- 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 Highlights

• 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 – 2019

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