Espey(ESP) - 2025 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Espey Mfg. & Electronics Corp.'s unaudited consolidated financial statements for periods ended March 31, 2025, reflect significant growth in revenue, net income, and assets Balance Sheets As of March 31, 2025, total assets grew to $72.8 million from $56.5 million, driven by increased cash and contract liabilities, boosting stockholders' equity Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | June 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $67,359 | $53,237 | +$14,122 | | Cash and cash equivalents | $13,859 | $4,352 | +$9,507 | | Investment securities | $24,635 | $18,879 | +$5,756 | | Total Assets | $72,839 | $56,543 | +$16,296 | | Total Current Liabilities | $26,515 | $15,269 | +$11,246 | | Contract liabilities | $21,018 | $9,043 | +$11,975 | | Total Stockholders' Equity | $46,325 | $41,274 | +$5,051 | Statements of Comprehensive Income Net sales increased 26.7% to $34.4 million for the nine months ended March 31, 2025, with net income growing 32.9% and strong third-quarter performance Financial Performance (Unaudited) | Metric | Nine Months Ended Mar 31, 2025 | Nine Months Ended Mar 31, 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $34,354,677 | $27,125,408 | +26.7% | | Gross Profit | $8,912,978 | $7,452,143 | +19.6% | | Operating Income | $5,494,772 | $4,407,552 | +24.7% | | Net Income | $5,211,303 | $3,921,844 | +32.9% | | Diluted EPS | $1.95 | $1.56 | +25.0% | | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | YoY Change | | Net Sales | $10,302,719 | $8,254,653 | +24.8% | | Net Income | $1,704,487 | $1,031,930 | +65.2% | | Diluted EPS | $0.63 | $0.40 | +57.5% | Statements of Changes in Stockholders' Equity Total stockholders' equity increased by $5.0 million for the nine months ended March 31, 2025, driven by net income and stock option exercises, partially offset by dividends - Key drivers for the increase in stockholders' equity over the nine-month period were net income of $5.2 million and proceeds from stock option exercises of $1.5 million, offset by dividend payments of $1.9 million[14] Statements of Cash Flows Net cash from operating activities surged to $18.2 million for the nine months ended March 31, 2025, primarily due to increased contract liabilities from customer advances Cash Flow Summary (Nine Months Ended March 31) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $18,219,771 | $7,350,662 | | Net cash used in investing activities | ($8,265,308) | ($3,869,358) | | Net cash used in financing activities | ($446,971) | ($673,795) | | Increase in cash and cash equivalents | $9,507,492 | $2,807,509 | Notes to Financial Statements The notes detail a $138 million order backlog, $10.8 million in U.S. Navy funding, and a $561,852 liability from a pension plan withdrawal - The company's order backlog was approximately $138 million at March 31, 2025, with 7.0% estimated for fiscal 2025, 35.9% for 2026, 12.3% for 2027, and 44.8% thereafter[50] - The company was awarded two separate funding grants from the U.S. Navy for facility and capital equipment upgrades, one for $7.4 million in fiscal 2023 and another for $3.4 million in December 2024[42][44] - In June 2024, the company initiated a withdrawal from the IBEW Local 1799 Pension Fund, resulting in a recorded termination withdrawal obligation of $561,852 as of March 31, 2025[43] - Revenue is primarily recognized over time using the output method, based on milestones achieved or units delivered, with $27.1 million recognized based on units and $7.3 million based on milestones for the nine months ended March 31, 2025[46][47] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant financial growth, attributing a 26.7% increase in nine-month sales to higher deliveries and a surging backlog, expecting higher full-year revenues and EPS for fiscal 2025 Overview Espey's backlog grew to $138 million as of March 31, 2025, driven by $75.1 million in new orders, including major U.S. Navy awards, with high customer concentration - The company's total backlog increased to $138 million at March 31, 2025, from $84.2 million at March 31, 2024, including approximately $97.7 million from three significant customers[65] - New orders received in the first nine months of fiscal 2025 totaled $75.1 million, a significant increase from $27.8 million in the prior-year period, including two major awards for the U.S. Navy's Columbia class submarines valued at $29.5 million and $19.8 million[71] - A high degree of customer concentration exists, with sales to five significant customers representing 82% of total sales for the three months ended March 31, 2025[72] Critical Accounting Policies and Estimates Management identifies revenue recognition and cost estimation on contracts as critical accounting policies, with revenue recognized by output method and cost changes reflected in current earnings - The company's most critical accounting policies are revenue recognition and cost estimation on contracts[74] - Revenue is recognized using the output method based on appraisal of results achieved, milestones reached, or units delivered[78] - The estimation of total cost at completion for a contract is subject to numerous variables, and any changes in estimates are reflected in current period earnings[81] Results of Operations For the nine months ended March 31, 2025, net sales rose 26.7%, while gross margin slightly decreased, but net income increased to $5.2 million Sales and Gross Profit Analysis | Period | Net Sales | YoY Change | Gross Profit % | Prior Year GP % | | :--- | :--- | :--- | :--- | :--- | | Q3 2025 | $10,302,719 | +24.8% | 28.6% | 25.0% | | 9M 2025 | $34,354,677 | +26.7% | 25.9% | 27.5% | - The increase in SG&A expenses for the nine months ended March 31, 2025 was mainly due to higher employee compensation costs, outside selling costs, outbound freight, and employee recruitment fees[90] - The increase in net income for both the three and nine-month periods was primarily due to higher gross profits and interest income, partially offset by increased SG&A expenses and income tax provisions[93] Liquidity and Capital Resources The company maintains strong liquidity with $40.8 million in working capital and $18.2 million in operating cash flow, supported by U.S. Navy funding for capital expenditures - The company has a $3,000,000 line of credit available but did not borrow any funds during the last two fiscal years and does not anticipate needing to[94] - Net cash provided by operating activities increased to $18.2 million for the nine months ended March 31, 2025, compared to $7.4 million in the prior year, primarily due to an increase in contract liabilities from customer cash advances[96] - During the nine months ended March 31, 2025, the company expended $2,509,088 for plant improvements and new equipment, of which $2,346,233 was eligible for reimbursement under Navy funding awards[97] Quantitative and Qualitative Disclosures About Market Risk Espey Mfg. & Electronics Corp., as a smaller reporting company, is exempt from providing market risk disclosures - The company is not required to provide information for this item as it qualifies as a smaller reporting company[99] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls - The CEO and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[100] - There were no changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[101] PART II - OTHER INFORMATION Legal Proceedings The company reports no pending legal matters expected to materially affect its business, financial condition, results of operations, or cash flows - There are no pending legal matters which are expected to have a material adverse effect on the company[103] Other Information Items (Items 2, 3, 4, 5, 6) This section covers standard disclosures, including no unregistered equity sales, no defaults, and an existing stock repurchase authorization, with officer certifications as exhibits - The company has an existing authorization to repurchase up to $783,460 of its common stock, but no shares were repurchased during the quarter ended March 31, 2025[104] - The company reports no defaults upon senior securities, no mine safety disclosures, and no other information under Item 5[104] - Exhibits filed with the report include certifications from the CEO and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906[105] Signatures The quarterly report was signed by David O'Neil, President and CEO, and Kaitlyn O'Neil, Principal Financial Officer, on May 12, 2025 - The report was signed by David O'Neil (President and CEO) and Kaitlyn O'Neil (Principal Financial Officer) on May 12, 2025[109]