ESCO Technologies : 2022 Annual Report to Stockholders – Marketscreener.com
2022
ANNUAL REPORT
ESCO TECHNOLOGIES INC.
ESCO Technologies is a global provider of highly-engineered products and solutions to diverse end-markets that include the defense, aerospace, space, wireless, consumer electronics, healthcare, automotive, electric utility, and renewable energy industries. The company consists of three technology-driven business segments – Aerospace
Aerospace & Defense (A&D) provides highly-engineered hydraulic filtration systems, fluid control valves, machined components, and metal finishing for the aerospace, space, and defense industries. In addition, A&D designs and manufactures complex shock and vibration dampening tiles and signature reduction solutions that enhance
the stealth capabilities of U.S. Navy submarines and surface ships.
// Utility Solutions Group
Utility Solutions Group (USG) offers industry-leading diagnostic, protection testing, and condition monitoring equipment, consulting and laboratory testing services, and data analytics vital for ongoing grid reliability and renewable energy project development. Our USG segment offers a complete range of solutions that efficiently measure asset health and ensure the reliable, safe, and secure delivery
of power.
// RF Shielding & Test
RF Shielding & Test (Test) is an innovative supplier of test and measurement systems and shielded enclosures. Our comprehensive energy testing and management solutions identify, measure and contain magnetic, electromagnetic and acoustic energy, creating an environment that isolates and controls unintended energy emissions to insure immunity, compatibility and compliance with regulatory and industry-
defined standards.
A Record Year
2022 was a year of record Revenue, Adjusted EPS, Entered Orders and Year-End Backlog as we saw recovery across our key end-markets and strong execution by our operating teams.
Persistent supply chain disruptions, inflationary impacts, and labor shortages continued to create global headwinds throughout the year. Navigating these market disruptions also presented a unique opportunity, and we demonstrated our ability to adapt to these changing conditions. Through teamwork and innovation, we were able to find solutions that enabled us to both support our customers and deliver historic operating results.
As the year progressed, business conditions began to stabilize in our end-markets most impacted by the pandemic. Increased activity from our North American utility customers and robust demand in renewables drove revenue growth in our USG segment. The steady return of air travel began to drive increased aerospace production rates. Recovery in these key end-markets combined with solid orders momentum across each of our business segments have us well- positioned to drive meaningful growth going forward.
2022 Sales
2022 EBITDA - As Adjusted(1)
DOLLARS IN MILLIONS
DOLLARS IN MILLIONS
41%
Aerospace & Defense:
$351.4
32%
$858m
Utility Solutions Group:
$278.4
27%
RF Shielding & Test:
$227.7
42%
Aerospace & Defense:
$80.1
38%
$190m
Utility Solutions Group:
$72.0
20%
RF Shielding & Test:
$38.0
2022 ANNUAL REPORT 1
FINANCIAL HIGHLIGHTS FROM
CONTINUING OPERATIONS(1)
DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS
2018
2019
2020
2021
2022
Net Sales
$ 683.7
$ 726.0
$ 730.5
$ 715.4
$ 857.5
Entered Orders
695.6
822.5
796.3
796.3
960.5
Earnings Per Share - GAAP
3.31
2.97
0.88
2.42
3.16
Earnings Per Share - As Adjusted(2)
2.54
2.95
2.67
2.59
3.21
Capital Performance (As of September 30)
Net Debt
$ 190
$ 223
$ 10
$ 98
$ 55
Leverage Ratio
1.72
1.68
0.47
1.03
0.78
Cash Flow from Operating Activities
84
101
109
123
135
Net Sales
Earnings Per Share
Ending Backlog
IN MILLIONS
- As Adjusted(2)
IN MILLIONS
$684
$726
$730
$715
$858
$2.54
$2.95
$2.67
$2.59
$3.21
$361
$445
$511
$592
$695
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
(1) Financial Highlights exclude Discontinued Operations – Technical Packaging Segment sale was completed 12/31/19.
(2) EPS – As adjusted excludes $0.05 per share of charges associated with the Altanova and NEco acquisition inventory step-ups, severance at VACCO and NRG, and Corporate acquisition and management transition costs in 2022, $0.17 per share mainly consisting of management transition and acquisition costs at Corporate, restructuring costs primarily within the USG segment, and purchase accounting adjustments related to the Phenix and Altanova acquisitions, partially offset by the final settlement from the sale of the Doble Watertown facility in 2021, a $1.55 per share charge related to the pension plan termination and $0.24 per share of charges primarily within the USG segment related to facility consolidation, asset impairment, severance, and incremental costs associated with COVID-19 in 2020, $0.02 per share of income primarily related to the gain on the sale of the Doble Watertown property, partially offset by restructuring charges at Doble, PTI and VACCO in 2019, and $.017 per share of restructuring charges and ($0.94) per share net tax benefit resulting from the implementation of U.S. Tax Reform in 2018.
2 ESCO TECHNOLOGIES INC.
LETTER TO SHAREHOLDERS
In 2022 we delivered record sales, orders, year-end backlog and Adjusted EPS. Given the continuing global headwinds, we feel great about our ability to navigate through economic disruptions to deliver significant revenue growth and solid operating results.
The bottom line is that despite considerable challenges, all three of our business segments delivered meaningfully improved results that met or exceeded our initial guidance. Orders strength across each of our major end- markets continued to drive backlog growth and gives us confidence in the sustainable long-term economic viability of our diverse product offerings.
Financials
Broad orders strength drove solid revenue growth and margin improvement in 2022. With $961 million in orders, our ending backlog increased 17 percent to $695 million. Sales increased 20 percent to $858 million, with 13 percent organic growth and 7 percent related to contributions from recent acquisitions (Altanova, Phenix, and NEco). The organic growth was primarily driven by commercial aerospace and utility markets finally recovering from pandemic impacts, continued strength in renewables, and power filter, medical and test and measurement chamber volume at Test.
Our Adjusted EPS increased 24 percent to $3.21 per share and Adjusted EBITDA increased 23 percent to $161 million. Our Adjusted EBITDA margin increased a half point to 18.8 percent, with leverage on higher revenue driving the improvement.
From a liquidity standpoint, we generated $135 million of cash flow from operations resulting in a 108 percent free cash flow conversion rate. During 2022, we opportunistically repurchased approximately 257,500 shares of common stock for $20 million. With our focus on working capital improvement and cash flow generation, we ended the year with
a leverage ratio of ~0.78x and $589 million in liquidity. We remain well- positioned to fund internal engineering programs and capital investments to drive growth organically while also having the capability to expand through acquisitions. We continually evaluate a solid pipeline of M&A opportunities with the intent to strengthen our business portfolio and drive long-term shareholder value.
Cash Flow from Operating Activities
IN MILLIONS
$84
$101
$109
$123
$135
2018
2019
2020
2021
2022
Leverage Ratio
1.72
1.68
.47
1.03
.78
2018
2019
2020
2021
2022
2022 ANNUAL REPORT 3
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Esco Technologies Inc. published this content on 02 December 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 02 December 2022 21:14:58 UTC.