momentum into next year. Our fastest-growing customers are increasingly submitting orders with request dates further into the future, primarily to prebook capacity. Our more traditional rapid replenishment customers on the whole are also running slightly better than we expected earlier in the year. Taken together, our growing backlog gives us the confidence to raise our full year 2026 financial outlook. Sean will provide greater detail later in the call. In addition to the strong order growth, our teams are executing very well to drive margin expansion as they deliver more revenue. Our teams in HST drove year-over-year margin flow-through of approximately 40%, excluding tariff refunds in the second quarter. We expect additional healthy volume leverage through the second half of this year. Finally, we continue to meaningfully implement 8020 with a focus on newly acquired businesses, many of them producing the highest growth rates in the company to set up greater margin expansion potential into 2027 and beyond. With that, I'll turn it over to Sean to walk through the quarter in more detail, including segment performance and our updated outlook.
Thanks, Eric. Good morning, everyone, and thank you for joining us today. Please turn to Slide 5. In the second quarter of 2026, IDEX delivered strong results, which meaningfully exceeded our guidance for the quarter. Organic revenue growth of 5% was better than we forecasted with notable strength in HST. Adjusted EBITDA margin expanded 70 basis points year-over-year and adjusted EPS of $2.32 came in significantly higher than our guided range in the second quarter. Overall, our orders grew 28% organically in the quarter. HST again led with order growth of 47% year-over-year, while FMT orders grew 11% and FSDP orders increased 19%. Touching on some of the more meaningful business demand trends in the quarter, we saw a continuation of strong order activity in areas influenced by artificial intelligence, which for us is most meaningfully in power generation for data centers, semiconductor and optical switching. We also continue to see strength in municipal water, mining, space and defense and in commercial aerospace. As Eric mentioned, we received IEEPA-related tariff refunds in Q2. This impacted our financial results in a few areas. First, the tariff refunds from the U.S. government result in a reduction to our cost of sales. Second, the U.S. government paid interest on the tariff amounts, which slightly reduced our net interest expense in the quarter. Lastly, in select circumstances, we expect to provide customer rebates for a portion of the tariff refunds. This is accounted for as a reduction to sales in the period. The net impact of all this in the quarter was a benefit of $0.08, which is included in our reported adjusted EPS of $2.32. Even when excluding this benefit, our financial results were meaningfully ahead of our Q2 guidance range of $2.07 to $2.12. As I go through our financial results, I will note where any impact occurs to provide transparency and visibility to the strong underlying performance of our businesses. Organic sales in the second quarter grew 5% with HST growing at 12% and FMT growing at 1%, while FSDP was down 1%. As just mentioned, sales were partially offset by expected customer rebates related to IEEPA refunds, which reduced organic growth by 2% in the quarter. On a consolidated basis, organic sales growth was primarily driven by higher volume with positive price contribution. IDEX adjusted gross margin expanded 110 basis points to 46.4%, driven by productivity gains, volume leverage and the net benefit of tariff refunds, partially offset by mix. Volume leverage was led by strong growth in HST. Adjusted EBITDA margin expanded 70 basis points versus last year. As noted on the slide, the net impact of the IEEPA refunds was a benefit of 130 basis points. Importantly, our adjusted EBITDA margin, excluding IEEPA, came in towards the high end of our Q2 EBITDA margin guidance of 26.5% to 27%. IDEX generated $177 million in free cash flow in the second quarter, and we ended the quarter with strong liquidity of over $1.1 billion. And finally, we spent $77 million to repurchase IDEX shares in the quarter, and we remain committed to that quarterly pace for 2026. Now quickly some color on our results by segment. I'm on Slide 6. In HST, organic orders increased 47% and revenue grew 12% organically. Volumes increased in advantaged markets, including semiconductor OE and consumables, data center applications, and space and defense. And notably, these exposures are, as Eric mentioned, in the areas we have pivoted the portfolio towards and where we have focused our integrated growth strategies. HST adjusted EBITDA margin expanded 270 basis points year-over-year due to positive volume leverage and positive price/cost driven by the net benefit of tariff refunds. As noted, tariff rebates reduced organic growth by 2% and were a 90 basis point benefit to our adjusted EBITDA margin in the quarter. Our underlying businesses performed exceptionally well with strength across orders, sales growth and margin. Turning to Slide 7. In FMT, organic orders increased 11% and organic sales increased 1%. Sales growth was supported by our water platform and our mining exposures, partially offset by softness in ag, chemical and energy end markets. Looking at our leading indicator, industrial order rates, they continue to show increasingly encouraging signs as second quarter orders and revenue in these businesses were slightly better than we had expected. FMT's adjusted EBITDA margin declined 20 basis points year-over-year as unfavorable mix more than offset the net impact from tariff refunds and productivity benefits. The net impact of tariff refunds benefited margin by 180 basis points in the quarter. Last year's adjusted EBITDA margin of 35% is a tough comp as in Q2 last year, we were quick to adjust pricing for tariffs, while the cost of tariffs were slower to impact the P&L. FMT's underlying margin performance is right in line with our expectations and guidance we provided for Q2. Please turn to Slide 8. FSDP organic orders increased 19% year-over-year and organic sales declined 1%. FSDP orders were boosted by strong aerospace demand at BAND-IT, including a significant blanket order and continued momentum in fire and safety from North American fire and integrated system orders. Sales declined due to the expected reduction in activity in dispensing and some softer performance in European rescue markets, which was partially offset by continued aerospace strength in BAND-IT. FSDP adjusted EBITDA margin decreased 50 basis points year-over-year, driven by unfavorable mix and volume deleverage, partially offset by strong productivity improvements. The net impact of tariff refunds benefited margin by 120 basis points in the quarter. Please turn to Slide 9, where I'll touch on capital deployment. First, our gross leverage position decreased from 2.1x a year ago to 1.9x due to strong cash flow and earnings growth. Second, as you can see, we continue to invest in our business as well as return capital to our shareholders. We have increased CapEx from the year ago period as we support the strong growth in our businesses. Additionally, we have continued to return capital to shareholders as we paid $54 million in dividends and repurchased $77 million in shares during the second quarter. Compared to the prior year, we have increased our share repurchase activity by $53 million or 53%. We plan on maintaining our quarterly repurchase level at around $75 million through the rest of 2026. We can flex above this amount based on leverage levels, relative bolt-on M&A and 8020-led portfolio optimization decisions going forward. We look forward to executing on our capital deployment methodology and are confident in our ability to drive increased shareholder value. Now I'd like to discuss our updated guidance for 2026. Please turn to Slide 10. For the full year 2026, we now expect organic growth in the 5% to 6% range, an increase over our previous guidance of 3% to 4% organic growth. Our overall IDEX organic growth guidance balances approximate low double-digit growth for HST and outlooks of slightly up year-over-year for FMT and FSDP. These outlooks reflect HST's strong order book and relative stability, but also some signs of improvement at our FMT and FSDP segments. We are raising adjusted EBITDA margin expectations to a range of 27% to 27.3%, up from 26.5% to 27%. We continue to expect productivity benefits throughout IDEX businesses and solid leverage and margin expansion at HST this year. Taken together, we are raising adjusted EPS guidance for 2026 from a range of $8.35 to $8.55 to a range of $8.70 to $8.85, representing high single-digit to low double-digit growth year-over-year. For the third quarter of 2026, we expect 5% to 7% organic growth, adjusted EBITDA margin in the 27% to 27.5% range and adjusted EPS of $2.20 to $2.25. Additionally, we are increasing our capital expenditures forecast from $90 million to approximately $110 million as we make select investments and capacity expansions to support our highest growth and high-return businesses. With that, I'll turn the call back over to Eric.
Thanks, Sean. I'm on Slide 11. As we step back, we're pleased with both the quarter and the momentum we continue to build across IDEX. Strong orders, growing backlog and increasing contributions from the markets where we've invested most intentionally give us confidence in both our updated outlook for 2026 and the opportunities for sustainable value creation ahead. We are clearly seeing the benefits of the work we've done over the last several years to strengthen our capabilities, build durable platforms and improve the quality of growth across the portfolio. At the same time, we believe there is still meaningful opportunity to further enhance shareholder value through continued application of 8020, disciplined portfolio management and thoughtful returns-focused capital allocation. We're also becoming more confident that signals of broad demand support for our premier industrial businesses are starting to form. Remember, these are incredibly positioned, highly profitable businesses that expand margins and generate superior cash flow when volume increases. With that, I'd like to thank our teams around the world for their hard work and execution. For participants on the call, we appreciate your continued interest in IDEX. And I'll now turn the call back to the operator to take your questions.
Questions and answers
Your first question comes from the line of Mike Halloran with Baird.
So maybe, Eric, just a question on what you're seeing on a forward basis. It's kind of a twofold question here. One, on the short-cycle side of things. Obviously, the advantaged markets are doing very, very well. But you're starting to see some sequential improvement in the more traditional short-cycle avenues. Maybe you can talk to what you're seeing there. But then as the first question, more end market commentary, what's working, how much of those are good leading indicators for the stuff that tends to lag, maybe the chemical side, something like that? Any context would be great.
Okay. Yes. Thanks, Mike. So on the FMT side of the house, it is a little interesting in the second quarter. We made a comment in the slide deck talking about longer lead time items. And what we actually saw was something a little different than we've seen before in inflection points where the leading order capture and backlog-generating items were more attributable to specific parts of the business, more direct OEM relationships. I suspect a lot of this is because they're, in some ways, derivatives of very strong advantaged secular drivers in markets that have that. So our water business was a strong player here. We have longer cycle projects in mining, which we saw in our ABEL business, that was a strong part of the quarter. Even some of the work in a business like Viking — they've got some data center support items in there, which we can attribute to end customers. So a lot of our backlog build in this particular quarter were those items. However, as we got closer towards the end of Q2, and it's continuing into July, we are seeing more of that typical rotation to up-and-down-the-street, smaller order flow business that comes through our distribution channels. Typically, for us, that had led the other side. But I think because of just so much strength in some of the markets that are driving not just IDEX, but the economy, we saw that flipped around a bit. And so as we sit here today, we're encouraged — it's early, but we're encouraged by both sides firing in both the FMT segment as well as the more industrial pieces of FSDP additionally.
Yes. No, that makes sense. And you actually touched on where I wanted to go with the second part of the question, which is just the extending lead, the concentration of some of those orders and the longer lead time areas was absolutely interesting. You put that in context of some of the advantaged markets where you're starting to get that forward visibility. Maybe just talk to what backlog build looks like today versus maybe history? What kind of visibility you have on the next two, three, four quarters out relative to previous times? Any thoughts there would be great on how you're thinking about that.
Sure. Well, starting where we ended, this is a little different in terms of the way that the inflection trend would be driven in a segment like FMT. Already here, we've got some great visibility in water. We can see it in mining, the areas that I mentioned. And now it's great to see some of the breadth forming around it, but that's shorter cycle business. HST is where you see this in quite a different way. So we've had a number of quarters with strong backlog build. What's interesting here is if you track that over time — and I'm talking about those three sectors I identified — if you look at the businesses that contribute that, we've been building that momentum for about 1.5 years or so. And then we took an inflective turn up at the beginning of 2026. A lot of the businesses are pretty aligned with where they were in Q1. They are strong. They're still building some backlog as we go. The one positive exception is we did receive in Q2 a big chunk of data center business in the Pneumatics world that's clearly positioned for 2027. So what we're seeing most notably in HST is a division between more typical IDEX-like businesses that are based on our lead times — we still have a lot of that in all pockets — and increasingly this portion which is tied to the markets we mentioned, where we're getting more visibility. We're getting requirements not just in the current quarter, but one quarter out, two quarters out. And in data centers, we've actually got some good volume into 2027. At the midpoint of the year, we have roughly twice the business set up for the following year than we had at this point last year. It's in the areas we're isolating. It's great to have it. It accounts for some of the CapEx inflection you see. That's a modest lift, but it's us getting ready to support business in 2027 and 2028 because we have visibility in that backlog and, most importantly, in the conversations that we're having with a customer.
Your next question comes from the line of Deane Dray with RBC Capital Markets.
It really looks like you've regained some nice momentum here. So congrats there. And Sean, thank you for the navigating us through all the tariff impacts. We haven't seen other companies have a revenue impact, but that's crystal clear now. So thank you for that clarification. My question is kind of a follow-up here on the profile of demand. Eric, you always give some good entry level into some insight into the business when you talk about the day rates, the cadence of these orders. And you mentioned some of the bellwethers, but if you could help us there in terms of what that order pattern tells you regarding the short-cycle dynamics. Maybe start there.
Sure. As I said, that built as we went through the quarter; it was probably strongest in June, and then it's continued into July. Specifically, I'm referring to the classic up-and-down-the-street, small order flow quantities of five to ten units, which is a decent part of IDEX business, almost all of which comes through points of distribution. We've always considered that to be very representative of the state of the industrial economy. It indicates things like people working overtime and expanding a shift profile. So we've got some of that strength starting to show in our businesses. In the second quarter, the interesting part was that because of the strength of some of these secular areas and our link to those, they were more pronounced because that duration was each of the months in the second quarter. A business like BAND-IT is one example, which is dominated by a really strong blanket order in the aerospace and defense sector for them. That dwarfs any slight moderate lift on the more classic short-cycle things. Right now, it looks like it's settling into a more typical launch where we've got both elements starting to form, and we're encouraged by that. We'll certainly be watching it as we go through Q3 and Q4. As of today, we see both forming. The HST profile still has some classic distribution-based businesses, although they're a smaller percentage now of the segment, but there are dramatic shifts in demand profiles because of the work that we're doing in data centers, semicon and space. These are areas where customers are intentionally having future-based conversations that in many cases they're backing with orders and commitments. That visibility helps set us up and supports the modest capital moves we need to make to be ready.
That's really helpful. And that kind of leads into the follow-up question. Again, some further insight into the orders. Seeing a blanket order at BAND-IT is pretty impressive because you don't normally get those. But how about on HST, any blanket orders on some of the life science customers? That's been choppy this quarter. So I'm not expecting too much there, but some color would be helpful. And I'll leave it there.
Yes. Nothing really in the area of blanket orders, but I'd like to peel that business back a little because we did see some positive signs in our Health & Science area. The core piece of the business that does a lot of fluidics work, providing components for instrumentation used in analytical instruments and liquid chromatography, had been moving along at low single-digit growth rates. We did see that move up a bit in the second quarter. That business and our optical filters business, which is also tied to life sciences, are sort of mid-single-digit rates right now. We did see part of the backlog build in HST — a smaller piece on a relative basis — in the area of life sciences, around those two spaces. That was good to see. We have a larger dollar optical systems program that's in there that is moving from one platform to another, which offsets some of it for a bit. But in the long term, we're starting to see a little more momentum there. It was good to see some backlog build at the end of the second quarter, albeit not in the form of large chunky blanket orders.
Great. And just — I want to say this is my last IDEX call. I think you all saw the announcement of my retirement. I just appreciate all the support and insight, Eric, you and the team have provided me over the years, and I wish you all continued success.
Well, Deane, you stole my thunder. I was going to recognize that before you signed off, but I appreciate you doing it and really, really enjoy your support and interest in IDEX over the years, and may you have a great retirement.
Your next question comes from the line of Bryan Blair with Oppenheimer.
Congrats on a very solid quarter. I was hoping if we could circle back to FMT and maybe offer some finer points on how orders progressed through the second quarter and then into Q3 and what your team is contemplating in terms of back half growth rates. You called out the strength in longer lead time activity. I think that's been building on a multi-quarter basis; orders over the last four quarters have averaged kind of high single-digit range versus pretty muted core sales growth. Ultimately, I think there has to be a convergence there. Just curious if you expect that to start to read through in the back half.
Yes. As I said, encouraged to see a bit of movement in that category. We're talking about the more fragmented, broadly exposed order pattern that converts a lot faster. We did see some movement and inflection at the end of the second quarter and saw that continue into July. That's the piece we will be looking at. There's still a fair amount of uncertainty out there that will inflect and play out in industrial markets. Distributors and small business owners are still looking for geopolitical things to simmer down and wondering about rate directions. Inflation is higher than they'd like. But there's also a duration phenomenon where everyone admits this has been a long time waiting for some things to move. I think all of that is coming together in some positive ways, and we'll continue to monitor this. Either way, it's great to see the strength on both sides: the longer lead time, further-out chunkier commitments where we've got line of sight to the customer, as well as the more classic mixed business which always supports great economics for IDEX. We'll be watching both through the quarter. Maybe atypical to other inflections, we did see the more direct business first and are now starting to see more of that broad lift here in the last few weeks.
Okay. Understood. Appreciate the detail there. And it would be great to drill down a bit on Intelligent Water. I think you mentioned that the platform grew double digits in Q2, so actually enhanced growth relative to trailing rates, which were already quite healthy. It seems your team is definitely winning in the space, difficult to track or isolate growth within that subvertical of the market, but you're certainly winning. Maybe remind us what really differentiates your team there? And is it fair to assume that double-digit growth continues to be achieved? Or should we think more in normalization to mid- to high singles going forward?
Well, remember, our water platform has two distinct pieces. There's the municipal water side where we're focused on analytics and inspection on storm water and wastewater. We don't do clean drinking water; we stay on the messy side. The work we do is tied to the IDEX model, where for relatively low dollar you get a lot of impact. We provide inspection tools, cameras and analytical software that tell municipal customers where their problems are and what they need to fix. Then that becomes a question of big capital outlays; we don't participate in that side — we help diagnose. We acquired Envirosight to give us breadth. We're selling cutting equipment and cameras that go down into the sewer. That's been strong for a while. What's kicked it into another gear is the other part of the water platform: a franchise that pumps high-purity water for semiconductor applications. This business is differentiated; we have a high-purity water solution that heats water for use and, unlike competitive offerings, doesn't have to fully idle, saving large quantities of water. That addresses pressing needs of that industry. So the current rate profile is driven by both pieces. Last year and the year before, we mostly had municipal water firing positively; now both are contributing. We see good roads ahead. We don't see anything suggesting a downward inflection on either side; the platform is in a positive position.
Your next question comes from the line of Joe Giordano with TD Cowen.
I know it's early to talk next year, but just given the magnitude of the orders in HST and you mentioned some of these larger orders looking for next year, talk us off of putting a high single-digit, low double-digit placeholder for revenues there as you start to deliver the orders that you're seeing now.
All right. What I'm trying to emphasize is that typically for IDEX, we're a rapid replenishment business and often don't get visibility much past the current quarter. While it's true we've got some chunks of fast-growing pieces, it's a relative story. Maintaining that visibility is a smaller part of what next year's profile would need to be. Much of IDEX remains quick lead times, rapid replenishment, agility. This is an inflection and positive, and we've long hoped for it, but the vast majority of IDEX still operates on the same cadence it classically had. That being said, most of the arrows are pointing in a positive direction. We feel confidence. We have specific points that give tangible confidence around that, but we have a half a year to go and look forward to seeing where we are as we go through it.
As you evaluate this shift towards the platform-growth strategy, what gives you confidence that that is impacting this? How do you separate the strategic changes you've made internally in your go-to-market versus just broader market strength? How do you evaluate the drivers?
We evaluate by going down and looking at the innovation and solutions we're providing and how unique they are to the market and for us. We're not just taking things we've made for the last decade and riding a wave. Because we purchased assets and are linking them with other areas, we're developing technology in spaces like space and defense and creating solutions that didn't exist at volumes we've now seen. Often there's no real natural direct competitor for the technical solution. We play close to ground level, know the business well, and there's not a lot of layers between management and the customer. You can see where we're winning and how we're solving a problem. That's what gives me confidence and inspiration. It's different from others in that respect.
Your next question comes from the line of Rob Wertheimer with Melius Research.
I was actually going to ask a similar question to the last one. I'm not sure that you want to quantify it exactly, but I'm curious how much impact that innovation and new market focus has delivered in your orders if you formally measure it that way or have a guess. And then just to ask my other question: within mining, anything that caused that to tick up? You gave a nice breakdown in FMT on water and some of the inflection there. Just curious if things are coming unstuck or if there's anything you've done.
I'll take it in reverse order. On mining, a lot of what we're referencing comes out of a business we acquired earlier in the decade, ABEL Pumps. It's a great example of what a great business can do when you introduce it to 8020. We allowed them to singularly focus on chasing mining for critical minerals and they've done it globally. They have great technology with connectivity and differences from others; it lends itself to that work, and they've chased it around the globe successfully. That's what's powering most of the secular trends there. It's a lead story. In terms of quantifying the impact of innovation, we've said at a high level these three areas are now one-third of HST revenue. If we went solution by solution, some pieces were incumbent, but certainly the majority came online as businesses came together, did the work and solved problems in a different way. Development at IDEX has been rapid iteration and derivation. If you line things up, they may look similar era to era, but the material composition is changing and continued innovation is all over the platform at a faster clip than we've seen elsewhere in IDEX. That's what's powering this — classic IDEX components in a world moving a lot faster, and we've moved with it.
Your next question comes from the line of Nathan Jones with Stifel.
I'll start with a question on the increased CapEx. Maybe you can just talk a little bit about businesses that need that additional CapEx, what it's going into, what capabilities it's adding to the business or capacity it's expanding? I'll start with that one.
A vast majority of the additional CapEx is within HST and it's around the three areas we described. Customers are telling us what they're thinking about two, three, five years from now, and some of the capital we use has long lead times or facility expansions that take a while. Everything in that inflection is about making things at higher levels in 2027, 2028 and beyond. None of it is positioned to break a bottleneck or logjam we have today. That's where you want it to be ideally. While it's real money, it's still a modest level relative to the growth. We track capital intensity and see revenue growth with slight capital growth while staying nicely where we wanted to. This is still pretty asset-light for what we do, and we aim to keep it that way.
Not a big number. I guess the second one on capital allocation overall. I think it was maybe 1.5 years ago, you all committed to pulling back on the M&A front, at least in terms of large deals and doing a decent amount of repeated share repurchase, which Sean talked about doing again in the second half of 2026. I think that was kind of the end of the road for that commitment. Can you talk about where you are in that process now? Should we expect to see some more chunky acquisitions in 2027, 2028? Will you continue to repurchase shares in 2027, 2028? Just what your current thinking is around capital allocation?
Back at the start point you referenced, we had built a framework for growth and were integrating businesses. We're starting to see impressive results from that innovation. We're in rooms in areas we haven't typically been and meeting people with interesting technology. Our acquisitive model is proprietary and depends on individual conversations and cultivation over time. We're engaging around the growth platforms that are out in front now. The best place for us to use our time is to look for attachment points that make what we're doing stronger. We're engaged in those conversations. Because of the proprietary nature, timing is hard to predict, but the intensity is high. For now, it's the right strategy to capitalize on momentum.
And I would just add that the repurchase gives us flexibility around that. We communicated consistent repurchase through the back part of this year. Thereafter, it will be informed by the M&A pipeline. If it stays in the bolt-on area, we're trying to get deals done; the same level of repurchase activity would be the base case, and we'll flex it up and down based on what becomes available to us.
Your next question comes from the line of Vlad Bystricky with Citigroup.
Eric, maybe just sticking with the growth theme that there's been a lot of focus on. Obviously, the focus on advantaged markets and growth efforts is gaining increasing traction, it seems. So can you just talk about where you think the company is in terms of the maturity of the growth efforts and how you see 8020 continuing to evolve to support accelerated growth going forward?
I think we're still pretty early here. Any of the solutions where you see us winning were generally in the works for a while. We engineer them because of the criticality of the solution and the risk-averse nature of these markets; they are then tested and deployed. The points you're seeing put on the board have been building over the last two to five years depending on when businesses came in. Each opportunity we introduce and win opens another door to ask what's next, where else can we add value. We do a lot at the component level and have moved right and left with the same technology into different advantaged markets. You can see evidence of that in our growth patterns. For example, semicon has become a strong area where Mott's filtration next to sealing and metrology has created recurring revenue. That's brought recurring elements into HST. Space and defense leverages imaging and high-quality solutions. The work we do with water platforms and FMT shares some of the same characteristics — high-tech equipment, analytical software, diagnostic imaging. 8020 allows us to dedicate resources and focus on areas of best growth. There's power in alignment and everyone understanding where to focus. That's intuitive for us now and supports growth and margin expansion.
That's really helpful color. And then maybe if I could just dig into one of the segments. Just within FSDP, if I remember correctly, North American fire has been a nice contributor to growth for quite a while now, but you highlighted it as contributing to the accelerating orders in 2Q as well. So can you just talk about what you're seeing in that North American fire market and whether it's more a continuation of positive strength or whether you're seeing some incremental acceleration? And then how we should think about potentially that durability of that cycle?
I think it's really a continuation of a theme. We're well represented with multiple technologies on mobile fire platforms. We've had a multiyear backlog in that industry that continues. Throughput comes through the system and our share position benefits from that; it works mathematically and continues. We've also had an additional kicker with the automation gear we've talked about for several years where we're differentiated. Running the backlog through helps drive growth because we've had adoption embedded in that backlog. So think of two forces: throughput of a long-duration backlog with great share presence, and additive automation gear embedded in that backlog. It's a continuation of the theme.
Your next question comes from the line of Andrew Buscaglia with BNP Paribas.
I wanted to focus on your FMT margins a little bit more. I think it's definitely been a positive surprise, your ability to sustain such high margins with almost no organic growth really over the last couple of years. If we indeed see some relief on the volume front, where is the ceiling for FMT margins? Or is it not something we should get carried away with? Are there other dynamics that would prevent a really strong expansion from these high levels?
Good question. I would tie it to when you see volume growth. Over the past couple of years volumes were slightly down, and price and productivity drove margin performance. Once you start to see normalized volume growth, you'll see the flow-through in these types of businesses based on their profitability being in the high 30s, 40-ish percent range. So if we start to see volume pick up uniformly across FMT, you'll see flow-through in that close-to-40% range.
Okay. Yes, interesting. Yes, it seems you guys managed through a tough storm, so margins ultimately can only go higher. Another question: I don't think anyone touched on geographically what you guys are seeing. I know there's some mixed trends around Asia and China. Can you just comment on what you're seeing broadly on a geographic basis?
For a while now we've seen the greatest strength in North America — that's where many of the faster-growing markets we've discussed are headquartered. Europe has been steady, never too high or too low; it depends market to market. Asia is more mixed: we've seen stronger growth in India compared to China. China and India both are hit surgically with targeted product lines. We've been able to hold our own in China with a generally softer economy, but in India we've taken advantage of opportunities and are increasingly looking at that area as a jump-off point for globalization of growth in HST. Many customers are asking how we can help globalize solutions and take them to other markets; our support in India will be an important part of that.
Your next question comes from the line of Dan DiCicco with BMO Capital Markets.
Great. So we touched on this some already, and I think you highlighted space and defense. But what are some of the other primary areas where you see the most opportunity to leverage existing technologies across the portfolio or maybe bring some new solutions to these higher growth areas?
Many of the areas highlighted on the opening slide are broad in terms of applications. Space and defense is a good example: our technologies are deployed and focused around low Earth orbit communications. Our optics businesses play there; Mott brings propulsion and filtration technologies to the game, and there's a wide array of things in between. From an HST perspective, the most focused areas are the three we've mentioned: continued expansion into data center solutions, broad work within semiconductor support across wafer production and inspection, and space and defense leveraging imaging and high-quality solutions. Life sciences remains important in the long run. FMT and the water platforms also have similar characteristics: high-tech equipment, analytical software and diagnostic imaging. Those are predominant areas of focus and we have a lot of room to run within each heading.
Your next question comes from the line of Brett Linzey with Mizuho.
Yes, a question on HST recovery and margins. So as we see this mix shift towards these advantaged markets within HST into late 2026 and into 2027, should we begin to see the incremental margins drive higher above where they would normally in an inflection given these higher gross margin businesses that you've acquired and then you've also taken out some costs? Just trying to think about how we should think about incremental margins in HST on the way up.
Good question. I think you would start to see them higher than the traditional flow-through. HST more recently has been in the low to mid-30% range. We had a really nice quarter given volume and mix. When you strip out the IEEPA noise, you're in the high 30s for the quarter. As you look through the balance of this year and into next, that's probably the right place to be with volumes at these levels. Sustaining volumes at these levels, we'll see flow-through higher than in the recent past within HST. It's because the mix of businesses driving it is accretive at the gross margin level.
Helpful. And then the rebates that are tied to the IEEPA refunds, how do we think about the allocation of that? Were those by categories or channels or customers? And in terms of the impact for the balance of the year, what are you expecting for Q3, Q4? Or is this just a onetime true-up?
The nature depends on the customer relationship and how pricing was put in when the tariffs first came about, so we selectively saw rebate activity based on that. On point two, this should be confined to Q2: we received essentially all of the refunds we're eligible for in Q2, and the associated rebate activity is included in this quarter's results. As you look into the next few quarters, there might be a little deviation on the margin, but pretty much all the activity is in this quarter. It's a credit to the team for moving quickly to receive the refunds and account for the customer impact.
This concludes our question-and-answer session. I will now turn the call back to Eric Ashleman for closing remarks.
All right. Well, thanks, everybody, for joining us today. As we step back, we're pleased with our progress and momentum at the midpoint of the year. If you recall, as we described our goals for the thoughtful evolution of IDEX over time, we wanted to deploy capital intentionally to acquire some great technologies and capabilities that would really lead the way for growth for IDEX. I think we've seen that build over the last 1.5 years, and as we noted earlier in the call, a nice inflection point into 2026 continued in the second quarter. We feel really good about the future path. We also sought to drive margins and make sure acquired businesses performed like more typical IDEX businesses. We covered some of that in the Q&A and are pleased to see that lift, specifically in HST as they're executing well on that volume. We still have consequential 8020 optimization in those acquired businesses that should give us nice support into the years to come. On the other side of IDEX, the more legacy fluidics businesses, we're encouraged to see early signs of sector-driven inflection now followed by what appears to be more typical bellwether signs of broader industrial support. Those are incredible businesses, super profitable, and they flex and provide nice growth, margins and cash as they move. Put it all together, we're very encouraged looking forward to the second half of the year and taking you through our story as we go. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.