ESCO (ESE) 10 May 222022 Q2 Earnings call transcript

Good day, and welcome to ESCO Technologies Second Quarter Earnings Conference Call. Today's call is being recorded. With us today are Vic Richey, Chairman and Chief Executive Officer; Chris Tucker, Vice President and Chief Financial Officer. And now to present the forward-looking statement, I would now turn the call over to Kate Lowrey, Vice President of Investor Relations. Please go ahead.

you. Thank this the not harbor meaning the securities during forward-looking historical provisions which federal within statements of laws. call made strictly are are of Statements the safe actual current an in projected company's forward-looking in statements and and on the from risks to, exhibit press the based X-K filed. to that are differ materially but including, statements assumptions These factors and uncertainties risk results due company's environment, be may Form the those included and expectations exist the not will to limited as issued company's to release in business today, which the referenced be operations We required undertake forward-looking be by any the revise applicable regulations. to no update laws or may statements except as or duty

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

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very growth meeting brings we're leadership ASCO. diversified roles really and the week across everybody, skill Board be leadership markets. for their thanks, industrial a She late Thanks, Kate, to finished are Board. Jan thrilled to with like team. the great Board including of and last I'd will member, broad and entire to support We're Board. commitment decades Jan to ESCO, to company. many adding to a thank to development She a to I'd call. experience our our meet also core Board drive while set her happy great be Teledyne, at our have off and of for to like joining bringing on perspective and for asset with today's and experience start new welcome ongoing technology our knowledge just our on a industries, Hess. up several has Her customer needs focused We and

Now All we to delivered the growth With line of businesses have Overall, organic business top momentum. in quarter, discussion of that build switch the second consolidated we saw nice X continue the over sales the growth let's to it's XX% in revenue momentum. clear quarter. quarter.

We also second orders order quarter great had another year's in with of to a quarter. increase last growth, XX% compared

at fiscal March head new a feel but as the start grow top-level balance ESCO, an with the segments. of The 'XX. with started. to backlog minutes, A&D, end and Starting where 'XX into continue for some about commentary some we year since expect off good backlogs with the was details increase few Chris quarter get of momentum outlook into bit mixed. of about the the in was so Our of $XX a financial will each fiscal a good I'll we business the over the million of for record

in closely, level so the over increased pandemic. was business good year seeing aerospace start and market We growth reach prior commercial to continue we're the to from revenue the before XX% XXXX. quarter the strong that far and orders monitor highest of the some for another It since

outlook year, quarter, in there. business. we but had travel our in the helping up, drive about is from some it's is and is clear comparison Navy and that that feel picking this we that of more good but an timing declines see Some Defense easy as last had and The businesses recovery the

not A&D. operational and watching have chain let is the in closely supply something quarter, Past still there in we're margin as due While there's growth was up. challenges revenue challenges backlog

on to focused highly So support all customers. our these issues teams of operations are managing the

the in to build of margins and back improve On bottom recovery the volumes half as side, for the continues expect is the we line as year. A&D margin

continued Let's to The in several year's seen turn XX% now strength quarter. to Americas growth increase nearly product the with and coming the Test business, We've with last in where really second a quarter. we compared industries great the Asia growth sales had growth key and from great lines.

ongoing a in hard their performance. I'd a well. really had we talked the how was business the in phenomenal growth see jumps the see came quarter Really Test to margins solid And came to as to just teams important really And is at it quarter. year Similar highlight margin second it inflation this in about nicely over all impact, USG of growth. when thing you It's growth the about in other work. underlying work XX% we a the The in order great The Test, QX, to had continue sales for last from the Doble weak We quarter acquisition battle, like an pretty through at The the and ago. nice the jump a Test in add bit the team quarter improvement but there. to work aggressively. to business, by north margin definitely XX%. after the challenges

acquisitions road world. our review we comment outpacing sales want some maps new a on in saw It's the globally. good November. out. strategic are closed back of the our are around So and I how the half the happy to done beginning and how as portfolio and teams easy, first in nice product EPS the be our process to businesses place to Clearly, few analyzing now, integration of our it comparisons momentum year, expectations been synergies sure in visibility a Doble, really we work they've move was a hard we to is from laid and feel weeks revenue with good just make of and product require step-up of through status but months with long mode, we the the still and determine growth quarter the of second achieved working say, we really laid a the the acquisition out our be and as the And we bit the these the we should teams have be us were ago, the but capabilities. we've does plan additional job expectations X on of brought products Overall, year. did markets out which year, continue about a in have Phenix. still track We will what for great are to did deliver. the Altanova in on I together. the offered would into execution plans This we subsidiary see all It coming orders

the of half is are continue and over but And very that know are the delivering pushing You turn projections, our deliver the Chris. to backlogs environment challenging, now, we committed all we second to the right hard supportive year. customers. it operating for will to I'll Certainly, now,

Vic. Thanks,

earlier. financial of to access and on I'll now. Chart time. from We first the We're through that Relations the So able section the our that the you with slide on should do going slide be created mentioned can Starting webcast, deck #X. you to see also as results go Kate a Investor website, deck this

You double-digit can significant measures, the see we on all had growth. nice

X by of versus quarter was X.XXx the business. adding backlog strength really the growth another as finished was quarter we this of and a with increase book-to-bill XX% ago. and The million orders, Sales of the year driven That acquisitions, organic very March. record by XX.X% at then strong built across broad growth. $XXX And points with end with XX.X%. increased up First, of

saw good utilities, we the sales strength again, So, and and growth in nice really also commercial group. test from aerospace

then the if from drop through EBIT a adjusted GAAP that But $X.XX. We you little did Test And then, that up A&D we by good were down see down year basis, fundamentally, a dollars came at we On margins a and the On ago improvements quarter. segment the can go see, an look bit. the at you in $X.XX to were bit adjusted EPS, USG. little had segment. XX%. we We'll and

recall a a the as ago, resolved gain we that year building. Watertown You'll had we

out various so for numbers gain had we that ago. year, put This of was adjustments. $X.XX the year different And a

$X.XX gets growth $X.XX versus look we or cash flow at the So to of next go you this year a XX%. chart, a here. a little year ago If to that have we'll

are down We year-to-date. cash flow in

balance So sheet driving key through changes million couple months, the first are $XX just point we're X the at million over $XX that A a ago. in out to that. things versus year of

First and the balance on liabilities is of assets that our you sheet. see kind contract

really just through. on. haven't have This are impact we Last milestone timing. as we of receive We payments year, payments pretty yet. year, various contracts those It's had big our come executed we had some an that

we So to level we move out would that expect as forward.

things is impact on with about That's inventory. $XX us couple million big hurting year-over-year. of by going other The inventory. A

you than managing we First, chain buying quantities Other as are What a are all aware, days. is is issues, these out everybody we're them, And normal. sometimes lot maybe then, little with the now. have to of backlogs means can all there secure as right stranded backlogs. might end not of that that a we're parts, just to a so supply bigger increased we inventory. the an factor need we mentioned, have order, times, the I big we bit parts up of but little finish of is record other most

bringing a into of of to as the lot in of half back flush out we kind we're So backlog move year. ready get that to inventory the

those the big So impact inventory cash the on drivers flow. to are

year-to-date. ago. is headquarters, driven discussed this on X million QX we The expenditures the other about items really of were $X.X months by That which up page, the capital NRG purchase

in the done A the That group. for the the ATM we was had side, acquisition, $X.X the also million NEco acquisition we've million. year. $XX.X spent in On for A&D this A&D year ago, group, acquisition

repurchase. share the it's Lastly,

we to on You'll recall the new were November, that in spend million program. $XXX back reauthorized

and time first we've spent the buybacks years, year, $XX the this several year-to-date. in million approximately started we For again

performance. with through go you to Starting the A&D. segment we'll If page, first go next the

that the up orders were here see can you X%. So

of a $XXX look see increase XX% you at from is the bottom If backlog almost ago. you which at nearly million, a the right chart, year the

numbers of the So you platforms but X% was in a Same overall. of sales. aerospace with there begun the aerospace in very backlogs recover really that's healthy nicely. led business, here quarter. growth we with inside driver have still this Commercial the growth key The across sales here. the see certainly many different really the to And has commercial

contracts. those some year we Navy start Globe again, in easier their actually they had Westland was seeing Vic timing declines a some big now, As there against mentioned, and last growth because some of of business, saw weak. we their businesses, as from we're But bit. Navy businesses to pretty of -- the comparisons had VACCO little very but kind doubt, kind execute no right back come was

Navy the -- you they sales So at then for were overall, I XX.X%, quarter you can look ago. the decline. mentioned us the EBIT from margins, slightly a down at XX.X% down see if in year business And VACCO the was

bit doubled. some Starting little have to the commercial The main go of the the businesses have next the a on deleverage Solutions Utility with If quarter across for decrease. of and did Group, great a mix board drivers we really we we inside the So here. that almost being the orders margin orders. just aero page,

$X.X renewable can about see $XX.X the up of the from the business million with contributed grew growth was million built from and business, core you acquisitions, Doble by growth, then So that million. XX% $XX

the added sales $XX XX%. and XX%, XX%, million was were organically Altanova On Doble up then up Phenix NRG and we was side, up

the out So we're X%. that point also I we acquisitions, good the if continue market. up in exclude to here you year-to-date, strength renewables would see

almost so recall And Adjusted you'll in year we pretty were weak this XX.X%compared XX.X% up a margins year-to-date, that organically, we're points, solid recovery growth EBIT a to first So quarter. ago. the seeing were quarter, big there. X

So through. obviously leverage on flow good saw the we revenue

events material starting We that we also we're which to related increases some some now offset and are to shows person. doing see. We're helping here, in to incur trade price the are inflation putting and customer expenses through wage more than

really and in see just project cost $XX.X of into bringing China medical broad measurement strength been shielding, order the were perspective, orders those a the $XX.X performance than and test million. that's to to really up in board. then we globally, we in had the to We're really of strong business. out backlog seeing page, XX% flow good the next little across the a year So US the in, and in talked and more you sales Orders business. XX% million. USG, We've about the before that coming go Test across and with prior If to power seeing starting From some the sales domestically input in we're that here up business, definitely strength back to seeing filter the have line similar

over margin growth to inflation fighting Again, definitely the the we're in it's with X we're side, able here the and well volume side, a On on increase. the still material side points up big and XX.X%. drive impact, price increases, the wage to the margin price as but

a light we to$X.XX if we the first in of page, So quick a little our share. came full guidance to we for guidance. quarter, expectations. fundamentally, would $X.XX on go had mentioned with in November little just discussion probably in out year the of say, Vic last the a I back bit. this per came But

expectations outpaced a bit. quarter, we the During little second

the really year still then we're range we us a like the year, XX% to the third half leaves and of much first through appropriate. So projection growth is for quarter to $X.XX. of $X.XX of with track full solid on or range feel XX% the That pretty

really over back Vic. it to on all and I that's the So I'll turn financials, had

we programs meetings Thanks, recover term. of of about end pursuing about they're have medium third have to businesses. good commentary, my a forecast growth before characteristics start quite to move the we're in Chris. quarter serve had development my to early excited move and over XXXX, product the with Since coming I'll great beyond. X to more out over we the just good X-year thoughts I continue We The exhibit our deliver and markets teams horizon. we Lots that recently feel subsidiary the growth the on all there. offer planning the into planning short All as few we growth into Q&A.We touched comments and

focus There and our To well well like to unpredictable continues Supply getting We I'd challenging know is commentary, how customers uncertainty far profitability continue always, of employees for forward. to operating an But I the just to chains the be for are shareholders. challenging. In to managing or as for lots sheet is grateful. balance that, economy tremendous run efforts extend opening a operations teams our this the to I'm higher staffed year. the to on of positioned right certain -- all evolve. There so as also big deliver as spite portfolio pandemic is. Our we'll an to very we the challenges the of you returns out that, want close thank have all all environment our move thank operation be to now. team. efficient in continues just entire ESCO and serving fully

with we're So for think that, Q&A. I ready

Instructions]. [Operator

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

what just did like they the -- linger? I'd to start you to quarter. they into with of kind previous chain this curious, supply quarter. the with those that I'm you the issues said might linger had in Did contractor magnitude

past What did say, backlogs that those would John, increase. continue see due I to Yes. we is

So we missing last that. about some little as a of a quarter result talked sales bit

expect the dues in to everybody I plans see close So Obviously again, burn perspective, the were down overhang power keep we'll balance probably we the as is to the quarter, that's and think, that made. past to still down, fiscal I and get those has of a the is expect sales we but of did think the that commitments from customers still obviously kind watching kind our chain here. we year. And to But continue to can. challenge dues from and But And there. working have supply earnings and we're we that's through everybody to quick working an able we're past down increase have going as got our we happy. important for of drive

Yes, I'd just add.

we next. thing think and Defense to Group, it's we're our to day you parts, because piece other chain, from as outside don't sure, Aerospace advantage a out, increased normal show lot that weeks. the -- lead to And send lot addition have outside to we the back. get one the make, a cost this X a on going it XX for processing. the in up not had typically in back really about think the I with supply other dramatically in Because on products what's have would you challenged know and And know comes It you been -- of be it processing some there times taken processing of gone, it's that something you would may weeks.

is, We Chris dealt of news -- as And of around challenges. in. it's kind things good But advanced. the a work just so, with I we've it's lot some think pulling said, really do those

to off, And having little that. for we that to is in, helpful so, a we get because now time pull if but that have that really we'll have do do And flexibility over need you more need things done sure. backlog big that to worked get really you

Altanova Right. got over any you've to saving little better? wondering and Phenix, as I'm bit synergies Right. opportunities And kind know additional just cost to to you've Great. shift identified if or businesses the of revenue a

cross-selling. us really opportunities think the biggest I are Yes, doing for some there

lot products based going the so the selling to on a part and comments, able When be we right be revenue achieve synergies of get. of far. say, areas. through we'll trying types of each in done So, we're work lot we're those confidence of as sure to And in out the other the of the what and to of I right make to was figure each I of really to our of working about go best really the they've that's in to a type work good done Look able synergies acquisition, we then talked would those have the been all at product products characteristic area. the that made review internal that

talk legacy the like Doble everything. Okay. strength little in USG And a much you that and come persisting bit can It how there year? about relative through business of and the really the seems just balance the the confidence back you at a business, in have good

going Yes, the first really quarter. was. disappointed were We it into

of really strength we've a lot seen so, And here.

of saying, lot last survey we the when from anecdotal, we will, people probably And at. they're equipment it because XX% People is that is back a The are did do of where that. getting in if are test our understand number customers, you up so yes, [indiscernible] office.

-- it to it's to be been. so, the And does year. think as I I backlog linear, seem like mean, I think but is don't going in I that throughout see is think it's ever again, there, that good as the we're business and you And going if that -- momentum will. probably do the

think just -- And just so, need to I momentum the we keep going.

spring. think do big always it's We customer I there. every conference this

did we first very person people I would see pretty in been time, robust. a were think very engaged, And say, the year doing. of We that and were it historically, has of who I couple this attendance still So we're but the years. the there than was obviously, about for some in lower things excited

And for talked of calls, some us some having in that's part to we products the a updated momentum of new products. have we've introduced earlier I about As number the get customers. we'll getting what's is the think of

improve is as starting to bit. Vic mean, I feel team we little the like think, they there, a sentiment add. said, as to just would I And Yes. talk I do

continue of utility the they external increase. usage as well Some on forecasts track overall to

kind that outlook some I be kind bit the of a there activity interactions to little see customer we overall for right seems and just better demand, So, and now. in of of of think

really I the but as to more John, and not to it's of mentioned, down it's mean Vic pandemic. be said, linear, stable, kind get going lot opposed to maybe you output as as of through steady the a kind of seen we've whole we're perfectly hopeful -- and over to So, -- growth a up

get in Great. queue. back I'll the

[Operator Instructions].

Securities. with Our next comes from question CJS Jon Tanwanteng

you're is on, just if wondering a to far one first was My deeper little the has dig demand sustained seeing maybe I into so QX. to Doble.

might have you you demand just that where suggested up and number be? more two, a is some catching of they it that resumption to the one you pent-up Or saw demand they're number is think pre-pandemic? I to of needed just where

I'll of does the it's think I'm question, you're I didn't pandemic. equipment, there's the demand. your huge test like I do it discretionary hear there's seem normal. second I amount returning your mean, some nature more where answer it, to sure back not prior first was it a one. to seeing pent-up with to just to but

think as and of that's mean, demand, I'd would there it's norm. too be more something we a more if I recovery kind were I this to because sustainable. much that bubble, see pent-up So be concerned the a

have Got far? it. you part that through And seen sustained the QX first just, so was

be month lease Honestly, orders that like in even some but also are sit billable for those seen we've had big release they press to we what April multimillion-dollar we while. renewals. Jon, we which first is mentioned programs thing that in some comment the it's had now orders, point backlog seeing hard our our we in pretty of Those only -- are of the can for kind is one big out, but don't type so kind of for -- that The have on too we would right like yet, DUC us of I are so a orders us, offering. for great security the And far.

a year all years. the to execute to to from up going over anywhere those way not X things You're

quarter. I drive So we what in the but big that wanted quarter, did thing, again, give some you see the color to helped the of happened a And of just some orders. those in on pretty that's positive which

just next those to orders. meet the My ability helpful. That's question, -- it. on Got

electronic you're that has mentioned have that we just I before and demand that, issues. if you had China meet maybe parts, the lockdown. know past Acquiring had lengthening some even in the quarter wondering you now. to think able Doble I'm actually

different things any what mentioned through be things working a they're but delivering market okay. mix they're great than and these like had slightly mean, earlier, that. on anticipated. products not we may we reps be of they issues, finding in significant, we'll through I But I but hard work like Yes, and

can find just work he used a lot you do. So than there's more to

I And past we missed because quarter. million Jon, when that. quarter, to second that number would And million in said some of I backlogs. of disclosed here that last Yes. the Doble due was up $X bigger of had part say, think $X did build we inside we of get the their

and of of they kind they're have So sell. X an still they having used to in -- stuff boxes order kind perspective lot comes past with due. out Typically goes from of their their and a

are they is things some they slightly. other So of still that of allow to holding but the no definitely again, lot issues chain a back need. seeing still line, supplier top and us such that demand But kind chips strong have the doubt them a with obviously supply other there

more share talk Great. preference versus this at your question, for my repurchases Okay. you potentially Understood. just now -- And could last about M&A point? then,

make clean prefer up acquisitions, more on aggressive for kind even would stock. and I dilution I Because we I things we'll mean, little of we a always Well, are think of we than didn't really our the we number for look think to good a there. to have years. historically continue

every something kind we talk what opportunities quarter. do so that. we we about It on of for And want based is to see acquisitions. really It's certainly from

ongoing an on basis. And review we that so,

being side. achieve the aren't buyback look on things, aggressive we those more and of to able we'll if some So, at

now? look the pipeline How does

has mean, properties Pretty seems some like the few it bit, good. interesting up a over picked months out there. past I

this working So nothing going number close week. there's But on. of that's that to we're a things

go guys. queue. Okay. you, I'll in Thank back

to questions back showing Mr. hand this I'm comments. Thank time. at closing for over to currently conference Richey any further I'd you. the like no

and for appreciate to We in. to I participation, you now. dialing And call everybody's next look Okay. we'll in the forward end call. our talking thanks

Ladies and you for thank gentlemen, your participation.

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