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CST: 09/12/2019 10:06:06   

ESCO Announces Third Quarter Fiscal 2019 Results

122 Days ago

- Q3 GAAP EPS $0.77 (Includes $0.04 of Cost Reduction Charges) - Q3 Adjusted EPS $0.81 (Beats Guidance and Consensus / 11 Percent above Q3 2018) -

St. Louis, Aug. 08, 2019 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2019 (Q3 2019), compared to the quarter ended June 30, 2018 (Q3 2018).

The financial results presented include certain non-GAAP financial measures such as EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS, as defined within the “Non-GAAP Financial Measures” described below. Any non-GAAP financial measures presented are reconciled to their respective GAAP equivalents.

Management believes these non-GAAP financial measures are useful in assessing the ongoing operational profitability of the Company’s business segments, and therefore, allow shareholders better visibility into the Company’s underlying operations. See “Non-GAAP Financial Measures” described below.

Earnings Summary

Q3 2019 GAAP EPS of $0.77 per share included $0.04 per share of previously described cost reduction charges in Technical Packaging and at Doble, and costs incurred to move the aircraft / aerospace business from VACCO to PTI. The $0.04 per share was excluded when determining Q3 2019 Adjusted EPS of $0.81 per share. GAAP net earnings were $20 million in Q3 2019.

Q3 2018 GAAP EPS and Adjusted EPS were $0.73 per share with GAAP net earnings of $19 million.

Q3 2019 Adjusted EPS of $0.81 per share exceeded Management’s previous guidance of $0.75 to $0.80 per share, and increased 11 percent over Q3 2018 Adjusted EPS of $0.73 per share.

Adjusted EBITDA was $38 million in Q3 2019, reflecting a 9 percent increase over Q3 2018 Adjusted EBITDA of $35 million.

YTD 2019 GAAP EPS was $2.15 per share (favorably impacted by the gain on the Doble building sale) compared to YTD 2018 GAAP EPS of $2.45 per share (favorably impacted by the one-time benefit recognized as a result of U.S. Tax Reform).

YTD 2019 Adjusted EPS increased 32 percent to $2.04 per share compared to $1.55 per share YTD 2018. Adjusted EPS in both periods excludes the one-time gains net of certain restructuring charges identified earlier.

YTD 2019 Adjusted EBITDA was $100 million, reflecting a 15 percent increase over YTD 2018 Adjusted EBITDA of $87 million.

Operating Highlight s

  • Q3 2019 sales increased 4 percent to $200 million compared to $192 million in Q3 2018 and YTD 2019 sales increased 7 percent to $576 million compared to $540 million YTD 2018.
  • On a segment basis, Q3 2019 Filtration sales exceeded expectations and increased 19 percent from Q3 2018 with all operating units contributing to the growth driven by significantly higher aerospace (commercial and defense) and navy sales. Test sales decreased in Q3 2019 as a result of the timing of the completion of large projects within the respective periods. USG sales from Doble increased 8 percent, while NRG’s sales to renewable energy customers decreased, resulting in a net decrease in USG sales. Technical Packaging sales were generally flat due to the timing of new product introductions.
  • SG&A expenses increased in Q3 2019 compared to Q3 2018 primarily as a result of higher sales commissions and normal cost of living adjustments, partially offset by cost reductions.
  • Entered orders were $196 million in Q3 2019 (book-to-bill of 0.98x) and were $626 million YTD 2019 (book-to-bill of 1.09x) which resulted in an ending backlog of $432 million at June 30, 2019, an increase of $50 million, or 13 percent, from September 30, 2018.
  • The Q3 2019 effective income tax rate was generally consistent with the rate in Q3 2018.
  • 2019 net cash provided by operating activities was $37 million resulting in $179 million of net debt outstanding (total borrowings less cash on hand) at June 30, 2019, and a 1.5x leverage ratio. Cash flow in Q3 was negatively impacted by the timing of several large cash receipts at VACCO related to Navy projects in process which will be received in Q4 2019.

Chairman’s Commentary – Q3 2019

Vic Richey, Chairman and Chief Executive Officer, commented, “I’m pleased with our Q3 operating results, which once again came in above expectations and resulted in Adjusted EPS exceeding the top end of our guidance range. Solid operational performance across the Company drove the Q3 results as all four operating segments exceeded their Adjusted EBIT commitments during the Quarter. Our Filtration businesses exceeded our profit expectations by over 12 percent, and Doble, within the USG segment, beat expectations on higher than expected sales in Q3.

“Comparing Q3 2019 to Q3 2018, we increased sales by 4 percent driven by the nearly 20 percent sales growth in Filtration, partially muted by the timing of sales recognized on a few large projects in the Test business, and continued headwinds in our renewable energy business.

“We improved our YTD 2019 Adjusted EBITDA by 15 percent as every operating segment improved their margins over YTD 2018. Our outlook for the balance of the year remains solid.

“We announced the acquisition of Globe Composite Solutions, LLC (Globe) in early July and I’m very happy with the progress we are making in bringing them on board. The initial phases of integration are off to a great start and I’m excited to work with the outstanding leadership team and the dedicated employees that I met earlier this month. Globe’s products, processes and customer relationships are an excellent addition to our portfolio and our complementary skill sets will allow us to create additional avenues for meaningful growth across our shared customer base.

“On the M&A front we continue to evaluate a robust pipeline of opportunities in both Filtration and USG and continue to work these aggressively, and I remain hopeful that we will be able to add to our portfolio in the near future. Consistent with our history, we will remain prudent and committed to our disciplined approach of balancing ROIC and protecting our balance sheet.

“The Doble headquarters relocation from Watertown to Marlborough is going smoothly and we expect to be moved in and fully operational by December 31, 2019. The Doble team is looking forward to having all of its Boston area staff co-located in a single, customer-friendly facility as we all believe this will further enhance our operational efficiency and effectiveness, while lowering our facility operating costs.

“As we look to wrap up 2019, we plan to build on the successes we achieved this year and expect to continue benefitting from our disciplined operating culture and our lower cost structure. Our solid market positions and tangible growth opportunities across the Company provide us with a favorable view of the future with our goal remaining unchanged – to increase long-term shareholder value.”

Dividend Payment

The next quarterly cash dividend of $0.08 per share will be paid on October 17, 2019 to stockholders of record on October 3, 2019.

Previously Disclosed Cost Reduction / Restructuring Actions

Refer to the Company’s November 15, 2018 earnings release for details of the cost reduction and restructuring actions related to the Doble building sale and relocation, Technical Packaging’s cost reduction actions, and VACCO’s aircraft / aerospace business move to PTI.

All of these actions are intended to improve operating efficiency, enhance ROIC, generate additional free cash flow, and enhance the Company’s competitiveness across several end-markets, thereby, accelerating sales and earnings growth in the future.

Updated Business Outlook – 201 9

Management’s expects 2019 Adjusted EPS in the range of $3.05 to $3.10 per share, which is consistent with the details outlined in the Business Outlook presented in the May 7, 2019 release. The expected operating results from the previously announced acquisition of Globe are not reflected in the Adjusted EPS range noted above as Globe’s detailed financial plan is currently in the process of being finalized.

The timing of quarterly sales and earnings throughout 2019 compared to 2018 impacts the quarterly comparisons as 2019’s growth is more balanced on a quarterly basis compared to the heavily weighted second half profile reported in 2018.

Conference Call

The Company will host a conference call today, August 8, at 4:00 p.m. Central Time, to discuss the Company’s Q3 2019 results. A live audio webcast will be available on the Company’s website at www.escotechnologies.com. Please access the website at least 15 minutes prior to the call to register, download and install any necessary audio software. A replay of the conference call will be available on the Company’s website noted above or by phone (dial 1-855-859-2056 and enter the pass code 3855869).

Forward-Looking Statements

Statements in this press release regarding the timing and amounts of the Company’s expected quarterly, 2019 full year and beyond results, revenue and sales growth, EPS, Adjusted EPS, EPS growth, cash, EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, the realization of operational efficiencies, the Company’s competitiveness and the costs and savings resulting from operational improvements and cost reduction actions, the Company’s ability to increase operating margins, realize financial goals and increase shareholder value, the success of acquisition efforts, the long-term success of the Company, and any other statements which are not strictly historical are “forward-looking” statements within the meaning of the safe harbor provisions of the federal securities laws.

Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment including but not limited to those described in Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, and the following: the success of the Company’s competitors; weakening of economic conditions in served markets; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; delivery delays or defaults by customers; material changes in the costs and availability of certain raw materials; the appropriation, allocation and availability of Government funds; the termination for convenience of Government and other customer contracts; the timing and content of future contract awards or customer orders; performance issues with key customers, suppliers and subcontractors; labor disputes; the impacts of natural disasters on the Company’s operations and those of the Company’s customers and suppliers; changes in laws and regulations, including but not limited to changes in accounting standards, taxation requirements, and new or modified tariffs; changes in interest rates; costs relating to environmental matters arising from current or former facilities; financial exposure in connection with Company guarantees of certain Aclara contracts; the availability of select acquisitions; and the uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration.

Non-GAAP Financial Measures

The financial measures EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are presented in this press release. The Company defines “EBIT” as earnings before interest and taxes, “EBITDA” as earnings before interest, taxes, depreciation and amortization, “Adjusted EBITDA” as EBITDA excluding certain defined charges, and “Adjusted EPS” as GAAP earnings per share (EPS) excluding the net impact of the items described above which were $0.04 per share in Q3 2019.

EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes that EBIT, EBITDA and Adjusted EBITDA are useful in assessing the operational profitability of the Company’s business segments because they exclude interest, taxes, depreciation and amortization, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by Management in determining resource allocations within the Company as well as incentive compensation. The Company believes that the presentation of EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

ESCO, headquartered in St. Louis, Missouri: Manufactures highly-engineered filtration and fluid control products for the aviation, space and process markets worldwide; is the industry leader in RF shielding and EMC test products; provides diagnostic instruments, software and services for the benefit of industrial power users and the electric utility and renewable energy industries; and, produces custom thermoformed packaging, pulp-based packaging, and specialty products for medical and commercial markets. Further information regarding ESCO and its subsidiaries is available on the Company’s website at www.escotechnologies.com.
  
  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
 (Dollars in thousands, except per share amounts)
 
          Three Months
Ended
June 30,
2019
    Three Months
Ended
June 30,
2018
                 
Net Sales     $ 199,766     192,223  
Cost and Expenses:          
  Cost of sales   122,172     122,805  
  Selling, general and administrative expenses 43,400     39,910  
  Amortization of intangible assets   4,693     4,605  
  Interest expense   1,973     2,243  
  Other (income) expenses, net   2,636     (656 )
    Total costs and expenses   174,874     168,907  
                 
Earnings before income taxes   24,892     23,316  
Income taxes   4,825     4,297  
                 
    Net earnings $ 20,067     19,019  
                 
                 
    Diluted EPS - GAAP $ 0.77     0.73  
                 
    Diluted EPS - As Adjusted $ 0.81 (1 )   0.73  
                 
    Diluted average common shares O/S:   26,109     26,050  
                 
(1 ) Q3 2019 Adjusted EPS excluded $0.04 per share net impact of restructuring charges incurred primarily at Plastique, Doble and PTI/VACCO during the third quarter of 2019.

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES  
Condensed Consolidated Statements of Operations (Unaudited)  
 (Dollars in thousands, except per share amounts)  
   
          Nine Months
Ended
June 30,
2019
    Nine Months
Ended
June 30,
2018
 
                   
Net Sales $ 576,312       540,496    
Cost and Expenses:            
  Cost of sales   363,026       346,911    
  Selling, general and administrative expenses   126,066       122,813    
  Amortization of intangible assets   13,965       13,615    
  Interest expense   5,788       6,464    
  Other (income) expenses, net   (2,037 )     992    
    Total costs and expenses   506,808       490,795    
                   
Earnings before income taxes   69,504       49,701    
Income taxes   13,323       (13,983 )  
                   
    Net earnings $ 56,181       63,684    
                   
                   
    Diluted EPS - GAAP $ 2.15       2.45    
                   
    Diluted EPS - As Adjusted $ 2.04   (1 )   1.55   (2 )
                   
    Diluted average common shares O/S:   26,090       26,042    
                   
(1 ) YTD Q3 2019 Adjusted EPS excluded $0.11 per share net impact mainly from the gain on the sale of the Doble Watertown property partially offset by certain restructuring charges primarily at Plastique, PTI/VACCO & Doble.
                   
(2 ) YTD Q3 2018 Adjusted EPS excluded $0.90 per share net impact of the $25 million tax benefit recorded related to U.S. Tax Reform partially offset by restructuring charges incurred at Doble & PTI during the first nine months of 2018.

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
 
        GAAP   As Adjusted
        Q3 2019   Q3 2018   Q3 2019   Q3 2018
Net  Sales                
  Filtration $ 83,067     69,721     83,067     69,721  
  Test   42,298     45,034     42,298     45,034  
  USG   52,894     55,489     52,894     55,489  
  Technical Packaging   21,507     21,979     21,507     21,979  
    Totals $ 199,766     192,223     199,766     192,223  
                     
EBIT                
  Filtration $ 19,039     14,292     19,344     14,292  
  Test   5,927     5,902     5,927     5,902  
  USG   10,148     11,528     10,467     11,528  
  Technical Packaging   1,625     2,505     2,268     2,505  
  Corporate   (9,874 )   (8,668 )   (9,679 )   (8,668 )
    Consolidated EBIT   26,865     25,559     28,327     25,559  
    Less: Interest expense   (1,973 )   (2,243 )   (1,973 )   (2,243 )
    Less: Income tax expense (4,825 )   (4,297 )   (5,126 )   (4,297 )
    Net earnings $ 20,067     19,019     21,228     19,019  
                     
Note 1: Adjusted net earnings were $21.2 million in Q3 '19 which excluded $1.4 million (or $0.04 per share) net impact of the restructuring charges incurred at Doble, Plastique, PTI and VACCO during the third quarter of 2019.
                     
EBITDA Reconciliation to Net earnings:            
                Adjusted    
        Q3 2019   Q3 2018   Q3 2019    
Consolidated EBITDA $ 36,849     35,111     38,311      
Less: Depr & Amort   (9,984 )   (9,552 )   (9,984 )    
Consolidated EBIT   26,865     25,559     28,327      
Less: Interest expense   (1,973 )   (2,243 )   (1,973 )    
Less: Income tax expense   (4,825 )   (4,297 )   (5,126 )    
Net earnings $ 20,067     19,019     21,228      
                     

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
 
        GAAP   As Adjusted  
        YTD Q3   YTD Q3   YTD Q3   YTD Q3  
               2019           2018           2019          2018    
Net  Sales                  
  Filtration $ 228,769     195,531     228,769     195,531    
  Test   126,459     123,368     126,459     123,368    
  USG   157,639     157,942     157,639     157,942    
  Technical Packaging   63,445     63,655     63,445     63,655    
    Totals $ 576,312     540,496     576,312     540,496    
                       
EBIT                  
  Filtration $ 47,092     35,056     47,857     35,504    
  Test   14,791     13,797     14,791     13,797    
  USG   40,461     27,805     33,567     30,074    
  Technical Packaging   3,333     5,355     4,664     5,355    
  Corporate   (30,385 )   (25,848 )   (29,716 )   (25,977 )  
    Consolidated EBIT   75,292     56,165     71,163     58,753    
    Less: Interest expense   (5,788 )   (6,464 )   (5,788 )   (6,464 )  
    Less: Income tax   (13,323 )   13,983     (12,025 )   (11,002 )  
    Net earnings $ 56,181     63,684     53,350     41,287    
                       
Note 1: Adjusted net earnings were $53.4 million in YTD Q3 '19 which excluded $2.8 million (or $0.11 per share) net impact of the gain on the sale of the Doble Watertown property partially offset by charges related to restructuring actions at Doble, Plastique, PTI & VACCO.
                       
Note 2: Adjusted net earnings were $41.3 million in YTD Q3 '18 which excluded $2.7 million (or $0.10 per share) net impact of the restructuring charges incurred at Doble and PTI during the first nine months of 2018, and the $25 million (or $1.00 per share) tax benefit recorded related to U.S. Tax Reform.
                       
EBITDA Reconciliation to Net earnings:              
                Adjusted   Adjusted  
        YTD Q3   YTD Q3   YTD Q3   YTD Q3  
               2019           2018           2019           2018    
Consolidated EBITDA $ 104,055     84,515     99,926     87,103    
Less: Depr & Amort   (28,763 )   (28,350 )   (28,763 )   (28,350 )  
Consolidated EBIT   75,292     56,165     71,163     58,753    
Less: Interest expense   (5,788 )   (6,464 )   (5,788 )   (6,464 )  
(Less) Plus: Income tax   (13,323 )   13,983     (12,025 )   (11,002 )  
Net earnings $ 56,181     63,684     53,350     41,287    
                       

   

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
 
        June 30,
2019
  September 30,
2018
             
Assets          
  Cash and cash equivalents $ 38,956   30,477
  Accounts receivable, net   168,675   163,740
  Contract assets   99,499   53,034
  Inventories   126,816   135,416
  Other current assets   16,260   13,356
    Total current assets   450,206   396,023
  Property, plant and equipment, net   151,545   134,954
  Intangible assets, net   336,625   345,353
  Goodwill   381,683   381,652
  Other assets   6,036   7,140
      $ 1,326,095   1,265,122
             
Liabilities and Shareholders' Equity        
  Short-term borrowings and current $ 20,921   20,000
    maturities of long-term debt        
  Accounts payable   59,329   63,033
  Contract liabilities   53,758   49,035
  Other current liabilities   65,728   68,462
    Total current liabilities   199,736   200,530
  Deferred tax liabilities   66,286   64,794
  Other liabilities   51,266   40,388
  Long-term debt   197,000   200,000
  Shareholders' equity   811,807   759,410
      $ 1,326,095   1,265,122

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
     Nine Months Ended
June 30, 2019
Cash flows from operating activities:    
  Net earnings $ 56,181  
  Adjustments to reconcile net earnings    
  to net cash provided by operating activities:    
  Depreciation and amortization   28,763  
  Stock compensation expense   3,878  
  Changes in assets and liabilities   (41,851 )
  Change in PP&E from gain on building sale   (8,922 )
  Pension contributions   (2,500 )
  Effect of deferred taxes   1,492  
  Net cash provided by operating activities   37,041  
     
Cash flows from investing activities:    
  Acquisition of business   (937 )
  Capital expenditures   (26,457 )
  Additions to capitalized software   (6,207 )
  Proceeds from sale of building and land   17,201  
  Net cash used by investing activities   (16,400 )
     
Cash flows from financing activities:    
  Proceeds from long-term debt and short-term borrowings   32,921  
  Principal payments on long-term debt   (35,000 )
  Dividends paid   (6,223 )
  Other   (3,234 )
  Net cash used by financing activities   (11,536 )
     
Effect of exchange rate changes on cash and cash equivalents   (626 )
     
Net increase in cash and cash equivalents   8,479  
Cash and cash equivalents, beginning of period   30,477  
Cash and cash equivalents, end of period $ 38,956  

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
 
Backlog And Entered Orders - Q3 FY 2019   Filtration   Test   USG   Technical
Packaging
  Total
  Beginning Backlog - 4/1/19 $ 243,007     141,205     39,019     12,832     436,063  
  Entered Orders   71,210     44,128     55,404     25,412     196,154  
  Sales     (83,067 )   (42,298 )   (52,894 )   (21,507 )   (199,766 )
  Ending Backlog - 6/30/19 $ 231,150     143,035     41,529     16,737     432,451  
                         
                         
                         
Backlog And Entered Orders - YTD Q3 FY 2019   Filtration   Test   USG   Technical
Packaging
  Total
  Beginning Backlog - 10/1/18 $ 204,227     122,350     40,727     15,467     382,771  
  Entered Orders   255,692     147,144     158,441     64,715     625,992  
  Sales     (228,769 )   (126,459 )   (157,639 )   (63,445 )   (576,312 )
  Ending Backlog - 6/30/19 $ 231,150     143,035     41,529     16,737     432,451  

SOURCE ESCO Technologies Inc.
Kate Lowrey, Director of Investor Relations, (314) 213-7277

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