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UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

-----------------------------------------

 

FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): August 1, 2024

 

ESCO TECHNOLOGIES INC.

 (Exact Name of Registrant as Specified in Charter)

 

Missouri 1-10596 43-1554045
(State or Other (Commission (I.R.S. Employer
Jurisdiction of Incorporation) File Number) Identification No.)

 

9900A Clayton Road, St. Louis, Missouri 63124-1186
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: 314-213-7200

 

Securities registered pursuant to section 12(b) of the Act:

 

        Name of each exchange
Title of each class   Trading Symbol(s)   on which registered
Common Stock, par value $0.01 per share   ESE   New York Stock Exchange

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨   Pre-commencement communications pursuant to Rule 14d-2 (b) under the Exchange Act (17 CFR 240.14d-2 (b))

 

¨   Pre-commencement communications pursuant to Rule 13e-4 (c) under the Exchange Act (17 CFR 240.113d-4 (c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).            Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

  

 

 

 

Item 1.01Entry into a Material Definitive Agreement

 

Pursuant to a Commitment Letter entered into on July 8, 2024 between the Company and JPMorgan Chase Bank, N.A., on August 5, 2024, the Registrant and certain of its subsidiaries entered into Amendment No. 1 (the “Amendment”) to its Amended and Restated Credit Agreement dated August 30, 2023 (the “2023 Credit Agreement”) among the Company and certain of its subsidiaries, JPMorgan Chase Bank, N.A. as administrative agent thereunder, the initial lenders party thereto and Citibank, N.A. The Amendment, among other things, (i) implements a senior incremental delayed draw term loan credit facility in an aggregate principal amount of up to $375 million (the “Incremental Facility”), and (ii) permits the direct or indirect acquisition by the Registrant or certain of its subsidiaries of all of the issued and outstanding shares of Ultra PMES Limited, Measurement Systems, Inc., EMS Development Corporation, and DNE Technologies, Inc. (the “Transaction”), pursuant to and in accordance with the terms and conditions of that certain Sale and Purchase Agreement, dated July 8, 2024, among Ultra Electronics Holdings Limited, as parent seller, the Registrant, as guarantor, and certain of the Registrant’s subsidiaries as buyers. The proceeds of the loans drawn under the Incremental Facility will be applied to pay a portion of the cash consideration for the Transaction and other customary fees, premiums, expenses and costs incurred in connection with the Transaction.

 

A description of the 2023 Credit Agreement is incorporated by reference to Note 6 to the Consolidated Financial Statements included in the Registrant’s Form 10-K for its fiscal year ended September 30, 2023, filed with the Commission on November 29, 2023, and a copy of the 2023 Credit Agreement is attached as Exhibit 4.2 to the Registrant’s Form 10-Q filed with the Commission on May 10, 2023. Descriptions of the July 8, 2024 Commitment Letter and the July 8, 2024 Sale and Purchase Agreement are incorporated by reference to the Registrant’s Form 8-K filed on July 8, 2024.

 

Item 2.02Results of Operations and Financial Condition

 

Today, August 7, 2024, the Registrant is issuing a press release (furnished as Exhibit 99.1 to this report) announcing its fiscal 2024 third quarter financial and operating results. See Item 7.01, Regulation FD Disclosure, below.

 

Item 5.02Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

Election of New Directors

 

I Penelope M. Conner

 

On August 1, 2024, pursuant to the recommendation of the Nominating and Corporate Governance Committee, the Company’s Board of Directors, by unanimous written consent pursuant to Section 3.1 of its Bylaws, increased the authorized size of Class II of the Board of Directors from two to three members and elected Penelope M. Conner, age 60, as a director to fill the vacancy thereby created, to serve for a term ending at the 2025 annual meeting of shareholders; provided that such increase and election are hereby made expressly subject to, and shall become effective only upon, the requisite prior approval by the Federal Energy Regulatory Commission of such position and satisfaction of any and all other regulatory requirements. Ms. Conner was also named to the Nominating and Corporate Governance Committee of the Board of Directors, subject to and effective upon the commencement of her term as a director.

 

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), an $11.9 billion utility holding company based in New England serving Connecticut, Massachusetts and New Hampshire, 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 1998 at Duke Energy Corporation, culminating as General Manager for Process Integration, and then from 1998 to 2002 at Tampa Electric Company as its Director of Customer Service.

 

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.

 

Since at least the beginning of the Company’s last fiscal year Ms. Conner has had no reportable transactions with related persons or affiliates of the Company, and she meets all of the qualifications of an independent director under the rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.

 

Ms. Conner will receive compensation for her service on the Board of Directors and its Committees pursuant to the Company’s Sub-Plan for the Compensation Plan for Non-Employee Directors adopted under its 2018 Omnibus Incentive Plan (the “Directors Compensation Plan”), on the same basis as the Company’s other directors; provided that as compensation for her service during the remainder of calendar 2024 she will receive, subject to and concurrently with the commencement of her term as a director, (i) cash compensation of $25,000 plus (ii) an award of restricted share units valued at $90,000 divided by the NYSE closing price of the Company’s common stock on the effective grant date, with a one-year vesting requirement. Under the Plan, Ms. Conner will have up to 30 days from the effective date of her election to elect whether or not to receive all or part of her compensation on a deferred basis as provided in the Plan.

 

 

 

 

II David A. Campbell

 

On August 1, 2024, pursuant to the recommendation of the Nominating and Corporate Governance Committee, the Company’s Board of Directors, by unanimous written consent pursuant to Section 3.1 of its Bylaws, increased the authorized size of Class I of the Board of Directors from two to three members and elected David A. Campbell, age 55, as a director to fill the vacancy thereby created, to serve for a term ending at the 2027 annual meeting of shareholders; provided that such increase and election are hereby made expressly subject to, and shall become effective only upon, the requisite prior approval by the Federal Energy Regulatory Commission of such position and satisfaction of any and all other regulatory requirements. Mr. Campbell was also named to the Audit and Finance Committee of the Board of Directors, subject to and effective upon the commencement of his term as a director.

 

Since 2021 Mr. Campbell has been the President and Chief Executive Officer and a Board Member of Evergy, Inc. (NASDAQ: EVRG), a $5.5 billion 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). He currently serves or has served on a number of boards including the Edison Electric Institute, the Electric Power Research Institute, and the Leadership Council of the Yale School of the Environment.

 

Since at least the beginning of the Company’s last fiscal year Mr. Campbell has had no reportable transactions with related persons or affiliates of the Company, and he meets all of the qualifications of an independent director and member of the Audit and Finance Committee under the rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange.

 

Mr. Campbell will receive compensation for his service on the Board of Directors and its Committees pursuant to the Directors Compensation Plan, on the same basis as the Company’s other directors; provided that as compensation for his service during the remainder of calendar 2024 he will receive, subject to and concurrently with the commencement of his term as a director, (i) cash compensation of $25,000 plus (ii) an award of restricted share units valued at $90,000 divided by the NYSE closing price of the Company’s common stock on the effective grant date, with a one-year vesting requirement. Under the Plan, Mr. Campbell will have up to 30 days from the effective date of his election to elect whether or not to receive all or part of his compensation on a deferred basis as provided in the Plan.

 

Item 7.01Regulation FD Disclosure

 

Today, August 7, 2024, the Registrant is issuing a press release (furnished as Exhibit 99.1 to this report) announcing its fiscal 2024 third quarter financial and operating results. The press release will be posted on the Registrant’s investor website (https://investor.escotechnologies.com), although the Registrant reserves the right to discontinue that availability at any time.

 

The Registrant will conduct a related webcast conference call today at 4:00 p.m. Central Time. The conference call webcast will be available on the Registrant’s investor website (https://investor.escotechnologies.com). A slide presentation will be utilized during the call and will be posted on the website prior to the call. For those unable to participate, a webcast replay will be available after the call on the website, although the Registrant reserves the right to discontinue that availability at any time.

 

 

 

 

Item 9.01Financial Statements and Exhibits

 

(d)Exhibits
   
  Exhibit No. Description of Exhibit
     
  99.1 Press Release dated August 7, 2024
  104 Cover Page Inline Interactive Data File

 

Other Matters

 

The information in this report furnished pursuant to Item 2.02 and Item 7.01, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 as amended (“Exchange Act”) or otherwise subject to the liabilities of that section, unless the Registrant incorporates it by reference into a filing under the Securities Act of 1933 as amended or the Exchange Act.

 

References to the Registrant’s web site address are included in this Form 8-K and the press release only as inactive textual references, and the Registrant does not intend them to be active links to its web site. Information contained on the Registrant’s web site does not constitute part of this Form 8-K or the press release.

 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: August 7, 2024ESCO TECHNOLOGIES INC.
   
 By:/s/David M. Schatz
  David M. Schatz
  Senior Vice President, General Counsel and Secretary

 

 

Exhibit 99.1

 

NEWS FROMDescription: ESCO

 

For more information contact:

Kate Lowrey - VP of Investor Relations

(314) 213-7277 / klowrey@escotechnologies.com

 

ESCO REPORTS THIRD QUARTER FISCAL 2024 RESULTS

 

- Q3 Orders increase 46% to $312 million / Book-to-Bill of 1.20x –

- Q3 Sales increase 5% to $261 million -

- Q3 GAAP EPS increases 5% to $1.13 -

- Q3 Adjusted EPS increases 6% to $1.16 -

 

ST. LOUIS, August 7, 2024 – 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

 

Q3 2024 Sales increased $12.1 million (5 percent) to $260.8 million compared to $248.7 million in Q3 2023. Q3 organic sales increased $8.7 million (4 percent) and the MPE acquisition contributed $3.4 million (1 percent) of revenue in the quarter.

 

Q3 2024 GAAP EPS increased 5 percent to $1.13 per share compared to $1.08 per share in Q3 2023. Q3 2024 Adjusted EPS increased 6 percent to $1.16 per share compared to $1.09 per share in Q3 2023.

 

Q3 2024 Entered Orders increased $98.4 million (46 percent) compared to the prior year period to $311.7 million (book-to-bill of 1.20x), resulting in record ending backlog of $889 million.

 

Net cash provided by operating activities was $55 million YTD, an increase of $26 million compared to the prior year period.

 

Net debt (total borrowings less cash on hand) was $110 million, resulting in a 0.73x leverage ratio and $571 million in liquidity as of June 30, 2024.

 

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)

 

Sales increased $11.0 million (10.6 percent) to $114.5 million in Q3 2024 from $103.5 million in Q3 2023. Sales growth was driven by strength across Navy, commercial aerospace, and defense aerospace programs.

 

Q3 2024 EBIT decreased $0.3 million to $21.4 million from $21.7 million in Q3 2023. Adjusted EBIT decreased $0.2 million in Q3 2024 to $21.5 million (18.7 percent margin) from $21.7 million (20.9 percent margin) in Q3 2023. Profitability in the quarter was negatively impacted by margin erosion on space development programs at VACCO. Additionally, unfavorable revenue mix and inflationary pressures were offset by leverage on higher volume and price increases.

 

Entered Orders increased $65 million (79 percent) to $147 million in Q3 2024 compared to $82 million in Q3 2023. The increase was primarily driven by strength in Navy (Virginia Class Block V QARMS and Ejection System development), and a strong quarter for commercial and defense aerospace aftermarket orders. The orders in the quarter resulted in a segment book-to-bill of 1.28x and record ending backlog of $595 million.

 

Utility Solutions Group (USG)

 

Sales increased $0.3 million (0.3 percent) to $90.3 million in Q3 2024 from $90.0 million in Q3 2023. As expected, USG revenue growth moderated in Q3 after 13 percent growth in the first half of the year. Revenue grew sequentially and is up 8 percent Q3 YTD, which remains in line with our expectations for the year. Doble’s Q3 2024 sales increased by $0.4 million (0.5 percent), driven by higher services revenue offset by lower protection testing sales. NRG sales were flat compared to strong results in the prior year period.

 

EBIT increased $1.8 million (9 percent) in Q3 2024 to $22.2 million from $20.4 million in Q3 2023. Adjusted EBIT increased $1.7 million in Q3 2024 to $22.2 million (24.6 percent margin) from $20.5 million (22.8 percent margin) in Q3 2023. Margin improvement was driven by mix related to increased services revenue and price increases, partially offset by inflationary pressures.

 

Entered Orders increased $15 million (17 percent) to $100 million in Q3 2024. Doble orders increased $19 million (30 percent) on continuing strength in services and our lease pool business as utilities focus on keeping substations operational while coping with long lead times on new transformers. NRG’S orders were $19 million in the quarter. While down $4 million compared to the record prior year quarter, this represents the second highest orders quarter in NRG history and was in line with our expectations for a rebound in renewables orders as the market moves beyond last year’s elevated activity related to the initial Inflation Reduction Act spending. The segment book-to-bill was 1.11x in the quarter, resulting in ending backlog of $129 million.

 

 

 

 

RF Test & Measurement (Test)

 

Sales increased $0.8 million (1.3 percent) to $56.1 million in Q3 2024 from $55.3 million in Q3 2023. Organic sales decreased $2.6 million primarily related to lower wireless and US filters volume. This was more than offset by $3.4 million of revenue related to the MPE acquisition which was completed in Q1 2024. While Test’s revenues continue to be somewhat soft, they delivered significant sequential revenue growth of 19 percent in the quarter.

 

EBIT and Adjusted EBIT both increased $0.7 million in Q3 2024 to $9.3 million (16.6 percent margin) from $8.6 million (15.6 percent margin) in Q3 2023. Margin improvement was driven by higher margin MPE content, cost reduction actions and price increases, partially offset by inflationary pressures and mix related to lower wireless and US filters volume.

 

Entered Orders increased $19 million (41 percent) to $65 million in Q3 2024. The rebound in Test orders was primarily driven by the booking of a large industrial project and a strong quarter for US T&M orders. The segment book-to-bill was 1.16x in the quarter, resulting in ending backlog of $165 million.

 

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.