COVID-19 TRENDS AND UNCERTAINTIES

The COVID-19 global pandemic has continued to create significant and unprecedented challenges, including constraints on the Company's supply chain. The economic uncertainty, changes in the propensity for the general public to travel by air, and reductions in demand for commercial aircraft as a result of the COVID-19 pandemic have adversely impacted net sales and operating results in certain of our A&D reporting units. Additionally, the electric utility market has been impacted by reduced domestic electricity consumption related to the pandemic, which in turn impacts utility spending on investments in grid maintenance and testing.

Throughout 2021 and the first six months of 2022, our Navy, defense aerospace, space and Test segment end-markets have remained solid and we are now seeing recovery in our core markets most affected by the pandemic. We are encouraged by the growing strength of our entered orders across the commercial aerospace, electric utility and renewable energy end-markets. While there is still uncertainty as to the timing and pace of recovery in the commercial aerospace and electric utility markets, we have seen these markets begin to stabilize and expect strong growth in the second half of fiscal 2022.

We are also monitoring the impacts of COVID-19 on the fair value of assets. We do not currently anticipate any material asset impairments as a result of the COVID-19 global pandemic. We determined that there was no impairment for the three and six-month period ended March 31, 2022. We will continue to monitor the impacts of COVID-19 on the fair value of assets. For further discussion, refer to Management's Discussion and Analysis contained in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

RESULTS OF OPERATIONS

References to the second quarters of 2022 and 2021 represent the three-month periods ended March 31, 2022 and 2021, respectively.

OVERVIEW

In the second quarter of 2022, sales, net earnings and diluted earnings per share were $204.9 million, $16.6 million and $0.64 per share, respectively, compared to $165.9 million, $15.4 million and $0.59 per share, respectively, in the second quarter of 2021. In the first six months of 2022, sales, net earnings and diluted earnings per share were $381.9 million, $28.1 million and $1.08 per share, respectively, compared to $328.6 million, $28.2 million and $1.08 per share, respectively, in the first six months of 2021.

NET SALES

In the second quarter of 2022, net sales of $204.9 million were $39.0 million, or 23.5%, higher than the $165.9 million in the second quarter of 2021. In the first six months of 2022, net sales of $381.9 million were $53.3 million, or 16.2%, higher than the $328.6 million in the first six months of 2021. The increase in net sales in the second quarter of 2022 as compared to the second quarter of 2021 was due to a $24.6 million increase in the USG segment, a $12.1 million increase in the Test segment, and a $2.3 million increase in the Aerospace & Defense segment. The increase in net sales in the first six months of 2022 as compared to the first six months of 2021 was due to a $33.5 million increase in the USG segment, a $13.8 million increase in the Test segment, and a $6.0 million increase in the Aerospace & Defense segment.

-Aerospace & Defense (A&D)

In the second quarter of 2022, net sales of $84.8 million were $2.3 million, or 2.8%, higher than the $82.5 million in the second quarter of 2021. In the first six months of 2022, net sales of $155.1 million were $6.0 million, or 4.0%, higher than the $149.1 million in the first six months of 2021. The sales increase in the second quarter of 2022 compared to the second quarter of 2021 was mainly due to a $2.8 million increase in net sales at Mayday, a $1.0 million increase in net sales at PTI, a $0.9 million increase in net sales at Globe, an $0.8 million increase in net sales at Westland, a $0.4 million increase in net sales at Crissair, primarily due to an increase in commercial aerospace sales driven by the rebound from the COVID-19 pandemic, partially offset by a $3.6 million decrease in sales at VACCO driven by timing of navy defense projects. The sales increase in the first six months of 2022 compared to the first six months of 2021 was mainly due to a $4.5 million increase in net sales at Mayday, a $5.4 million increase in net sales at PTI, a $3.4 million increase in net sales at Westland, and a $0.3 million increase in net sales at Globe, primarily due to an increase in commercial aerospace sales driven by the rebound from the COVID-19 pandemic, partially offset by a $7.6 million decrease in net sales at VACCO driven by timing of navy defense projects.


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-USG

In the second quarter of 2022, net sales of $64.2 million were $24.6 million, or 62.1%, higher than the $39.6 million in the second quarter of 2021. In the first six months of 2022, net sales of $127.7 million were $33.6 million, or 35.7%, higher than the $94.1 million in the first six months of 2021. The increase in the second quarter and first six months of 2022 compared to the corresponding periods of 2021 was mainly due to higher product and service revenue at Doble primarily driven by the acquisitions of Altanova and Phenix, and an increase in product sales at NRG. The revenue contribution from the Altanova and Phenix acquisitions totaled $10.4 million and $25.0 million for the second quarter and first six months of 2022, respectively.

-Test

In the second quarter of 2022, net sales of $55.9 million were $12.1 million, or 27.6%, higher than the $43.8 million in the second quarter of 2021. In the first six months of 2022, net sales of $99.2 million were $13.9 million, or 16.3%, higher than the $85.3 million in the first six months of 2021. The increase in the second quarter of 2022 as compared to the second quarter of 2021 was primarily due to higher sales from the Company's U.S. and Asian operations totaling $12.8 million partially offset by a $0.7 million decrease in sales from the segment's European operations due to the timing of test and measurement chamber projects. The increase in the first six months of 2022 compared to the first six months of 2021 was due to higher sales from the Company's Asian and U.S. operations totaling $17.3 million partially offset by a $3.4 million decrease in sales from the segment's European operations due to the timing of test and measurement chamber projects.

ORDERS AND BACKLOG

Backlog was $670.9 million at March 31, 2022 compared with $592.0 million at September 30, 2021. The Company received new orders totaling $236.5 million in the second quarter of 2022 compared to $176.2 million in the second quarter of 2021. Of the new orders received in the second quarter of 2022, $94.6 million related to Aerospace & Defense products, $86.5 million related to USG products, and $55.4 million related to Test products. Of the new orders received in the second quarter of 2021, $88.2 million related to Aerospace & Defense products, $43.6 million related to USG products, and $44.4 million related to Test products.

The Company received new orders totaling $460.9 million in the first six months of 2022 compared to $333.9 million in the first six months of 2021. Of the new orders received in the first six months of 2022, $184.8 million related to Aerospace & Defense products, $152.7 million related to USG products, and $123.4 million related to Test products. Of the new orders received in the first six months of 2021, $153.6 million related to Aerospace & Defense products, $92.4 million related to USG products, and $87.9 million related to Test products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative (SG&A) expenses for the second quarter of 2022 were $48.0 million (23.4% of net sales), compared with $38.7 million (23.3% of net sales) for the second quarter of 2021. For the first six months of 2022, SG&A expenses were $94.6 million (24.8% of net sales) compared to $79.7 million (24.3% of net sales) for the first six months of 2021. The increase in SG&A in the second quarter and first six months of 2022 compared to the corresponding periods of 2021 was mainly due to higher expenses at Doble as a result of the SG&A contribution from the Altanova and Phenix acquisitions and higher expenses at Corporate due to acquisition related costs and professional fees.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets from continuing operations was $6.5 million and $13.0 million for the second quarter and first six months of 2022, respectively, compared to $4.9 million and $9.9 million for the corresponding periods of 2021. Amortization expenses consist of amortization of acquired intangible assets from acquisitions and other identifiable intangible assets (primarily software). The increase in amortization expense in the second quarter and first six months of 2022 compared to the corresponding periods of 2021 was mainly due to the Company's recent acquisitions of Phenix, Altanova and NEco.

OTHER INCOME, NET

Other income, net, was $0.6 million of income in the second quarter of 2022 compared to $1.9 million of income in the second quarter of 2021. There were no individually significant items in other income, net, in the second quarter of 2022. The principal component of


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other income, net, in the second quarter of 2021 was a gain of approximately $2 million for the final settlement on the sale of the Doble Watertown, MA building, partially offset by facility consolidation charges for the Doble Manta facility.

Other income, net, was $0.6 million of income in the first six months of 2022 compared to $1.9 million of income in the first six months of 2021. There were no individually significant items in other income, net, in the first six months of 2022. The principal component of other income, net, in the first six months of 2021 was a gain of approximately $2 million for the final settlement on the sale of the Doble Watertown, MA building, partially offset by facility consolidation charges for the Doble Manta facility.

EBIT

The Company evaluates the performance of its operating segments based on EBIT, and provides EBIT on a consolidated basis, which is a non-GAAP financial measure. Please refer to the discussion of non-GAAP financial measures in Note 7 to the Consolidated Financial Statements, above. EBIT was $22.7 million (11.1% of net sales) for the second quarter of 2022 compared to $20.6 million (12.4% of net sales) for the second quarter of 2021. For the first six months of 2022, EBIT was $38.3 million (10.0% of net sales) compared to $37.7 million (11.5% of net sales) for the first six months of 2021.

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

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