ESCO (ESE) 10 Aug 212021 Q3 Earnings call transcript

Good day and welcome to the ESCO Q3 conference call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO, Chris Tucker, Vice President and CFO. And now to present the forward-looking statement, I would like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

you. Thank of this reduction end timing timing a markets, and shareholder revenues, during growth recovery of the result regarding variants value, EPS, beyond our COVID adjusted recovery of the impacts aerospace, of call COVID made expected in of the and XXXX and vaccines, Statements recovery and the commercial as adjusted COVID amounts cash, and not efforts, EBITDA, statements additional Block correction acquisitions, in success Safe results of federal X of within acquired integrating which are Harbor of and cost timing production the the statements completing securities businesses, the other of meaning inventory strictly deliveries, in and of laws. the Provisions forward-looking success issues historical are expectations referenced due to company's and in are and from operations on assumptions and materially differ limited exist statements an business company's actual risks exhibit statements projected may environment as based to in forward-looking the not those company's issued but to current included press and be uncertainties including, risk that the the to Form results in These which be release X-K the today, will filed. factors the result revise events no update undertake to as information, forward-looking or new or duty whether statements a otherwise. We of future any

found link, In measures to www.escotechnologies.com under measures their discuss may in the this results. website on Investor at addition, financial release reconciliation during measures Relations. the press and of these found most be call, some describing can operating non-GAAP in the the issued company company's GAAP A the today company's comparable

over to call will turn I the Now, Vic.

joining today's thanks everyone call. Kate for and Thanks

would for the our efforts of the their like thank company across we Before employees in jump details business. quarter, around ongoing the I the just

beginning for everyone working a from challenges the And of of the staff environment health There continue company. very overall, the Cash third from goal few today, excellent. continues well. has same, encourage that, were the across the the see but perform to provide pandemic, safe benefit employees our and the With we the to contributions remained year-to-date appreciative. primary been vaccinated everyone. COVID, has I we Since quarter, am of in company our efforts the our for protect fully to and great continue get ongoing to and generation challenges

capital We have the move as teams we for a the tool and ESCO. This be focused creation room can on there's around working still company initiatives term forward. value for long improvements

reduction our success forward level confident operational And focus moving fiscal actions previous ESCO toward continue Our to operating result will XXXX. with going a markets in as continued our enhanced business more end in approach our along as disciplined I on cost move will normalized that the am benefit we into efficiency activity. of

to will details, offer the I the tone. While Chris top provide level will set financial commentary some

passenger and to below of the picked as were in is to the margins. overall travel reductions but adding our quarter. international statistics This From more good increase quarter, to recovery XXXX there XXXX While up order our than we levels. aerospace domestic this XX% what is portfolio in been of cost adjusted boardings impact third sales COVID's this idle And A&D, we still our of to anticipated. prior meaningful still contribution customers that on lower surprised, The last below increase to airlines bit performance understand increased mitigate company. slower the a as down a were consolidated recovery A&D has to U.S. who result our compared levels. year, units other only travel signs are segment remained lately business slightly that this be year-to-date to and sales airport that into to travel aerospace, more have report. sectors compared driven a to Sales the EBITDA news seeing air aerospace segment see the slightly been quarter. allowed an TDA solid year-to-date us continue several the is mix are continued are favorable in well to commercial across third Those as It's back are in a due year-to-date operating diversity in level, down are travel we overall show. aircraft probably soft positives still commercial the in but third orders you Europe service. has and starting is important to as margin Within activity than than commercial by A&D our from year's our was headwind prior by

Navy in strong term funded our of businesses and and near opportunities Additionally, to materialize both our and space areas. continue for well remained growth outlook these

Our steady. test to business continues be

they are as We issues global on material and actively have transportation managing a inflation order we good basis arise. and input

tests by XG, expect We the including of and its markets remain served to driven strength outlook automotive. positive, medical

been with a about acquisitions. business margins very the continues quarter, has performed Doble to did but am from bit NRG levels. orders yet USG The regarding XXXX profitability outperform seen at Doble's demand Our the to we today soft. of year-to-date last XX.X% We but approximately renewables pre-pandemic I EBIT business the year. two closing term X% business long return compared adjusted see utility excited customers USG from great feel about We the perspective a outlook from to announcements well and sales have the growth XX.X% have of in in not for

agreements we our to deal significantly in business new exciting the July on and brings were been closed Our our May product back XX. get had to and business offerings This global announced also acquire footprint. able USG to Altanova increases

markets. purchase enhances group industrial exciting commercial Additionally, an of product further access is that Phenix greater to of This and Technologies. offering today our we the the announced business the also USG provides

additional people and join with the of to the of enthusiasm businesses. encouraged had their the both these by for am ESCO. teams quality have very meetings We I

earning are confident growth. ESCO these be and additions sales We that future to will portfolio and will USG's strong drive

strong. fundamentals the our remains portfolio overall, of So

second half initial the to about behind The have increase outlook but good and projections, outlook and is started for orders beyond. a growth we XXXX bit feel sales

Chris. will over turn I it to Now

The wanted touching Westland. been have all development challenges and primarily Adjusted XX% We from quarter, growth product but by which will sales led to year-to-date to charges and did release the million Thanks to that at on few decline recorded highlights. was comparative production XX.X% sent the saw A&D were in the new in well. quarter. Westland. product by have had experienced charges bad $X.X start programs, Vic. up billed regarding In of write we the related No and mention quarter This costs to quarter quarter offs to X.X%. the million. some quality Westland has XX.X% test press segments EBIT some the customers, margins did $X.X by I in commentary with briefly a X% up year in we issues. here three the growing several grew was we we increased or product margin of at become driven They Sales aware as in quarter the X.X%, issues prior inefficiencies in of and USG inventory first operational compared where XXXX third and

forward, XXXX reflect corrections our numbers updated be amounts. and to The reported our previously and charges quarter financials represent year-to-date second will these first going to

Globe We work and under Westland together have work the these we between to and to get production synergies within bring the businesses subsidiary started leadership strong cost fixed our and business. immediately are already issues issues the have structure. begun one address There to

exceptionally prior XX% declines have at QX in reduced significant in as prior compared QX quarter. year growth quarter the grew strong see XX%. A&D Adjusted dollars $X.XX are return were per share year to to over are The EPS and we this the We down EPS. quarter the an below to navy the we low prior committed in in sales by sales tax a for improvements had in which aerospace forward. follows. per X.X% business move Adjusted in came approximately more a offset $X.XX Segment outlook than did year highlights which commercial share. business as of and pre-tax rate driving further

returned the While by for activities. reduction A&D saw Margins see on were we of test did signs to XX.X% prior was year prior XX.X% rate business growth the decline driven the driven seeing and from utility not improve USG renewables cost benefits to business margins were to in levels. timing pre-pandemic the were QX is in the down growth QX. beginning sales improvement aerospace group. XX%. QX, quarter. grew issues at are Westland. strong of in and The quarter Adjusted This The mix did rebound. leverage commercial is due up from XX% was has compared in flow were issues. and sales down, grow to we cash the quarter, the that by EBIT but The performance the in X.X% the in strong. this the business Margins Year-to-date, very over business steady continued operating down

to teams We sheet the continue focus results improvement very and improvements. work company our multiple good. for continue to balance The strategies the see great capital across are operating on from driving results

the nearly cash often adjusted had driving the year-to-date. in include was as safety terms. time payments which contract. a in include test life in has EBITDA stock the orders million this based being programs performance our A&D positive compared throughout of with Other impact and and $XX adjusting performance payment levels to our efforts XX% Year-to-date, XXXX negotiating Some segments, new results it extending XX.X% significant

have as year-to-date XX% of a book-to-bill content all tax XXXX to as during in intangibles and three in a booked the cost increased manufacturing in and segments which took of facility of from new include A&D $XXX.X environment. million Over company programs. increasing move increasing test of us comparative Strength orders and rates. XX%, had of USG year several Amortization here increasing hold year $XXX we XX% to business We story the percent several entered facilities, the tax represents closure Examples Mexico million were make-buy actions XX%. of sales QX growth orders income expense to of tax that down a came past This as QX. its benefited margins prior expense QX compared and and a quarter Orders we decreased last orders consolidation and backlog across strategies with were ended the strong. reduction good year, implemented ongoing with the our in while interest pretax allowed XXX%.

the we us position to investment navigating for continue our focus end in is the increase COVID, products remains near M&A same, our increasing future one number As and liquidity maximizing hope and what of through we new and solutions. growth

today sheet balance core are excited for about enhance mentioned earlier. We in strong recent continue our organic growth obviously a have the have and ample capacity we to further still We profile. Vic to the that acquisitions and acquisitions business invest

generation significant testament on Our this liquidity. cash is year focus to a this

first flow have We cash XXX% free earnings conversion of nine delivered months. net for at the

clear has initiatives. issue XXXX The talk since a is to our the QX as in QX this range quarter is a the included three in sales aerospace The million. range see the As level QX about In outlook working key commercial to have In are minute sales businesses. mentioned $XXX guidance utility per range for QX. provide a the reduced that opposed have but a the first The guidance. the momentum $X.XX to as we QX levels those we guidance think million more release, capital of about did want backlogs began. aerospace COVID the build, predicated in for and and share. of we we for we $X.XX last guidance the did is to $XXX as for beginning the above, on I months, to QX This guidance. for are drivers also sales businesses commercial

positive long look XXXX. and some had of space, the we continues for we towards For about not markets term to we both anticipated. previously seeing utility we levels The positioning as to feel compared to our but good growth these outlook are the be prior year,

also from that acquisitions the that We clear want any be this outlook were to announced excludes today. impact

they I With is but to turn not We quantified Vic. will transactions, are and guidance that, over in not the therefore have sales those that yet and earnings impacts it will provided. from back included are

offer Chris. a few a of commentary, comments in before Q&A. my just I earlier thoughts Thanks I Since more quite move it will touched my few we

to progress commitment us Outside This end NRG well business business Board time updating like to ready to was see a and another business the the utility line markets. great innovation Chris in week the difficult process. that an transactions. surface the customers are a on start the a and manage our tremendous treatment They of the our at the bid are growth support master lot see drive chance them. team visit. with Boston through Phenix rolling long exceptional firsthand and our inside we They really to to and At our the feel to market. visit be The driving This full Doble the we has really worked a The the line. markets, a took oil FX with Globe periods business. allows softer see had opportunities As market Doble, teams the interactions very these meeting than military this. the doesn't set for we segment. great a are has for we the growth could Globe from The This done hard has these the here took Doble's After and at of year the to job. headquarters, to facility. manufacturing mentioned, and continue of and their acquisitions. did little Navy USG team commercial aerospace, meetings product Boston team ongoing markets. energy see at planned market lot Altanova very that around great It's aerospace but renewable it's about made full A&D action. a operating to a markets. update Doble NRG in the we We for operations. also back this renewable visiting Board They to team excitement the update these it new support medical telecom, in the exciting I of fun thank all our we and our visit up Globe spending great days in term provided of units. products board guidance. to Navy last again, winning the couple change for time those would end at a finished We to see automotive half Investments space portfolio exposure for just launch product spent. great Doble. like had And at our focused of in happen and diverse a performance strong We the test will opportunities and meetings accomplishing was across during We of Board

think I Q&A. that, with So ready are for some we

[Operator Instructions].

will First question the from of line coming Stephens. be from Lochridge Cameron

Your is open. line

Hi. taking for thanks my and questions. afternoon Good

Good afternoon.

see if $XXX might and So looking that, there at Altanova you Any would was stand? to million Phenix the of be things was liquidity I helpful. where two what Maybe quarter. geographies, of front. Great this end-market exposure, us in like are the deals you the update on just the could wanted pipeline on in wondering valuations, to press just release. terms update M&A get closed you start the out I just called on,

Sure.

are So market of pretty lot as I right hearing sure am from M&A is other now. active you folks, a the

this little So done. higher probably have a able we number things multiples, They that is are say I would two little opportunities still looking I in are get the a were of environment. down seeing think, anticipated are we at. There to I these bit. a have we there. settled good would other than But

content. on far those really as The segment think to and about as extent, particularly good Altanova well utility I international lesser as a our geographical. continue will great segment both and and guys our have we Phenix, focus to thing A&D

is for that to an been improve so a of we really number area have working years. And

look of So XX% U.S. of at the sales if the current probably you breakout, kind U.S. outside Doble's are and in XX% the

are they Altanova, the at look you If exactly opposite.

have are they Asia. sales Europe of sales some their XX% in in but So U.S,, in and

footprint U.S. products bigger sell have And some the of be here. so us to opportunity that's and of we able give a to an really going to will much their outside

Doble We products some will sell of there.

it little And new us. cases, theirs in XX-XX. A really thing more the addition really a great they is and of but industrial applicable some a But versus international products. Phenix, some more the so are is in for bring Take products and to some high-voltage content, is acquisition this more commercial the markets. lot utility markets

the So those continue are side on look the A&D. and kinds of to we on things for, will both utility

small look for we last as before, well. drop a acquisition I will maybe you quarter, it to of If continue one was in in had opportunities and those A&D quarter remember, of guess business kinds our we the

That's you. great. Thank

of forward guess emerging the follow-up, USG, to I look demand you it's are I to adding surprised a Any variant come. what's a hearing talk be realized uncertainty. there, the probably back helpful. a you. to announcements to be little from will with there. But if that guess Delta little demand? Thank maybe bit more We could was holding just weak would customers? still that switching update I I to was as see what Maybe you

hard in probably, that say couple so the predict. are the It's utilities one of is of a issues any I that be of I to a XX% seeing home people we case. the would thing people is, well, from will and mean working are Sure. things, still biggest with dealing we

were when And work so the of they doing. just at difficult to do out there people much it's types aren't and to more do business things

a that's surprise. bit little So a been of

of electricity other more is, thing right some am delivering things. I worried about The other now the than

of of bit things. focus see the of to So the sure able They we paying electricity testing deliver are take they off is type focus to on of as It's we a of lot little making a think time good that the this about happen that's those a that’s testing. attention this going type that type they of required talked also to We have in before. testing. It's infrastructure. do to business do point and the

little it's to stopped everybody think a of their our doing it's though, business of horns just down bit we in not I mean about are I pulled It's I I have think. So remember important has XX% a little kind bit. mean, sales like there.

impact. some so going We we we it's it we slower up honestly into there. pick pick off And before But now. base, to going think think as coming to will some go seen upside see thought was have We a we XXXX pretty good up.

you back. turn it. much, it Thanks. Got very I will Thank

Thanks.

will Our with line the Franzreb of next from John come question Sidoti.

open. Your line is

Good questions. afternoon guys. Thanks for the taking

though Just backlog pushed to the it USG, a recognized be timing up issue the year in going to there? going more next on stick reasonably Is the Is of this looking into with is actually it's business? historically be quarter. for because number than the backlog end really Is it year? to nicely calendar just that's it good going back

A decent of catch. John, kind their Yes. chunk a annual service happened orders type of of some their lease in activity. it's the good were their quarter and that contracts

the a a over of order that the quite the stretch number But and out will number kind So year. bit. backlog you that see for revenue boosted

those ship lot. So product the business aren't kind in of that book a orders and see type type, we

about kind factor that of to relative that's a the bit kind was So backlog talking there increased little of the weaker sales. the I

add just want I to to that. Yes.

have you are If sales services, where as been that's if been you The seeing But Chris leases, Doble's said, which softness. you labs strong, know got our look look at oil at we strong. have is been the they strong. has business, some instrument

one So equipment area it's just it's buys. really where

spot, time they of because my of picks think, back lot effort a make will commentary, so bit a great spent as refreshing I and their it products. when fortunately, in have And mentioned I up, it good

levels be It's earlier, the of that we they we think business. out haven't I come And have of historically. have to going but any when this this we And so they not line. had a are buying reality, been probably should the bit to we said same lost just

it that back there call I I guess was $XX contribution a March. growth. it business. an million enough. operating increased June revenue in test? I the When million on basis, the on margin and of at kind And look side there that a was a in actually sequential similarly not on the little Fair surprised in Okay. test holding revenues the OP of something Is margin $XX

about you I But us. look talked before have look the kind people we business of started following an much basis, historically to on at and to think look or project-driven we I at, much is it led so is believe business. the No, because with at because on something maybe maybe if a that annual there test a can you there it ask you thing have variability not, be is quarter-to-quarter going very is from

nice expect year. to, it profitability do the one significantly bit has annual from is this basis, quarter. than that on exactly am very so quarter be up an different them going are That another what may confident And if they little I business from to we a better. held really not

in So variability and is channel any the on depending projects or of quarter. through what a the sales backlog there given are mix really going through lot

enough. through of Fair side thoughts business, to the customers' how looks will to your that get I guess them about equilibrium? take inventory And aerospace any inventory it and like work Okay. long to what the on

half. question. first I can't the of I can half the second probably the but answer

think the inventory until certainly, to opportunity I got build think inventory down is confidence down, I levels the more coming are of everybody they rates. work in So their taking their kind

what's customers. obviously have, there's the there's that going can by We some where position ramp we I to I support broader industry our on it for last up a able being only of I for concern are a I does think so a some be in supply mean think we can when us. That capacity, in the can OEMs with the read base ramp if in long some, you think larger financial the should about and happen. support we base, not concern quickly.

it, fourth are talking reason like of as talking fourth we talked that quarter we we in, going an that's time But the think in one be third at see pickup So than it because and we about the about did. exact we to a going that more I we is are timing going to quarter looked bit don't quarter, the we fourth issue. and thought little last the

predict still it's now. little a So hard to

pretty have But get going look update looks XXXX September. a are We we actually good. to that an got first at on and it in

And so our position talk in you we time. will at be a to and the about we that in about to assumptions have plan talk that

as more here So, get be time this, in firm to we up They build I think actual squishy a their in get right will or provide XX those, little bit we going the hope rates they so. better next to but a insight what now be. into going are to it's days little seem

Okay. the Can some going and remarks. And guess sure last on you prepared Westland just you issues. And just quite there? production if color what's it's question, I may, based I not? give behind on the I one on better wasn't or

your hear of didn't last very question. part I sorry, am the I

yet? are ongoing? issues Or done The last they are part, the Are you? behind they

We our there's think have additional be I any don't got going issues. to arms around those.

with this a product got a we control of development say level it some But were things kind think control, out out had of, we happened. number detail. we products get ramping of been that through big couple have of I mean that I I a that up of new on. of would once in

concerns. have can some Our are where area new developments an you always

cost had pretty and Part got It's of that it's a of they well. up We there. some a us. for us got ahead built the So some as small fairly a remote we inventory business issue have in location. new business relatively growth was,

the we have. much should as have we So group. that on we didn't probably focus in significant had turnover honestly And as financial

been didn't would a good We have. mentioned typically before, news have anything fairly turnover the charge see we as group that we product any shouldn't for is, didn't small like we complete finance in caught had bad customer we And by The group. the so that that a out.

got control have We now. under it

it's Look, a The is business. good all is customer so a and good mean business. It's end surface still submarines And Navy this business, good. ships. I

had market issues. some end So the is We solid.

We have got be think fine we and will going fixed forward. those I

appreciate for color. the additional I Thanks Great. that.

You bet. Thanks.

[Operator Instructions].

question Jon line with will of CJS Tanwanteng from be the coming Next Securities.

line Your is open.

afternoon will the utilities question I all the Doble it usually next year approach Good come taking guess and come business more the thank from to I back. that But does next question pretty different Vic, wanted USG guys and spring to I mean recovery just is sure back I for of perspective. Hi. that they when were their my instead. questions. going be think you be cycle a do maintenance? that a is, going by able Or fall do the in when to to are it type we

I and probably certainly what this, pretty to Well, we and had year think best if hesitate say last Doble at look year you but you happened last quarter. if remember I quarter had a solid first

demand that wanted deploy. they of utilities pent-up of bit of was funds lot a and had so kind to that And

were it's coming off now. well. base this are we if the certainly, would in for given really so in we think hard be in them quarter start first certainly as part we quarter, some position, right of certainly fourth a that And But low next honest, Jon, we seeing provide I predict that to not should year. of to pickup, But

Okay. Great. them. give of sense with the could consider Thanks the potential for growth us and then if I a was that. wondering acquisitions. regards you just two When cross-selling to you Europe And maybe understand not synergies as from I has might that them. synergies in is Phenix and much, some, you able done which from Altanova off be get also certainly that to but the local? across

Sure.

already they week. and before we last made reviewed the recently say, as centered we And going in synergy So I more those are plans that decent we would them they we to, acquisition, prevalent as cross-selling We be And is think got because the really some opportunities real. of have are the projected. probably have. to we Altanova with place really clear I reviewed growth are think able

getting we they think everything and Doble the growth but SIM, said I pretty there have Morgan that we there it think do some believe will in that their to acquired we Now, the good cross-selling our reps exactly and Vanguard the but and in there's and name across before, Schaffer others. world when be we significant. We with and done we with do did this be able didn’t will

historically think will to a best outside I footprint think access of we same have able earlier way. reps they in get Like, the big the because I I are done that thing more so I effective here. markets important those job making the this think And just to mentioned us. that And of sure as and U.S., most their even will happen be good

Okay. just Thank inflation, I guess, then logistics. And you. on Great.

you said that to am And does is seeing you Are But being if some, if wouldn't it? some are customers. there time less having quickly? I pass-through? you it take dealing think to how need trouble you that? may wondering do cost you be are with supplying passed I your Or they any too

actually doing Yes, in I time. it we real think are

roll into of time that So I I of of got the their kind would of the increases type real for happening we think know these database. programs they And have kind are in in cost all businesses,, working some and also almost. project is, actively way it three they say price we of price cost segments the

they So programs, are factoring and to projects to have whatever cost are quotations of at in that, seeing. we and like going kind as what increases doing of price got the look able things is and those they they them so those are something latest kind

key our financial everybody next of the when month it. subsidiaries. in there pretty we been I And will we headlines where we here sure from But processes those and on around through shape have we XXXX pretty be like generally that that thing we But focus drive price set communicating all it go we good dealing in a good with out price feel and and certainly programs. we are to that. numbers review about feel we are to continue is today, seeing quite inflation the frankly are we the proactive think and got we we with So make

And one me Thanks. it. Got flow. just for cash the on last

wondering just that from more to down? is a good this reset there cash? Or a of job in cash one-time pretty You at it am did back or gain I a outflow converting some brings earnings. permanent is point

lever I think balance that I mind, sheet work. think Listen, is we can kind continue a Yes. the in that to my of

try I run working room or can that XXX%-plus sure to stay drive am will forever, XXX% to as be kind higher. this our And nice, the capital term. and work but have in ROCEs move drive, the and long over to with we on framework at will want think as XXX% initiatives. the not I that's want turnovers I drive we got that certainly everybody we with we to we range of we higher a forward

already. I I that excited done in the we we think really feel have early work innings am of kind are we like there. have about But I So the got, still

We have got more to do.

Thank it. Got you.

you Thank Jon.

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

is open. line Your

the be fourth Yes. the follow-up at just of on end to projected of would your I debt quarter? guess What some questions. level Jon's

of below X.XX We ratio or kind we still whatever. are at X.X looking times are a from leverage at today that the

versus you much was of that. I cash the where was for curious about thinking just were That's acquisition. of debt I Yes. with drawdown kind going how

Well, the a chunk of the sheet have the and the cash, fair to we deploy of today not balance cash international a really that's easy lot towards on deal.

kind we available not it's of cash work get on close as separately back. to that But today So that deals. those we

debt most So see you will that going side. of the on

if much was that inflationary third again again. Or matched, out at Okay. that unabsorbed forced immaterial? And to of costs how are in I Jon cost take all? All pricing increases wondering on with well the the right. was quarter, you call or following could guess, I you

we subs, immaterial. a bit by of out little would the called not mean had inflation to really needle. the a of few I but I say enough move

So overall kind wash. a that was of

Congratulations. follow-ups. my Thanks taking for

bet. You

Instructions]. [Operator

Well, think the in. now. Okay. the I look you. everybody end to will call. you Thank dialing we Thanks forward to call listen, I for in talking next

everyone. Thanks

your for participation. concludes you conference this And today's everyone Thank call.

now may disconnect. You