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ESCO Reports Third Quarter Fiscal 2023 Results
المصدر: Nasdaq GlobeNewswire / 08 أغسطس 2023 15:15:00 America/Chicago
St. Louis, Aug. 08, 2023 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the third quarter ended June 30, 2023 (Q3 2023).
Operating Highlights
- Q3 2023 GAAP EPS increased 21 percent to $1.08 per share compared to $0.89 per share in Q3 2022. Q3 2023 Adjusted EPS increased 22 percent to $1.09 per share compared to $0.89 per share in Q3 2022.
- Q3 2023 Sales increased $29.6 million (13.5 percent) to $248.7 million compared to $219.1 million in Q3 2022.
- Q3 2023 Entered Orders decreased $41.6 million (16 percent) versus the prior year period to $213.3 million (book-to-bill of 0.86x), resulting in ending backlog of $705 million. Continuing strength in commercial aerospace, utilities and renewables orders were more than offset by timing related to a few large orders in Q3 2022 that did not repeat.
- Net cash provided by operating activities was $29 million YTD 2023. Cash flow improved in the quarter but was negatively impacted by higher working capital requirements (higher accounts receivable related to increased sales and higher inventory related to timing and supply chain issues), along with higher interest and tax payments compared to the prior year.
- Net debt (total borrowings less cash on hand) was $92 million, resulting in a 0.71x leverage ratio and $595 million in liquidity at June 30, 2023.
Bryan Sayler, Chief Executive Officer and President, commented, “Q3 was another strong quarter with a number of positive developments. Sales increased 14 percent on the strength of continuing momentum in our aerospace, utility, and renewables end-markets. A&D and USG both again delivered double digit revenue growth and our Adjusted EBIT and Adjusted EPS both increased over 20 percent compared to the prior year. We delivered 130 basis points of Adjusted EBIT margin improvement, driven by leverage on aerospace and USG revenue growth, and at Test where we did a great job delivering higher margins on lower sales.
“My transition to the CEO role has gone very well. The quality of our businesses continues to shine and it’s a pleasure to work with such a talented team. We have a committed group of employees that work diligently to drive growth and deliver solid operating results for our company and our shareholders. I want to thank our employees for their dedication as we all work and grow together as a team.”
Segment Performance
Aerospace & Defense (A&D)
- Sales increased $10.9 million (12 percent) to $103.5 million in Q3 2023 from $92.6 million in Q3 2022. Sales growth was driven by commercial and defense aerospace, partially offset by lower Navy and space sales in the quarter. Commercial aerospace increased $7.6 million (24 percent) and defense aerospace increased $6.7 million (54 percent) in the quarter.
- Q3 2023 EBIT increased $1.0 million to $21.7 million (20.9 percent margin) from $20.7 million (22.4 percent margin) in Q3 2022. There were no adjustments to earnings in either period. The Q3 margin was negatively impacted by lower space and Navy volume and margin erosion on certain space development contracts, which more than offset leverage on aerospace growth in the quarter.
- Entered Orders decreased $28 million (26 percent) to $82 million in Q3 2023 compared to $110 million in Q3 2022. The decrease was primarily driven by a $30 million space order (SLS long lead material) that occurred in Q3 2022. Aerospace order strength continued but was mostly offset by a shift in the timing of Virginia Class submarine orders to later in the year. Ending backlog of $414 million has increased $5 million compared to the prior year end.
Utility Solutions Group (USG)
- Sales increased $22.8 million (34 percent) to $90.0 million in Q3 2023 from $67.2 million in Q3 2022. Doble’s sales increased by $17.6 million (32 percent) driven by a strong quarter for services, offline testing, protection testing and condition monitoring. NRG sales increased $5.2 million (45 percent) on continued broad strength across the renewables end-market.
- EBIT increased $7.3 million in Q3 2023 to $20.4 million from $13.1 million in Q3 2022. Adjusted EBIT increased $7.4 million (56 percent) in Q3 2023 to $20.5 million (22.8 percent margin) from $13.1 million (19.5 percent margin) in Q3 2022. Margins were favorably impacted by leverage on higher revenue and price increases, partially offset by the impacts of wage and material cost inflation and increased commissions, travel, and tradeshow expenses.
- Entered Orders increased $11 million (15 percent) to $86 million in Q3 2023. Doble orders increased by $2 million (3 percent) and NRG orders increased by $9 million (67 percent). The strength in renewables orders was driven by continuing momentum in wind and solar project pipelines. Ending backlog of $138 million has increased $10 million compared to the prior year end.
Test
- Sales decreased $4.0 million (7 percent) to $55.3 million in Q3 2023 from $59.3 million in Q3 2022. Lower test and measurement volume in China and the U.S and lower filter sales domestically were partially offset by a strong quarter in EMEA and increased service revenue.
- EBIT increased $0.2 million in Q3 2023 to $8.6 million (15.6 percent margin) from $8.4 million (14.1 percent margin) in Q3 2022. There were no adjustments in either period. The Q3 margin improvement was driven by price increases and cost reduction efforts, which more than offset the impact of lower volume and wage and material cost inflation.
- Entered Orders decreased $24.4 million to $45.9 million in Q3 2023 compared to $70.3 million in Q3 2022. The decrease was primarily due to several large test and measurement orders booked in Q3 2022, and lower test and measurement orders in China related to the resurgence of COVID earlier this year. Ending backlog of $153 million has decreased $5 million compared to the prior year end.
Share Repurchase Program
During Q3 2023, the Company repurchased approximately 2,000 shares for $0.2 million. Year-to-date, the company has repurchased approximately 140,000 shares for $12.4 million.Dividend Payment
The next quarterly cash dividend of $0.08 per share will be paid on October 17, 2023 to stockholders of record on October 3, 2023.Business Outlook – 2023
On the strength of our results year-to-date and our expectations for the fourth quarter, we are again raising our full year earnings guidance. We expect Q4 Adjusted EPS in the range of $1.17 to $1.23 which results in Adjusted 2023 EPS in the range of $3.62 to $3.68 (13 to 15 percent growth). This is based on sales in a range of $940 to $950 million (10 to 11 percent annual growth).Conference Call
The Company will host a conference call today, August 8, at 4:00 p.m. Central Time, to discuss the Company’s Q3 2023 results. A live audio webcast and an accompanying slide presentation will be available on ESCO’s investor website at https://investor.escotechnologies.com. For those unable to participate, a webcast replay will be available after the call on ESCO’s investor website.Forward-Looking Statements
Statements in this press release regarding Management’s expectations for fiscal 2023, the effects of continuing inflationary pressures, higher interest rates, pressures related to supply chain performance and labor shortages; our expectations and guidance for 2023 including sales and sales trends; revenues and revenue growth, earnings and Adjusted EPS, Adjusted EBIT and Adjusted EBITDA margin; the effects of acquisitions; and any other statements which are not strictly historical, are “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. securities laws.Investors are cautioned that such statements are only predictions and speak only as of the date of this release, and the Company undertakes no duty to update them except as may be required by applicable laws or regulations. The Company’s actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company’s operations and business environment including but not limited to those described in Item 1A, “Risk Factors”, of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022; the effects of a resurgence of the COVID-19 pandemic, or the emergence of another pandemic, including labor shortages, facility closures, shelter in place policies or quarantines, material shortages, transportation delays, termination or delays of Company contracts, and the inability of our suppliers or customers to perform; the impacts of climate change and related regulation of greenhouse gases; the impacts of natural disasters on the Company’s operations and those of the Company’s customers and suppliers; the timing and content of future contract awards or customer orders; the appropriation, allocation and availability of Government funds; the termination for convenience of Government and other customer contracts or orders; weakening of economic conditions in served markets; the success of the Company’s competitors; changes in customer demands or customer insolvencies; competition; intellectual property rights; technical difficulties; the success of the Company’s acquisition efforts; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; changes in the costs and availability of certain raw materials; labor disputes; changes in U.S. tax laws and regulations; other changes in laws and regulations including but not limited to changes in accounting standards and foreign taxation; changes in interest rates; costs relating to environmental matters arising from current or former facilities; uncertainty regarding the ultimate resolution of current disputes, claims, litigation or arbitration; and the integration of recently acquired businesses.
Non-GAAP Financial Measures
The financial measures EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are presented in this press release. The Company defines “EBIT” as earnings before interest and taxes, “EBITDA” as earnings before interest, taxes, depreciation and amortization, “Adjusted EBIT” and “Adjusted EBITDA” as excluding the net impact of the items described in the attached Reconciliation of Non-GAAP Financial Measures, and “Adjusted EPS” as GAAP earnings per share (EPS) excluding the net impact of the items described and reconciled in the attached Reconciliation of Non-GAAP Financial Measures.EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS are not recognized in accordance with U.S. generally accepted accounting principles (GAAP). However, Management believes EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA are useful in assessing the operational profitability of the Company’s business segments because they exclude interest, taxes, depreciation and amortization, which are generally accounted for across the entire Company on a consolidated basis. EBIT and EBITDA are also measures used by Management in determining resource allocations within the Company as well as incentive compensation. The presentation of EBIT, Adjusted EBIT, EBITDA, Adjusted EBITDA and Adjusted EPS provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.
About ESCO Technologies
ESCO is a global provider of highly engineered products and solutions serving diverse end-markets. It manufactures filtration and fluid control products for the aviation, Navy, space, and process markets worldwide and composite-based products and solutions for Navy, defense, and industrial customers. ESCO is the industry leader in RF shielding and EMC test products; and provides diagnostic instruments, software and services to industrial power users and the electric utility and renewable energy industries. Headquartered in St. Louis, Missouri, ESCO and its subsidiaries have offices and manufacturing facilities worldwide. For more information on ESCO and its subsidiaries, visit the Company’s website at www.escotechnologies.com.ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) Three Months
Ended
June 30, 2023Three Months
Ended
June 30, 2022Net Sales $ 248,749 219,066 Cost and Expenses: Cost of sales 147,274 134,454 Selling, general and administrative expenses 55,376 47,479 Amortization of intangible assets 7,132 6,406 Interest expense 2,495 1,331 Other expenses (income), net 966 (106 ) Total costs and expenses 213,243 189,564 Earnings before income taxes 35,506 29,502 Income tax expense 7,563 6,329 Net earnings $ 27,943 23,173 Diluted - GAAP $ 1.08 0.89 Diluted - As Adjusted Basis $ 1.09 (1 ) 0.89 Diluted average common shares O/S: 25,827 25,950 (1 ) Q3 2023 Adjusted EPS excludes $0.01 per share of after-tax charges consisting mainly of Corporate acquisition related costs.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share amounts) Nine Months
Ended
June 30, 2023Nine Months
Ended
June 30, 2022Net Sales $ 683,386 601,004 Cost and Expenses: Cost of sales 415,953 371,134 Selling, general and administrative expenses 160,555 142,073 Amortization of intangible assets 21,023 19,383 Interest expense 6,422 3,084 Other expenses (income), net 1,678 (677 ) Total costs and expenses 605,631 534,997 Earnings before income taxes 77,755 66,007 Income tax expense 17,207 14,727 Net earnings $ 60,548 51,280 Diluted - GAAP $ 2.34 1.97 Diluted - As Adjusted Basis $ 2.45 (1 ) 2.00 (2 ) Diluted average common shares O/S: 25,890 26,050 (1 ) YTD Q3 2023 Adjusted EPS excludes $0.11 per share of after-tax charges consisting of $0.06 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges, $0.02 of restructuring charges within the A&D segment and $0.01 of Corporate acquisition related costs. (2 ) YTD Q3 2022 Adjusted EPS excludes $0.03 per share of after-tax charges associated with the Altanova & NEco acquisition inventory step-up charges and Corporate acquisition related costs.
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Business Segment Information (Unaudited) (Dollars in thousands) GAAP As Adjusted Q3 2023 Q3 2022 Q3 2023 Q3 2022 Net Sales Aerospace & Defense $ 103,469 92,606 103,469 92,606 USG 89,966 67,201 89,966 67,201 Test 55,314 59,259 55,314 59,259 Totals $ 248,749 219,066 248,749 219,066 EBIT Aerospace & Defense $ 21,665 20,738 21,665 20,738 USG 20,351 13,135 20,481 13,135 Test 8,643 8,354 8,643 8,354 Corporate (12,658 ) (11,394 ) (12,438 ) (11,394 ) Consolidated EBIT 38,001 30,833 38,351 30,833 Less: Interest expense (2,495 ) (1,331 ) (2,495 ) (1,331 ) Less: Income tax expense (7,563 ) (6,329 ) (7,643 ) (6,329 ) Net earnings $ 27,943 23,173 28,213 23,173 Note 1: Adjusted net earnings of $28.2 million in Q3 2023 exclude $0.01 per share of after-tax charges consisting mainly of Corporate acquisition related costs. EBITDA Reconciliation to Net earnings: Q3 2023 - Q3 2022 - Q3 2023 Q3 2022 As Adj As Adj Consolidated EBITDA $ 50,790 42,788 51,140 42,788 Less: Depr & Amort (12,789 ) (11,955 ) (12,789 ) (11,955 ) Consolidated EBIT 38,001 30,833 38,351 30,833 Less: Interest expense (2,495 ) (1,331 ) (2,495 ) (1,331 ) Less: Income tax expense (7,563 ) (6,329 ) (7,643 ) (6,329 ) Net earnings $ 27,943 23,173 28,213 23,173
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Business Segment Information (Unaudited) (Dollars in thousands) GAAP As Adjusted YTD
Q3 2023YTD
Q3 2022YTD
Q3 2023YTD
Q3 2022Net Sales Aerospace & Defense $ 285,434 247,671 285,434 247,671 USG 240,172 194,877 240,172 194,877 Test 157,780 158,456 157,780 158,456 Totals $ 683,386 601,004 683,386 601,004 EBIT Aerospace & Defense $ 52,996 45,042 53,995 45,377 USG 50,543 37,840 50,673 38,307 Test 21,280 20,813 21,280 20,813 Corporate (40,642 ) (34,604 ) (38,129 ) (34,299 ) Consolidated EBIT 84,177 69,091 87,819 70,198 Less: Interest expense (6,422 ) (3,084 ) (6,422 ) (3,084 ) Less: Income tax expense (17,207 ) (14,727 ) (18,045 ) (14,982 ) Net earnings $ 60,548 51,280 63,352 52,132 Note 1: Adjusted net earnings of $63.4 million in YTD Q3 2023 exclude $0.11 per share of after-tax charges consisting of $0.06 of executive management transition costs at Corporate, $0.02 of CMT acquisition inventory step-up charges, $0.02 of restructuring charges within the A&D segment and $0.01 of Corporate acquisition related costs. Note 2: Adjusted net earnings of $52.1 million in YTD Q3 2022 exclude $0.03 per share of after-tax charges associated with the Altanova & NEco acquisition inventory step-up charges and Corporate acquisition related costs. EBITDA Reconciliation to Net earnings: YTD
Q3 2023YTD
Q3 2022YTD Q3
2023-As AdjYTD Q3
2022-As AdjConsolidated EBITDA $ 121,876 105,338 125,518 106,445 Less: Depr & Amort (37,699 ) (36,247 ) (37,699 ) (36,247 ) Consolidated EBIT 84,177 69,091 87,819 70,198 Less: Interest expense (6,422 ) (3,084 ) (6,422 ) (3,084 ) Less: Income tax expense (17,207 ) (14,727 ) (18,045 ) (14,982 ) Net earnings $ 60,548 51,280 63,352 52,132
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (Dollars in thousands) June 30,
2023September 30,
2022Assets Cash and cash equivalents $ 56,052 97,724 Accounts receivable, net 192,146 164,645 Contract assets 128,284 125,154 Inventories 192,493 162,403 Other current assets 24,847 22,696 Total current assets 593,822 572,622 Property, plant and equipment, net 155,337 155,973 Intangible assets, net 398,418 394,464 Goodwill 505,590 492,709 Operating lease assets 40,314 29,150 Other assets 10,028 9,538 $ 1,703,509 1,654,456 Liabilities and Shareholders' Equity Current maturities of long-term debt $ 20,000 20,000 Accounts payable 76,761 78,746 Contract liabilities 122,526 125,009 Other current liabilities 89,664 94,374 Total current liabilities 308,951 318,129 Deferred tax liabilities 78,585 82,023 Non-current operating lease liabilities 36,815 24,853 Other liabilities 44,115 48,294 Long-term debt 128,000 133,000 Shareholders' equity 1,107,043 1,048,157 $ 1,703,509 1,654,456
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands) Nine Months
Ended
June 30, 2023Nine Months
Ended
June 30, 2022Cash flows from operating activities: Net earnings $ 60,548 51,280 Adjustments to reconcile net earnings to net cash (used) provided by operating activities: Depreciation and amortization 37,699 36,247 Stock compensation expense 7,007 5,318 Changes in assets and liabilities (72,346 ) (60,172 ) Effect of deferred taxes (3,706 ) 9,020 Net cash provided by operating activities 29,202 41,693 Cash flows from investing activities: Acquisition of business, net of cash acquired (17,694 ) (15,592 ) Capital expenditures (16,993 ) (25,893 ) Additions to capitalized software (9,263 ) (9,359 ) Net cash used by investing activities (43,950 ) (50,844 ) Cash flows from financing activities: Proceeds from long-term debt 88,000 111,000 Principal payments on long-term debt and short-term borrowings (93,000 ) (64,000 ) Dividends paid (6,189 ) (6,219 ) Purchases of common stock into treasury (12,401 ) (19,878 ) Other (2,557 ) (2,787 ) Net cash (used) provided by financing activities (26,147 ) 18,116 Effect of exchange rate changes on cash and cash equivalents (777 ) (4,178 ) Net (decrease) increase in cash and cash equivalents (41,672 ) 4,787 Cash and cash equivalents, beginning of period 97,724 56,232 Cash and cash equivalents, end of period $ 56,052 61,019
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Other Selected Financial Data (Unaudited) (Dollars in thousands) Backlog And Entered Orders - Q3 2023 Aerospace & Defense USG Test Total Beginning Backlog - 4/1/23 $ 435,246 142,696 162,919 740,861 Entered Orders 81,936 85,510 45,851 213,297 Sales (103,469 ) (89,966 ) (55,314 ) (248,749 ) Ending Backlog - 6/30/23 $ 413,713 138,240 153,456 705,409 Backlog And Entered Orders - YTD Q3 2023 Aerospace & Defense USG Test Total Beginning Backlog - 10/1/22 $ 408,269 128,156 158,597 695,022 Entered Orders 290,878 250,256 152,639 693,773 Sales (285,434 ) (240,172 ) (157,780 ) (683,386 ) Ending Backlog - 6/30/23 $ 413,713 138,240 153,456 705,409
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES Reconciliation of Non-GAAP Financial Measures (Unaudited) EPS – Adjusted Basis Reconciliation – Q3 2023 EPS – GAAP Basis – Q3 2023 $ 1.08 Adjustments (defined below) 0.01 EPS – As Adjusted Basis – Q3 2023 $ 1.09 Adjustments exclude $0.01 per share consisting mainly of Corporate acquisition related costs in the third quarter of 2023. The $0.01 of EPS adjustments per share consists of $350K of pre-tax charges offset by $80K of tax benefit for net impact of $270K. EPS – Adjusted Basis Reconciliation – YTD Q3 2023 EPS – GAAP Basis – YTD Q3 2023 $ 2.34 Adjustments (defined below) 0.11 EPS – As Adjusted Basis – YTD Q3 2023 $ 2.45 Adjustments exclude $0.11 per share consisting of executive management transition costs at Corporate, CMT acquisition inventory step-up charges and restructuring charges within the A&D segment, and Corporate acquisition costs in the first nine months of 2023. The $0.11 of EPS adjustments per share consists of $3,642K of pre-tax charges offset by $838K of tax benefit for net impact of $2,804K. EPS – Adjusted Basis Reconciliation – YTD Q3 2022 EPS – GAAP Basis – YTD Q3 2022 $ 1.97 Adjustments (defined below) 0.03 EPS – As Adjusted Basis – YTD Q3 2022 $ 2.00 Adjustments exclude $0.03 per share consisting of Altanova & NEco acquisition inventory step-up charges and Corporate related acquisition costs in the first nine months of 2022. The $0.03 of EPS adjustments per share consists of $1,107K of pre-tax charges offset by $255K of tax benefit for net impact of $852K.
SOURCE ESCO Technologies Inc.
Kate Lowrey, Vice President of Investor Relations, (314) 213-7277