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8-K - ESCO TECHNOLOGIES 8-K - ESCO TECHNOLOGIES INCesco8k5may2015.htm

EXHIBIT 99.1
 
                                                                  
NEWS FROM 
                                        ESCO Technologies Logo
                                                                                             
For more information contact:                                                                                             
Kate Lowrey
Director, Investor Relations
ESCO Technologies Inc.
(314) 213-7277


ESCO ANNOUNCES SECOND QUARTER 2015 RESULTS
 
 

ST. LOUIS, May 5, 2015 – ESCO Technologies Inc. (NYSE: ESE) (ESCO or the “Company”) today reported its operating results for the second quarter ended March 31, 2015 (Q2 2015).
The 2014 results are presented on a Continuing Operations – As Adjusted basis as described in previous releases. All references to Continuing Operations exclude Aclara Technologies LLC, which was divested on March 28, 2014. Aclara’s 2014 results are presented as Discontinued Operations.
 
EPS Summary
 
EPS from Continuing Operations for Q2 2015 was $0.33 per share, compared to Q2 2014 EPS from Continuing Operations – As Adjusted of $0.36 per share. The Q2 2014 GAAP EPS loss was ($1.26), reflecting the sale of Aclara in 2014.
Management previously provided Q2 2015 EPS guidance in the range of $0.27 to $0.32 per share, which anticipated a 34 percent tax rate. The actual Q2 2015 tax rate increased to 37.3 percent as described below, it negatively impacted the current quarter’s reported EPS by approximately ($0.02) per share.
 
Continuing Operations Highlights
 
·  
Q2 2015 sales increased $4 million, or 3 percent to $129 million compared to $125 million in Q2 2014. Utility Solutions Group (USG, or Doble) sales increased $3 million (12 percent), Filtration sales increased slightly despite the previously described decrease in expected Space program sales at VACCO, and Test sales increased $1 million (3 percent) during the Quarter;
·  
Q2 2015 gross margin percentage was consistent with Q2 2014 at 38 percent. Filtration margins increased significantly, which offset lower gross margins in Test and USG which were driven by variations in sales mix;
·  
SG&A increased $1 million in Q2 2015, which includes incremental professional fees incurred to complete the ENOSERV acquisition, and additional international sales and marketing expenses at Doble;
·  
The effective tax rate in Q2 2015 was 37.3 percent (versus the expected 34 percent) compared to 29.9 percent in Q2 2014. The Q2 2015 tax rate was unfavorably impacted by the timing and composition of pretax earnings generated domestically versus internationally, where foreign tax rates are lower than the U.S. rates. Compared to Q2 Guidance, the higher tax rate in Q2 2015 reduced EPS by ($0.02);
·  
Q2 2015 Orders were $142 million (book-to-bill of 1.10x) resulting in an order backlog of $348 million at March 31, 2015, reflecting a $13 million increase during the quarter;
·  
 Q2 2015 Filtration orders were $70 million (book-to-bill of 1.20x) and included additional orders from KAZ, and significant commercial aerospace (A-350, etc.) and Space orders at PTI and VACCO, respectively. Doble’s orders were $32 million (book-to-bill of 1.11x) and included additional services business in the Middle East and solid domestic product bookings. Test orders were $40 million (book-to-bill of 0.96x) and were more normalized after the large Q1 2015 orders;
·  
YTD 2015 orders were $295 million (book-to-bill of 1.18x) reflecting a $45 million, or 15 percent, increase in backlog during the fiscal year;
·  
Net debt at March 31, 2015 was $38 million ($35 million of cash and $73 million of borrowings) and reflects the cash flow impact of the ENOSERV acquisition and stock repurchases;
·  
During Q2 2015, the Company returned $5.6 million to shareholders through dividends ($2.1 million) and share repurchases ($3.5 million, and 101,000 shares).
 
Chairman’s Commentary
 
Vic Richey, Chairman and Chief Executive Officer, commented, “The Q2 2015 results came in better than previously expected, led by the continued strong performances from Filtration and Doble, as both groups exceeded their EBIT expectations during the Quarter. Despite some EPS headwind from the higher tax rate and Test’s lower than expected sales and profit, we beat our Q2 operating plan and continue to see more opportunities developing going forward. For the first six months of the year, we are ahead of our internal targets on EBIT, EPS, cash flow and orders, and I feel confident that we can achieve our goals for the balance of the year.
“Doble continued to outperform in Q2 as sales increased 12 percent and EBIT was better than expected. As a reminder, Doble’s Q2 2015 EBIT was impacted by the timing of their annual world-wide “Doble Client Conference” which was held in March this year, versus April last year, thereby impacting the quarterly SG&A cost profile. Attendance this year was at a record level, and the ENOSERV team’s participation was enthusiastically received by our customers. The positive feedback I received about ENOSERV’s product offerings and outstanding service further validated my excitement about the acquisition. We continue to gain momentum on Doble’s prospects in international markets as validated by the addition of the Marafiq Power win, as well as with its new products, services and software offerings.
“Filtration’s YTD EBIT is well ahead of expectations led by the strength of PTI’s commercial aerospace business. The public communications surrounding the growth in new OEM aircraft is creating an exciting outlook for the foreseeable future. As we entered the year, Filtration sales and EBIT were projected to be lower in the first half compared to last year, resulting from the previously communicated delays on the SLS program at VACCO and the KAZ program at TEQ. As we enter the back half of the year, we expect to see additional sales and EBIT momentum resulting from our substantial increase in entered orders and the conversion of these orders into profitable sales. We remain on track to meet or exceed our commitments in Filtration.
“The Test business came in lower than expected during the Quarter on both sales and EBIT due to continued timing issues as several projects were not completed as scheduled. We remain positive that we can catch-up on the majority of these projects during the course of the year. The $101 million in YTD orders clearly bodes well for our future and validates our global leadership position. We continue to work aggressively on the cost side of the business to ensure we are maximizing our EBIT opportunities.
 “As announced earlier, we completed the ENOSERV acquisition in January, which is complementary to Doble, and serves a growing utility market segment. We continue to review additional opportunities and we are confident we will be successful in adding to our existing portfolio. Acquisitions are key to supplementing our growth, and we will remain disciplined in this area to ensure we can generate an attractive return on these investments.
“During the first six months of the year, we continued to opportunistically repurchase our shares and we remain committed to our defined Capital Allocation Strategy.
“We continue to have a favorable view of our future and our goal remains the same – to increase long-term shareholder value.”
 
Discontinued Operations
 
The Company completed the Aclara divestiture on March 28, 2014 and used the proceeds to significantly pay down its outstanding debt. The results of operations for Aclara are reflected in the financial statements as Discontinued Operations. The Company and the buyer have not yet reached agreement on the final working capital adjustment, and as a result, the Company recorded $0.4 million of after-tax costs, or ($0.01) per share, in Q2 2015 for professional fees incurred. The process is expected to be resolved through independent arbitration prior to the end of FY 2015.
 
Share Repurchase
 
During the six months ended March 31, 2015, the Company spent $9.9 million to repurchase 283,000 of its outstanding shares on the open market. The Company’s current share repurchase authorization extends through September 30, 2015.
 
Dividend Payment
 
The next quarterly cash dividend of $0.08 per share will be paid on July 16, 2015 to stockholders of record on July 2, 2015.


 
Business Outlook – Fiscal Year 2015 (and 3 Year)
 
Management’s expectations for the balance of 2015 are consistent with the guidance presented in the February 9, 2015 release.
Management expects the remainder of 2015 revenues and EPS to reflect a profile similar to 2014, including EPS being more second half weighted.
Q3 2015 EPS is expected to be in the range of $0.38 to $0.42 per share, and reflects an expected tax rate of 34 percent. The Q3 2014 EPS as adjusted was $0.44, and was favorably impacted by an effective tax rate of 24 percent, which resulted from discrete tax benefits recognized in the prior year Quarter.
Q3 2015 sales are expected to increase approximately five percent, and EBIT dollars are expected to increase approximately 10 percent over Q3 2014, led by strong year-over-year comparisons in Filtration and at Doble.
In April 2015, Management conducted its regular mid-year planning meetings at each of the operating segments and reviewed the updated financial plans for the Company. Management continues to see solid, tangible growth opportunities in sales, EBIT, and EPS across each of the business segments consistent with the three-year expectations communicated in the Company’s September 9, 2014 Analyst Day Presentation (included on the Company’s website).
 
Conference Call
 
The Company will host a conference call today, May 5, at 4:00 p.m. Central Time, to discuss the Company’s second quarter 2015 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 for seven days on the Company’s website noted above or by phone (dial 1-888-843-7419 and enter the pass code 39347417).
 
Forward-Looking Statements
 
Statements in this press release regarding the Company’s expected 2015 and beyond revenue and sales growth, EBIT, corporate costs, the timing of Test projects, effective tax rates, EPS, the Company’s ability to increase shareholder value, the success of acquisition efforts, the success of new products and solutions, the size, number and timing of growth opportunities in the future, the specific actions initiated as a result of the Capital Allocation Strategy including but not limited to the declaration of dividends and share repurchases, 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, 2014, and the following: the success of the Company’s competitors; site readiness issues with Test segment customers; weakening of economic conditions in served markets; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; unforeseen charges impacting corporate operating expenses; delivery delays or defaults by customers; the performance of the Company’s international operations; material changes in the costs and availability of certain raw materials; the appropriation and allocation of Government funds; the termination for convenience of Government and other customer contracts; the timing and content of future contract awards or customer orders; containment of engineering and development costs; 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 and taxation requirements; 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 selected acquisitions; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the Company’s successful execution of profit improvement initiatives and restructuring activities.
 
Non-GAAP Financial Measures
 
The financial measures EBIT, EBIT margin, EPS – “As Adjusted” and EPS – from Continuing Operations “As Adjusted” are presented in this press release. The Company defines EBIT as earnings before interest and taxes from continuing operations, EBIT margin as a percent of net sales, EPS – “As Adjusted” and EPS – from Continuing Operations “As Adjusted” as GAAP EPS less the Filtration segment restructuring charges (representing $0.01 per share during the second quarter of 2014). EBIT, EBIT margin, EPS – “As Adjusted” and EPS – from Continuing Operations “As Adjusted” are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes that EBIT and EBIT margin are useful in assessing the operational profitability of the Company’s business segments because they exclude interest and taxes, 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, EBIT margin, EPS – “As Adjusted” and EPS – from Continuing Operations “As Adjusted” 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, provides engineered filtration products to the aviation, space and process markets worldwide and is the industry leader in RF shielding and EMC test products. In addition, the Company provides diagnostic instruments, services and the world’s premier library of statistically significant apparatus test results for the benefit of energy generation, transmission, and delivery companies and industrial power users worldwide. Further information regarding ESCO and its subsidiaries is available on the Company’s website at www.escotechnologies.com.
- tables attached –
 
 




 
 

 



 

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
   
Condensed Consolidated Statements of Operations (Unaudited)
   
(Dollars in thousands, except per share amounts)
   
 
   
     
Three Months
Ended
March 31, 2015
   
Three Months
Ended
March 31, 2014
   
                 
Net Sales
      128,941       124,762    
 
Cost and Expenses:
                 
 
Cost of sales
    80,140       77,436    
 
Selling, general and administrative expenses
    32,931       31,818    
 
Amortization of intangible assets
    2,220       1,679    
 
Interest expense
    213       654    
 
Other (income) expenses, net
    (354 )     (39 )  
 
Total costs and expenses
    115,150       111,548    
                     
Earnings before income taxes
    13,791       13,214    
Income taxes
    5,144       3,950    
                     
 
Net earnings from continuing operations
    8,647       9,264    
                     
(Loss) earnings from discontinued operations, net of tax
                 
 
(benefit) expense of $(201) and $4,407, respectively
    (372 )     7,501    
Loss on sale of discontinued operations, net of tax
                 
 
benefit of $9,499
          (50,442 )  
 
Net loss from discontinued operations
    (372 )     (42,941 )  
                     
 
Net earnings
  $ 8,275       (33,677 )  
                     
Earnings per share:
                 
 
Diluted - GAAP
                 
 
Continuing operations
    0.33       0.35    
 
Discontinued operations
    (0.01 )     (1.61 )  
 
Net earnings
  $ 0.32       (1.26 )  
                     
 
Diluted - As Adjusted Basis
                 
 
Continuing operations
  $ 0.33       0.36  
(1)
                     
Average common shares O/S:
                 
 
Diluted
    26,179       26,713    
                     
 
 
(1)
Adjusted basis includes $0.3 million (or $0.01 per share) of add back adjustments
   
 
for restructuring charges incurred at Crissair during the second quarter of fiscal 2014.
   
 
 
 
 
 

 
 
 
 
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
   
Condensed Consolidated Statements of Operations (Unaudited)
   
(Dollars in thousands, except per share amounts)
   
 
   
   
Six Months
Ended
March 31, 2015
   
Six Months
Ended
March 31, 2014
   
               
Net Sales
    249,488       249,212    
Cost and Expenses:
                 
Cost of sales
    150,560       151,717    
Selling, general and administrative expenses
    66,435       65,690    
Amortization of intangible assets
    4,093       3,365    
Interest expense
    408       1,346    
Other (income) expenses, net
    (575 )     140    
Total costs and expenses
    220,921       222,258    
                   
Earnings before income taxes
    28,567       26,954    
Income taxes
    9,092       8,858    
                   
Net earnings from continuing operations
    19,475       18,096    
                   
(Loss) earnings from discontinued operations, net of tax
                 
(benefit) expense of $(201) and $5,713, respectively
    (372 )     9,858    
Loss on sale of discontinued operations, net of tax
                 
benefit of $9,499
          (50,442 )  
Net loss from discontinued operations
    (372 )     (40,584 )  
                   
Net earnings
  $ 19,103       (22,488 )  
                   
Earnings per share:
                 
Diluted - GAAP
                 
Continuing operations
    0.74       0.68    
Discontinued operations
    (0.01 )     (1.52 )  
Net earnings
  $ 0.73       (0.84 )  
                   
Diluted - As Adjusted Basis
                 
Continuing operations
  $ 0.74       0.70  (1)
 
                   
Average common shares O/S:
                 
Diluted
    26,302       26,749    
                   
 
 
(1)
Adjusted basis includes $0.5 million (or $0.02 per share) of add back adjustments
 
 
for restructuring charges incurred at Crissair during the first six months of fiscal 2014.
 
 
 
 
 

 
 
 
 
 
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
 
Condensed Business Segment Information (Unaudited)
 
(Dollars in thousands)
 
 
 
   
Three Months
Ended
March 31,
GAAP
   
Adjustments
         
Three Months
Ended
March 31,
As Adjusted
 
   
2015
   
2014
   
2015
   
2014
         
2015
   
2014
 
Net  Sales
                                         
Filtration
  $ 58,428       58,397                         58,428       58,397  
Test
    42,084       41,025                         42,084       41,025  
Utility Solutions Group
    28,429       25,340                         28,429       25,340  
Totals
  $ 128,941       124,762       0       0             128,941       124,762  
                                                       
EBIT
                                                     
Filtration
  $ 12,051       10,100               306  (1)             12,051       10,406  
Test
    3,467       3,533                               3,467       3,533  
Utility Solutions Group
    4,855       5,518                               4,855       5,518  
Corporate
    (6,369 )     (5,283 )                             (6,369 )     (5,283 )
Consolidated EBIT
    14,004       13,868       0       306               14,004       14,174  
Less: Interest expense
    (213 )     (654 )                             (213 )     (654 )
Less: Income tax expense
    (5,144 )     (3,950 )                             (5,144 )     (3,950 )
Net earnings from
                                                       
Continuing Operations
  $ 8,647       9,264       0       306               8,647       9,570  
                                                         
 
 
Note:
The above table is presented on a continuing operations basis.
           
Note:
Depreciation and amortization expense was $4.6 million and $4.1 million for the quarters ended March 31, 2015 and 2014, respectively.
                             
(1)
 
Includes $0.3 million (or $0.01 per share) of restructuring charges at Crissair during the second quarter of fiscal 2014.
 
 
 
 
 
 

 



 
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
 
Condensed Business Segment Information (Unaudited)
 
(Dollars in thousands)
 
 
 
   
Six Months
Ended
March 31,
GAAP
   
Adjustments
         
Six Months
Ended
March 31,
As Adjusted
 
   
2015
   
2014
   
2015
   
2014
         
2015
   
2014
 
Net  Sales
                                         
Filtration
  $ 105,940       113,875                         105,940       113,875  
Test
    81,504       80,503                         81,504       80,503  
Utility Solutions Group
    62,044       54,834                         62,044       54,834  
Totals
  $ 249,488       249,212       0       0             249,488       249,212  
                                                       
EBIT
                                                     
Filtration
  $ 19,127       19,584               507  (1)             19,127       20,091  
Test
    7,262       7,108                               7,262       7,108  
Utility Solutions Group
    14,833       13,165                               14,833       13,165  
Corporate
    (12,247 )     (11,557 )                             (12,247 )     (11,557 )
Consolidated EBIT
    28,975       28,300       0       507               28,975       28,807  
Less: Interest expense
    (408 )     (1,346 )                             (408 )     (1,346 )
Less: Income tax expense
    (9,092 )     (8,858 )                             (9,092 )     (8,858 )
Net earnings from
                                                       
Continuing Operations
  $ 19,475       18,096       0       507               19,475       18,603  
                                                         
 
 
Note:
The above table is presented on a continuing operations basis.
           
Note:
Depreciation and amortization expense was $8.9 million and $8.1 million for the six-month periods ended March 31, 2015 and 2014, respectively.
                             
(1)
 
Includes $0.5 million (or $0.02 per share) of restructuring charges at Crissair during the first six months of fiscal 2014.
 
 
 
 
 
 

 





 
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets (Unaudited)
 
(Dollars in thousands)
 
 
 
 
   
March 31,
2015
   
September 30,
2014
 
             
Assets
           
Cash and cash equivalents
  $ 34,719       35,131  
Accounts receivable, net
    95,334       105,449  
Costs and estimated earnings on
               
long-term contracts
    23,030       27,798  
Inventories
    107,550       94,292  
Current portion of deferred tax assets
    19,097       19,946  
Other current assets
    12,330       13,337  
Total current assets
    292,060       295,953  
Property, plant and equipment, net
    77,682       76,465  
Intangible assets, net
    191,638       182,063  
Goodwill
    290,784       282,337  
Other assets
    9,020       9,088  
    $ 861,184       845,906  
                 
Liabilities and Shareholders' Equity
               
Current maturities of long-term debt
  $ 20,000       20,000  
Accounts payable
    27,706       40,328  
Current portion of deferred revenue
    21,444       19,895  
Other current liabilities
    59,159       66,877  
Total current liabilities
    128,309       147,100  
Deferred tax liabilities
    76,929       77,440  
Other liabilities
    20,998       21,195  
Long-term debt
    53,000       20,000  
Shareholders' equity
    581,948       580,171  
    $ 861,184       845,906  
 
 
 
 
 
 

 


 

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
 
Consolidated Statements of Cash Flows (Unaudited)
 
(Dollars in thousands)
 
 
 
 
   
Six Months Ended March 31, 2015
 
Cash flows from operating activities:
     
   Net earnings
  $ 19,103  
   Adjustments to reconcile net earnings
       
     to net cash provided by operating activities:
       
         Net loss from discontinued operations, net of tax
    372  
         Depreciation and amortization
    8,898  
         Stock compensation expense
    2,569  
         Changes in current assets and liabilities
    (16,140 )
         Change in deferred revenue and costs, net
    689  
         Other
    1,368  
           Net cash provided by operating activities - continuing operations
    16,859  
           Net cash used by operating activities - discontinued operations
    (372 )
           Net cash provided by operating activities
    16,487  
         
Cash flows from investing activities:
       
   Acquisition of business
    (20,500 )
   Capital expenditures
    (7,606 )
   Additions to capitalized software
    (3,034 )
       Net cash used by investing activities
    (31,140 )
         
Cash flows from financing activities:
       
   Proceeds from long-term debt
    77,000  
   Principal payments on long-term debt
    (44,000 )
   Dividends paid
    (4,195 )
   Purchases of common stock into treasury
    (9,882 )
   Other
    (338 )
     Net cash provided by financing activities
    18,585  
         
Effect of exchange rate changes on cash and cash equivalents
    (4,344 )
         
Net decrease in cash and cash equivalents
    (412 )
Cash and cash equivalents, beginning of period
    35,131  
Cash and cash equivalents, end of period
  $ 34,719  
 
 
 
 
 
 

 





ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
 
Other Selected Financial Data (Unaudited)
 
(Dollars in thousands)
 
 
 
Backlog And Entered Orders - Q2 FY 2015
 
USG
   
Test
   
Filtration
   
Total
 
Beginning Backlog - 1/1/15
  $ 27,268       111,690       195,621       334,579  
Entered Orders
    31,697       40,350       70,330       142,377  
Sales
    (28,429 )     (42,084 )     (58,428 )     (128,941 )
Ending Backlog - 3/31/15
  $ 30,536       109,956       207,523       348,015  
                                 
Backlog And Entered Orders - YTD Q2 FY 2015
 
USG
   
Test
   
Filtration
   
Total
 
Beginning Backlog - 10/1/14
  $ 33,093       90,739       179,063       302,895  
Entered Orders
    59,487       100,721       134,400       294,608  
Sales
    (62,044 )     (81,504 )     (105,940 )     (249,488 )
Ending Backlog - 3/31/15
  $ 30,536       109,956       207,523       348,015