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 -

Saint Louis, Missouri, UNITED STATES


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