Esco Technologies Inc 10-Q for FY2021 Q3

Esco Technologies Inc (ESE)

10-Q 2021-08-09 For: 2021-06-30

Added on April 04, 2026

About this 10-Q

Esco Technologies Inc filed this 10-Q on August 9, 2021, covering the quarter ended June 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $181.39M; up 5.1% from $172.67M a year earlier
Net income: $14.91M; down 20.2% from net income of $18.69M a year earlier
Diluted EPS: $0.57; down 20.8% from $0.72 a year earlier

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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)

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Stock, par value $0.01 per share	ESE	New York Stock Exchange



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Class		Shares outstanding at July 31, 2021
Common stock, $.01 par value per share		26,061,432


	Three Months Ended
	June 30,
	2021		2020

Net sales	$	181,394	172,665
Costs and expenses:
Cost of sales		113,610	107,686
Selling, general and administrative expenses		42,882	36,936
Amortization of intangible assets		4,864	5,535
Interest expense, net		480	1,523
Other expenses (income), net		615	(824)
Total costs and expenses		162,451	150,856

Earnings before income taxes		18,943	21,809
Income tax expense		4,034	3,122
Net earnings	$	14,909	18,687

Earnings per share:
Basic -
Net earnings		0.57	0.72

Diluted -
Net earnings	$	0.57	0.72



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021


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


	Nine Months Ended
	June 30,
	2021		2020

Net sales	$	509,962		524,885
Costs and expenses:
Cost of sales		316,785		327,655
Selling, general and administrative expenses		122,628		119,023
Amortization of intangible assets		14,729		16,565
Interest expense, net		1,453		5,264
Other (income) expenses, net		(1,265)		174
Total costs and expenses		454,330		468,681

Earnings before income taxes		55,632		56,204
Income tax expense		12,501		8,931
Earnings from continuing operations		43,131		47,273
Loss from discontinued operations, net of tax expense of $269		—		(601)
Gain on sale of discontinued operations, net of tax expense of $23,734		—		76,614
Earnings from discontinued operations		—		76,013

Net earnings	$	43,131		123,286

Earnings per share:
Basic — Continuing operations	$	1.66		1.82
— Discontinued operations		—		2.92
— Net earnings	$	1.66		4.74

Diluted — Continuing operations	$	1.65		1.81
— Discontinued operations		—		2.91
— Net earnings	$	1.65		4.72


	June 30,		September 30,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	78,359		52,560
Accounts receivable, net		135,343		144,082
Contract assets		94,768		94,302
Inventories, net		141,113		135,296
Other current assets		21,282		17,053
Total current assets		470,865		443,293
Property, plant and equipment, net of accumulated depreciation of $144,642 and $130,534, respectively		141,967		139,870
Intangible assets, net of accumulated amortization of $143,792 and $129,063, respectively		343,346		346,632
Goodwill		411,732		408,063
Operating lease assets		30,426		21,390
Other assets		10,347		10,938
Total assets	$	1,408,683		1,370,186

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt and short-term borrowings	$	20,000		22,368
Accounts payable		50,921		50,525
Contract liabilities		105,822		100,551
Accrued salaries		33,132		32,149
Accrued other expenses		43,517		50,436
Total current liabilities		253,392		256,029
Deferred tax liabilities		56,992		60,170
Non-current operating lease liabilities		26,458		16,785
Other liabilities		38,987		38,176
Long-term debt		28,000		40,000
Total liabilities		403,829		411,160
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 30,665,868 and 30,645,625 shares, respectively		307		306
Additional paid-in capital		296,578		293,682
Retained earnings		812,709		775,829
Accumulated other comprehensive income (loss), net of tax		2,343		(3,657)
		1,111,937		1,066,160
Less treasury stock, at cost: 4,604,741 and 4,607,911 common shares, respectively		(107,083)		(107,134)
Total shareholders’ equity		1,004,854		959,026
Total liabilities and shareholders’ equity	$	1,408,683		1,370,186


	Three Months		Nine Months
	Ended June 30,		Ended June 30,
	2021	2020	2021	2020
Weighted Average Shares Outstanding — Basic	26,045	26,031	26,040	26,002
Dilutive Options and Restricted Shares	169	103	159	128
Adjusted Shares — Diluted	26,214	26,134	26,199	26,130


	June 30,		September 30,
(In thousands)	2021		2020
Finished goods	$	28,732	28,471
Work in process		37,874	30,183
Raw materials		74,507	76,642
Total inventories	$	141,113	135,296


	June 30,		September 30,
(Dollars in thousands)	2021		2020
Goodwill	$	411,732	408,063

Intangible assets with determinable lives:
Patents
Gross carrying amount	$	2,144	2,092
Less: accumulated amortization		943	858
Net	$	1,201	1,234

Capitalized software
Gross carrying amount	$	91,388	84,888
Less: accumulated amortization		62,111	57,302
Net	$	29,277	27,586

Customer relationships
Gross carrying amount	$	229,385	227,178
Less: accumulated amortization		76,986	67,643
Net	$	152,399	159,535

Other
Gross carrying amount	$	5,358	5,156
Less: accumulated amortization		3,730	3,260
Net	$	1,628	1,896
Intangible assets with indefinite lives:
Trade names	$	158,841	156,381


				Aerospace
(Dollars in millions)	USG		Test	& Defense	Total
Balance as of September 30, 2020		271.9	34.1	102.1	408.1
Acquisition activity		—	—	2.2	2.2
Foreign currency translation		1.4	—	—	1.4
Balance as of June 30, 2021	$	273.3	34.1	104.3	411.7


	Three Months Ended June 30,		Nine Months Ended June 30,
	2021	2020	2021	2020

Common stock
Beginning balance	306	306	306	306
Stock plans	1	1	1	1
Ending balance	307	307	307	307

Additional paid-in-capital
Beginning balance	295,796	294,787	293,682	292,408
Stock plans	782	(2,156)	2,896	223
Ending balance	296,578	292,631	296,578	292,631

Retained earnings
Beginning balance	799,884	785,184	775,829	684,741
Net earnings common stockholders	14,909	18,687	43,131	123,286
Dividends paid	(2,084)	(2,084)	(6,251)	(6,240)
Ending balance	812,709	801,787	812,709	801,787

Accumulated other comprehensive income (loss)
Beginning balance	1,808	(46,936)	(3,657)	(43,974)
Foreign currency translation	535	2,802	6,000	(160)
Ending balance	2,343	(44,134)	2,343	(44,134)

Treasury stock
Beginning balance	(107,134)	(107,134)	(107,134)	(107,259)
Issued under stock plans	51	—	51	125
Ending balance	(107,083)	(107,134)	(107,083)	(107,134)

Total equity	1,004,854	943,457	1,004,854	943,457


(In thousands)	Level 1		Level 2		Level 3	Total
Assets (Liabilities):
Forward contracts	$	—	(27)	$	—	(27)


	Three Months			Nine Months
	Ended June 30,			Ended June 30,
(In thousands)	2021		2020	2021	2020
NET SALES
Aerospace & Defense	$	85,576	84,072	234,720	256,707
USG		47,704	42,577	141,799	139,179
Test		48,114	46,016	133,443	128,999
Consolidated totals	$	181,394	172,665	509,962	524,885

EBIT
Aerospace & Defense	$	16,714	17,409	41,980	51,658
USG		8,227	6,156	27,683	20,310
Test		6,751	7,177	17,781	17,483
Corporate (loss)		(12,269)	(7,410)	(30,359)	(27,983)
Consolidated EBIT		19,423	23,332	57,085	61,468
Less: Interest expense		(480)	(1,523)	(1,453)	(5,264)
Earnings before income taxes	$	18,943	21,809	55,632	56,204


Three months ended June 30, 2021	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	34,708	$	46,735	$	42,063	$	123,506
U.S. Government		50,868		969		6,051		57,888
Total revenues	$	85,576	$	47,704	$	48,114	$	181,394

Geographic location:
United States	$	75,701	$	32,111	$	27,719	$	135,531
International		9,875		15,593		20,395		45,863
Total revenues	$	85,576	$	47,704	$	48,114	$	181,394

Revenue recognition method:
Point in time	$	37,513	$	35,242	$	9,673	$	82,428
Over time		48,063		12,462		38,441		98,966
Total revenues	$	85,576	$	47,704	$	48,114	$	181,394


Nine months ended June 30, 2021	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	95,712	$	139,149	$	118,089	$	352,950
U.S. Government		139,008		2,650		15,354		157,012
Total revenues	$	234,720	$	141,799	$	133,443	$	509,962

Geographic location:
United States	$	205,527	$	96,601	$	73,950	$	376,078
International		29,193		45,198		59,493		133,884
Total revenues	$	234,720	$	141,799	$	133,443	$	509,962

Revenue recognition method:
Point in time	$	103,492	$	105,173	$	27,789	$	236,454
Over time		131,228		36,626		105,654		273,508
Total revenues	$	234,720	$	141,799	$	133,443	$	509,962


Three months ended June 30, 2020	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	37,485	$	39,740	$	38,737	$	115,962
U.S. Government		46,587		2,837		7,279		56,703
Total revenues	$	84,072	$	42,577	$	46,016	$	172,665

Geographic location:
United States	$	73,476	$	26,499	$	19,441	$	119,416
International		10,596		16,078		26,575		53,249
Total revenues	$	84,072	$	42,577	$	46,016	$	172,665

Revenue recognition method:
Point in time	$	36,461	$	27,765	$	9,138	$	73,364
Over time		47,611		14,812		36,878		99,301
Total revenues	$	84,072	$	42,577	$	46,016	$	172,665


Nine months ended June 30, 2020	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	130,817	$	135,711	$	107,931	$	374,459
U.S. Government		125,890		3,468		21,068		150,426
Total revenues	$	256,707	$	139,179	$	128,999	$	524,885

Geographic location:
United States	$	219,640	$	90,155	$	69,399	$	379,194
International		37,067		49,024		59,600		145,691
Total revenues	$	256,707	$	139,179	$	128,999	$	524,885

Revenue recognition method:
Point in time	$	118,660	$	100,289	$	26,157	$	245,106
Over time		138,047		38,890		102,842		279,779
Total revenues	$	256,707	$	139,179	$	128,999	$	524,885


	Nine Months		Nine Months
	Ended		Ended
	June 30,		June 30,
(Dollars in thousands)	2021		2020
Finance lease cost
Amortization of right-of-use assets	$	1,477	$	1,622
Interest on lease liabilities		929		970
Operating lease cost		4,347		4,399
Total lease costs	$	6,753	$	6,991


Weighted-average remaining lease term	June 30, 2021		June 30, 2020
Operating leases	10.31 years		6.64 years
Finance leases	11.86 years		12.76 years
Weighted-average discount rate
Operating leases	3.12	%	3.14	%
Finance leases	4.31	%	4.29	%


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2021 (excluding the nine months ended June 30, 2021)	$	1,378		739
2022		5,093		3,015
2023		4,324		3,098
2024		3,677		3,181
2025 and thereafter		21,976		28,285
Total minimum lease payments		36,448		38,318
Less: amounts representing interest		5,460		9,320
Present value of net minimum lease payments	$	30,988		28,998
Less: current portion of lease obligations		4,530		1,859
Non-current portion of lease obligations		26,458		27,139

ROU assets	$	30,426		24,689


	First Quarter		First Quarter	Second Quarter	Second Quarter
(Dollars in thousands, except per share amounts)	(As Reported)		(As Adjusted)	(As Reported)	(As Adjusted)

2021

Net sales	$	162,949	162,674	166,644	165,894
Cost of sales		98,777	99,622	103,113	103,553
Earnings before income taxes		17,660	16,540	21,339	20,149
Income tax expense		3,974	3,722	5,025	4,745
Net earnings		13,686	12,818	16,314	15,404

Diluted earnings (loss) per share:
Net earnings	$	0.52	0.49	0.62	0.59


	Fourth Quarter		Fourth Quarter
(Dollars in thousands, except per share amounts)	(As Reported		(As Adjusted)

2020

Net sales	$	208,030	205,586
Cost of sales		129,763	130,656
Loss before income taxes		(16,461)	(19,798)
Income tax expense		5,347	4,579
Net loss		(21,808)	(24,377)

Diluted earnings (loss) per share:
Net loss	$	(0.83)	(0.93)

Exhibit Number	Description	Document Location

3.1(a)	Restated Articles of Incorporation	Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999

3.1(b)	Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant	Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000

3.1(c)	Articles of Merger effective July 10, 2000	Exhibit 3(c) to the Company’s Form 10-Q for the fiscal quarter ended June 30, 2000

3.1(d)	Amendment of Articles of Incorporation effective February 5, 2018	Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018

10.1	Form of 2020 Award of Performance-Accelerated Restricted Shares to Executive Officers under 2018 Omnibus Incentive Plan	Filed herewith (Note: Awards substantially identical to the referenced Exhibit except in amount have been granted to Victor L. Richey and David M. Schatz; these awards have been omitted as separate exhibits pursuant to Rule 12b-31)

10.2	Form of Restricted Stock Unit Awards to Executive Officers under 2018 Omnibus Incentive Plan	Filed herewith (Note: Awards substantially identical to the referenced Exhibit except in amount have been granted to Victor L. Richey, Christopher L. Tucker and David M. Schatz; these awards have been omitted as separate exhibits pursuant to Rule 12b-31)

10.3	Employment Agreement with Victor L. Richey effective May 10, 2021	Filed herewith

10.4	Employment Agreement with Christopher L. Tucker effective April 30, 2021	Filed herewith

10.5	Employment Agreement with David M. Schatz effective April 30, 2021	Filed herewith

31.1	Certification of Chief Executive Officer	Filed herewith

31.2	Certification of Chief Financial Officer	Filed herewith

32	Certification of Chief Executive Officer and Chief Financial Officer	Filed herewith

101.INS	XBRL Instance Document*	Submitted herewith
101.SCH	XBRL Schema Document*	Submitted herewith
101.CAL	XBRL Calculation Linkbase Document*	Submitted herewith
101.DEF	XBRL Definition Linkbase Document*	Submitted herewith
101.LAB	XBRL Label Linkbase Document*	Submitted herewith
101.PRE	XBRL Presentation Linkbase Document*	Submitted herewith

104	Cover Page Interactive Data File (contained in Exhibit 101)	Submitted herewith

	ESCO TECHNOLOGIES INC.

	/s/ Christopher L. Tucker
	Christopher L. Tucker
	Senior Vice President and Chief Financial Officer
	(As duly authorized officer and principal accounting and
	financial officer of the registrant)

Dated: August 9, 2021


To:	_________ (“you”)
From:	Human Resources and Compensation Committee of the Board of Directors (the “Committee”)
Subject:	ESCO Technologies Inc. 2018 Omnibus Incentive Plan (“Plan”) – 2020 Award (“Award”)

Acceleration Period		Vesting Date
5/1/2022 – 4/30/2023		11/1/2023
5/1/2023 – 4/30/2024		11/1/2024
After 5/1/2024		5/1/2025


(A) If the 30-Day Average Value Per Share of Company Stock reaches at least:		(B) The Cumulative Percent of Award Accelerated shall be:
$85.91		100%
$80.31		50%


ESCO TECHNOLOGIES INC.			AGREED TO AND ACCEPTED:

By:	_________		_________
		Vice President	Participant


To:	________________ (“you”)
From:	Human Resources and Compensation Committee of the Board of Directors (the “Committee”)
Subject:	ESCO Technologies Inc. 2018 Omnibus Incentive Plan (“Plan”) – Fiscal 20__ Restricted Share Unit Award (“Award”)

/s/Christopher Tucker	/s/Victor L. Richey
	Chairman and CEO
April 30, 2021	May 3, 2021

Date: August 9, 2021
	/s/ Victor L. Richey
	Victor L. Richey
	Chairman, Chief Executive Officer and President