EDGAR 10-K Filing

Company CIK: 866706
Filing Year: 2024
Filename: 866706_10-K_2024_0001410578-24-002064.json

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ITEM 1. BUSINESS
Item 1. Business
The Company
The Registrant is ESCO Technologies Inc., sometimes referred to in this report as ESCO. Except where the context indicates otherwise, the terms “Company”, “we”, “our” and “us” are used in this report to refer to ESCO together with its subsidiaries through which its businesses are conducted. We are:
● A global provider of highly engineered filtration and fluid control products and integrated propulsion systems for the aviation, navy, space and process markets worldwide, as well as composite-based products and solutions for navy, defense and industrial customers;
● An industry leader in radio frequency (RF) shielding and electromagnetic compatibility (EMC) test products; and
● A provider of diagnostic instruments, software and services for the benefit of the electric utility and renewable energy industries and industrial power users.
Our business is focused on generating predictable and profitable long-term growth in sales and earnings through continued expansion of our product offerings across each of our business segments. Our corporate strategy is centered on a multi-segment portfolio serving our established high-growth, high-margin end markets through a number of wholly-owned direct and indirect subsidiaries. Our stock is listed on the New York Stock Exchange, where its ticker symbol is “ESE”.
Our fiscal year ends September 30. Throughout this Annual Report, unless the context indicates otherwise, references to a year (for example 2024) refer to our fiscal year ending on September 30 of that year, and references to the “Consolidated Financial Statements” refer to our Consolidated Financial statements included in the Financial Information section of this Annual Report beginning on page, an Index to which is provided on page.
We classify our business operations into three segments for financial reporting purposes, although for reporting certain financial information we treat Corporate activities as a separate segment. Our three operating segments during 2024, together with the significant domestic and foreign operating subsidiaries within each segment, are as follows:
Aerospace & Defense (A&D):
PTI Technologies Inc. (PTI)
VACCO Industries (VACCO)
Crissair, Inc. (Crissair)
Mayday Manufacturing Co. (Mayday)
Globe Composite Solutions, LLC (Globe, including Westland Technologies, Inc.)
Utility Solutions Group (USG):
Doble Engineering Company
Morgan Schaffer Ltd. (Morgan Schaffer)
I.S.A. - Altanova Group S.r.l. and affiliates (Altanova)
NRG Systems, Inc. (NRG)
Except as the context otherwise indicates, the term “Doble” as used herein includes Doble Engineering Company and ESCO’s other USG subsidiaries except NRG.
RF Test & Measurement (Test):
ETS-Lindgren Inc.
MPE Limited (MPE)
Except as the context otherwise indicates, the term “ETS-Lindgren” as used herein includes ETS-Lindgren Inc. and ESCO’s other Test segment subsidiaries.
Our operating subsidiaries are engaged primarily in the research, development, manufacture, sale and support of the products and systems described below. Their respective businesses are subject to a number of risks and uncertainties, including without limitation those discussed in Item 1A, “Risk Factors.” See also Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Forward-Looking Information.”
We are continually seeking ways to reduce our overall operating costs, streamline business processes and enhance the branding of our products and services. For example, in FY2023 we consolidated the businesses of Westland Technologies and Globe Composites into a single business managed by the Globe leadership team in Stoughton, MA, and repurposed Westland’s Modesto, California location into a focused manufacturing site in support of our broader Navy materials business.
We are also continuing to seek opportunities to supplement our growth by making strategic acquisitions. In November 2023 we acquired MPE Limited (MPE), a United Kingdom-based global manufacturer of high-performance products for military, utility, telecommunication and other critical infrastructure applications. In February 2023 we acquired CMT Materials, LLC and its affiliate Engineered Syntactic Systems, LLC (together, CMT). CMT is a leading supplier of syntactic materials for buoyancy and specialty applications, with expertise in designing and manufacturing custom syntactic foam components and systems utilized in industrial, oceanographic, military, and naval applications. In November 2021, we acquired Networks Electronic Company, LLC (NEco). NEco, based in Chatsworth, California, provides miniature electro-explosive devices utilized in mission-critical defense and aerospace applications. Information about these acquired businesses is provided in the following section, “Products,” and in Note 2 to the Consolidated Financial Statements.
As previously announced in July 2024, we have entered into a Sale and Purchase Agreement (“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, (ii) Measurement Systems, Inc., a Delaware corporation, (iii) EMS Development Corporation, a New York corporation, and (iv) DNE Technologies, Inc., a Delaware corporation, for a total 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”). Although we have secured adequate financing for the SM&P Acquisition and the waiting period under the Hart-Scott-Rodino Act expired in August 2024, closing of the SM&P Acquisition remains subject to certain other conditions including the receipt of clearance under the United Kingdom’s National Security and Investment Act of 2021 (the “NSIA”). We submitted our filing for clearance under the NSIA in July 2024 and the UK government is assessing the SM&P Acquisition. We are optimistic that the assessment will be positively resolved and the required clearance will be obtained. The closing of the SM&P Acquisition will occur at a date mutually agreed between the Company and Ultra following the satisfaction of conditions to closing, with closing currently expected to occur in the second quarter of fiscal 2025. See Item 1A, “Risk Factors.”
In addition, as previously announced in August 2024, we are currently engaged in a strategic review of our Space business at VACCO. The results of this review could include, among other alternatives, a sale of VACCO or its Space business. The intent is to optimize our portfolio of businesses and create value for ESCO shareholders. This decision was made as part of our continued strategic portfolio analysis, which is focused on positioning us to serve high-growth markets that have high margin potential. During this review process, we remain committed to continuing the execution of our current Space programs to serve the needs of our customers.
Products
Our principal products are described below. See Note 9 to the Consolidated Financial Statements for financial information regarding business segments and 10% customers.
A&D
The A&D segment accounted for approximately 44%, 41% and 41% of our total revenue in 2024, 2023 and 2022, respectively. This segment has nine facilities in the United States and one in Mexico.
The segment’s operations consist of PTI, VACCO, Crissair, Mayday and Globe. The companies within this segment primarily design and manufacture specialty filtration, fluid control and naval products, including hydraulic filter elements, fluid control devices and precision-tolerance machined components 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; and miniature electro-explosive devices for military aircraft ejection seats and missile arming devices.
USG
Our USG segment accounted for approximately 36%, 36% and 32% of our total revenue in 2024, 2023 and 2022, respectively. This segment has eight facilities in the United States, one in Canada, and ten outside North America.
The segment’s operations consist primarily of Doble Engineering Company, Morgan Schaffer and Altanova (collectively, Doble), and 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, high-current and high-power delivery equipment. It combines three core elements for customers - diagnostic test instruments and condition monitoring systems, expert consulting, and testing services - and provides access to its large reserve of related empirical knowledge. Altanova provides a significant international platform for Doble by representing our products and solutions in markets outside North and South America and Canada. NRG is a global market leader in the design and manufacture of decision support tools for the renewable energy industry, primarily wind and solar.
Test
Our Test segment accounted for approximately 20%, 23% and 27% of our total revenue in 2024, 2023 and 2022, respectively. This segment has four facilities in the United States and seven outside the United States.
The segment’s operations consist primarily of ETS-Lindgren, an industry leader in designing and manufacturing products and systems to measure and control RF and acoustic energy for research and development, regulatory compliance, and medical and security applications. It serves the acoustics, medical, health and safety, electronics, wireless communications, automotive and defense markets, providing 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.
ETS-Lindgren also supplies 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. It offers a variety of services including calibration and product tests accredited by the following organizations: American Association for Laboratory Accreditation, National Voluntary Laboratory Accreditation Program and CTIA-The Wireless Association Accredited Test Lab. MPE’s comprehensive standard suite of core products spans high performance feedthrough capacitors, high current power, telephone, data & control line filters, through to the latest range of High Altitude Electromagnetic Protection filters.
Marketing and Sales
Our products generally are distributed to customers through a domestic and foreign network of distributors, sales representatives, direct sales teams and in-house sales personnel.
Our sales to international customers accounted for approximately 28%, 30% and 30% of our total revenue in 2024, 2023 and 2022, respectively. See Note 9 to the Consolidated Financial Statements for financial information by geographic area. See Item 1A, “Risk Factors,” for a discussion of risks related to our international operations.
Government Contracts
Some of our products are sold to the U.S. Government either directly under contracts with the Army, Navy and Air Force as well as other Government agencies or indirectly under subcontracts with their prime contractors. Direct and indirect sales to the U.S. Government, primarily related to the A&D segment, accounted for approximately 27%, 23% and 25% of our total revenue in 2024, 2023 and 2022, respectively.
Our Government contracts primarily include firm fixed-price contracts under which work is performed and paid for at a fixed amount without adjustment for the actual costs experienced in connection with the contracts. All Government prime contracts and virtually all
of our Government subcontracts provide that they may be terminated at the convenience of the Government or the customer. Upon a termination for convenience, we are entitled to receive equitable compensation from the customer for the work we completed prior to termination.
All of our facilities are in material compliance with appliable Government regulations and executive orders.
See Item 1A, “Risk Factors,” for a discussion of risks related to our Government business.
Intellectual Property
We own or have other rights in various forms of intellectual property (i.e., patents, trademarks, service marks, copyrights, mask works, trade secrets and other items). As a major supplier of engineered products to industrial and commercial markets, we emphasize developing intellectual property and protecting our rights therein. However, the legal protection afforded by intellectual property rights is often uncertain and can involve complex legal and factual issues. Some intellectual property rights, such as patents, have a limited term, and there can be no assurance that third parties will not infringe or design around our intellectual property. Policing the unauthorized use of intellectual property is difficult, and infringement and misappropriation are persistent problems for many companies, particularly in some international markets, and in some cases, we may elect not to pursue an unauthorized user due to the high costs and uncertainties associated with litigation. Further, there can be no assurance that courts will ultimately hold issued patents or other intellectual property valid and enforceable. See Item 1A, “Risk Factors.”
A number of products in the Aerospace & Defense segment are based on patented or otherwise proprietary technology that sets them apart from the competition, such as PTI’s metal fiber media filter elements and Westland’s signature reduction solutions. In addition, Globe has developed significant manufacturing and logistics capability utilized for special hull treatments for submarines.
In the USG segment, our policy is to seek patent and/or other forms of intellectual property protection on new and improved products, components of products, and methods of operation for our businesses, as such developments are made. Doble has obtained and is pursuing additional patent protection on improvements to its line of diagnostic equipment and NERC CIP compliance tools and its Calisto R9 dissolved gas analyzer. Doble also holds an extensive library of apparatus performance information useful to entities that generate, distribute or consume electric energy, and it makes part of this library available to registered users via an Internet portal. Altanova has obtained and is pursuing additional patent protection on instruments and methods for detecting partial discharges in electrical apparatus. NRG has intellectual property related to certain LIDAR technology and applications, and it has obtained and is pursuing additional patent protection on its line of bat deterrent systems, which are designed to significantly reduce bat mortality at windfarms and in other applications where bat conservation is a concern.
In the Test segment, we have sought patent protection for significant inventions. Examples of such inventions include novel designs for window and door assemblies used in shielded enclosures and anechoic chambers, improved acoustic techniques for sound isolation and a variety of unique antennas. In addition, the Test segment holds a number of patents, and has patents pending, on products used to perform wireless device testing.
We consider our patents and other intellectual property to be of significant value to each of our segments.
Backlog
Total Company backlog of firm orders at September 30, 2024 was $879.0 million, representing an increase of $106.6 million (13.8%) from the backlog of $772.4 million at September 30, 2023. By segment, the backlog at September 30, 2024 and September 30, 2023, respectively, was $600.4 million and $484.1 million for A&D; $120.0 million and $133.5 million for USG; and $158.6 million and $154.8 million for Test. We estimate that as of September 30, 2024, domestic customers accounted for approximately 78% of our total firm orders and international customers accounted for approximately 22%. Of our total backlog at September 30, 2024, approximately 70% is expected to be completed in the fiscal year ending September 30, 2025.
Purchased Components and Raw Materials
Our products require a wide variety of components and materials. Although we have multiple sources of supply for most of our materials requirements, certain components and raw materials are supplied by sole source vendors, and our ability to perform certain contracts depends on their timely performance. In the past, these required raw materials and various purchased components generally have been available in sufficient quantities. However, we do have some risk of shortages of materials or components due to reliance on sole or limited sources of supply; and supplies of components and materials are periodically impacted by supply chain disruptions, as well as complications due to current or future trade policies. Where feasible, we engineer and qualify substitute products to avoid short-term supply issues; however, we are subject to the same supply chain risks as other electronics manufacturers. An unanticipated delay in delivery by our suppliers could result in the inability to deliver our products on-time and to meet the expectations of our customers. Additionally, we have experienced, and could continue to experience, an increase in the costs of doing business, including increasing raw material prices and transportation costs, which have and could continue to have an adverse impact on our business, results of operations, financial condition and cash flows. See also Item 1A, “Risk Factors.”
Our A&D segment purchases supplies from a wide array of vendors. In most instances, multiple vendors of raw materials are screened during a qualification process to ensure that there will not be an interruption of supply should one of them underperform or discontinue operations. Nonetheless, in some situations, there is a risk of shortages due to reliance on a limited number of suppliers or because of price fluctuations due to the nature of the raw materials. For example, aerospace-grade titanium and gaseous helium, important raw materials for our A&D segment subsidiaries, may at times be in short supply.
Our USG segment manufactures electronic instrumentation through a network of regional contract manufacturers under long-term contracts. In general, USG purchases the same kinds of component parts as do other electronic products manufacturers, and these electronic components can be subject to supply chain constraints. USG purchases only a limited amount of raw materials, although some USG products require helium, which may at times be in short supply.
Our Test segment is a vertically integrated supplier of electro-magnetic (EM) shielding, RF absorbing products and EMC/EMP/Tempest filters, producing most of its critical RF components itself. This segment purchases significant quantities of raw materials such as polyurethane foam, polystyrene beads, steel, aluminum, copper, nickel and wood. Accordingly, it is subject to price fluctuations in the worldwide raw materials markets. While ETS-Lindgren has long-term contracts with a number of its suppliers, performance of these contracts is vulnerable to the risks described in Item 1A.
Competition
Competition in our major markets is broadly based and global in scope. This competition can be particularly intense during periods of economic slowdown, and we have experienced this in some of our markets. Although we are a leading supplier in several of the markets we serve, we maintain a relatively small share of the business in many of our other markets. Individual competitors range in size from annual revenues of less than $1 million to billion-dollar enterprises. Because of the specialized nature of our products, our competitive position with respect to our products cannot be precisely stated. In our major served markets, competition is driven primarily by quality, technology, price and delivery performance. See also Item 1A, “Risk Factors.”
Primary competitors of our A&D segment include Pall Corporation (a subsidiary of Danaher Corporation), Moog, Inc., Safran (Sofrance), CLARCOR Inc., TransDigm (PneuDraulics), Marotta Controls, Parker Hannifin, and Collins Aerospace.
Significant competitors of our USG segment include OMICRON Electronics Corp., Megger Group Limited, Vaisala, and Qualitrol Company LLC (a subsidiary of Fortive Corporation).
Our Test segment is a global leader in EM shielding. Significant competitors in this market include Rohde & Schwarz GMBH, Microwave Vision SA (MVG), TDK RF Solutions Inc., Albatross GmbH, IMEDCO AG, Universal Shielding Corp., and Schaffner.
Research and Development
Research and development and our technological expertise are important factors in our business. Our research and development programs are designed to develop technology for new products or to extend or upgrade the capability of existing products, and to enhance their commercial potential. We perform research and development at our own expense, and also engage in research and development funded by our customers. See Note 1 to the Consolidated Financial Statements for financial information about our research and development expenditures.
Environmental Matters and Government Regulation
We are involved in various stages of investigation and cleanup relating to environmental matters. It is difficult to estimate the potential costs of these matters and the possible impact of these costs on the Company at this time due in part to: the uncertainty regarding the extent of pollution; the complexity and changing nature of Government laws and regulations and their interpretations; the varying costs and effectiveness of alternative cleanup technologies and methods; the uncertain level of insurance or other types of cost recovery; the uncertain level of our responsibility for any contamination; the possibility of joint and several liability with other contributors under applicable law; and the ability of other contributors to make required contributions toward cleanup costs. Based on information currently available, we do not believe that the aggregate costs involved in the resolution of environmental matters or compliance with Governmental regulations will have a material adverse effect on our financial condition or results of operations.
Human Capital Management
As of September 30, 2024, we employed 3,281 persons, including 3,242 full time employees 20% of whom were located in 19 foreign countries.
We strive to be a responsible member of the communities in which we operate, and we are dedicated to preserving operational excellence and remaining an employer of choice. We provide and maintain a work environment that attracts, develops and retains top talent by offering our employees an engaging work experience that contributes to their career development. Through our charitable Foundation we provide opportunities for civic involvement that supports our communities and provides our employees with meaningful experiences that promote collaborative and rewarding work environments. We strive to maintain a culture that enables all employees to be treated with dignity and respect while performing their jobs to the best of their abilities. We operate in a supportive culture that incorporates strong ethical behavior and reinforces our human rights commitment through annual training on ethics, human rights, anti-human trafficking and anti-harassment.
Our engagement strategy focuses on attracting, developing and retaining world-class talent to maximize customer value. This year we conducted our first-ever global engagement survey which measured five primary engagement drivers as well as our company values: Integrity, Teamwork, Customer Service, Safety, Innovation and Quality. We had a significantly high response rate of 75% and overall engagement favorability of 81%, exceeding comparable benchmarks. The insights gained from the survey have informed leader actions to build on strengths and address areas of opportunity. Periodic engagement surveys will help measure progress against those actions.
Fewer than 3% of our workforce are contingent workers. We pride ourselves on maintaining a diverse, inclusive and safe work environment to inspire our employees to give their best efforts every day. In fact, over half of our employee base comes from demographically diverse backgrounds.
We generally conduct formal compensation benchmarking reviews every 1-2 years to ensure wages are competitive in local markets and support our retention and recruiting efforts. Additionally, we invest time and resources in reviewing pay equity within our workforce. The majority of full-time domestic and international employees are eligible for bonus or commission plans, most of which are designed to incentivize and reward performance based on results such as EPS, EBIT, cash flow, quality and backlog reduction, or other measures.
We recognize that our success is based on the talents and dedication of those we employ, and we are invested in their success. We make significant investments in the areas of talent development, technical skills and compliance training in areas such as supervisor training, professional coaching, ethics, safety, hazmat, ITAR, etc. For succession planning purposes, we focus on identifying high-potential future leaders and working with them on individual development plans and coaching.
Attracting and retaining a talented workforce is of utmost importance. Given the ever-changing talent market, we have looked to broaden the ways in which we can recognize and reward performance, including more frequent merit increases, market adjustments, spot bonuses and other creative ways to recognize and reward employees. By utilizing these and other measures, at the end of our fiscal year the average tenure of our workforce was 9 years. One-third of our employees have been with us for 10 or more years and over 50% of our employees have been with us for five or more years.
We are committed to the health and wellbeing of our employees and their families by encouraging participation in wellness programs. Generally, all our full-time employees, both domestic and international, are offered health and welfare benefits. We remain committed to our communities, including through financial support from the ESCO Foundation and through personal participation of our employees with a variety of local organizations, such as area food banks, blood drives, community outreach, Special Olympics, Habitat for Humanity, Big Brothers Big Sisters, United Way and many other favored local charities. We believe strong human capital is a competitive differentiator, and we focus on ensuring we have the right domestic and international talent in place to drive our strategic initiatives not only today but well into the future.
Workforce Composition
(As of September 30, 2024)
By Gender
By Race
Male
%
Minorities
%
Female
%
White
%
Unknown*
%
Unknown*
%
By Generation
Gen Z (1996-2015)
%
Millennials (1977-1995)
%
Gen X (1965-1976)
%
Boomers (1946-1964)
%
Silent (1945 & before)
<0.1
%
Minorities are defined to include individuals of Native American or Alaskan Native, Asian, Black or
African American, Hispanic or Latino, Native Hawaiian or Other Pacific Islander, and Two or More Races.
The above is based on employees’ self-identification or other information believed by the Company to be reliable.
*Some countries do not permit the collection or reporting of some or all of the above types of data.
Financing
For information about our credit facility, see Note 6 to the Consolidated Financial Statements, which is incorporated into this Item by reference.
Additional Information
The information set forth in Item 1A, “Risk Factors,” is incorporated in this Item by reference.
We make available free of charge on or through our website, www.escotechnologies.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our recent Proxy Statements for meetings of our shareholders, as soon as reasonably practicable after we file or furnish this material to the Securities and Exchange Commission. Information contained on our website is not incorporated into this Report.
Information about our Executive Officers
The following sets forth certain information as of the date of this report with respect to the persons who are, or who have been selected to become, our executive officers. These officers are elected annually to terms which expire at the first meeting of the Board of Directors held after the Annual Meeting of Stockholders.
Name
Age
Position(s) and Business Experience
Bryan H. Sayler
Mr. Sayler has been the Company’s President and Chief Executive Officer since January 1, 2023. Mr. Sayler led our Utility Solutions Group from 2016 through 2022, where he played a key role in strategically building out the group, including leading our entry into the renewables business and overseeing six successful acquisitions that more than doubled the size of the segment. From 1995 to 2016, he held senior positions with ETS-Lindgren.
Christopher L. Tucker
Mr. Tucker has been Senior Vice President and Chief Financial Officer since April 2021. Since joining ESCO, he has prioritized broadening the capabilities of the finance and IT teams at ESCO while also strengthening financial reporting and planning systems. Prior to joining ESCO, Mr. Tucker worked at Emerson Electric Co. (NYSE:EMR) for 24 years, most recently as Vice President and Chief Financial Officer of Emerson’s Commercial and Residential Solutions business segment.
David M. Schatz
Mr. Schatz has been Senior Vice President, General Counsel and Secretary since April 2021. He has worked at ESCO since 1998 in various positions with increasing responsibility, including serving as Vice President, IP Counsel and Assistant Secretary from 2015 until April 2021. He has extensive knowledge of ESCO’s operations, technologies, intellectual property, regulatory matters, M&A and other complex legal matters.
There are no family relationships among any of our executive officers and directors.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
This Form 10-K, including Item 1, “Business,” Item 2, “Properties,” Item 3, “Legal Proceedings,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contains “forward-looking statements” within the meaning of the safe harbor provisions of the federal securities laws, as described under “Forward-Looking Statements” above.
In addition to the risks and uncertainties discussed in those Items and elsewhere in this Form 10-K, and risks and uncertainties that apply to businesses or public companies generally, the following important risk factors which are particularly applicable to our business could cause actual results and events to differ materially from those contained in any forward-looking statements, or could otherwise materially adversely affect our business, operating results or financial condition:
Risks Related to the Nature of our Business
Restrictions in authorized U.S. Government defense spending or changes in acquisition priorities could negatively impact our financial position and result of operations.
Sales to the U.S. Government and its prime contractors and subcontractors represent a significant portion of our business. In 2024, approximately 27% of our revenues have been generated from sales to the U.S. Government or its contractors, primarily within our A&D segment. These sales are dependent on government funding of the underlying programs, which is generally subject to annual Congressional appropriations and periodic authorization of increases in the Government debt ceiling, and they may therefore be adversely affected not only by failure to obtain timely and adequate appropriations but also by extended Government shutdowns or by changes in priorities following the 2025 change in the Administration.
The lack of certainty about long-term Government defense spending priorities and Congressional willingness to continue short-term Governmental funding in a timely manner creates a continuing risk of reductions or terminations of, or delays in, the government funding of programs applicable to us or our customers, which we cannot anticipate. These funding effects could adversely affect our financial condition or results of operations. A significant portion of VACCO’s, Globe’s and Westland’s sales involve major U.S. Government programs such as NASA’s Space Launch System (SLS) and U.S. Navy submarines. A reduction or delay in Government spending on these programs could have a significant adverse impact on our financial results which could extend for more than a single year.
As of September 30, 2024, our twelve-month backlog was approximately $608 million, which represents confirmed orders we believe will be recognized as revenue within the next twelve months. There can be no assurance that our customers will purchase all the orders represented in our backlog, particularly as to contracts which are subject to the U.S. Government’s and its subcontractors’ ability to modify or terminate major programs or contracts, and if and to the extent that this occurs, our future revenues could be materially reduced.
We enter into fixed-price contracts which could subject us to losses if we have cost overruns.
We derive some of our revenues from fixed-price contracts. While fixed-price contracts enable us to benefit from performance improvements, cost reductions and efficiencies, they also subject us to the risk of reduced margins or incurring losses if we are unable to achieve estimated costs and revenues. If our costs exceed our estimated price, we recognize losses which can significantly affect our reported results. The long term nature of many of our contracts makes the process of estimating costs and revenues on fixed-price contracts inherently risky. Fixed-price contracts often contain price incentives and penalties tied to performance, which can be difficult to estimate and have significant impacts on margins.
Estimating costs to complete fixed-price development contracts is generally subject to more uncertainty than fixed-price production contracts, especially in times of higher inflation. Many of these development programs have highly complex designs. In addition, technical or quality issues that arise during development could lead to schedule delays and higher costs to complete, which could result in a material charge or otherwise adversely affect our financial condition.
Risks Related to our International Business
We derive a significant part of our revenues from non-U.S. sales and are subject to the risks of doing business in other countries.
In 2024, approximately 28% of our net sales were to customers outside the United States. We expect that non-U.S. sales will continue to account for a significant portion of our revenues for the foreseeable future. As a result, we are subject to the risks of doing business internationally, including:
● Changes in regulatory requirements or other executive branch actions, such as Executive Orders;
● Changes in the global trade environment, including disputes with authorities in non-U.S. jurisdictions, including international trade authorities, that could impact sales and/or delivery of products and services outside the U.S. and/or impose costs on our customers in the form of tariffs, duties or penalties attributable to the importation of our products;
● Trade restrictions against certain foreign-made products or entities may adversely affect our business and our ability to compete in certain markets;
● Our business may also be impacted by the ongoing trade tensions between the U.S. and China which are causing U.S. goods to be viewed in a less favorable light by Chinese customers;
● Changes to U.S. and non-U.S. government policies, including sourcing restrictions, requirements to expend a portion of program funds locally and governmental industrial cooperation or participation requirements;
● Fluctuations in international currency exchange rates;
● Volatility in international political and economic environments and changes in non-U.S. national priorities and budgets, which can lead to delays or fluctuations in orders;
● Imposition of domestic and international taxes, export controls, tariffs, embargoes, sanctions (such as those imposed on Russia and Iran) and other trade restrictions;
● Compliance with a variety of non-U.S. laws, as well as U.S. laws affecting the activities of U.S. companies abroad; and
● Unforeseen developments and conditions, including terrorism, war, epidemics and international tensions and conflicts.
While the impact of these factors is difficult to predict, any one or more of these factors could adversely affect our future operations, revenues and financial condition.
Economic, political and other risks of our international operations, including unforeseen developments such as terrorist activities, international tensions. war or other armed conflict, and international pandemics, could adversely affect our business.
Adverse changes in the political situation in certain foreign countries in which we do business could cause a decline in revenues and adversely affect our financial condition. For example:
● Our Test segment does significant business in Asia, and changes in the Chinese political climate, or economic or territorial aggression by China against Taiwan or other nearby countries, could significantly and negatively affect our business; also, cash generated by our business in China may not be available to fund our operations or other uses outside China due to possible imposition of restrictions or limitations on our ability to repatriate the cash, and although we attempt to repatriate cash on a regular basis to mitigate this risk, we may not be able to continue to do this in the future;
● Several of our subsidiaries are based in Europe and could be negatively impacted by the ongoing conflicts between Russia and Ukraine, between Israel and Hamas in Gaza and Lebanon, or between Israel and Iran; if any of these conflicts were to expand in scope or spread beyond these countries, or if other conflicts were to develop, we would expect an increasingly unfavorable impact on our global business environment; and
● Our international sales are also subject to other risks inherent in foreign commerce, including currency fluctuations and devaluations, differences in foreign laws, uncertainties as to enforcement of contract or intellectual property rights, and difficulties in negotiating and resolving disputes with our foreign customers.
Our governmental sales and our international and export operations are subject to special U.S. and foreign government laws and regulations which may impose significant compliance costs, create reputational and legal risk, and impair our ability to compete in international markets.
The international scope of our operations subjects us to a complex system of commercial and trade regulations around the world, and our foreign operations are governed by laws and business practices that often differ from those of the U.S. In addition, laws such as the U.S. Foreign Corrupt Practices Act and similar laws in other countries increase the need for us to manage the risks of improper conduct not only by our own employees but by distributors and contractors who may not be within our direct control. Many of our exports are of products which are subject to U.S. Government regulations and controls such as the International Traffic in Arms Regulations (ITAR), which impose certain restrictions on the U.S. export of defense articles and services, and these restrictions are subject to change from time to time, including changes in the countries into which our products may lawfully be sold.
If we were to fail to comply with these laws and regulations, we could be subject to significant fines, penalties and other sanctions including the inability to continue to export our products or to sell our products to the U.S. Government or to certain other customers. In addition, some of these regulations may be viewed as too restrictive by our international customers, who may elect to develop their own domestic products or procure products from other international suppliers which are not subject to comparable export restrictions; and the laws, regulations or policies of certain other countries may also favor their own domestic suppliers over foreign suppliers such as the Company.
Risks Related to our Manufacturing and Sales Operations and Technology
Cybersecurity Incidents and Related Data Breaches or Other Disruptions of Our Information Technology Systems Could Adversely Affect Our Business.
Global information technology security threats and targeted computer crime (e.g., computer hacking, malware, phishing and spamming attacks against online networking platforms) are increasing in frequency and sophistication and pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data and communications. While we attempt to mitigate these risks through numerous measures, including implementation of standard cybersecurity controls, employee training and testing, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, we cannot guarantee that these efforts will always be successful. Further, although we do not believe we have experienced a material information security breach in the last three years, and we have incurred no material fines, settlement costs or other material expenses related to information security breaches, if we were to experience such a breach it could adversely affect our reputation and result in litigation, regulatory action, liability for fines, penalties and related expenses, and costs of implementing additional data protection procedures. In addition, even though we generally do not conduct business directly with retail or individual customers or consumers we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S. and elsewhere. Compliance with data privacy laws and regulations increases operational complexity, and failure to comply with legal or regulatory standards could subject us to fines and penalties, as well as legal and reputational risks, including proceedings against us by governmental entities or others. Although we maintain insurance coverage for data privacy risks, we cannot guarantee that our coverage will be adequate for all costs or losses incurred.
We have many information technology systems that are important to the operation of our businesses, some of which are managed by third parties. These systems are used to obtain, process, transmit and store electronic information and to manage or support a variety of integral business processes and activities. Our primary and backup computer systems are vulnerable to damage, disruptions or shutdowns during the process of upgrading or replacing software, databases or components and from power outages, computer and telecommunication failures, security breaches, natural disasters and errors by employees. Any failure in the operation of our information technology systems could adversely affect our businesses or operating results. Although losses arising from some of these issues may be covered by information security insurance, we cannot guarantee that our coverage will be adequate for all costs or losses incurred.
See Item 1C, Cybersecurity, for information on our cybersecurity risk management, strategy and governance.
A significant part of our manufacturing operations depends on a small number of third-party suppliers.
A significant part of our manufacturing operations relies on a small number of third-party manufacturers to supply component parts or products. For example, Doble has arrangements with six manufacturers which produce and supply a substantial portion of its end-products, and one of these suppliers produces approximately 23% of Doble’s products from a single location within the United States. As another example, Globe has a single supplier of critical materials for a significant military production program, and if this supplier were to discontinue producing these components in a timely manner the need to secure another source could pose a risk to the production program. A significant disruption in the supply of those products or others provided by a small number of suppliers could negatively affect the timely delivery of products to customers as well as future sales, which could increase costs and reduce margins.
Certain of our other businesses are dependent upon sole source or a limited number of third-party manufacturers of parts and components. Many of these suppliers are small businesses. Since alternative supply sources are limited, there is an increased risk of adverse impacts on our production schedules and profits if our suppliers were to default in fulfilling their price, quality or delivery obligations. In addition, some of our customers or potential customers may prefer to purchase from a supplier which does not have such a limited number of sources of supply.
Increases in prices of raw material and components, and decreased availability of such items, could adversely affect our business.
The cost of raw materials and product components is a major element of the total cost of many of our products. For example, our Test segment’s critical components rely on purchases of raw materials from third parties. Increases in the prices of raw materials (such as steel, copper, nickel, zinc, wood and petrochemical products) could have an adverse impact on our business by, among other things, increasing costs and reducing margins. Aerospace-grade titanium and gaseous helium, important raw materials for our A&D segment, may at times be in short supply; in addition, although we try to tie our supplier pricing to long-term contracts this is not always
possible, and we are experiencing price inflation on a number of products. Further, some of Doble’s items of equipment which are provided to its customers for their use are in the maturity of their life cycles, which creates the risk that replacement components may be unavailable or available only at increased costs. We have experienced COVID-related short-term disruptions in the supply chain which have periodically resulted in extended lead times and cost increases, and the long term impacts of these disruptions are uncertain. In addition, our reliance on sole or limited sources of supply of raw materials and components in each of our segments could adversely affect our business, as described in the preceding Risk Factor.
The end of customer product life cycles, or our inability to timely develop new products, could reduce our future sales.
Many of our A&D segment products are sold to be components in our customers' end products. If a customer discontinues a certain end-product line and we are unable to develop and successfully market replacement products there could be a significant decrease in our sales and an adverse effect on our operating results. For example, a substantial portion of PTI's revenue is generated from commercial aviation aftermarket sales. As certain aircraft are retired and replaced by newer aircraft, if we were unable to offer suitable products for the newer aircraft there could be a corresponding decrease in sales associated with our products which could adversely affect our operating results.
Much of our business is dependent on the continuous development of new products and technologies to meet the changing needs of our markets on a cost-effective basis. Many of these markets are highly technical from an engineering standpoint, and the relevant technologies are subject to rapid change. If we fail to timely enhance existing products or develop new products as needed to meet market or competitive demands, we could lose sales opportunities, which would adversely affect our business. In addition, in some existing contracts with customers, we have made commitments to develop and deliver new products. If we fail to meet these commitments, the default could result in the imposition on us of contractual penalties including termination. Our inability to enhance existing products in a timely manner could make our products less competitive, while our inability to successfully develop new products may limit our growth opportunities. Development of new products and product enhancements may also require us to make greater investments in research and development than we now do, and the increased costs associated with new product development and product enhancements could adversely affect our operating results. In addition, our costs of new product development may not be recoverable if demand for our products is not as great as we anticipate it to be.
Product defects or customer claims could result in costly fixes, litigation and damages.
Our business exposes us to potential product liability risks that are inherent in the design, manufacture and sale of our products and the products of third-party vendors which we use or resell, many of which are mission-critical to our customers. If there are claims related to defective products (under warranty or otherwise), particularly in a product recall situation, we could be faced with significant expenses in replacing or repairing the product. For example, the A&D segment obtains raw materials, machined parts and other product components from suppliers who provide certifications of quality which we rely on. Should these product components be defective and pass undetected into finished products, or should a finished product contain a defect, we could incur significant costs for repairs, re-work and/or removal and replacement of the defective product. In addition, if a dispute over product claims cannot be settled, arbitration or litigation may result, requiring us to incur attorneys’ fees and exposing us to the potential of damage awards against us.
A major portion of our Test segment’s business involves working in conjunction with general contractors to produce complex building components constructed on-site, such as electronic test chambers, secure communication rooms and MRI facilities. If there are performance problems caused by either us or a contractor, they could result in cost overruns and may lead to a dispute as to which party is responsible. The resolution of such disputes can involve arbitration or litigation and can cause us to incur significant expense including attorneys’ fees. In addition, these disputes could result in a reduction in revenue, a loss on a particular project, or even a significant damages award against us.
Despite our efforts, we may be unable to adequately protect our intellectual property.
Much of our business success depends on our ability to protect and freely utilize our various intellectual properties, including both patents and trade secrets. Despite our efforts to protect our intellectual property, unauthorized parties or competitors may copy or otherwise obtain and use our products and technology, particularly in foreign countries such as China where the laws may not protect our proprietary rights as fully as in the United States. Our current and future actions to enforce our proprietary rights may ultimately not be successful; or in some cases we may not elect to pursue an unauthorized user due to the high costs and uncertainties associated with litigation. We may also face exposure to claims by others challenging our intellectual property rights. Any or all of these actions may divert our resources and cause us to incur substantial costs.
Environmental laws and regulations or environmental contamination could increase our expenses and adversely affect our profitability.
Our operations and properties are subject to U.S. and foreign environmental laws and regulations governing, among other things, the generation, storage, emission, discharge, transportation, treatment and disposal of hazardous materials and the clean-up of contaminated properties. In addition, governments around the world are increasingly focused on enacting laws and regulations regarding climate change and regulation of greenhouse gases. These regulations, and changes to them, could increase our cost of compliance, and our failure to comply could result in the imposition of significant fines, suspension of production, alteration of product processes, cessation of operations or other actions which could materially and adversely affect our business, financial condition and results of operations.
We are currently involved as a responsible party in several ongoing investigations and remediations of contaminated third-party owned properties. In addition, environmental contamination may be discovered in the future on properties which we formerly owned or operated and for which we could be legally responsible. Future costs associated with these situations, including ones which may be currently unknown to us, are difficult to quantify but could have a significant effect on our financial condition.
The effects of climate change, or significant natural disasters or weather events, could adversely affect our sales.
The potential physical impacts of climate change, such as increased frequency and severity of storms, floods and other climatic events, could disrupt our supply chain, and cause our suppliers to incur significant costs in preparing for or responding to these effects. These and other weather-created disruptions in supply, in addition to affecting costs, could impact our ability to procure an adequate supply of these raw materials and components, and delay or prevent deliveries of products to our customers. In addition, significant natural disasters or weather events such as major earthquakes or hurricanes could disrupt our operations. For example, many of our A&D segment's operations are located near major fault lines in California, where a major earthquake could result in significant physical damage to or closure of one or more of these facilities, and Doble has a significant supplier in coastal Florida, where a major hurricane could have similar effects. Any prolonged disruption in one or more of these manufacturing operations could significantly delay our ability to make timely deliveries of products to our customers.
Risks Related to Our Business Strategy and Corporate Structure
We may not be able to identify suitable acquisition candidates or complete acquisitions successfully, which may inhibit our rate of growth.
As part of our growth strategy, we plan to continue to pursue acquisitions of other companies, assets and product lines that either complement or expand our existing business. However, we may be unable to implement this strategy if we are unable to identify suitable acquisition candidates or consummate future acquisitions at acceptable prices and terms. We expect to face competition for acquisition candidates which may limit the number of acquisition opportunities available to us and may result in higher acquisition prices. As a result, we may be limited in the number of acquisitions which we are able to complete, and we may face difficulties in achieving the profitability or cash flows needed to justify our investment in them.
In addition, acquisitions of other companies, including but not limited to those encompassed in the SM&P Acquisition, involve numerous risks, including unexpected or unavoidable delays in consummation, possible failure to satisfy preconditions to closing or comply with post-closing terms, difficulties in the integration of the operations, technologies and products of the acquired companies, the potential exposure to unanticipated and undisclosed liabilities, the potential that expected benefits or synergies are not realized and that operating costs increase, the potential loss of key personnel, suppliers or customers of acquired businesses and the diversion of Management’s time and attention from other business concerns. Although we attempt to identify and evaluate the risks inherent in any acquisition, we may not properly ascertain or mitigate all such risks, and our failure to do so could have a material adverse effect on our business.
Our inability to hire or retain qualified key employees could affect our performance and revenues.
There is a risk of our losing key employees who have engineering and technical expertise. For example, our USG segment relies heavily on engineers with significant experience and reputation in the utility industry to furnish expert consulting services and support to customers, and our other segments similarly rely on qualified and experienced employees to carry on their businesses. Despite our active recruitment efforts, there remains a shortage of these qualified engineers and other employees because of hiring competition
from other companies in the industry and a generally tight labor market. Losing current employees or qualified candidates to other employers or for other reasons could reduce our ability to provide services and negatively affect our revenues.
Our decentralized organizational structure presents certain risks.
We are a relatively decentralized company in comparison with some of our peers. This decentralization necessarily places significant control and decision-making powers in the hands of local management, which present various risks, including the risk that we may be slower or less able to identify or react to problems affecting a key business than we would in a more centralized management environment. We may also be slower to detect or react to compliance related problems (such as an employee undertaking activities prohibited by applicable law or by our internal policies), and Company-wide business initiatives may be more challenging and costly to implement, and the risks of noncompliance or failures higher, than they would be under a more centralized management structure. Depending on the nature of the problem or initiative in question, such noncompliance or failure could have a material adverse effect on our business, financial condition or result of operations.
Provisions in our articles of incorporation, bylaws and Missouri law could make it more difficult for a third party to acquire us and could discourage acquisition bids or a change of control, and could adversely affect the market price of our common stock.
Our articles of incorporation and bylaws contain certain provisions which could discourage potential hostile takeover attempts, including: a limitation on the shareholders’ ability to call special meetings of shareholders; advance notice requirements to nominate candidates for election as directors or to propose matters for action at a meeting of shareholders; a classified board of directors, which means that approximately one-third of our directors are elected each year; and the authority of our board of directors to issue, without shareholder approval, preferred stock with such terms as the board may determine. In addition, the laws of Missouri, in which we are incorporated, require a two-thirds vote of outstanding shares to approve mergers or certain other major corporate transactions, rather than a simple majority as in some other states such as Delaware. These provisions could impede a merger or other change of control not approved by our board of directors, which could discourage takeover attempts and in some circumstances reduce the market price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None

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ITEM 2. PROPERTIES
Item 2. Properties
We believe our buildings, machinery and equipment have been generally well maintained, are in good operating condition and are adequate for our current production requirements and other needs.
At September 30, 2024, our physical properties, including those described in the table below, comprised approximately 2,319,000 square feet, of which approximately 799,500 square feet were owned and approximately 1,519,500 square feet were leased. The table below includes our principal physical properties. We do not believe any of the omitted properties, consisting primarily of office space, warehouse space and land held for possible future use, are individually or collectively material to our operations or business. See also Note 11 to the Consolidated Financial Statements.
Principal Use(s)
(M=Manufacturing,
E=Engineering,
Approx.
Owned / Leased (with
W=Warehouse,
Operating
Location
Sq. Ft.
Expiration Date)
O=Office)
Segment
Modesto, CA
181,500
Leased (9/30/2033)
M, E, W, O
A&D
Stoughton, MA
151,100
Leased (1/31/2037)
M, E, W, O
A&D
Denton, TX
145,000
Leased (9/30/2029, plus options)
M, E, W, O
A&D
Cedar Park, TX
130,000
Owned
M, E, W, O
Test
Oxnard, CA
127,400
Owned
M, E, W, O
A&D
South El Monte, CA
100,100
Owned
M, E, W, O
A&D
Durant, OK
100,000
Owned
M, W, O
Test
Valencia, CA
79,300
Owned
M, E, O
A&D
Marlborough, MA
79,100
Leased (2/28/2037)
M, E, W, O
USG
Hinesburg, VT
77,000
Owned
M, E, W, O
USG
Accident, MD
66,800
Owned
M, E, W, O
USG
South El Monte, CA
52,700
Leased (12/31/2024)
M, W, O
A&D
Liverpool, England
42,000
Owned
M, E, W, O
Test
Eura, Finland
41,500
Owned
M, E, W, O
Test
Montreal, Québec
38,400
Leased (8/31/2041)
M, E, W, O
USG
Tianjin, China
38,100
Leased (11/19/2027)
M, E, O
Test
Minocqua, WI
35,400
Owned
M, W ,O
Test
Bologna, Italy
28,200
Leased (8/13/2028)
M, E, W ,O
USG
Cedar Park, TX
28,000
Leased (8/31/2028)
M. W
Test
Ontario, CA
26,900
Leased (8/31/2025)
M, E, W ,O
USG
Chatsworth, CA
24,800
Leased (12/31/2025)
M, E, W ,O
A&D
St. Louis, MO
21,500
Leased (8/31/2025)
ESCO Corporate Office
Corporate
Attleboro, MA
20,500
Leased (3/31/2025)
M, E, W, O
A&D
Taino, Italy
18,000
Leased (various term ends)
M, E, W ,O
USG
Bangalore, India
17,000
Leased (2/28/2031)
M, E, W, O
Test
Zola Predosa, Italy
12,900
Leased (1/31/2029)
M, E, W ,O
USG
Morrisville, NC
11,600
Leased (1/31/2027, plus options)
O
USG
Wood Dale, IL
10,700
Leased (8/31/2029)
E, O
Test

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
As a normal incident of the businesses in which we are engaged, various claims, charges and litigation are asserted or commenced from time to time against us. With respect to claims and litigation currently asserted or commenced against us, it is the opinion of our Management that final judgments, if any, which might be rendered against us are adequately reserved for, are covered by insurance, or are not likely to have a material adverse effect on our financial condition or results of operations. Nevertheless, given the uncertainties of litigation, it is possible that certain types of claims, charges and litigation could have a material adverse impact on us; see Item 1A, “Risk Factors.”

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Holders of Record. As of November 2, 2024, there were approximately 1,820 holders of record of our common stock.
Price Range of Common Stock and Dividends. Our common stock is listed on the New York Stock Exchange; its trading symbol is “ESE”.
Company Purchases of Equity Securities. For information about our common stock repurchase programs, please refer to Note 7 to the Consolidated Financial Statements. The Company did not repurchase any shares during the fourth quarter of 2024.
Securities Authorized for Issuance Under Equity Compensation Plans. For information about securities authorized for issuance under our equity compensation plans, please refer to Item 12 of this Form 10-K and to Note 8 to the Consolidated Financial Statements.
Performance Graph. The graph and table on the following page present a comparison of the cumulative total shareholder return on our common stock as measured against the cumulative total returns of the Russell 2000 index, which is a broad equity market index, and the S&P SmallCap 600 Industrials index, which is a published industry index designed to measure the performance of small-cap companies that are classified as members of the GICS Industrials sector. The Company is a component of both the Russell 2000 index and the S&P SmallCap 600 Industrials index.
The measurement period begins on September 30, 2019 and measures at each September 30 thereafter. These figures assume that all dividends, if any, paid over the measurement period were reinvested, and that the starting values of each index and the investments in our common stock were $100 at the close of trading on September 30, 2019.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among ESCO Technologies Inc., the Russell 2000 Index,
and the S&P SmallCap 600 Industrials Index
9/30/19
9/30/20
9/30/21
9/30/22
9/30/23
9/30/24
ESCO Technologies Inc.
$
100.00
$
101.77
$
97.60
$
93.39
$
133.29
$
165.10
Russell 2000 Index
100.00
100.39
148.25
113.42
123.55
156.61
S&P SmallCap 600 Industrials Index
100.00
94.09
137.98
119.49
154.61
207.57
The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto and refers to our results from continuing operations except where noted.
Selected financial information for each of our business segments is provided in the discussion below and in Note 9 to the Company’s Consolidated Financial Statements.
This section includes comparisons of certain 2024 financial information to the same information for 2023. Year-to-year comparisons of the 2023 financial information to the same information for 2022 are contained in Item 7 of our Form 10-K for 2023 filed with the Securities and Exchange Commission on November 29, 2023 and available through the SEC’s website at https://www.sec.gov/edgar/searchedgar/companysearch.html.
Introduction
We classify our business operations into three segments for financial reporting purposes, although for reporting certain financial information we treat Corporate activities as a separate segment. Our three operating segments during 2024 were Aerospace & Defense (A&D), Utility Solutions Group (USG), and RF Test & Measurement (Test). Our operating segments are comprised of the following primary operating subsidiaries:
● A&D: PTI Technologies Inc. (PTI); VACCO Industries (VACCO); Crissair, Inc. (Crissair); Globe Composite Solutions, LLC (Globe, including Westland Technologies, Inc.); and Mayday Manufacturing Co. (Mayday);.
● USG: Doble Engineering Company, Morgan Schaffer Ltd. (Morgan Schaffer) and I.S.A. - Altanova Group S.r.l. and affiliates (Altanova) (collectively, Doble); and NRG Systems, Inc. (NRG).
● Test: ETS-Lindgren Inc. (ETS-Lindgren) and MPE Limited (MPE).
A&D. PTI, VACCO and Crissair primarily design and manufacture specialty filtration products, including hydraulic filter elements and fluid control devices used in commercial and defense aerospace applications, unique filter mechanisms used in micro-propulsion devices for satellites and custom designed filters for manned aircraft and submarines. Globe designs, develops and manufactures elastomeric-based signature reduction solutions for U.S. naval vessels. Mayday manufactures mission-critical bushings, pins, sleeves and precision-tolerance machined components for landing gear, rotor heads, engine mounts, flight controls, and actuation systems for the aerospace and defense industries.
USG. Doble develops, manufactures and delivers diagnostic testing solutions that enable electric power grid operators to assess the integrity of high-voltage power delivery equipment. NRG designs and manufactures decision support tools for the renewable energy industry, primarily wind and solar.
Test. ETS-Lindgren is an industry leader in providing its customers with the ability to identify, measure and control magnetic, electromagnetic and acoustic energy.
We continue to operate with meaningful growth prospects in our primary served markets and with considerable financial flexibility. We continue to focus on new products that incorporate proprietary design and process technologies. Our Management is committed to delivering shareholder value through organic growth, ongoing performance improvement initiatives, and acquisitions.
Highlights of 2024
● Sales and net earnings in 2024 were $1,026.8 million and $101.9 million, respectively, compared to sales and net earnings in 2023 of $956.0 million and $92.5 million, respectively.
● Diluted EPS - GAAP for 2024 increased 10.1% to $3.94, compared to Diluted EPS - GAAP for 2023 of $3.58.
● Diluted EPS - As Adjusted for 2024 was $4.18 excluding $8.0 million of pretax charges (or $0.24 per share after tax), consisting of debt financing and acquisition costs at Corporate primarily related to the pending SM&P Acquisition that was announced in July 2024, restructuring charges in the A&D, Test and USG segments, and MPE purchase accounting adjustments. Diluted EPS - As Adjusted for 2023 was $3.70 excluding $4.1 million of pretax charges (or $0.12 per share after tax), consisting of executive management transition costs and acquisition related costs at Corporate, CMT purchase accounting adjustments, and restructuring charges primarily within the A&D segment. See “Non-GAAP Financial Measures” below.
Fiscal year ended
(Dollars in millions)
Diluted EPS - GAAP
$
3.94
3.58
Debt financing costs related to pending SM&P Acquisition
0.09
-
Acquisition related costs
0.06
0.01
Restructuring adjustments
0.05
0.03
Purchase accounting adjustments
0.04
0.02
Executive management transition costs
-
0.06
Diluted EPS - As Adjusted
$
4.18
3.70
● At September 30, 2024, cash on hand was $66.0 million and outstanding debt was $122.0 million, for a net debt position (total debt less cash on hand) of approximately $56.0 million.
● Entered orders for 2024 were $1,133.4 million resulting in a book-to-bill ratio of 1.10x. Backlog at September 30, 2024 was $879.0 million, an increase of $106.6 million, or 13.8%, compared to backlog of $772.4 million at September 30, 2023.
● The Company declared dividends of $0.32 per share during 2024, totaling $8.2 million in dividend payments.
Results of Operations
Net Sales
Change
Fiscal year ended
(Dollars in millions)
vs. 2023
A&D
$
448.2
392.4
14.2
%
USG
369.1
342.3
7.8
%
Test
209.5
221.3
(5.3)
%
Total
$
1,026.8
956.0
7.4
%
Net sales increased $70.8 million, or 7.4%, to $1,026.8 million in 2024 from $956.0 million in 2023. The increase in net sales in 2024 as compared to 2023 was mainly due to a $55.8 million increase in the A&D segment and a $26.8 million increase in the USG segment, partially offset by an $11.8 million decrease in the Test segment.
A&D.
The $55.8 million, or 14.2%, increase in net sales in 2024 as compared to 2023 was mainly due to a $15.7 million increase in commercial aerospace revenues, a $20.3 million increase in defense aerospace revenues and a $20.0 million increase in navy revenues.
By subsidiary, the $55.8 million increase in net sales in 2024 as compared to 2023 was due to an $18.1 million increase in net sales at PTI, a $12.6 million increase in net sales at Globe, a $10.1 million increase in net sales at Crissair, a $7.6 million increase in net sales at Mayday and a $7.4 million increase in net sales at VACCO.
USG.
The $26.8 million, or 7.8%, increase in net sales in 2024 as compared to 2023 was mainly due to an $18.9 million increase in net sales at Doble mainly due to higher shipments of condition monitoring products and service revenue partially offset by lower shipments of protection testing products, and a $7.9 million increase in net sales at NRG driven by higher shipments of solar products.
Test.
The $11.8 million, or 5.3%, decrease in net sales in 2024 as compared to 2023 was due to an $11.8 million decrease in sales from the Company’s U.S. operations and a $2.8 million decrease in sales from the Company’s Asian operations due to lower wireless, filters and acoustic volumes and timing of test and measurement chamber projects partially offset by a $2.8 million increase in sales from the segment’s European operations. MPE contributed $10 million in revenue in 2024 since the date of acquisition.
Orders and Backlog
New orders received were $1,133.4 million in 2024 and $1,033.3 million in 2023. Order backlog was $879.0 million at September 30, 2024, compared to order backlog of $772.4 million at September 30, 2023. Orders are entered into backlog as firm purchase order commitments are received.
By operating segment, 2024 orders were $564.5 million related to A&D products, $355.6 million related to USG products, and $213.3 million related to Test products, and 2023 orders were $468.2 million related to A&D products, $347.6 million related to USG products, and $217.5 million related to Test products.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses were $224.0 million, or 21.8% of net sales, in 2024, and $217.1 million, or 22.7% of net sales, in 2023. The $6.9 million increase in SG&A expenses in 2024 as compared to 2023 was mainly due to an increase within the A&D and USG segments due to higher sales; inflationary impacts; and MPE acquisition impacts.
Amortization of Intangible Assets
Amortization of intangible assets was $32.8 million in 2024 and $29.0 million in 2023, including $20.7 million and $18.8 million of amortization of acquired intangible assets in 2024 and 2023, respectively, related to our acquisitions. The amortization of acquired intangible assets related to acquisitions is included in the Corporate segment’s results. The remaining amortization expenses relate to other identifiable intangible assets (primarily software, patents and licenses), which are included in the respective segment’s operating results. The increase in amortization expense in 2024 as compared to 2023 was mainly due to an increase in amortization of capitalized software and amortization of intangible assets related to the MPE acquisition.
Other Expenses, Net
Other expenses, net, was $2.1 million in 2024, compared to other expenses, net, of $1.9 million in 2023. The principal component of other expenses, net, in 2024 was approximately $1.8 million of restructuring costs within the A&D, USG and Test segments (mainly severance charges). There were no individually significant items in other expenses, net in 2023.
Non-GAAP Financial Measures
The information reported herein includes the financial measures Diluted EPS As Adjusted, which we define as Diluted EPS excluding the per-share net impact of discrete debt financing and acquisition related costs at Corporate primarily related to the pending SM&P Acquisition, restructuring charges in the A&D, Test and USG segments (primarily severance) and purchase accounting charges related to the MPE acquisition in 2024; discrete compensation and acquisition related costs at Corporate, purchase accounting charges related to the CMT acquisition, and restructuring charges primarily within the A&D segment (primarily severance) in 2023; and the per-share net impact of discrete compensation and acquisition related costs, severance charges primarily within the A&D segment, and purchase accounting charges related to the Company’s acquisitions (Altanova and NEco) in 2022; EBIT, which we define as earnings before interest and taxes; and EBIT margin, which we define as EBIT expressed as a percentage of net sales. Diluted EPS -As Adjusted, EBIT on a consolidated basis, and EBIT margin on a consolidated basis are not recognized in accordance with U.S. generally accepted
accounting principles (GAAP). However, we believe that EBIT and EBIT margin provide investors and Management with valuable information for assessing our operating results. Management evaluates the performance of our operating segments based on EBIT and believes that EBIT is useful to investors to demonstrate the operational profitability of our business segments by excluding interest and taxes, which are generally accounted for across the entire company on a consolidated basis. EBIT is also one of the measures Management uses to determine resource allocations and incentive compensation. We believe that the presentation of EBIT, EBIT margin and Diluted EPS -As Adjusted provides important supplemental information to investors by facilitating comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The use of non-GAAP financial measures is not intended to replace any measures of performance determined in accordance with GAAP.
EBIT
The reconciliation of EBIT to a GAAP financial measure is as follows:
(Dollars in millions)
Net earnings
$
101.9
92.5
Add: Interest expense, net
15.2
8.8
Add: Income tax expense
28.0
26.4
EBIT
$
145.1
127.7
EBIT by business segment is as follows:
Change
Fiscal year ended
(Dollars in millions)
vs. 2023
A&D
$
84.7
71.6
18.3
%
% of net sales
18.9
%
18.2
%
-
USG
85.9
76.7
12.0
%
% of net sales
23.3
%
22.4
%
-
Test
28.6
32.4
(11.7)
%
% of net sales
13.7
%
14.6
%
-
Corporate
(54.1)
(53.0)
(2.1)
%
Total
$
145.1
127.7
13.6
%
% of net sales
14.1
%
13.4
%
-
A&D
The $13.1 million, or 18.3%, increase in EBIT in 2024 as compared to 2023 was primarily due to leverage on higher sales volumes and price increases at Mayday, PTI, Crissair and Globe partially offset by a decrease in EBIT at VACCO due to margin erosion on certain space development contracts, revenue mix and inflationary pressures. EBIT in 2024 was negatively impacted by $1.2 million in restructuring charges (mainly severance).
USG
The $9.2 million, or 12.0%, increase in EBIT in 2024 as compared to 2023 was mainly due to leverage on higher sales volumes at Doble and NRG with a favorable product mix and price increases, partially offset by inflationary pressures and higher commissions related to increased sales. EBIT in 2024 was negatively impacted by $0.2 million of restructuring charges (mainly severance).
Test
The $3.8 million, or 11.7%, decrease in EBIT in 2024 as compared to 2023 was primarily due to a decrease in EBIT from the segment’s U.S. and Asian operations and inflationary pressure, partially offset by leverage on higher sales volumes from the segment’s European operations and price increases and cost reduction actions from the segment’s U.S. operations. EBIT in 2024 was negatively impacted by $0.3 million of inventory step-up charges related to the MPE acquisition and $0.2 million of restructuring charges (mainly severance).
Corporate
Corporate operating charges included in 2024 consolidated EBIT increased to $54.1 million as compared to $53.0 million in 2023 mainly due to an increase in professional fees, including acquisition related costs, and amortization expense of acquired intangible assets related to the Company’s recent acquisition of MPE.
The “Reconciliation to Consolidated Totals (Corporate)” in Note 9 to the Consolidated Financial Statements represents Corporate office operating charges.
Interest Expense, Net
Interest expense, net was $15.2 million and $8.8 million in 2024 and 2023, respectively. The increase in interest expense in 2024 was mainly due to the $3.1 million of debt financing costs related to the pending SM&P Acquisition, higher average interest rates and higher outstanding borrowings. The weighted average interest rates were 6.72% in 2024 compared to 5.82% in 2023. Average outstanding borrowings were $167 million in 2024 compared to $140 million in 2023.
Income Tax Expense
The effective tax rates for 2024 and 2023 were 21.6% and 22.2%, respectively. The decrease in the 2024 effective tax rate as compared to 2023 was primarily due to a decrease in non-deductible executive compensation partially offset by an increase in state income tax expense.
Cash repatriated to the U.S. is generally not subject to U.S. federal income taxes. No provision has been made in 2024 for foreign withholding or any applicable U.S. income taxes on the undistributed earnings of non-U.S. subsidiaries where these earnings are considered indefinitely invested or otherwise retained for continuing international operations. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable.
The Organization for Economic Co-operation and Development’s (OECD) Global Anti-Base Erosion Model (Pillar Two) rules are effective beginning with the Company’s fiscal year ending September 30, 2025. Pillar Two rules generally provide for a 15 percent minimum effective tax rate in every jurisdiction in which the Company operates. At present, Pillar Two is not expected to have a significant impact on our consolidated financial statements or related disclosures.
Acquisitions
Information regarding our acquisitions during 2024, 2023 and 2022 is set forth in Note 2 to the Consolidated Financial Statements, which Note is incorporated by reference herein.
All of our acquisitions have been accounted for using the purchase method of accounting, and accordingly, the respective purchase prices were allocated to the assets (including intangible assets) acquired and liabilities assumed based on estimated fair values at the date of acquisition. The financial results from these acquisitions have been included in our financial statements from the date of acquisition.
On July 8, 2024, the Company and certain of its wholly owned subsidiaries entered into a Sale and Purchase Agreement (“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.
Capital Resources and Liquidity
Our overall financial position and liquidity are strong. Working capital (current assets less current liabilities) increased to $318.8 million at September 30, 2024 from $266.4 million at September 30, 2023. Accounts receivable increased by $42.1 million during 2024 mainly due to a $20.4 million increase within the A&D segment, a $12.2 million increase within the Test segment and a $9.5 million increase within the USG segment, driven by timing and higher sales volumes in the current year. Inventories increased by $25.1 million during 2024 mainly due to a $14.1 million increase within the A&D segment and a $10.8 million increase within the USG segment resulting primarily from the timing of finished goods and receipt of raw materials to meet anticipated demand and an increase in work in process inventories due to timing of manufacturing existing orders. Accounts payable increased by $11.4 million during 2024 mainly due to a $4.5 million increase within the A&D segment, a $3.1 million increase within the Test segment, a $2.3 million increase within the USG segment, and a $1.5 million increase at Corporate due to the timing of payments.
Net cash provided by operating activities was $127.5 million in 2024 and $76.9 million in 2023. The increase in net cash provided by operating activities in 2024 as compared to 2023 was mainly driven by higher net earnings and lower working capital requirements.
Net cash used in investing activities was $104.6 million in 2024 and $52.5 million in 2023. The increase in 2024 as compared to 2023 was mainly due to the MPE acquisition in the current year. Capital expenditures were $36.2 million in 2024 and $22.4 million in 2023. The increase in 2024 as compared to 2023 was mainly due to an increase in building improvements and machinery & equipment within the A&D segment. In addition, the Company incurred expenditures for capitalized software of $12.1 million in 2024 and $12.4 million in 2023.
There were no commitments outstanding that were considered material for capital expenditures at September 30, 2024.
Net cash used by financing activities was $0.8 million in 2024 and $78.3 million in 2023, primarily due to the increase in debt borrowings during 2024.
Bank Credit Facility
A description of our credit facility (the “Credit Facility”) is set forth in Note 6 to the Consolidated Financial Statements, which Note is incorporated by reference herein.
Cash flow from operations and borrowings under the Credit Facility is expected to provide adequate resources to meet our capital requirements and operational needs both for the next 12 months and for the foreseeable future.
Dividends
During both 2024 and 2023 we paid a regular quarterly cash dividend at an annual rate of $0.32 per share, totaling $8.2 million and $8.3 million in 2024 and 2023, respectively.
Off-Balance-Sheet Arrangements
We had no off-balance-sheet arrangements outstanding at September 30, 2024.
Share Repurchases
During 2024, the Company repurchased approximately 80,500 shares for approximately $8.0 million. During 2023, the Company repurchased approximately 140,000 shares for approximately $12.4 million. The Company did not purchase any shares during the fourth quarter of 2024.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires Management to make estimates and assumptions in certain circumstances that affect amounts reported in the Consolidated Financial Statements. In preparing these financial statements, Management has made its best estimates and judgments of certain amounts included in the Consolidated Financial Statements, giving due consideration to materiality. We do not believe there is a great
likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. Our senior Management discusses the critical accounting policies described below with the Audit and Finance Committee of our Board of Directors on a periodic basis.
The following discussion of critical accounting policies is intended to bring to the attention of readers those accounting policies which Management believes are critical to the Consolidated Financial Statements and other financial disclosure. It is not intended to be a comprehensive list of all significant accounting policies that are more fully described in Note 1 to the Consolidated Financial Statements.
Revenue Recognition
We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers. The unit of account in ASC Topic 606 is a performance obligation. The transaction price for our contracts represents our best estimate of the consideration we will receive and includes assumptions regarding variable consideration, as applicable, which are based on historical, current and forecasted information. The transaction price is allocated to each distinct performance obligation within the contract and recognized as revenue when, or as, the performance obligation is satisfied. Certain of our long-term contracts contain incentive fees that can increase the transaction price. These variable amounts generally are awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The estimated amounts are based on an assessment of our anticipated performance and all other information that is reasonably available to us.
Approximately 52% of the A&D segment’s revenue (23% of consolidated revenue) is recognized over time as the products do not have an alternative use and either we have an enforceable right to payment for costs incurred plus a reasonable margin or the inventory is owned by the customer. Selecting the method to measure progress towards completion for our contracts requires judgment and is based on the nature of the products or services to be provided.
The A&D segment generally uses the cost-to-cost method to measure progress on our contracts, as the rate at which costs are incurred to fulfill a contract best depicts the transfer of control to the customer. Under this method, we measure the extent of progress towards completion based on the ratio of costs incurred to date to the estimated costs at completion of the performance obligation, and we record revenue proportionally as costs are incurred based on an estimated profit margin.
The Test segment generally uses the milestone output method to measure progress on our contracts because it best depicts the transfer of control to the customer that occurs as we incur costs on our contracts. Under this method, we estimate profit as the difference between total revenue and total estimated costs at completion of a contract and recognize these revenues and costs based on milestones achieved.
Total contract cost estimates are based on current contract specifications and expected engineering requirements and require us to make estimates on expected profit. The estimates on profit are based on judgments we make to project the outcome of future events, and can often span more than one year and include labor productivity and availability, the complexity of the work to be performed, change orders issued by our customers, and other specialized engineering and production related activities. Our cost estimation process is based on historical results of contracts and historical actuals to original estimates, and the application of professional knowledge and experience of engineers and program managers along with finance professionals to these historical results. We review and update our estimates of costs quarterly or more frequently when circumstances significantly change, which can affect the profitability of our contracts.
For contracts where revenue is recognized over time, we recognize changes in estimated contract revenues, costs and profits using the cumulative catch-up method of accounting. This method recognizes the cumulative effect of changes on current and prior periods with the impact of the change from inception-to-date recorded in the current period. We have net revenue recognized in the current year from performance obligations satisfied in the prior year due to changes in our estimated costs to complete the related performance obligations. We recognize anticipated losses on contracts in full in the period in which the losses become known.
The impact of adjustments in contract estimates on our operating earnings can be reflected in either revenue or operating costs and expenses. The aggregate impact of adjustments in contract estimates decreased our earnings before income tax and diluted earnings per share by approximately $13 million and $0.38 per share, respectively, in 2024.
Income Taxes
We operate in numerous taxing jurisdictions and are subject to examination by various U.S. Federal, state and foreign jurisdictions for various tax periods. Our income tax positions are based on research and interpretations of the income tax laws and rulings in each of the jurisdictions in which we do business. Due to the subjectivity of interpretations of laws and rulings in each jurisdiction, the differences and interplay in tax laws between those jurisdictions, as well as the inherent uncertainty in estimating the final resolution of complex tax audit matters, Management’s estimates of income tax liabilities may differ from actual payments or assessments.
We account for income taxes under the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We may reduce deferred tax assets by a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. We recognize the effect on deferred tax assets and liabilities of a change in tax rates in income in the period that includes the enactment date. We regularly review our deferred tax assets for recoverability and establish a valuation allowance when Management believes it is more likely than not such assets will not be recovered, taking into consideration historical operating results, expectations of future earnings, tax planning strategies, and the expected timing of the reversals of existing temporary differences.
Goodwill and Other Long-Lived Assets
Our Management annually reviews goodwill and other long-lived assets for impairment or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If we determine that the carrying value of the goodwill and other long-lived assets may not be recoverable, we record a permanent impairment charge for the amount by which the carrying value of the goodwill and other long-lived assets exceeds its fair value. We measure fair value based on a discounted cash flow method using a discount rate determined by Management to be commensurate with the risk inherent in each of our reporting units’ or asset groups’ current business models. Our estimates of cash flows and discount rate are subject to change due to the economic environment, including such factors as interest rates, expected market returns and volatility of markets served. We believe that Management’s estimates of future cash flows and fair value are reasonable; however, changes in estimates could result in impairment charges. At September 30, 2024 we have determined that no goodwill or other long-lived assets were impaired.
We amortize intangible assets with estimable useful lives over their respective estimated useful lives to their estimated residual values, and review them for impairment whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable.
Other Matters
Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to our operations result primarily from changes in interest rates and changes in foreign currency exchange rates. We are exposed to market risk related to changes in interest rates, and we selectively use derivative financial instruments, including forward contracts and swaps, to manage these risks. Our Canadian subsidiary Morgan Schaffer has entered into foreign exchange contracts to manage foreign currency risk, because a portion of their revenue is denominated in U.S. dollars. We report all derivative instruments on our balance sheet at fair value. For derivative instruments designated as cash flow hedges, we defer the gain or loss on the derivative in accumulated other comprehensive income until recognized in earnings with the underlying hedged item.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
See "Other Matters - Quantitative And Qualitative Disclosures About Market Risk" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is incorporated into this Item by reference.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated by reference to the Consolidated Financial Statements of the Company, the Notes thereto, and the related Reports of Independent Registered Public Accounting Firm of Grant Thornton LLP, as set forth in the Financial Information section of this Annual Report, an Index to which is provided on page.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”) carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-1(c)) and 15(c)5(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of September 30, 2024. The evaluation was conducted under the supervision and with the participation of the Company’s Management, including the Company’s Chief Executive Officer and Chief Financial Officer, using the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. 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 September 30, 2024.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s Management, with participation of the Certifying Officers, under the oversight of our Board of Directors, evaluated the effectiveness of the Company’s internal control over financial reporting as of September 30, 2024 using the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, any system of internal control over financial reporting, no matter how well designed, may not prevent or detect misstatement due to the possibility that a control can be circumvented or overridden or that misstatements due to error or fraud may occur that are not detected. Also, because of changes in conditions, internal control effectiveness may vary over time.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2024, using criteria established in Internal Control - Integrated Framework (2013) issued by COSO and concluded that the Company maintained effective internal control over financial reporting as of September 30, 2024, based on these criteria.
Our internal control over financial reporting as of September 30, 2024, has been audited by Grant Thornton, an independent registered public accounting firm, as stated in its report which is included herein and incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
No changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
During the fourth quarter of fiscal 2024, no director or officer (as defined in Securities and Exchange Commission Rule 16a-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 10b5-1 trading arrangement” as defined in Item 408(c) of SEC Regulation S-K

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Information regarding our directors, nominees and nominating procedures, Code of Ethics, Audit and Finance Committee, and non-compliance (if any) with Section 16(a) of the Securities Exchange Act of 1934 is hereby incorporated by reference to the sections captioned “Proposal 1: Election of Directors” and “Securities Ownership of Directors and Executive Officers” in the 2024 Proxy Statement.
Information regarding our executive officers is set forth in Item 1, “Business - Information about our Executive Officers,” above.
We have adopted an Insider Trading Policy encompassing policies and procedures governing the purchase, sale and/or other disposition of our securities by our directors, officers and employees or by the Company itself. Our Insider Trading Policy prohibits any director, officer or employee from trading in Company securities while in possession of material non-public information. In addition, the Insider Trading Policy strictly prohibits our directors, officers and employees from engaging in transactions in Company securities involving puts, calls or other derivative securities on an exchange or in any other organized market, selling Company securities “short”, or entering into hedging or similar arrangements (such as exchange funds) involving Company securities. The Insider Trading Policy also prohibits our directors, officers, corporate office employees, and other designated employees in management positions from pledging Company securities as collateral for a loan or holding Company securities in a margin account. These policies are intended to ensure that the executive officers, as well as other Company personnel in positions of authority, cannot offset or hedge against declines in the price of the Company stock they own or have a personal interest in the price of their shares which may be different from the interests of other shareholders generally. Our Insider Trading Policy has been reasonably designed to promote compliance with insider trading laws, rules and regulations and the listing standards of the NYSE. A copy of our Insider Trading Policy is filed with this Report as Exhibit 19.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Information regarding our compensation committee and director and executive officer compensation is hereby incorporated by reference to the sections captioned “Committees - Compensation Committee Interlocks and Insider Participation,” “Director Compensation” and “Proposal 2: Advisory Vote to Approve Executive Compensation” in the 2024 Proxy Statement.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding the beneficial ownership of our common stock by our directors, director nominees and executive officers individually and as a group, and by any known holder of five percent or more of the common stock, is hereby incorporated by reference to the sections captioned “Securities Ownership of Directors and Executive Officers” and “Securities Ownership of Certain Beneficial Owners” in the 2024 Proxy Statement.
The following table summarizes certain information regarding shares of our common stock that may be issued pursuant to our equity compensation plans existing as of September 30, 2024:
Number of securities to be
Weighted-average
Number of securities remaining available
issued upon exercise of
exercise price of
for future issuance under equity
outstanding options,
outstanding options,
compensation plans (excluding securities
Plan Category
warrants and rights (1)
warrants and rights
reflected in the first column) (1)
Equity compensation plans approved by security holders (2)
228,377
(3)
N/A
(4)
922,391
(5)
Equity compensation plans not approved by security holders (6)
68,493
(6)
N/A
(4)
21,316
(6)
Total
296,870
N/A
(4)
943,707
(1)
The number of shares is subject to adjustment for future changes in capitalization by stock splits, stock dividends and similar events. Does not include shares that may be purchased on the open market pursuant to the Company’s Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, participants may elect to have up to 10% of their current salary or wages withheld and contributed to one or more independent trustees for the purchase of shares. At the discretion of an officer of the Company, the Company or a domestic subsidiary or division may contribute cash in an amount not to exceed 20% of the amounts contributed by
participants; however, the total number of shares purchased with the Company’s matching contributions after October 15, 2003 may not exceed 275,000. As of September 30, 2024, 659,983 shares had been purchased with the Company’s matching funds of which 247,961 were purchased after October 15, 2003.
(2)
Consists of the Company’s 2018 Omnibus Incentive Plan (the “Omnibus Plan”).
(3)
Represents shares issuable under the Omnibus Plan (i) upon vesting of stock-based awards granted under the Omnibus Plan or (ii) upon distribution of vested shares held by directors who have made an election to defer their receipt of stock-based compensation issuable under the Omnibus Plan. Includes a number of common stock equivalents representing dividends accrued on unvested and vested deferred shares, which are distributable in common stock along with the underlying shares.
(4)
The securities outstanding at September 30, 2024 have no exercise price.
(5)
Represents shares currently available for awards under the Omnibus Plan.
(6)
Consists of the Company’s Compensation Plan for Non-Employee Directors (the “Directors Compensation Plan”), under which the Company’s non-employee directors were compensated before 2021; since then the directors have been compensated under the Omnibus Plan. As of September 30, 2024, of the 400,000 shares authorized for issuance under the Directors Compensation Plan a total of 310,191 shares had been issued and approximately 68,493 shares had been elected by various directors to be issued on a deferred basis; the remaining 21,316 shares will be used, if at all, only to satisfy dividend accrual rights attached to deferred shares awarded prior to fiscal 2023 under the Directors Compensation Plan; however, all such accruals in fiscal 2024 were charged to the Omnibus Plan. Details of the directors’ compensation, including elective deferrals and dividend accrual rights, are hereby incorporated by reference to the section captioned “Directors Compensation” in the 2024 Proxy Statement.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
Information regarding transactions with related parties and the independence of our directors, nominees for directors and members of the committees of our board of directors is hereby incorporated by reference to the section captioned “Proposal 1: Election of Directors” in the 2024 Proxy Statement.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services
Information regarding our independent registered public accounting firm, its fees and services, and our Audit and Finance Committee’s pre-approval policies and procedures regarding such fees and services, is hereby incorporated by reference to the section captioned “Proposal 3: Ratification of Appointment of Independent Registered Pubic Accounting Firm” in the 2024 Proxy Statement.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The Consolidated Financial Statements of the Company, and the Reports of Independent Registered Public Accounting Firm thereon of Grant Thornton LLP, are included in the Financial Information section of this Report beginning on page; an Index thereto is set forth on page.
(2) Financial Statement Schedules. Financial Statement Schedules are omitted because either they are not applicable or the required information is included in the Consolidated Financial Statements or the Notes thereto.
(3) Exhibits. The following exhibits are filed with this Report or incorporated herein by reference to the document location indicated:
Exhibit No.
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
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 to Articles of Incorporation effective February 5, 2018
Exhibit 3.1 to the Company’s Form 8-K filed February 7, 2018
3.2
Bylaws of the Company
Exhibit 3.1 to the Company’s Form 8-K filed November 22, 2022
4.1(a)
Description of Common Stock
Exhibit 4.1(a) to the Company’s Form 10-K for the fiscal year ended September 30, 2019
4.1(b)
Specimen revised Common Stock Certificate
Exhibit 4.1 to the Company’s Form 10-Q for the fiscal quarter ended March 31, 2010
4.2
Amended and Restated Credit Agreement dated as of August 30, 2023, incorporated by reference to Exhibit 10.1(a) hereto
Exhibit 10.1(a) hereto
10.1(a)
Amended and Restated Credit Agreement dated as of August 30, 2023 (the 2023 Credit Agreement), among ESCO Technologies Inc., the foreign subsidiary Borrowers party thereto, JPMorgan Chase Bank, N.A. as Administrative Agent, and certain other Lenders and Departing Lenders as defined therein
Exhibit 10.1 to the Company’s Form 8-K filed September 6, 2023
10.1(b)
Commitment Letter dated July 8, 2024 with JP Morgan Chase Bank N.A., relating to amendment of the 2023 Credit Agreement
Filed herewith
10.1(c)
Amendment No. 1 to the 2023 Credit Agreement, dated as of August 5, 2024
Filed herewith
10.2
Form of Indemnification Agreement with each of ESCO’s non-employee directors
Exhibit 10.1 to the Company’s Form 10-K for the fiscal year ended September 30, 2012
Exhibit No.
Description
Document Location
10.3(a)
*
Compensation Plan For Non-Employee Directors, as amended and restated to reflect all amendments through December 8, 2020
Exhibit 10.1 to the Company’s Form 8-K filed December 9, 2020
10.3(b)
*
Sub-Plan for Compensation of Non-Employee Directors under 2018 Omnibus Incentive Plan
Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2022
10.3(c)
*
Form of Director Share Award Agreement (Non-Employee Director) (FY2024)
Exhibit 10.1 to the Company’s Form 10-Q filed May 10, 2024
10.4(a)
*
2018 Omnibus Incentive Plan as Amended and Restated November 17, 2020
Exhibit 10.3 to the Company’s Form 8-K filed November 19, 2020
10.4(b)
*
2018 Omnibus Incentive Plan as Amended and Restated February 3, 2023
Exhibit 10.1 to the Company’s Form 8-K filed February 8, 2023
10.5(a)
*
Form of Restricted Share Unit (RSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2021)
Exhibit 10.2 to the Company’s Form 10-Q filed August 9, 2021
10.5(b)
*
Form of Restricted Share Unit (RSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2022)
Exhibit 10.1 to the Company’s Form 10-Q filed August 9, 2022
10.5(c)
*
Form of Restricted Share Unit (RSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2023-2024)
Exhibit 10.1 to the Company’s Form 10-Q filed August 9, 2023
10.6(a)
*
Form of Performance Share Unit (PSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2022, 2023)
Exhibit 10.1 to the Company’s Form 10-Q filed February 9, 2022
10.6(b)
*
Form of Performance Share Unit (PSU) Awards to Executive Officers under 2018 Omnibus Incentive Plan (FY 2024)
Exhibit 10.1 to the Company’s Form 10-Q filed February 9, 2024
10.7(a)
*
Ninth Amendment and Restatement of Employee Stock Purchase Plan, effective February 5, 2019
Exhibit 10.1 to the Company’s Form 8-K filed February 7, 2019
10.7(b)
*
Tenth Amendment and Restatement of Employee Stock Purchase Plan, effective May 6, 2024
Exhibit 10.2 to the Company’s Form 10-Q filed August 9, 2024
10.8
*
Performance Compensation Plan as amended August 2, 2023 effective October 2, 2023
Exhibit 10.2 to the Company’s Form 8-K filed October 3, 2023
10.9
*
Fourth Amended and Restated Severance Plan dated November 17, 2020
Exhibit 10.2 to the Company’s Form 8-K filed November 19, 2020
10.10(a)
*
Amendment to Employment Agreement with Victor L. Richey effective January 1, 2023
Exhibit 10.1 to the Company's Form 8-K filed January 6, 2023
10.10(b)
*
Transition Award Agreement with Victor L. Richey effective January 3, 2023
Exhibit 10.2 to the Company’s Form 8-K filed January 6, 2023
10.11
*
Employment and Compensation Agreement with Bryan H. Sayler effective January 1, 2023
Exhibit 10.3 to the Company’s Form 8-K filed January 6, 2023
10.12(a)
*
Employment and Compensation Agreement with Christopher L. Tucker effective April 30, 2021
Exhibit 10.4 to the Company’s Form 10-Q filed August 9, 2021
10.12(b)
*
Form of Restricted Stock Unit Award to Christopher L. Tucker dated February 3, 2023
Exhibit 10.5 to the Company’s Form 10-Q filed May 10, 2023
10.13
*
Employment and Compensation Agreement with David M. Schatz effective April 30, 2021
Exhibit 10.5 to the Company’s Form 10-Q filed August 9, 2021
Exhibit No.
Description
Document Location
10.14
*
ESCO Technologies Deferred Compensation Plan, Approved August 1, effective March 1, 2025
Filed herewith
10.15
Sale and Purchase Agreement dated July 8, 2024 relating to the sale of all the shares In Ultra PMES Limited and Measurement Systems, Inc. and EMS Development Corporation and DNE Technologies, Inc., between Ultra Electronics Holdings Limited as Parent Seller and ESCO Maritime Solutions Ltd. and ESCO Technologies Holding LLC as Buyers and ESCO Technologies Inc. as Guarantor
Filed herewith
Insider Trading Policy
Filed herewith
Subsidiaries of the Company
Filed herewith
Consent of Independent Registered Public Accounting Firm
Filed herewith
31.1
Certification of Chief Executive Officer
Filed herewith
31.2
Certification of Chief Financial Officer
Filed herewith
**
Certification of Chief Executive Officer and Chief Financial Officer
Furnished herewith
97.1
Compensation Recovery Policy, adopted effective February 4, 2010
Exhibit 10.6 to the Company’s Form 8-K filed February 10, 2010
97.2
Supplemental Clawback Policy, adopted August 2, 2023 effective October 2, 2023
Exhibit 10.1 to the Company’s Form 8-K filed October 3, 2023
101.INS
***
Inline XBRL Instance Document
Submitted herewith
101.SCH
***
Inline XBRL Schema Document
Submitted herewith
101.CAL
***
Inline XBRL Calculation Linkbase Document
Submitted herewith
101.LAB
***
Inline XBRL Label Linkbase Document
Submitted herewith
101.PRE
***
Inline XBRL Presentation Linkbase Document
Submitted herewith
101.DEF
***
Inline XBRL Definition Linkbase Document
Submitted herewith
***
Cover Page Inline Interactive Data File (contained in Exhibit 101)
Submitted herewith
* Indicates a management contract or compensatory plan or arrangement.
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K.
*** Exhibits 101 and 104 to this report consist of documents formatted in XBRL (Extensible Business Reporting Language) and filed with the Securities and Exchange Commission; they are not included in printed copies of this Report.