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ESCO Reports Third Quarter Fiscal 2024 Results

St. Louis, Aug. 07, 2024 (GLOBE NEWSWIRE) — ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2024 (Q3 2024).

Operating Highlights

Bryan Sayler, Chief Executive Officer and President, commented, “Q3 was highlighted by over $300 million in orders, with strength across all three segments. The increase was driven by large Navy orders, continuing strength in aerospace and electric utility orders, and importantly a rebound in both Test and renewables orders. Revenue grew 5 percent in the quarter and Adjusted EBITDA margin expanded by 60 basis points, driving a 6 percent increase in Adjusted EPS compared to the prior year quarter. Overall, it was a solid quarter as we continue to see favorable momentum across our aerospace, Navy and utility end markets.”

Segment Performance

Aerospace & Defense (A&D)

Utility Solutions Group (USG)

RF Test & Measurement (Test)

SM&P Acquisition
As announced on July 8, 2024, ESCO has agreed to acquire the Signature Management & Power (SM&P) business of Ultra Maritime for a purchase price of $550 million. The required filings have been submitted and we are awaiting regulatory approval, with an anticipation of a Q1 fiscal 2025 closing.   SM&P’s sole source product offerings will add significant scale to the ESCO Navy business, providing increased content on domestic Navy submarine and surface ship programs and expansion into vital UK and AUKUS navy platforms.

Business Outlook – 2024
Management’s expectation is for Q4 Adjusted EPS in the range of $1.38 to $1.48 (10 to 18 percent growth). This results in full year guidance in the range of $4.10 to $4.20 (11 to 14 percent growth), which represents ESCO’s third consecutive year of double-digit earnings growth. This outlook is based on sales in the range of $1.02 to $1.03 billion (7 to 8 percent annual growth) and excludes further profitability erosion on Space programs at VACCO, which could range from $5 to $7 million ($0.15 – $0.21) in Q4 2024.

VACCO Space Business Strategic Review
The Company is undertaking a process to review strategic alternatives for the Space business at VACCO. These alternatives could include, among others, possible joint ventures, strategic partnerships, or a sale of the business. The intent is to optimize ESCO’s portfolio of businesses and create value for ESCO shareholders. This decision was made as part of our continual strategic portfolio analysis, which is focused on positioning the Company to serve high-growth markets that have high margin potential. As we undertake this review, the Company remains committed to executing on our current Space programs and serving the needs of our customers.

There is no deadline or definitive timetable for completion of the strategic alternatives review process and there can be no assurance that this process will result in the Company pursuing a transaction or any other strategic outcome. ESCO does not intend to make any further public comment regarding the review of strategic alternatives for the Space business at VACCO until it has been completed or the Company determines that a disclosure is required or otherwise deemed appropriate.

Share Repurchase Program
During Q3 2024, the Company repurchased approximately 8,000 shares for $0.8 million.

Dividend Payment
The next quarterly cash dividend of $0.08 per share will be paid on October 16, 2024 to stockholders of record on October 2, 2024.

Board of Directors
Effective August 1, 2024, the Company’s Board of Directors approved the addition of two independent directors, Penelope M. Conner and David A. Campbell, which shall become effective upon the requisite approval by the Federal Energy Regulatory Commission of such positions and satisfaction of any and all other regulatory requirements.  

Ms. Conner was named to the Nominating and Corporate Governance Committee and Mr. Campbell was named to the Audit and Finance Committee of the Board of Directors, subject to and effective upon the commencement of their respective terms as directors.

Penelope M. Conner
With 38 years of experience in the electric and gas utility sector, since 2002 Ms. Conner has held executive positions with Eversource Energy (NYSE: ES), a utility holding company based in Medfield, Massachusetts, most recently (since 2021) as Eversource’s Executive Vice President, Customer Experience and Energy Strategy. She is currently responsible for ensuring that Eversource’s 4 million electric and gas customers experience high-quality customer service while driving Eversource’s energy strategy development and capital allocation throughout the enterprise. Prior to joining Eversource, Ms. Conner held positions of increasing responsibility from 1986 to 2002 at Tampa Electric Company and then Duke Energy Corporation, culminating in a position as Duke Energy’s General Manager for Process Integration.

Ms. Conner graduated from North Carolina State University in 1986 with a Bachelor of Science degree in Industrial Engineering, summa cum laude. She is a registered professional engineer in North and South Carolina.

David A. Campbell
Since 2021 Mr. Campbell has been the President and Chief Executive Officer and a Board Member of Evergy, Inc. (NASDAQ: EVRG), a public utility holding company incorporated in 2017 and headquartered in Kansas City, Missouri. He previously held executive positions at a number of electric and integrated energy companies in Texas as well as at an independent energy resource and investment company, following nine years (four as a partner) in the Dallas office of McKinsey & Company, a leading global management consulting firm providing strategic and operational counsel to top management of diverse global corporations and institutions.

Mr. Campbell holds degrees from Harvard Law School (J.D. degree magna cum laude, 1995), Oxford University (M.Phil. International Relations, 1992), and Yale University (B.A. summa cum laude with Distinction in History, 1990).

Conference Call
The Company will host a conference call today, August 7, at 4:00 p.m. Central Time, to discuss the Company’s Q3 2024 results.   A live audio webcast and an accompanying slide presentation will be available in the Investor Center of ESCO’s website. For those unable to participate, a webcast replay will be available after the call in the Investor Center of ESCO’s website.

Forward-Looking Statements
Statements in this press release regarding Management’s intentions, expectations and guidance for fiscal 2024, including restructuring and cost reduction actions, sales, orders, revenues, margin, earnings, Adjusted EPS, and any other statements which are not strictly historical, are “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. securities laws.

Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment including but not limited to those described in Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 and the following: the timing and outcome, if any, of the Company’s strategic alternatives review for the Space business at VACCO; the impacts of climate change and related regulation of greenhouse gases; the impacts of labor disputes, civil disorder, wars, elections, political changes, tariffs and trade disputes, terrorist activities, cyberattacks or natural disasters on the Company’s operations and those of the Company’s customers and suppliers; disruptions in manufacturing or delivery arrangements due to shortages or unavailability of materials or components or supply chain disruptions; inability to access work sites; the timing and content of future contract awards or customer orders; the timely appropriation, allocation and availability of Government funds; the termination for convenience of Government and other customer contracts or orders; weakening of economic conditions in served markets; the success of the Company’s competitors; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties or data breaches; the availability of acquisitions; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; material changes in the costs and availability of certain raw materials; material changes in the cost of credit; changes in laws and regulations including but not limited to changes in accounting standards and taxation; changes in interest, inflation and employment rates; costs relating to environmental matters arising from current or former facilities; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the integration and performance of acquired businesses.

Non-GAAP Financial Measures
The financial measures EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, and Adjusted EPS are presented in this press release. The Company defines “EBIT” as earnings before interest and taxes, “EBITDA” as earnings before interest, taxes, depreciation and amortization, “Adjusted EBIT” and “Adjusted EBITDA” as excluding the net impact of the items described in the attached Reconciliation of Non-GAAP Financial Measures, and “Adjusted EPS” as GAAP earnings per share excluding the net impact of the items described and reconciled in the attached Reconciliation of Non-GAAP Financial Measures.

EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, and Adjusted EPS are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes EBIT, Adjusted EBIT, EBITDA, and Adjusted EBITDA are useful in assessing the operational profitability of the Company’s business segments because they exclude interest, taxes, depreciation, and amortization, which are generally accounted for across the entire Company on a consolidated basis. EBIT is also one of the measures used by Management in determining resource allocations within the Company as well as incentive compensation. The presentation of EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA, and Adjusted EPS provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

ESCO is a global provider of highly engineered products and solutions serving diverse end-markets. It manufactures filtration and fluid control products for the aviation, Navy, space, and process markets worldwide and composite-based products and solutions for Navy, defense, and industrial customers. ESCO is an industry leader in designing and manufacturing RF test and measurement products and systems; and provides diagnostic instruments, software and services to industrial power users and the electric utility and renewable energy industries. Headquartered in St. Louis, Missouri, ESCO and its subsidiaries have offices and manufacturing facilities worldwide. For more information on ESCO and its subsidiaries, visit the Company’s website at www.escotechnologies.com.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
    
          Three Months
Ended
June 30, 2024
  Three Months
Ended
June 30, 2023
 
                 
Net Sales   $ 260,783     248,749  
Cost and Expenses:          
  Cost of sales   157,435     147,274  
  Selling, general and administrative expenses   54,955     55,376  
  Amortization of intangible assets   8,145     7,132  
  Interest expense   3,335     2,495  
  Other expenses (income), net   (259 )   966  
    Total costs and expenses   223,611     213,243  
                 
Earnings before income taxes   37,172     35,506  
Income tax expense   7,942     7,563  
                 
    Net earnings $ 29,230     27,943  
                 
    Earnings Per Share (EPS)          
                 
      Diluted – GAAP $ 1.13     1.08  
                 
      Diluted – As Adjusted Basis $ 1.16   (1 ) 1.09 (2 )
                 
      Diluted average common shares O/S:   25,840     25,827  
                 
(1 ) Q3 2024 Adjusted EPS excludes $0.03 per share of after-tax charges consisting mainly of: $0.02 of Corporate acquisition related costs and $0.01 of restructuring charges (primarily severance) within the A&D and USG segments.
                 
(2 ) Q3 2023 Adjusted EPS excludes $0.01 per share of after-tax charges consisting mainly of Corporate acquisition related costs.

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
    
          Nine Months
Ended
June 30, 2024
  Nine Months
Ended
June 30, 2023
 
                 
Net Sales   $ 728,226   683,386  
Cost and Expenses:          
  Cost of sales   443,933   415,953  
  Selling, general and administrative expenses   164,020   160,555  
  Amortization of intangible assets   24,585   21,023  
  Interest expense   9,228   6,422  
  Other expenses (income), net   613   1,678  
    Total costs and expenses   642,379   605,631  
                 
Earnings before income taxes   85,847   77,755  
Income tax expense   18,229   17,207  
                 
    Net earnings $ 67,618   60,548  
                 
    Earnings Per Share (EPS)          
                 
      Diluted – GAAP $ 2.62   2.34  
                 
      Diluted – As Adjusted Basis $ 2.72 (1 ) 2.45 (2 )
                 
      Diluted average common shares O/S:   25,844   25,890  
                 
(1 ) YTD Q3 2024 Adjusted EPS excludes $0.10 per share of after-tax charges consisting of: $0.04 of MPE acquisition backlog and inventory step-up charges, $0.03 of restructuring charges (primarily severance) within the Test, A&D and USG segments, and $0.03 of Corporate acquisition related costs.
                 
(2 ) YTD Q3 2023 Adjusted EPS excludes $0.11 per share of after-tax charges consisting of: $0.06 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges, $0.02 of restructuring charges within the A&D segment, and $0.01 of Corporate acquisition related costs.

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
   
        GAAP   As Adjusted  
        Q3 2024   Q3 2023   Q3 2024   Q3 2023  
Net Sales                  
  Aerospace & Defense $ 114,450     103,469     114,450     103,469    
  USG   90,277     89,966     90,277     89,966    
  Test   56,056     55,314     56,056     55,314    
    Totals $ 260,783     248,749     260,783     248,749    
                       
EBIT                    
  Aerospace & Defense $ 21,356     21,665     21,444     21,665    
  USG   22,155     20,351     22,230     20,481    
  Test   9,292     8,643     9,297     8,643    
  Corporate   (12,296 )   (12,658 )   (11,566 )   (12,438 )  
    Consolidated EBIT   40,507     38,001     41,405     38,351    
    Less: Interest expense   (3,335 )   (2,495 )   (3,335 )   (2,495 )  
    Less: Income tax expense   (7,942 )   (7,563 )   (8,149 )   (7,643 )  
    Net earnings $ 29,230     27,943     29,921     28,213    
                          
Note 1: Adjusted net earnings were $29.9 million in Q3 2024 which excludes $0.03 per share of after-tax charges consisting mainly of $0.02 of Corporate acquisition related costs and $0.01 of restructuring charges (primarily severance) within the A&D and USG segments.
                       
Note 2: Adjusted net earnings were $28.2 million in Q3 2023 which excludes $0.01 per share of after-tax charges consisting mainly of Corporate acquisition related costs.
                       
EBITDA Reconciliation to Net earnings:           Q3 2024 –   Q3 2023 –  
        Q3 2024   Q3 2023   As Adjusted   As Adjusted  
Consolidated EBITDA $ 54,310     50,790     55,208     51,140    
Less: Depr & Amort   (13,803 )   (12,789 )   (13,803 )   (12,789 )  
Consolidated EBIT   40,507     38,001     41,405     38,351    
Less: Interest expense   (3,335 )   (2,495 )   (3,335 )   (2,495 )  
Less: Income tax expense   (7,942 )   (7,563 )   (8,149 )   (7,643 )  
Net earnings $ 29,230     27,943     29,921     28,213    
                       

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES  
Condensed Business Segment Information (Unaudited)  
(Dollars in thousands)  
   
        GAAP   As Adjusted  
        YTD   YTD   YTD   YTD  
        Q3 2024   Q3 2023   Q3 2024   Q3 2023  
Net Sales                  
  Aerospace & Defense $ 323,884     285,434     323,884     285,434    
  USG   260,570     240,172     260,570     240,172    
  Test   143,772     157,780     143,772     157,780    
    Totals $ 728,226     683,386     728,226     683,386    
                       
EBIT                    
  Aerospace & Defense $ 61,396     52,996     61,747     53,995    
  USG   57,355     50,543     57,550     50,673    
  Test   16,614     21,280     17,095     21,280    
  Corporate   (40,290 )   (40,642 )   (38,124 )   (38,129 )  
    Consolidated EBIT   95,075     84,177     98,268     87,819    
    Less: Interest expense   (9,228 )   (6,422 )   (9,228 )   (6,422 )  
    Less: Income tax expense   (18,229 )   (17,207 )   (18,963 )   (18,045 )  
    Net earnings $ 67,618     60,548     70,077     63,352    
                          
Note 1: Adjusted net earnings were $70.1 million in YTD Q3 2024 which excludes $0.10 per share of after-tax charges consisting of $0.04 of MPE acquisition backlog and inventory step-up charges, $0.03 of restructuring charges (primarily severance) within the Test, A&D and USG segments, and $0.03 of Corporate acquisition related costs.
                       
Note 2: Adjusted net earnings were $63.4 million in YTD Q3 2023 which excludes $0.11 per share of after-tax charges consisting of $0.06 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges, $0.02 of restructuring charges within the A&D segment, and $0.01 of Corporate acquisition related costs.
                          
EBITDA Reconciliation to Net earnings:           YTD   YTD  
        YTD   YTD   Q3 2024 –   Q3 2023 –  
        Q3 2024   Q3 2023   As Adjusted   As Adjusted  
Consolidated EBITDA $ 136,433     121,876     138,790     125,518    
Less: Depr & Amort   (41,358 )   (37,699 )   (40,522 )   (37,699 )  
Consolidated EBIT   95,075     84,177     98,268     87,819    
Less: Interest expense   (9,228 )   (6,422 )   (9,228 )   (6,422 )  
Less: Income tax expense   (18,229 )   (17,207 )   (18,963 )   (18,045 )  
Net earnings $ 67,618     60,548     70,077     63,352    
                       

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
   
        June 30,
2024
  September 30,
2023
             
Assets          
  Cash and cash equivalents $ 63,042   41,866
  Accounts receivable, net   213,592   198,557
  Contract assets   134,637   138,633
  Inventories   219,312   184,067
  Other current assets   22,312   17,972
    Total current assets   652,895   581,095
  Property, plant and equipment, net   164,749   155,484
  Intangible assets, net   408,981   392,124
  Goodwill   535,372   503,177
  Operating lease assets   37,716   39,839
  Other assets   11,342   11,495
      $ 1,811,055   1,683,214
             
Liabilities and Shareholders’ Equity        
  Current maturities of long-term debt $ 20,000   20,000
  Accounts payable   83,411   86,973
  Contract liabilities   113,653   112,277
  Other current liabilities   94,143   95,401
    Total current liabilities   311,207   314,651
  Deferred tax liabilities   77,570   75,531
  Non-current operating lease liabilities   35,148   36,554
  Other liabilities   40,444   43,336
  Long-term debt   153,000   82,000
  Shareholders’ equity   1,193,686   1,131,142
      $ 1,811,055   1,683,214

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
       
    Nine Months
Ended
June 30, 2024
  Nine Months
Ended
June 30, 2023
Cash flows from operating activities:        
Net earnings $ 67,618     60,548  
Adjustments to reconcile net earnings to net cash        
provided (used) by operating activities:        
Depreciation and amortization   41,358     37,699  
Stock compensation expense   6,369     7,007  
Changes in assets and liabilities   (53,839 )   (72,346 )
Effect of deferred taxes   (6,052 )   (3,706 )
Net cash provided by operating activities   55,454     29,202  
         
Cash flows from investing activities:        
Acquisition of business, net of cash acquired   (56,383 )   (17,694 )
Capital expenditures   (24,949 )   (16,993 )
Additions to capitalized software   (8,556 )   (9,263 )
Net cash used by investing activities   (89,888 )   (43,950 )
         
Cash flows from financing activities:        
Proceeds from long-term debt   193,000     88,000  
Principal payments on long-term debt and short-term borrowings   (122,000 )   (93,000 )
Dividends paid   (6,185 )   (6,189 )
Purchases of common stock into treasury   (7,998 )   (12,401 )
Other   (1,516 )   (2,557 )
Net cash provided (used) by financing activities   55,301     (26,147 )
         
Effect of exchange rate changes on cash and cash equivalents   309     (777 )
         
Net increase (decrease) in cash and cash equivalents   21,176     (41,672 )
Cash and cash equivalents, beginning of period   41,866     97,724  
Cash and cash equivalents, end of period $ 63,042     56,052  

    
    

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
   
Backlog And Entered Orders – Q3 2024   A&D   USG   Test   Total
  Beginning Backlog – 4/1/24 $ 562,302     119,155     156,254     837,711  
  Entered Orders   146,890     100,012     64,829     311,731  
  Sales     (114,450 )   (90,277 )   (56,056 )   (260,783 )
  Ending Backlog – 6/30/24 $ 594,742     128,890     165,027     888,659  
                     
Backlog And Entered Orders – YTD Q3 2024   A&D   USG   Test   Total
  Beginning Backlog – 10/1/23 $ 484,069     133,459     154,834     772,362  
  Entered Orders   434,557     256,001     153,965     844,523  
  Sales     (323,884 )   (260,570 )   (143,772 )   (728,226 )
  Ending Backlog – 6/30/24 $ 594,742     128,890     165,027     888,659  

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
       
EPS – Adjusted Basis Reconciliation – Q3 2024    
  EPS – GAAP Basis – Q3 2024 $ 1.13
  Adjustments (defined below)   0.03
  EPS – As Adjusted Basis – Q3 2024 $ 1.16
       
  Adjustments exclude $0.03 per share consisting mainly of Corporate acquisition related costs and restructuring charges (primarily severance) in the third quarter of 2024.
  The $0.03 of EPS adjustments per share consists of $898K of pre-tax charges offset by $207K of tax benefit for net impact of $691K.
       
EPS – Adjusted Basis Reconciliation – YTD Q3 2024    
  EPS – GAAP Basis – YTD Q3 2024 $ 2.62
  Adjustments (defined below)   0.10
  EPS – As Adjusted Basis – YTD Q3 2024 $ 2.72
       
  Adjustments exclude $0.10 per share consisting of MPE acquisition backlog and inventory step-up charges, restructuring charges (primarily severance) within the Test, A&D and USG segments, and Corporate acquisition related costs.
  The $0.10 of EPS adjustments per share consists of $3,193K of pre-tax charges offset by $734K of tax benefit for net impact of $2,459K.
       
EPS – Adjusted Basis Reconciliation – Q3 2023    
  EPS – GAAP Basis – Q3 2023 $ 1.08
  Adjustments (defined below)   0.01
  EPS – As Adjusted Basis – Q3 2023 $ 1.09
       
  Adjustments exclude $0.01 per share consisting mainly of Corporate acquisition related costs in the third quarter of 2023.
  The $0.01 of EPS adjustments per share consists of $350K of pre-tax charges offset by $80K of tax benefit for net impact of $270K.
       
EPS – Adjusted Basis Reconciliation – YTD Q3 2023    
  EPS – GAAP Basis – YTD Q3 2023 $ 2.34
  Adjustments (defined below)   0.11
  EPS – As Adjusted Basis – YTD Q3 2023 $ 2.45
       
  Adjustments exclude $0.11 per share consisting of executive management transition costs at Corporate, CMT acquisition inventory step-up charges and restructuring charges within the A&D segment, and Corporate acquisition costs in the first nine months of 2023.
  The $0.11 of EPS adjustments per share consists of $3,642K of pre-tax charges offset by $838K of tax benefit for net impact of $2,804K.

   
SOURCE ESCO Technologies Inc.
Kate Lowrey, Vice President of Investor Relations, (314) 213-7277


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