• ESCO Reports Third Quarter Fiscal 2023 Results

    Source: Nasdaq GlobeNewswire / 08 Aug 2023 15:15:00   America/Chicago

    St. Louis, Aug. 08, 2023 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2023 (Q3 2023).

    Operating Highlights

    • Q3 2023 GAAP EPS increased 21 percent to $1.08 per share compared to $0.89 per share in Q3 2022.   Q3 2023 Adjusted EPS increased 22 percent to $1.09 per share compared to $0.89 per share in Q3 2022.
    • Q3 2023 Sales increased $29.6 million (13.5 percent) to $248.7 million compared to $219.1 million in Q3 2022.
    • Q3 2023 Entered Orders decreased $41.6 million (16 percent) versus the prior year period to $213.3 million (book-to-bill of 0.86x), resulting in ending backlog of $705 million.   Continuing strength in commercial aerospace, utilities and renewables orders were more than offset by timing related to a few large orders in Q3 2022 that did not repeat.
    • Net cash provided by operating activities was $29 million YTD 2023. Cash flow improved in the quarter but was negatively impacted by higher working capital requirements (higher accounts receivable related to increased sales and higher inventory related to timing and supply chain issues), along with higher interest and tax payments compared to the prior year.  
    • Net debt (total borrowings less cash on hand) was $92 million, resulting in a 0.71x leverage ratio and $595 million in liquidity at June 30, 2023.

    Bryan Sayler, Chief Executive Officer and President, commented, “Q3 was another strong quarter with a number of positive developments. Sales increased 14 percent on the strength of continuing momentum in our aerospace, utility, and renewables end-markets. A&D and USG both again delivered double digit revenue growth and our Adjusted EBIT and Adjusted EPS both increased over 20 percent compared to the prior year. We delivered 130 basis points of Adjusted EBIT margin improvement, driven by leverage on aerospace and USG revenue growth, and at Test where we did a great job delivering higher margins on lower sales.

    “My transition to the CEO role has gone very well. The quality of our businesses continues to shine and it’s a pleasure to work with such a talented team. We have a committed group of employees that work diligently to drive growth and deliver solid operating results for our company and our shareholders. I want to thank our employees for their dedication as we all work and grow together as a team.”      

    Segment Performance

    Aerospace & Defense (A&D)

    • Sales increased $10.9 million (12 percent) to $103.5 million in Q3 2023 from $92.6 million in Q3 2022. Sales growth was driven by commercial and defense aerospace, partially offset by lower Navy and space sales in the quarter. Commercial aerospace increased $7.6 million (24 percent) and defense aerospace increased $6.7 million (54 percent) in the quarter.
    • Q3 2023 EBIT increased $1.0 million to $21.7 million (20.9 percent margin) from $20.7 million (22.4 percent margin) in Q3 2022. There were no adjustments to earnings in either period.   The Q3 margin was negatively impacted by lower space and Navy volume and margin erosion on certain space development contracts, which more than offset leverage on aerospace growth in the quarter.
    • Entered Orders decreased $28 million (26 percent) to $82 million in Q3 2023 compared to $110 million in Q3 2022.   The decrease was primarily driven by a $30 million space order (SLS long lead material) that occurred in Q3 2022. Aerospace order strength continued but was mostly offset by a shift in the timing of Virginia Class submarine orders to later in the year. Ending backlog of $414 million has increased $5 million compared to the prior year end.

    Utility Solutions Group (USG)

    • Sales increased $22.8 million (34 percent) to $90.0 million in Q3 2023 from $67.2 million in Q3 2022. Doble’s sales increased by $17.6 million (32 percent) driven by a strong quarter for services, offline testing, protection testing and condition monitoring.   NRG sales increased $5.2 million (45 percent) on continued broad strength across the renewables end-market.
    • EBIT increased $7.3 million in Q3 2023 to $20.4 million from $13.1 million in Q3 2022. Adjusted EBIT increased $7.4 million (56 percent) in Q3 2023 to $20.5 million (22.8 percent margin) from $13.1 million (19.5 percent margin) in Q3 2022. Margins were favorably impacted by leverage on higher revenue and price increases, partially offset by the impacts of wage and material cost inflation and increased commissions, travel, and tradeshow expenses.
    • Entered Orders increased $11 million (15 percent) to $86 million in Q3 2023. Doble orders increased by $2 million (3 percent) and NRG orders increased by $9 million (67 percent). The strength in renewables orders was driven by continuing momentum in wind and solar project pipelines. Ending backlog of $138 million has increased $10 million compared to the prior year end.

    Test

    • Sales decreased $4.0 million (7 percent) to $55.3 million in Q3 2023 from $59.3 million in Q3 2022. Lower test and measurement volume in China and the U.S and lower filter sales domestically were partially offset by a strong quarter in EMEA and increased service revenue.
    • EBIT increased $0.2 million in Q3 2023 to $8.6 million (15.6 percent margin) from $8.4 million (14.1 percent margin) in Q3 2022.   There were no adjustments in either period. The Q3 margin improvement was driven by price increases and cost reduction efforts, which more than offset the impact of lower volume and wage and material cost inflation.
    • Entered Orders decreased $24.4 million to $45.9 million in Q3 2023 compared to $70.3 million in Q3 2022. The decrease was primarily due to several large test and measurement orders booked in Q3 2022, and lower test and measurement orders in China related to the resurgence of COVID earlier this year. Ending backlog of $153 million has decreased $5 million compared to the prior year end.

    Share Repurchase Program
    During Q3 2023, the Company repurchased approximately 2,000 shares for $0.2 million. Year-to-date, the company has repurchased approximately 140,000 shares for $12.4 million.

    Dividend Payment
    The next quarterly cash dividend of $0.08 per share will be paid on October 17, 2023 to stockholders of record on October 3, 2023.

    Business Outlook – 2023
    On the strength of our results year-to-date and our expectations for the fourth quarter, we are again raising our full year earnings guidance. We expect Q4 Adjusted EPS in the range of $1.17 to $1.23 which results in Adjusted 2023 EPS in the range of $3.62 to $3.68 (13 to 15 percent growth). This is based on sales in a range of $940 to $950 million (10 to 11 percent annual growth).

    Conference Call
    The Company will host a conference call today, August 8, at 4:00 p.m. Central Time, to discuss the Company’s Q3 2023 results. A live audio webcast and an accompanying slide presentation will be available on ESCO’s investor website at https://investor.escotechnologies.com. 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 expectations for fiscal 2023, the effects of continuing inflationary pressures, higher interest rates, pressures related to supply chain performance and labor shortages; our expectations and guidance for 2023 including sales and sales trends; revenues and revenue growth, earnings and Adjusted EPS, Adjusted EBIT and Adjusted EBITDA margin; the effects of acquisitions; 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, 2022; the effects of a resurgence of the COVID-19 pandemic, or the emergence of another pandemic, including labor shortages, facility closures, shelter in place policies or quarantines, material shortages, transportation delays, termination or delays of Company contracts, and the inability of our suppliers or customers to perform; the impacts of climate change and related regulation of greenhouse gases; the impacts of natural disasters on the Company’s operations and those of the Company’s customers and suppliers; the timing and content of future contract awards or customer orders; the 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; the success of the Company’s acquisition efforts; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; changes in the costs and availability of certain raw materials; labor disputes; changes in U.S. tax laws and regulations; other changes in laws and regulations including but not limited to changes in accounting standards and foreign taxation; changes in interest 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 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 (EPS) 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 and EBITDA are also 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.

    About ESCO Technologies
    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 the industry leader in RF shielding and EMC test products; 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, 2023
     Three Months
    Ended
    June 30, 2022
            
    Net Sales$248,749 219,066 
    Cost and Expenses:    
     Cost of sales 147,274 134,454 
     Selling, general and administrative expenses 55,376 47,479 
     Amortization of intangible assets 7,132 6,406 
     Interest expense 2,495 1,331 
     Other expenses (income), net 966 (106)
      Total costs and expenses 213,243 189,564 
            
    Earnings before income taxes 35,506 29,502 
    Income tax expense 7,563 6,329 
            
      Net earnings$27,943 23,173 
            
       Diluted - GAAP$1.08 0.89 
            
       Diluted - As Adjusted Basis$1.09(1)0.89 
            
       Diluted average common shares O/S: 25,827 25,950 
            
    (1)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, 2023
     Nine Months
    Ended
    June 30, 2022
     
             
    Net Sales$683,386 601,004  
    Cost and Expenses:     
     Cost of sales 415,953 371,134  
     Selling, general and administrative expenses 160,555 142,073  
     Amortization of intangible assets 21,023 19,383  
     Interest expense 6,422 3,084  
     Other expenses (income), net 1,678 (677) 
      Total costs and expenses 605,631 534,997  
             
    Earnings before income taxes 77,755 66,007  
    Income tax expense 17,207 14,727  
             
      Net earnings$60,548 51,280  
             
       Diluted - GAAP$2.34 1.97  
             
       Diluted - As Adjusted Basis$2.45(1)2.00 (2)
             
       Diluted average common shares O/S: 25,890 26,050  
             
    (1)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.
             
    (2)YTD Q3 2022 Adjusted EPS excludes $0.03 per share of after-tax charges associated with the Altanova & NEco acquisition inventory step-up charges and Corporate acquisition related costs.

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Condensed Business Segment Information (Unaudited)
    (Dollars in thousands)
       
        GAAP As Adjusted 
        Q3 2023 Q3 2022 Q3 2023 Q3 2022 
    Net Sales          
     Aerospace & Defense$103,469  92,606  103,469  92,606  
     USG 89,966  67,201  89,966  67,201  
     Test 55,314  59,259  55,314  59,259  
      Totals$248,749  219,066  248,749  219,066  
                
    EBIT           
     Aerospace & Defense$21,665  20,738  21,665  20,738  
     USG 20,351  13,135  20,481  13,135  
     Test 8,643  8,354  8,643  8,354  
     Corporate (12,658) (11,394) (12,438) (11,394) 
      Consolidated EBIT 38,001  30,833  38,351  30,833  
      Less: Interest expense (2,495) (1,331) (2,495) (1,331) 
      Less: Income tax expense (7,563) (6,329) (7,643) (6,329) 
      Net earnings$27,943  23,173  28,213  23,173  
                   
    Note 1: Adjusted net earnings of $28.2 million in Q3 2023 exclude $0.01 per share of after-tax charges consisting mainly of Corporate acquisition related costs.
                
    EBITDA Reconciliation to Net earnings:   Q3 2023 - Q3 2022 - 
        Q3 2023 Q3 2022 As Adj As Adj 
    Consolidated EBITDA$50,790  42,788  51,140  42,788  
    Less: Depr & Amort (12,789) (11,955) (12,789) (11,955) 
    Consolidated EBIT 38,001  30,833  38,351  30,833  
    Less: Interest expense (2,495) (1,331) (2,495) (1,331) 
    Less: Income tax expense (7,563) (6,329) (7,643) (6,329) 
    Net earnings$27,943  23,173  28,213  23,173  

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Condensed Business Segment Information (Unaudited)
    (Dollars in thousands)
       
        GAAP As Adjusted 
        YTD
    Q3 2023
     YTD
    Q3 2022
     YTD
    Q3 2023
     YTD
    Q3 2022
     
    Net Sales          
     Aerospace & Defense$285,434  247,671  285,434  247,671  
     USG 240,172  194,877  240,172  194,877  
     Test 157,780  158,456  157,780  158,456  
      Totals$683,386  601,004  683,386  601,004  
                
    EBIT           
     Aerospace & Defense$52,996  45,042  53,995  45,377  
     USG 50,543  37,840  50,673  38,307  
     Test 21,280  20,813  21,280  20,813  
     Corporate (40,642) (34,604) (38,129) (34,299) 
      Consolidated EBIT 84,177  69,091  87,819  70,198  
      Less: Interest expense (6,422) (3,084) (6,422) (3,084) 
      Less: Income tax expense (17,207) (14,727) (18,045) (14,982) 
      Net earnings$60,548  51,280  63,352  52,132  
                   
    Note 1: Adjusted net earnings of $63.4 million in YTD Q3 2023 exclude $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.
                
    Note 2: Adjusted net earnings of $52.1 million in YTD Q3 2022 exclude $0.03 per share of after-tax charges associated with the Altanova & NEco acquisition inventory step-up charges and Corporate acquisition related costs.
                   
    EBITDA Reconciliation to Net earnings:       
        YTD
    Q3 2023
     YTD
    Q3 2022
     YTD Q3
    2023-As Adj
     YTD Q3
    2022-As Adj
     
    Consolidated EBITDA$121,876  105,338  125,518  106,445  
    Less: Depr & Amort (37,699) (36,247) (37,699) (36,247) 
    Consolidated EBIT 84,177  69,091  87,819  70,198  
    Less: Interest expense (6,422) (3,084) (6,422) (3,084) 
    Less: Income tax expense (17,207) (14,727) (18,045) (14,982) 
    Net earnings$60,548  51,280  63,352  52,132  
                

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Condensed Consolidated Balance Sheets (Unaudited)
    (Dollars in thousands)
       
        June 30,
    2023
     September 30,
    2022
           
    Assets     
     Cash and cash equivalents$56,052 97,724
     Accounts receivable, net 192,146 164,645
     Contract assets 128,284 125,154
     Inventories 192,493 162,403
     Other current assets 24,847 22,696
      Total current assets 593,822 572,622
     Property, plant and equipment, net 155,337 155,973
     Intangible assets, net 398,418 394,464
     Goodwill 505,590 492,709
     Operating lease assets 40,314 29,150
     Other assets 10,028 9,538
       $1,703,509 1,654,456
           
    Liabilities and Shareholders' Equity    
     Current maturities of long-term debt$20,000 20,000
     Accounts payable 76,761 78,746
     Contract liabilities 122,526 125,009
     Other current liabilities 89,664 94,374
      Total current liabilities 308,951 318,129
     Deferred tax liabilities 78,585 82,023
     Non-current operating lease liabilities 36,815 24,853
     Other liabilities 44,115 48,294
     Long-term debt 128,000 133,000
     Shareholders' equity 1,107,043 1,048,157
       $1,703,509 1,654,456

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Consolidated Statements of Cash Flows (Unaudited)
    (Dollars in thousands)
         
      Nine Months
    Ended
    June 30, 2023
     Nine Months
    Ended
    June 30, 2022
    Cash flows from operating activities:    
    Net earnings$60,548  51,280 
    Adjustments to reconcile net earnings to net cash    
    (used) provided by operating activities:    
    Depreciation and amortization 37,699  36,247 
    Stock compensation expense 7,007  5,318 
    Changes in assets and liabilities (72,346) (60,172)
    Effect of deferred taxes (3,706) 9,020 
    Net cash provided by operating activities 29,202  41,693 
         
    Cash flows from investing activities:    
    Acquisition of business, net of cash acquired (17,694) (15,592)
    Capital expenditures (16,993) (25,893)
    Additions to capitalized software (9,263) (9,359)
    Net cash used by investing activities (43,950) (50,844)
         
    Cash flows from financing activities:    
    Proceeds from long-term debt 88,000  111,000 
    Principal payments on long-term debt and short-term borrowings (93,000) (64,000)
    Dividends paid (6,189) (6,219)
    Purchases of common stock into treasury (12,401) (19,878)
    Other (2,557) (2,787)
    Net cash (used) provided by financing activities (26,147) 18,116 
         
    Effect of exchange rate changes on cash and cash equivalents (777) (4,178)
         
    Net (decrease) increase in cash and cash equivalents (41,672) 4,787 
    Cash and cash equivalents, beginning of period 97,724  56,232 
    Cash and cash equivalents, end of period$56,052  61,019 

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Other Selected Financial Data (Unaudited)
    (Dollars in thousands)
       
    Backlog And Entered Orders - Q3 2023 Aerospace & Defense USG Test Total
     Beginning Backlog - 4/1/23$435,246  142,696  162,919  740,861 
     Entered Orders 81,936  85,510  45,851  213,297 
     Sales  (103,469) (89,966) (55,314) (248,749)
     Ending Backlog - 6/30/23$413,713  138,240  153,456  705,409 
               
    Backlog And Entered Orders - YTD Q3 2023 Aerospace & Defense USG Test Total
     Beginning Backlog - 10/1/22$408,269  128,156  158,597  695,022 
     Entered Orders 290,878  250,256  152,639  693,773 
     Sales  (285,434) (240,172) (157,780) (683,386)
     Ending Backlog - 6/30/23$413,713  138,240  153,456  705,409 

       
       

    ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
    Reconciliation of Non-GAAP Financial Measures (Unaudited)
       
    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.   
         
    EPS – Adjusted Basis Reconciliation – YTD Q3 2022   
     EPS – GAAP Basis – YTD Q3 2022$1.97 
     Adjustments (defined below) 0.03 
     EPS – As Adjusted Basis – YTD Q3 2022$2.00 
         
     Adjustments exclude $0.03 per share consisting of Altanova & NEco acquisition inventory
     step-up charges and Corporate related acquisition costs in the first nine months of 2022.
     The $0.03 of EPS adjustments per share consists of $1,107K of pre-tax charges
     offset by $255K of tax benefit for net impact of $852K.   

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


Share on,