ESCO TECHNOLOGIES INC (ESE) Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered 13.2% organic revenue growth to $247.0M, record backlog of ~$907M on 1.11x book-to-bill, and strong profitability with GAAP EPS $0.91 and Adjusted EPS $1.07 (+41% YoY) .
• Management raised FY 2025 Adjusted EPS guidance by $0.25 to $5.55–$5.75 and set Q2 2025 Adjusted EPS guidance at $1.20–$1.30; revenue guidance remains $1.09–$1.11B (6–8% YoY) .
• Segment execution was broad-based: A&D sales +21% (Navy and commercial aerospace), USG margin expansion with Doble strength, and Test orders +43% with >500 bps margin expansion, signaling stabilization beyond wireless .
• Catalysts ahead: expected closing of SM&P (ESCO Maritime Solutions) in Q2/Q3, and strategic review of VACCO (management stated a sale would be strongly accretive to margins) .
• Street consensus comparisons were unavailable at the time of analysis due to S&P Global request limits; however, Q1 Adjusted EPS of $1.07 exceeded internal November plan of $0.83–$0.90, a clear positive surprise .

What Went Well and What Went Wrong

What Went Well

• Broad-based growth and margin expansion: “delivered 13 percent top line growth, over 200 basis points of Adjusted EBITDA margin expansion, and a 41 percent increase in Adjusted EPS” .
• A&D momentum: “Navy sales were particularly strong… up $14 million or 56% over the prior year,” driving A&D sales +21% and margin to 18.9% .
• Test stabilization and margin recovery: orders +43%, sales +13%, Adjusted EBIT margin 10.6% supported by price and cost actions; management: “we are seeing some good growth beyond wireless… business has stabilized” .

What Went Wrong

• Orders timing headwind in A&D: entered orders -30% YoY due to unusually large Navy orders in Q1 2024; timing pushed some contracting out by ~a quarter .
• Renewables moderation: NRG revenue -22% YoY drove mixed USG topline despite strong Doble; management expects regulated utility strength to offset renewables softness .
• Wireless cycle and China complexity: continued constraint in wireless; China environment improving but still a headwind; recovery in wireless likely awaits 6G clarity .

Financial Results

Segment breakdown (sales, EBIT, margins):

Key KPIs:

Notes on non-GAAP adjustments:

• Q1 2025 Adjusted EPS excludes $0.16 per share (pre-tax $5.49M offset by $1.26M tax; net $4.23M), primarily restructuring and acquisition costs plus $0.15 amortization .
• Beginning Q1 2025, acquisition amortization is excluded from Adjusted EPS methodology; prior-year amortization impact: $0.14 in Q1 2024 .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our fiscal year got off to an outstanding start as we delivered 13 percent top line growth, over 200 basis points of Adjusted EBITDA margin expansion, and a 41 percent increase in Adjusted EPS … momentum across our end markets giving us the confidence to raise our full year earnings guidance.” — CEO Bryan Sayler .
• “Test … had a really strong start … orders up over 40% and double-digit organic sales growth … business here has stabilized.” — CEO Bryan Sayler .
• “We are now in the final stages of the U.K. government assessment [for SM&P] … current expectation would be to close … in our second or early … third fiscal quarter.” — Company release .
• “It would be strongly accretive to margins, for the A&D and for ESCO.” — CEO Bryan Sayler on potential sale of VACCO .
• “Adjusted earnings per share will now reflect an add-back of all acquisition-related amortization … $1.07 … nearly 31% above last year’s first quarter … compared to a range … $0.83 to $0.90 per share.” — CFO Christopher Tucker .

Q&A Highlights

• Doble demand durability: Utilities’ capex responding to secular load growth (EVs, electrification, data centers/AI), supporting sustained orders and revenue momentum .
• Margin drivers behind guidance raise: A&D benefit from working through past-due backlog and USG favorable mix (offline/protection testing) at Doble; Test leverage and cost actions continue to help .
• Test orders breadth: Broad-based strength across EMC/T&M, medical, industrial shielding, A&D; early improvement in China; wireless steady but awaiting 6G clarity .
• Boeing ramp: Post-strike rescheduling manageable; modest build-rate assumptions in 2025 with expected H2 acceleration into 2026 supporting aircraft-related businesses .
• SM&P performance and outlook: 2024 performance in line with expectations; management remains optimistic given Navy and shipbuilder activity .

Estimates Context

• S&P Global consensus (EPS and revenue) was unavailable due to request limits at the time of analysis; therefore, Street comparisons could not be validated. As an internal reference, Q1 Adjusted EPS of $1.07 exceeded ESCO’s November plan range of $0.83–$0.90, indicating operational outperformance .
• Given stronger-than-expected USG mix (Doble) and A&D execution, Street models may need to reflect higher margin trajectory and Q2 2025 Adjusted EPS guide of $1.20–$1.30 .

Key Takeaways for Investors

• Broad-based execution and backlog strength de-risk FY’25: record backlog (~$907M) and 1.11x book-to-bill support raised EPS guidance to $5.55–$5.75 .
• Mix-driven margin upside: USG margin expansion (23.6%) and Test recovery (10.6% adj margin) suggest EBIT leverage beyond top-line growth; watch Doble’s offline/protection testing mix sustainability .
• A&D outlook constructive despite order timing: Navy and commercial aerospace demand remain robust; expect variability in large Navy orders but backlog provides visibility .
• Near-term catalysts: SM&P closing (Q2/early Q3) should add scale and content in Navy and contribute to FY’25 EPS; VACCO strategic outcome (sale) would be margin accretive to A&D and ESCO .
• Test business stabilization broadens narrative: orders breadth across geographies and verticals (medical/industrial shielding, data center EMP) reduces reliance on wireless cycle .
• Cash generation improving: Q1 operating cash flow $34.2M; debt/EBITDA 0.4x provides balance sheet flexibility for portfolio moves and tuck-ins .
• Trading implications: Positive guidance revision and clear margin drivers are supportive for near-term sentiment; monitor UK regulatory timing for SM&P and Q2 mix to assess further upside risk to consensus (when available) .

Notes:
- Street consensus from S&P Global was unavailable at time of request due to system limits; internal plan comparison used as a proxy for surprise **[866706_ESE_3414758_3]**.