IDEX Reports Third Quarter Results

NORTHBROOK, Ill.–(BUSINESS WIRE)–IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended September 30, 2020.

Third Quarter 2020 Highlights

• Cash from operations of $153.7 million led to quarterly free cash flow of $135.3 million
• Operating margin of 22.6%; adjusted operating margin of 23.1%
• EPS of $1.37; adjusted EPS of $1.40
• Adjusted EBITDA margin of 26.9%

Third Quarter 2020

Orders of $570.3 million were down 3 percent compared with the prior year period (-5 percent organic, +1 percent acquisitions and +1 percent foreign currency translation).

Sales of $581.1 million were down 7 percent compared with the prior year period (-12 percent organic, +4 percent acquisitions and +1 percent foreign currency translation).

Gross margin of 43.3 percent was down 190 basis points compared with the prior year period as a result of lower volume and business mix, partially offset by price capture.

Operating income of $131.2 million resulted in an operating margin of 22.6 percent which was down 10 basis points compared with the prior year period as a result of lower volume and business mix, partially offset by price capture and cost savings in the current year as well as the asset impairment and fair value inventory step-up charges in the prior year period. Excluding $2.9 million of restructuring expenses, adjusted operating income was $134.1 million with an adjusted operating margin of 23.1 percent, down 210 basis points compared with the adjusted prior year period.

Provision for income taxes of $17.4 million in the third quarter of 2020 resulted in an effective tax rate (ETR) of 14.4 percent, which was lower than the prior year period ETR of 18.6 percent primarily due to benefits associated with the finalization of the Global Intangible Low-Tax Income regulations in the third quarter of 2020.

Net income was $103.8 million which resulted in EPS of $1.37. Excluding restructuring expenses, adjusted EPS was $1.40, a decrease of 12 cents, or 8 percent, from the adjusted prior year period EPS. EBITDA of $153.3 million was 26 percent of sales and covered interest expense by over 14 times. Adjusted EBITDA of $156.2 million was 27 percent of sales and covered interest expense by almost 15 times.

Cash from operations of $153.7 million was down 2 percent from the prior year period due to lower earnings in the third quarter of 2019. Cash from operations led to free cash flow of $135.3 million, which was down 7 percent from the prior year period and was 128 percent of adjusted net income due to higher capital expenditures in the third quarter of 2020.

Third Quarter 2020 Segment Highlights

Fluid & Metering Technologies

• Sales of $220.7 million reflected an 8 percent decrease compared to the third quarter of 2019 (-17 percent organic, +8 percent acquisition and +1 percent foreign currency translation).
• Operating income of $58.4 million resulted in an operating margin of 26.5 percent which was down 570 basis points compared with the prior year period primarily due to lower volume and higher restructuring expenses, partially offset by price capture and cost savings. Excluding $0.6 million of restructuring expenses, adjusted operating income was $59.0 million with an adjusted operating margin of 26.7 percent, a 550 basis point decrease compared to the adjusted prior year period.
• EBITDA of $66.3 million resulted in an EBITDA margin of 30.0 percent. Excluding $0.6 million of restructuring expenses, adjusted EBITDA of $66.9 million resulted in an adjusted EBITDA margin of 30.3 percent, a 400 basis point decrease compared to the adjusted prior year period primarily due to lower volume.

Health & Science Technologies

• Sales of $220.4 million reflected a 4 percent decrease compared to the third quarter of 2019 (-6 percent organic, +1 percent acquisition and +1 percent foreign currency translation).
• Operating income of $49.9 million resulted in an operating margin of 22.6 percent which was up 510 basis points compared with the prior year period primarily due to price capture and cost savings in the current year period and the asset impairment and fair value inventory step-up charges in the prior year period, partially offset by lower volume and the impact on margins from the Velcora acquisition. Excluding $1.0 million of restructuring expenses, adjusted operating income was $50.9 million with an adjusted operating margin of 23.1 percent, an 70 basis point decrease compared to the adjusted prior year period.
• EBITDA of $60.2 million resulted in an EBITDA margin of 27.3 percent. Excluding the $1.0 million of restructuring expenses, adjusted EBITDA of $61.2 million resulted in an adjusted EBITDA margin of 27.7 percent, a 10 basis point decrease compared to the adjusted prior year period primarily due to lower volume.

Fire & Safety/Diversified Products

• Sales of $140.9 million reflected a 9 percent decrease compared to the third quarter of 2019 (-10 percent organic and +1 percent foreign currency translation).
• Operating income of $37.1 million resulted in an operating margin of 26.3 percent which was down 90 basis points compared with the prior year period as a result of lower volume and higher restructuring expenses, partially offset by price capture and cost savings. Excluding $1.2 million of restructuring expenses, adjusted operating income was $38.3 million with an adjusted operating margin of 27.2 percent, which was flat compared to the adjusted prior year period.
• EBITDA of $40.6 million resulted in an EBITDA margin of 28.8 percent. Excluding the $1.2 million of restructuring expenses, adjusted EBITDA of $41.8 million resulted in an adjusted EBITDA margin of 29.7 percent, a 10 basis point increase compared to the prior year period primarily due to price capture and lower variable costs.

For the third quarter of 2020, Fluid & Metering Technologies contributed 38 percent of sales, 40 percent of operating income and 40 percent of EBITDA; Health & Science Technologies accounted for 38 percent of sales, 34 percent of operating income and 36 percent of EBITDA; and Fire & Safety/Diversified Products represented 24 percent of sales, 26 percent of operating income and 24 percent of EBITDA.

Corporate Costs

Corporate costs decreased to $14.1 million in the third quarter of 2020 from $17.2 million in the third quarter of 2019 primarily as a result of tightly controlling discretionary spending, restructuring savings and lower variable costs in 2020.

COVID-19 Impact

The Company has adapted to help in the fight against COVID-19 with several of our businesses pivoting to support many products that are being used in the fight against COVID-19. We have placed safety atop our list of priorities, implementing protocols at all of our facilities, including temperature taking, social distancing, enhanced cleaning and face coverings. These measures have enabled successful business continuity, allowing our facilities to remain in operation with only temporary shutdowns at the initial onset of the COVID-19 pandemic. Although we have remained in operation throughout the pandemic, satisfying customer needs in part through our focus on the development and manufacturing of products used in the fight against COVID-19, the pandemic and the enacted containment measures have adversely affected our business and results of operations. The businesses of our customers have been harmed by the economic conditions caused by COVID-19 and as a result, our customers are purchasing less product than they have historically purchased outside of these conditions. Based on currently available information and management’s current expectations, the Company anticipates that organic sales will be down approximately 3 to 5 percent in the fourth quarter of 2020 but we believe our strong balance sheet, with over $1.6 billion of liquidity and gross leverage of 1.7 times, will provide IDEX the necessary capital to navigate the COVID-19 pandemic for the foreseeable future. Additionally, IDEX implemented cost reduction actions, including employee reductions, and continues to maintain a tight cost control environment. Despite our expectations and the actions taken to reduce costs, we can provide no assurances that access to our invested cash, cash equivalents or short-term investments will not be impacted by adverse conditions in the financial markets, including, without limitation, as a result of the impact of the COVID-19 pandemic and we cannot predict how long the COVID-19 pandemic will continue. Moreover, COVID-19 and related measures to contain its impact have caused material disruptions in both national and global financial markets and economies. The continuing impact of COVID-19 and the enacted containment measures cannot be predicted and may continue to adversely affect, perhaps materially, our business, results of operations, financial condition and liquidity.

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. Management believes these non-U.S. GAAP financial performance metrics provide investors with greater insight, transparency and a more comprehensive understanding of the financial information used by management in its financial and operational decision making because certain of these adjusted metrics exclude items not reflective of ongoing operations, such as restructuring expenses, fair value inventory step-up charges and the loss on early debt redemption. 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 profit is calculated as gross profit plus fair value inventory step-up charges.
• Adjusted gross margin is calculated as adjusted gross profit divided by net sales.
• Adjusted operating income is calculated as operating income plus fair value inventory step-up charges 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 fair value inventory step-up charges plus restructuring expenses plus the loss on early debt redemption, net of the statutory tax expense or benefit.
• Adjusted EPS is calculated as adjusted net income divided by the diluted weighted average shares outstanding.
• EBITDA is calculated as net income plus interest expense plus provision for income taxes plus depreciation and amortization. We reconcile 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 fair value inventory step-up charges plus restructuring expenses plus the loss on early debt redemption.
• Adjusted EBITDA margin is calculated as adjusted EBITDA divided by net sales.
• 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)

(1) EBITDA, a non-GAAP financial measure, is reconciled to net income, its most directly comparable GAAP financial measure, immediately above in Table 5.

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 28, 2020 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.

Contacts

Investor Contact:
William K. Grogan

Senior Vice President and Chief Financial Officer

(847) 498-7070

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