ESCO Reports Second Quarter Fiscal 2024 Results

- Q2 Sales increase 9% to $249 Million - Q2 GAAP EPS increases 30% to $0.90 - Q2 Adjusted EPS increases 24% to $0.94 -

St. Louis, May 09, 2024 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the second quarter ended March 31, 2024 (Q2 2024).

Operating Highlights

• Q2 2024 Sales increased $20.0 million (9 percent) to $249.1 million compared to $229.1 million in Q2 2023. Q2 organic sales increased $17.8 million (8 percent) and the MPE acquisition contributed $2.2 million (1 percent) of revenue in the quarter.   
• Q2 2024 GAAP EPS increased 30 percent to $0.90 per share compared to $0.69 per share in Q2 2023. Q2 2024 Adjusted EPS increased 24 percent to $0.94 per share compared to $0.76 per share in Q2 2023.
• Q2 2024 Entered Orders decreased $12.5 million (5 percent) compared to the prior year period to $239.1 million (book-to-bill of 0.96x), resulting in ending backlog of $838 million.
• Net cash provided by operating activities was $19 million YTD, an increase of $25 million compared to the prior year period, as cash flow was positively impacted by lower accounts receivable balances and higher earnings.
• Net debt (total borrowings less cash on hand) was $132 million, resulting in a 0.86x leverage ratio and $553 million in liquidity as of March 31, 2024.
  
  

Bryan Sayler, Chief Executive Officer and President, commented, “Q2 was a solid quarter highlighted by both top and bottom-line growth. Revenue grew 9 percent as we continue to see favorable dynamics in our key aerospace, Navy and utility end markets. The sales performance translated to the bottom line very well as Adjusted EPS increased 24 percent compared to the prior year quarter.”   

Segment Performance

Aerospace & Defense (A&D)

• Sales increased $15.7 million (16 percent) to $114.7 million in Q2 2024 from $99.0 million in Q2 2023.   Sales growth was driven by strength across Navy, commercial aerospace, and defense aerospace programs.
• Q2 2024 EBIT increased $4.6 million to $23.4 million from $18.8 million in Q2 2023. Adjusted EBIT increased $4.0 million in Q2 2024 to $23.6 million (20.6 percent margin) from $19.6 million (19.8 percent margin) in Q2 2023. Margin improvement was driven by leverage on revenue growth and price increases, partially offset by inflationary pressures and mix.
• Entered Orders increased $4 million (4 percent) to $116 million in Q2 2024 compared to $112 million in Q2 2023.   The increase in orders was primarily driven by strength in OEM and aftermarket orders for both commercial and defense aerospace. The orders in the quarter resulted in a segment book-to-bill of 1.01x and ending backlog of $562 million.
  
  

Utility Solutions Group (USG)

• Sales increased $8.1 million (10 percent) to $87.3 million in Q2 2024 from $79.2 million in Q2 2023. Doble’s sales increased by $6.3 million (10 percent) driven by a strong quarter for services and cybersecurity/compliance (DUCe) solutions. NRG sales increased $1.8 million (13 percent) driven by higher demand for solar products.  
• EBIT increased $3.5 million (25 percent) in Q2 2024 to $17.6 million (20.1 percent margin) from $14.1 million (17.8 percent margin) in Q2 2023. There were no adjustments in either period. Margin improvement was driven by mix from increased service business, leverage on revenue growth, and price increases, partially offset by inflationary pressures.  
• Entered Orders decreased $6 million (7 percent) to $79 million in Q2 2024. Orders were down slightly at Doble and continued to moderate at NRG.   NRG’S orders were extremely strong in FY’23 driven by a unique surge related to large orders at extended lead-times as customers managed supply chain concerns and order activity related to Inflation Reduction Act spending. We expect orders for the renewables business to rebound as the market digests last year’s elevated activity level and new projects are defined and implemented.   The segment book-to-bill was 0.91x in the quarter, resulting in ending backlog of $119 million.
  
  

RF Test & Measurement (Test)

• Sales decreased $3.9 million (8 percent) to $47.1 million in Q2 2024 from $51.0 million in Q2 2023. Organic sales decreased $6.1 million primarily related to lower wireless, filters and acoustic volume, partially offset by $2.2 million of revenue related to the MPE acquisition which was completed in Q1 2024.   In line with our prior communication, our Test segment’s revenue continued to be somewhat soft in Q2. While sales were down compared to the prior year, they increased 16 percent sequentially.
• EBIT decreased $1.7 million in Q2 2024 to $5.5 million from $7.2 million in Q2 2023. Adjusted EBIT decreased $1.5 million in Q2 2024 to $5.7 million (12.2 percent margin) from $7.2 million (14.2 percent margin) in Q2 2023. Margin was impacted by lower volume and inflationary pressures, largely mitigated by price increases and cost reduction actions.  
• Entered Orders decreased $11 million (21 percent) to $44 million in Q2 2024.   The decrease was primarily related to lower wireless demand and delays on a few large projects, partially offset by higher OTC filter, MPE, and services orders. The segment book-to-bill was 0.93x in the quarter, resulting in ending backlog of $156 million.
  
  

Share Repurchase Program
During Q2 2024, the Company repurchased approximately 72,000 shares for $7.2 million.

Dividend Payment
The next quarterly cash dividend of $0.08 per share will be paid on July 19, 2024 to stockholders of record on July 3, 2024.

Business Outlook – 2024
Year-to-date performance has tracked to expectations and full year adjusted earnings per share guidance is being maintained in the range of $4.15 to $4.30 (12 to 16 percent growth). This represents ESCO’s third year in a row of double-digit earnings growth. This outlook is based on sales in line with our initial guidance range of $1.02 to $1.04 billion (7 to 9 percent annual growth). Management’s expectation is for Q3 Adjusted EPS in the range of $1.16 to $1.22.   

Conference Call
The Company will host a conference call today, May 9, at 4:00 p.m. Central Time, to discuss the Company’s Q2 2024 results. A live audio webcast and an accompanying slide presentation will be available on ESCO’s investor website. For those unable to participate, a webcast replay will be available after the call on ESCO’s investor website.

Forward-Looking Statements
Statements in this press release regarding Management’s intentions, expectations and guidance for fiscal 2024, including restructuring and cost reduction efforts, 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 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 selected 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 recently 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 March 31, 2024			Three Months Ended March 31, 2023
Net Sales					$	249,129			229,136
Cost and Expenses:
		Cost of sales				152,347			142,296
		Selling, general and administrative expenses				55,097			53,877
		Amortization of intangible assets				8,572			7,030
		Interest expense				3,226			2,269
		Other expenses (income), net				666			314
			Total costs and expenses			219,908			205,786
Earnings before income taxes						29,221			23,350
Income tax expense						6,002			5,472
			Net earnings		$	23,219			17,878
			Earnings Per Share (EPS)
			Diluted - GAAP		$	0.90			0.69
			Diluted - As Adjusted Basis		$	0.94	(1	)	0.76	(2	)
			Diluted average common shares O/S:			25,847			25,895
(1	)	Q2 2024 Adjusted EPS excludes $0.04 per share of after-tax charges consisting of: $0.02 of MPE acquisition backlog charges and $0.02 of restructuring charges (primarily severance) within the Test and A&D segments.
(2	)	Q2 2023 Adjusted EPS excludes $0.07 per share of after-tax charges consisting of: $0.04 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges and $0.01 of restructuring charges within the A&D segment.

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
						Six Months Ended March 31, 2024			Six Months Ended March 31, 2023
Net Sales					$	467,443			434,637
Cost and Expenses:
		Cost of sales				286,498			268,679
		Selling, general and administrative expenses				109,065			105,179
		Amortization of intangible assets				16,440			13,891
		Interest expense				5,893			3,927
		Other expenses (income), net				872			712
			Total costs and expenses			418,768			392,388
Earnings before income taxes						48,675			42,249
Income tax expense						10,287			9,644
			Net earnings		$	38,388			32,605
			Earnings Per Share (EPS)
			Diluted - GAAP		$	1.49			1.26
			Diluted - As Adjusted Basis		$	1.56	(1	)	1.36	(2	)
			Diluted average common shares O/S:			25,846			25,919
(1	)	YTD Q2 2024 Adjusted EPS excludes $0.07 per share of after-tax charges consisting of: $0.05 of MPE acquisition backlog and inventory step-up charges and acquisition costs and $0.02 of restructuring charges (primarily severance) within the Test and A&D segments.
(2	)	YTD Q2 2023 Adjusted EPS excludes $0.10 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 and $0.02 of restructuring charges within the A&D segment.

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP						As Adjusted
				Q2 2024			Q2 2023			Q2 2024			Q2 2023
Net Sales
	Aerospace & Defense		$	114,701			98,982			114,701			98,982
	USG			87,309			79,161			87,309			79,161
	Test			47,119			50,993			47,119			50,993
		Totals	$	249,129			229,136			249,129			229,136
EBIT
	Aerospace & Defense		$	23,377			18,795			23,640			19,595
	USG			17,575			14,061			17,575			14,061
	Test			5,542			7,226			5,745			7,226
	Corporate			(14,047	)		(14,463	)		(13,262	)		(12,963	)
		Consolidated EBIT		32,447			25,619			33,698			27,919
		Less: Interest expense		(3,226	)		(2,269	)		(3,226	)		(2,269	)
		Less: Income tax expense		(6,002	)		(5,472	)		(6,290	)		(6,001	)
		Net earnings	$	23,219			17,878			24,182			19,649
Note 1: Adjusted net earnings of $24.2 million in Q2 2024 exclude $0.04 per share of after-tax charges consisting of: $0.02 of MPE acquisition backlog charges and $0.02 of restructuring charges (primarily severance) within the Test and A&D segments.
Note 2: Adjusted net earnings of $19.6 million in Q2 2023 exclude $0.07 per share of after-tax charges consisting of: $0.04 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges and $0.01 of restructuring charges within the A&D segment.
EBITDA Reconciliation to Net earnings:										Q2 2024 -			Q2 2023 -
				Q2 2024			Q2 2023			As Adjusted			As Adjusted
Consolidated EBITDA			$	46,550			38,162			47,174			40,462
Less: Depr & Amort				(14,103	)		(12,543	)		(13,476	)		(12,543	)
Consolidated EBIT				32,447			25,619			33,698			27,919
Less: Interest expense				(3,226	)		(2,269	)		(3,226	)		(2,269	)
Less: Income tax expense				(6,002	)		(5,472	)		(6,290	)		(6,001	)
Net earnings			$	23,219			17,878			24,182			19,649

    
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP						As Adjusted
				YTD			YTD			YTD			YTD
				Q2 2024			Q2 2023			Q2 2024			Q2 2023
Net Sales
	Aerospace & Defense		$	209,434			181,965			209,434			181,965
	USG			170,293			150,206			170,293			150,206
	Test			87,716			102,466			87,716			102,466
		Totals	$	467,443			434,637			467,443			434,637
EBIT
	Aerospace & Defense		$	40,040			31,331			40,303			32,330
	USG			35,200			30,192			35,320			30,192
	Test			7,321			12,637			7,797			12,637
	Corporate			(27,993	)		(27,984	)		(26,557	)		(25,691	)
		Consolidated EBIT		54,568			46,176			56,863			49,468
		Less: Interest expense		(5,893	)		(3,927	)		(5,893	)		(3,927	)
		Less: Income tax expense		(10,287	)		(9,644	)		(10,815	)		(10,401	)
		Net earnings	$	38,388			32,605			40,155			35,140
Note 1: Adjusted net earnings of $40.2 million in YTD 2024 exclude $0.07 per share of after-tax charges consisting of: $0.05 of MPE acquisition backlog and inventory step-up charges and acquisition costs and $0.02 of restructuring costs (primarily severance) within the Test and A&D segments.
Note 2: Adjusted net earnings of $35.1 million in YTD 2023 exclude $0.10 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 and $0.02 of restructuring charges within the A&D segment.
EBITDA Reconciliation to Net earnings:										YTD			YTD
				YTD			YTD			Q2 2024 -			Q2 2023 -
				Q2 2024			Q2 2023			As Adj			As Adj
Consolidated EBITDA			$	82,123			71,086			83,582			74,378
Less: Depr & Amort				(27,555	)		(24,910	)		(26,719	)		(24,910	)
Consolidated EBIT				54,568			46,176			56,863			49,468
Less: Interest expense				(5,893	)		(3,927	)		(5,893	)		(3,927	)
Less: Income tax expense				(10,287	)		(9,644	)		(10,815	)		(10,401	)
Net earnings			$	38,388			32,605			40,155			35,140

     
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
				March 31, 2024		September 30, 2023
Assets
	Cash and cash equivalents		$	59,436		41,866
	Accounts receivable, net			187,535		198,557
	Contract assets			139,303		138,633
	Inventories			211,338		184,067
	Other current assets			24,310		17,972
		Total current assets		621,922		581,095
	Property, plant and equipment, net			161,811		155,484
	Intangible assets, net			414,872		392,124
	Goodwill			535,661		503,177
	Operating lease assets			38,322		39,839
	Other assets			11,603		11,495
			$	1,784,191		1,683,214
Liabilities and Shareholders' Equity
	Current maturities of long-term debt		$	20,000		20,000
	Accounts payable			81,961		86,973
	Contract liabilities			107,357		112,277
	Other current liabilities			79,612		95,401
		Total current liabilities		288,930		314,651
	Deferred tax liabilities			80,648		75,531
	Non-current operating lease liabilities			35,444		36,554
	Other liabilities			41,759		43,336
	Long-term debt			171,000		82,000
	Shareholders' equity			1,166,410		1,131,142
			$	1,784,191		1,683,214

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
		Six Months Ended March 31, 2024			Six Months Ended March 31, 2023
Cash flows from operating activities:
Net earnings	$	38,388			32,605
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization		27,555			24,910
Stock compensation expense		4,144			5,309
Changes in assets and liabilities		(47,869	)		(67,140	)
Effect of deferred taxes		(2,981	)		(1,145	)
Net cash provided (used) by operating activities		19,237			(5,461	)
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(56,179	)		(17,901	)
Capital expenditures		(16,301	)		(10,305	)
Additions to capitalized software		(5,912	)		(5,918	)
Net cash used by investing activities		(78,392	)		(34,124	)
Cash flows from financing activities:
Proceeds from long-term debt		154,000			68,000
Principal payments on long-term debt and short-term borrowings		(65,000	)		(60,000	)
Dividends paid		(4,125	)		(4,128	)
Purchases of common stock into treasury		(7,189	)		(12,217	)
Other		(1,432	)		(2,374	)
Net cash provided (used) by financing activities		76,254			(10,719	)
Effect of exchange rate changes on cash and cash equivalents		471			801
Net increase (decrease) in cash and cash equivalents		17,570			(49,503	)
Cash and cash equivalents, beginning of period		41,866			97,724
Cash and cash equivalents, end of period	$	59,436			48,221

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
Backlog And Entered Orders - Q2 2024				A&D			USG			Test			Total
	Beginning Backlog - 1/1/24		$	560,893			127,439			159,436			847,768
	Entered Orders			116,110			79,025			43,937			239,072
	Sales			(114,701	)		(87,309	)		(47,119	)		(249,129	)
	Ending Backlog - 3/31/24		$	562,302			119,155			156,254			837,711
Backlog And Entered Orders - YTD Q2 2024				A&D			USG			Test			Total
	Beginning Backlog - 10/1/23		$	484,069			133,459			154,834			772,362
	Entered Orders			287,667			155,989			89,136			532,792
	Sales			(209,434	)		(170,293	)		(87,716	)		(467,443	)
	Ending Backlog - 3/31/24		$	562,302			119,155			156,254			837,711

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
EPS – Adjusted Basis Reconciliation – Q2 2024
	EPS – GAAP Basis – Q2 2024	$	0.90
	Adjustments (defined below)		0.04
	EPS – As Adjusted Basis – Q2 2024	$	0.94
	Adjustments exclude $0.04 per share consisting of: $0.02 of MPE acquisition backlog
	charges and $0.02 of restructuring charges (primarily severance) within the Test
	and A&D segments in the second quarter of 2024.
	The $0.04 of EPS adjustments per share consists of $1,251K of pre-tax charges
	offset by $288K of tax benefit for net impact of $963K.
EPS – Adjusted Basis Reconciliation – Q2 2023
	EPS – GAAP Basis – Q2 2023	$	0.69
	Adjustments (defined below)		0.07
	EPS – As Adjusted Basis – Q2 2023	$	0.76
	Adjustments exclude $0.07 per share consisting of executive management transition costs
	at Corporate, CMT acquisition inventory step-up charges and restructuring charges within
	the A&D segment in the second quarter of 2023.
	The $0.07 of EPS adjustments per share consists of $2,300K of pre-tax charges
	offset by $529K of tax benefit for net impact of $1,771K.
EPS – Adjusted Basis Reconciliation – YTD Q2 2024
	EPS – GAAP Basis – YTD Q2 2024	$	1.49
	Adjustments (defined below)		0.07
	EPS – As Adjusted Basis – YTD Q2 2024	$	1.56
	Adjustments exclude $0.07 per share consisting of: $0.05 of MPE acquisition backlog
	and inventory step-up charges and acquisition costs, and $0.02 of restructuring charges
	(primarily severance) within the Test and A&D segments in the first six months of 2024.
	The $0.07 of EPS adjustments per share consists of $2,295K of pre-tax charges
	offset by $528K of tax benefit for net impact of $1,767K.
EPS – Adjusted Basis Reconciliation – YTD Q2 2023
	EPS – GAAP Basis – YTD Q2 2023	$	1.26
	Adjustments (defined below)		0.10
	EPS – As Adjusted Basis – YTD Q2 2023	$	1.36
	Adjustments exclude $0.10 per share consisting of executive management transition costs
	at Corporate, CMT acquisition inventory step-up charges and restructuring charges within
	the A&D segment in the first six months of 2023.
	The $0.10 of EPS adjustments per share consists of $3,292K of pre-tax charges
	offset by $757K of tax benefit for net impact of $2,535K.

        
SOURCE ESCO Technologies Inc.
Kate Lowrey, Vice President of Investor Relations, [phone]