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 DECEMBER 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 January 31, 2025 |
Common stock, $.01 par value per share |
| 25,806,033 |
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 | |||
| | December 31, | |||
|
| 2024 |
| 2023 | |
Net sales | | $ | 247,026 | | 218,314 |
Costs and expenses: | | | | | |
Cost of sales | | | 148,642 | | 134,151 |
Selling, general and administrative expenses | | | 58,784 | | 53,968 |
Amortization of intangible assets | | | 7,993 | | 7,868 |
Interest expense, net | | | 2,257 | | 2,667 |
Other (income) expenses, net | | | (591) | | 206 |
Total costs and expenses | | | 217,085 | | 198,860 |
| | | | | |
Earnings before income taxes | | | 29,941 | | 19,454 |
Income tax expense | | | 6,468 | | 4,285 |
Net earnings | | $ | 23,473 | | 15,169 |
| | | | | |
Earnings per share: | | | | | |
Basic - Net earnings | | $ | 0.91 | | 0.59 |
| | | | | |
Diluted - Net earnings | | $ | 0.91 | | 0.59 |
See accompanying notes to consolidated financial statements.
2
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
| | | | | |
| | Three Months Ended | |||
| | December 31, | |||
|
| 2024 |
| 2023 | |
Net earnings | | $ | 23,473 |
| 15,169 |
Other comprehensive income (loss), net of tax: | |
| |
| |
Foreign currency translation adjustments | |
| (18,028) |
| 9,414 |
Total other comprehensive income (loss), net of tax | |
| (18,028) |
| 9,414 |
Comprehensive income | | $ | 5,445 |
| 24,583 |
See accompanying notes to consolidated financial statements.
3
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
| | | | | | |
| | December 31, | | September 30, | ||
|
| 2024 |
| 2024 | ||
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 71,284 |
| | 65,963 |
Accounts receivable, net of allowance for credit losses of $2,775 and $2,734, respectively | |
| 202,661 |
| | 240,680 |
Contract assets, net | |
| 131,404 |
| | 130,534 |
Inventories | |
| 219,383 |
| | 209,164 |
Other current assets | |
| 20,779 |
| | 22,308 |
Total current assets | |
| 645,511 |
| | 668,649 |
Property, plant and equipment, net of accumulated depreciation of $200,478 and $197,265, respectively | |
| 168,468 |
| | 170,596 |
Intangible assets, net of accumulated amortization of $245,595 and $237,686, respectively | |
| 396,302 |
| | 407,602 |
Goodwill | |
| 532,312 |
| | 539,899 |
Operating lease assets | | | 38,710 | | | 37,744 |
Other assets | |
| 13,761 |
| | 14,130 |
Total assets | | $ | 1,795,064 | | | 1,838,620 |
| |
| |
| | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| |
| | |
Current liabilities: | |
| |
| | |
Current maturities of long-term debt and short-term borrowings | | $ | 20,000 | | | 20,000 |
Accounts payable | |
| 75,881 | | | 98,371 |
Contract liabilities, net | |
| 129,737 | | | 124,845 |
Accrued salaries | |
| 39,991 | | | 47,651 |
Accrued other expenses | |
| 50,500 | | | 58,987 |
Total current liabilities | |
| 316,109 | | | 349,854 |
Deferred tax liabilities | |
| 75,520 | | | 75,333 |
Non-current operating lease liabilities | | | 36,400 | | | 34,810 |
Other liabilities | |
| 38,102 | | | 39,273 |
Long-term debt | |
| 92,000 | | | 102,000 |
Total liabilities | |
| 558,131 | | | 601,270 |
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 30,862,538 and 30,809,483 shares, respectively | |
| 309 | | | 308 |
Additional paid-in capital | |
| 308,143 | | | 311,942 |
Retained earnings | |
| 1,104,359 | | | 1,082,950 |
Accumulated other comprehensive loss, net of tax | |
| (28,803) | | | (10,775) |
| |
| 1,384,008 | | | 1,384,425 |
Less treasury stock, at cost: 5,056,771 and 5,056,771 common shares, respectively | |
| (147,075) | | | (147,075) |
Total shareholders’ equity | |
| 1,236,933 | | | 1,237,350 |
Total liabilities and shareholders’ equity | | $ | 1,795,064 | | | 1,838,620 |
See accompanying notes to consolidated financial statements.
4
ESCO TECHNOLOGIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| | | | | |
| | Three Months Ended | |||
| | December 31, | |||
|
| 2024 |
| 2023 | |
Cash flows from operating activities: |
| |
|
|
|
Net earnings | | $ | 23,473 | | 15,169 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | |
| |
| |
Depreciation and amortization | |
| 13,807 | | 13,452 |
Stock compensation expense | |
| 2,524 | | 2,180 |
Changes in assets and liabilities | |
| (7,151) | | (22,539) |
Effect of deferred taxes | | | 1,521 | | 484 |
Net cash provided by operating activities | |
| 34,174 | | 8,746 |
Cash flows from investing activities: | |
| |
| |
Acquisition of business, net of cash acquired | |
| — | | (56,179) |
Additions to capitalized software | |
| (2,587) | | (2,942) |
Capital expenditures | | | (5,208) | | (7,848) |
Net cash used by investing activities | |
| (7,795) | | (66,969) |
Cash flows from financing activities: | |
| |
| |
Proceeds from long-term debt and short-term borrowings | |
| 42,000 | | 99,000 |
Principal payments on long-term debt and short-term borrowings | |
| (52,000) | | (29,000) |
Dividends paid | | | (2,064) | | (2,064) |
Purchases of common stock into treasury | |
| — | | — |
Other | |
| (6,031) | | (1,432) |
Net cash provided (used) by financing activities | | | (18,095) | | 66,504 |
Effect of exchange rate changes on cash and cash equivalents | | | (2,963) | | 1,249 |
Net increase in cash and cash equivalents | | | 5,321 | | 9,530 |
Cash and cash equivalents, beginning of period | | | 65,963 | | 41,866 |
Cash and cash equivalents, end of period | | $ | 71,284 | | 51,396 |
| |
| |
| |
Supplemental cash flow information: | |
| |
| |
Interest paid | | $ | 2,567 | | 2,520 |
Income taxes paid | |
| 222 | | 246 |
See accompanying notes to consolidated financial statements.
5
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 December 31, 2024 are not necessarily indicative of the results for the entire 2025 fiscal year. References to the first quarters of 2025 and 2024 represent the fiscal quarters ended December 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 performance-based share unit awards and time-vested restricted share unit awards 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 | ||
| | Ended December 31, | ||
|
| 2024 |
| 2023 |
Weighted Average Shares Outstanding — Basic |
| 25,781 | | 25,797 |
Dilutive Restricted Shares | | 53 | | 49 |
Adjusted Shares — Diluted |
| 25,834 | | 25,846 |
3. SHARE-BASED COMPENSATION
The Company provides compensation benefits to certain key employees under several share-based plans providing for a combination of performance-based share unit (PSU) awards and time-vested restricted share unit (RSU) awards, and to non-employee directors under a separate compensation plan. Prior to fiscal 2021, the Company provided certain key employees with performance-accelerated restricted share (PARS) awards, the last of which vested during the first quarter of fiscal 2024.
RSU, PSU and PARS Awards
Compensation expense related to these awards was $2.2 million and $1.9 million for the three-month periods ended December 31, 2024 and 2023, respectively. There were 209,274 non-vested shares outstanding as of December 31, 2024.
Non-Employee Directors Plan
Compensation expense related to the non-employee director grants was $0.3 million and $0.3 million for the three-month periods ended December 31, 2024 and 2023, respectively.
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 $2.5 million and $2.2 million for the three-month periods ended December 31, 2024 and 2023, respectively. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.8 million and $0.2 million for the three-month periods ended December 31, 2024 and 2023, respectively. As of December 31, 2024 there was $17.7 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 2.0 years.
6
4. INVENTORIES
Inventories consist of the following:
| | | | | |
| | December 31, | | September 30, | |
(In thousands) |
| 2024 |
| 2024 | |
Finished goods | | $ | 53,839 | | 46,586 |
Work in process | | | 47,836 | | 47,903 |
Raw materials | | | 117,708 | | 114,675 |
Total inventories | | $ | 219,383 | | 209,164 |
5. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Included on the Company’s Consolidated Balance Sheets at December 31, 2024 and September 30, 2024 are the following intangible assets gross carrying amounts and accumulated amortization from continuing operations:
| | | | | |
|
| December 31, |
| September 30, | |
(Dollars in thousands) |
| 2024 |
| 2024 | |
Goodwill | | $ | 532,312 | | 539,899 |
| |
| | | |
Intangible assets with determinable lives: | |
| | | |
Patents | |
| | | |
Gross carrying amount | | $ | 2,635 | | 2,638 |
Less: accumulated amortization | |
| 1,467 | | 1,415 |
Net | | $ | 1,168 | | 1,223 |
| |
| | | |
Capitalized software | |
| | | |
Gross carrying amount | | $ | 136,634 | | 134,119 |
Less: accumulated amortization | |
| 95,844 | | 92,878 |
Net | | $ | 40,790 | | 41,241 |
| |
| | | |
Customer relationships | |
| | | |
Gross carrying amount | | $ | 326,027 | | 330,328 |
Less: accumulated amortization | |
| 136,922 | | 132,135 |
Net | | $ | 189,105 | | 198,193 |
| |
| | | |
Other | |
| | | |
Gross carrying amount | | $ | 14,917 | | 15,182 |
Less: accumulated amortization | |
| 11,361 | | 11,173 |
Net | | $ | 3,556 | | 4,009 |
Intangible assets with indefinite lives: | |
| | | |
Trade names | | $ | 161,683 | | 162,936 |
The changes in the carrying amount of goodwill attributable to each business segment for the three months ended December 31, 2024 are as follows:
| | | | | | | | | | |
| | | | | | | | | | |
(Dollars in millions) |
| USG |
| Test |
| A&D |
| Total | ||
Balance as of September 30, 2024 | | $ | 356.9 |
| | 67.4 |
| 115.6 |
| 539.9 |
Foreign currency translation | | | (5.5) | | | (2.1) | | — | | (7.6) |
Balance as of December 31, 2024 | | $ | 351.4 | | | 65.3 | | 115.6 | | 532.3 |
6. BUSINESS SEGMENT INFORMATION
The Company is organized based on the products and services that it offers and classifies its business operations in three reportable segments for financial reporting purposes: Aerospace & Defense (A&D), Utility Solutions Group (USG) and RF Test & Measurement (Test). The A&D 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
7
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 and data management 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.
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 | |||
| | Ended December 31, | |||
(In thousands) |
| 2024 |
| 2023 | |
NET SALES | | | | | |
A&D | | $ | 114,301 | | 94,733 |
USG | | | 86,660 | | 82,984 |
Test | | | 46,065 | | 40,597 |
Consolidated totals | | $ | 247,026 | | 218,314 |
| | | | | |
EBIT | | | | | |
A&D | | $ | 21,596 | | 16,663 |
USG | | | 20,489 | | 17,625 |
Test | | | 4,422 | | 1,779 |
Corporate (loss) | | | (14,309) | | (13,946) |
Consolidated EBIT | | | 32,198 | | 22,121 |
Less: Interest expense | | | (2,257) | | (2,667) |
Earnings before income taxes | | $ | 29,941 | | 19,454 |
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
8
performance measures. Furthermore, the use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.
7. DEBT
The Company’s debt is summarized as follows:
| | | | | |
|
| December 31, | | September 30, | |
(In thousands) |
| 2024 |
| 2024 | |
Total borrowings | | $ | 112,000 | | 122,000 |
Current portion of long-term debt | | | (20,000) | | (20,000) |
Total long-term debt, less current portion | | $ | 92,000 | | 102,000 |
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.
On August 5, 2024, the Company and certain of its subsidiaries entered into Amendment No. 1 (the “Amendment”) to the Credit Facility which, among other things, (i) implements a senior incremental delayed draw term loan credit facility in an aggregate principal amount of up to $375 million (the “Incremental Facility”), and (ii) permits the direct or indirect acquisition by the Registrant or certain of its subsidiaries of all the issued and outstanding shares of Ultra PMES Limited, Measurement Systems, Inc., EMS Development Corporation, and DNE Technologies, Inc. (the “SM&P Acquisition”), pursuant to and in accordance with the terms and conditions of that certain Sale and Purchase Agreement, dated July 8, 2024, among Ultra Electronics Holdings Limited, as parent seller, the Registrant, as guarantor, and certain of the Registrant’s subsidiaries as buyers. The proceeds of the loans drawn under the Incremental Facility will be applied to pay a portion of the cash consideration for the SM&P Acquisition and other customary fees, premiums, expenses and costs incurred in connection with the SM&P Acquisition.
At December 31, 2024, the Company had approximately $383 million available to borrow under the Credit Facility, excluding the Incremental Facility, plus the $250 million increase option subject to the lenders’ consent, in addition to $71.3 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of December 31, 2024, as the Company intends to repay this amount within the next twelve months; however, the Company has no contractual obligation to repay such amount during the next twelve months. The letters of credit issued and outstanding under the Credit Facility totaled $4.8 million at December 31, 2024.
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 6.1% and 6.8% for the three-month periods ending December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company was in compliance with all covenants.
8. INCOME TAX EXPENSE
The first quarter 2025 effective income tax rate was 21.6% compared to 22.0% in the first quarter of 2024. Income tax expense in the first quarter of 2025 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.
9
9. SHAREHOLDERS’ EQUITY
The change in shareholders’ equity for the first three months ended December 31, 2024 and 2023 is shown below (in thousands):
| | | | | |
| | Three Months Ended December 31, | |||
|
| 2024 |
| 2023 | |
Common stock | | | | | |
Beginning balance | | $ | 308 | | 308 |
Stock plans | | | 1 | | — |
Ending balance | | | 309 | | 308 |
| | | | | |
Additional paid-in-capital | | | | | |
Beginning balance | | | 311,942 | | 304,850 |
Stock plans | | | (3,799) | | 433 |
Ending balance | | | 308,143 | | 305,283 |
| | | | | |
Retained earnings | | | | | |
Beginning balance | | | 1,082,950 | | 989,315 |
Net earnings common stockholders | | | 23,473 | | 15,169 |
Dividends paid | | | (2,064) | | (2,064) |
Ending balance | | | 1,104,359 | | 1,002,420 |
| | | | | |
Accumulated other comprehensive income (loss) | | | | | |
Beginning balance | | | (10,775) | | (23,969) |
Foreign currency translation | | | (18,028) | | 9,414 |
Ending balance | | | (28,803) | | (14,555) |
| | | | | |
Treasury stock | | | | | |
Beginning balance | | | (147,075) | | (139,362) |
Share repurchases | | | — | | — |
Ending balance | | | (147,075) | | (139,362) |
| | | | | |
Total equity | | $ | 1,236,933 | | 1,154,094 |
10. 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. |
| ● | 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 December 31, 2024 and September 30, 2024 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.
10
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-month period ended December 31, 2024.
11. REVENUES
Disaggregation of Revenues
Revenues by customer type, geographic location, and revenue recognition method for the three-month period ended December 31, 2024 are presented in the table 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 table below also includes a reconciliation of the disaggregated revenue within each reportable segment.
| | | | | | | | | | | | |
| | | | | | | | | | | | |
(In thousands) |
| A&D |
| USG |
| Test |
| Total | ||||
Customer type: |
| |
|
| |
|
| |
|
| |
|
Commercial | | $ | 47,500 | | $ | 84,279 | | $ | 36,349 | | $ | 168,128 |
Government | | | 66,801 | | | 2,381 | | | 9,716 | | | 78,898 |
Total revenues | | $ | 114,301 | | $ | 86,660 | | $ | 46,065 | | $ | 247,026 |
| | | | | | | | | | | | |
Geographic location: | | | | | | | | | | | | |
United States | | $ | 96,703 | | $ | 59,917 | | $ | 28,630 | | $ | 185,250 |
International | | | 17,598 | | | 26,743 | | | 17,435 | | | 61,776 |
Total revenues | | $ | 114,301 | | $ | 86,660 | | $ | 46,065 | | $ | 247,026 |
| | | | | | | | | | | | |
Revenue recognition method: | | | | | | | | | | | | |
Point in time | | $ | 50,126 | | $ | 69,278 | | $ | 9,791 | | $ | 129,195 |
Over time | | | 64,175 | | | 17,382 | | | 36,274 | | | 117,831 |
Total revenues | | $ | 114,301 | | $ | 86,660 | | $ | 46,065 | | $ | 247,026 |
Revenues by customer type, geographic location, and revenue recognition method for the three-month period ended December 31, 2023 are presented in the table below:
| | | | | | | | | | | | |
| | | |
| | |
| | |
| | |
(In thousands) |
| A&D |
| USG |
| Test |
| Total | ||||
Customer type: | | | | | | | | | | | | |
Commercial | | $ | 37,209 | | $ | 81,469 | | $ | 35,087 | | $ | 153,765 |
Government | | | 57,524 | | | 1,515 | | | 5,510 | | | 64,549 |
Total revenues | | $ | 94,733 | | $ | 82,984 | | $ | 40,597 | | $ | 218,314 |
| | | | | | | | | | | | |
Geographic location: | | | | | | | | | | | | |
United States | | $ | 79,901 | | $ | 55,961 | | $ | 22,252 | | $ | 158,114 |
International | | | 14,832 | | | 27,023 | | | 18,345 | | | 60,200 |
Total revenues | | $ | 94,733 | | $ | 82,984 | | $ | 40,597 | | $ | 218,314 |
| | | | | | | | | | | | |
Revenue recognition method: | | | | | | | | | | | | |
Point in time | | $ | 39,465 | | $ | 66,703 | | $ | 7,980 | | $ | 114,148 |
Over time | | | 55,268 | | | 16,281 | | | 32,617 | | | 104,166 |
Total revenues | | $ | 94,733 | | $ | 82,984 | | $ | 40,597 | | $ | 218,314 |
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Revenue Recognition
Payment terms with our customers vary by the type and location of the customer and the products or services offered. Arrangements with customers that include payment terms extending beyond one year are not significant. The transaction price for these contracts reflects our estimate of returns and discounts, which are based on historical, current and forecasted information to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses.
For our overtime revenue recognized using the output method of costs incurred, contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change. In addition, in the USG segment, we recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for certain of our USG segment contracts. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. In addition, in the Test segment, we use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.
Remaining Performance Obligations
Remaining performance obligations, which is the equivalent of backlog, represent the expected transaction price allocated to performance obligations that the Company expects to recognize as revenue in future periods when the Company performs under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At December 31, 2024, the Company had $906.9 million in remaining performance obligations of which the Company expects to recognize revenues of approximately 72% in the next twelve months.
Contract assets, contract liabilities and accounts receivable
Assets and liabilities related to contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At December 31, 2024, contract assets, contract liabilities and accounts receivable totaled $131.4 million, $138.4 million and $202.7 million, respectively. During the first quarter of 2025, the Company recognized approximately $35.1 million in revenues that were included in the contract liabilities balance at September 30, 2024. At September 30, 2024, contract assets, contract liabilities and accounts receivable totaled $130.5 million, $134.3 million and $240.7 million, respectively.
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12. LEASES
The Company determines at lease inception whether an arrangement that provides control over the use of an asset is a lease. The Company recognizes at lease commencement a right-of-use (ROU) asset and lease liability based on the present value of the future lease payments over the lease term. The Company has elected not to recognize a ROU asset and lease liability for leases with terms of 12 months or less. Certain of the Company’s leases include options to extend the term of the lease for up to 20 years. When it is reasonably certain that the Company will exercise the option, Management includes the impact of the option in the lease term for purposes of determining total future lease payments. As most of the Company’s lease agreements do not explicitly state the discount rate implicit in the lease, Management uses the Company’s incremental borrowing rate on the commencement date to calculate the present value of future payments based on the tenor of each arrangement.
The Company’s leases for real estate commonly include escalating payments. These variable lease payments are included in the calculation of the ROU asset and lease liability. In addition to the present value of the future lease payments, the calculation of the ROU asset also includes any deferred rent, lease pre-payments and initial direct costs of obtaining the lease.
In addition to the base rent, real estate leases typically contain provisions for common-area maintenance and other similar services, which are considered non-lease components for accounting purposes. Non-lease components are excluded from ROU assets and lease liabilities and expensed as incurred.
The Company’s leases are for office space, manufacturing facilities, and machinery and equipment.
The components of lease costs are shown below:
| | | | | | |
| | Three Months Ended | | Three Months Ended | ||
| | December 31, | | December 31, | ||
(Dollars in thousands) |
| 2024 |
| 2023 | ||
Finance lease cost | | | | | | |
Amortization of right-of-use assets | | $ | 372 | | | 393 |
Interest on lease liabilities | | | 206 | | | 223 |
Operating lease cost | | | 1,983 | | | 1,864 |
Total lease costs | | $ | 2,561 | | | 2,480 |
Additional information related to leases are shown below:
| | | | | | |
| | Three Months Ended | | Three Months Ended | ||
| | December 31, | | December 31, | ||
(Dollars in thousands) |
| 2024 |
| 2023 | ||
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating leases | | $ | 1,914 | | | 1,819 |
Operating cash flows from finance leases | | | 206 | | | 223 |
Financing cash flows from finance leases | | | 351 | | | 355 |
Right-of-use assets obtained in exchange for lease liabilities | | | | | | |
Operating leases | | $ | 1,776 | | | — |
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| | | | | |
|
| Three Months Ended | | Three Months Ended | |
| | December 31, |
| December 31, | |
| | 2024 | | 2023 | |
Weighted-average remaining lease term | |
| |
| |
Operating leases |
| 8.5 | years | 11.1 | years |
Finance leases |
| 10.2 | years | 11.1 | years |
Weighted-average discount rate |
| |
| |
|
Operating leases |
| 4.4 | % | 4.5 | % |
Finance leases |
| 4.7 | % | 4.7 | % |
The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on the Consolidated Balance Sheet on December 31, 2024:
| | | | | |
(Dollars in thousands) | | Operating |
| Finance | |
Years Ending September 30: |
| Leases |
| Leases | |
2025 (excluding the three months ended December 31, 2024) | | $ | 4,807 | | 1,676 |
2026 | | | 5,241 | | 2,297 |
2027 | | | 4,965 | | 2,357 |
2028 | | | 4,883 | | 2,417 |
2029 and thereafter | | | 32,623 | | 14,052 |
Total minimum lease payments | | | 52,519 | | 22,799 |
Less: amounts representing interest | | | 11,637 | | 5,167 |
Present value of net minimum lease payments | | $ | 40,882 | | 17,632 |
Less: current portion of lease obligations | | | 4,482 | | 1,461 |
Non-current portion of lease obligations | | $ | 36,400 | | 16,171 |
| | | | | |
ROU assets | | $ | 38,710 | | 13,311 |
Operating lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and as a caption on the Consolidated Balance Sheet (long-term portion). Finance lease liabilities are included on the Consolidated Balance Sheet in accrued other expenses (current portion) and other liabilities (long-term portion). Operating lease ROU assets are included as a caption on the Consolidated Balance Sheet and finance lease ROU assets are included in Property, plant and equipment on the Consolidated Balance sheet.
13. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses,” which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. This ASU will be effective for fiscal years beginning after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures. This ASU will be effective for fiscal years beginning after December 15, 2024. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant expenses. The new segment disclosures are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Other than additional disclosure, we do not expect a change to our consolidated statements of operations, financial position, or cash flows.
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
References to the first quarters of 2025 and 2024 represent the three-month periods ended December 31, 2024 and 2023, respectively.
OVERVIEW
Sales, net earnings and diluted earnings per share were $247.0 million, $23.5 million and $0.91 per share, respectively, in the first quarter of 2025 compared to $218.3 million, $15.2 million and $0.59 per share, respectively, in the first quarter of 2024.
NET SALES
Net sales increased $28.7 million, or 13.2%, to $247.0 million in the first quarter of 2025 from $218.3 million in the first quarter of 2024. The increase in net sales in the first quarter of 2025 as compared to the first quarter of 2024 was due to a $19.5 million increase in the A&D segment, a $5.5 million increase in the Test segment, and a $3.7 million increase in the USG segment.
-A&D
Net sales of $114.3 million in the first quarter of 2025 were $19.6 million, or 20.7%, higher than the $94.7 million in the first quarter of 2024. The sales increase in the first quarter of 2025 compared to the first quarter of 2024 was primarily due to an approximately $9.1 million increase in aerospace shipments at Crissair and PTI, and a $12.6 million increase in navy sales at VACCO and Globe.
-USG
Net sales of $86.7 million in the first quarter of 2025 were $3.7 million, or 4.5% higher than the $83.0 million in the first quarter of 2024. The increase in the first quarter of 2025 compared to the first quarter of 2024 was mainly due to a $7.9 million increase in net sales at Doble driven by higher sales of offline and protection testing products and services, partially offset by a $4.2 million decrease in net sales at NRG as we experienced moderation in the renewables end-market.
-Test
Net sales of $46.1 million in the first quarter of 2025 were $5.5 million, or 13.5%, higher than the $40.6 million in the first quarter of 2024. The increase in the first quarter of 2025 compared to the first quarter of 2024 was primarily due to $2.8 million of higher sales from the segment’s European and Asian operations and $2.7 million of higher sales from the segment’s U.S operations.
ORDERS AND BACKLOG
Backlog was $906.9 million at December 31, 2024 compared with $879.0 million at September 30, 2024. The Company received new orders totaling $275.0 million in the first quarter of 2025 compared to $293.7 million in the first quarter of 2024. Of the new orders received in the first quarter of 2025, $120.6 million related to A&D products, $89.6 million related to USG products, and $64.8 million related to Test products. Of the new orders received in the first quarter of 2024, $171.5 million related to A&D products, $77.0 million related to USG products, and $45.2 million related to Test products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses were $58.8 million (23.8% of net sales) for the first quarter of 2025, compared with $54.0 million (24.7% of net sales) for the first quarter of 2024. The increase in SG&A in the first quarter of 2025 compared to the first quarter of 2024 was due to an increase within all three business segments mainly due to higher sales, inflationary impacts, R&D expenses and commission expenses.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets was $8.0 million and $7.9 million for the first quarter of 2025 and 2024, respectively. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The increase in amortization expense in the first quarter of 2025 compared to the first quarter of 2024 was mainly due to an increase in amortization of capitalized software and amortization of intangible assets related to the MPE acquisition.
15
OTHER (INCOME) EXPENSES, NET
Other (income), net, was ($0.6) million in the first quarter of 2025 compared to other expenses, net, of $0.2 million in the first quarter of 2024. There were no individually significant items in other (income) expenses, net, in the first quarter of 2025 or 2024.
EBIT
The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis, which is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 7 to the Consolidated Financial Statements, above. EBIT was $32.2 million (13.0% of net sales) for the first quarter of 2025 compared to $22.1 million (10.1% of net sales) for the first quarter of 2024.
The following table presents a reconciliation of EBIT to a GAAP financial measure:
| | | | | | |
| | Three Months Ended | ||||
| | December 31, | ||||
(In thousands) |
| 2024 |
| 2023 | ||
Net earnings | | $ | 23,473 | | | 15,169 |
Plus: Interest expense, net | | | 2,257 | | | 2,667 |
Plus: Income tax expense | | | 6,468 | | | 4,285 |
Consolidated EBIT | | $ | 32,198 | | | 22,121 |
-A&D
EBIT was $21.6 million (18.9% of net sales) in the first quarter of 2025 compared to $16.7 million (17.6% of net sales) in the first quarter of 2024. The increase in EBIT in the first quarter of 2025 compared to the first quarter of 2024 was mainly due to higher sales volumes at Crissair, PTI, VACCO and Globe as mentioned above and price increases, partially offset by inflationary pressures and mix.
-USG
EBIT was $20.5 million (23.6% of net sales) in the first quarter of 2025 compared to $17.6 million (21.2% of net sales) in the first quarter of 2024. The increase in EBIT in the first quarter of 2025 compared to the first quarter of 2024 was mainly due to the higher sales volumes at Doble in the first quarter of 2025, price increases, and mix, partially offset by inflationary pressures.
-Test
EBIT was $4.4 million (9.6% of net sales) in the first quarter of 2025 compared to $1.8 million (4.4% of net sales) in the first quarter of 2024. The increase in EBIT in the first quarter of 2025 compared to the first quarter of 2024 was primarily driven by the higher sales volumes from the segment’s European and Asian operations, price increases, and cost reduction efforts, partially offset by inflationary pressures and mix. In addition, EBIT in the first quarter of 2025 was negatively impacted by $0.4 million of restructuring charges (primarily severance).
–Corporate
Corporate costs included in EBIT were $14.3 million and $13.9 million in the first quarter of 2025 and 2024, respectively. The increase in Corporate costs in the first quarter of 2025 compared to the first quarter of 2024 was mainly due to an increase in share based compensation costs and acquisition costs.
INTEREST EXPENSE, NET
Interest expense was $2.3 million and $2.7 million in the first quarter of 2025 and 2024, respectively. The decrease in interest expense in the first quarter of 2025 as compared to the first quarter of 2024 was mainly due to lower average outstanding borrowings and lower average interest rates (6.1% in the first quarter of 2025 compared to 6.8% in the first quarter of 2024).
16
INCOME TAX EXPENSE
The effective income tax rate was 21.6% in the first quarter of 2025 compared to 22.0% in the first quarter of 2024. Income tax expense in the first quarter of 2025 was favorably impacted by additional tax benefits related to the vesting of share-based compensation awards.
CAPITAL RESOURCES AND LIQUIDITY
The Company’s overall financial position and liquidity remain strong. Working capital (current assets less current liabilities) increased to $329.4 million at December 31, 2024 from $318.8 million at September 30, 2024. Accounts receivable decreased $38.0 million during this period mainly due to a $19.9 million decrease within the A&D segment, an $11.8 million decrease within the Test segment and a $6.3 million decrease within the USG segment due to strong cash collections during the quarter. Inventories increased $10.2 million during this period mainly due to a $7.9 million increase within the USG segment and a $2.5 million increase within the A&D segment primarily from an increase in finished goods and raw materials inventories due to timing of manufacturing existing orders. Accrued salaries decreased by $7.7 million during this period due to timing of salaries and bonus payments.
Net cash provided by operating activities was $34.2 million and $8.7 million in the first quarters of 2025 and 2024, respectively. The increase in net cash provided by operating activities in the first quarter of 2025 as compared to the first quarter of 2024 was mainly driven by an increase in net earnings and lower accounts receivable balances due to timing of collections.
Capital expenditures were $5.2 million and $7.8 million in the first quarters of 2025 and 2024, respectively. The decrease in the first quarter of 2025 was mainly due to a decrease in building improvements and machinery & equipment within the A&D segment. In addition, the Company incurred expenditures for capitalized software of approximately $2.6 million and $2.9 million in the first quarters of 2025 and 2024, respectively.
Credit Facility
At December 31, 2024, the Company had approximately $383 million available to borrow under its bank credit facility, excluding the Incremental Facility, plus a $250 million increase option, and $71.3 million cash on hand. At December 31, 2024, the Company had $112 million of outstanding borrowings under the credit facility in addition to outstanding letters of credit of $4.8 million. Cash flow from operations and borrowings under the Company’s credit facility are expected to meet the Company’s capital requirements and operational needs for the foreseeable future. The Company’s ability to access the additional $250 million increase option of the credit facility is subject to acceptance by participating or other outside banks.
SM&P Acquisition
On July 8, 2024, the Company and certain of its wholly owned subsidiaries entered into a Sale and Purchase Agreement with Ultra Electronics Holdings Limited, a private limited liability company incorporated in England & Wales (“Ultra”), pursuant to which one or more wholly owned subsidiaries of the Company will acquire from Ultra or its subsidiaries Ultra’s Signature Management & Power (“SM&P”) business, including all of the issued and outstanding equity interests of (i) Ultra PMES Limited, a private limited liability company incorporated in England & Wales (“the UK Target Company”), (ii) Measurement Systems, Inc., a Delaware corporation, (iii) EMS Development Corporation, a New York corporation, and (iv) DNE Technologies, a Delaware corporation, for a purchase price of approximately $550 million, plus or minus certain customary adjustments at closing and post-closing for cash, debt, working capital and transaction expenses as specified in the Purchase Agreement (the “SM&P Acquisition”). The closing of the SM&P acquisition is subject to certain conditions, including receipt of clearance under the UK National Security and Investment Act of 2021. We currently expect to close on this transaction either in our second quarter or early in our third fiscal quarter.
Dividends
A dividend of $0.08 per share, totaling $2.1 million, was paid on October 16, 2024 to stockholders of record as of October 2, 2024. Subsequent to December 31, 2024, a quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on January 17, 2025 to stockholders of record as of January 2, 2025.
CRITICAL ACCOUNTING POLICIES
Management has evaluated the accounting policies used in the preparation of the Company’s financial statements and related notes and believes those policies to be reasonable and appropriate. Certain of these accounting policies require the application of significant judgment by Management in selecting appropriate assumptions for calculating financial estimates. By their nature, these judgments
17
are subject to an inherent degree of uncertainty. These judgments are based on historical experience, trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The most significant areas involving Management judgments and estimates may be found in the Critical Accounting Policies section of Management’s Discussion and Analysis and in Note 1 to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2024.
OTHER MATTERS
Contingencies
As a normal incident of the business in which the Company is engaged, various claims, charges and litigation are asserted or commenced against the Company. Additionally, the Company is currently involved in various stages of investigation and remediation relating to environmental matters. In the opinion of Management, the aggregate costs involved in the resolution of these matters, and final judgments, if any, which might be rendered against the Company, are adequately reserved, are covered by insurance, or would not have a material adverse effect on the Company’s results from operations, capital expenditures, or competitive position.
FORWARD LOOKING STATEMENTS
Statements contained in this Form 10-Q regarding future events and the Company’s future results that reflect or are based on current expectations, estimates, forecasts, projections or assumptions about the Company’s performance and the industries in which the Company operates are considered “forward-looking statements” within the meaning of the safe harbor provisions of the Federal securities laws. These may include, but are not necessarily limited to, statements about: the strength of certain end markets served by the Company, and the timing of the recovery of certain end markets which the Company serves; the adequacy of the Company’s credit facility and the Company’s ability to increase it; the outcome of current litigation, claims and charges; timing of the repayment of the current portion of the Company’s long-term debt; future revenues from remaining performance obligations; fair values of reporting units; the deductibility of goodwill; estimates and assumptions that affect the reported amounts of assets and liabilities; the recognition of compensation cost related to share-based compensation arrangements; the Company’s ability to hedge against or otherwise manage market risks through the use of derivative financial instruments; the extent to which hedging gains or losses will be offset by losses or gains on related underlying exposures; and any other statements contained herein which are not strictly historical. Words such as expects, anticipates, targets, goals, projects, intends, plans, believes, estimates, variations of such words, and similar expressions are intended to identify such forward-looking statements.
Investors are cautioned that such statements are only predictions and speak only as of the date of this Form 10-Q, 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, 2024, and the following: the impacts of climate change and related regulation of greenhouse gases; the impacts of labor disputes, civil disorder, wars, elections, political changes, tariffs and trade disputes, terrorist activities, cyberattacks or natural disasters on the Company’s operations and those of the Company’s customers and suppliers; disruptions in manufacturing or delivery arrangements due to shortages or unavailability of materials or components; or supply chain disruptions; inability to access work sites; the timing and content of future contract awards or customer orders; the timely 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 or data breaches; the availability of selected acquisitions; delivery delays or defaults by customers; performance issues with key customers, suppliers and subcontractors; material changes in the costs and availability of certain raw materials; material changes in the cost of credit; changes in laws and regulations including but not limited to changes in accounting standards and 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 and performance of recently acquired businesses.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. The Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. All derivative instruments are reported on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the respective derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item. There has been no material change to the Company’s market risks since September 30, 2024.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation, under the supervision and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not repurchase any shares during the first quarter of 2025.
ITEM 5. OTHER INFORMATION
During the first quarter of fiscal 2025, no director or officer (as defined in Securities and Exchange Commission Rule 16a-1(f)) of the Company adopted or terminated:
| (i) | Any contract, instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”); or |
| (ii) | Any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of SEC Regulation S-K. |
20
ITEM 6. EXHIBITS
Exhibit Number |
| Description |
| Document Location |
| | | | |
3.1(a) |
|
| Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999 | |
|
|
|
|
|
3.1(b) |
|
| Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000 | |
|
|
|
|
|
3.1(c) |
|
| 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 | | | Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022 | |
| | | | |
4.1(a) | | | Exhibit 10.1 to the Company’s Form 8-K filed September 6, 2023 | |
| | | | |
4.1(b) | | Amendment No. 1 to the Amended and Restated Credit Agreement dated August 30, 2023 | | Exhibit 10 (c) to the Company’s Form 10-K for the fiscal year ended September 30, 2024 |
| | | | |
31.1 |
|
| Filed herewith | |
|
|
|
|
|
31.2 |
|
| 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 |
* | Exhibit 101 to this report consists of documents formatted in XBRL (Extensible Business Reporting Language). The financial information contained in the XBRL – related documents is “unaudited” or “unreviewed”. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| 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: February 10, 2025 | |
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