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CIRCOR Reports Third Quarter 2021 Results

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BURLINGTON, Mass., November 12, 2021--(BUSINESS WIRE)--CIRCOR International, Inc. (NYSE: CIR), one of the world’s leading providers of mission critical flow control products and services for the Industrial and Aerospace & Defense markets, today announced GAAP and adjusted financial results for the third quarter ended October 3, 2021.

Third Quarter 2021 Overview:

  • Backlog of $435 million, up 15% YTD, driven by strong demand across Industrial end markets

  • Orders of $194M, up 16% reported and 15% organically

    • Industrial orders of $140 million, up 30% reported and 28% organically

    • Aerospace & Defense orders of $54 million, down (9)% reported and (10)% organically

  • Revenue of $191 million, up 2% reported and 1% organically, was adversely impacted by $(10) million due to global supply chain, logistics, and labor constraints late in the third quarter

    • Industrial revenue of $129 million, up 4% reported and 3% organically

    • Aerospace & Defense revenue of $61 million, down (1)% reported and (2)% organically

  • GAAP operating margin of 3.5%; Adjusted operating margin of 10.1%, up 80 bps

  • GAAP earnings per share of $0.06; Adjusted earnings per share of $0.50, up 39%

  • GAAP operating cash flow of $11 million; Free cash flow of $7 million, up $7 million

CIRCOR President and CEO Scott Buckhout said, "Our team delivered solid third quarter 2021 results with 15% organic orders growth, 80 basis points of margin expansion, and a 39% increase in adjusted earnings. While global supply chain constraints adversely impacted our 3Q results and 4Q outlook, we remain encouraged by robust demand for our Industrial products and strong positions on growing Aerospace & Defense programs."

Mr. Buckhout continued, "Despite the near term macro challenges, our focus remains on our long term strategic priorities. We plan to deliver 45 new products for our customers in 2021 that will drive future organic growth and margin expansion. In addition, our teams have accelerated price increases across product lines in order to mitigate the impact of higher inflation. And finally, we continue to use our free cash flow to pay down debt in order to achieve a net debt to adjusted EBITDA ratio of 2.0 to 2.5."

Mr. Buckhout concluded, "Our $435 million backlog positions us well for organic revenue, earnings, and free cash flow growth, and we continue to drive long-term value creation for employees, customers, and shareholders."

4Q'21 Guidance Update

In the fourth quarter of 2021, CIRCOR expects organic revenue to increase by 1 to 3% which reflects $(15) million of delayed revenue due to global supply chain, logistics, and labor challenges. Industrial revenue is expected to increase by 3 to 6% driven by aftermarket volume, and Aerospace & Defense revenue is expected to be down (5) to 0% with growth in both Commercial Aerospace and Defense aftermarket sales offset by lower large Defense program shipments. In addition, CIRCOR expects adjusted EPS of $0.60 to $0.65 and free cash flow conversion of 85 to 105% ($10 to $15 million).

2021 Guidance Update

For the full year of 2021, CIRCOR expects organic revenue to decrease by (2) to (0)% (previously 2 to 4%) which reflects $(25) million of delayed revenue due to global supply chain, logistics, and labor challenges. Reported revenue growth for 2021 is expected to be between (1) to 1%. Adjusted EPS is now expected to be of $1.69 to $1.74 (previously $2.10 to $2.30) driven by our lower revenue outlook and the impact of continued inflationary pressure. Finally, we expect adjusted net income to free cash flow conversion to be 15% to 25% as supply chain issues delay the completion of in-process projects and adversely impact the timing of customer collections.

Presentation slides that provide supporting information to this guidance and first-quarter results are posted on the "Investors" section of the Company’s website and will be discussed during the conference call at 9:00 a.m. ET today.

Conference Call Information

CIRCOR International will hold a conference call to review its financial results at 9:00 a.m. ET today, November 12, 2021. To listen to the live conference call and view the accompanying presentation slides, please visit "Webcasts & Presentations" in the "Investors" portion of CIRCOR’s website. The live call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. Participants are encouraged to dial in to the call at least 15 minutes prior to the start time. The webcast will be archived on the Company’s website for one year.

Selected Preliminary Consolidated Results

($ millions except EPS)

Q3 2021

Q3 2020

Change

Q3 YTD
2021

Q3 YTD
2020

Change

Orders

193.7

166.6

16

%

630.6

567.7

11

%

Orders - excluding divested businesses1

193.7

166.6

16

%

630.6

563.2

12

%

Revenue

$

190.8

$

186.6

2

%

$

561.8

$

564.9

-1

%

Revenue - excluding divested businesses1

190.8

186.6

2

%

561.8

560.0

%

GAAP operating (loss) income

6.7

4.4

51

%

2.1

(70.4)

103

%

Adjusted operating income2

19.3

17.3

11

%

46.3

44.3

5

%

GAAP operating margin

3.5

%

2.4

%

110 bps

0.4

%

(12.5)

%

1290 bps

Adjusted operating margin2

10.1

%

9.3

%

80 bps

8.2

%

7.8

%

40 bps

Adjusted operating margin ex divestitures2

10.1

%

9.3

%

80 bps

8.2

%

7.9

%

30 bps

GAAP earnings (loss) per share (diluted)

$

0.06

$

(2.93)

102

%

$

(1.07)

$

(8.59)

88

%

Adjusted earnings per share (diluted)2

$

0.50

$

0.36

39

%

$

1.10

$

0.78

41

%

Operating cash flow

11.4

2.5

362

%

4.7

(46.4)

110

%

Free cash flow3

6.8

0.1

n/a

(5.9)

(55.6)

89

%

Segment Results

($ in millions)

Q3 2021

Q3 2020

Change

Q3 YTD
2021

Q3 YTD
2020

Change

Aerospace & Defense

Orders

$

54.0

$

59.1

-9

%

$

181.3

$

207.8

-13

%

Revenue

61.5

62.2

-1

%

182.2

190.0

-4

%

Segment operating income

14.9

14.8

1%

37.7

40.4

-7

%

Segment operating margin

24.2

%

23.7

%

50 bps

20.7

%

21.3

%

-60 bps

Industrial

Orders

$

139.7

$

107.5

30

%

$

449.3

$

359.9

25

%

Orders - excluding divested businesses1

139.7

107.5

30

%

449.3

355.5

26

%

Revenue

129.3

124.4

4

%

379.5

374.9

1

%

Revenue - excluding divested businesses1

129.3

124.4

4

%

379.5

370.0

3

%

Segment operating income

11.3

9.8

15

%

31.4

27.4

15

%

Segment operating margin (adjusted)

8.7

%

7.9

%

80 bps

8.3

%

7.4

%

90 bps

  1. Orders and revenue excluding divested businesses are non-GAAP measures and are calculated by subtracting the orders and revenues generated by the divested businesses during the periods prior to their divestiture from reported orders and revenues. Divested businesses include Instrumentation & Sampling (all Industrial) which was sold during Q1 2020.

  2. Adjusted consolidated and segment results for Q3 2021 exclude net income from discontinued operations of $2.5 million and net loss from non-cash acquisition-related intangible amortization, special and restructuring charges totaling $12.6 million. These charges include: (i) $11.8 million for non-cash acquisition-related intangible amortization and depreciation expense; and (ii) $0.8 million of other special and restructuring recoveries. Adjusted consolidated and segment results for Q3 2020 exclude net income from discontinued operations of $0.3 million and net loss from non-cash acquisition-related intangible amortization, special and restructuring charges totaling $12.9 million. These charges include: (i) $11.6 million for non-cash acquisition-related intangible amortization and depreciation expense; (ii) $0.8 million of professional fees and other costs associated with restructuring and cost reductions; and (iii) $0.5 million of other special and restructuring charges. It also excludes the Q3 2020 charge for valuation allowance against deferred tax assets by virtue of using an effective tax rate in the adjusted results which is a $53.3 million adjustment to taxes.

  3. Free cash flow is a non-GAAP financial measure and is calculated by subtracting GAAP capital expenditures, net of proceeds from asset sales, from GAAP operating cash flow.

Use of Non-GAAP Financial Measures

Adjusted operating income, adjusted operating margin, adjusted net income, adjusted earnings per share (diluted), EBITDA, adjusted EBITDA, net debt, free cash flow and organic growth (and such measures further excluding discontinued operations) are non-GAAP financial measures. These non-GAAP financial measures are used by management in our financial and operating decision making because we believe they reflect our ongoing business and facilitate period-to-period comparisons. We believe these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. These non-GAAP financial measures also allow investors and others to compare the Company’s current financial results with the Company’s past financial results in a consistent manner. For example:

We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.

We exclude certain acquisition-related costs, including significant transaction costs and amortization of inventory and fixed-asset step-ups and the related tax effects. We exclude these costs because we do not believe they are indicative of our normal operating costs.

We exclude the expense and tax effects associated with the non-cash amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives up to 25 years. Exclusion of the non-cash amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.

We also exclude certain gains/losses and related tax effects, which are either isolated or cannot be expected to occur again with any predictability, and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business, significant litigation-related matters and lump-sum pension plan settlements. We exclude the results of discontinued operations.

We exclude goodwill impairment charges. We exclude these costs because we do not believe they are indicative of our normal operating costs.

Due to the significance of recently sold businesses and to provide a comparison of changes in our orders and revenue, we also discuss these changes on an "organic" basis. Organic is calculated assuming the divestitures completed prior to October 3, 2021 were completed on January 1, 2020 and excluding the impact of changes in foreign currency exchange rates.

CIRCOR’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the Company’s operating performance and comparing such performance to that of prior periods and to the performance of our peers. We use such measures when publicly providing our business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in our financial and operating decision-making process, including for compensation purposes.

Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in the United States. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is included in this news release.

Safe Harbor Statement

This press release contains certain statements that are "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). The words "may," "hope," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," "continue," and other expressions, which are predictions of or indicate future events and trends and which do not relate to historical matters, identify forward-looking statements, although not all forward-looking statements are accompanied by such words. We believe that it is important to communicate our future expectations to our stockholders, and we, therefore, make forward-looking statements in reliance upon the safe harbor provisions of the Act. However, there may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Forward-looking statements, including statements about outlook for the fourth quarter, the expected and potential direct or indirect impacts of the COVID-19 pandemic on our business, the realization of cost reductions from restructuring activities and expected synergies, the number of new product launches and future cash flows from operating activities, involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the global economy; changes in the price of and demand for oil and gas in both domestic and international markets; any adverse changes in governmental policies; variability of raw material and component pricing; changes in our suppliers’ performance; fluctuations in foreign currency exchange rates; changes in tariffs or other taxes related to doing business internationally; our ability to hire and retain key personnel; our ability to operate our manufacturing facilities at efficient levels including our ability to prevent cost overruns and reduce costs; our ability to generate increased cash by reducing our working capital; our prevention of the accumulation of excess inventory; our ability to successfully implement our divestiture; restructuring or simplification strategies; fluctuations in interest rates; our ability to successfully defend product liability actions; as well as the uncertainty associated with the current worldwide economic conditions and the continuing impact on economic and financial conditions in the United States and around the world, including as a result of COVID-19, natural disasters, terrorist attacks and other similar matters. We advise you to read further about these and other risk factors set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2020, which is filed with the Securities and Exchange Commission ("SEC") and is available on the SEC's website at www.sec.gov. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About CIRCOR International, Inc.

CIRCOR International is one of the world’s leading providers of mission critical flow control products and services for the Industrial and Aerospace & Defense markets. The Company has a product portfolio of market-leading brands serving its customers’ most demanding applications. CIRCOR markets its solutions directly and through various sales partners to more than 14,000 customers in approximately 100 countries. The Company has a global presence with approximately 3,100 employees and is headquartered in Burlington, Massachusetts. For more information, visit the Company’s investor relations website at http://investors.circor.com.

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except per share data) (unaudited)

Three Months Ended

Nine Months Ended

October 3, 2021

September 27,
2020

October 3, 2021

September 27,
2020

Net revenues

$

190,782

$

186,640

$

561,783

$

564,920

Cost of revenues

130,027

130,630

385,061

389,905

Gross profit

60,755

56,010

176,722

175,015

Selling, general and administrative expenses

53,265

50,652

167,792

164,948

Goodwill impairment charge

116,182

Special and restructuring charges (recoveries), net

814

938

6,808

(35,747)

Operating income (loss)

6,676

4,420

2,122

(70,368)

Other expense (income), net:

Interest expense, net

7,997

8,202

24,325

25,699

Other expense (income), net

134

765

(2,543)

229

Total other expense, net

8,131

8,967

21,782

25,928

Income (loss) from continuing operations before income taxes

(1,455)

(4,547)

(19,660)

(96,296)

(Benefit from) provision for income taxes

(92)

54,318

3,268

40,923

Income (loss) from continuing operations, net of tax

$

(1,363)

$

(58,865)

$

(22,928)

$

(137,219)

Income (loss) from discontinued operations, net of tax

$

2,510

$

341

$

1,393

$

(34,345)

Net income (loss)

$

1,147

$

(58,524)

$

(21,535)

$

(171,564)

Basic income (loss) per common share:

Basic from continuing operations

$

(0.07)

$

(2.94)

$

(1.14)

$

(6.87)

Basic from discontinued operations

$

0.12

$

0.02

$

0.07

$

(1.72)

Net income (loss)

$

0.06

$

(2.93)

$

(1.07)

$

(8.59)

Diluted income (loss) per common share:

Diluted from continuing operations

$

(0.07)

$

(2.94)

$

(1.14)

$

(6.87)

Diluted from discontinued operations

$

0.12

$

0.02

$

0.07

$

(1.72)

Net income (loss)

$

0.06

$

(2.93)

$

(1.07)

$

(8.59)

Weighted average number of common shares outstanding:

Basic

20,257

20,001

20,181

19,975

Diluted

20,257

20,001

20,181

19,975

CIRCOR INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands) (unaudited)

Nine Months Ended

October 3, 2021

...

September 27,
2020

OPERATING ACTIVITIES

Net loss

$

(21,535)

$

(171,564)

Income (loss) from discontinued operations, net of income taxes

1,393

(34,345)

Loss from continuing operations

(22,928)