Esco Technologies Inc 10-Q for FY2023 Q3

About this 10-Q

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Esco Technologies Inc (ESE)

10-Q 2023-08-09 For: 2023-06-30

Added on April 04, 2026

Esco Technologies Inc filed this 10-Q on August 9, 2023, covering the quarter ended June 30, 2023 (FY2023 Q3).

ESCO TECHNOLOGIES INC.

AGREED TO AND ACCEPTED:

Vice President

Participant (sign by typing your name)

Date Signed:

Date Signed:

Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $248.75M; up 13.5% from $219.07M a year earlier
Net income: $27.94M; up 20.6% from net income of $23.17M a year earlier
Diluted EPS: $1.08; up 21.3% from $0.89 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)

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐


Class		Shares outstanding at July 31, 2023
Common stock, $.01 par value per share		25,782,563


	Three Months Ended
	June 30,
	2023		2022

Net sales	$	248,749	219,066
Costs and expenses:
Cost of sales		147,274	134,454
Selling, general and administrative expenses		55,376	47,479
Amortization of intangible assets		7,132	6,406
Interest expense, net		2,495	1,331
Other expenses (income), net		966	(106)
Total costs and expenses		213,243	189,564

Earnings before income taxes		35,506	29,502
Income tax expense		7,563	6,329
Net earnings	$	27,943	23,173

Earnings per share:
Basic - Net earnings		1.08	0.90

Diluted - Net earnings	$	1.08	0.89



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023


☐	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,
	2023		2022

Net sales	$	683,386		601,004
Costs and expenses:
Cost of sales		415,953		371,134
Selling, general and administrative expenses		160,555		142,073
Amortization of intangible assets		21,023		19,383
Interest expense, net		6,422		3,084
Other expenses (income), net		1,678		(677)
Total costs and expenses		605,631		534,997

Earnings before income taxes		77,755		66,007
Income tax expense		17,207		14,727
Net earnings	$	60,548		51,280

Earnings per share:
Basic — Net earnings	$	2.35		1.98

Diluted — Net earnings	$	2.34		1.97


	June 30,		September 30,
	2023		2022
ASSETS
Current assets:
Cash and cash equivalents	$	56,052		97,724
Accounts receivable, net of allowance for credit losses of $3,112 and $2,612, respectively		192,146		164,645
Contract assets		128,284		125,154
Inventories		192,493		162,403
Other current assets		24,847		22,696
Total current assets		593,822		572,622
Property, plant and equipment, net of accumulated depreciation of $171,569 and $165,322, respectively		155,337		155,973
Intangible assets, net of accumulated amortization of $196,951 and $175,928, respectively		398,418		394,464
Goodwill		505,590		492,709
Operating lease assets		40,314		29,150
Other assets		10,028		9,538
Total assets	$	1,703,509		1,654,456

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	20,000		20,000
Accounts payable		76,761		78,746
Contract liabilities		122,526		125,009
Accrued salaries		38,428		40,572
Accrued other expenses		51,236		53,802
Total current liabilities		308,951		318,129
Deferred tax liabilities		78,585		82,023
Non-current operating lease liabilities		36,815		24,853
Other liabilities		44,115		48,294
Long-term debt		128,000		133,000
Total liabilities		596,466		606,299
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 30,751,449 and 30,707,748 shares, respectively		308		307
Additional paid-in capital		305,555		301,553
Retained earnings		959,381		905,022
Accumulated other comprehensive loss, net of tax		(18,839)		(31,764)
		1,246,405		1,175,118
Less treasury stock, at cost: 4,995,414 and 4,854,997 common shares, respectively		(139,362)		(126,961)
Total shareholders’ equity		1,107,043		1,048,157
Total liabilities and shareholders’ equity	$	1,703,509		1,654,456


	Three Months		Nine Months
	Ended June 30,		Ended June 30,
	2023	2022	2023	2022
Weighted Average Shares Outstanding — Basic	25,757	25,856	25,808	25,959
Dilutive Restricted Shares	70	94	82	91
Adjusted Shares — Diluted	25,827	25,950	25,890	26,050


	June 30,		September 30,
(In thousands)	2023		2022
Finished goods	$	37,082	32,471
Work in process		48,579	38,492
Raw materials		106,832	91,440
Total inventories	$	192,493	162,403


	June 30,		September 30,
(Dollars in thousands)	2023		2022
Goodwill	$	505,590	492,709

Intangible assets with determinable lives:
Patents
Gross carrying amount	$	2,433	2,353
Less: accumulated amortization		1,186	1,091
Net	$	1,247	1,262

Capitalized software
Gross carrying amount	$	118,529	106,583
Less: accumulated amortization		77,308	70,476
Net	$	41,221	36,107

Customer relationships
Gross carrying amount	$	298,110	287,447
Less: accumulated amortization		109,186	96,921
Net	$	188,924	190,526

Other
Gross carrying amount	$	14,345	13,985
Less: accumulated amortization		9,271	7,440
Net	$	5,074	6,545
Intangible assets with indefinite lives:
Trade names	$	161,952	160,024


					Aerospace
(Dollars in millions)	USG		Test		& Defense	Total
Balance as of September 30, 2022	$	348.7		34.0	110.0	492.7
Acquisition activity and adjustments		—		—	5.6	5.6
Foreign currency translation		7.3		—	—	7.3
Balance as of June 30, 2023	$	356.0		34.0	115.6	505.6


	Three Months Ended June 30,			Nine Months Ended June 30,
	2023		2022	2023	2022

Common stock
Beginning balance		308	307	307	307
Stock plans		—	—	1	—
Ending balance		308	307	308	307

Additional paid-in-capital
Beginning balance		304,184	298,353	301,553	297,644
Stock plans		1,371	1,510	4,002	2,219
Ending balance		305,555	299,863	305,555	299,863

Retained earnings
Beginning balance		933,499	854,946	905,022	830,989
Net earnings		27,943	23,173	60,548	51,280
Dividends paid		(2,061)	(2,069)	(6,189)	(6,219)
Ending balance		959,381	876,050	959,381	876,050

Accumulated other comprehensive income (loss)
Beginning balance		(18,018)	(7,472)	(31,764)	(2,161)
Foreign currency translation		(821)	(11,905)	12,925	(17,216)
Ending balance		(18,839)	(19,377)	(18,839)	(19,377)

Treasury stock
Beginning balance		(139,178)	(124,961)	(126,961)	(107,083)
Share repurchases		(184)	(2,000)	(12,401)	(19,878)
Ending balance		(139,362)	(126,961)	(139,362)	(126,961)

Total equity		1,107,043	1,029,882	1,107,043	1,029,882


Three months ended June 30, 2023	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	51,303	$	88,442	$	48,407	$	188,152
Government		52,166		1,524		6,907		60,597
Total revenues	$	103,469	$	89,966	$	55,314	$	248,749

Geographic location:
United States	$	86,031	$	55,011	$	32,246	$	173,288
International		17,438		34,955		23,068		75,461
Total revenues	$	103,469	$	89,966	$	55,314	$	248,749

Revenue recognition method:
Point in time	$	48,496	$	74,128	$	11,496	$	134,120
Over time		54,973		15,838		43,818		114,629
Total revenues	$	103,469	$	89,966	$	55,314	$	248,749


	Nine Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net earnings	$	60,548	51,280
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		37,699	36,247
Stock compensation expense		7,007	5,318
Changes in assets and liabilities		(72,346)	(60,172)
Effect of deferred taxes		(3,706)	9,020
Net cash provided by operating activities		29,202	41,693
Cash flows from investing activities:
Acquisition of business, net of cash acquired		(17,694)	(15,592)
Additions to capitalized software and other		(9,263)	(9,359)
Capital expenditures		(16,993)	(25,893)
Net cash used by investing activities		(43,950)	(50,844)
Cash flows from financing activities:
Proceeds from long-term debt and short-term borrowings		88,000	111,000
Principal payments on long-term debt and short-term borrowings		(93,000)	(64,000)
Purchases of common stock into treasury		(12,401)	(19,878)
Dividends paid		(6,189)	(6,219)
Other		(2,557)	(2,787)
Net cash (used) provided by financing activities		(26,147)	18,116
Effect of exchange rate changes on cash and cash equivalents		(777)	(4,178)
Net (decrease) increase in cash and cash equivalents		(41,672)	4,787
Cash and cash equivalents, beginning of period		97,724	56,232
Cash and cash equivalents, end of period	$	56,052	61,019

Supplemental cash flow information:
Interest paid	$	5,564	1,685
Income taxes paid (including state and foreign)		18,313	5,574


	Three Months			Nine Months
	Ended June 30,			Ended June 30,
(In thousands)	2023		2022	2023	2022
NET SALES
Aerospace & Defense	$	103,469	92,606	285,434	247,671
USG		89,966	67,201	240,172	194,877
Test		55,314	59,259	157,780	158,456
Consolidated totals	$	248,749	219,066	683,386	601,004

EBIT
Aerospace & Defense	$	21,665	20,738	52,996	45,042
USG		20,351	13,135	50,543	37,840
Test		8,643	8,354	21,280	20,813
Corporate (loss)		(12,658)	(11,394)	(40,642)	(34,604)
Consolidated EBIT		38,001	30,833	84,177	69,091
Less: Interest expense		(2,495)	(1,331)	(6,422)	(3,084)
Earnings before income taxes	$	35,506	29,502	77,755	66,007


	Nine Months Ended			Nine Months Ended
	June 30,			June 30,
(Dollars in thousands)	2023			2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	5,172		$	4,521
Operating cash flows from finance leases		698			753
Financing cash flows from finance leases		991			971
Right-of-use assets obtained in exchange for operating lease liabilities		14,984			1,813

		June 30, 2023			June 30, 2022
Weighted-average remaining lease term
Operating leases		11.4	years		9.7	years
Finance leases		11.3	years		12.0	years
Weighted-average discount rate
Operating leases		4.42	%		3.12	%
Finance leases		4.62	%		4.59	%


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2023 (excluding the nine months ended June 30, 2023)	$	1,796	566
2024		6,458	2,315
2025		5,168	2,370
2026		4,300	2,434
2027 and thereafter		36,913	18,997
Total minimum lease payments		54,635	26,682
Less: amounts representing interest		12,570	6,491
Present value of net minimum lease payments	$	42,065	20,191
Less: current portion of lease obligations		5,250	1,415
Non-current portion of lease obligations		36,815	18,776

ROU assets	$	40,314	16,164


Nine months ended June 30, 2023	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	136,271	$	236,715	$	137,587	$	510,573
Government		149,163		3,457		20,193		172,813
Total revenues	$	285,434	$	240,172	$	157,780	$	683,386

Geographic location:
United States	$	237,481	$	154,410	$	87,253	$	479,144
International		47,953		85,762		70,527		204,242
Total revenues	$	285,434	$	240,172	$	157,780	$	683,386

Revenue recognition method:
Point in time	$	129,355	$	194,240	$	32,565	$	356,160
Over time		156,079		45,932		125,215		327,226
Total revenues	$	285,434	$	240,172	$	157,780	$	683,386


Three months ended June 30, 2022	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	38,918	$	65,610	$	54,449	$	158,977
Government		53,688		1,591		4,810		60,089
Total revenues	$	92,606	$	67,201	$	59,259	$	219,066

Geographic location:
United States	$	79,536	$	41,822	$	34,662	$	156,020
International		13,070		25,379		24,597		63,046
Total revenues	$	92,606	$	67,201	$	59,259	$	219,066

Revenue recognition method:
Point in time	$	35,238	$	53,656	$	15,827	$	104,721
Over time		57,368		13,545		43,432		114,345
Total revenues	$	92,606	$	67,201	$	59,259	$	219,066


Nine months ended June 30, 2022	Aerospace
(In thousands)	& Defense		USG		Test		Total
Customer type:
Commercial	$	100,407	$	191,832	$	147,390	$	439,629
Government		147,264		3,045		11,066		161,375
Total revenues	$	247,671	$	194,877	$	158,456	$	601,004

Geographic location:
United States	$	212,849	$	122,021	$	88,708	$	423,578
International		34,822		72,856		69,748		177,426
Total revenues	$	247,671	$	194,877	$	158,456	$	601,004

Revenue recognition method:
Point in time	$	99,464	$	155,693	$	43,488	$	298,645
Over time		148,207		39,184		114,968		302,359
Total revenues	$	247,671	$	194,877	$	158,456	$	601,004


	Nine Months		Nine Months
	Ended		Ended
	June 30,		June 30,
(Dollars in thousands)	2023		2022
Finance lease cost
Amortization of right-of-use assets	$	1,179	$	1,219
Interest on lease liabilities		698		753
Operating lease cost		5,356		4,731
Total lease costs	$	7,233	$	6,703


				Total Number of	Approximate Dollar
				Shares Purchased as	Value of Shares that
	Total Number	Average		Part of Publicly	May Yet Be
	of Shares	Price Paid		Announced Plans	Purchased Under the
Period	Purchased	per Share		or Programs	Plans or Programs
April 1-30, 2023	—	$	N/A	—	$	167.8 million
May 1-31, 2023	1,742	$	89.98	1,742	$	167.6 million
June 1-30, 2023	300	$	89.83	300	$	167.6 million
Total	2,042	$	89.95	2,042	$	167.6 million

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

3.2	Bylaws	Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022

4.2	Amendment No. 2 dated as of March 13, 2023 to Credit Agreement dated as of September 27, 2019 among ESCO Technologies Inc., the Foreign Subsidiary Borrowers party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, BMO Harris Bank N.A. as Syndication Agent, and Bank of America, N.A., SunTrust Bank, U.S. Bank National Association and Wells Fargo Bank, National Association as Co-Documentation Agents	Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2023

10.1	Form of Restricted Stock Unit (RSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (2023)	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, 2023

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


	/s/ Bryan H. Sayler
	Bryan H. Sayler
	President and Chief Executive Officer