IDEX Reports Record Second Quarter Orders, Sales and EPS; Raises Full Year Guidance

IDEX Corporation (NYSE: IEX) today announced its financial results for the three month period ended June 30, 2017.

Second Quarter 2017 Highlights

• Orders were up 11 percent overall and 9 percent organically
• Sales were up 4 percent overall and 3 percent organically
• Operating margin was 21.8 percent, up 110 basis points
• EPS was $1.08, up 9 cents, or 9 percent

Second Quarter 2017

Orders of $585.7 million were up 11 percent (+9 percent organic, +3 percent acquisitions/divestitures and -1 percent foreign currency translation) compared with the prior year period.

Sales of $573.4 million were up 4 percent (+3 percent organic, +3 percent acquisitions/divestitures and -2 percent foreign currency translation) compared with the prior year period.

Gross margin of 44.8 percent was up 40 basis points from the prior year period. Excluding a $3.6 million fair value inventory step-up charge from the prior year period, gross margin would have been down 30 basis points primarily due to higher engineering investments related to organic growth initiatives and the effects from some isolated supply chain challenges.

Operating income of $125.1 million resulted in an operating margin of 21.8 percent, up 110 basis points from the prior year period. The increase in operating margin was primarily due to volume leverage, benefits from prior year restructuring initiatives and the inclusion in the prior year of a net $2.6 million charge related to the fair value inventory step-up and the reversal of a remaining contingent consideration. Operating income drove EBITDA of $146.6 million which was 26 percent of sales and covered interest expense by 13 times.

Net income was $83.8 million which resulted in EPS of $1.08, up 9 cents, or 9 percent, from the prior year period.

Cash from operations for the second quarter of $87.6 million led to free cash flow of $78.2 million, down 2 percent from the prior year period primarily due to the timing of income tax payments and higher working capital related to the timing of receivables. Cash from operations for the six months ended June 30, 2017 was $172.6 million which led to free cash flow of $153.0 million, up 8 percent from the comparable prior year period.

The Company repurchased 24 thousand shares of common stock for $2.2 million in the second quarter.

Second Quarter 2017 Segment Highlights

Fluid & Metering Technologies

• Sales of $221.2 million were flat compared to the second quarter of 2016 (+4 percent organic, -3 percent divestitures and -1 percent foreign currency translation).
• Operating income of $60.0 million resulted in an operating margin of 27.1 percent, a 270 basis point increase compared to the prior year period operating margin primarily due to volume leverage on organic growth, cost savings from prior year restructuring initiatives and lower amortization.
• EBITDA of $65.6 million resulted in an EBITDA margin of 29.6 percent, a 190 basis point increase compared to the prior year period EBITDA margin.

Health & Science Technologies

• Sales of $204.4 million reflected a 10 percent increase compared to the second quarter of 2016 (+6 percent organic, +6 percent acquisitions/divestitures and -2 percent foreign currency translation).
• Operating income of $46.3 million resulted in an operating margin of 22.6 percent, a 60 basis point increase compared to the prior year period operating margin primarily due to higher volume and cost savings from prior year restructuring initiatives.
• EBITDA of $57.4 million resulted in an EBITDA margin of 28.1 percent, a 30 basis point decrease compared to the prior year period EBITDA margin.

Fire & Safety/Diversified Products

• Sales of $148.0 million reflected a 4 percent increase compared to the second quarter of 2016 (-1 percent organic, +7 percent acquisition and -2 percent foreign currency translation).
• Operating income of $37.2 million resulted in an operating margin of 25.1 percent, an 80 basis point increase compared to the prior year period operating margin primarily due to the inclusion of a fair value inventory step-up charge in the prior year period, partially offset by the dilutive impact from prior year acquisitions.
• EBITDA of $40.3 million resulted in an EBITDA margin of 27.2 percent, a 30 basis point increase compared to the prior year period EBITDA margin.

For the second quarter of 2017, Fluid & Metering Technologies contributed 38 percent of sales, 42 percent of operating income and 40 percent of EBITDA; Health & Science Technologies accounted for 36 percent of sales, 32 percent of operating income and 35 percent of EBITDA; and Fire & Safety/Diversified Products represented 26 percent of sales, 26 percent of operating income and 25 percent of EBITDA.

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 according to U.S. GAAP excluding amounts from acquired or divested businesses during the first twelve months of ownership or divestiture and the impact of foreign currency translation.
• Adjusted operating income is calculated as operating income 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 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 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 Net Organic Sales

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

Table 3: Reconciliations of Reported-to-Adjusted Net Income and EPS(in thousands, except EPS)

Table 4: Reconciliations of EBITDA to Net Income (dollars in thousands)

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

Table 6: Reconciliations of 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 Wednesday, July 26, 2017 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 #13652252.

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 IDEX’s results, particularly in light of the low levels of order backlogs it typically maintains; its 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; 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 Corporation is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to its customers’ exacting specifications. Its products are sold in niche markets to a wide range of industries throughout the world. IDEX shares are traded on the New York Stock Exchange and Chicago 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.

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