10-Q 1 ese-20240331x10q.htm 10-Q
0000866706--09-302024Q2falseMOMOhttp://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#OtherAccruedLiabilitiesCurrent http://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#OperatingLeaseRightOfUseAsset0000866706us-gaap:TreasuryStockCommonMember2024-01-012024-03-310000866706us-gaap:TreasuryStockCommonMember2023-10-012024-03-310000866706us-gaap:TreasuryStockCommonMember2023-01-012023-03-310000866706us-gaap:TreasuryStockCommonMember2022-10-012023-03-310000866706us-gaap:TreasuryStockCommonMember2024-03-310000866706us-gaap:RetainedEarningsMember2024-03-310000866706us-gaap:CommonStockMember2024-03-310000866706us-gaap:AdditionalPaidInCapitalMember2024-03-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310000866706us-gaap:TreasuryStockCommonMember2023-12-310000866706us-gaap:RetainedEarningsMember2023-12-310000866706us-gaap:CommonStockMember2023-12-310000866706us-gaap:AdditionalPaidInCapitalMember2023-12-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310000866706us-gaap:TreasuryStockCommonMember2023-09-300000866706us-gaap:RetainedEarningsMember2023-09-300000866706us-gaap:CommonStockMember2023-09-300000866706us-gaap:AdditionalPaidInCapitalMember2023-09-300000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-09-300000866706us-gaap:TreasuryStockCommonMember2023-03-310000866706us-gaap:RetainedEarningsMember2023-03-310000866706us-gaap:CommonStockMember2023-03-310000866706us-gaap:AdditionalPaidInCapitalMember2023-03-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310000866706us-gaap:TreasuryStockCommonMember2022-12-310000866706us-gaap:RetainedEarningsMember2022-12-310000866706us-gaap:CommonStockMember2022-12-310000866706us-gaap:AdditionalPaidInCapitalMember2022-12-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310000866706us-gaap:TreasuryStockCommonMember2022-09-300000866706us-gaap:RetainedEarningsMember2022-09-300000866706us-gaap:CommonStockMember2022-09-300000866706us-gaap:AdditionalPaidInCapitalMember2022-09-300000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-300000866706us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310000866706us-gaap:AdditionalPaidInCapitalMember2023-10-012024-03-310000866706us-gaap:CommonStockMember2023-01-012023-03-310000866706us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310000866706us-gaap:CommonStockMember2022-10-012023-03-310000866706us-gaap:AdditionalPaidInCapitalMember2022-10-012023-03-3100008667062024-04-012024-03-310000866706us-gaap:NonUsMemberese:UtilitySolutionsGroupMember2024-01-012024-03-310000866706us-gaap:NonUsMemberese:RFShieldingAndTestMember2024-01-012024-03-310000866706us-gaap:NonUsMemberese:AerospaceAndDefenseMember2024-01-012024-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredOverTimeMember2024-01-012024-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredAtPointInTimeMember2024-01-012024-03-310000866706ese:USGovernmentMemberese:UtilitySolutionsGroupMember2024-01-012024-03-310000866706ese:USGovernmentMemberese:RFShieldingAndTestMember2024-01-012024-03-310000866706ese:USGovernmentMemberese:AerospaceAndDefenseMember2024-01-012024-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredOverTimeMember2024-01-012024-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredAtPointInTimeMember2024-01-012024-03-310000866706ese:CommercialMemberese:UtilitySolutionsGroupMember2024-01-012024-03-310000866706ese:CommercialMemberese:RFShieldingAndTestMember2024-01-012024-03-310000866706ese:CommercialMemberese:AerospaceAndDefenseMember2024-01-012024-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredOverTimeMember2024-01-012024-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredAtPointInTimeMember2024-01-012024-03-310000866706country:USese:UtilitySolutionsGroupMember2024-01-012024-03-310000866706country:USese:RFShieldingAndTestMember2024-01-012024-03-310000866706country:USese:AerospaceAndDefenseMember2024-01-012024-03-310000866706us-gaap:TransferredOverTimeMember2024-01-012024-03-310000866706us-gaap:TransferredAtPointInTimeMember2024-01-012024-03-310000866706us-gaap:NonUsMember2024-01-012024-03-310000866706ese:USGovernmentMember2024-01-012024-03-310000866706ese:CommercialMember2024-01-012024-03-310000866706country:US2024-01-012024-03-310000866706us-gaap:NonUsMemberese:UtilitySolutionsGroupMember2023-10-012024-03-310000866706us-gaap:NonUsMemberese:RFShieldingAndTestMember2023-10-012024-03-310000866706us-gaap:NonUsMemberese:AerospaceAndDefenseMember2023-10-012024-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredOverTimeMember2023-10-012024-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredAtPointInTimeMember2023-10-012024-03-310000866706ese:USGovernmentMemberese:UtilitySolutionsGroupMember2023-10-012024-03-310000866706ese:USGovernmentMemberese:RFShieldingAndTestMember2023-10-012024-03-310000866706ese:USGovernmentMemberese:AerospaceAndDefenseMember2023-10-012024-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredOverTimeMember2023-10-012024-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredAtPointInTimeMember2023-10-012024-03-310000866706ese:CommercialMemberese:UtilitySolutionsGroupMember2023-10-012024-03-310000866706ese:CommercialMemberese:RFShieldingAndTestMember2023-10-012024-03-310000866706ese:CommercialMemberese:AerospaceAndDefenseMember2023-10-012024-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredOverTimeMember2023-10-012024-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredAtPointInTimeMember2023-10-012024-03-310000866706country:USese:UtilitySolutionsGroupMember2023-10-012024-03-310000866706country:USese:RFShieldingAndTestMember2023-10-012024-03-310000866706country:USese:AerospaceAndDefenseMember2023-10-012024-03-310000866706us-gaap:TransferredOverTimeMember2023-10-012024-03-310000866706us-gaap:TransferredAtPointInTimeMember2023-10-012024-03-310000866706us-gaap:NonUsMember2023-10-012024-03-310000866706ese:USGovernmentMember2023-10-012024-03-310000866706ese:CommercialMember2023-10-012024-03-310000866706country:US2023-10-012024-03-310000866706us-gaap:NonUsMemberese:UtilitySolutionsGroupMember2023-01-012023-03-310000866706us-gaap:NonUsMemberese:RFShieldingAndTestMember2023-01-012023-03-310000866706us-gaap:NonUsMemberese:AerospaceAndDefenseMember2023-01-012023-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredOverTimeMember2023-01-012023-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredAtPointInTimeMember2023-01-012023-03-310000866706ese:USGovernmentMemberese:UtilitySolutionsGroupMember2023-01-012023-03-310000866706ese:USGovernmentMemberese:RFShieldingAndTestMember2023-01-012023-03-310000866706ese:USGovernmentMemberese:AerospaceAndDefenseMember2023-01-012023-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredOverTimeMember2023-01-012023-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredAtPointInTimeMember2023-01-012023-03-310000866706ese:CommercialMemberese:UtilitySolutionsGroupMember2023-01-012023-03-310000866706ese:CommercialMemberese:RFShieldingAndTestMember2023-01-012023-03-310000866706ese:CommercialMemberese:AerospaceAndDefenseMember2023-01-012023-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredOverTimeMember2023-01-012023-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredAtPointInTimeMember2023-01-012023-03-310000866706country:USese:UtilitySolutionsGroupMember2023-01-012023-03-310000866706country:USese:RFShieldingAndTestMember2023-01-012023-03-310000866706country:USese:AerospaceAndDefenseMember2023-01-012023-03-310000866706us-gaap:TransferredOverTimeMember2023-01-012023-03-310000866706us-gaap:TransferredAtPointInTimeMember2023-01-012023-03-310000866706us-gaap:NonUsMember2023-01-012023-03-310000866706ese:USGovernmentMember2023-01-012023-03-310000866706ese:CommercialMember2023-01-012023-03-310000866706country:US2023-01-012023-03-310000866706us-gaap:NonUsMemberese:UtilitySolutionsGroupMember2022-10-012023-03-310000866706us-gaap:NonUsMemberese:RFShieldingAndTestMember2022-10-012023-03-310000866706us-gaap:NonUsMemberese:AerospaceAndDefenseMember2022-10-012023-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredOverTimeMember2022-10-012023-03-310000866706ese:UtilitySolutionsGroupMemberus-gaap:TransferredAtPointInTimeMember2022-10-012023-03-310000866706ese:USGovernmentMemberese:UtilitySolutionsGroupMember2022-10-012023-03-310000866706ese:USGovernmentMemberese:RFShieldingAndTestMember2022-10-012023-03-310000866706ese:USGovernmentMemberese:AerospaceAndDefenseMember2022-10-012023-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredOverTimeMember2022-10-012023-03-310000866706ese:RFShieldingAndTestMemberus-gaap:TransferredAtPointInTimeMember2022-10-012023-03-310000866706ese:CommercialMemberese:UtilitySolutionsGroupMember2022-10-012023-03-310000866706ese:CommercialMemberese:RFShieldingAndTestMember2022-10-012023-03-310000866706ese:CommercialMemberese:AerospaceAndDefenseMember2022-10-012023-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredOverTimeMember2022-10-012023-03-310000866706ese:AerospaceAndDefenseMemberus-gaap:TransferredAtPointInTimeMember2022-10-012023-03-310000866706country:USese:UtilitySolutionsGroupMember2022-10-012023-03-310000866706country:USese:RFShieldingAndTestMember2022-10-012023-03-310000866706country:USese:AerospaceAndDefenseMember2022-10-012023-03-310000866706us-gaap:TransferredOverTimeMember2022-10-012023-03-310000866706us-gaap:TransferredAtPointInTimeMember2022-10-012023-03-310000866706us-gaap:NonUsMember2022-10-012023-03-310000866706ese:USGovernmentMember2022-10-012023-03-310000866706ese:CommercialMember2022-10-012023-03-310000866706country:US2022-10-012023-03-310000866706ese:MpeLimitedMember2023-11-092023-11-090000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-10-012024-03-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310000866706us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-012023-03-310000866706us-gaap:RevolvingCreditFacilityMember2023-10-012024-03-310000866706us-gaap:RevolvingCreditFacilityMember2024-03-310000866706srt:MaximumMember2024-03-310000866706us-gaap:TrademarksAndTradeNamesMember2024-03-310000866706us-gaap:TrademarksAndTradeNamesMember2023-09-300000866706us-gaap:CorporateMember2024-01-012024-03-310000866706ese:UtilitySolutionsGroupMember2024-01-012024-03-310000866706ese:RFShieldingAndTestMember2024-01-012024-03-310000866706ese:AerospaceAndDefenseMember2024-01-012024-03-310000866706us-gaap:CorporateMember2023-10-012024-03-310000866706ese:AerospaceAndDefenseMember2023-10-012024-03-310000866706us-gaap:CorporateMember2023-01-012023-03-310000866706ese:UtilitySolutionsGroupMember2023-01-012023-03-310000866706ese:RFShieldingAndTestMember2023-01-012023-03-310000866706ese:AerospaceAndDefenseMember2023-01-012023-03-310000866706us-gaap:CorporateMember2022-10-012023-03-310000866706ese:UtilitySolutionsGroupMember2022-10-012023-03-310000866706ese:RFShieldingAndTestMember2022-10-012023-03-310000866706ese:AerospaceAndDefenseMember2022-10-012023-03-310000866706ese:UtilitySolutionsGroupMember2023-10-012024-03-310000866706ese:RFShieldingAndTestMember2023-10-012024-03-310000866706ese:UtilitySolutionsGroupMember2024-03-310000866706ese:RFShieldingAndTestMember2024-03-310000866706ese:AerospaceAndDefenseMember2024-03-310000866706ese:UtilitySolutionsGroupMember2023-09-300000866706ese:RFShieldingAndTestMember2023-09-300000866706ese:AerospaceAndDefenseMember2023-09-300000866706us-gaap:PatentsMember2024-03-310000866706us-gaap:OtherIntangibleAssetsMember2024-03-310000866706us-gaap:CustomerRelationshipsMember2024-03-310000866706ese:CapitalizedSoftwareMember2024-03-310000866706us-gaap:PatentsMember2023-09-300000866706us-gaap:OtherIntangibleAssetsMember2023-09-300000866706us-gaap:CustomerRelationshipsMember2023-09-300000866706ese:CapitalizedSoftwareMember2023-09-300000866706ese:NonEmployeeDirectorsPlanMember2024-03-310000866706us-gaap:SellingGeneralAndAdministrativeExpensesMember2024-01-012024-03-310000866706us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-10-012024-03-310000866706us-gaap:SellingGeneralAndAdministrativeExpensesMember2023-01-012023-03-310000866706us-gaap:SellingGeneralAndAdministrativeExpensesMember2022-10-012023-03-310000866706us-gaap:RetainedEarningsMember2024-01-012024-03-310000866706us-gaap:RetainedEarningsMember2023-10-012024-03-310000866706us-gaap:RetainedEarningsMember2023-01-012023-03-310000866706us-gaap:RetainedEarningsMember2022-10-012023-03-3100008667062023-03-3100008667062022-09-300000866706ese:MpeLimitedMemberus-gaap:CustomerRelationshipsMember2023-11-0900008667062023-01-012023-03-310000866706ese:PerformanceAcceleratedRestrictedShareAwardsMember2024-01-012024-03-310000866706ese:NonEmployeeDirectorsPlanMember2024-01-012024-03-310000866706ese:PerformanceAcceleratedRestrictedShareAwardsMember2023-10-012024-03-310000866706ese:NonEmployeeDirectorsPlanMember2023-10-012024-03-310000866706ese:PerformanceAcceleratedRestrictedShareAwardsMember2023-01-012023-03-310000866706ese:NonEmployeeDirectorsPlanMember2023-01-012023-03-310000866706ese:PerformanceAcceleratedRestrictedShareAwardsMember2022-10-012023-03-310000866706ese:NonEmployeeDirectorsPlanMember2022-10-012023-03-3100008667062023-09-3000008667062022-10-012023-03-3100008667062024-03-3100008667062024-01-012024-03-310000866706srt:MinimumMember2023-10-012024-03-310000866706srt:MaximumMember2023-10-012024-03-310000866706ese:MpeLimitedMember2023-11-0900008667062024-04-3000008667062023-10-012024-03-31xbrli:sharesiso4217:USDxbrli:pureiso4217:USDxbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO            

COMMISSION FILE NUMBER 1-10596

ESCO TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

MISSOURI

43-1554045

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

9900A CLAYTON ROAD

ST. LOUIS, MISSOURI

63124-1186

(Address of principal executive offices)

(Zip Code)

(314) 213-7200

(Registrant’s telephone number, including area code)

Securities registered pursuant to section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ESE

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

    

Shares outstanding at April 30, 2024

Common stock, $.01 par value per share

 

25,751,055

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

Three Months Ended

March 31, 

    

2024

    

2023

Net sales

$

249,129

229,136

Costs and expenses:

Cost of sales

152,347

142,296

Selling, general and administrative expenses

55,097

53,877

Amortization of intangible assets

8,572

7,030

Interest expense, net

3,226

2,269

Other expenses, net

666

314

Total costs and expenses

219,908

205,786

Earnings before income taxes

29,221

23,350

Income tax expense

6,002

5,472

Net earnings

$

23,219

17,878

Earnings per share:

Basic - Net earnings

0.90

0.69

Diluted - Net earnings

$

0.90

0.69

See accompanying notes to consolidated financial statements.

2

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)

Six Months Ended

March 31,

    

2024

    

2023

Net sales

$

467,443

 

434,637

Costs and expenses:

 

  

 

 

  

Cost of sales

 

286,498

 

 

268,679

Selling, general and administrative expenses

 

109,065

 

 

105,179

Amortization of intangible assets

 

16,440

 

 

13,891

Interest expense, net

 

5,893

 

 

3,927

Other expenses, net

 

872

 

 

712

Total costs and expenses

 

418,768

 

 

392,388

 

 

 

Earnings before income taxes

 

48,675

 

 

42,249

Income tax expense

 

10,287

 

 

9,644

Net earnings

$

38,388

 

32,605

 

 

Earnings per share:

 

 

Basic — Net earnings

$

1.49

1.26

Diluted — Net earnings

$

1.49

1.26

See accompanying notes to consolidated financial statements.

3

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)

Three Months Ended

Six Months Ended

March 31, 

March 31, 

    

2024

    

2023

    

2024

    

2023

Net earnings

$

23,219

 

17,878

38,388

32,605

Other comprehensive income (loss), net of tax:

 

 

Foreign currency translation adjustments

 

(4,745)

 

2,233

4,669

13,747

Total other comprehensive income (loss), net of tax

 

(4,745)

 

2,233

4,669

13,747

Comprehensive income

$

18,474

 

20,111

43,057

46,352

See accompanying notes to consolidated financial statements.

4

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

March 31, 

September 30, 

    

2024

    

2023

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

59,436

 

41,866

Accounts receivable, net of allowance for credit losses of $2,260 and $2,264, respectively

 

187,535

 

198,557

Contract assets

 

139,303

 

138,633

Inventories

 

211,338

 

184,067

Other current assets

 

24,310

 

17,972

Total current assets

 

621,922

 

581,095

Property, plant and equipment, net of accumulated depreciation of $185,799 and $174,698, respectively

 

161,811

 

155,484

Intangible assets, net of accumulated amortization of $221,321 and $204,881, respectively

 

414,872

 

392,124

Goodwill

 

535,661

 

503,177

Operating lease assets

38,322

39,839

Other assets

 

11,603

 

11,495

Total assets

$

1,784,191

1,683,214

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Current maturities of long-term debt

$

20,000

20,000

Accounts payable

 

81,961

86,973

Contract liabilities

 

107,357

112,277

Accrued salaries

 

34,637

43,814

Accrued other expenses

 

44,975

51,587

Total current liabilities

 

288,930

314,651

Deferred tax liabilities

 

80,648

75,531

Non-current operating lease liabilities

35,444

36,554

Other liabilities

 

41,759

43,336

Long-term debt

 

171,000

82,000

Total liabilities

 

617,781

552,072

Shareholders’ equity:

 

 

Preferred stock, par value $.01 per share, authorized 10,000,000 shares

 

 

Common stock, par value $.01 per share, authorized 50,000,000 shares, issued 30,807,826 and 30,781,699 shares, respectively

 

308

308

Additional paid-in capital

 

308,065

304,850

Retained earnings

 

1,023,578

989,315

Accumulated other comprehensive loss, net of tax

 

(19,300)

(23,969)

 

1,312,651

1,270,504

Less treasury stock, at cost: 5,048,645 and 4,995,414 common shares, respectively

 

(146,241)

(139,362)

Total shareholders’ equity

 

1,166,410

1,131,142

Total liabilities and shareholders’ equity

$

1,784,191

1,683,214

See accompanying notes to consolidated financial statements.

5

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

Six Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities:

 

  

 

  

Net earnings

$

38,388

 

32,605

Adjustments to reconcile net earnings to net cash provided (used) by operating activities:

 

 

Depreciation and amortization

 

27,555

24,910

Stock compensation expense

 

4,144

 

5,309

Changes in assets and liabilities

 

(47,869)

 

(67,140)

Effect of deferred taxes

(2,981)

(1,145)

Net cash provided (used) by operating activities

 

19,237

 

(5,461)

Cash flows from investing activities:

 

 

Acquisition of business, net of cash acquired

 

(56,179)

 

(17,901)

Additions to capitalized software and other

 

(5,912)

 

(5,918)

Capital expenditures

(16,301)

(10,305)

Net cash used by investing activities

 

(78,392)

 

(34,124)

Cash flows from financing activities:

 

 

Proceeds from long-term debt and short-term borrowings

 

154,000

 

68,000

Principal payments on long-term debt and short-term borrowings

 

(65,000)

(60,000)

Purchases of common stock into treasury

 

(7,189)

 

(12,217)

Dividends paid

 

(4,125)

 

(4,128)

Other

 

(1,432)

 

(2,374)

Net cash provided (used) by financing activities

76,254

(10,719)

Effect of exchange rate changes on cash and cash equivalents

471

801

Net increase (decrease) in cash and cash equivalents

17,570

(49,503)

Cash and cash equivalents, beginning of period

41,866

97,724

Cash and cash equivalents, end of period

$

59,436

48,221

 

 

Supplemental cash flow information:

 

 

Interest paid

$

5,097

 

3,384

Income taxes paid (including state and foreign)

 

18,228

 

13,346

See accompanying notes to consolidated financial statements.

6

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    BASIS OF PRESENTATION

The accompanying consolidated financial statements, in the opinion of management, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. The consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all the disclosures required for annual financial statements by accounting principles generally accepted in the United States of America (GAAP).

The Company’s results for the three-month period ended March 31, 2024 are not necessarily indicative of the results for the entire 2024 fiscal year. References to the second quarters of 2024 and 2023 represent the fiscal quarters ended March 31, 2024 and 2023, respectively. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates.

2.    EARNINGS PER SHARE (EPS)

Basic EPS is calculated using the weighted average number of common shares outstanding during the period. Diluted EPS is calculated using the weighted average number of common shares outstanding during the period plus shares issuable upon the assumed exercise of dilutive common share options and vesting of restricted shares by using the treasury stock method. The number of shares used in the calculation of earnings per share for each period presented is as follows (in thousands):

    

Three Months

Six Months

Ended March 31, 

Ended March 31, 

    

2024

    

2023

    

2024

    

2023

Weighted Average Shares Outstanding — Basic

 

25,792

25,800

25,794

25,831

Dilutive Restricted Shares

55

95

52

88

Adjusted Shares — Diluted

 

25,847

25,895

25,846

25,919

3.    ACQUISITION

On November 9, 2023, the Company acquired MPE Limited (MPE), based in the United Kingdom, for a purchase price of approximately $56.2 million, net of cash acquired. MPE is a leading global manufacturer of high-performance EMC/EMP filters and capacitor products for military, utility, telecommunication, and other critical infrastructure applications. Since the date of acquisition, the operating results for the MPE business have been included as part of ETS-Lindgren in the Test segment. The acquisition date fair value of the assets acquired and liabilities assumed primarily were as follows: approximately $0.4 million of accounts receivable, $1.1 million of inventory, $1.7 million of property, plant and equipment, $0.7 million of accounts payable and accrued expenses, $7.8 million of deferred tax liabilities, and $31.1 million of identifiable intangible assets, mainly consisting of customer relationships totaling $29.1 million. The acquired goodwill of $30.3 million related to excess value associated with opportunities to expand the services and products that the Company can offer to its customers. The Company does not anticipate that the goodwill will be deductible for tax purposes.

4.    SHARE-BASED COMPENSATION

The Company provides compensation benefits to certain key employees under several share-based plans providing for performance-accelerated and/or time-vested restricted stock unit awards, and to non-employee directors under a separate compensation plan.

Performance-Accelerated Restricted Stock Unit (PARS) Awards and Time-Vested Restricted Stock Unit (RSU) Awards, and Performance Share Unit (PSU) Awards

Compensation expense related to these awards was $1.7 million and $3.5 million for the three and six-month periods ended March 31, 2024, respectively, and $3.1 million and $4.7 million for the corresponding periods in 2023. As of March 31, 2024, there were 226,674 unvested stock units outstanding.

7

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.3 million and $0.6 million for the three and six-month periods ended March 31, 2024, respectively, and $0.3 million and $0.6 million for the corresponding periods in 2023.

The total share-based compensation cost that has been recognized in the results of operations and included within selling, general and administrative expenses (SG&A) was $2.0 million and $4.1 million for the three and six-month periods ended March 31, 2024, respectively, and $3.4 million and $5.3 million for the corresponding periods in 2023. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.3 million and $0.5 million for the three and six-month periods ended March 31, 2024, respectively, and $0.3 million and $0.6 million for the corresponding periods in 2023. As of March 31, 2024, there was $13.1 million of total unrecognized compensation cost related to share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted-average period of 1.8 years.

5.    INVENTORIES

Inventories consist of the following:

March 31, 

September 30, 

(In thousands)

    

2024

    

2023

Finished goods

$

38,857

34,577

Work in process

54,889

42,178

Raw materials

117,592

107,312

Total inventories

$

211,338

184,067

6.

GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s Consolidated Balance Sheets at March 31, 2024 and September 30, 2023 are the following intangible assets gross carrying amounts and accumulated amortization:

    

March 31, 

    

September 30, 

(Dollars in thousands)

    

2024

    

2023

Goodwill

$

535,661

503,177

 

Intangible assets with determinable lives:

 

Patents

 

Gross carrying amount

$

2,516

2,516

Less: accumulated amortization

 

1,287

1,218

Net

$

1,229

1,298

 

Capitalized software

 

Gross carrying amount

$

128,042

121,883

Less: accumulated amortization

 

86,622

80,774

Net

$

41,420

41,109

 

Customer relationships

 

Gross carrying amount

$

327,695

296,927

Less: accumulated amortization

 

122,542

113,311

Net

$

205,153

183,616

 

Other

 

Gross carrying amount

$

15,144

14,232

Less: accumulated amortization

 

10,870

9,578

Net

$

4,274

4,654

Intangible assets with indefinite lives:

 

Trade names

$

162,796

161,447

8

The changes in the carrying amount of goodwill attributable to each business segment for the six months ended March 31, 2024 is as follows:

Aerospace

(Dollars in millions)

    

USG

    

Test

    

& Defense

    

Total

Balance as of September 30, 2023

$

353.6

 

34.0

 

115.6

 

503.2

Acquisition activity

30.3

30.3

Foreign currency translation

1.4

0.8

2.2

Balance as of March 31, 2024

$

355.0

65.1

115.6

535.7

7.    BUSINESS SEGMENT INFORMATION

The Company is organized based on the products and services that it offers and classifies its continuing business operations in three reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG), and RF Test and Measurement (Test).

The Aerospace & Defense segment’s operations consist of PTI Technologies Inc. (PTI), VACCO Industries (VACCO), Crissair, Inc. (Crissair), Globe Composite Solutions, LLC (Globe) and Mayday Manufacturing Co. (Mayday). The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements and fluid control devices used in aerospace and defense applications; unique filter mechanisms used in micro-propulsion devices for satellites, custom designed filters for manned aircraft and submarines; products and systems to reduce vibration and/or acoustic signatures and otherwise reduce or obscure a vessel’s signature, and other communications, sealing, surface control and hydrodynamic related applications to enhance U.S. Navy maritime survivability; precision-tolerance machined components for the aerospace and defense industry; metal processing services; and miniature electro-explosive devices utilized in mission-critical defense and aerospace applications.

The USG segment’s operations consist primarily of Doble Engineering Company and related subsidiaries including Morgan Schaffer and Altanova (collectively, Doble), and NRG Systems, Inc. (NRG). Doble is an industry leader in the development, manufacture and delivery of diagnostic testing solutions that enable electric power grid operators to assess the integrity of high voltage power delivery equipment. It combines three core elements for customers – diagnostic test and condition monitoring instruments, expert consulting, and testing services – and provides access to its large reserve of related empirical knowledge. NRG is a global market leader in the design and manufacture of decision support tools for the renewable energy industry, primarily wind and solar.

The Test segment’s operations consist primarily of ETS-Lindgren Inc. and related subsidiaries (ETS-Lindgren). ETS-Lindgren is an industry leader in designing and manufacturing products and systems to measure and control RF and acoustic energy. It serves the acoustics, medical, health and safety, electronics, wireless communications, automotive and defense markets, supplying a broad range of turnkey systems, including RF test facilities and measurement systems, acoustic test enclosures, RF and magnetically shielded rooms and secure communication facilities, and providing the design, program management, installation and integration services required to successfully complete these types of facilities. It also provides a broad range of components including RF absorptive materials, filters, antennas, field probes, test cells, proprietary measurement software and other test accessories required to perform a variety of tests and measurements, and offers a variety of services including calibration and product tests.

9

Management evaluates and measures the performance of its reportable segments based on “Net Sales” and “EBIT”, which are detailed in the table below. EBIT is defined as earnings before interest and taxes.

Three Months

Six Months

Ended March 31, 

Ended March 31, 

(In thousands)

    

2024

    

2023

    

2024

    

2023

NET SALES

  

  

Aerospace & Defense

$

114,701

98,982

209,434

181,965

USG

87,309

79,161

170,293

150,206

Test

47,119

50,993

87,716

102,466

Consolidated totals

$

249,129

229,136

467,443

434,637

EBIT

Aerospace & Defense

$

23,377

18,795

40,040

31,331

USG

17,575

14,061

35,200

30,192

Test

5,542

7,226

7,321

12,637

Corporate (loss)

(14,047)

(14,463)

(27,993)

(27,984)

Consolidated EBIT

32,447

25,619

54,568

46,176

Less: Interest expense

(3,226)

(2,269)

(5,893)

(3,927)

Earnings before income taxes

$

29,221

23,350

48,675

42,249

Non-GAAP Financial Measures

The financial measure “EBIT” is presented in the above table and elsewhere in this Report. EBIT on a consolidated basis is a non-GAAP financial measure. Management believes that EBIT is useful in assessing the operational profitability of the Company’s business segments because it excludes interest and taxes, 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. A reconciliation of EBIT to net earnings is set forth in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations – EBIT.

The Company believes that the presentation of EBIT provides important supplemental information to investors to facilitate comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. However, the Company’s non-GAAP financial measures may not be comparable to other companies’ non-GAAP financial performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.

8.    DEBT

The Company’s debt is summarized as follows:

    

March 31, 

September 30, 

(In thousands)

    

2024

    

2023

Total borrowings

$

191,000

102,000

Current portion of long-term debt

(20,000)

(20,000)

Total long-term debt, less current portion

$

171,000

82,000

The Credit Facility includes a $500 million revolving line of credit as well as provisions allowing for the increase of the credit facility commitment amount by an additional $250 million, if necessary, with the consent of the lenders. The bank syndication supporting the facility is comprised of a diverse group of seven banks led by JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and Commerce Bank and TD Bank, N.A. as co-documentation agents. The Credit Facility matures August 30, 2028, with balance due by this date.

At March 31, 2024, the Company had approximately $303 million available to borrow under the Credit Facility, plus the $250 million increase option subject to the lenders’ consent, in addition to $59.4 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of March 31, 2024, as the Company intends to repay this amount within the next twelve months; however, the Company no contractual obligation to repay such amount during the next twelve months. The letters of credit issued and outstanding under the Credit Facility totaled $5.8 million at March 31, 2024.

10

Interest on borrowings under the Credit Facility is calculated at a spread over either an Adjusted Term SOFR Rate, Adjusted EURIBOR Rate, Adjusted CDOR Rate, Alternate Base Rate or Daily Simple RFR, at the Company’s election. The Credit Facility also requires a facility fee ranging from 12.5 to 25 basis points per annum on the unused portion. The interest rate spreads and the facility fee are subject to increase or decrease depending on the Company’s leverage ratio. The weighted average interest rates were 6.8% and 6.8% for the three and six-month periods ending March 31, 2024, respectively, and 6.0% and 5.3% for the three and six-month periods ending March 31, 2023. As of March 31, 2024, the Company was in compliance with all covenants.

9.    INCOME TAX EXPENSE

The second quarter 2024 effective income tax rate was 20.5% compared to 23.4% in the second quarter of 2023. The effective income tax rate in the first six months of 2024 was 21.1% compared to 22.8% for the first six months of 2023. Income tax expense in the second quarter and first six months of 2024 was favorably impacted by discrete events including the release of a foreign valuation allowance and excess tax benefit related to the vesting of share-based director compensation.    

10.    SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and six months of 2024 and 2023 is shown below (in thousands):

Three Months Ended March 31, 

Six Months Ended March 31, 

    

2024

    

2023

    

2024

    

2023

Common stock

Beginning balance

308

307

308

307

Stock plans

1

1

Ending balance

308

308

308

308

Additional paid-in-capital

Beginning balance

305,283

300,697

304,850

301,553

Stock plans

2,782

3,487

3,215

2,631

Ending balance

308,065

304,184

308,065

304,184

Retained earnings

Beginning balance

1,002,420

917,682

989,315

905,022

Net earnings common stockholders

23,219

17,878

38,388

32,605

Dividends paid

(2,061)

(2,061)

(4,125)

(4,128)

Ending balance

1,023,578

933,499

1,023,578

933,499

Accumulated other comprehensive income (loss)

Beginning balance

(14,555)

(20,251)

(23,969)

(31,764)

Foreign currency translation

(4,745)

2,233

4,669

13,746

Ending balance

(19,300)

(18,018)

(19,300)

(18,018)

Treasury stock

Beginning balance

(139,362)

(132,037)

(139,362)

(126,961)

Share repurchases

(6,879)

(7,141)

(6,879)

(12,217)

Ending balance

(146,241)

(139,178)

(146,241)

(139,178)

Total equity

1,166,410

1,080,795

1,166,410

1,080,795

11.  FAIR VALUE MEASUREMENTS

The accounting guidance establishes a three-level hierarchy for disclosure of fair value measurements, based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date, as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

11

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

Financial Assets and Liabilities

The Company has estimated the fair value of its financial instruments as of March 31, 2024 and September 30, 2023 using available market information or other appropriate valuation methodologies. The carrying amounts of cash and cash equivalents, receivables, inventories, payables, and other current assets and liabilities approximate fair value because of the short maturity of those instruments.

Fair Value of Financial Instruments

The Company’s forward contracts and interest rate swaps are classified within Level 2 of the valuation hierarchy in accordance with FASB Accounting Standards Codification (ASC) 825, and are immaterial.

Nonfinancial Assets and Liabilities

The Company’s nonfinancial assets such as property, plant and equipment, and other intangible assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that an impairment may exist. No impairments were recorded during the three and six-month periods ended March 31, 2024.

12.  REVENUES

Disaggregation of Revenues

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2024 are presented in the tables below as the Company deems it best depicts how the nature, amount, timing and uncertainty of net sales and cash flows are affected by economic factors. The tables below also include a reconciliation of the disaggregated revenue within each reportable segment.

Three months ended March 31, 2024

Aerospace

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

Customer type:

 

  

 

  

 

  

 

  

Commercial

$

49,382

$

85,220

$

34,537

$

169,139

Government

65,319

2,089

12,582

79,990

Total revenues

$

114,701

$

87,309

$

47,119

$

249,129

Geographic location:

United States

$

92,161

$

55,763

$

27,543

$

175,467

International

22,540

31,546

19,576

73,662

Total revenues

$

114,701

$

87,309

$

47,119

$

249,129

Revenue recognition method:

Point in time

$

53,463

$

70,285

$

10,301

$

134,049

Over time

61,238

17,024

36,818

115,080

Total revenues

$

114,701

$

87,309

$

47,119

$

249,129

12

Six months ended March 31, 2024

    

Aerospace

    

    

    

    

    

    

(In thousands)

& Defense

USG

Test

Total

Customer type:

 

  

 

  

 

  

 

  

Commercial

$

86,591

$

166,689

$

69,615

$

322,895

Government

 

122,843

 

3,604

 

18,101

 

144,548

Total revenues

$

209,434

$

170,293

$

87,716

$

467,443

Geographic location:

 

  

 

  

 

  

 

  

United States

$

172,062

$

111,725

$

49,795

$

333,582

International

 

37,372

 

58,568

 

37,921

 

133,861

Total revenues

$

209,434

$

170,293

$

87,716

$

467,443

Revenue recognition method:

 

  

 

  

 

  

 

  

Point in time

$

92,928

$

136,989

$

18,280

$

248,197

Over time

 

116,506

 

33,304

 

69,436

 

219,246

Total revenues

$

209,434

$

170,293

$

87,716

$

467,443

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2023 are presented in the tables below.

Three months ended March 31, 2023

Aerospace

    

    

    

(In thousands)

    

& Defense

    

USG

    

Test

    

Total

Customer type:

Commercial

$

48,228

$

78,110

$

43,188

$

169,526

Government

50,754

1,051

7,805

59,610

Total revenues

$

98,982

$

79,161

$

50,993

$

229,136

Geographic location:

United States

$

82,516

$

53,020

$

27,504

$

163,040

International

16,466

26,141

23,489

66,096

Total revenues

$

98,982

$

79,161

$

50,993

$

229,136

Revenue recognition method:

Point in time

$

47,255

$

64,080

$

11,968

$

123,303

Over time

51,727

15,081

39,025

105,833

Total revenues

$

98,982

$

79,161

$

50,993

$

229,136

Six months ended March 31, 2023

    

Aerospace

    

    

    

    

    

    

(In thousands)

& Defense

USG

Test

Total

Customer type:

 

  

 

  

 

  

 

  

Commercial

$

84,968

$

148,273

$

89,180

$

322,421

Government

 

96,997

 

1,933

 

13,286

 

112,216

Total revenues

$

181,965

$

150,206

$

102,466

$

434,637

Geographic location:

 

  

 

  

 

  

 

  

United States

$

151,450

$

99,399

$

55,007

$

305,856

International

 

30,515

 

50,807

 

47,459

 

128,781

Total revenues

$

181,965

$

150,206

$

102,466

$

434,637

Revenue recognition method:

 

  

 

  

 

  

 

  

Point in time

$

80,859

$

120,111

$

21,069