Third Quarter 2018 Results
Consolidated sales were up 42%, or $63.0 million, from the same period last year, including $20.8 million in sales from the Telefonix PDT acquisition. Organic revenue was $191.9 million, up 28% compared with the prior-year period driven by Test revenue more than doubling and 15.6% organic growth in the Aerospace segment.
Consolidated gross margin was 21.8% compared with 21.7% in the prior-year period. Consolidated gross margin benefited from higher organic sales and Telefonix PDT's contribution in gross profit. This was partially offset by a $3.9 million program charge recognized due to the revision of estimated costs to complete a long-term contract assumed with the acquisition of the CCC business.
Consolidated Engineering and Development ("E&D") costs were $31.2 million. Organic E&D costs were $26.4 million, compared with $23.7 million in last year’s third quarter. As a percent of organic sales, organic E&D costs were 13.8% and 15.8% in the third quarters of 2018 and 2017, respectively.
Selling, general and administrative (“SG&A”) expenses were up $5.9 million to $28.0 million, or 13.2% of sales, compared with $22.1 million, or 14.8% of sales, in the same period last year. The acquisition contributed $4.6 million to SG&A, including $1.6 million of intangible asset amortization expense. Consolidated intangible asset amortization expense was $4.3 million compared with $2.9 million in the prior year. Consolidated intangible asset amortization expense is expected to be $4.3 million in the fourth quarter of 2018 also.
A tax benefit was recorded for the third quarter of 2018 compared with a 29.9% effective tax rate in the third quarter of 2017. This was the result of a net tax benefit of $4.0 million recorded in the quarter for refund claims derived from a revised state filing position that reduces the taxable income apportioned for state income tax purposes and the resulting revaluation of deferred tax liabilities. In addition, the 2018 third quarter tax rate was favorably impacted by a reduction to the provisional income tax on the deemed repatriation of foreign earnings and profits of approximately $0.4 million. Absent these discrete adjustments, the tax rate for the quarter would have been 19.3%. The 2018 third quarter tax rate also benefited from the lower Federal statutory tax rate partially offset by the elimination of the Domestic Production Activities Deduction resulting from the Tax Cuts and Jobs Act.
Net income was $17.0 million, or $0.52 per diluted share, compared with $6.1 million, or $0.18 per diluted share in the prior year.
Bookings were up 25% to $233.8 million, for a book-to-bill ratio of 1.10:1. Backlog at the end of the quarter was $398.1 million. Approximately $187 million of backlog is expected to ship in the final quarter of 2018.
Mr. Gundermann commented, “We believe the 42% growth in revenue and the strong bookings in the quarter validate the value proposition of our solutions and strength of our market position. Both segments performed well and contributed to the volume. The tax change obviously helped our bottom line, compensating for the combined operating loss of $11.2 million from our three struggling Aerospace business which we have discussed in the past.”
Year-to-Date 2018 Results
Consolidated sales for the first nine months of 2018 increased by $147.2 million, or 32.5%, including $72.8 million in acquired revenue. Aerospace segment sales were up $105.3 million to $500.4 million. The Test segment sales were up $41.8 million, or 72.0%, to $100.0 million.
Consolidated gross margin was 22.2% in the first nine months of 2018 compared with 23.2% in the first nine months of 2017. Consolidated gross margin benefited from higher organic sales and the gross profit contribution of Telefonix PDT that was more than offset by the lower margin profile of CCC due to low volume and $7.5 million year-to-date loss associated with the long-term contract, as previously discussed. Organic E&D costs were 14.4% of organic sales, or $76.0 million, compared with $69.5 million, or 15.3% of sales, in the prior year’s first nine months. Additionally, acquisitions contributed E&D costs of $13.0 million in the first nine months of 2018.
SG&A expenses were $87.9 million, or 14.6% of sales, in the first nine months of 2018 compared with $65.6 million, or 14.5% of sales, in the same period last year. Acquisitions contributed $16.9 million to SG&A, including $7.2 million of intangible asset amortization expense. Also contributing to higher SG&A was a $1.0 million litigation reserve recorded in the first quarter of 2018 for an ongoing matter. Corporate overhead expenses increased by $2.5 million due to increased staffing and higher legal and accounting costs.
The effective tax rate for the first nine months of 2018 was 6.5%,
compared with 27.0% in the first nine months of 2017. The decrease was
due to the factors identified in the quarter, as described above. Absent
these discrete adjustments, the tax rate for the first nine months of
2018 would have been 18.5%. Finally, the tax rate for the first nine
months of 2018 was favorably impacted when compared with the first nine
months of 2017 by the decrease in the Federal statutory tax rate
partially offset by the elimination of the Domestic Production
Activities Deduction resulting from the Tax Cuts and Jobs Act.