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, (314) 213-7277