IDEX Corporation (NYSE: IEX) today announced its financial results for the three- and twelve- month periods ended December 31, 2019.

Full Year 2019 Highlights

• Reported operating margin was 23.2 percent with adjusted operating margin of 24.2 percent, up 80 bps
• Reported EPS was $5.56 with adjusted EPS of $5.80, up 7 percent
• Free cash flow was a record of $477.2 million, up 13 percent
• Acquired the stock of Velcora Holding AB and its operating subsidiaries, Roplan and Steridose in July 2019

Full Year 2019

Orders of $2.5 billion were flat compared with the prior year (flat organic, +1 percent acquisition and -1 percent foreign currency translation).

Sales of $2.5 billion were flat compared with the prior year (+1 percent organic, +1 percent acquisition and -2 percent foreign currency translation).

Gross margin of 45.1 percent was up 10 basis points compared with the prior year primarily due to price capture and productivity initiatives, partially offset by inflation and higher engineering costs. Excluding a $3.3 million pre-tax fair value inventory step-up charge related to the Velcora acquisition, adjusted gross margin of 45.2 percent was up 20 basis points.

Operating income of $579.0 million resulted in an operating margin of 23.2 percent. Excluding the $3.3 million fair value inventory step-up charge and $21.0 million of restructuring expenses, adjusted operating income was $603.3 million with an adjusted operating margin of 24.2 percent, up 80 basis points from the prior year mainly due to price, productivity initiatives and lower variable compensation expenses. Adjusted operating income drove adjusted EBITDA of $678.5 million which was 27 percent of sales and covered interest expense by more than 15 times.

Provision for income taxes of $107.4 million resulted in an effective tax rate (ETR) of 20.2 percent, which was lower than the prior year ETR of 22.4 percent primarily due to excess tax benefits and other discrete tax benefits in 2019 and certain one-time charges related to Tax Reform incurred in 2018.

Net income was $425.5 million which resulted in EPS of $5.56. Excluding the fair value inventory step-up charge and restructuring expenses, adjusted EPS of $5.80 increased 39 cents, or 7 percent, from the prior year adjusted EPS.

Cash from operations of $528.1 million was up 10 percent from the prior year and led to free cash flow of $477.2 million, which was up 13 percent from the prior year and 107 percent of adjusted net income. The increase in free cash flow was primarily due to working capital improvements and lower capital expenditures.

The Company repurchased 389 thousand shares of common stock for $54.7 million in 2019.

Fourth Quarter 2019

Orders of $616.6 million were up 1 percent compared with the prior year period (flat organic, +2 percent acquisition and -1 percent foreign currency translation).

Sales of $606.0 million were down 1 percent compared with the prior year period (-2 percent organic, +2 percent acquisition and -1 percent foreign currency translation).

Gross margin of 44.0 percent was down 60 basis points compared with the prior year period primarily due to lower volume leverage, partially offset by price and productivity initiatives.

Operating income of $134.2 million resulted in an operating margin of 22.1 percent. Excluding $7.0 million of restructuring expenses, adjusted operating income was $141.2 million with an adjusted operating margin of 23.3 percent, which was flat compared to the prior year period due to lower variable compensation costs. Adjusted operating income drove adjusted EBITDA of $159.6 million which was 26 percent of sales and covered interest expense by over 14 times.

Provision for income taxes of $25.2 million resulted in an ETR of 20.6 percent, which was lower than the prior year period ETR of 23.8 percent primarily due to excess tax benefits and other discrete tax benefits in 2019 and certain one-time charges related to Tax Reform incurred in the fourth quarter of 2018.

Net income was $96.9 million which resulted in EPS of $1.26. Excluding restructuring expenses, adjusted EPS of $1.33 increased 2 cents, or 2 percent, from the prior year period adjusted EPS.

Cash from operations of $151.2 million was down 2 percent from the prior year period and led to free cash flow of $137.0 million, which was flat compared to the prior year period and 134 percent of adjusted net income.

Fourth Quarter 2019 Segment Highlights

Fluid & Metering Technologies

• Sales of $227.5 million reflected a 4 percent decrease compared to the fourth quarter of 2018 (-3 percent organic and -1 percent foreign currency translation).
• Operating income of $61.8 million resulted in an operating margin of 27.2 percent. Excluding $1.9 million of restructuring expenses, adjusted operating income was $63.7 million with an adjusted operating margin of 28.0 percent, a 110 basis point decrease compared to the prior year period primarily due to lower volume.
• EBITDA of $67.4 million resulted in an EBITDA margin of 29.6 percent. Excluding $1.9 million of restructuring expenses, adjusted EBITDA of $69.3 million resulted in an adjusted EBITDA margin of 30.5 percent, a 80 basis point decrease compared to the prior year period.

Health & Science Technologies

• Sales of $227.3 million reflected a 1 percent increase compared to the fourth quarter of 2018 (-3 percent organic and +4 percent acquisition).
• Operating income of $49.1 million resulted in an operating margin of 21.6 percent. Excluding $2.7 million of restructuring expenses, adjusted operating income was $51.8 million with an adjusted operating margin of 22.8 percent, a 60 basis point decrease compared to the prior year period primarily due to higher engineering costs.
• EBITDA of $58.6 million resulted in an EBITDA margin of 25.8 percent. Excluding $2.7 million of restructuring expenses, adjusted EBITDA of $61.3 million resulted in an adjusted EBITDA margin of 27.0 percent, a 80 basis point decrease compared to the prior year period.

Fire & Safety/Diversified Products

• Sales of $152.0 million were flat compared to the fourth quarter of 2018 (+1 percent organic and -1 percent foreign currency translation).
• Operating income of $39.3 million resulted in an operating margin of 25.9 percent. Excluding $0.4 million of restructuring expenses, adjusted operating income was $39.7 million with an adjusted operating margin of 26.2 percent, a 30 basis point decrease compared to the prior year period primarily due to sales mix.
• EBITDA of $42.4 million resulted in an EBITDA margin of 27.9 percent. Excluding $0.4 million of restructuring expenses, adjusted EBITDA of $42.8 million resulted in an adjusted EBITDA margin of 28.2 percent, a 70 basis point decrease compared to the prior year period.

For the fourth quarter of 2019, Fluid & Metering Technologies contributed 38 percent of sales, 41 percent of operating income and 40 percent of EBITDA; Health & Science Technologies accounted for 37 percent of sales, 33 percent of operating income and 35 percent of EBITDA; and Fire & Safety/Diversified Products represented 25 percent of sales, 26 percent of operating income and 25 percent of EBITDA.

Corporate Costs

Corporate costs decreased to $14.2 million in the fourth quarter of 2019 from $18.7 million in the fourth quarter of 2018 primarily as a result of lower variable compensation costs in 2019 compared to prior year period.

Corporate costs decreased to $69.2 million in 2019 compared to $78.7 million in 2018 as a result of lower variable compensation costs in 2019 compared to prior year.

Acquisition

On January 29, 2020, the Company entered into a definitive agreement to acquire Flow Management Devices, LLC (Flow MD) for cash consideration of $125 million. Flow MD is based in Phoenix, Arizona and is a leading provider of small volume provers used in the oil and gas industry. Flow MD has annual revenues of approximately $60 million and will be part of our Energy business within the Fluid and Metering Technologies segment. We expect to close the transaction by the end of the first quarter 2020 subject to regulatory approvals and customary closing conditions.

Restructuring Actions

The Company recorded $7.0 million and $21.0 million of restructuring expenses in the fourth quarter and full year 2019, respectively, to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions, facility rationalization and impairment charges. The full year 2019 restructuring actions included a $9.7 million impairment charge recorded 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 profit is calculated as gross profit plus the fair value inventory step-up charge.
• Adjusted gross profit 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, net of the statutory tax expense or benefit.
• Adjusted EPS is calculated as adjusted net income divided by diluted weighted average shares.
• 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.
• 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)

Table 7: Reconciliations of Free Cash Flow (in thousands)

Conference Call to be Broadcast over the Internet

IDEX will broadcast its fourth quarter earnings conference call over the Internet on Thursday, January 30, 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 #13694803.

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. 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.

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