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ESCO Reports First Quarter Fiscal 2023 Results

- Q1 GAAP EPS $0.57 - Adjusted EPS $0.60 - Q1 Sales increase 16% to $206 Million - $229 Million in Q1 Orders - Book-to-bill of 1.11x -

/EIN News/ -- St. Louis, Feb. 08, 2023 (GLOBE NEWSWIRE) -- ESCO Technologies Inc. (NYSE: ESE) (ESCO, or the Company) today reported its operating results for the first quarter ended December 31, 2022 (Q1 2023).

Operating Highlights

  • Q1 2023 GAAP EPS increased 30 percent to $0.57 per share compared to $0.44 per share in Q1 2022. Q1 2023 Adjusted EPS also increased 30 percent to $0.60 per share compared to $0.46 per share in Q1 2022.
  • Q1 2023 Sales increased $28.5 million (16.1 percent) to $205.5 million compared to $177.0 million in Q1 2022.
  • Q1 2023 Entered Orders increased $4.5 million (2 percent) over the prior year period to $228.9 million (book-to-bill of 1.11x), resulting in record backlog of $718 million.
  • Net cash used by operating activities was $9 million in Q1 2023, as cash flow was negatively impacted by higher inventory related to increased backlog, lower accrued expenses related to the timing of payments in the quarter, and the effect of deferred taxes.  
  • Net debt (total borrowings less cash on hand) was $80 million, resulting in a 0.72x leverage ratio and $610 million in liquidity at December 31, 2022.

Bryan Sayler, Chief Executive Officer and President, commented, “Our fiscal year got off to a strong start with double digit revenue growth and improved operating margins across all three of our business segments. We saw broad strength across our end-markets, highlighted by 30 percent growth in commercial aerospace and 45 percent growth in renewables revenue compared to the prior year. While we continue to feel some pressures related to supply chain performance and labor shortages, our teams across the Company are navigating those challenges well and have executed at a high level.

“We had another solid quarter for entered orders, driven by strength across our commercial aerospace, Navy, electric utility, and renewables end-markets. With $229 million in orders and a book-to-bill of 1.11x, our record ending backlog of $718 million gives us confidence as we work toward delivering the guidance for 2023 that was communicated in November.”

Segment Performance

Aerospace & Defense (A&D)

  • Sales increased $12.8 million (18 percent) to $83.0 million in Q1 2023 from $70.2 million in Q1 2022. Revenues were strong across all end-markets, led by commercial aerospace sales which increased $6.9 million (30 percent) to $30.0 million in the quarter.   In addition, sales to defense aerospace, Navy, and space markets also achieved double digit growth compared to the prior year Q1.  
  • Q1 2023 EBIT increased $2.5 million to $12.5 million from $10.0 million in Q1 2022. Adjusted EBIT also increased $2.5 million in Q1 2023 to $12.7 million (15.3 percent margin) from $10.2 million (14.4 percent margin) in Q1 2022.
  • Entered Orders increased $7 million (8 percent) to $97 million in Q1 2023 compared to $90 million in Q1 2022.   The increase in orders was driven by Columbia and Virginia Class funding and a strong quarter for Navy spares. The orders strength in the quarter resulted in a segment book-to-bill of 1.17x and record ending backlog of $423 million.

Utility Solutions Group (USG)

  • Sales increased $7.5 million (12 percent) to $71.0 million in Q1 2023 from $63.5 million in Q1 2022. Doble’s sales increased by $3.0 million (6 percent) driven by a strong quarter for protection testing, both instruments and PowerBase™ software.   NRG sales increased $4.5 million (45 percent) on continued strength in the renewables end-market.  
  • EBIT increased $2.7 million in Q1 2023 to $16.1 million from $13.4 million in Q1 2022. There were no adjustments to Q1 2023 EBIT of $16.1 million (22.7 percent margin), which increased $2.3 million from Q1 2022 Adjusted EBIT of $13.8 million (21.8 percent margin).
  • Entered Orders increased $14 million (21 percent) to $80 million in Q1 2023. The orders growth was primarily driven by a $10 million (18 percent) increase at Doble related to strong calendar year-end utility spending. Continuing strength in protection testing (hardware and software) and condition monitoring and services opportunities driven by Altanova in EMEA contributed to the orders growth in the quarter. NRG orders increased by $4 million (35 percent) related to continuing strength in wind and solar. USG’s book-to-bill of 1.13x in the quarter resulted in ending backlog of $137 million.

Test

  • Sales increased $8.2 million (19 percent) to $51.5 million in Q1 2023 from $43.3 million in Q1 2022, primarily due to increased test and measurement projects in the U.S and Europe and domestic medical shielding.
  • EBIT increased $1.4 million in Q1 2023 to $5.4 million (10.5 percent margin) from $4.0 million (9.2 percent margin) in Q1 2022.   There were no adjustments in either year for the Test segment.  
  • Entered Orders decreased $16.4 million to $51.5 million in Q1 2023 compared to $67.9 million in Q1 2022. The decrease was due to large orders related to power filters and test and measurement projects in the U.S. and China in the prior year quarter. Test’s book-to-bill of 1.0x resulted in flat ending backlog of $159 million compared to the prior year end.

Share Repurchase Program
During Q1 2023, the Company repurchased approximately 58,000 shares for $5.1 million, of which $4.1 million was paid in the quarter and the remainder settled in January, 2023.

Dividend Payment
The next quarterly cash dividend of $0.08 per share will be paid on April 18, 2023 to stockholders of record on April 3, 2023.

Business Outlook – 2023
Management’s expectations for 2023 remain consistent with the details outlined in our November 17, 2022, release.  Our 2023 guidance represents mid-single digit revenue growth driving Adjusted EBIT and Adjusted EBITDA margin expansion, despite continuing inflationary pressures and higher interest rates.

The strength of our Q1 results gives us added confidence in our 2023 forecast and we are narrowing our full year guidance to $3.50 to $3.60. Consistent with prior years, revenues and Adjusted EPS are expected to grow sequentially throughout the year. Our expectation is for Q2 Adjusted EPS to be in the range of $0.68 to $0.74 per share.  

Acquisition Update
On February 1, 2023, the Company acquired CMT Materials, LLC and its affiliate Engineered Syntactic Systems, LLC (CMT). CMT, based in Attleboro, Massachusetts, is a leading supplier of syntactic materials for buoyancy and specialty applications. They are experts in designing and manufacturing custom syntactic foam components and systems, which are utilized in industrial, oceanographic, military, and naval applications.   CMT brings proprietary technology and capabilities to our A&D business and will strengthen our offerings on underwater platforms for the Navy. The business has annualized sales of approximately $15 million and will become part of Globe Composite Solutions within our A&D segment.

Conference Call
The Company will host a conference call today, February 8, at 4:00 p.m. Central Time, to discuss the Company’s Q1 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 guidance for 2023 including revenues, revenue growth, 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 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 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.

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
December 31,
2022
  Three Months
Ended
December 31,
2021
 
                 
Net Sales   $ 205,501   177,010  
Cost and Expenses:          
  Cost of sales   126,383   108,305  
  Selling, general and administrative expenses   51,302   46,635  
  Amortization of intangible assets   6,861   6,467  
  Interest expense   1,658   733  
  Other expenses, net   398   33  
    Total costs and expenses   186,602   162,173  
                 
Earnings before income taxes   18,899   14,837  
Income tax expense   4,172   3,313  
                 
    Net earnings $ 14,727   11,524  
                 
    Diluted - GAAP $ 0.57   0.44  
                 
    Diluted - As Adjusted Basis $ 0.60 (1 ) 0.46 (2 )
                 
    Diluted average common shares O/S:   25,943   26,142  
                 
(1 ) Q1 2023 Adjusted EPS excludes $0.03 per share of after-tax charges associated with executive management transition costs at Corporate and restructuring charges within the A&D segment.
                 
(2 ) Q1 2022 Adjusted EPS excludes $0.02 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  
        Q1 2023   Q1 2022   Q1 2023   Q1 2022  
Net Sales                  
  Aerospace & Defense $ 82,983     70,244     82,983     70,244    
  USG   71,045     63,485     71,045     63,485    
  Test   51,473     43,281     51,473     43,281    
    Totals $ 205,501     177,010     205,501     177,010    
                       
EBIT                    
  Aerospace & Defense $ 12,536     9,955     12,735     10,150    
  USG   16,131     13,391     16,131     13,841    
  Test   5,411     3,965     5,411     3,965    
  Corporate   (13,521 )   (11,741 )   (12,728 )   (11,561 )  
    Consolidated EBIT   20,557     15,570     21,549     16,395    
    Less: Interest expense   (1,658 )   (733 )   (1,658 )   (733 )  
    Less: Income tax expense   (4,172 )   (3,313 )   (4,400 )   (3,503 )  
    Net earnings $ 14,727     11,524     15,491     12,159    
                       
Note 1: Adjusted net earnings were $15.5 million in Q1 2023 which excludes $0.03 per share of after-tax charges associated with executive management transition costs at Corporate and restructuring charges within the A&D segment.
                       
Note 2: Adjusted net earnings were $12.2 million in Q1 2022 which excludes $0.02 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:         Q1 2023   Q1 2022  
        Q1 2023   Q1 2022   - As Adj   - As Adj  
Consolidated EBITDA $ 32,924     27,742     33,916     28,567    
Less: Depr & Amort   (12,367 )   (12,172 )   (12,367 )   (12,172 )  
Consolidated EBIT   20,557     15,570     21,549     16,395    
Less: Interest expense   (1,658 )   (733 )   (1,658 )   (733 )  
Less: Income tax expense   (4,172 )   (3,313 )   (4,400 )   (3,503 )  
Net earnings $ 14,727     11,524     15,491     12,159    
                       

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
   
        December 31,
2022
  September 30,
2022
             
Assets          
  Cash and cash equivalents $ 51,922   97,724
  Accounts receivable, net   159,658   164,645
  Contract assets   122,518   125,154
  Inventories   181,743   162,403
  Other current assets   18,930   22,696
    Total current assets   534,771   572,622
  Property, plant and equipment, net   155,722   155,973
  Intangible assets, net   394,824   394,464
  Goodwill   498,383   492,709
  Operating lease assets   42,156   29,150
  Other assets   10,133   9,538
      $ 1,635,989   1,654,456
             
Liabilities and Shareholders' Equity        
  Current maturities of long-term debt $ 20,000   20,000
  Accounts payable   73,770   78,746
  Contract liabilities   121,220   125,009
  Other current liabilities   77,770   94,374
    Total current liabilities   292,760   318,129
  Deferred tax liabilities   81,213   82,023
  Non-current operating lease liabilities   38,346   24,853
  Other liabilities   45,272   48,294
  Long-term debt   112,000   133,000
  Shareholders' equity   1,066,398   1,048,157
      $ 1,635,989   1,654,456

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
       
    Quarter Ended December 31, 2022   Quarter Ended December 31, 2021
Cash flows from operating activities:        
Net earnings $ 14,727     11,524  
Adjustments to reconcile net earnings to net cash        
provided by operating activities:        
Depreciation and amortization   12,367     12,172  
Stock compensation expense   1,860     1,685  
Changes in assets and liabilities   (36,920 )   (30,837 )
Effect of deferred taxes   (1,042 )   7,402  
Net cash (used) provided by operating activities   (9,008 )   1,946  
         
Cash flows from investing activities:        
Acquisition of business, net of cash acquired   -     (15,592 )
Capital expenditures   (4,791 )   (14,133 )
Additions to capitalized software   (2,795 )   (1,958 )
Net cash used by investing activities   (7,586 )   (31,683 )
         
Cash flows from financing activities:        
Proceeds from long-term debt   17,000     74,000  
Principal payments on long-term debt and short-term borrowings   (38,000 )   (30,000 )
Dividends paid   (2,067 )   (2,079 )
Purchases of common stock into treasury   (4,147 )   (9,997 )
Other   (2,412 )   (2,737 )
Net cash (used) provided by financing activities   (29,626 )   29,187  
         
Effect of exchange rate changes on cash and cash equivalents   418     33  
         
Net decrease in cash and cash equivalents   (45,802 )   (517 )
Cash and cash equivalents, beginning of period   97,724     56,232  
Cash and cash equivalents, end of period $ 51,922     55,715  

   
   

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Other Selected Financial Data (Unaudited)
(Dollars in thousands)
   
Backlog And Entered Orders - Q1 2023   Aerospace & Defense   USG   Test   Total
  Beginning Backlog - 10/1/22 $ 408,269     128,156     158,597     695,022  
  Entered Orders   97,265     80,175     51,460     228,900  
  Sales     (82,983 )   (71,045 )   (51,473 )   (205,501 )
  Ending Backlog - 12/31/22 $ 422,551     137,286     158,584     718,421  

   
    

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures (Unaudited)
         
EPS – Adjusted Basis Reconciliation – Q1 2023      
  EPS – GAAP Basis – Q1 2023 $ 0.57  
  Adjustments (defined below)   0.03  
  EPS – As Adjusted Basis – Q1 2023 $ 0.60  
         
  Adjustments exclude $0.03 per share consisting of executive management transition      
  costs at Corporate and restructuring charges within the A&D segment.      
  The $0.03 of EPS adjustments per share consists of $992K of pre-tax charges      
  offset by $228K of tax benefit for net impact of $764K.      
         
EPS – Adjusted Basis Reconciliation – Q1 2022      
  EPS – GAAP Basis – Q1 2022 $ 0.44  
  Adjustments (defined below)   0.02  
  EPS – As Adjusted Basis – Q1 2022 $ 0.46  
         
  Adjustments exclude $0.02 per share consisting of Altanova & Neco acquisition inventory  
  step-up charges and Corporate related acquisition costs in the first quarter of 2022.      
  The $0.02 of EPS adjustments per share consists of $825K of pre-tax charges      
  offset by $190K of tax benefit for net impact of $635K.      

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

   


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