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technologies.com under the link, Investor Relations.
So we're hearing from Chris in a few minutes.
In addition to that, we've got Dave Schatz here with us, who had recently replaced Alyson as our General Counsel.
So before we get into the details of the quarter, I'd like to start off by introducing and welcoming Chris Tucker.
He joined us a few weeks ago as the newest member of our executive management team.
Chris will be serving as Senior Vice President and Chief Financial Officer replacing Gary who previously announced his retirement.
Chris comes to us from Emerson, where he served in numerous financial leadership roles with increasing responsibilities over the years.
He also led their Investor Relations Group for several years.
It's great to join all of you today.
I just wanted to take a minute, give a brief introduction to myself, before we jump into details of the Q2 performance.
As you know, I'm joining ESCO from Emerson, where I spent the last 24 years of my career.
Emerson is a great company and I'd a great experience there.
I started off in the Corporate Accounting and Finance team back in 1997 and finished up as the Group CFO for one of the few business platforms.
And of course, there were several important stops in between those two bookends.
During my time there I had a chance to work on a variety of operational issues, business development opportunities and overall value creation strategies.
I also lead the Investor Relations efforts for a few years during my tenure there, which was a good bit of training for calls like we're doing right now.
My prior experiences have put me in a strong position as I transitioned to this new role.
I'm very excited to be part of this team here at ESCO.
Gary has been extremely helpful as we've worked together over the last few weeks and everyone from the corporate staff, to the Board of Directors has been collaborative and great to work with.
ESCO is really great company and has a lot of exciting initiatives going on really across all the businesses.
I'm excited to be here and start building on Gary's legacy of strong financial leadership as we move into the future.
We'll look forward to working with you.
I'd be remiss, if I didn't mention today's COVID environment.
And how we continue manage and around this impact, on our aerospace consulting businesses.
I think our results demonstrate we're succeeding.
Since beginning of the pandemic, our primary goal is remain the same.
Provide a safe working environment and protect the health of our employees.
And today, we're really encouraging our staff to fully vaccinated, for the benefit of all.
Our solid operating results in Q2 and for the first six months of the year, coupled with our increasing liquidity, demonstrate that the measures we've taken over the past 12 months have significantly mitigated COVID impact on earnings.
And I believe will it allow us to continue successfully navigating through this challenge.
Our previous cost reduction actions, along with our enhanced focus on operational efficiency will benefit ESCO going forward as things continue to move forward in more normal state.
And I'm confident that our disciplined approach to operating business will result in continued success, throughout the balance of the year.
While Gary will provide the financial details, I'll offer some top level commentary to set the tone.
Our Q2 and year-to-date, AMD sales were significantly lower than prior year, due to COVID impact at commercial aerospace.
Our portfolio diversity allowed us to mitigate this headwind, as we're able to hold our ESCO consolidated adjusted EBITDA constant at $31 billion in Q2, compared to pre-COVID Q2 results from last year.
Additionally, we were able to increase our fiscal 21 year-to-date adjusted EBITDA and adjusted earnings per share from a prior year, despite a 6% decrease in sales.
This improvement is delivered by solid contributions from other operating units and as a result of favorable sales mix, and meaningful cost reductions across the company.
From the segment level, there are several positives to report.
Within AMD we're seeing signs of recovery in commercial aerospace.
This past year board is continued increase, and more airlines are adding idle aircraft back into service.
Our navy and space businesses remain strong and well funded.
And our outlook for, near-term growth opportunities continue to materialize in both of these areas.
Our test business continues to outperform, as we saw sales growth in both Q2 and year-to-date, with increasing margins, as our project execution remained solid.
We expect this outlook remain positive, driven by the strength of the serve markets, including 5G.
our USG business are reporting a solid for Q2 than originally projected report a solid first half of the year, from both the sales and adjusted EBIT perspective.
USD delivered an adjusted EBITDA margin of 26% for the first six months of the year, up from approximately 22% in the prior year's first half.
This is a result of year-end spending cash in our first quarter, along with our lower cash and cost base.
Overall, the fundamentals of our portfolio are strong, and our goal remains the same to create long-term shareholder value.
As we continue navigating through what we hope, is the near-end of COVID.
Our number one financial priority remains the same, increasing and maximizing our liquidity to position us for future M&A growth, and increased investment in new products and solutions.
We have a rock solid balance sheet today.
And we are poised to use it to our advantage.
I'll highlight the significant cash we've generated this year, as we've set a record for cash flow during the first half is the highest in our history.
We delivered free cash flow conversion at 134% of net earnings for the first six months.
Clearly our working capital initiatives are producing solid results.
Today, we have approximately $760 million of liquidity at our disposal between cash on hand and available credit capacity, while carrying a modest leverage ratio 0.23.
We fully realize that while this is a positive metric, it is not the ideal capital structure given the historically low cost of debt, and with that said, we're committed to putting our balance sheet to work.
One of our primary objectives in the near-term is to add leverage to fund acquisitions, with our focus directed at bringing on new businesses that provide an ROIC well in excess of our cost of capital.
As we believe this return spread is a cornerstone of value creation.
In the release, we call about a couple of discrete items, which are described in detail and are excluded from the calculation of adjusted EBITDA and adjusted earnings per share in both years presented, so I will not repeat them here.
I'll now touch on a few comparative highlights noted in the release.
We beat the consensus estimate of $0.55, as we reported Q2 adjusted earnings per share of $0.59 cents of share.
This compares to $0.68 of share in the prior year Q2.
Considering Q2 of this year was influenced by the COVID operating environment, I'm pleased to report that we've delivered adjusted EBITDA of $31 million in the current period, which is equal to the $31 million we reported last year in Q2 pre-COVID.
More impressively, this was achieved despite the noted sales decline in Q2 that Vic mentioned earlier.
Our Q2 adjusted EBITDA margin increased at 19% from 17% last year.
Year-to-date our adjusted EBITDA increased over $60 million with an 18% margin up from 17% prior year today.
Over the past year, we took several cost reduction actions across the company, and as a result, we were able to increase our Q2 and year-to-date gross margins to 38.1% and 38.7%, respectively.
We reduced our Q2 and year-to-date SG&A spending by 3% in both Q2 and year-to-date periods compared to prior year.
These favorable outcomes were achieved, despite including the acquisition of ATM in October, which has not yet at full operating capacity during its transition to Crissair.
And it was done despite our continued spending on R&D, and new product development.
Amortization of intangibles and interest expense both decreased, while tax expense as a percent of pre-tax income increased in Q2 and the first half as we had several large tax strategies implemented last year, which benefited the 2020 competitive rates, but were not repeated in the current year.
Q2 orders were solid as we booked $176 million in new business and ended the quarter with a backlog of $522 million with a book-to-bill of 106%.
A bright spot worth mentioning was the order volumes recorded in our commercial aerospace businesses, which grew their backlog $7 million during the quarter.
As we move through the balance of the year, I'll remind you that our DoD businesses led by our participation on the Block V contract for additional Virginia class submarines, where we booked several large orders during fiscal 2020 will be delivering products against those orders, which are multi-year programs, which will mathematically reduce the optics of our book-to-bill.
Consistent with our November communications and from a directional perspective, we can point to several areas where we see positive momentum.
Our commercial aerospace and utility end markets are showing some degree of customer stabilization, which supports our current outlook suggesting a movement toward continue to recover in the second half of fiscal 2021.
The increasing distribution of the COVID-19 vaccine is anticipated to benefit and accelerate the recovery of commercial air travel and utility spending, with customers resuming more normal buying patterns.
While we solidly beat Q2, and are ahead of our original plan at the halfway point, we still expect the second half of 2021 to be slightly favorable in comparison to the second half of fiscal 2020, given the various elements of recovery that we are anticipating.
We expect to show growth in fiscal 2021 adjusted EBITDA, adjusted earnings per share as compared to fiscal 2020.
With an adjusted EBITDA reasonably consistent with that was which was reported in 2019.
If we complete any additional acquisitions during the year, it is expected that these would contribute to the expectations I've just mentioned.
Since that touched on quite a few of my thoughts or my commentary I'll offer a few qualitative comments about our end markets and our expectations for the balance of the year.
Starting with our A&D segment, as I mentioned, we're seeing some signs of modest recovery in commercial aerospace.
We expect continued softness over the next three months.
We're starting to see stabilization in the OEM build rates and increase in airline passenger traffic and flight miles.
Just as we saw in Q1, the defense portion of our A&D business is and will remain strong for the foreseeable future, given our backlog and platform positions.
We also see the current situation, the aerospace market as an opportunity for ESCO, as we've been made aware of some situations where other suppliers or competitors are not fulfilling their customer requirements.
And those customers have reached out to us to see if we can step down and satisfy their demands.
Our Test business delivered another really solid quarter by beating our internal expectations and delivering the EBIT margin of 13%.
Test outlook remained solid, given the diversity of its serve markets.
As I noted on the previous call, when USG had a really strong first quarter, we expected USG sales to be down in Q2, before returning to more normal levels in the second half of the year.
And that's what we've seen.
But the positive is increased margin contribution USG delivered in Q2 in year-to-date compared to prior year.
We've recently visited with our USG management teams and I remain pleased with the enthusiasm surrounded their new products and solutions, and we continue to see energies and markets improving as the investments in renewable energy are increasing in both wind and solar.
Our solar revenues have been growing far better than anticipated, and we expect that trend to continue.
Moving on M&A, we continue to evaluate several opportunities and we expect to take action on these opportunities to grow our businesses as we have in the past.
Our board is extremely supportive of our M&A strategy and our current balance sheet provides us with plenty of liquidity to allow us to add to our existing business.
To wrap up, we delivered a solid second half and first quarter from both the cash flow and earnings standpoint.
As we move through the second half of our fiscal 2021, Our plan is to continue to focus on the fundamentals and look for opportunities to leverage our existing cost structure through M&A, to create additional operating efficiencies, ensure we're well positioned for long-term success.
So with that, I'll be happy to take any questions.

user
q2 adjusted earnings per share $0.59 excluding items.
continues to see tangible signs of recovery that point to a solid outlook for back half of year.
esco technologies - second half of 2021 is expected to compare favorably to second half of 2020 given anticipated elements of recovery.

assistant