ESCO Technologies(ESE) - 2024 Q4 - Annual Results

Financial Performance Summary ESCO Technologies reported strong financial performance for Q4 and full fiscal year 2024, exceeding $1 billion in sales and orders, driven by growth across all segments and improved profitability Q4 & FY 2024 Operating Highlights ESCO Technologies reported strong Q4 and FY 2024 growth, surpassing $1 billion in sales and orders, with Q4 sales up 9.5% and FY sales up 7.4% Q4 2024 Key Financial Metrics | Metric | Q4 2024 (in millions) | Q4 2023 (in millions) | Change | Organic Growth | | :--- | :--- | :--- | :--- | :--- | | Sales | $299 | $273 | +9.5% | +8.5% | | GAAP EPS | $1.32 | $1.24 | +6.5% | N/A | | Adjusted EPS | $1.46 | $1.25 | +16.8% | N/A | | Entered Orders | $289 | $340 | -14.9% | N/A | Fiscal Year 2024 Key Financial Metrics | Metric | FY 2024 (in millions) | FY 2023 (in millions) | Change | Organic Growth | | :--- | :--- | :--- | :--- | :--- | | Sales | $1,030 | $956 | +7.4% | +6.4% | | GAAP EPS | $3.94 | $3.58 | +10.1% | N/A | | Adjusted EPS | $4.18 | $3.70 | +13.0% | N/A | | Entered Orders | $1,100 | $1,000 | +9.7% | N/A | - The company achieved a record year-end backlog of $879 million, supported by a strong full-year book-to-bill ratio of 1.10x[4] - Net cash provided by operating activities for FY 2024 was $128 million, a significant increase of $51 million compared to FY 2023[5] CEO Commentary CEO Bryan Sayler highlighted strong Q4 performance and record FY 2024 results, with all segments contributing to growth and margin improvement - Q4 was highlighted by 9% sales growth, 130 basis points of Adjusted EBIT margin improvement, and a 17% increase in Adjusted EPS[6] - The company achieved record financial performance in FY 2024, exceeding $1 billion in both sales and orders[7] - Management sees strong growth drivers for 2025 across core end markets including aerospace, Navy, and electric power[8] Segment Performance The company's segments showed varied performance, with A&D and USG growing, and Test improving in the second half despite a full-year decline Aerospace & Defense (A&D) The A&D segment achieved strong FY 2024 growth with sales up 14.2% to $448 million and a record year-end backlog of $600 million A&D Performance vs. Prior Year | Metric | Q4 2024 (in millions) | Q4 2023 (in millions) | FY 2024 (in millions) | FY 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Sales | $124 (+16.2%) | $107 | $448 (+14.2%) | $392 | | Adjusted EBIT | $24.2 | $19.1 | $85.9 | $73.1 | | Adjusted EBIT Margin | 19.4% | 17.8% | 19.2% | 18.6% | | Entered Orders | $130 (-26.7%) | $177 | $564 (+20.6%) | $468 | | Book-to-Bill | 1.05x | N/A | 1.26x | N/A | - Sales growth was driven by strength across Navy, commercial aerospace, and defense aerospace programs[8] - The segment ended the year with a record backlog of $600 million[10] Utility Solutions Group (USG) The USG segment reported steady FY 2024 growth with sales up 7.8% to $369 million, driven by services and renewables, ending with a $120 million backlog USG Performance vs. Prior Year | Metric | Q4 2024 (in millions) | Q4 2023 (in millions) | FY 2024 (in millions) | FY 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Sales | $108 (+6.2%) | $102 | $369 (+7.8%) | $342 | | Adjusted EBIT | $28.6 | $26.2 | $86.1 | $76.9 | | Adjusted EBIT Margin | 26.4% | 25.7% | 23.3% | 22.5% | | Entered Orders | $100 (+2.2%) | $98 | $356 (+2.3%) | $348 | | Book-to-Bill | 0.92x | N/A | 0.96x | N/A | - Growth was driven by services and condition monitoring at Doble and strong performance in renewables at NRG[11] - NRG orders decreased for the full year as the market moved beyond elevated activity related to the initial Inflation Reduction Act spending[13] RF Test & Measurement (Test) The Test segment's FY 2024 sales decreased 5.3% to $210 million due to wireless and China weakness, but Q4 sales returned to growth Test Performance vs. Prior Year | Metric | Q4 2024 (in millions) | Q4 2023 (in millions) | FY 2024 (in millions) | FY 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Sales | $66 (+3.6%) | $64 | $210 (-5.3%) | $221 | | Adjusted EBIT | $12.0 | $11.1 | $29.1 | $32.4 | | Adjusted EBIT Margin | 18.3% | 17.5% | 13.9% | 14.6% | | Entered Orders | $59 (-8.5%) | $64.5 | $213 (-1.8%) | $217 | | Book-to-Bill | N/A | N/A | 1.02x | N/A | - The MPE acquisition, completed in Q1 2024, contributed $2.8 million in revenue in Q4 and $10 million for the full year[14][3] - Full-year revenue softness was related to lower wireless sales and weakness in China, though a return to growth occurred in the second half of the year[14] - Q4 margin reached a record 18.3%, driven by high-margin MPE content and cost reduction actions[15] Corporate Strategy and Outlook The company is optimizing its portfolio via the pending SM&P acquisition and a VACCO Space business review, while providing strong FY 2025 guidance SM&P Acquisition ESCO agreed to acquire SM&P for $550 million, pending UK regulatory approval, which is expected to significantly scale its Navy business - Agreed to acquire SM&P for a purchase price of $550 million[17] - The transaction has received US regulatory approval and is currently under review in the UK, with an expected closing in Q2 FY2025[17] - The acquisition will add significant scale to ESCO's Navy business and provide expansion into UK and AUKUS navy platforms[17] Business Outlook – 2025 Management projects strong FY 2025 growth across all segments, with consolidated net sales expected to grow 6-8% and Adjusted EPS forecasted at $4.70 to $4.90 FY 2025 Guidance | Metric | Expected Growth / Range | | :--- | :--- | | Net Sales Growth | 6% to 8% ($1.09 billion - $1.11 billion) | | A&D Sales Growth | 7% to 9% | | USG Sales Growth | 7% to 9% | | Test Sales Growth | 3% to 5% | | Adjusted EBIT Growth | 12% to 15% | | Adjusted EBIT Margin | 15.3% to 15.7% | | Adjusted EBITDA Growth | 10% to 13% | | Adjusted EBITDA Margin | 20.5% to 21.0% | | Adjusted EPS | $4.70 to $4.90 (+12% to +17%) | | Effective Tax Rate | 23.0% to 23.5% | - Guidance for FY 2025 excludes any impact from the pending SM&P acquisition and the ongoing strategic review of the VACCO Space business[18] - Q1 2025 Adjusted EPS is expected to be in the range of $0.68 - $0.75 per share, an increase of 10% to 21% year-over-year[20] VACCO Space Business Strategic Review The company is conducting a strategic review of its VACCO Space business to optimize its portfolio, considering a potential separation of Space and Defense product lines - A strategic review of alternatives for the VACCO Space business is underway to optimize ESCO's portfolio[21] - A key consideration in the review is the feasibility of splitting VACCO's Space and Defense businesses[21] - There is no set deadline for the review, and the company does not intend to comment further until it is completed or disclosure is required[22] Shareholder Information The company repurchased shares and declared a quarterly dividend, with the annual shareholder meeting scheduled for February 2025 Capital Allocation and Corporate Events In FY 2024, ESCO repurchased 80,000 shares for $8 million and declared a $0.08 per share quarterly dividend, with the annual meeting set for February 2025 - During FY 2024, the company repurchased approximately 80,000 shares for $8 million No shares were repurchased in Q4 2024[23] - A quarterly cash dividend of $0.08 per share will be paid on January 17, 2025, to stockholders of record on January 2, 2025[24] - The 2025 Annual Shareholder Meeting will be held on February 4, 2025[24] Financial Statements The financial statements detail strong FY 2024 performance with increased sales and net earnings, improved cash flow, a record backlog, and reconciliation of non-GAAP measures Condensed Consolidated Statements of Operations For FY 2024, ESCO reported net sales of $1.027 billion and net earnings of $101.9 million, or $3.94 per diluted share, reflecting increased profitability FY 2024 Statement of Operations Highlights (in thousands) | Line Item | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net Sales | $1,026,759 | $956,033 | | Earnings before income taxes | $129,889 | $118,947 | | Net earnings | $101,881 | $92,545 | | Diluted GAAP EPS | $3.94 | $3.58 | Q4 2024 Statement of Operations Highlights (in thousands) | Line Item | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Sales | $298,533 | $272,647 | | Earnings before income taxes | $44,042 | $41,192 | | Net earnings | $34,263 | $31,997 | | Diluted GAAP EPS | $1.32 | $1.24 | Condensed Consolidated Balance Sheets As of September 30, 2024, ESCO's balance sheet showed total assets of $1.84 billion and shareholders' equity of $1.24 billion, reflecting strong financial position Balance Sheet Highlights (in thousands) | Account | Sept 30, 2024 | Sept 30, 2023 | | :--- | :--- | :--- | | Total current assets | $668,649 | $581,095 | | Total Assets | $1,838,620 | $1,683,214 | | Total current liabilities | $349,854 | $314,651 | | Long-term debt | $102,000 | $82,000 | | Shareholders' equity | $1,237,350 | $1,131,142 | | Total Liabilities and Equity | $1,838,620 | $1,683,214 | Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $127.5 million in FY 2024, contributing to a $24.1 million net increase in cash for the year FY 2024 Cash Flow Summary (in thousands) | Activity | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $127,542 | $76,890 | | Net cash used by investing activities | ($104,639) | ($52,468) | | Net cash used by financing activities | ($773) | ($78,330) | | Net increase (decrease) in cash | $24,097 | ($55,858) | | Cash and cash equivalents, end of period | $65,963 | $41,866 | Backlog and Entered Orders ESCO ended FY 2024 with a record backlog of $879.0 million and a strong book-to-bill ratio of 1.10x, driven by the Aerospace & Defense segment FY 2024 Backlog by Segment (in thousands) | Segment | Beginning Backlog (10/1/23) | Entered Orders | Sales | Ending Backlog (9/30/24) | | :--- | :--- | :--- | :--- | :--- | | A&D | $484,069 | $564,488 | ($448,175) | $600,382 | | USG | $133,459 | $355,545 | ($369,061) | $119,943 | | Test | $154,834 | $213,333 | ($209,523) | $158,644 | | Total | $772,362 | $1,133,366 | ($1,026,759) | $878,969 | Reconciliation of Non-GAAP Financial Measures The company reconciled GAAP EPS to Adjusted EPS for Q4 and FY 2024, primarily adjusting for SM&P acquisition costs and restructuring charges - Q4 2024 GAAP EPS of $1.32 was adjusted for $0.14 per share of charges, resulting in Adjusted EPS of $1.46 The adjustments primarily consisted of debt financing and acquisition costs for the pending SM&P acquisition ($0.12) and restructuring charges ($0.02)[43] - FY 2024 GAAP EPS of $3.94 was adjusted for $0.24 per share of charges, resulting in Adjusted EPS of $4.18 Key adjustments included SM&P acquisition-related costs ($0.15), restructuring charges ($0.05), and MPE acquisition charges ($0.04)[44]