ESCO (ESE) 11 Aug 202020 Q3 Earnings call transcript

Good day, and welcome to the ESCO Technologies Third Quarter 2020 Earnings Conference Call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO; Gary Muenster, Vice President and CFO. And now to present the forward-looking statement, I would now like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

you. Thank press remarks that on a during be earlier prepared the this release issued will today referenced We call.

during regarding You our can website statements at statement of press of in made forward-looking release and www.escotechnologies.com. Investor find our safe ESCO's a Center this call copy the harbor

evolving does forward-looking which response of COVID-XX statements, particularly Actual release During unknown and given assume any in circumstances. this to their non-GAAP any statements, forward-looking GAAP to impact the call, to pandemic refer impact company's to materially subject of may projected may company company inherently the update current Please and the forward-looking financial company's press measures the to risks these statements that the comparable forward-looking the not differ statements. most and reconciliation those duty may make are the and results measures. factors uncertainties, risk for any from for the

Now I'll turn the Vic. call over to

Kate. Thanks,

hand Gary I managing over to brief this company on a how basis. seems change daily the provide I'll on COVID to a in to it third the The we're results, situation update Before quarter environment. discuss

spoke. So changed has since we a last lot

condition, support of our safe customers, From to I and that took and ourselves all continue while action. protect clear a have impact business, to and our actions take focus we precise and services is did we share our products financial deliver keeping decisive did employees strong that strong so past months our and start measures our of the quarter think our and potential we position. over how we've demonstrated When own and to taken on the the hold in results first indication as by and we economic of few third the financial saw some what far it's have our healthy. we and to a business we're future. us best, how allowed day, the The the important the for details managing positioning to real-time, we're pandemic hit through

the cost review to will long-term additional our and efficiency fit to growth directing our to actively meet changing come current support that our our improving situation organization our to actions manage past, adjust profitable demonstrated We this in We've no today's for operational to strengthening We're effectively continue by strategy and ability across efforts and the our business even demands core. cost near-term sales our outlook structure is and pressures market out different. addressing stronger. of the

and without control on for losing We the situation vision are our what's the near-term controlling our focusing future. within

a meet levels. quickly have specifically to our in various our be by will will set actions and to to a up flexibility needs. niche Our highly near-term solutions ESCO difficult more products -- makes alternative returns technical demand normal from unique benefit solutions, leading maintaining designed it to benefit delivering and customers' continue while solutions for positions to markets, when replaced sources. be This to of our ramp

continue to our across continued will and new X as create in investment on by focus new to segments, growth. products continue We opportunities all organic future drive which demonstrated

team is to period and providing deep management leadership of uncertainty. Our through experienced manage this the

in business to continued result the Our our disciplined operating approach success. will

Gary. work say around an all the are and staff thank important have for you demonstrated over dedication, employees to want manufacturing to and world commitment of success I'll the now teams asset, I and turn employees, Our most to extraordinary hard to our leadership it as you ESCO. our their

QX comment briefly and the are out year-to-date which I'll on release. operating laid results, Vic. in press Thanks, the

challenging carrying to while cash between disposal credit release. on stand time. capacity, ratio of modest is a a where extremely during few nearly today, of dry our million the highlights the this of comments, us I'll at comparative importance As in $XXX powder we having pleased hand his from Vic position leverage noted I'm on our And liquidity touch X.XX. utmost available with and

report despite which were we $XX adjusted noted the commercial to of QX decline Given the profitable EBITDA most able our operating of with I backdrop today's units million, am the Doble within consistent deliver pleased prior that environment, at and most to year sales historically. are aerospace, operating

Maintenance additional other current customer their as were personnel sales restricted. site at deferrals million access spending million Doble's increased million have on-site year-to-date increase sales space year, continued where mostly and continue Westland, power year-to-date, facility international, DUCe $X Test Mayday or coupled year. commercial of at X-week X% Chinese restricting our by of the decreased sites and as cybersecurity-related delivery. normal. QX X% in QX and prior driven on we including various to X% X% USG renewals to QX PTI, quarter USG's in year-to-date the due manufacturing large impacted COVID-XX solution, returned reflect an substations, of Chamber locations. increased availability also were sales bookings our aerospace large certain Year-to-date sales sales aerospace. short-term customer and delays as domestic order of and sales were for maintenance X at additional strong recent the year-over-year mandates, at transformers reflect submarine which coupled decreased protocols seen compared has procurements. earlier with customers, and only orders, new of X% A&D this a deferrals approximately in component VACCO last uninterrupted to to sales, strong, to down focus and months. despite offset and Our with softness Navy have the be Globe's well sales by sales Sales X-month shutdown increased in was project project installation several $X to some realigned various where Crissair and utility deliverables installation quarter and year, the $XX by addition compared impact.

reduction or XX% that actions take see of outlook, our evidence decisive we earlier, of noted QX our million when in agility. downturns we $X we is As SG&A and

current Our year-to-date and year and is compared that spending prior our R&D in SG&A continued despite new included despite year, development. flat achieved and the having in was product to orders from we on June start are million solid strong $XXX XX% and of booked Entered million, $XXX Globe year-to-date, up a ended the year. with and remained of QX the where backlog

and multiyear book-to-bill which Our remind will our participation forward. going by be additional year drives we on for this as our mathematically Class the DoD you large on will into reduce the strength. Block delivering business, led fiscal submarines programs, V contract 'XX, progresses the A&D we move these I'll of Virginia as that optics products

year-to-date, I cash of the operations, ratio in continuing leverage $XX resulted liquidity a XX.X% year-to-date improved side, share, modest we lower generated and margin contribution of reflecting $XXX which, On with was year, delivered as QX available $X.XX adjusted a $XX despite or And a margin adjusted EBITDA pension million $XX XXXX. from of made liquidity. prior contributions of up X.XX in in QX, said, our the million from highest $X.XX a EPS million QX we from ignoring share million, from and QX the operating units. finally, QX nearly

circumstances, around result using normal uncertainty today's flow be at the to the time. how difficult of cost as QX maintaining our continues we methodologies. a economic which our predict supplement along For extent focused on comments forecasting And liquidity. makes QX and uncertainty, savings will are providing this to COVID-XX right not cash 'XX, clearly affected backdrop duration the on actions, and it of this considerable To working operations fiscal optimizing bring remainder Vic's of our the guidance we and on and be are we our things, will diligently

Our our a outcome, or ability manage spending which to growth plan would is impact the back to And the over I'll prudently on short-term costs turn and meet increasing to those not do in which future. in it have now negative focus demand Vic.

lower units. will about our comments will situation qualitative and release for few that emphasis. aerospace to of an give softness. businesses daily as our to commercial to end I are the service several our TSA the of and some touch remain very our update we for a current only we and signs more expect business air be you our in into planning, deliveries is over miles. segment, in thorough impact their various so seeing across and the our with some operating you to COVID-XX portion results shared emphasize earnings our of of the we July, I passenger expectations a year, highlights future, individual offer In back with positions. of carriers increasing. passenger within of emerging I'll idle The our fleet effort and Recently, market will of on airline in thinking These Gary. given our the of strong the Starting for as a platform softness reduced markets, and A&D completed commentary, boarding to backlog fluid numbers recovery, near-term duration A&D rates foreseeable sense see the are continues build bringing the end review balance resulting from but started the Thanks, defense continued were

are Our aerospace weakness. on supply and we can chain in-house, as replicate. services and We're seeing And bringing of machining strong. working other some be some that some capabilities back cases, products in these such to we partners continue

an opportunity the We current market also aerospace see as weakness in for ESCO.

crisis, to competitors where or at operational might look reasonable be provide to via able price. during at continue experience a assistance we through We partnering stress this or to financial an acquisition or suppliers

over year, XG the solid is including strength in to general. expected test Our Shielding business be and related the communications backlog of given served balance technologies a of and markets, a RF and the strong

risk USG's solutions, a really few to without continue spending and spending and have service normal site significant their expect to The summer cybersecurity of and and I'm maintenance more efficiency maintain, related to pipeline with change improve infrastructure reduced to of compliance. hardening get routines, personnel utility's near that Once return to note, secure creating USG's safe utility return protocols Utilities the for good pandemic come in global of related softness expect society positive visit we testing of On some customer to their not products money not reliable, to patterns. needs and the spending I'm and regulatory repair as pleased the to need future new social indefinitely months, guidelines especially spend, certain solutions. normal to will its distancing normal. return out sorted aging power. next business safety, return as the critical utility service fundamentals delayed asset they industry and out COVID-XX buying be the does the their can We crisis. by is this or cannot as our

With we received. regards have have consumer renewable NRG in on continue. in more solutions wind been NRG new feedback, markets see and renewable based energy We these our to to several enthusiastically solar anticipated, pleased has and better end that investment recently, than growth have expect products I'm to and we increased as and that introduced offerings, both recovering quickly been

Moving on to M&A.

deliberate under current and brought pipeline. take expect We grow have We're taking opportunities in range. approach, past. business a deals back on does prudent several have and the a certain the more to we actionable reasonable in that valuations our as to environment our has evaluation we It action appear to

for M&A to liquidity our of Our solid create we us months summary, XXXX. to strategy, first in look add through the to balance on and sheet to X our infrastructure additional Board of our positioned year, plenty ensure for to In leverage the success efficiencies and our is M&A And a balance of continue we to portfolio. to operating of well is provides the are current opportunities delivered plan the supportive existing fundamentals our for focus year. and allow

We to will we weather be questions. the We'll will prosper. storm, take any and glad

[Operator Instructions].

Company. question the line John & of with first Our Sidoti from Franzreb comes

Congratulations on a good quarter.

Thanks, John.

to I versus wanted like you're you're talk through across trends with X of there. things But what just to what segments and start order you It all I June. July are in the want better. seeing us kind sounds I guess seeing getting

month we're I've board, have dip good pick month. board. starting for past the have mean I a past say pretty see the seen solid pickup up. a months, but a we utility really little the today, couple it a was guys, month, this they and that of to Yes. the to talked would a segment this really across I across

that. it so was pull starting a quarter the trough, And now to we're of and appears out fourth

the that along expectations turnaround first in better deferred your are the XXXX of the So season spending? or side based of rebounds the of lines normal a season maybe some service turnaround than quarter on a normal

you mean work demand, hard certainly done. It's the think there think little be to I be I to Yes. to pent-up a would some that predict. there's there's going but

what's Absolutely, our levels to we're to this So the our equipment of It's pin this potential go. And volatile and kind to going they're down. our that the certainly, also to be ready companies and earlier who happen, customers such of other is service talking market. hope But the services to -- close all utilities. hard is utilizing a for to upside. ready, is some returned to but to the and provide kind

And think as a see picks this bit, should so pickup. I as a up soon solid we

telcos rollout. test own hearing Got provide versus are their be that it. you any how that XG, are and rollout Got I've are you deferred, is your kind to insight going hearing? the XG to things being And What timing of on the working it. in could backbone a regards perspective? been of from lot of of

going So what the I'd But timing important more our is question the And from testing. you would say forward. most XG a the actual say it than think year I go ago. all thing the the I to think is in company's probably is rollout was for to to consumers understand of the I perspective,

you or of type for new business, our testing doing those development things. remember, we're the components handsets, the the of If of towers, the

had for some there place standard early strong this. phase for the our testing as there, takes we out the there systems as upgrades continuing think We've some well really to seen And new for in and go. I So orders products. that's opportunities very products both some of

of is don't disagree cycle. actual not rollout just were of because I be continuum result the development that but impact So we any we seeing to maybe on our delayed going that as of of the some, where follow-on really business kind a a

and into then Okay. question, get back queue. one last And I guess I'll

are was $X much the the how and actions Could how or you variable, is fixed cost million just SG&A, taking? Regarding it that of already XX%. actions? you you remind are down what highlighted us, is much And those

what managers. -- John, pretty of we was pretty our we ago, across do such is -- say, as, we a thing good we hit obviously, I'd travel we And first months we discretionary the stood fan much Yes. what spending, control. outside were is when did the few on this all cost that company,

that out there's with there, a sites. X, saving lot an same to the around immediate do So this traveling we test. of with the cost company Doble going if And becomes

might So deferred year. deferred We it. travel is coming have a big midyear. part of been in We to next some compensation those adjustments that through

goal So our them. to have with cost control to cost a associated is try didn't that

would have wasn't and million we shut trimmed These it save $X million. were So them. us all with cost costs facility, that didn't costs that that like a and associated us were $X

ETS as sales but serve travel. a Again, up, and see you'll So as G&A you'll when see some margin get to we see up when able some is go Doble forward, of up move sites the also we'll that gross reopen, move these you'll with correlated the and stream pick it. go that with that along things revenue open of to

really how able we're cost to where do cutting without some and pleased other steps were that things pay that. with taking So a and draconian around doing with associated people's there's that, we

we go both of be same we in looking we for QX, forward. revenue as comparable QX as go can sales as into in we this So size see then see you as I we that will SG&A think 'XX pretty that out the get it level percentage maintain forecasted whatever And the forward.

Yes.

is sales that gone in it. have one been of And SG&A are size those the mean, thing locations, would non down the right some But have of piece we obviously, I fall as the direct have SG&A the add, -- in think cost. we operations. those I I though, bucket, typically

sales And away pick those are the will are so to time up. until things going back going that be such come that and not

but is it, of piece associated more big we've lot a what direct cost. of with is SG&A So really a done

our from the [Operator line with John comes Tanwanteng Securities. next Instructions]. And of question CJS

business. you quarter. into first detail little signs could you're that, the know delineate on of more was you question seeing aftermarket nice another that trough wondering a mentioned go and aerospace on you My I to And pickup. commercial OEM between if I depending is Very come think maybe business? past the some side the or the dip you're the do side. Or production rates in there's in levels on channel? inventory bit

they're now, as know, we're John, building from the pretty variables, mean, big and unpredictable. I mean Well, I you that OEMs there's we two build so to. have both rates

what we I that if looks think understood And so hold, have clearly then those like.

of bit burst it he out he a been it full. bit. just said flight obviously piece as call going little and there for in that not. of. and we a spike to they another But their we've on on rates other the haven't said the some of have totally it's pick mixed pickup we given and for And we of that or there's I was some, a too. again, drives have our I bag. another or of XX% build that with business, today, then our had service -- was kind people have spares But think have second He OEM what came think do Now a guy, us. looked a we saw what see a And not far do And planning to big and as month, say impact a business up business. been a was we're we obviously, We're is again, week of pre-COVID and and seeing travel, we're at starting change to what But free flying. COVID last on I'd I was just variable seeing that our what well, and is I so. spike informed Montana, to here a a or it

as flights them. are so of fuller you know, many not there's today, as still And flying nearly but

the think big earlier, is things fourth kind way trough I south So again experiencing. mentioned that the quarter we But turn -- think unless of the I I we're of that's a seems, it as big kind in issue. that

just add to And John, something that.

more we think I'd in the the because X in months. if X through. and for over comfortable track time, about of X but it past that -- in stabilization coming so the the not said, weeks We've or with or go a at last X%, sales is of his I XX% right say lot moving comments, say service we the in reports. But deliveries. look we're now. If nominally last talked about this last are TSA to long we've does X a XX% as coming would you the feels it we're passenger looking Vic or probably down, weekly back paid aircraft done is here the profile again I best attention based on X% talking weeks, pretty direction, they right at

strong Got We the very helpful. south, it. that over in East when the across That's business. And we then have heat the Doble come ways up getting Coast here. to record had blackouts just

do and flows business heat dies we and service Any of through long. how that quite thereof the or free -- to again what down them the maintenance of because when they of to skipped their your back kind could I it and to lack mean they're Some see? summer season? bounce kind this read-through maybe utilities

upside to assuming not there's we're Again, this. -- an not we're going to Yes. be that

going then consistent kind some there's Our current what they're visited year, up think a now. depend some when than projecting sites. quarter. still next better not of I maybe out quarter, to to right fourth be get just getting this really back to and sites we've again, in next mean get the year, doing we're probably of seen, are view is, this ramp. getting bit start of it And I But but in they with going a is these on there the

in depends on for the a nuclear only And go of us, do field. sites -- when the authorized been think that to really what so they sites. lot Really it happens get I to and we've back are the

cannot of tests. but to that question lot is to life, finite is And with certainly, yet issue these so determined, is finite of an continue be a types The is how but a ignore it life. long this they

Okay. just a strength then is the me. you of for wind I Fair product last being There's that's enough. solar driving at now. mentioned And know What's energy NRG? back. successful coming bit

Just that more coming is. color sustainable strength how the it's on of where a kind and seeing from you're little

products, of have. of on it, a The focused. would were those Some now, have some the didn't little think is as side maybe people we focused we there we and we I much say, taking more have should solar I as are advantage but

part So focus this I'd of of been the What dramatically has solar it part year. just is on a say that. better that of anticipated it side is we investment better and

at they If being interest it are. low general, you as look in the rates as

because ton it's think were people up about the tax credits. worried a I before

that that a -- to reality lot and away, so even going when X, ago. energy much those because did a was there months renewable went more interest away. sense closer X so go is traditional rates generation is the now that investments energy business So are low But they make concern that than that to is and

it people energy. renewable previously. jumping than are there's obviously just demand more overriding in, But making And had an economics the now favorable so it plus for are other

I makes provide you fourth That sense. declined If for one the more, guidance ask could to quarter.

are point of the earnings uncertainty through halfway in this August? your biggest sources revenue at where projections wondering Just

be further and to of it's and I say there utility recovery is the it's any adjustment, -- we business. really the aerospace, Yes. it's talked as would really if about, commercial going

are made think of it. assumptions going really markets what do just on don't a still enough we to of we're because clarity exactly I we fragile. insight on And pieces. just great have But two those those this think have little the to say X we rest we is

question do John of And Sidoti with the from line Franzreb Company. have & a we follow-up

sounded some little defense and are about the side you're that Could at you maybe in It size on on that may the pipeline. the a market. maybe that number M&A Just the duress were the interested you in picking of talk companies at? for in side like looking off appetite you aerospace a of of bit businesses your companies be of looking business those and

Yes.

So I would for we anyway, good, we buy would buy companies. things. they going But say decide to I after to a want more up, not because longer. I whatever are distressed solid companies -- but we're do say The don't picture not companies. companies reason, we're but any I currently weather what think storm lot the that, people we people say, always this really good, of I'd looking do. that's solid mean want think purpose X to on a we not want that at

that And troubled some so might for not and close paying not they have people look attention we're looking for but an really, other opportunity saying to to companies. issues, exit. we're I'm vendors again, not that

right As look far number, very always may and to approach forecasting we're case now, diligence on the to we sure. mean now. make little we getting. we're trouble business our size our aggressive cautious look as even the due look, a been to forecasting at because, take But that's -- very as having we've make be we're understand I more a we're sure particularly going what

a ago. about John minute was as I talking Just with

aerospace else's very in forecasting business it's say difficult. is more industry. platform-driven even the the a somebody business, advantage So I'd

cycle aircraft exactly rate there what's on good where businesses. variables insight you understand the get part somebody producing, if there's really I what a repair you what those build going on, into number are is. the what with is, of can what very going number in is So mean

The I would because a well. focused other thing doing more exceptionally -- aerospace we're and bit commercial is that's say really on aerospace defense

a that in can And because foreseeable future us that now, would the a stability that, I leading be at for more find for there's the preference we a so years. next further would right couple that way, business is least lot say of if

can put additional issues production you some that And far last impact it. as might what case? Got It in-house? And like supply Was been sounded in would quarter like the to color in quarter. kind you one bringing question. chain while there was sounded the that the just P&L? in-house production the It have some quantify Any as of be helpful. maybe some

Yes.

had supply significant chain have really we issues. not So

we I that cost is cutting a think about say cost attention in different thing we And savings people, and it think we is lot stuff we sure savings, And trying in-house, think bringing think we about all we're a to we're in-source ever make close But we people of to paid that about to is ways. so haven't. talk done, what and what about more at right? one lot that looking have things.

going something Because control subcontract want of many as gives So more is, our vendor and to outside it as on. businesses keep I in-house. do say, the also, I had employed to they you this that can everything is And we all possible. the to go what's look an employees at reality over

think bring don't business we that. equipment, normal. buy going positioned control, of is do some everybody, know want under but to thing we because mean, back get and we're inside, take that make if investment we to can this should And advantage know it's going so I've capital to we thing work at -- do one I a our COVID, And to there's I well in to I about sure get we we point, said things that. that's look, need so so to one additional many good to

our and makes I want the retention to And savings, employee do sense, in-house having where more more can for so do that, destiny. cost the own it we control both of

makes to do to chain And that that. big one willing supply I'll your thing, you go John, strategy that. is the like you're It out market that also add when with thing in other aware,

is. in cases, that didn't immediate and where breakpoint algorithm been So reductions of business, want some cost because kind a the we some have lose of there's those suppliers to

better got at from we we And vendor, going pricing so structure cost existing looking are a cases, forward. where in get bringing we'll some actually things in-house, lower an

on point, effective. to which been has I side, we're levers So on really pulling several think think, that Vic's I

now This Vic back question-and-answer turn Richey call concludes session. like today's to I the would to closing for remarks.

Okay.

to call. thanks you on to next forward and talking to So everybody, our look I

Thank you.

this today's does Ladies and conclude conference call. gentlemen,

disconnect. great You day. now Everyone, a have may