SEC Form 10-Q filed by ESCO Technologies Inc.

5/9/25 12:10:08 PM ET

$ESE

Telecommunications Equipment

Telecommunications

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ESCO TECHNOLOGIES INC._MARCH 31, 2025

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 MARCH 31, 2025


☐	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 April 30, 2025
Common stock, $.01 par value per share		25,824,491

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
	March 31,
	2025		2024
Net sales	$	265,519	249,129
Costs and expenses:
Cost of sales		156,298	152,347
Selling, general and administrative expenses		58,163	55,097
Amortization of intangible assets		7,989	8,572
Interest expense, net		2,195	3,226
Other expenses, net		375	666
Total costs and expenses		225,020	219,908

Earnings before income taxes		40,499	29,221
Income tax expense		9,466	6,002
Net earnings	$	31,033	23,219

Earnings per share:
Basic - Net earnings		1.20	0.90

Diluted - Net earnings	$	1.20	0.90

See accompanying notes to consolidated financial statements.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands, except per share amounts)


	Six Months Ended
	March 31,
	2025		2024

Net sales	$	512,545	467,443
Costs and expenses:
Cost of sales		304,940	286,498
Selling, general and administrative expenses		116,947	109,065
Amortization of intangible assets		15,982	16,440
Interest expense, net		4,452	5,893
Other (income) expenses, net		(216)	872
Total costs and expenses		442,105	418,768

Earnings before income taxes		70,440	48,675
Income tax expense		15,934	10,287
Net earnings	$	54,506	38,388

Earnings per share:
Basic — Net earnings	$	2.11	1.49
Diluted — Net earnings	$	2.11	1.49

See accompanying notes to consolidated financial statements.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands)


	Three Months Ended			Six Months Ended
	March 31,			March 31,
	2025		2024	2025	2024
Net earnings	$	31,033	23,219	54,506	38,388
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		8,133	(4,745)	(9,895)	4,669
Total other comprehensive income (loss), net of tax		8,133	(4,745)	(9,895)	4,669
Comprehensive income	$	39,166	18,474	44,611	43,057

See accompanying notes to consolidated financial statements.

ESCO TECHNOLOGIES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)


	March 31,		September 30,
	2025		2024
ASSETS
Current assets:
Cash and cash equivalents	$	57,397		65,963
Accounts receivable, net of allowance for credit losses of $3,030 and $2,734, respectively		218,123		240,680
Contract assets		125,281		130,534
Inventories		231,200		209,164
Other current assets		28,752		22,308
Total current assets		660,753		668,649
Property, plant and equipment, net of accumulated depreciation of $205,798 and $197,265, respectively		172,081		170,596
Intangible assets, net of accumulated amortization of $253,583 and $237,686, respectively		394,594		407,602
Goodwill		536,222		539,899
Operating lease assets		38,322		37,744
Other assets		13,690		14,130
Total assets	$	1,815,662		1,838,620

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	20,000		20,000
Accounts payable		81,244		98,371
Contract liabilities		128,114		124,845
Accrued salaries		39,790		47,651
Accrued other expenses		52,871		58,987
Total current liabilities		322,019		349,854
Deferred tax liabilities		72,580		75,333
Non-current operating lease liabilities		35,948		34,810
Other liabilities		39,787		39,273
Long-term debt		68,000		102,000
Total liabilities		538,334		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 30,880,632 and 30,809,483 shares, respectively		309		308
Additional paid-in capital		311,438		311,942
Retained earnings		1,133,326		1,082,950
Accumulated other comprehensive loss, net of tax		(20,670)		(10,775)
		1,424,403		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		1,277,328		1,237,350
Total liabilities and shareholders’ equity	$	1,815,662		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)


	Six Months Ended
	March 31,
	2025		2024
Cash flows from operating activities:
Net earnings	$	54,506	38,388
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation and amortization		27,781	27,555
Stock compensation expense		5,323	4,144
Changes in assets and liabilities		(27,207)	(47,869)
Effect of deferred taxes		(2,128)	(2,981)
Net cash provided by operating activities		58,275	19,237
Cash flows from investing activities:
Acquisition of business, net of cash acquired		—	(56,179)
Capital expenditures		(15,350)	(16,301)
Additions to capitalized software and other		(5,465)	(5,912)
Net cash used by investing activities		(20,815)	(78,392)
Cash flows from financing activities:
Proceeds from long-term debt and short-term borrowings		66,000	154,000
Principal payments on long-term debt and short-term borrowings		(100,000)	(65,000)
Purchases of common stock into treasury		—	(7,189)
Dividends paid		(4,130)	(4,125)
Other		(6,146)	(1,432)
Net cash (used) provided by financing activities		(44,276)	76,254
Effect of exchange rate changes on cash and cash equivalents		(1,750)	471
Net (decrease) increase in cash and cash equivalents		(8,566)	17,570
Cash and cash equivalents, beginning of period		65,963	41,866
Cash and cash equivalents, end of period	$	57,397	59,436

Supplemental cash flow information:
Interest paid	$	8,821	5,097
Income taxes paid (including state and foreign)		20,232	18,228

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 March 31, 2025 are not necessarily indicative of the results for the entire 2025 fiscal year. References to the second quarters of 2025 and 2024 represent the fiscal quarters ended March 31, 2025 and 2024, 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 shares 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		Six Months
	Ended March 31,		Ended March 31,
	2025	2024	2025	2024
Weighted Average Shares Outstanding — Basic	25,816	25,792	25,798	25,794
Dilutive Restricted Shares	61	55	57	52
Adjusted Shares — Diluted	25,877	25,847	25,855	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.

Performance Share Unit (PSU) Awards and Time-Vested Restricted Stock Unit (RSU) Awards

Compensation expense related to these awards was $2.4 million and $4.6 million for the three and six-month periods ended March 31, 2025, respectively, and $1.7 million and $3.5 million for the corresponding periods in 2024. As of March 31, 2025, there were 206,373 unvested stock units outstanding.

Non-Employee Directors Plan

Compensation expense related to the non-employee director grants was $0.4 million and $0.7 million for the three and six-month periods ended March 31, 2025, respectively, and $0.3 million and $0.6 million for the corresponding periods in 2024.

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 $2.8 million and $5.3 million for the three and six-month periods ended March 31, 2025, respectively, and $2.0 million and $4.1 million for the corresponding periods in 2024. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.6 million and $1.1 million for the three and six-month periods ended March 31, 2025, respectively, and $0.3 million and $0.5 million for the corresponding periods in 2024. As of March 31, 2025, there was $15.5 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 1.8 years.

4. INVENTORIES

Inventories consist of the following:


	March 31,		September 30,
(In thousands)	2025		2024
Finished goods	$	56,666	46,586
Work in process		54,145	47,903
Raw materials		120,389	114,675
Total inventories	$	231,200	209,164

5.	GOODWILL AND OTHER INTANGIBLE ASSETS

Included on the Company’s Consolidated Balance Sheets at March 31, 2025 and September 30, 2024 are the following intangible assets gross carrying amounts and accumulated amortization:


	March 31,		September 30,
(Dollars in thousands)	2025		2024
Goodwill	$	536,222	539,899

Intangible assets with determinable lives:
Patents
Gross carrying amount	$	2,653	2,638
Less: accumulated amortization		1,513	1,415
Net	$	1,140	1,223

Capitalized software
Gross carrying amount	$	140,111	134,119
Less: accumulated amortization		98,842	92,878
Net	$	41,269	41,241

Customer relationships
Gross carrying amount	$	328,618	330,328
Less: accumulated amortization		141,684	132,135
Net	$	186,934	198,193

Other
Gross carrying amount	$	14,872	15,182
Less: accumulated amortization		11,545	11,173
Net	$	3,327	4,009
Intangible assets with indefinite lives:
Trade names	$	161,924	162,936

The changes in the carrying amount of goodwill attributable to each business segment for the six months ended March 31, 2025 is 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		(2.8)		(0.9)	—	(3.7)
Balance as of March 31, 2025	$	354.1		66.5	115.6	536.2

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 and 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 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			Six Months
	Ended March 31,			Ended March 31,
(In thousands)	2025		2024	2025	2024
NET SALES
Aerospace & Defense	$	123,369	114,701	237,670	209,434
USG		90,767	87,309	177,427	170,293
Test		51,383	47,119	97,448	87,716
Consolidated totals	$	265,519	249,129	512,545	467,443

EBIT
Aerospace & Defense	$	30,296	23,377	51,892	40,040
USG		20,779	17,575	41,269	35,200
Test		6,369	5,542	10,791	7,321
Corporate (loss)		(14,750)	(14,047)	(29,060)	(27,993)
Consolidated EBIT		42,694	32,447	74,892	54,568
Less: Interest expense		(2,195)	(3,226)	(4,452)	(5,893)
Earnings before income taxes	$	40,499	29,221	70,440	48,675

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:


	March 31,		September 30,
(In thousands)	2025		2024
Total borrowings	$	88,000	122,000
Current portion of long-term debt		(20,000)	(20,000)
Total long-term debt, less current portion	$	68,000	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 March 31, 2025, the Company had approximately $407 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 $57.4 million cash on hand. The Company classified $20 million as the current portion of long-term debt as of March 31, 2025, 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 $5.1 million at March 31, 2025.

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 5.8% and 6.0% for the three and six-month periods ending March 31, 2025, respectively, and 6.8% and 6.8% for the three and six-month periods ending March 31, 2024. As of March 31, 2025, the Company was in compliance with all covenants.

8. INCOME TAX EXPENSE

The second quarter 2025 effective income tax rate was 23.4% compared to 20.5% in the second quarter of 2024. The effective income tax rate in the first six months of 2025 was 22.6% compared to 21.1% for the first six months of 2024. The increase in income tax expense in the second quarter and first six months of 2025 was due to prior year discrete events including the release of a foreign valuation allowance and excess tax benefit related to the vesting of share-based director compensation favorably impacting the income tax rate in the corresponding periods of 2024.

9. SHAREHOLDERS’ EQUITY

The change in shareholders’ equity for the first three and six months of 2025 and 2024 is shown below (in thousands):


	Three Months Ended March 31,			Six Months Ended March 31,
	2025		2024	2025	2024
Common stock
Beginning balance		309	308	308	308
Stock plans		—	—	1	—
Ending balance		309	308	309	308

Additional paid-in-capital
Beginning balance		308,143	305,283	311,942	304,850
Stock plans		3,295	2,782	(504)	3,215
Ending balance		311,438	308,065	311,438	308,065

Retained earnings
Beginning balance		1,104,359	1,002,420	1,082,950	989,315
Net earnings common stockholders		31,033	23,219	54,506	38,388
Dividends paid		(2,066)	(2,061)	(4,130)	(4,125)
Ending balance		1,133,326	1,023,578	1,133,326	1,023,578

Accumulated other comprehensive income (loss)
Beginning balance		(28,803)	(14,555)	(10,775)	(23,969)
Foreign currency translation		8,133	(4,745)	(9,895)	4,669
Ending balance		(20,670)	(19,300)	(20,670)	(19,300)

Treasury stock
Beginning balance		(147,075)	(139,362)	(147,075)	(139,362)
Share repurchases		—	(6,879)	—	(6,879)
Ending balance		(147,075)	(146,241)	(147,075)	(146,241)

Total equity		1,277,328	1,166,410	1,277,328	1,166,410

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 March 31, 2025 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 and six-month periods ended March 31, 2025.

11. REVENUES

Disaggregation of Revenues

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2025 are presented in the tables 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 tables below also include a reconciliation of the disaggregated revenue within each reportable segment.


Three months ended March 31, 2025
(In thousands)	A&D		USG		Test		Total
Customer type:
Commercial	$	50,788	$	89,649	$	37,891	$	178,328
Government		72,581		1,118		13,492		87,191
Total revenues	$	123,369	$	90,767	$	51,383	$	265,519

Geographic location:
United States	$	98,335	$	54,944	$	32,267	$	185,546
International		25,034		35,823		19,116		79,973
Total revenues	$	123,369	$	90,767	$	51,383	$	265,519

Revenue recognition method:
Point in time	$	56,052	$	73,002	$	11,607	$	140,661
Over time		67,317		17,765		39,776		124,858
Total revenues	$	123,369	$	90,767	$	51,383	$	265,519


Six months ended March 31, 2025
(In thousands)	A&D		USG		Test		Total
Customer type:
Commercial	$	98,288	$	173,928	$	74,240	$	346,456
Government		139,382		3,499		23,208		166,089
Total revenues	$	237,670	$	177,427	$	97,448	$	512,545

Geographic location:
United States	$	195,038	$	114,860	$	60,897	$	370,795
International		42,632		62,567		36,551		141,750
Total revenues	$	237,670	$	177,427	$	97,448	$	512,545

Revenue recognition method:
Point in time	$	106,178	$	142,280	$	21,398	$	269,856
Over time		131,492		35,147		76,050		242,689
Total revenues	$	237,670	$	177,427	$	97,448	$	512,545

Revenues by customer type, geographic location, and revenue recognition method for the three and six-month periods ended March 31, 2024 are presented in the tables below.


Three months ended March 31, 2024
(In thousands)	A&D		USG		Test		Total
Customer type:
Commercial	$	49,382	$	85,220	$	34,537	$	169,139
Government		65,319		2,089		12,582		79,990
Total revenues	$	114,701	$	87,309	$	47,119	$	249,129

Geographic location:
United States	$	92,161	$	55,763	$	27,543	$	175,467
International		22,540		31,546		19,576		73,662
Total revenues	$	114,701	$	87,309	$	47,119	$	249,129

Revenue recognition method:
Point in time	$	53,463	$	70,285	$	10,301	$	134,049
Over time		61,238		17,024		36,818		115,080
Total revenues	$	114,701	$	87,309	$	47,119	$	249,129


Six months ended March 31, 2024
(In thousands)	A&D		USG		Test		Total
Customer type:
Commercial	$	86,591	$	166,689	$	69,615	$	322,895
Government		122,843		3,604		18,101		144,548
Total revenues	$	209,434	$	170,293	$	87,716	$	467,443

Geographic location:
United States	$	172,062	$	111,725	$	49,795	$	333,582
International		37,372		58,568		37,921		133,861
Total revenues	$	209,434	$	170,293	$	87,716	$	467,443

Revenue recognition method:
Point in time	$	92,928	$	136,989	$	18,280	$	248,197
Over time		116,506		33,304		69,436		219,246
Total revenues	$	209,434	$	170,293	$	87,716	$	467,443

Revenue Recognition

Payment terms with our customers vary by the type and location of the customer and the products or services offered. Arrangements with customers that include payment terms extending beyond one year are not significant. The transaction price for these contracts reflects our estimate of returns and discounts, which are based on historical, current and forecasted information to determine the expected amount to which we will be entitled in exchange for transferring the promised goods or services to the customer. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant. We primarily provide standard warranty programs for products in our commercial businesses for periods that typically range from one to two years. These assurance-type programs typically cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Under the typical payment terms of our long term fixed price contracts, the customer pays us either performance-based or progress payments. Performance-based payments represent interim payments based on quantifiable measures of performance or on the achievement of specified events or milestones. Progress payments are interim payments of costs incurred as the work progresses.

For our overtime revenue recognized using the output method of costs incurred, contract cost is estimated utilizing current contract specifications and expected engineering requirements. Contract costs typically are incurred over a period of several months to one or more years, and the estimation of these costs requires judgment. Our cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We review and update our projections of costs quarterly or more frequently when circumstances significantly change. In addition, in the USG segment, we recognize revenue as a series of distinct services based on each day of providing services (straight-line over the contract term) for certain of our USG segment contracts. Under the typical payment terms of our service contracts, the customer pays us in advance of when services are performed. In addition, in the Test segment, we use milestones to measure progress for our Test segment contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts.

Remaining Performance Obligations

Remaining performance obligations, which is the equivalent of backlog, represent the expected transaction price allocated to contracts that the Company expects to recognize as revenue in future periods when the Company performs under the contracts. These remaining obligations include amounts that have been formally appropriated under contracts with the U.S. Government, and exclude unexercised contract options and potential orders under ordering-type contracts such as Indefinite Delivery, Indefinite Quantity contracts. At March 31, 2025, the Company had $932.3 million in remaining performance obligations of which the Company expects to recognize revenues of approximately 74% in the next twelve months.

Contract assets, contract liabilities and accounts receivable

Assets and liabilities related to contracts with customers are reported on a contract-by-contract basis at the end of each reporting period. At March 31, 2025, contract assets, contract liabilities and accounts receivable totaled $125.3 million, $138.5 million and $218.1 million, respectively. During the first six months of 2025, the Company recognized approximately $56 million in revenues that were included in the contract liabilities balance at September 30, 2024. At September 30, 2024, contract assets, contract liabilities and accounts receivable totaled $130.5 million, $134.3 million and $240.7 million, respectively.

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 our 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
	March 31,		March 31,
(Dollars in thousands)	2025		2024
Finance lease cost
Amortization of right-of-use assets	$	372	$	372
Interest on lease liabilities		202		216
Operating lease cost		2,000		1,874
Total lease costs	$	2,574	$	2,462


	Six Months Ended		Six Months Ended
	March 31,		March 31,
(Dollars in thousands)	2025		2024
Finance lease cost
Amortization of right-of-use assets	$	744	$	765
Interest on lease liabilities		408		439
Operating lease cost		3,999		3,738
Total lease costs	$	5,151	$	4,942

Additional information related to leases are shown below:


	Three Months Ended		Three Months Ended
	March 31,		March 31,
(Dollars in thousands)	2025		2024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,937	$	1,824
Operating cash flows from finance leases		202		216
Financing cash flows from finance leases		355		328
Right-of-use assets obtained in exchange for operating lease liabilities		1,040		1,679


	Six Months Ended		Six Months Ended
	March 31,		March 31,
(Dollars in thousands)	2025		2024
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	3,851	$	3,643
Operating cash flows from finance leases		408		439
Financing cash flows from finance leases		706		683
Right-of-use assets obtained in exchange for operating lease liabilities		4,508		1,679


	March 31,		March 31,
	2025		2024
Weighted-average remaining lease term
Operating leases	10.2	years	10.8	years
Finance leases	10.0	years	11.1	years
Weighted-average discount rate
Operating leases	4.70	%	4.55	%
Finance leases	4.72	%	4.68	%

The following is a reconciliation of future undiscounted cash flows to the operating and finance lease liabilities, and the related ROU assets, presented on our Consolidated Balance Sheet on March 31, 2025:


(Dollars in thousands)	Operating		Finance
Years Ending September 30:	Leases		Leases
2025 (excluding the six months ended March 31, 2025)	$	3,531	1,118
2026		5,402	2,297
2027		5,125	2,357
2028		5,041	2,417
2029 and thereafter		32,710	14,053
Total minimum lease payments		51,809	22,242
Less: amounts representing interest		11,246	4,965
Present value of net minimum lease payments	$	40,563	17,277
Less: current portion of lease obligations		4,615	1,491
Non-current portion of lease obligations		35,948	15,786

ROU assets	$	38,322	12,938

Operating lease liabilities are included in 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. NEW 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.

14. SUBSEQUENT EVENT

On April 25, 2025, the Company completed the acquisition of the Signature Management & Power (SM&P) business of Ultra Maritime for a purchase price of approximately $550 million in cash. SM&P will become part of ESCO’s Aerospace & Defense (A&D) segment and will be known as ESCO Maritime Solutions (Maritime) going forward. Their Signature Management and Power Management product lines are highly complementary to ESCO’s current naval programs. Signature Management offers solutions for surface ships and submarines that provide magnetic and electric field countermeasures to prevent underwater mine and sensor detection. Power Management provides innovative and highly-engineered motors that drive critical ship propulsion systems with an ultra-quiet design ensuring low vibration levels to increase stealth capabilities.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

References to the second quarters of 2025 and 2024 represent the three-month periods ended March 31, 2025 and 2024, respectively.

OVERVIEW

In the second quarter of 2025, sales, net earnings and diluted earnings per share were $265.5 million, $31.0 million and $1.20 per share, respectively, compared to $249.1 million, $23.2 million and $0.90 per share, respectively, in the second quarter of 2024. In the first six months of 2025, sales, net earnings and diluted earnings per share were $512.5 million, $54.5 million and $2.11 per share, respectively, compared to $467.4 million, $38.4 million and $1.49 per share, respectively, in the first six months of 2024.

NET SALES

In the second quarter of 2025, net sales of $265.5 million were $16.4 million, or 6.6%, higher than the $249.1 million in the second quarter of 2024. In the first six months of 2025, net sales of $512.5 million were $45.1 million, or 9.6%, higher than the $467.4 million in the first six months of 2024. The increase in net sales in the second quarter of 2025 as compared to the second quarter of 2024 was due to a $8.7 million increase in the A&D segment, a $4.3 million increase in the Test segment and a $3.4 million increase in the USG segment. The increase in net sales in the first six months of 2025 as compared to the first six months of 2024 was due to a $28.2 million increase in the A&D segment, a $9.7 million increase in the Test segment and a $7.1 million increase in the USG segment.

-A&D

In the second quarter of 2025, net sales of $123.4 million were $8.7 million, or 7.6%, higher than the $114.7 million in the second quarter of 2024. In the first six months of 2025, net sales of $237.7 million were $28.3 million, or 13.5%, higher than the $209.4 million in the first six months of 2024. The sales increase in the second quarter of 2025 compared to the second quarter of 2024 was mainly due to a $7.4 million increase in commercial aerospace shipments, a $4.5 million increase in navy revenues partially offset by a $2.3 million decrease in defense aerospace shipments. The sales increase in the first six months of 2025 compared to the first six months of 2024 was mainly due to a $19.4 million increase in commercial aerospace shipments, a $17.1 million increase in navy revenues partially offset by a $5.2 million decrease in defense aerospace shipments.

-USG

In the second quarter of 2025, net sales of $90.8 million were $3.5 million, or 4.0%, higher than the $87.3 million in the second quarter of 2024. In the first six months of 2025, net sales of $177.4 million were $7.1 million, or 4.2%, higher than the $170.3 million in the first six months of 2024. The increase in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was mainly due to an increase in net sales at Doble driven by higher sales of offline and protection testing products and services partially offset by lower cybersecurity/compliance (DUCe) solutions.

-Test

In the second quarter of 2025, net sales of $51.4 million were $4.3 million, or 9.1%, higher than the $47.1 million in the second quarter of 2024. In the first six months of 2025, net sales of $97.4 million were $9.7 million, or 11.1%, higher than the $87.7 million in the first six months of 2024. The increase in the second quarter of 2025 as compared to the second quarter of 2024 was primarily due to a $6.3 million increase in sales from the Company’s U.S. and European operations due to higher Test and Measurement, industrial shielding, medical services, and filters volumes partially offset by a $2.0 million decrease in sales from the segment’s Asian operations. The increase in the first six months of 2025 compared to the first six months of 2024 was due to a $12.0 million increase in sales from the Company’s U.S. and European operations for reasons mentioned above partially offset by a $2.3 million decrease in sales from the Company’s Asian operations.

ORDERS AND BACKLOG

Backlog was $932.3 million at March 31, 2025 compared with $879.0 million at September 30, 2024. The Company received new orders totaling $290.8 million in the second quarter of 2025 compared to $239.1 million in the second quarter of 2024. Of the new orders received in the second quarter of 2025, $121.7 million related to A&D products, $92.2 million related to USG products, and $76.9 million related to Test products. Of the new orders received in the second quarter of 2024, $116.1 million related to A&D products, $79.0 million related to USG products, and $43.9 million related to Test products.

The Company received new orders totaling $565.8 million in the first six months of 2025 compared to $532.8 million in the first six months of 2024. Of the new orders received in the first six months of 2025, $242.3 million related to A&D products, $181.7 million related to USG products, and $141.8 million related to Test products. Of the new orders received in the first six months of 2024, $287.7 million related to A&D products, $156.0 million related to USG products, and $89.1 million related to Test products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the second quarter of 2025 were $58.2 million (21.9% of net sales), compared with $55.1 million (22.1% of net sales) for the second quarter of 2024. For the first six months of 2025, SG&A expenses were $116.9 million (22.8% of net sales) compared to $109.1 million (23.3% of net sales) for the first six months of 2024. The increase in SG&A in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was due to an increase within all three business segments mainly due to increased expenses related to higher sales, inflationary impacts, R&D expenses and commission expenses.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets was $8.0 million and $16.0 million for the second quarter and first six months of 2025, respectively, compared to $8.6 million and $16.4 million for the corresponding periods of 2024. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The decrease in amortization expense in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was mainly due to a decrease in amortization of intangible assets related to the MPE acquisition.

OTHER EXPENSES (INCOME), NET

Other expenses, net, was $0.4 million in the second quarter of 2025 compared to $0.7 million in the second quarter of 2024. Other (income) expenses, net, was $(0.2) million in the first six months of 2025 compared to $0.9 million of expenses in the first six months of 2024. There were no individually significant items in other expenses (income), net, in the second quarter and first six months of 2025. The principal component of other expenses, net, in the second quarter and first six months of 2024 was approximately $0.5 million of restructuring charges (primarily severance) within the Test and A&D segments.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis. EBIT is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 6 to the Consolidated Financial Statements, above. EBIT was $42.7 million (16.1% of net sales) for the second quarter of 2025 compared to $32.4 million (13.0% of net sales) for the second quarter of 2024. For the first six months of 2025, EBIT was $74.9 million (14.6% of net sales) compared to $54.6 million (11.7% of net sales) for the first six months of 2024.

The following table presents a reconciliation of EBIT to net earnings.


	Three Months Ended				Six Months Ended
	March 31,				March 31,
(In thousands)	2025		2024		2025	2024
Net earnings	$	31,033		23,219	54,506	38,388
Plus: Interest expense, net		2,195		3,226	4,452	5,893
Plus: Income tax expense		9,466		6,002	15,934	10,287
Consolidated EBIT	$	42,694		32,447	74,892	54,568

-A&D

EBIT in the second quarter of 2025 was $30.3 million (24.6% of net sales) compared to $23.4 million (20.4% of net sales) in the second quarter of 2024. EBIT in the first six months of 2025 was $51.9 million (21.8% of net sales) compared to $40.0 million (19.1% of net sales) in the first six months of 2024. The increase in EBIT in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was mainly driven by leverage on higher sales volumes, price increases and mix, partially offset by inflationary pressures. EBIT was negatively impacted by $0.3 million of restructuring charges (primarily severance) in the second quarter and first six months of 2024.

-USG

EBIT in the second quarter of 2025 was $20.8 million (22.9% of net sales) compared to $17.6 million (20.1% of net sales) in the second quarter of 2024. EBIT in the first six months of 2025 was $41.3 million (23.3% of net sales) compared to $35.2 million (20.7% of net sales) in the first six months of 2024. The increase in EBIT in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was mainly due to leverage on higher sales volumes at Doble, price increases and mix, partially offset by inflationary pressures.

-Test

EBIT in the second quarter of 2025 was $6.4 million (12.4% of net sales) compared to $5.5 million (11.8% of net sales) in the second quarter of 2024. EBIT in the first six months of 2025 was $10.8 million (11.1% of net sales) compared to $7.3 million (8.3% of net sales) in the first six months of 2024. The increase in EBIT in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was primarily due to higher sales volumes mainly from the segment’s U.S and European operations, price increases and cost reduction actions partially offset by unfavorable mix, inflationary pressures and lower sales volumes from the segment’s Asian operations. In addition, EBIT was negatively impacted by $0.4 million in the first six months of 2025 of restructuring charges (primarily severance). EBIT was negatively impacted by $0.3 million of inventory step-up charges related to the MPE acquisition and $0.2 million of restructuring charges in the first six months of 2024.

–Corporate

Corporate costs included in EBIT were $14.8 million and $29.1 million in the second quarter and first six months of 2025, respectively, compared to $14.0 million and $28.0 million in the corresponding periods of 2024. The increase in Corporate costs in the second quarter and first six months of 2025 as compared to the corresponding periods of 2024 was mainly due to an increase in share based compensation costs and acquisition costs.

INTEREST EXPENSE, NET

Interest expense was $2.2 million and $4.5 million in the second quarter and first six months of 2025, respectively, and $3.2 million and $5.9 million in the corresponding periods of 2024. The decrease in interest expense in the second quarter and first six months of 2025 compared to the corresponding periods of 2024 was mainly due to lower average interest rates and lower average outstanding borrowings. The weighted average interest rates were 5.8% and 6.0% for the three and six-month periods ending March 31, 2025, respectively, and 6.8% and 6.8% for the three and six-month periods ending March 31, 2024.

INCOME TAX EXPENSE

CAPITAL RESOURCES AND LIQUIDITY

The Company’s overall financial position and liquidity remains strong. Working capital (current assets less current liabilities) increased to $338.7 million at March 31, 2025 from $318.8 million at September 30, 2024. Accounts receivable decreased $22.6 million during this period mainly due to a $11.3 million decrease within the USG segment, a $6.8 million decrease within the A&D segment and a $4.5 million decrease within the Test segment due to strong cash collections during the period. Inventories increased $22.0 million during this period due to a $12.1 million increase within the USG segment, a $6.4 million increase within the A&D segment and a $3.5 million increase within the Test segment primarily from an increase in finished goods and raw materials inventories due to timing of manufacturing existing orders. Accrued salaries decreased by $7.9 million during this period due to timing of salaries and bonus payments.

Net cash provided by operating activities was $58.3 million and $19.2 million in the first six months of 2025 and 2024, respectively. The increase in net cash provided by operating activities in the first six months of 2025 as compared to the first six months of 2024 was mainly driven by lower accounts receivable balances due to an increase in collections and higher earnings.

Capital expenditures were $15.4 million and $16.3 million in the first six months of 2025 and 2024, respectively. In addition, the Company incurred expenditures for capitalized software of $5.5 million and $5.9 million in the first six months of 2025 and 2024, respectively.

Credit Facility

At March 31, 2025, the Company had approximately $407 million available to borrow under its bank credit facility, a $250 million increase option, and $57.4 million cash on hand. At March 31, 2025, the Company had $88 million of outstanding borrowings under the credit facility in addition to outstanding letters of credit of $5.1 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.

Subsequent Event

On April 25, 2025, the Company completed the acquisition of the Signature Management & Power (SM&P) business of Ultra Maritime for a purchase price of approximately $550 million in cash. SM&P will become part of ESCO’s Aerospace & Defense (A&D) segment and will be known as ESCO Maritime Solutions going forward. Their Signature Management and Power Management product lines are highly complementary to ESCO’s current naval programs. Signature Management offers solutions for surface ships and submarines that provide magnetic and electric field countermeasures to prevent underwater mine and sensor detection. Power Management provides innovative and highly-engineered motors that drive critical ship propulsion systems with an ultra-quiet design ensuring low vibration levels to increase stealth capabilities.

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. A 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. Subsequent to March 31, 2025, a quarterly dividend of $0.08 per share, totaling $2.1 million, was paid on April 17, 2025 to stockholders of record as of April 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; the determination of the current portion of the Company’s long-term debt and the timing of its repayment; future revenues from remaining performance obligations; fair values of reporting units; the deductibility of goodwill; estimates and assumptions that affect the reported values of assets and liabilities; the future 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, inflation and employment 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to the Company’s operations result primarily from changes in interest rates and changes in foreign currency exchange rates. The Company is exposed to market risk related to changes in interest rates and selectively uses derivative financial instruments, including forward contracts and swaps, to manage these risks. The Company’s Canadian subsidiary Morgan Schaffer enters into foreign exchange contracts to manage foreign currency risk as a portion of their revenue is denominated in U.S. dollars. All derivative instruments are reported on the balance sheet at fair value. For derivative instruments designated as cash flow hedges, the gain or loss on the respective derivative is deferred in accumulated other comprehensive income until recognized in earnings with the underlying hedged item. There has been no material change to the Company’s market risks since September 30, 2024.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation, under the supervision and with the participation of Management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not repurchase any shares during the second quarter of 2025.

ITEM 5. OTHER INFORMATION

During the second quarter of fiscal 2025, no director or officer (as defined in Securities and Exchange Commission Rule 16-a-1(f)) of the Company adopted or terminated:

(i)

Any contract, instruction or written plan for the purchase or sale of Company securities intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) (a “Rule 10b5-1 trading arrangement”); or

(ii)

Any “non-Rule 10-b5-1 trading arrangement” as defined in Item 408(c) of SEC Regulation S-K.

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”.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	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: May 9, 2025

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Date	Price Target	Rating	Analyst
10/21/2024	$150.00	Buy	The Benchmark Company
1/5/2024	$18.00	Buy → Neutral	Sidoti
9/28/2021	$99.00	Neutral → Buy	Sidoti

SEC Form 10-Q filed by ESCO Technologies Inc.

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