ESCO TECHNOLOGIES INC._DECEMBER 31, 2024

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


☐	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.

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.

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.

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.

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

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

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. 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.

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

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		—


	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.

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).

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

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.

ITEM 6. EXHIBITS

Exhibit Number	Description	Document Location

3.1(a)	Restated Articles of Incorporation	Exhibit 3(a) to the Company’s Form 10-K for the fiscal year ended September 30, 1999

3.1(b)	Amended Certificate of Designation, Preferences and Rights of Series A Participating Cumulative Preferred Stock of the Registrant	Exhibit 4(e) to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2000

3.1(c)	Articles of Merger effective July 10, 2000	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	Bylaws	Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022

4.1(a)	Amended and Restated Credit Agreement dated August 30, 2023	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	Certification of Chief Executive Officer	Filed herewith

31.2	Certification of Chief Financial Officer	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”.

	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