ESCO (ESE) 18 Nov 222022 Q4 Earnings call transcript

Good day and thank you for standing by. Welcome to the Fourth Quarter 2022 ESCO Technologies Earnings Call. [Operator Instructions] Today’s call is being recorded.

On the call today, we have Vic Richey, Chairman and CEO; Chris Tucker, Senior Vice President and CFO; and Bryan Sayler, President, Utility Solutions Group. And now I would like to turn the conference over to your first speaker today, Kate Lowrey, Vice President of Investor Relations. have now may you the floor. Kate,

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

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

Now over Vic. to the I’ll call turn

Thanks, Kate, and thank you, everyone, for joining today’s call.

feel transition would and us a quarterly is on take you’ve the we on to We to to thought release CEO now in today, good a by today’s seen engage today. off start process. Bryan want the to good for be to call. everybody few release have chance commentary a and as introducing call and lot is Bryan from Bryan over I we also from a words But start really all got but plan, earnings I September press this to X Sayler. our about cover about and joining issued XX January

introduction. for it a to turn brief over me Let Bryan

big outreach. in Chris Louis area ground like I’d the to all as hello ready work get during of in grateful engaging for I for to a with of and around we’re hit his and entire I the with everyone have by chance this the team that ESCO the showing Vic I to this today. the been lot to very for of XX am a some built the call are as I’m to work seen engaging thank really On to they note, the eager when There say relocating our Vic in I all company investors all role, forward. look teams over certainly focus I St. a Directors his investment release, running company I in a I placing to as speak, am press in Thanks, growth our time excited and contribution very The and CEO. with the of thankful by be from I will you. and you am established meeting get be we’ll priority. Kate and I’m business very Board community. that forward X. I you’ve the company a at I’ve the XX-year on a continue will with speak January will have drive and know talk of strong step. personal the over to over at also here be position, process taking to years. Once forward as Louis, to know I be we ESCO. is currently the the take looking tremendous to setup certainly St. investor but on I for momentum the career to details here team also to a and started. we confidence me to

that, back I with will So turn it over Vic. to

Okay, great. Bryan. Thanks,

Let we front in me us. excited for say have I’m of the again, transition how

and respect is full he as Bryan very the As Board takes over. the confident utmost for

rigorous, Our to succession Congratulations, really a to very a Bryan year. planning is a With this was of quarterly forward. process In let results. the tremendous year. was pivot Bryan. and into the us move leader right that, ways, me lot had finish challenging We the

ongoing challenges. the felt year. labor At have we heard supply chain ESCO, throughout the a all You lot those about pressures and

gratifying sledding today tough it’s on results. call to record of these So much the for That very announcing be it makes year. the

a adjusted the year, sales $XXX all records million, share, $X.XX and $XXX of of a million amounts. For cash year achieved record EPS we end full million, many of operating backlog of flow $XXX

improved and employees have meaningfully from all financial of the X efforts tremendous We company. thousands contributions segments around by

nice and with great soft pandemic. were XXXX the negative Crissair we but to had The room business years XX% dollars where over all had the company, long-term good strong of of big up markets numbers we increases. run. businesses think market positions, sales evident Starting year. this This and from Across have dynamics, EBIT three each I market favorable impact up led few will aerospace recovery a top-level seen with a feel but in have adjusted did has Our commentary the we’ve Mayday very business of portfolio end to for significant segments. PTI, Chris we year we put from quarter, business XX%. the which platforms. with minutes, into represented really commercial about few financial is the to A&D, of want some order a outlook details recovery a recovery and about A&D, for still the increased the all some get offer

we the this American utility markets where of over also customers aerospace Group, of XXXX, have work We But move see is out was clear Nexus we A&D across quarters and also business to Space have defense in spending bolster fiscal strong also XXXX a North the stabilize markets, in businesses It’s last they Aerospace pandemic. sizable had and infrastructure. strengthen. seen capacity we the quarter, good nicely have Navy, we momentum really This XXXX. to strong. started diversified business different Defense and and are into and as that Utility those again their uneven as improve and the three little a coming business

Additionally, the renewable us, years be of X spot bright sales row excess of growth in a for and space continues has to delivered XX%. now in NRG a

chain is gaining The completed. and new exciting is In for gas the dissolved group some product a new new team the very growth have been The especially here, Bryan supply have these good The launches difficult to continued the teams are electronic analyzer work have components given other and the the Crissair XXXX. exciting of deliver momentum marketplace. that thing issues in Utility strong product that’s issues particular, in really able involved. the to

This center in high with EBIT last and business, up the had XXXX. have growth markets, Test, let’s a we’ve the of across posted significant several and business number sales on data health several having we level were different end all Test automotive diversity also in quarter and a Lastly, of touch expansion. X% for over growth where nice markets telecom, sales has margin QX customers the activity a quarters. we care, strength good given seen

earnings EPS team was beyond year on range move share It’s year, beginning the in tremendous a we we were anticipated. guidance will of QX business. us the summarize of as labor number bit, year. is And to for employees a and good focused the year. reasons of the it is all for our that delivered, When To news An was per a good chain company, was was with the improvement in really drive really expansion. QX the guidance this forward. of gave that there margin supply we XX% on feel spite for to be an Test other really always, thankful well know we a number I a is that EBITDA year. very $X.XX testament margin good in effort this of We the to great expectation one exceeded The ESCO not for deliver $X.XX big slightly across continuing a so of record headwinds to That fronts. At about I’m the a what share. and margin the challenges

turn will to over I Now, Chris. it

Thanks, Vic.

done the financial the last through have few Starting for Chart walk the results. going to presentation we chart quarters, we As in a have we’re fourth X, to financial on highlights use quarter. overall the

trends up as through up I finish organically the wanted drive over As acquisition Vic Phoenix. and adjusted of X%. three was over of great XX%, business sales the and for The a had well. of down at so that The it That does Two of XX% The year, XX%. to growth chart chart for last quarter, order were this demonstrates nearly business. to quarter orders fourth platforms backlog last highlight is a last year-end have Overall, Sales EBIT Adjusted up a orders year’s remained illustrates tough strong was on makes show and robust Altanova XX%. quarter strength backlog approximately and thing acquired was a we our came very organic EPS $XXX pretty function mentioned, growth chart XX% the grew over to very million of of the this record this comparison. ESCO. XXXX. great

XX% was year results, we’ll as our growth saw with starting points. A X, aerospace with increase here sales finish market. as and we nearly led segment PTI Mayday sales Next, by subsidiaries. the well and Commercial growth by up to on This EBIT Chart A&D. get led XX% to recovery into this X over margins sales in great

growth Beyond Aerospace, have still and Space, than of Defense all of supplier The parts managing and number explosive a XX%. here challenges. business more teams the up other that, from labor been we Navy with saw

to through So this see them issues deliver it work quarter. was and those great

point of renewables sales have XX%. was also customer did chart, dollars in the with strong Altanova overall with the performance. activity growth. On X.X the XX% Phoenix where Group, here, Solutions sales very but XX unfavorable favorable we the down EBIT quarter levels The impact acquisition Organic utility electric adding points had up see we some as and Utility was base high growth mix business. of next were and margins from we EBIT were

that during margin the here be saw year Last is this quarter. these talk to EBIT the the in Going pricing in volume to about base increase, also into with so did we the the test, decrease. to saw nice expansion have first company, part solid compared orders We we The year filter a year as both of sales of made good will folded Orders we for acquisitions the good and excited really segment during are driver on X.X a XX% last very QX, group, as with we impacts up actions. still significant about the is but X% points, backlog finish ESCO. up the progress businesses forward, increase main Test from product prior drop and leverage the Power for line, saw year-end. in margins

as business had we the into some So ‘XX. move nice runway

take full snapshot X. a of Next I’ll Chart the results. on year

As we driven over with X% $XXX reductions, million and we Chart by cash XX% increased the flow labor. you highlights year a THREE Obviously, acquisition we’re on year Operating has first saw than up including and to were included and ESCO here. offset us, the growth the number XXXX, double-digit segments. full up going inflationary able three back saw good-looking was the Capital a up and it Adjusted year impacts impacts was X.X through has of lagged expanded dropped to sales The million of with XXXX, price for direction, segments. with in a each every million, acquisitions. EPS volume as had great three of fronts. performance I’m from XX% record organic of buy a backlog arrows spending of XX%, was material release, worth in X Phoenix, result share the just adjusted as which to chart lots NEco and press EBIT read Chart quarters. over repurchase Orders and was flow and business significantly $XXX cash up recent from the increase increases program only all strong many restart for is XXXX highlights. all a while for flow sales year. the from with the ATM, EBIT in during in not acquisition. cash pointing in favorable segments. X stock spending more margins points We and Altanova, really this for resulting on $XX through leverage, million XX% good $X cost did

year in and throughout USG for after A&D impacted guidance continued recovery for had the So we both our ‘XX. businesses good Test, XXXX will had and of be The growth those chart pandemic good negatively then pandemic after was really period. a for really last And performance the XXXX. ‘XX

growth X% we to another segment. ‘XX in with XX%. expectations sales growth XX% release, of dollar adjusted detailed growth and of We EBIT are year by the of press expecting X% the growth In to

to in low double-digit sales nice We USG had in planning Vic. growth the XX%, of XXXX. growth than environment. growth concludes slightly From current expect it range the interest growth are followed you’re now expense the with A&D the I’ll at rate lead year the the update, of EBIT and we another financial That great looking to over lower single-digit an as Test turn mid-single-digit we interest for we growth back to year by low after with and EPS expecting expect growth, perspective, Overall, growth. X% increases given in

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

with, a You projected fronts. into saw the financials we for better Chris, is but the for being last and as continued record from than I’ll next say of great this growth ESCO number time, year. Even numbers year go a on obviously,

over the on we we good over I footing we leadership a the than know ESCO move So really is solid as interactions last Q&A. my It’s be into for he discussed for is start job the community CEO and the it’s company we The XXXX. honor transition that growth with the earlier. more a a CEO ESCO heading for great that, With on years, role. momentum to real strong time. and isn’t the will the investor for been time and Bryan do at enjoyed XX me and told that capable can is I’ve very

you. will of be Instructions] Our first Tanwanteng CJS Thank [Operator from question Jon coming Securities.

Your line open. is

taking And call, for successful the program. working did look but questions. parts on of Hi, on my on on with first semi-retirement there Thanks in forward you your promotion, a you congrats launch, Bryan, SLS guys. guys had to Vic, all, mention and your I congrats know you. the on

much. Yes. Thanks so

just what I you USG break or quarters and the business was don’t would all those put guess Phoenix if once, because could at it I the have you wondering that in I look impact with changes questions, what out break first backlog My out know Altanova the that and single of if if for like could order year-over-year orders would normalize bookings so businesses? been, you

million, worth in was came in that last year about It $XX Yes. of Jon, QX. backlog

quick, the So the that but was can prior numbers. real that we do that’s year math impact – in

an slowdown with the there the timing was unusual that do you the any year, is, Okay. coming any and in on know form but there? especially your is the based of I shape there might down, We way, mentioned seen you’ve a mobile can the separately. headwinds I wireless seeing Test question last just in other chance demand guess orders device or lot that item, you a businesses in be customers

power year filter mean that, I moderated broad little really I business That I that ago. think on. slowdown growth bit. we was things are anything. from specific would center wouldn’t would or seeing Yes. and that driven build-outs call by I it of explosive a has economics going – kind say say a was data some a that That

data get a it’s little center chain as kind think just done, build-outs I again, supply that longer. to the taking works of whole

a work that seeing stretch out So little bit. we’re

demand, keep parts able other We’re chain of up the but aren’t. supply to with

beyond order kind that any we of seen of little we’ve say that. a And So slow book weakness kind down bit. see wouldn’t I broad

We telecom on activity of seeing the with good are automotive, some still some stuff. same

that’s higher relative in growth why So up a them we’re kind in comps. But other had against lower to look for the also the And of segments. guidance, expectation two feel we good just coming in general, we if you there.

have don’t this forward. you bigger, know much anything else have bit as of So they gotten little much fundamentally, expect moderate be add. if more this to growth faster, we just going a to I the kind Vic,

good. you I think all with No, said. agree it’s I Yes. everything

it’s the as the I anybody of back it to get to It’s the But Just concrete, steel. to things people will come to long-term the no to, a those not business, to is year grow. by hard type Chris minute. million. it’s as data hard continue past one mean, the well the this there that’s as think alluded I get year so the we think as lot of centers just a you COVID think mean But to And slow they people’s work. of to accelerate. and I past impacted I great. get done interorders business is is a basic knows I to I there down. $XX the know, to that think will. centers just was a the construction Anything, ability And for that’s during opportunity built. hard get I get sign has probably part problem the they had record over that, continue as were mean, going to look,

So year a guys. it’s been those good for

little just Got it. that. color. Thanks follow with on to that a for maybe And bit then

more, wanted feel observations better up it’s supply the room general supply and that’s and you chain on how catch your more or much timing before much out how I with you much to comfortable the getting Just how and there? guess,

it are them commercial place bit had of with particularly think business couple keeping outside up And still say have processing on hard was time than would having some a last of back little issues the It’s component in of a A&D a outside the a small some probably been a still still And because challenge businesses, I We a as then the up, those better of growth. the aerospace business has picked most I side. we’re quarter. very processors it’s of issues. some that have spotty. say them lot businesses. has I’d

certainly say say though I’d is I’d workforce better is challenge but it availability. that there, better. so now the right And getting is not getting other

bit. a So continued that’s I think to where an has everybody area little struggle

queue. I in Vic. Thanks, back just it. Got will

Okay.

Instructions] [Operator from your One open. moment. line We is a Jon, have follow-up question Jon.

go You can ahead.

was in could about of expecting talk are into mix that kind if you you out I go Thanks. unfavorable wondering forward? went of the Great. as you what you and saw USG, that what business

we where The that call hardware driver multiple we of DUCe kind of business main there revenue was then kind we and security acronym the get it that’s as on But an upfront that. business a have. Yes. a stream the We there. business years over service sell

that’s out, lower goes hardware bit gross a that little margin is I lower margin. This bit business. would as So, say, fair utility a high margin. a

well it’s overall So, there. average below mid-XXs, of still the but kind

was in really that the that a We was QX lot business the of growth. with saw shipments of big those in hardware main So, growth driver driver. a pretty

number And factor. so was that the one

good you that with usually cash front. get The the is news Yes. up though, business,

cash was by largely payments the one So, our on driven good it was of reasons as year those contracts. this was as

about priorities you rates Obviously, Got bit Help repurchases of looking going more if That me ahead? you or makes versus the sense. allocation wondering talk M&A the pipeline capital little going I as could your are it. about forward. a think are cash use was also higher.

Yes.

as are consistent would that say ‘XX, head I pretty at Jon. think we I we looking into framework

$XX share we did ‘XX. million in we said, of As about repurchases

acquisitions get To target probably we But something I okay. key of as we again. program maybe the obviously, of think bigger see me, is piece kind we for a ‘XX the is the similar would will going back. If that there. We than amount kind dial pipeline

I have a a stuff things characterize side. activity pipeline right some totally there. seeing but are it as wouldn’t a on deal the do little of or We we bit little now anything, Again, come bit through

Great. Okay.

interest implied to Just that arrive guidance year, a at or what’s the are using next question interest on that? the expense rate for EPS you

we at are on the X% ‘XX, So, had for rate, we in and about next for average, year. interest something more range X% looking plus

as will plus. are that get to into we we for bit quarter. the a We the be in little of the are than had and we some we it better – year, money coming locked But three-month through X% be expecting six-month up QX overall,

you And Fair get like full travel Okay. enough. is as international it good before look why at past the guess maybe as I that returns business better recovery share fairly for you seems towards just through then I it can you returns? been the How has there A&D as the pandemic? know the was, recovery, than X and mentioned, better that wondering, taken be much limit was the it years. what’s have a you I business,

Just what to help understand the is full get recovery? a upside us we as

driving have Well, and think to of still we I you of compare – the to Crissair a years, bit feel ‘XX a we a we of the and if was but go like Mayday got put tough single-aisle like to kind it’s platforms them of – go that would pretty mean of kind driven are think still even have say fair think I this couple just are a with year. legs had nice this get there. And up back kind they it our levels, there. some lot that businesses certainly to I we growth sales recovery, I some they of we was

been pretty bit their it’s have sales been little through Now, line. slower books the materialize to a order good, but

kind to prior I you kind to in so get talking that’s is, carry double-aisle perspective, think peaks. stuff are front again, – sales that the a from you we years there, still and think for out on I of of of And back in expect us before

think rates big the say a commentary overall get the we OEMs I would not only are are trying they to I as lot far kind the As to. there, to of of thing is, you build that the single hear quite from generally aisle, out about the if

forecasts, growth the years. at look you still over show those if coming pretty So, those again, next out nice

Yes.

that way ever I were is fallout. had and had quarter first business another hit. had the we we the of when pandemic pandemic ramping then up the think to we really I would think mean bottom and it kind about best

back look think addition that projects, at I particularly that really we I think and be it of back recovery on above some mean with mean side recovered pre-pandemic, go won I you the just when Westland’s to side to growth, gets additional full nicely. and that normal I have in if So, will kind on the space Navy

term, So, the am we talking into think that I years, I pandemic. the over above levels couple longer couple a am years X talking think going I and back I we will of next not that from the now. had get – about

And how grow Great. kind room back there the USG Okay. they to business, more were was just is at same or on kind utility the pre-pandemic, and customers then are of towards question much your of the – it? where

Yes.

business the kind is I of back. think there the answer quick domestic is

I think back level Asian the they previously. The at are kind European is were business. they still and not the business of back

upside growth think as will I I years. had little as a have my product well. have the think we And couple developments, I mentioned comments, which in So, prepared there will we add some new over then see some of next

Thank everyone. Understood. you

Thanks Jon.

our And from John coming question Instructions] Franzreb next of will be [Operator Sidoti.

Your is line open.

questions. guys taking afternoon the Good thanks for and

how of expect higher equilibrium when you? equation, be input to those you is still cost higher inflationary costs? of up matching versus maybe to headwinds do pricing And with the about price much costs curious increases impacting kind Just

fourth quarter, bit. of Yes. I ahead kind a we by would little of say the got that

the you in test that I margins. think saw

utility margins done have to a talked front, caused in there to you issues in price little think the that stay the mix job we bit. about back I earlier some well. the margins but the a of A&D the good on hold think that there saw as I Even side, we in

that of say, right So, have now, are pretty we would like on we favorable feel well, equation kind that John. we priced and general, we in

And half how it. is about when second XXXX Got deliveries weighted as the the far revenue half the – year, order timing? it cadence first Great. is you and this for to of of think heavily relative into as

Yes. super a is I not – would say from growth loaded perspective. bit a back-end the more it’s sales little growth

at the are so more year-over-year think be a If we pretty like EBIT little even, fundamentally, margin and little QX, you we But loaded. look lower QX will something a growth, little a the in But or a coming maybe and sales of that. back-end and perspective, backlog, because little QX lower higher with. growth from a the it’s then QX

more sheet. just balance it. rate Got the environment? paying in Why debt on And be not a down aggressive in higher interest

some cash a little We flow you see September financials cash – higher had in pretty we debt. in Yes. honestly a and strong had the what really the high there, we late really we – year, so with ended up

we as of we definitely yes, kind started since of we to pretty be going that here environment a debt ‘XX. fixed already rate have interest fiscal We move the aggressively lot are the given And have forward. managing

my taking questions. Congratulations Okay. Thanks guys. for

Thank you.

Thank you.

remarks. call your I Chairman over back the Thank turn Richey, Vic you to This to ahead, CEO, for closing Q&A the like and Go question. for session. would concludes sir.

us. talking I look much everybody And Bryan Okay. Thanks Thank you. forward to so for to and joining you quarter. Chris next

This Thank your disconnect. all great conference you Have of may evening. concludes call. rest you a and today’s