INVESTOR NEWS

ESCO Announces Third Quarter 2015 Results

ST. LOUIS, August 10, 2015 - ESCO Technologies Inc. (NYSE: ESE) (ESCO or the "Company") today reported its operating results for the third quarter ended June 30, 2015 (Q3 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 results are presented as Discontinued Operations.

EPS Summary

Q3 2015 GAAP EPS was $0.45, which included a $0.04 per share gain from discontinued operations resulting from the favorable resolution of the closing working capital adjustment resulting from the sale of Aclara in 2014. Q3 2014 GAAP EPS was $0.43 per share.

EPS from Continuing Operations for Q3 2015 was $0.41 per share, compared to Q3 2014 EPS from Continuing Operations - As Adjusted of $0.44 per share. Management previously provided Q3 2015 EPS guidance in the range of $0.38 to $0.42 per share. The Q3 2015 effective tax rate was 31 percent compared to 24 percent in Q3 2014.

Continuing Operations Highlights

• Q3 2015 sales increased $4 million, or 3 percent to $134 million compared to $130 million in Q3 2014. Utility Solutions Group (USG, or Doble) sales increased $3 million (11 percent), Filtration sales increased $3 million (5 percent) despite the previously described decrease in expected Space program sales at VACCO, and Test sales decreased $2 million (5 percent) during the Quarter due to the timing and lower volumes of domestic shielding market sales;
• Q3 2015 gross margin percentage was 38 percent compared to 39 percent in Q3 2014. The Doble and Filtration gross margins increased significantly as a result of the increased sales volumes coupled with a strong and favorable product mix. These gross margin increases were offset by lower gross margins in Test which were driven by the lower shielding sales, and $2 million of incremental charges related to the write-down of certain inventories, primarily in Europe;
• SG&A decreased $1 million in Q3 2015, primarily driven by numerous cost reduction initiatives implemented at Test. The lower spending at Test was partially offset by additional international sales and marketing expenses at Doble to support its near-term growth opportunities;
• The effective tax rate in Q3 2015 was 31 percent compared to 24 percent in Q3 2014. The Q3 2014 tax rate was favorably impacted by larger tax benefits being realized for research credits and foreign tax benefits resulting from the timing and composition of pretax earnings generated domestically versus internationally, where foreign tax rates are lower than the U.S. rates;
• Q3 2015 orders were $121 million resulting in an order backlog of $334 million at June 30, 2015;
• YTD 2015 orders were $415 million (book-to-bill of 1.08x) reflecting a $32 million, or 10 percent, increase in backlog during the first nine months of the fiscal year;
• YTD 2015 Filtration orders were $180 million (book-to-bill of 1.08x) and included significant orders from KAZ, and significant commercial aerospace (A-350, other new platform wins, etc.) and Space orders at PTI and VACCO, respectively. Doble's orders were $89 million (book-to-bill of 0.96x) and included additional services business in the Middle East and solid domestic product and software bookings. Test orders were $146 million (book-to-bill of 1.18x) which reflects the solid ongoing demand for its products;  
• Net debt at June 30, 2015 was $28 million ($37 million of cash and $65 million of borrowings) and reflects the cash flow impact of the previously announced ENOSERV acquisition and stock repurchases; and,
• The Company extended its share repurchase authorization for an additional two years through September 30, 2017.

Chairman's Commentary

Vic Richey, Chairman and Chief Executive Officer, commented, "The Q3 2015 results came in near the top end of our guidance range and were consistent with our previous expectations, with the exception of the Test business. The Q3 2015 results were led by the continued strong performance in Filtration and at Doble, as both groups exceeded their EBIT expectations during the Quarter. The Test results were disappointing as we experienced softness in one of our higher margin product lines and, as a result, we initiated some cost reduction actions in response to this slowdown. Additionally, we wrote-off certain inventories in Europe to better streamline our operations resulting from ongoing market softness in that region, coupled with higher legal costs incurred in connection with certain intellectual property litigation.

"While we experienced some EPS headwind from the higher tax rate compared to prior year Q3, and Test's lower than expected sales and profit, we achieved our Q3 EPS goals and continue to see more opportunities developing going forward.

"For the first nine months of the year, despite the Test business pressure, our year-to-date EPS is consistent with our internal targets, and our cash flow and orders are ahead of plan.

"Doble continued to outperform in Q3 as sales increased 11 percent and EBIT increased 28 percent (24 percent EBIT margin). YTD, Doble's sales are up 13 percent and EBIT dollars increased 17 percent compared to prior year. I remain excited about Doble's future as we continue to gain momentum with our prospects in the international markets as well as with our new products, services and software offerings.

"Filtration's Q3 and YTD EBIT continued to run well ahead of expectations led by the strength of PTI's commercial aerospace business. YTD EBIT dollars are up five percent on lower sales, driven by improved manufacturing efficiency. The positive industry communications surrounding the growth in new OEM aircraft continues to present an exciting outlook for the foreseeable future. As we entered the year, Filtration sales and EBIT were projected to be lower compared to last year, resulting from the previously communicated delays on the SLS program at VACCO and the KAZ program at TEQ. As we stand today, 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 results were disappointing as they came in lower than expected during the Quarter on both sales and EBIT due to continued softness in the shielding markets and Europe, coupled with some one-time charges incurred in the Quarter. We have implemented several cost reduction actions and have realigned the organizational structure to better manage Test's global infrastructure. Additional actions are being evaluated which are expected to result in much more favorable operating margins. We remain confident that Test can achieve EBIT margins in the low-to-mid teens once all of the planned actions are fully implemented. Test's $146 million in YTD orders clearly bodes well for our future and further validates our global leadership position.

 "We continue to review numerous acquisition opportunities and 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 nine months of the year, we opportunistically repurchased 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. During June 2015, the Company and the buyer completed the arbitration related to the final working capital adjustment, and as a result of the favorable outcome, in Q3 2015 the Company recorded a $1.1 million after-tax gain ($0.04 per share) in discontinued operations.

Share Repurchase

During the nine months ended June 30, 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 was extended through September 30, 2017.

Dividend Payment

The next quarterly cash dividend of $0.08 per share will be paid on October 15, 2015 to stockholders of record on October 1, 2015.

Business Outlook - Fiscal Year 2015 (and 3 Year)

Management expects the remainder of 2015 to reflect a profile similar to 2014, with the resulting Q4 sales and EPS being the strongest/highest Quarter of the respective fiscal years.

Q4 2015 sales and EBIT dollars are expected to increase significantly over Q4 2014, led by strong year-over-year comparisons in Filtration and at Doble.

As a result of the Test business softness and Q3 write-offs, partially offset by the cost reduction actions being implemented, Management has narrowed its EPS guidance to be in the range of $1.70 to $1.75 per share. The 2015 Test business actions are expected to significantly improve future EBIT margins once completed.

Q4 2015 EPS is expected to be in the range of $0.55 to $0.60 per share, compared to Q4 2014 EPS from Continuing Operations - As Adjusted of $0.51 per share.

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, August 10, at 4:00 p.m. Central Time, to discuss the Company's third 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 1-855-859-2056 and enter the pass code 76289150).

Forward-Looking Statements

Statements in this press release regarding the Company's expected 2015 and beyond revenue and sales growth, EBIT, EBIT margins, corporate costs, the timing of Test projects, effective tax rates, EPS, the Company's ability to increase operating margins, realize financial goals and increase shareholder value, the success of acquisition efforts, the success of new products and solutions, the size, number and timing of future sales and growth opportunities, 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 cost reduction and 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 third 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.
   
  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
					Three Months Ended June 30, 2015			Three Months Ended June 30, 2014
Net Sales					134,191			130,495
Cost and Expenses:
	Cost of sales				82,956			79,608
	Selling, general and administrative expenses				32,786			33,492
	Amortization of intangible assets				2,285			1,682
	Interest expense				247			147
	Other expenses (income), net				337			283
		Total costs and expenses			118,611			115,212
Earnings before income taxes					15,580			15,283
Income taxes					4,832			3,693
		Net earnings from continuing operations			10,748			11,590
Earnings from discontinued operations, net of tax
	expense of $591				1,148			0
		Net earnings from discontinued operations			1,148			0
		Net earnings		$	11,896			11,590
Earnings per share:
		Diluted - GAAP
			Continuing operations		0.41			0.43
			Discontinued operations		0.04			0.00
			Net earnings	$	0.45			0.43
		Diluted - As Adjusted Basis
			Continuing operations	$	0.41			0.44	(1)
Average common shares O/S:
		Diluted			26,180			26,702
(1)	Adjusted basis includes $0.2 million (or $0.01 per share) of add back adjustments
	for restructuring charges incurred at Crissair during the third quarter of fiscal 2014.

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
					Nine Months Ended June 30, 2015			Nine Months Ended June 30, 2014
Net Sales					383,679			379,707
Cost and Expenses:
	Cost of sales				233,516			231,325
	Selling, general and administrative expenses				99,221			99,182
	Amortization of intangible assets				6,378			5,047
	Interest expense				655			1,493
	Other (income) expenses, net				(238)			423
		Total costs and expenses			339,532			337,470
Earnings before income taxes					44,147			42,237
Income taxes					13,924			12,551
		Net earnings from continuing operations			30,223			29,686
Earnings from discontinued operations, net of tax
	expense of $390 and $5,713, respectively				776			9,858
Loss on sale of discontinued operations, net of
	tax benefit of $9,499				-			(50,442)
		Net earnings (loss) from discontinued operations			776			(40,584)
		Net earnings (loss)		$	30,999			(10,898)
Earnings per share:
		Diluted - GAAP
			Continuing operations		1.15			1.11
			Discontinued operations		0.03			(1.52)
			Net earnings (loss)	$	1.18			(0.41)
		Diluted - As Adjusted Basis
			Continuing operations	$	1.15			1.14	(1)
Average common shares O/S:
		Diluted			26,252			26,718
(1)	Adjusted basis includes $0.7 million (or $0.03 per share) of add back adjustments
	for restructuring charges incurred at Crissair during the first nine months of fiscal 2014.

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				Three Months Ended June 30, GAAP				Adjustments				Three Months Ended June 30, As Adjusted
				2015		2014		2015		2014		2015		2014
Net  Sales
	Filtration		$	60,401		57,733						60,401		57,733
	Test			42,945		45,029						42,945		45,029
	Utility Solutions Group			30,845		27,733						30,845		27,733
		Totals	$	134,191		130,495		0		0		134,191		130,495
EBIT
	Filtration		$	12,285		10,294				216	(1)	12,285		10,510
	Test			2,014		5,775						2,014		5,775
	Utility Solutions Group			7,357		5,725						7,357		5,725
	Corporate			(5,829)		(6,364)						(5,829)		(6,364)
		Consolidated EBIT		15,827		15,430		0		216		15,827		15,646
		Less: Interest expense		(247)		(147)						(247)		(147)
		Less: Income tax expense		(4,832)		(3,693)						(4,832)		(3,693)
		Net earnings from
		Continuing Operations	$	10,748		11,590		0		216		10,748		11,806
Note:		The above table is presented on a continuing operations basis.
Note:		Depreciation and amortization expense was $4.7 million and $4.1 million for the quarters ended June 30, 2015 and 2014, respectively.
(1)		Includes $0.2 million (or $0.01 per share) of restructuring charges at Crissair during the third quarter of fiscal 2014.

  

  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				Nine Months Ended June 30, GAAP				Adjustments				Nine Months Ended June 30, As Adjusted
				2015		2014		2015		2014		2015		2014
Net  Sales
	Filtration		$	166,340		171,608						166,340		171,608
	Test			124,449		125,531						124,449		125,531
	Utility Solutions Group			92,890		82,568						92,890		82,568
		Totals	$	383,679		379,707		0		0		383,679		379,707
EBIT
	Filtration		$	31,412		29,878				723	(1)	31,412		30,601
	Test			9,276		12,883						9,276		12,883
	Utility Solutions Group			22,189		18,891						22,189		18,891
	Corporate			(18,075)		(17,922)						(18,075)		(17,922)
		Consolidated EBIT		44,802		43,730		0		723		44,802		44,453
		Less: Interest expense		(655)		(1,493)						(655)		(1,493)
		Less: Income tax expense		(13,924)		(12,551)						(13,924)		(12,551)
		Net earnings from
		Continuing Operations	$	30,223		29,686		0		723		30,223		30,409
Note:		The above table is presented on a continuing operations basis.
Note:		Depreciation and amortization expense was $13.6 million and $12.2 million for the nine-month periods ended June 30, 2015 and 2014, respectively.
(1)		Includes $0.7 million (or $0.03 per share) of restructuring charges at Crissair during the first nine months of fiscal 2014.

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
				June 30, 2015		September 30, 2014
Assets
	Cash and cash equivalents		$	36,879		35,131
	Accounts receivable, net			100,979		105,449
	Costs and estimated earnings on
		long-term contracts		22,970		27,798
	Inventories			110,124		94,292
	Current portion of deferred tax assets			16,351		19,946
	Other current assets			14,781		13,337
		Total current assets		302,084		295,953
	Property, plant and equipment, net			78,140		76,465
	Intangible assets, net			190,807		182,063
	Goodwill			291,072		282,337
	Other assets			5,741		9,088
			$	867,844		845,906
Liabilities and Shareholders' Equity
	Short-term borrowings and current		$	20,407		20,000
		maturities of long-term debt
	Accounts payable			28,663		40,328
	Current portion of deferred revenue			22,219		19,895
	Other current liabilities			61,127		66,877
		Total current liabilities		132,416		147,100
	Deferred tax liabilities			77,215		77,440
	Other liabilities			21,158		21,195
	Long-term debt			45,000		20,000
	Shareholders' equity			592,055		580,171
			$	867,844		845,906

  
  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
		Nine Months Ended  June 30, 2015
Cash flows from operating activities:
Net earnings	$	30,999
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net earnings from discontinued operations, net of tax		(776)
Depreciation and amortization		13,614
Stock compensation expense		3,701
Changes in current assets and liabilities		(24,682)
Effect of deferred taxes		3,370
Change in deferred revenue and costs, net		1,837
Other		2,329
Net cash provided by operating activities - continuing operations		30,392
Net cash provided by operating activities - discontinued operations		1,166
Net cash provided by operating activities		31,558
Cash flows from investing activities:
Acquisition of business		(20,500)
Capital expenditures		(10,557)
Additions to capitalized software		(4,394)
Net cash used by investing activities		(35,451)
Cash flows from financing activities:
Proceeds from long-term debt		97,407
Principal payments on long-term debt		(72,000)
Dividends paid		(6,282)
Purchases of common stock into treasury		(9,882)
Other		77
Net cash provided by financing activities		9,320
Effect of exchange rate changes on cash and cash equivalents		(3,679)
Net increase in cash and cash equivalents		1,748
Cash and cash equivalents, beginning of period		35,131
Cash and cash equivalents, end of period	$	36,879

  
  

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
Backlog And Entered Orders - Q3 FY 2015				USG		Test		Filtration		Total
	Beginning Backlog - 4/1/15		$	30,536		109,956		207,523		348,015
	Entered Orders			29,590		45,629		45,413		120,632
	Sales			(30,845)		(42,945)		(60,401)		(134,191)
	Ending Backlog - 6/30/15		$	29,281		112,640		192,535		334,456
Backlog And Entered Orders - YTD Q3 FY 2015				USG		Test		Filtration		Total
	Beginning Backlog - 10/1/14		$	33,093		90,739		179,063		302,895
	Entered Orders			89,078		146,350		179,812		415,240
	Sales			(92,890)		(124,449)		(166,340)		(383,679)
	Ending Backlog - 6/30/15		$	29,281		112,640		192,535		334,456

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