IDEX Reports Second Quarter Results

IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended June 30, 2020.

Second Quarter 2020 Highlights

• Cash from operations of $169.5 million led to record quarterly FCF of $161.1 million
• Completed a public offering of $500 million 3.0% Senior Notes
• Operating margin of 19.7%; adjusted operating margin of 21.1%
• Adjusted EBITDA margin of 25.1%

Second Quarter 2020

Orders of $521.9 million were down 17 percent compared with the prior year period (-18 percent organic, +2 percent acquisitions and -1 percent foreign currency translation).

Sales of $561.2 million were down 13 percent compared with the prior year period (-17 percent organic, +5 percent acquisitions and -1 percent foreign currency translation).

Gross margin of 41.8 percent was down 370 basis points compared with the prior year period as a result of reduced volume, business mix, the dilutive impact to margins from the recent acquisitions and a $4.1 million pre-tax fair value inventory step-up charge related to the Flow MD acquisition included in the current year period. Excluding the $4.1 million fair value inventory step-up charge, adjusted gross margin of 42.6 percent was down 290 basis points compared with the adjusted prior year period.

Operating income of $110.6 million resulted in an operating margin of 19.7 percent which was down 450 basis points compared with the prior year period as a result of lower sales volume, the dilutive impact to margins from the recent acquisitions, the fair value inventory step-up charge and higher restructuring expenses in 2020, partially offset by price, restructuring savings and an overall reduction in variable expenses. Excluding the $4.1 million fair value inventory step-up charge and $3.8 million of restructuring expenses, adjusted operating income was $118.5 million with an adjusted operating margin of 21.1 percent, down 340 basis points compared with the adjusted prior year period.

Provision for income taxes of $20.8 million in the second quarter of 2020 resulted in an effective tax rate (ETR) of 22.7 percent, which was higher than the prior year period ETR of 21.7 percent primarily due to a decrease in the excess tax benefits related to share-based compensation.

Net income was $70.9 million which resulted in EPS of $0.93. Excluding the fair value inventory step-up charge, restructuring expenses and the loss on early debt redemption, adjusted EPS was $1.10, a decrease of 40 cents, or 27 percent, from the adjusted prior year period EPS. EBITDA of $124.8 million was 22 percent of sales and covered interest expense by 10 times. Adjusted EBITDA of $141.1 million was 25 percent of sales and covered interest expense by over 11 times.

Cash from operations of $169.5 million was up 29% from the prior year period due to favorable working capital, partially offset by lower earnings in the second quarter of 2020. Cash from operations led to free cash flow of $161.1 million, which was up 36 percent from the prior year period and 193 percent of adjusted net income.

The Company repurchased 9,600 shares of common stock for $1.4 million in the second quarter of 2020 at an average price of $149.44.

Second Quarter 2020 Segment Highlights

Fluid & Metering Technologies

• Sales of $219.1 million reflected an 11 percent decrease compared to the second quarter of 2019 (-20 percent organic, +10 percent acquisition and -1 percent foreign currency translation).
• Operating income of $50.9 million resulted in an operating margin of 23.2 percent which was down 690 basis points compared with the prior year period primarily due to lower volume and the impact of the Flow MD acquisition as well as a $4.1 million fair value inventory step-up charge related to the Flow MD acquisition and higher restructuring expenses included in the current year period, partially offset by price, restructuring savings and lower variable costs. Excluding the $4.1 million fair value inventory step-up charge and $1.8 million of restructuring expenses, adjusted operating income was $56.8 million with an adjusted operating margin of 26.0 percent, a 450 basis point decrease compared to the adjusted prior year period.
• EBITDA of $57.8 million resulted in an EBITDA margin of 26.4 percent. Excluding the $4.1 million fair value inventory step-up charge and $1.8 million of restructuring expenses, adjusted EBITDA of $63.7 million resulted in an adjusted EBITDA margin of 29.1 percent, a 360 basis point decrease compared to the adjusted prior year period primarily due to lower volume.

Health & Science Technologies

• Sales of $215.7 million reflected a 7 percent decrease compared to the second quarter of 2019 (-10 percent organic, +4 percent acquisition and -1 percent foreign currency translation).
• Operating income of $48.0 million resulted in an operating margin of 22.3 percent which was down 210 basis points compared with the prior year period primarily due to lower volume, the impact of the Velcora acquisition and higher restructuring expenses, partially offset by price, restructuring savings and lower variable costs. Excluding $1.2 million of restructuring expenses, adjusted operating income was $49.2 million with an adjusted operating margin of 22.8 percent, a 180 basis point decrease compared to the adjusted prior year period.
• EBITDA of $57.5 million resulted in an EBITDA margin of 26.6 percent. Excluding the $1.2 million of restructuring expenses, adjusted EBITDA of $58.7 million resulted in an adjusted EBITDA margin of 27.2 percent, a 150 basis point decrease compared to the adjusted prior year period primarily due to lower volume.

Fire & Safety/Diversified Products

• Sales of $127.1 million reflected a 23 percent decrease compared to the second quarter of 2019 (-22 percent organic and -1 percent foreign currency translation).
• Operating income of $28.8 million resulted in an operating margin of 22.7 percent which was down 390 basis points compared with the prior year period as a result of lower volume and business mix, partially offset by price and restructuring savings as well as lower variable costs and lower restructuring expenses. Excluding $0.6 million of restructuring expenses, adjusted operating income was $29.4 million with an adjusted operating margin of 23.2 percent, a 390 basis point decrease compared to the adjusted prior year period.
• EBITDA of $32.5 million resulted in an EBITDA margin of 25.6 percent. Excluding the $0.6 million of restructuring expenses, adjusted EBITDA of $33.1 million resulted in an adjusted EBITDA margin of 26.1 percent, a 330 basis point decrease compared to the prior year period primarily due to lower volume.

For the second quarter of 2020, Fluid & Metering Technologies contributed 39 percent of sales, 40 percent of operating income and 39 percent of EBITDA; Health & Science Technologies accounted for 38 percent of sales, 37 percent of operating income and 39 percent of EBITDA; and Fire & Safety/Diversified Products represented 23 percent of sales, 23 percent of operating income and 22 percent of EBITDA.

Corporate Costs

Corporate costs decreased to $17.2 million in the second quarter of 2020 from $19.2 million in the second quarter of 2019 primarily as a result of tightly controlling discretionary spending, restructuring savings and lower variable costs in 2020.

Debt Offering and Redemption

On April 29, 2020, the Company completed a public offering of $500.0 million 3.0% Senior Notes due May 1, 2030. The net proceeds from the offering were $494.9 million. The net proceeds were used to redeem and repay the $300.0 million 4.5% Senior Notes due December 15, 2020 and the related “make-whole” redemption premium of $6.8 million. The Company also recognized $1.6 million of deferred costs related to the 4.5% Senior Notes for a total loss on early debt redemption of $8.4 million which was recorded within Other (income) expense - net.

New Joint Venture

On May 12, 2020, a subsidiary of IDEX entered into a joint venture agreement with a third party to form a limited liability company (the "Joint Venture") that will manufacture and sell high performance elastomer seals for the oil and gas industry to customers within the Kingdom of Saudi Arabia as well as for the export market. The Company will contribute $0.6 million and will own 55% of the share capital while the third party partner will contribute $0.5 million and will own 45% of the share capital. As of June 30, 2020, the Joint Venture had not yet been funded or begun its operations. Since we will control the entity, we expect to consolidate the Joint Venture and record a noncontrolling interest in our financial statements once funding occurs and operations begin, both of which are currently expected to occur during the third quarter of 2020.

COVID-19 Impact

The Company continues to help in the fight against COVID-19 with several of our businesses playing critical roles in keeping essential activities operating. We also continue to be focused on making sure our employees are safe and our operations have the ability to deliver the products needed to support the COVID-19 battle. Most of our sites are considered essential businesses and have remained open during the pandemic. However, the virus did cause several of our sites to temporarily shut down for cleaning due to employees testing positive for COVID-19. All such sites returned to operations within a short period of time. COVID-19 and the enacted containment measures have adversely affected our business and results of operations and the businesses of our customers, who are purchasing less products in response to the economic conditions caused by COVID-19. The Company expects the months ahead will remain challenging as this global pandemic continues and, based on currently available information and management's current expectations, the Company anticipates that organic sales will be down approximately 12 to 17 percent in the third quarter of 2020. Based on management's current expectations, we believe our strong balance sheet, with over $1.5 billion of liquidity and gross leverage of 1.6 times, will provide IDEX the necessary capital to navigate the COVID-19 pandemic for the foreseeable future. Additionally, IDEX has implemented certain cost reduction actions, including employee reductions and has maintained a tight cost control environment.

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 profit is calculated as gross profit plus the fair value inventory step-up charge.
• Adjusted gross margin is calculated as adjusted gross profit divided by net sales.
• 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 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 the fair value inventory step-up charge 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 second quarter earnings conference call over the Internet on Friday, July 24, 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 877.660.6853 (or 201.612.7415 for international participants) using the ID #13694805.

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, the anticipated continuing effects of the coronavirus pandemic, including with respect to the Company's sales, facility closures, supply chains and access to capital, 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: the duration of the coronavirus pandemic and the continuing effects of the coronavirus on our ability to operate our business and facilities, on our customers, on supply chains and on the U.S. and global economy generally; 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 and the Company's subsequent quarterly reports filed with the SEC as well as 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. Chances are the car you’re driving has a BAND-IT® clamp holding your side airbag safely in place. If you were ever in a car accident, a Hurst Jaws of Life® rescue tool may have saved your life. If you or a family member is battling cancer, your doctor may have tested your DNA in a quest to find the best targeted medicine for you. It’s likely your DNA test was run on equipment that contains components made by our growing IDEX Health & Science team. Founded in 1988 with three small, entrepreneurial manufacturing companies, we’re proud to say that we now call 40 diverse businesses around the world part of the IDEX family. With 7,000 employees and manufacturing operations in more than 20 countries, IDEX is a high-performing, global $2+ billion company committed to making trusted solutions that improve lives. IDEX shares are traded on the New York Stock Exchange under the symbol “IEX”.

For further information on IDEX Corporation and its business units, visit the company’s website at www.idexcorp.com.

(Financial reports follow)