ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today
reported its operating results for the first quarter ended December
31, 2023 (Q1 2024).
Operating Highlights
- Q1 2024 Sales increased $12.8 million (6.2 percent) to $218.3
million compared to $205.5 million in Q1 2023.
- Q1 2024 Entered Orders increased $64.8 million (28 percent)
over the prior year period to $293.7 million (book-to-bill of
1.35x), resulting in record backlog of $848 million.
- Q1 2024 GAAP EPS increased 4 percent to $0.59 per share
compared to $0.57 per share in Q1 2023. Q1 2024 Adjusted EPS
increased 3 percent to $0.62 per share compared to $0.60 per share
in Q1 2023.
- Net cash provided by operating activities was $9 million in Q1
2024, an increase of $18 million compared to the prior year period,
as cash flow was positively impacted by lower working capital
requirements.
- Net debt (total borrowings less cash on hand) was $121 million,
resulting in a 0.82x leverage ratio and $572 million in liquidity
at December 31, 2023.
Bryan Sayler, Chief Executive Officer and President, commented,
“Our fiscal year got off to a great start in many ways, with orders
being particularly strong. This was evidenced by a $65 million
order for surface hull tiles for the Virginia Class Submarine
program. In addition, it was another solid quarter in aerospace
with strength in both commercial and defense OEM and aftermarket
orders. The book-to-bill for the quarter was 1.35x and resulted in
record backlog of almost $850 million.
“Revenue was up 6 percent over the prior year with double digit
growth in A&D and USG, driven by continuing strength across our
aerospace, Navy, utility, and renewables end-markets. Our teams
continue working hard to drive growth and deliver solid operating
results and their efforts enabled us to deliver solid Q1 EPS
results. Overall, it was good start to the year, giving us added
confidence in our ability to deliver our full year revenue and
earnings guidance.”
Segment PerformanceAerospace & Defense
(A&D)
- Sales increased $11.7 million (14 percent) to $94.7 million in
Q1 2024 from $83.0 million in Q1 2023. Q1 organic sales increased
$8.5 million (10 percent) in the quarter driven by strength across
commercial aerospace, defense aerospace, and Navy. In addition, the
CMT acquisition contributed $3.2 million (4 percent) of revenue
growth in the quarter.
- Q1 2024 EBIT increased $4.2 million to $16.7 million from $12.5
million in Q1 2023. Adjusted EBIT increased $4.0 million in Q1 2024
to $16.7 million (17.6 percent margin) from $12.7 million (15.3
percent margin) in Q1 2023. Margin improvement was driven by
leverage on revenue growth and price increases, partially offset by
inflationary pressures and mix.
- Entered Orders increased $74 million (76 percent) to $172
million in Q1 2024 compared to $97 million in Q1 2023.
The increase in orders was primarily driven by large Navy orders
for Virginia Class Block V surface hull tiles and Block VI long
lead material procurement for the Light Weight Wide Aperture Array
(LWWAA), along with a strong quarter for commercial and defense
aerospace. The orders strength in the quarter resulted in a segment
book-to-bill of 1.81x and record ending backlog of $561
million.
Utility Solutions Group (USG)
- Sales increased $12.0 million (17 percent) to $83.0 million in
Q1 2024 from $71.0 million in Q1 2023. Doble’s sales increased by
$7.6 million (13 percent) driven by a strong quarter for offline
products and services. NRG sales increased $4.4 million (30
percent) as they reduced backlog related to longer-term orders
placed during FY 2023.
- EBIT increased $1.5 million in Q1 2024 to $17.6 million from
$16.1 million in Q1 2023. Adjusted EBIT increased $1.6 million to
$17.7 million (21.4 percent margin) from $16.1 million (22.7
percent margin) in Q1 2023. In the quarter, margin was impacted
unfavorably by mix and inflationary pressures, which more than
offset leverage on higher revenue and price
increases.
- Entered Orders decreased $3 million (4 percent) to $77 million
in Q1 2024. Orders moderated in the quarter for Doble and NRG after
a record year in 2023. The segment book-to-bill was 0.93x in the
quarter and resulted in an ending backlog of $127 million.
RF Test & Measurement (Test)
- Sales decreased $10.9 million (21 percent) to $40.6 million in
Q1 2024 from $51.5 million in Q1 2023. Organic sales decreased
$12.0 million primarily related to lower T&M volume in the
U.S., Europe and China and lower OTC filter sales in the U.S.,
partially offset by $1.1 million of revenue growth related to the
MPE acquisition completed during the quarter.
- EBIT decreased $3.6 million in Q1 2024 to $1.8 million from
$5.4 million in Q1 2023. Adjusted EBIT decreased $3.3 million in Q1
2024 to $2.1 million (5.1 percent margin) from $5.4 million (10.5
percent margin) in Q1 2023. In the quarter, margin was impacted by
lower volume, partially offset by price increases and cost
reduction actions.
- Entered Orders decreased $6 million (12 percent) to $45 million
in Q1 2024. The decrease was primarily related to delays on a few
large projects in EMEA and China and was partially offset by the $5
million impact of MPE orders and backlog. Book-to-bill was 1.11x in
the quarter and resulted in ending backlog of $159 million.
Dividend PaymentThe next quarterly cash
dividend of $0.08 per share will be paid on April 16, 2024 to
stockholders of record on April 1, 2024.
Business Outlook – 2024 Management’s
expectation is for Q2 Adjusted EPS in the range of $0.85 to $0.90.
We are raising the lower end of our full year guidance which we now
expect to be in the range of $4.15 to $4.30 (12 to 16 percent
growth). This is based on sales in line with our initial guidance
range of $1.02 to $1.04 billion (7 to 9 percent annual growth).
Within our revenue guidance we are raising our expected A&D
growth to 11 to 13 percent (from 8 to 10 percent) and lowering our
expected Test growth to 1 to 3 percent (from 8 to 10 percent). We
do expect the Test business to improve sales and EBIT in the second
half of the year and we are currently implementing a plan to
streamline the cost structure of the business, which will further
enhance its margin profile going forward.
Conference CallThe Company will host a
conference call today, February 8, at 4:00 p.m. Central Time, to
discuss the Company’s Q1 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 StatementsStatements in this
press release regarding Management’s expectations for fiscal 2024,
restructuring and cost reduction efforts, sales, inflationary
pressures, interest rates, supply chain performance and labor
shortages; our guidance for 2024 including revenues, earnings,
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, 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 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 MeasuresThe 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 MonthsEndedDecember 31,2023 |
|
Three MonthsEndedDecember 31,2022 |
|
| |
|
|
|
|
|
|
|
|
| Net Sales |
|
$ |
218,314 |
|
205,501 |
|
| Cost and
Expenses: |
|
|
|
|
|
| |
Cost of sales |
|
134,151 |
|
126,383 |
|
| |
Selling, general
and administrative expenses |
|
53,968 |
|
51,302 |
|
| |
Amortization of
intangible assets |
|
7,868 |
|
6,861 |
|
| |
Interest
expense |
|
2,667 |
|
1,658 |
|
| |
Other expenses
(income), net |
|
206 |
|
398 |
|
| |
|
Total costs and
expenses |
|
198,860 |
|
186,602 |
|
| |
|
|
|
|
|
|
|
|
| Earnings before
income taxes |
|
19,454 |
|
18,899 |
|
| Income tax
expense |
|
4,285 |
|
4,172 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Net earnings |
$ |
15,169 |
|
14,727 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Earnings Per Share
(EPS) |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Diluted -
GAAP |
$ |
0.59 |
|
0.57 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted - As
Adjusted Basis |
$ |
0.62 |
(1 |
) |
0.60 |
(2 |
) |
|
|
|
|
|
|
|
|
|
|
| |
|
Diluted average
common shares O/S: |
|
25,846 |
|
25,943 |
|
| |
|
|
|
|
|
|
|
|
|
(1 |
) |
Q1 2024 Adjusted EPS
excludes $0.03 per share of after-tax charges consisting primarily
of MPE acquisition inventory step-up and backlog charges and
acquisition related costs. |
| |
|
|
|
|
|
|
|
|
|
(2 |
) |
Q1 2023 Adjusted EPS
excludes $0.03 per share of after-tax charges associated with
executive management transition costs at Corporate and
restructuring charges within the A&D segment. |
|
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES |
|
Condensed Business Segment Information (Unaudited) |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
GAAP |
|
As Adjusted |
|
| |
|
|
|
Q1 2024 |
|
Q1 2023 |
|
Q1 2024 |
|
Q1 2023 |
|
| Net Sales |
|
|
|
|
|
|
|
|
|
| |
Aerospace &
Defense |
$ |
94,733 |
|
|
82,983 |
|
|
94,733 |
|
|
82,983 |
|
|
| |
USG |
|
82,984 |
|
|
71,045 |
|
|
82,984 |
|
|
71,045 |
|
|
| |
Test |
|
40,597 |
|
|
51,473 |
|
|
40,597 |
|
|
51,473 |
|
|
| |
|
Totals |
$ |
218,314 |
|
|
205,501 |
|
|
218,314 |
|
|
205,501 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| EBIT |
|
|
|
|
|
|
|
|
|
|
| |
Aerospace &
Defense |
$ |
16,663 |
|
|
12,536 |
|
|
16,663 |
|
|
12,735 |
|
|
| |
USG |
|
17,625 |
|
|
16,131 |
|
|
17,745 |
|
|
16,131 |
|
|
| |
Test |
|
1,779 |
|
|
5,411 |
|
|
2,052 |
|
|
5,411 |
|
|
| |
Corporate |
|
(13,946 |
) |
|
(13,521 |
) |
|
(13,295 |
) |
|
(12,728 |
) |
|
| |
|
Consolidated EBIT |
|
22,121 |
|
|
20,557 |
|
|
23,165 |
|
|
21,549 |
|
|
| |
|
Less: Interest expense |
|
(2,667 |
) |
|
(1,658 |
) |
|
(2,667 |
) |
|
(1,658 |
) |
|
| |
|
Less: Income tax expense |
|
(4,285 |
) |
|
(4,172 |
) |
|
(4,525 |
) |
|
(4,400 |
) |
|
| |
|
Net earnings |
$ |
15,169 |
|
|
14,727 |
|
|
15,973 |
|
|
15,491 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| Note 1: Adjusted
net earnings of $16.0 million in Q1 2024 exclude $0.8 million (or
$0.03 per share) of after-tax charges consisting primarily of MPE
acquisition inventory step-up and backlog charges and acquisition
related costs. |
| |
|
|
|
|
|
|
|
|
|
|
|
| Note 2: Adjusted net
earnings of $15.5 million in Q1 2023 exclude $0.8 million (or $0.03
per share) of after-tax charges associated with executive
management transition costs at Corporate and restructuring charges
within the A&D segment. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Reconciliation to Net earnings: |
|
|
|
|
|
Q1 2024 |
|
Q1 2023 |
|
|
|
|
|
|
Q1 2024 |
|
Q1 2023 |
|
As Adjusted |
|
As Adjusted |
|
|
Consolidated EBITDA |
$ |
35,573 |
|
|
32,924 |
|
|
36,408 |
|
|
33,916 |
|
|
| Less:
Depr & Amort |
|
(13,452 |
) |
|
(12,367 |
) |
|
(13,243 |
) |
|
(12,367 |
) |
|
|
Consolidated EBIT |
|
22,121 |
|
|
20,557 |
|
|
23,165 |
|
|
21,549 |
|
|
| Less:
Interest expense |
|
(2,667 |
) |
|
(1,658 |
) |
|
(2,667 |
) |
|
(1,658 |
) |
|
| Less:
Income tax expense |
|
(4,285 |
) |
|
(4,172 |
) |
|
(4,525 |
) |
|
(4,400 |
) |
|
| Net
earnings |
$ |
15,169 |
|
|
14,727 |
|
|
15,973 |
|
|
15,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES |
|
Condensed Consolidated Balance Sheets (Unaudited) |
|
(Dollars in thousands) |
|
|
|
|
|
|
|
December 31,2023 |
|
September 30,2023 |
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
| |
Cash and cash
equivalents |
$ |
51,396 |
|
41,866 |
|
|
Accounts
receivable, net |
|
194,395 |
|
198,557 |
|
|
Contract
assets |
|
138,393 |
|
138,633 |
|
|
Inventories |
|
202,577 |
|
184,067 |
|
|
Other current
assets |
|
16,441 |
|
17,972 |
|
|
|
Total current assets |
|
603,202 |
|
581,095 |
|
|
Property, plant
and equipment, net |
|
159,262 |
|
155,484 |
|
|
Intangible assets,
net |
|
422,053 |
|
392,124 |
|
|
Goodwill |
|
537,601 |
|
503,177 |
|
|
Operating lease
assets |
|
38,685 |
|
39,839 |
|
|
Other assets |
|
11,723 |
|
11,495 |
|
|
|
|
$ |
1,772,526 |
|
1,683,214 |
|
|
|
|
|
|
|
|
| Liabilities and
Shareholders' Equity |
|
|
|
|
| |
Current maturities
of long-term debt |
$ |
20,000 |
|
20,000 |
|
|
Accounts
payable |
|
77,960 |
|
86,973 |
|
|
Contract
liabilities |
|
121,149 |
|
112,277 |
|
|
Other current
liabilities |
|
85,584 |
|
95,401 |
|
|
|
Total current liabilities |
|
304,693 |
|
314,651 |
|
|
Deferred tax
liabilities |
|
83,802 |
|
75,531 |
|
|
Non-current
operating lease liabilities |
|
35,709 |
|
36,554 |
|
|
Other
liabilities |
|
42,228 |
|
43,336 |
|
|
Long-term
debt |
|
152,000 |
|
82,000 |
|
|
Shareholders'
equity |
|
1,154,094 |
|
1,131,142 |
|
|
|
|
$ |
1,772,526 |
|
1,683,214 |
|
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES |
|
Consolidated Statements of Cash Flows |
|
(Dollars in thousands) |
|
|
|
|
| |
|
Three MonthsEndedDecember 31,2023 |
|
Three MonthsEndedDecember 31,2022 |
| Cash flows from operating
activities: |
|
|
|
|
| Net earnings |
$ |
15,169 |
|
|
14,727 |
|
| Adjustments to reconcile net
earnings to net cash |
|
|
|
|
| provided by operating
activities: |
|
|
|
|
| Depreciation and
amortization |
|
13,452 |
|
|
12,367 |
|
| Stock compensation expense |
|
2,180 |
|
|
1,860 |
|
| Changes in assets and
liabilities |
|
(22,539 |
) |
|
(36,920 |
) |
| Effect of deferred taxes |
|
484 |
|
|
(1,042 |
) |
| Net cash provided (used) by
operating activities |
|
8,746 |
|
|
(9,008 |
) |
|
|
|
|
|
|
| Cash flows from investing
activities: |
|
|
|
|
| Acquisition of business, net of
cash acquired |
|
(56,179 |
) |
|
- |
|
| Capital expenditures |
|
(7,848 |
) |
|
(4,791 |
) |
| Additions to capitalized
software |
|
(2,942 |
) |
|
(2,795 |
) |
| Net cash used by investing
activities |
|
(66,969 |
) |
|
(7,586 |
) |
|
|
|
|
|
|
| Cash flows from financing
activities: |
|
|
|
|
| Proceeds from long-term debt |
|
99,000 |
|
|
17,000 |
|
| Principal payments on long-term
debt and short-term borrowings |
|
(29,000 |
) |
|
(38,000 |
) |
| Dividends paid |
|
(2,064 |
) |
|
(2,067 |
) |
| Purchases of common stock into
treasury |
|
- |
|
|
(4,147 |
) |
| Other |
|
(1,432 |
) |
|
(2,412 |
) |
| Net cash provided (used) by
financing activities |
|
66,504 |
|
|
(29,626 |
) |
|
|
|
|
|
|
| Effect of exchange rate changes
on cash and cash equivalents |
|
1,249 |
|
|
418 |
|
|
|
|
|
|
|
| Net increase (decrease) in cash
and cash equivalents |
|
9,530 |
|
|
(45,802 |
) |
| Cash and cash equivalents,
beginning of period |
|
41,866 |
|
|
97,724 |
|
| Cash and cash equivalents, end of
period |
$ |
51,396 |
|
|
51,922 |
|
|
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES |
|
Other Selected Financial Data (Unaudited) |
|
(Dollars in thousands) |
|
|
|
Backlog And Entered Orders - Q1 2024 |
|
Aerospace & Defense |
|
USG |
|
Test |
|
Total |
|
|
Beginning Backlog
- 10/1/23 |
$ |
484,069 |
|
|
133,459 |
|
|
154,834 |
|
|
772,362 |
|
|
|
Entered
Orders |
|
171,557 |
|
|
76,964 |
|
|
45,199 |
|
|
293,720 |
|
|
|
Sales |
|
|
(94,733 |
) |
|
(82,984 |
) |
|
(40,597 |
) |
|
(218,314 |
) |
|
|
Ending Backlog -
12/31/23 |
$ |
560,893 |
|
|
127,439 |
|
|
159,436 |
|
|
847,768 |
|
|
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES |
|
Reconciliation of Non-GAAP Financial Measures (Unaudited) |
|
|
|
|
|
|
|
|
| EPS – Adjusted
Basis Reconciliation – Q1 2024 |
|
|
|
| |
EPS – GAAP Basis – Q1
2024 |
$ |
0.59 |
|
| |
Adjustments (defined
below) |
|
0.03 |
|
| |
EPS – As Adjusted Basis – Q1
2024 |
$ |
0.62 |
|
| |
|
|
|
|
| |
Adjustments exclude $0.03 per
share consisting primarily of MPE acquisition |
|
|
|
| |
inventory step-up and backlog
charges and acquisition related costs. |
|
|
|
| |
The $0.03 of EPS adjustments
per share consists of $1,044K of pre-tax charges |
|
|
|
| |
offset by $240K of tax benefit
for net impact of $804K. |
|
|
|
| |
|
|
|
|
| EPS – Adjusted
Basis Reconciliation – Q1 2023 |
|
|
|
| |
EPS – GAAP Basis – Q1
2023 |
$ |
0.57 |
|
| |
Adjustments (defined
below) |
|
0.03 |
|
| |
EPS – As Adjusted Basis – Q1
2023 |
$ |
0.60 |
|
| |
|
|
|
|
| |
Adjustments exclude $0.03 per
share consisting of executive management transition |
|
|
|
| |
costs at Corporate and
restructuring charges within the A&D segment. |
|
|
|
| |
The $0.03 of EPS adjustments
per share consists of $992K of pre-tax charges |
|
|
|
| |
offset by $228K of tax benefit
for net impact of $764K. |
|
|
|
SOURCE ESCO Technologies Inc.Kate Lowrey, Vice President of
Investor Relations, (314) 213-7277
ESCO Technologies (NYSE:ESE)
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