ESCO Technologies(ESE) - 2025 Q3 - Quarterly Results

Q3 2025 Earnings Summary Operating Highlights ESCO Technologies reported strong Q3 2025 results with 27% sales growth and 25% Adjusted EPS increase, achieving a record $1.17 billion backlog Q3 2025 Key Financial Metrics (vs. Q3 2024) | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $296.3 million | $233.6 million | +27% | | Organic Sales | $259.2 million | $233.6 million | +11% | | GAAP EPS (Continuing Ops) | $0.96 | $1.10 | -13% | | Adjusted EPS (Continuing Ops) | $1.60 | $1.28 | +25% | | Entered Orders | $749.0 million | - | +194% | | Book-to-Bill Ratio | 2.53x | - | - | | Ending Backlog | $1.17 billion | - | Record High | - The company completed the sale of VACCO Industries on July 21, 2025, with its operating results now presented as Discontinued Operations and excluded from discussions of continuing operations[2] Year-to-Date Cash Flow from Operating Activities (in millions) | Category | YTD Q3 2025 | YTD Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Continuing Operations | $88 | $63 | +$25 | | Discontinued Operations | $44 | ($8) | +$52 | | Total Cash Flow | $132 | $55 | +$77 | CEO Commentary The CEO highlighted ESCO's strategic transformation through the Maritime acquisition and VACCO divestiture, driving strong growth and a raised FY 2025 outlook - The company has undergone a significant transformation by acquiring ESCO Maritime Solutions and divesting VACCO Industries, strategically focusing on expanding its Navy business while exiting the space sector[4] - With a newly enhanced portfolio in attractive long-term growth markets and a record backlog, the company expects to continue delivering above-market growth[5] Q3 2025 Performance Metrics Highlighted by CEO | Metric | Q3 2025 Result | | :--- | :--- | | Sales Increase | 27% | | Adjusted EPS Increase (Continuing Ops) | 25% | | Adjusted EBIT Margin | 21.1% (+180 bps) | Segment Performance Aerospace & Defense (A&D) The A&D segment delivered exceptional Q3 results, with significant sales and Adjusted EBIT growth, and orders skyrocketing to a record $832 million backlog A&D Segment Performance - Q3 2025 vs Q3 2024 (in millions) | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $136.3 | $87.2 | +56% | | Organic Sales | $99.2 | $87.2 | +14% | | Adjusted EBIT | $39.3 | $20.2 | +95% | | Adjusted EBIT Margin | 28.8% | 23.2% | +560 bps | | Entered Orders | $582 | $90 | +547% | | Book-to-Bill | 4.27x | - | - | | Ending Backlog | $832 | - | Record High | - Order strength was driven by over $80 million in Virginia and Columbia Class submarine orders at Globe and nearly $50 million in new orders at Maritime during the quarter[5] - Margin improvement was driven by price increases, favorable product mix, and leverage on higher volume, further boosted by the addition of the higher-margin Maritime business[5] Utility Solutions Group (USG) The USG segment reported modest 2% sales growth to $92.4 million in Q3 2025, with slight Adjusted EBIT margin contraction, but saw a 6% increase in entered orders to $106 million USG Segment Performance - Q3 2025 vs Q3 2024 (in millions) | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $92.4 | $90.3 | +2% | | Adjusted EBIT | $21.8 | $22.2 | -2% | | Adjusted EBIT Margin | 23.6% | 24.6% | -100 bps | | Entered Orders | $106 | $100 | +6% | | Book-to-Bill | 1.14x | - | - | | Ending Backlog | $137 | - | - | - Doble achieved record quarterly orders of $87 million, an increase of 7% over the prior year, driven by strength across all product lines and a large HV Test System order[9] RF Test & Measurement (Test) The Test segment achieved strong 21% sales growth to $67.7 million in Q3 2025, with Adjusted EBIT increasing 15%, despite a slight margin decrease and a 6% decline in entered orders Test Segment Performance - Q3 2025 vs Q3 2024 (in millions) | Metric | Q3 2025 | Q3 2024 | Change | | :--- | :--- | :--- | :--- | | Sales | $67.7 | $56.1 | +21% | | Adjusted EBIT | $10.7 | $9.3 | +15% | | Adjusted EBIT Margin | 15.9% | 16.6% | -70 bps | | Entered Orders | $61 | $65 | -6% | | Book-to-Bill | 0.90x | - | - | | Ending Backlog | $196 | - | - | - The decrease in orders was primarily due to lower U.S. industrial orders compared to Q3 2024, which included a large project booking, partially offset by a strong quarter for Test & Measurement[9] Business Outlook – 2025 Updated FY 2025 Guidance ESCO has increased its full-year fiscal 2025 guidance, with revenue from continuing operations projected between $1.075 billion and $1.105 billion, and Adjusted EPS raised to $5.75-$5.90 Updated FY 2025 Revenue Guidance (Continuing Operations) (in millions) | Guidance Component | Amount | | :--- | :--- | | Prior Guidance (May) | $1,180 | | Less: Discontinued Ops (VACCO) | ($125) | | Guidance Increase | $20 | | Updated Sales Guidance | $1,075 - $1,105 | Updated FY 2025 Adjusted EPS Guidance (Continuing Operations) | Guidance Component | Amount | | :--- | :--- | | Previous Guidance (May) | $5.85 - $6.15 | | Less: Discontinued Ops (VACCO) | ($0.50) | | Guidance Increase | $0.40 - $0.25 | | Updated Adj. EPS Guidance | $5.75 - $5.90 | - Management expects Q4 2025 Adjusted EPS from Continuing Operations to be in the range of $2.04 to $2.19, representing 14% to 22% growth over Q4 2024[11] Shareholder Information Dividend Payment The company has declared its next quarterly cash dividend of $0.08 per share, scheduled for payment in October 2025 - A quarterly cash dividend of $0.08 per share will be paid on October 16, 2025, to stockholders of record on October 2, 2025[12] Conference Call ESCO will host a conference call and live webcast on August 7 at 4:00 p.m. Central Time to discuss its Q3 2025 financial results - The company will host a conference call with a live audio webcast and slide presentation on August 7 at 4:00 p.m. Central Time to discuss Q3 2025 results[13] Financial Statements Condensed Consolidated Statements of Operations The income statement for Q3 2025 shows net sales of $296.3 million, with earnings from continuing operations decreasing to $24.8 million due to increased costs Q3 Statement of Operations Summary (in thousands) | Account | Q3 2025 | Q3 2024 | | :--- | :--- | :--- | | Net Sales | $296,344 | $233,568 | | Total costs and expenses | $263,275 | $197,602 | | Earnings from continuing operations | $24,755 | $28,312 | | Net earnings | $26,065 | $29,230 | | Diluted GAAP EPS (Continuing Ops) | $0.96 | $1.10 | | Diluted Adjusted EPS (Continuing Ops) | $1.60 | $1.28 | YTD Q3 Statement of Operations Summary (in thousands) | Account | YTD Q3 2025 | YTD Q3 2024 | | :--- | :--- | :--- | | Net Sales | $742,714 | $645,621 | | Total costs and expenses | $649,428 | $565,251 | | Earnings from continuing operations | $71,445 | $63,330 | | Net earnings | $80,571 | $67,618 | | Diluted GAAP EPS (Continuing Ops) | $2.76 | $2.46 | | Diluted Adjusted EPS (Continuing Ops) | $3.71 | $2.99 | Condensed Business Segment Information This section details ESCO's segment performance, with Aerospace & Defense being the largest contributor to Q3 2025 sales and Adjusted EBIT, showing substantial year-over-year growth Q3 2025 Segment Performance (in thousands) | Segment | Net Sales | As Adjusted EBIT | | :--- | :--- | :--- | | Aerospace & Defense | $136,324 | $39,319 | | USG | $92,357 | $21,789 | | Test | $67,663 | $10,732 | | Total | $296,344 | $62,656 | YTD Q3 2025 Segment Performance (in thousands) | Segment | Net Sales | As Adjusted EBIT | | :--- | :--- | :--- | | Aerospace & Defense | $307,819 | $81,016 | | USG | $269,784 | $63,140 | | Test | $165,111 | $21,988 | | Total | $742,714 | $138,002 | Condensed Consolidated Balance Sheets As of June 30, 2025, ESCO's balance sheet reflects significant changes due to acquisition activity, with total assets increasing to $2.53 billion and long-term debt to $505 million Balance Sheet Summary (in thousands) | Account | June 30, 2025 | Sept 30, 2024 | | :--- | :--- | :--- | | Total current assets | $754,723 | $668,649 | | Goodwill & Intangibles | $1,505,634 | $933,459 | | Total Assets | $2,526,385 | $1,838,620 | | Total current liabilities | $496,840 | $349,854 | | Long-term debt | $505,000 | $102,000 | | Total Shareholders' Equity | $1,326,614 | $1,237,350 | Consolidated Statements of Cash Flows For the nine months ended June 30, 2025, net cash from operating activities significantly increased to $132.0 million, while investing activities used $510.2 million primarily for acquisitions YTD Cash Flow Summary (in thousands) | Cash Flow Activity | YTD Q3 2025 | YTD Q3 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $132,002 | $55,454 | | Net cash used by investing activities | ($510,200) | ($89,888) | | Net cash provided by financing activities | $390,599 | $55,301 | | Net increase in cash | $12,853 | $21,176 | Other Selected Financial Data The company's total backlog reached a record $1.165 billion at the end of Q3 2025, driven by $749 million in new orders, primarily from the Aerospace & Defense segment Q3 2025 Backlog and Orders by Segment (in thousands) | Segment | Beginning Backlog | Entered Orders | Ending Backlog | | :--- | :--- | :--- | :--- | | A&D | $385,491 | $582,354 | $831,521 | | USG | $124,274 | $105,524 | $137,441 | | Test | $202,971 | $61,152 | $196,460 | | Total | $712,736 | $749,030 | $1,165,422 | Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP EPS to Adjusted EPS, showing that Q3 2025 GAAP EPS of $0.96 was adjusted by $0.64 per share, primarily for acquisition-related costs, to reach $1.60 Q3 2025 EPS Reconciliation (Continuing Operations) | Description | Per Share Amount | | :--- | :--- | | GAAP EPS | $0.96 | | Adjustments | $0.64 | | As Adjusted EPS | $1.60 | - The primary adjustments for Q3 2025 included $0.40 for acquisition-related amortization, $0.15 for corporate acquisition costs, and $0.08 for Maritime inventory step-up charges and stamp duties[39] Appendix Forward-Looking Statements This section contains the company's standard safe harbor statement, advising that all forward-looking guidance is subject to numerous risks and uncertainties - Management's guidance and other forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to supply chain disruptions, economic conditions, government funding availability, and competition[14][15] Non-GAAP Financial Measures ESCO explains its use of non-GAAP financial measures like EBIT, Adjusted EBIT, and Adjusted EPS to assess operational profitability and facilitate industry comparisons - The company uses non-GAAP measures like EBIT, Adjusted EBIT, and Adjusted EPS to assess operational profitability and allocate resources[16][17] - These measures are presented as supplemental information to facilitate comparisons with other companies and are not intended to replace GAAP measures[17]