IDEX Reports Third Quarter Results; Delivers Record Adjusted Gross and Operating Margin; Reported EPS of $1.37 With Adjusted EPS of $1.52

LAKE FOREST, Ill.–(BUSINESS WIRE)–IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended September 30, 2019.

Third Quarter 2019 Highlights

• Sales were flat overall and organically
• Gross margin was 45.2 percent with adjusted gross margin of 45.7 percent, an all-time high
• Reported operating margin was 22.7 percent with adjusted operating margin of 25.2 percent, up 120 bps
• Reported EPS was $1.37 with adjusted EPS of $1.52, up 8 percent
• Cash from operations of $157.1 million led to FCF of $146.0 million, an all-time high

Third Quarter 2019

Orders of $586.1 million were down 5 percent compared with the prior year period (-5 percent organic, +1 percent acquisitions and -1 percent foreign currency translation).

Sales of $624.2 million were flat compared with the prior year period (flat organic, +1 percent acquisitions and -1 percent foreign currency translation).

Gross margin of 45.2 percent was up 20 basis points compared with the prior year period. Excluding a $3.3 million pre-tax fair value inventory step-up charge related to the Velcora acquisition, adjusted gross margin of 45.7 percent was up 70 basis points primarily due to price and productivity initiatives, partially offset by higher engineering investments.

Operating income of $141.8 million resulted in an operating margin of 22.7 percent. Excluding the $3.3 million fair value inventory step-up charge and $12.0 million of restructuring expenses, adjusted operating income was $157.1 million with an adjusted operating margin of 25.2 percent, up 120 basis points compared with the adjusted prior year period primarily due to gross margin expansion and lower variable compensation costs as well as an overall tighter cost control environment. Adjusted operating income drove adjusted EBITDA of $175.4 million which was 28 percent of sales and covered interest expense by over 15 times.

Provision for income taxes of $24.0 million in the third quarter of 2019 resulted in an effective tax rate (ETR) of 18.6 percent, which was lower than the prior year period ETR of 20.2 percent primarily due to a change in U.S. Treasury regulations as well as the mix of global pre-tax income among jurisdictions. The third quarter 2019 ETR of 18.6 percent was lower than our previously guided ETR of 22.5 percent, which provided 6 cents of EPS favorability. This was primarily due to higher excess tax benefits from greater than expected stock option exercises in the third quarter of 2019 as well as a favorable impact from the 2018 income tax return-to-provision adjustment.

Net income was $105.2 million which resulted in EPS of $1.37. Excluding the fair value inventory step-up charge and restructuring expenses, adjusted EPS was $1.52, an increase of 11 cents, or 8 percent, from the adjusted prior year period EPS.

Cash from operations of $157.1 million led to free cash flow of $146.0 million, which was up 28 percent from the prior year period and 125 percent of adjusted net income. The increase in free cash flow was primarily due to favorable operating working capital and lower capital expenditures in the third quarter of 2019.

Third Quarter 2019 Segment Highlights

Fluid & Metering Technologies

• Sales of $240.9 million reflected a 1 percent increase compared to the third quarter of 2018 (+2 percent organic and -1 percent foreign currency translation).
• Operating income of $77.5 million resulted in an operating margin of 32.2 percent, a 270 basis point increase compared to the adjusted prior year period primarily due to price and productivity initiatives, partially offset by higher engineering investments.
• EBITDA of $82.7 million resulted in an EBITDA margin of 34.3 percent, a 270 basis point increase compared to the adjusted prior year period primarily due to increased operating income.

Health & Science Technologies

• Sales of $229.6 million reflected a 3 percent increase compared to the third quarter of 2018 (+1 percent organic, +3 percent acquisition and -1 percent foreign currency translation).
• Operating income of $40.2 million resulted in an operating margin of 17.5 percent. Excluding the $3.3 million fair value inventory step-up charge and $11.2 million of restructuring expenses, adjusted operating income was $54.7 million with an adjusted operating margin of 23.8 percent, a 30 basis point increase compared to the adjusted prior year period primarily due to higher volume and price, partially offset by higher engineering investments and increased amortization due to the acquisition.
• EBITDA of $49.2 million resulted in an EBITDA margin of 21.4 percent. Excluding the $3.3 million fair value inventory step-up charge and $11.2 million of restructuring expenses, adjusted EBITDA of $63.7 million resulted in an adjusted EBITDA margin of 27.8 percent, a 40 basis point increase compared to the adjusted prior year period primarily due to increased operating income.

Fire & Safety/Diversified Products

• Sales of $154.5 million reflected a 5 percent decrease compared to the third quarter of 2018 (-3 percent organic and -2 percent foreign currency translation) mainly attributable to large project orders within our dispensing and fire businesses in the prior year period not repeating.
• Operating income of $42.0 million resulted in an operating margin of 27.2 percent. Excluding $0.1 million of restructuring expenses, adjusted operating income was $42.1 million with an adjusted operating margin of 27.2 percent, a 50 basis point decrease compared to the adjusted prior year period primarily due to reduced volume.
• EBITDA of $45.6 million resulted in an EBITDA margin of 29.5 percent. Excluding $0.1 million of restructuring expenses, adjusted EBITDA of $45.7 million resulted in an adjusted EBITDA margin of 29.6 percent, a 10 basis point decrease compared to the adjusted prior year period primarily due to a decrease in operating income.

For the third quarter of 2019, Fluid & Metering Technologies contributed 38 percent of sales, 49 percent of operating income and 47 percent of EBITDA; Health & Science Technologies accounted for 37 percent of sales, 25 percent of operating income and 28 percent of EBITDA; and Fire & Safety/Diversified Products represented 25 percent of sales, 26 percent of operating income and 25 percent of EBITDA.

Acquisition

In July 2019, the Company acquired Velcora Holding AB and its operating subsidiaries, Roplan and Steridose. Roplan is a global manufacturer of custom mechanical and shaft seals for a variety of end markets including food & beverage, marine, chemical, wastewater and water treatment. Steridose develops engineered hygienic mixers and valves for the global biopharmaceutical industry. With annual revenue of approximately $40 million, both businesses operate within the Health & Science Technologies segment. In connection with this acquisition, the Company had to write up inventory to its fair value which resulted in a $3.3 million fair value inventory step-up charge in the quarter.

Restructuring Actions

The Company recorded $12.0 million and $14.1 million of restructuring expenses in the third quarter and nine months ended September 30, 2019, respectively, as part of initiatives that supported the implementation of key strategic efforts designed to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions, facility rationalization and impairment charges. These restructuring actions included a $9.7 million impairment charge in the third quarter related to the winding down of a business within the Health & Science Technologies segment.

Non-U.S. GAAP Measures of Financial Performance

The Company supplements certain U.S. GAAP financial performance metrics with non-U.S. GAAP financial performance metrics in order to provide investors with better insight and increased transparency while also allowing for a more comprehensive understanding of the financial information used by management in its decision making. Reconciliations of non-U.S. GAAP financial performance metrics to their most comparable U.S. GAAP financial performance metrics are defined and presented below and should not be considered a substitute for, nor superior to, the financial data prepared in accordance with U.S. GAAP. There were no adjustments to U.S. GAAP financial performance metrics other than the items noted below.

• Organic orders and sales are calculated excluding amounts from acquired or divested businesses during the first twelve months of ownership or divestiture and the impact of foreign currency translation.
• Adjusted gross margin is calculated as gross margin plus the fair value inventory step-up charge.
• Adjusted operating income is calculated as operating income plus the fair value inventory step-up charge plus restructuring expenses.
• Adjusted operating margin is calculated as adjusted operating income divided by net sales.
• Adjusted net income is calculated as net income plus the fair value inventory step-up charge plus restructuring expenses, net of the statutory tax expense or benefit.
• EBITDA is calculated as net income plus interest expense plus provision for income taxes plus depreciation and amortization. We reconciled EBITDA to net income on a consolidated basis as we do not allocate consolidated interest expense or consolidated provision for income taxes to our segments.
• Adjusted EBITDA is calculated as EBITDA plus the fair value inventory step-up charge plus restructuring expenses.
• Free cash flow is calculated as cash flow from operating activities less capital expenditures.

Table 1: Reconciliations of the Change in Net Sales to Organic Net Sales

Table 2: Reconciliations of Reported-to-Adjusted Gross Profit and Margin (dollars in thousands)

Table 3: Reconciliations of Reported-to-Adjusted Operating Income and Margin (dollars in thousands)

Table 4: Reconciliations of Reported-to-Adjusted Net Income and EPS (in thousands, except EPS)

Table 5: Reconciliations of EBITDA to Net Income (dollars in thousands)

Table 6: Reconciliations of EBITDA to Adjusted EBITDA (dollars in thousands)

Table 7: Reconciliations of Cash Flows from Operating Activities to Free Cash Flow (in thousands)

Conference Call to be Broadcast over the Internet

IDEX will broadcast its third quarter earnings conference call over the Internet on Wednesday, October 30, 2019 at 9:30 a.m. CT. Chairman and Chief Executive Officer Andy Silvernail and Senior Vice President and Chief Financial Officer William Grogan will discuss the Company’s recent financial performance and respond to questions from the financial analyst community. IDEX invites interested investors to listen to the call and view the accompanying slide presentation, which will be carried live on its website at www.idexcorp.com. Those who wish to participate should log on several minutes before the discussion begins. After clicking on the presentation icon, investors should follow the instructions to ensure their systems are set up to hear the event and view the presentation slides, or download the correct applications at no charge. Investors will also be able to hear a replay of the call by dialing 877.660.6853 (or 201.612.7415 for international participants) using the ID #13684164.

Forward-Looking Statements

This news release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These statements may relate to, among other things, capital expenditures, acquisitions, cost reductions, cash flow, revenues, earnings, market conditions, global economies and operating improvements, and are indicated by words or phrases such as “anticipates,” “estimates,” “plans,” “expects,” “projects,” “forecasts,” “should,” “could,” “will,” “management believes,” “the Company believes,” “the Company intends,” and similar words or phrases. These statements are subject to inherent uncertainties and risks that could cause actual results to differ materially from those anticipated at the date of this news release. The risks and uncertainties include, but are not limited to, the following: economic and political consequences resulting from terrorist attacks and wars; levels of industrial activity and economic conditions in the U.S. and other countries around the world; pricing pressures and other competitive factors and levels of capital spending in certain industries, all of which could have a material impact on order rates and the Company’s results, particularly in light of the low levels of order backlogs it typically maintains; the Company’s ability to make acquisitions and to integrate and operate acquired businesses on a profitable basis; the relationship of the U.S. dollar to other currencies and its impact on pricing and cost competitiveness; political and economic conditions in foreign countries in which the Company operates; developments with respect to trade policy and tariffs; interest rates; capacity utilization and the effect this has on costs; labor markets; market conditions and material costs; and developments with respect to contingencies, such as litigation and environmental matters. Additional factors that could cause actual results to differ materially from those reflected in the forward-looking statements include, but are not limited to, the risks discussed in the “Risk Factors” section included in the Company’s most recent annual report on Form 10-K filed with the SEC and the other risks discussed in the Company’s filings with the SEC. The forward-looking statements included here are only made as of the date of this news release, and management undertakes no obligation to publicly update them to reflect subsequent events or circumstances, except as may be required by law. Investors are cautioned not to rely unduly on forward-looking statements when evaluating the information presented here.

About IDEX

IDEX (NYSE: IEX) is a company that has undoubtedly touched your life in some way. In fact, IDEX businesses make thousands of products that are mission-critical components in everyday activities.

Contacts

Investor Contact:
William K. Grogan

Senior Vice President and Chief Financial Officer

(847) 498-7070

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