INVESTOR NEWS

ESCO Announces Second Quarter Fiscal 2018 Results

- Q2 GAAP EPS $0.38 ($0.10 of Cost Reduction Charges) -
- Q2 Adjusted EPS $0.48 ($0.05 Above Guidance Range) -

ST. LOUIS, May 8, 2018 - ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the second quarter (Q2 2018) and six months year-to-date (YTD 2018) periods ended March 31, 2018.

The financial results presented include certain non-GAAP financial measures such as EBIT, EBITDA (defined as earnings before interest, taxes, depreciation and amortization), Adjusted EBITDA (defined as EBITDA excluding certain defined charges) and Adjusted EPS. 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

Q2 2018 GAAP EPS of $0.38 per share included $2.6 million, or $0.10 per share of cost reduction charges incurred in USG and Filtration as described in the Q1 2018 earnings release dated February 6, 2018.

Q2 2018 Adjusted EPS, excluding the $0.10 of charges noted above, was $0.48 per share and exceeded Management's Q2 2018 Adjusted EPS guidance of $0.38 to $0.43 per share, as every segment reported stronger than expected operating earnings.

Q2 2017 GAAP EPS of $0.43 per share included pretax purchase accounting charges of $1.0 million, or $0.02 per share. Excluding these charges, Q2 2017 Adjusted EPS was $0.45 per share.

Adjusted EBITDA was $28 million in Q2 2018, reflecting a 6 percent increase over Q2 2017 Adjusted EBITDA of $26 million.

Operating Highlights

• Q2 2018 sales increased $14 million (8 percent) to $175 million compared to $161 million in Q2 2017;
• On a segment basis, Q2 2018 Filtration sales decreased nominally from Q2 2017, but were in line with previous expectations. Commercial aerospace sales increased, industrial/automotive sales decreased at PTI as previously communicated, and Vacco's space sales decreased due to the quarterly timing of large project deliveries. Test sales increased 6 percent driven by its strong backlog, and Technical Packaging sales increased nominally. USG sales increased $14 million, or 43 percent, driven by the recent acquisitions and  were consistent with previous expectations;
• SG&A expenses increased $6 million in Q2 2018 primarily due to the inclusion of the 2017 acquisitions in the current period, coupled with additional sales, marketing, R&D, and bid and proposal costs incurred to support future revenue growth;
• Amortization of intangible assets increased $1 million due to the 2017 acquisitions;
• Entered orders were $187 million in Q2 2018 (book-to-bill of 1.07x) reflecting a $13 million increase in backlog during the Quarter, resulting in an ending backlog of $417 million at March 31, 2018;
• Filtration orders were $68 million (book-to-bill of 1.03x) comprised of recurring commercial aerospace orders and additional navy products;
• Test orders were $48 million (book-to-bill of 1.18x) which reflects continued strength in the wireless, government and defense, electric vehicle, and automotive chamber markets;
• USG orders were $53 million (book-to-bill of 1.12x) which reflects increased orders for new products and solutions across the segment;
• Technical Packaging orders were $19 million (book-to-bill of 0.88x) due primarily to the timing of orders for ongoing customer projects;
• The Q2 2018 income tax rate was 26.4 percent compared to Management's expected rate of 26 percent, and compared to the Q2 2017 income tax rate of 33.7 percent; and,
• YTD 2018 net cash provided by operating activities was $33 million resulting in $222 million of net debt (outstanding borrowings less cash on hand) at March 31, 2018 and a 2.1x leverage ratio. Management is planning to repatriate a substantial portion of its foreign cash (currently $32 million) to pay down its outstanding debt and for other corporate purposes.

Chairman's Commentary - Q2 2018

Vic Richey, Chairman and Chief Executive Officer, commented, "I am pleased with our results for the first half of the year. We started the year on a positive note as our Q1 operating results came in at the high end of our range, and the momentum continued in Q2 as we beat our Adjusted EPS expectations by $0.05 per share.

"We are also ahead of Plan on cash flow and entered orders and have grown our backlog by $40 million or 11 percent from the start of the year. This provides us with confidence that we will meet our expectations entering the second half of the year with our growth projected to be meaningfully higher than our first half.

"USG's recent acquisitions are on track and the integration has gone quite well. The Q2 cost reduction actions are complete and we should see the benefit of these actions over the balance of the year, which support my enthusiasm for USG's growth and enhanced margins. The consolidation of our sales channels, including our global rep and distributor network, has exceeded my expectations and we are seeing the positive sales impact across the entire segment platform.

 "The clear highlight of Q2 was our earnings as we beat the top of our guidance range with all of our operating segments exceeding plan. This achievement was closely followed by the continued strength of our order activity and backlog.

"Our strong YTD 2018 cash flow and our second half cash expectations allow us to pay down debt while continuing our M&A activities without creating an unfavorable leverage situation. We will continue to balance our M&A actions with our debt levels and leverage ratios as we are committed to maintaining a prudent balance sheet.

"Our market positions and continued growth opportunities across the Company provide me 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 July 19, 2018 to stockholders of record on July 5, 2018.

Business Outlook - 2018

With the significant level of M&A activity completed over the past 18 months, coupled with the positive earnings and cash flow impact of U.S. Tax Reform, Management will continue to emphasize Adjusted EBITDA as a supplement to net income, and Adjusted EPS as a supplement to GAAP EPS, as it believes these are relevant metrics to be considered for measuring ongoing operating performance as well as the Company's enterprise valuation.

Management continues to see meaningful sales and Adjusted EBITDA growth across each of the Company's business segments and anticipates strong growth over the remainder of 2018.

Management's current expectations for 2018 remain consistent with the details outlined in the Business Outlook presented in the Company's February 6, 2018 release.

To summarize, Management projects 2018 GAAP EPS in the range of $3.55 to $3.65 per share, and Adjusted EPS in the range of $2.65 to $2.75 per share, adjusting for the Q1 2018 incremental net tax benefits resulting from U.S. Tax Reform and the Q2 2018 cost reduction charges described above.

Management continues to expect the balance of 2018's revenues, operating results and EPS to be significantly higher than the reported first half results noted above.

Management expects Q3 2018 GAAP and Adjusted EPS to be in the range of $0.68 to $0.73 per share.

Chairman's Commentary - 2018

Mr. Richey continued, "Given the contributions from our acquisitions, coupled with anticipated organic growth from "legacy" operations, and supplemented by the favorable earnings and cash flow impact from U.S. Tax Reform, I continue to believe that 2018 will reflect solid sales, EBIT, EBITDA and EPS growth and position us well to meet or exceed our shareholder value-creation goals.

"Our management teams' focus on profitable growth, cash flow, and ROIC will remain steadfast as we believe these are the key drivers of continued and sustainable share price appreciation."

Conference Call

The Company will host a conference call today, May 8, at 4:00 p.m. Central Time, to discuss the Company's Q2 2018 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 1-855-859-2056 and enter the pass code 6564437).

Forward-Looking Statements

Statements in this press release regarding the Company's expected quarterly, 2018 full year and beyond results, revenue and sales growth, EPS, Adjusted EPS, EPS growth, cash, EBIT, EBITDA, Adjusted EBITDA, gross profit, interest expense, non-cash depreciation and amortization of intangibles, corporate costs, income tax expense, effective tax rates, cash generation, repatriation of foreign cash and the uses of such cash, the impacts of U.S. Tax Reform, margin expansion and savings resulting from cost reduction actions, the Company's ability to increase operating margins, realize financial goals and increase shareholder value, the success of acquisition efforts, the size, number and timing of future sales and growth opportunities, 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, 2017, 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 and taxation requirements; legal and foreign tax requirements impacting the repatriation of cash in foreign locations; 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; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the success and integration of recently acquired businesses.

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 cost reduction charges described above which were $0.10 per share for Q2 2018.

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: 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 March 31, 2018			Three Months Ended March 31, 2017
Net Sales				$	174,778			161,178
Cost and Expenses:
	Cost of sales				112,370			105,379
	Selling, general and administrative expenses				40,749			34,889
	Amortization of intangible assets				4,564			3,814
	Interest expense				2,036			855
	Other (income) expenses, net				1,475			(578)
		Total costs and expenses			161,194			144,359
Earnings before income taxes					13,584			16,819
Income taxes					3,590			5,662
		Net earnings		$	9,994			11,157
		Diluted EPS - GAAP		$	0.38			0.43
		Diluted EPS - As Adjusted		$	0.48	(1)		0.45	(2)
		Diluted average common shares O/S:			25,988			25,911
(1)	Excludes $2.7 million, net of tax, impact of restructuring charges incurred at Doble & PTI during the second quarter of 2018.
(2)	Excludes $0.6 million, net of tax, impact of the Mayday inventory step-up charge during the second quarter of 2017.

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
					Six Months Ended March 31, 2018			Six Months Ended March 31, 2017
Net Sales				$	348,273			307,546
Cost and Expenses:
	Cost of sales				224,106			198,293
	Selling, general and administrative expenses				82,903			68,651
	Amortization of intangible assets				9,010			7,463
	Interest expense				4,221			1,539
	Other (income) expenses, net				1,648			(1,344)
		Total costs and expenses			321,888			274,602
Earnings before income taxes					26,385			32,944
Income taxes					(18,280)			11,060
		Net earnings		$	44,665			21,884
		Diluted EPS - GAAP		$	1.72			0.84
		Diluted EPS - As Adjusted		$	0.82	(1)		0.89	(2)
		Diluted average common shares O/S:			26,034			25,945
(1)	Excludes $2.7 million, net of tax, impact of restructuring charges incurred at Doble & PTI during the first six months of 2018 and the $25 million tax benefit recorded related to U.S. Tax Reform
(2)	Excludes $1.3 million, net of tax, impact of Mayday inventory step-up charges during the first six months of 2017.

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP				As Adjusted
				Q2 2018		Q2 2017		Q2 2018		Q2 2017
Net  Sales
	Filtration		$	65,775		68,906		65,775		68,906
	Test			40,805		38,367		40,805		38,367
	USG			46,699		32,671		46,699		32,671
	Technical Packaging			21,499		21,234		21,499		21,234
		Totals	$	174,778		161,178		174,778		161,178
EBIT
	Filtration		$	11,118		11,625		11,566		12,593
	Test			5,300		3,766		5,300		3,766
	USG			5,626		7,434		7,543		7,434
	Technical Packaging			1,885		2,196		1,885		2,196
	Corporate			(8,309)		(7,347)		(8,086)		(7,347)
		Consolidated EBIT		15,620		17,674		18,208		18,642
		Less: Interest expense		(2,036)		(855)		(2,036)		(855)
		Less: Income tax expense		(3,590)		(5,662)		(3,524)		(6,001)
		Net earnings	$	9,994		11,157		12,648		11,786
	Note 1: Adjusted net earnings were $12.6 million in Q2 '18 which excluded $2.7 million (or $0.10 per share), net of tax, impact of the restructuring charges incurred at Doble and PTI during the second quarter of 2018.
	Note 2: Adjusted net earnings were $11.8 million in Q2 '17 which excluded $0.6 million (or $0.02 per share), net of tax, impact of the Mayday inventory step-up charge during the second quarter of 2017.
		EBITDA Reconciliation to Net earnings:
								Adjusted		Adjusted
				Q2 2018		Q2 2017		Q2 2018		Q2 2017
		Consolidated EBITDA	$	25,192		25,274		27,780		26,242
		Less: Depr & Amort		(9,572)		(7,600)		(9,572)		(7,600)
		Consolidated EBIT		15,620		17,674		18,208		18,642
		Less: Interest expense		(2,036)		(855)		(2,036)		(855)
		Less: Income tax expense		(3,590)		(5,662)		(3,524)		(6,001)
		Net earnings	$	9,994		11,157		12,648		11,786

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP				As Adjusted
				YTD Q2 2018		YTD Q2 2017		YTD Q2 2018		YTD Q2 2017
Net  Sales
	Filtration		$	125,810		127,690		125,810		127,690
	Test			78,334		72,194		78,334		72,194
	USG			102,453		68,228		102,453		68,228
	Technical Packaging			41,676		39,434		41,676		39,434
		Totals	$	348,273		307,546		348,273		307,546
EBIT
	Filtration		$	20,764		22,351		21,212		24,287
	Test			7,895		6,191		7,895		6,191
	USG			16,277		17,108		18,194		17,108
	Technical Packaging			2,850		3,227		2,850		3,227
	Corporate			(17,180)		(14,394)		(16,957)		(14,394)
		Consolidated EBIT		30,606		34,483		33,194		36,419
		Less: Interest expense		(4,221)		(1,539)		(4,221)		(1,539)
		Plus (Less): Income tax		18,280		(11,060)		(6,705)		(11,738)
		Net earnings	$	44,665		21,884		22,268		23,142
	Note 1: Adjusted net earnings were $22.3 million in YTD Q2 '18 which excluded $2.7 million (or $0.10 per share), net of tax, impact of the restructuring charges incurred at Doble and PTI during the first six months of 2018, and the $25 million (or $1.00 per share) tax benefit recorded related to U.S. Tax Reform.
	Note 2: Adjusted net earnings were $23.1 million in YTD Q2 '17 which excluded $1.3 million (or $0.05 per share), net of tax, impact of the Mayday inventory step-up charges during the first six months of 2017.
		EBITDA Reconciliation to Net earnings:
								Adjusted		Adjusted
				YTD Q2 2018		YTD Q2 2017		YTD Q2 2018		YTD Q2 2017
		Consolidated EBITDA	$	49,404		49,171		51,992		51,107
		Less: Depr & Amort		(18,798)		(14,688)		(18,798)		(14,688)
		Consolidated EBIT		30,606		34,483		33,194		36,419
		Less: Interest expense		(4,221)		(1,539)		(4,221)		(1,539)
		Plus (Less): Income tax		18,280		(11,060)		(6,705)		(11,738)
		Net earnings	$	44,665		21,884		22,268		23,142

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
				March 31, 2018		September 30, 2017
Assets
	Cash and cash equivalents		$	42,905		45,516
	Accounts receivable, net			153,125		160,580
	Costs and estimated earnings on
		long-term contracts		40,285		47,286
	Inventories			137,029		124,515
	Other current assets			18,336		14,895
		Total current assets		391,680		392,792
	Property, plant and equipment, net			135,032		132,748
	Intangible assets, net			349,631		351,134
	Goodwill			382,141		377,879
	Other assets			6,865		5,891
			$	1,265,349		1,260,444
Liabilities and Shareholders' Equity
	Short-term borrowings and current		$	20,000		20,000
		maturities of long-term debt
	Accounts payable			50,365		54,789
	Current portion of deferred revenue			32,002		28,583
	Other current liabilities			83,463		91,597
		Total current liabilities		185,830		194,969
	Deferred tax liabilities			59,845		86,378
	Other liabilities			55,138		52,179
	Long-term debt			245,000		255,000
	Shareholders' equity			719,536		671,918
			$	1,265,349		1,260,444

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
		Six Months Ended March 31, 2018
Cash flows from operating activities:
Net earnings	$	44,665
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization		18,798
Stock compensation expense		2,648
Changes in assets and liabilities		(9,336)
Effect of deferred taxes		(26,533)
Change in deferred revenue and costs, net		3,766
Pension contributions		(537)
Net cash provided by operating activities		33,471
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired		(11,369)
Capital expenditures		(10,095)
Additions to capitalized software		(4,608)
Net cash used by investing activities		(26,072)
Cash flows from financing activities:
Proceeds from long-term debt		36,000
Principal payments on long-term debt		(46,000)
Dividends paid		(4,134)
Other		560
Net cash used by financing activities		(13,574)
Effect of exchange rate changes on cash and cash equivalents		3,564
Net decrease in cash and cash equivalents		(2,611)
Cash and cash equivalents, beginning of period		45,516
Cash and cash equivalents, end of period	$	42,905

   

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
Backlog And Entered Orders - Q2 FY 2018				Filtration		Test		USG		Technical Packaging		Total
	Beginning Backlog - 1/1/18		$	208,480		135,552		37,472		22,643		404,147
	Entered Orders			67,836		48,048		52,504		18,918		187,306
	Sales			(65,775)		(40,805)		(46,699)		(21,499)		(174,778)
	Ending Backlog - 3/31/18		$	210,541		142,795		43,277		20,062		416,675
Backlog And Entered Orders - YTD Q2 FY 2018				Filtration		Test		USG		Technical Packaging		Total
	Beginning Backlog - 10/1/17		$	203,120		114,792		35,581		23,614		377,107
	Entered Orders			133,231		106,337		110,149		38,124		387,841
	Sales			(125,810)		(78,334)		(102,453)		(41,676)		(348,273)
	Ending Backlog - 3/31/18		$	210,541		142,795		43,277		20,062		416,675

  

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