ESCO Reports Third Quarter Fiscal 2022 Results

- Q3 2022 GAAP EPS $0.89 - Q3 Sales increase 21% to $219 Million - $255 Million in Q3 Orders / Book-to-bill of 1.16x -

St. Louis, Aug. 08, 2022 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2022 (Q3 2022) compared to the third quarter ended June 30, 2021 (Q3 2021).

Operating Highlights

• Q3 2022 GAAP EPS was $0.89 per share compared to $0.57 in Q3 2021, an increase of 56 percent.   There were no adjustments to Q3 2022 earnings. Q3 2022 EPS of $0.89 increased $0.22 per share (33 percent) compared to Adjusted EPS of $0.67 per share in Q3 2021.

• Q3 2022 Sales of $219.1 million increased $37.7 million (20.8 percent) compared to $181.4 million in Q3 2021.   Organic sales increased $25.1 million (13.8 percent) and recent acquisitions added $12.6 million (7.0 percent) of revenue growth in the quarter.

• Q3 2022 Entered Orders increased $51.1 million (25 percent) over the prior year period to $254.9 million (book-to-bill of 1.16x), resulting in record backlog of $707 million.

• Net cash provided by operating activities was $42 million YTD 2022, as operating working capital investments more than offset earnings increases.

• Net debt (total borrowings less cash on hand) was $140 million, resulting in a 1.22x leverage ratio and $541 million in liquidity at June 30, 2022.
  
  

Vic Richey, Chairman and Chief Executive Officer, commented, “Our global team delivered a very strong quarter of sales, earnings, orders and backlog growth. Business conditions have remained strong and that helped drive a 21 percent sales increase and a 33 percent increase in Adjusted EPS.

“I am very pleased that we were able to deliver higher profit margins in line with pre-pandemic levels, while continuing to work through this challenging operational environment. To deliver these results, our teams continued to work diligently to find ways to reduce costs, redesign products, secure sourcing alternatives, and implement price increases to drive profit improvement. Through the combined efforts of employees across the company, we were able to support our customers and deliver strong results in the quarter.

“Our Q3 orders were excellent, particularly in our test and measurement, space, commercial aerospace, electric utility, and renewables end-markets. This broad and continuing orders growth across all three business segments shows the strength of our product offerings and end-markets. Our year-to-date orders of $716 million are up 33 percent over the prior year, and give us confidence in our growth outlook going forward.”

Segment Performance

Aerospace & Defense (A&D)

• Sales increased $7.0 million (8 percent) to $92.6 million in Q3 2022 from $85.6 million in Q3 2021. The Q3 sales growth was primarily driven by commercial aerospace, which increased $8.4 million (35 percent) to $32.0 million. Commercial aerospace sales growth was driven by the 737 production ramp, increased MRO activity at Mayday, and the NEco acquisition. Higher Navy and space sales in the quarter were offset by lower defense aerospace and industrial sales compared to the prior year.

• EBIT increased $4.0 million in Q3 2022 to $20.7 million (22.4 percent margin) from $16.7 million (19.6 percent margin) in Q3 2021. The margin increase was driven by higher volume, price increases and cost reductions, partially offset by material and wage inflation.

• Entered Orders increased $15 million to $110 million in Q3 2022 (book-to-bill of 1.19x) compared to $95 million in Q3 2021. The orders strength was driven by funding for long lead material on the Space Launch System (SLS) shipsets 4-6 and the continuing recovery of commercial aerospace. The 16 percent increase in orders over the prior year quarter resulted in record backlog of $415 million.
  
  

Utility Solutions Group (USG)

• Sales increased $19.5 million (41 percent) to $67.2 million in Q3 2022 from $47.7 million in Q3 2021. Recent acquisitions Phenix and Altanova contributed $11.6 million in revenue and Doble organic sales increased $4.8 million (12 percent). The organic sales growth was driven by a recovery in demand for services, and a strong quarter for Protection Testing and Morgan Schaffer products. In addition, NRG sales increased $3.1 million (37 percent) on continued strength in the renewables end-market.

• EBIT increased $4.9 million in Q3 2022 to $13.1 million from $8.2 million in Q3 2021. There were no adjustments to Q3 2022 EBIT of $13.1 million (19.5 percent margin), which increased $4.4 million from Q3 2021 Adjusted EBIT of $8.7 million (18.3 percent margin). The margin increase was primarily driven by leverage on higher revenue and price increases, partially offset by wage and material cost inflation.

• Entered Orders increased $19 million to $74 million in Q3 2022 (book-to-bill of 1.11x). The orders strength was primarily driven by Altanova and Phenix, and a $5 million (49 percent) increase in renewables orders at NRG. The 34 percent increase in orders over the prior year quarter resulted in backlog of $124 million.
  
  

Test

• Sales increased $11.1 million (23 percent) to $59.2 million in Q3 2022 from $48.1 million in Q3 2021, primarily due to increased power filter and test and measurement chamber volume.

• EBIT increased $1.6 million in Q3 2022 to $8.4 million (14.1 percent margin) from $6.8 million (14.0 percent margin) in Q3 2021.   The increase in profitability was driven by leverage on higher sales and price increases, partially offset by material cost and wage inflation.

• Entered Orders were $70 million in Q3 2022 (book-to-bill of 1.19x) compared to $53 million in Q3 2021. The order growth was driven by global demand for test and measurement projects.   The $17 million (32 percent) increase in orders over the prior year resulted in record backlog of $168 million.
  
  

Share Repurchase Program
As previously announced in our August 9, 2021 press release, the Company’s Board of Directors approved a new stock repurchase program. During Q3 2022, the Company repurchased approximately 28,500 shares for $2 million. As of June 30, 2022, the Company has repurchased approximately 257,500 shares for $20 million year-to-date.

Dividend Payment
The next quarterly cash dividend of $0.08 per share will be paid on October 18, 2022 to stockholders of record on October 4, 2022.

Business Outlook – 2022
Management’s expectations for 2022 remain consistent with the details outlined in our November 18, 2021 release.  Our 2022 guidance represented meaningful growth in sales, Adjusted EBIT, and Adjusted EBITDA across each of the Company’s business segments.

Our year-to-date results have been consistent with our guidance as presented in November. Our continuing order strength is driving revenue growth and margin expansion and gives us confidence that we are on track to deliver a solid Q4 in line with that initial guidance. Our expectation is for Q4 Adjusted EPS to be in the range of $1.12 to $1.18 per share, representing growth of 32 to 39 percent over the prior year. This remains consistent with our full year guidance but narrows the Adjusted EPS to a range of $3.12 to $3.18.

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 2022 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 the timing and magnitude of recovery in the Company’s end markets, the continuing impacts of COVID-19 on the Company’s results, sales, Adjusted SG&A, Adjusted EBIT, Adjusted EBITDA, Adjusted EPS, cash flow, results of cost reduction efforts, margins, growth, the financial success of the Company, the strength of its end markets, the outlook for the A&D, Test and USG segments, the ability to increase shareholder value, the timing and success of acquisition efforts, internal investments in new products and solutions, the impacts of inflation, the long-term success of the Company, and any other statements which are not strictly historical are “forward-looking” statements within the meaning of the safe harbor provisions of the federal 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, 2021; the availability and acceptance of viable COVID-19 vaccines by enough of the U.S. and world’s population to curtail the pandemic; the continuing impact of the COVID-19 pandemic and the effects of known or unknown COVID-19 variants 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 Executive Order 14042 and other vaccine mandates on our employees and businesses; 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 Financials 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 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, headquartered in St. Louis, Missouri: Manufactures highly-engineered filtration and fluid control products for the aviation, Navy, space and process markets worldwide, as well as composite-based products and solutions for Navy, defense and industrial customers; is the industry leader in RF shielding and EMC test products; and provides diagnostic instruments, software and services for the benefit of industrial power users and the electric utility and renewable energy industries. Further information regarding ESCO and its subsidiaries is available on 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, 2022			Three Months Ended June 30, 2021
Net Sales					$	219,066			181,394
Cost and Expenses:
		Cost of sales				134,454			113,610
		Selling, general and administrative expenses				47,479			42,882
		Amortization of intangible assets				6,406			4,864
		Interest expense				1,331			480
		Other (income) expenses, net				(106	)		615
			Total costs and expenses			189,564			162,451
Earnings before income taxes						29,502			18,943
Income tax expense						6,329			4,034
			Net earnings		$	23,173			14,909
			Diluted EPS:
			Diluted - GAAP
				Net earnings	$	0.89			0.57
			Diluted - As Adjusted Basis
				Net earnings	$	0.89			0.67	(1	)
			Diluted average common shares O/S:			25,950			26,214
(1	)	Q3 2021 Adjusted EPS excludes $0.10 per share of after-tax charges incurred at Corporate due to management transition and acquisition costs, and charges related to the USG (Morgan Schaffer) facility move.

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
						Nine Months Ended June 30, 2022				Nine Months Ended June 30, 2021
Net Sales					$	601,004				509,962
Cost and Expenses:
		Cost of sales				371,134				316,785
		Selling, general and administrative expenses				142,073				122,628
		Amortization of intangible assets				19,383				14,729
		Interest expense				3,084				1,453
		Other (income) expenses, net				(677	)			(1,265	)
			Total costs and expenses			534,997				454,330
Earnings before income taxes						66,007				55,632
Income tax expense						14,727				12,501
			Net earnings		$	51,280				43,131
			Diluted EPS:
			Diluted - GAAP
				Net earnings	$	1.97				1.65
			Diluted - As Adjusted Basis
				Net earnings	$	2.00		(1	)	1.75		(2	)
			Diluted average common shares O/S:			26,050				26,199
(1	)	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.
(2	)	YTD Q3 2021 Adjusted EPS excludes $0.10 per share consisting of after-tax charges incurred at Corporate due to management transition and acquisition costs, an ATM acquisition inventory step-up charge, and charges related to the USG (Doble Manta & Morgan Schaffer) facility consolidations, partially offset by the final settlement from the sale of the Doble Watertown facility.

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP						As Adjusted
				Q3 2022			Q3 2021			Q3 2022			Q3 2021
Net Sales
	Aerospace & Defense		$	92,606			85,576			92,606			85,576
	USG			67,201			47,704			67,201			47,704
	Test			59,259			48,114			59,259			48,114
		Totals	$	219,066			181,394			219,066			181,394
EBIT
	Aerospace & Defense		$	20,738			16,714			20,738			16,739
	USG			13,135			8,227			13,135			8,710
	Test			8,354			6,751			8,354			6,751
	Corporate			(11,394	)		(12,269	)		(11,394	)		(9,246	)
		Consolidated EBIT		30,833			19,423			30,833			22,954
		Less: Interest expense		(1,331	)		(480	)		(1,331	)		(480	)
		Less: Income tax expense		(6,329	)		(4,034	)		(6,329	)		(4,846	)
		Net earnings	$	23,173			14,909			23,173			17,628
Note 1: Adjusted net earnings of $17.6 million in Q3 2021 excludes $0.10 per share of after-tax charges incurred at Corporate due to management transition and acquisition costs, and charges related to the USG (Morgan Schaffer) facility move.
EBITDA Reconciliation to Net earnings:										Adjusted			Adjusted
				Q3 2022			Q3 2021			Q3 2022			Q3 2021
Consolidated EBITDA			$	42,788			29,567			42,788			33,098
Less: Depr & Amort				(11,955	)		(10,144	)		(11,955	)		(10,144	)
Consolidated EBIT				30,833			19,423			30,833			22,954
Less: Interest expense				(1,331	)		(480	)		(1,331	)		(480	)
Less: Income tax expense				(6,329	)		(4,034	)		(6,329	)		(4,846	)
Net earnings			$	23,173			14,909			23,173			17,628

    

    

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Business Segment Information (Unaudited)
(Dollars in thousands)
				GAAP						As Adjusted
				YTD Q3 2022			YTD Q3 2021			YTD Q3 2022			YTD Q3 2021
Net Sales
	Aerospace & Defense		$	247,671			234,720			247,671			234,720
	USG			194,877			141,799			194,877			141,799
	Test			158,456			133,443			158,456			133,443
		Totals	$	601,004			509,962			601,004			509,962
EBIT
	Aerospace & Defense		$	45,042			41,980			45,377			42,365
	USG			37,840			27,683			38,307			27,552
	Test			20,813			17,781			20,813			17,781
	Corporate			(34,604	)		(30,359	)		(34,299	)		(26,986	)
		Consolidated EBIT		69,091			57,085			70,198			60,712
		Less: Interest expense		(3,084	)		(1,453	)		(3,084	)		(1,453	)
		Less: Income tax		(14,727	)		(12,501	)		(14,982	)		(13,335	)
		Net earnings	$	51,280			43,131			52,132			45,924
Note 1: Adjusted net earnings of $52.1 million in YTD Q3 2022 excludes $0.03 per share of after-tax charges associated with the Altanova & Neco acquisition inventory step-up charges and Corporate acquisition related costs.
Note 2: Adjusted net earnings of $45.9 million in YTD Q3 2021 excludes $0.10 per share consisting of after-tax charges incurred at Corporate due to management transition and acquisition costs, an ATM acquisition inventory step-up charge, and charges related to USG (Manta and Morgan Schaffer) facility consolidations, partially offset by the final settlement from the sale of the Doble Watertown facility.
EBITDA Reconciliation to Net earnings:										Adjusted			Adjusted
				YTD Q3 2022			YTD Q3 2021			YTD Q3 2022			YTD Q3 2021
Consolidated EBITDA			$	105,338			87,344			106,445			90,971
Less: Depr & Amort				(36,247	)		(30,259	)		(36,247	)		(30,259	)
Consolidated EBIT				69,091			57,085			70,198			60,712
Less: Interest expense				(3,084	)		(1,453	)		(3,084	)		(1,453	)
Less: Income tax expense				(14,727	)		(12,501	)		(14,982	)		(13,335	)
Net earnings			$	51,280			43,131			52,132			45,924

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
				June 30, 2022		September 30, 2021
Assets
	Cash and cash equivalents		$	61,019		56,232
	Accounts receivable, net			168,720		146,341
	Contract assets			115,840		93,771
	Inventories			178,168		147,148
	Other current assets			29,718		22,662
		Total current assets		553,465		466,154
	Property, plant and equipment, net			155,961		154,265
	Intangible assets, net			401,337		409,250
	Goodwill			503,439		504,853
	Operating lease assets			28,922		31,846
	Other assets			9,562		10,977
			$	1,652,686		1,577,345
Liabilities and Shareholders' Equity
	Current maturities of long-term debt		$	20,000		20,000
	Accounts payable			70,748		56,669
	Contract liabilities			117,863		106,045
	Other current liabilities			83,484		92,281
		Total current liabilities		292,095		274,995
	Deferred tax liabilities			82,580		73,560
	Non-current operating lease liabilities			25,209		28,032
	Other liabilities			41,920		47,062
	Long-term debt			181,000		134,000
	Shareholders' equity			1,029,882		1,019,696
			$	1,652,686		1,577,345

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
		Nine Months Ended June 30, 2022			Nine Months Ended June 30, 2021
Cash flows from operating activities:
Net earnings	$	51,280			43,131
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization		36,247			30,259
Stock compensation expense		5,318			5,386
Changes in assets and liabilities		(60,172	)		2,520
Gain on sale of building and land					(1,950	)
Effect of deferred taxes		9,020			(3,946	)
Net cash provided by operating activities		41,693			75,400
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(15,592	)		(6,684	)
Capital expenditures		(25,893	)		(17,887	)
Additions to capitalized software		(9,359	)		(6,500	)
Proceeds from sale of building and land					1,950
Net cash used by investing activities		(50,844	)		(29,121	)
Cash flows from financing activities:
Proceeds from long-term debt		111,000			80,000
Principal payments on long-term debt and short-term borrowings		(64,000	)		(94,368	)
Dividends paid		(6,219	)		(6,249	)
Purchases of common stock into treasury		(19,878	)
Other		(2,787	)		(1,674	)
Net cash provided (used) by financing activities		18,116			(22,291	)
Effect of exchange rate changes on cash and cash equivalents		(4,178	)		1,811
Net increase in cash and cash equivalents		4,787			25,799
Cash and cash equivalents, beginning of period		56,232			52,560
Cash and cash equivalents, end of period	$	61,019			78,359

    

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
Backlog And Entered Orders - Q3 2022				Aerospace & Defense			USG			Test			Total
	Beginning Backlog - 4/1/22		$	396,902			116,676			157,371			670,949
	Entered Orders			110,225			74,375			70,317			254,917
	Sales			(92,606	)		(67,201	)		(59,259	)		(219,066	)
	Ending Backlog - 6/30/22		$	414,521			123,850			168,429			706,800
Backlog And Entered Orders - YTD Q3 2022				Aerospace & Defense			USG			Test			Total
	Beginning Backlog - 10/1/21		$	367,216			91,631			133,176			592,023
	Entered Orders			294,976			227,096			193,709			715,781
	Sales			(247,671	)		(194,877	)		(158,456	)		(601,004	)
	Ending Backlog - 6/30/22		$	414,521			123,850			168,429			706,800

   

   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
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.
EPS – Adjusted Basis Reconciliation – Q3 2021
	EPS GAAP Basis – Q3 2021	$	0.57
	Adjustments (defined below)		0.10
	EPS – As Adjusted Basis – Q3 2021	$	0.67
	Adjustments exclude $0.10 per share consisting of management transition and
	acquisition costs, and USG facility consolidation charges in the third quarter of 2021.
	The $0.10 of EPS adjustments per share consists of $3.5 million of pre-tax charges
	offset by $0.8 million of tax benefit for net impact of $2.7 million.
EPS – Adjusted Basis Reconciliation – YTD Q3 2021
	EPS – GAAP Basis – YTD Q3 2021	$	1.65
	Adjustments (defined below)		0.10
	EPS – As Adjusted Basis – YTD Q3 2021	$	1.75
	Adjustments exclude $0.10 per share consisting of management transition and
	acquisition costs, USG facility consolidation charges and ATM inventory step-up
	charge in the first nine months of 2021.
	The $0.10 of EPS adjustments per share consists of $3.6 million of pre-tax charges
	offset by $0.8 million of tax benefit for net impact of $2.8 million.

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