ESCO (ESE) 8 Feb 232023 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to the First Quarter 2023 ESCO Technologies Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

On the call today, we have Bryan Sayler, President and CEO; Chris Tucker, Senior Vice President and CFO.

And now I would like to hand the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. the have now you floor. Kate,

the made Thank differ current not the expectations call, These materially of are and statements. assumptions, results those this historical you. safe are are may on provisions of from Statements forward-looking strictly meaning forward-looking which the projected laws. the actual during statements based securities federal and harbor statements within in

risk operations the included as any an factors Form required and uncertainties by be exhibit in will duty limited be or may that and to filed. company's no We revise business risks to applicable as the not update which environment, company's undertake laws to to regulations. press except Due statements, to, forward-looking X-K company's in the or referenced the today, release but including, exist issued be

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

Now I'll to turn over call Bryan. the

great everyone, the ESCO. Thanks, Kate. It's on to here really joining for today's the call Thanks, first be CEO, call. as time for at

And at few once ground calendar every the we out with chance here. new start, Louis is really it than a year here say few about great I've running year Overall, But Our to couple I've least hit relocate off to subsidiary to a process I'd the to St. transition ones. visit been the family, go very like as to a and smoothly. new words and my and had and talk before to more excited I'm love to role. a has the able the that, my financial gone got results. started. on We've

really one a to very to few So the close-up our to directors to and for subsidiary was visit and to were capabilities Board and sites. up of it's It we look out able continue really in of things me the has week, allow set new and of a exciting role. neat of of an we And last a at directors there. really Vic year, the I'm board role. me meetings of be at The factories the energized start been the supportive to busy personally, ESCO's board but Directors take get business where the finished just have a we be going of on, a fun to some cool kind that. lot pretty

I success. want thank to to thank overall for of be and their and crucial of to the to ongoing I our ESCO. So Their want support continues dedication board, Vic me

had it pivot X me We all Across results. let business that, that dynamics to we serve. with really So the our increases of the see favorable nice great fiscal both continue earnings. in over sales a start in to to and markets we company, the posting quarterly with XXXX segments

serving are end that very strong We have healthy businesses really markets.

really outlook our So remains positive.

see So said some that, we challenges. still having

a be labor our headlines seen and of at skilled have nature be ESCO's while shortage indicating technical on to material Utility side, continues raw relief the us in portfolio, growth, supply Group. of overall on particularly to continues drag seen availability we've All chain some Solutions conditions. our labor And the to product A&D Due significant the improvements of challenge. a

very strong. pretty understand The services underlying that through to our businesses so. the be those leadership difficult as for the face is continue that it's good is have and environment. for managing in each challenges of been a products they But effectively or to the demand past operating Our year continues important news to we

of Our increase the more year million XX% quarter than an ending first first $XXX quarter. to backlog prior of compared represents

a the I details Chris of financial the segments. minutes, few about some but of business each into did will some want get So in top-level to commentary offer

Let's business, offerings welcome showing group CMT their on February in me some while had X. really that to release, The based the used the by unmanned ESCO technologies by taking are did Sales family. &Defense, exciting where we to Also, which probably great these get These as and businesses the were as them demand robust businesses the exposure industries, dollars with engage across bring those will It's adjusted in role. and naval lot to be now another our environment, which I excited deep We're we're really continues this the knowledge XX%. working EBIT an to of new saw and management ESCO provide platform. strengthen submersible increased we is vehicle happening market have exciting some on aerospace a business of fortunate the Aerospace really area. to over Navy Boston quarter. to ropes but in employees And you role. to as and growth newer Materials with start with up they're new and acquisition see teams capabilities me, about on our commercial They globe are my close press exciting with been for since important the XX% it space to things there's are strong and part business will matures. CMT programs. anticipated

core be in invests we grow. the from XX.X%. is quarter. and as can a to continue continues solid backlogs their see base XX% growth Group, The margins Next to to expanded Utility our had was EBIT business nearly we infrastructure, and customer strong where utility Revenue XX.X% adjusted

side, renewable the On expectations. exceed growth continues the to

growth by we story you from noticeable NRG the issues scale solar. of and been XX% product as the before, for pleased particularly side. were component intact compared most As overall certainly new and a of a the 'XX forward. been NRG, utility pretty know, from XXXX have market, but strong but -- to results both operations, improved supply I'm do growth on impact benefited bit shortages plus remains year, the look but years has developments this utility prior mentioned have and I has our

are aggressively issue. addressing teams Our the

We take so that another we quarter are expect making some resolve. to or progress, to but

Lastly, let's growth over EBIT on touch up were the Test of EBIT and QX expansion. sales we and sales XX% where business, a was quarter XX%. nice margin up by had

business. So quarter Test for a really good the

Overall, you you outlined here As the lower first growth is had still in orders we initial the think segment in decline prior November. Test gave remember for release, to that and did expectations back we press of the the the saw we outlook year. And should Test, guidance positive. our compared quarter in

high That the not of orders during as prior For particular, year activity and well power Test repeat measurement and U.S. filters in some to QX we this related did QX the exceptionally China. products as in had year. in

in so orders expected. our And came as

So positions of to you X for overall is look us backlog All We're start ESCO the well as forward the year. a our back across summarize businesses nicely path that to business, good we a in achieve this really it balance on we gave really position and XXXX. November. delivered for guidance great the

financial on you So some now first I'll to more quarter. it the Chris give over highlights turn to

Thanks, Bryan.

where Everyone highlights. chart the can the X, on follow we on have financial presentation. overall along We'll start Page

great well. that a were mentioned, XX%. and over XX% we illustrates over up Sales XX%. quarter, up EPS Adjusted Bryan had this very and was As chart adjusted over up EBIT

Another X%. strong ESCO. Orders the growth quarter in growth for quarter was

the demonstrates growth trends business. in order see remained overall of good into million a and in robust, the moment, is but a 'XX get strength X of the those details X did our we will and We line. record on December business backlog Overall, our segments the orders of $XXX have

Next results, starting on segment get into we'll X, Aerospace &Defense. with Chart the

full margins here Solid EBIT sales nearly sales market. saw this aerospace performance The XX% point increases up as by commercial to and ongoing XX% and recovery XX% to of led continues XX.X%. adjusted growth we from expanded with a up

saw more X%, good Aerospace, and business still of strength. were with from by other with XX%. all good Orders also the we of commercial growth driven Aerospace and that, up growth than parts Defense& Navy Navy Space, Beyond

next were XX% Sales and and to up are deliver Orders challenges very order The on exceptional in increase. by due $XXX a strength a strong sales business The Group, of of EBIT at utility did Backlogs The global mentioned with margins levels electric saw high the chain growth X, to Chart renewables as core of very where we growth elevated Bryan to basis. business. from the is were at quarter year. part space with XX%. million utility the previously. X.X XX%. explosive in XX% continued start Solutions growth growth base supply strong we delivered customer was business the Utility from on on the Adjusted leverage growth activity points also favorable had renewables see

the chart. segment we'll final is The talk Test, on next about

sales for the quarter drop nice up quarter. this XX% Orders XX%. Really XX% leverage EBIT strong volume did margin during here by on solid we as Another the saw expansion with group, and increases. up

this of the million the was repeat that year's You Overall, had and large in quarter. still chart book-to-bill beginning on activity more see year in and 'XX at power orders X.X, the with first bookings for quarter. line not that were QX fiscal we the did of projections of in $XX than last filters at project the

the 'XX Test the outlook still we So about good for business. feel

impact closed year, first our cash this flow year year in the million just to Capital almost NEco is payable, Operating was On million by the compared spending The Working no we $XX repurchases, acquisition in $XX and inventory unfavorable the next last quarter. Chart the QX year highlights. an first capital accounts A&D Group. unfavorable flow in spending by $XX compared the quarter were during deals completed last declined this with $X $X just there was nearly in over in quarter. million last quarter. in dropped to chart, down quarter prior first year's X, cash over million the driving share million and had to as and quarter compared quarter acquisition

Chart lower We guidance. does out X the year remain is take the of outlook our range. end intact. The full did

prior guidance the that was an per recall adjusted to basis. on $X.XX $X.XX share You'll

that per We the outlook. to up $X.XX have tightened $X.XX share current to in

forecast is second in in view expect we mentioned disruptions lower share basis. per $X.XX an For ongoing the a full The see reflects year the manage quarter, a forecast to $X.XX business We And range of issue. China we Test this the on for to the COVID timing the due second as as they a outlook intact. as Test still somewhat above, for quarter policies. adjusted

and That concludes Bryan. the now financial back it I'll over turn update, to

my a Q&A. we before on comments touched I more couple a but thoughts Chris. move have lot of do earlier, Thanks, to I

You saw the numbers from Chris.

a really healthy great year great some We're the obviously, and So strong operating customers. markets financial for performance. in company. is great serving start really a with to ESCO This end

So, our to I moment a of want employees take across company. just all thank to the

growing, had I But of and managing As been and really of over, a to we're We're a locations before, lot strain could busy, they're appreciate dedication subsidiary everybody on and for importantly, all that people, has grateful put I'm really their working taking number visit our since for I've of welcoming efforts. really really been a hard. challenges and mentioned that. I everybody's their chance really more and

the with Q&A. that, start can So we

Instructions] of Tommy from first [Operator Our comes Stephens. question Moll

to on wanted outlook. the start I revenue So

it quarter. last guidance think I was gave And go above in just X% year-on-year, of you reported. X last each the kind segments USG you through to range were the gave of to you quarter the Test X%. XX% you Just high the us If the of away the ranges comparing X%, the fiscal just that and XX% end segments, A&D, for to then quarter blew first Those I X% the quarter.

higher cause some ranges for this you the those first there reported quarter. what year? through deceleration in big growth biased you Or in just after is So go are as a potentially

We consistent this we ranges. kind Yes, front-end Tommy, of say a would I be the more centered the the balance the bit as moderate that it's the expected I absolutely with but we're I you're growth levels. our But for into to the that our say Certainly, end I of say better will plan with from we still we overall was quarter QX a we're backlog would little growth redo would say Chris. probably is came to higher year of little year, the first get -- right. ranges position. wouldn't going the growth towards would biased those than planned.

through comps? you that go timing backlog you is more the And something moderation as decelerate underlying there just of anticipate to Or or year? that is

comps. Yes. more really I say would just

our double-digit again, fourth and year, last the in on at an and growth year look was quarter. basis reported third then you a had growth the strong If in last organic half, first we little really lower and

high So outlook. and get in you hard tougher big just when still levels as But got We of backlog comps. have, that to it's coming double-digit know, this like come you you into those growth good a comps year.

good pivot curious like in Understood. the strong context commercial together here, feels to over like you would what Yes. reported quarters be those. lapping any think where just it to several to a it a I early in, wanted you led provide I'm we're still you're this segment. And could it I start in Does helpful. row going recovery, innings? feel inning aero, Or

like we Tommy, honestly, legs. recovery it's little would what hard has a feel I that would Yes. to still say we is say the say

of we're still you expectations if double-digit inning in kind what years pretty in, of couple at projections, robust as far just have growth the look build of rates. a industry out As kind they

you kind and is If where want 'XX, build The the now aisle still in dual at the type single-aisle look forecast. to of OEMs aren't throughout up quite 'XX of industry ramp rates them. kind struggling

game we've pretty to yet. pretty do -- is not the it's yet, of that that say all middle good the what game good of pretty still we're still again, I the we're some we we so see hard the there. know I'd tells in of don't us. runway say that outlook if maybe in feel And to the robust front middle inning. for us me should got And but

Yes.

think is innings throwing thing I off. us the

still good how up how commercial effectively of the up to be ramp board. feel ramping Tommy. the the supply the going I across OEMs about able major quickly disruption because of amount there's they're think think there's overall fair pretty question we growth, Each to are to aerospace, I as and chain a some

be, in they're struggling And there's segment. but to underlying where back certainly so get to strength want overall they to the

management [Operator at the Instructions] further questions to this turn any remarks. call time. closing for showing like I'm no to over I'd back

One have moment. do It looks we question. a like

question Moll. comes next Our Tommy from

I'd in thinking of start queue. back be the the I

jump conversation today, just with So us we a or X in someone front I can have the of but... either of

Well, looks questions, there's more like.

So ahead. go

Okay.

for. While you kind of this could the be the wait even and on help qualitative us be don't But to one Just for is I'll out I to And there on the follow-up, model cash issue. guidance year? flow, progression anything But even was expect any the just Or quarter. just you reasonable ask the the Chris, provide until frame in or better going first of conversion appreciate called specific might some quantitative helpful. what would you to end call I there? of the way headwinds

Yes.

really is that give right. us. What You're QX don't we say mean, firm is low. I would low seasonally there. for point are always guidance I typically the we

year at the cash well. case doubt as that be We This for full conversion for free the flow this year. the no quarter, will look

trying into range, last below to the a through XX% that of Tommy, of in to can had cash years, a the little on drive maybe quantitative bit. we've get you. think but we're couple That's kind we've where XX%, come I chunks little been

So now -- little investing in as bit are well. a right and capital we

we're tells against driving counts that that that ratio, towards. hopefully, where kind -- of but you that's So

another Is we operator have still on? question? Do

Yes. I apologize. Tanwanteng. Jon

Hi, can you me? hear

Jon. Hi,

Jon. Hi,

customers there's you the back to what back and a I I [indiscernible] know some there's curious issue make there. timing indications China. gives in it was Test you I into getting will disruption year? sometimes that Are come been the forward? know going come confidence your

that. a little more us give color on Just

good about feel pretty business still is. the where we Test Yes,

we have of that now. the market quarter have by going do adversely continuing We right business to are on have that's the is going going underlying stuff COVID to forecast be second terms in the -- well We affected parts to of several demand. the do are quite China in

backlog We a huge working we're there through. have that

us level for that high to ability gives of the about so a deliver the confidence year. And financials our

CMT, kind Could of give the expecting them synergies had and growth of sub more what little that you're that fold it us rates Great. are the of kind on out you margins the color that as into business underlying just a Okay. you has business? that

Yes.

to to emerging small is going think FY CMT that Navy. that's a for really a We're have business So interesting business. the really that, meaningful not expect technologies impact some that exposure we in going has it's But a 'XX. to are

modest, we are that the Margins going in facility. see integrating so expect production we we're do our that And business. are X- that time globe to growth today to but X-year overall be into over to substantial going it frame,

we'll able So out going take really costs be forward. and some margins to improve

more the today? are behind Okay. Great. pipeline how does And And like there look that CMT?

I have those I working we we we're a imminent but we additional anything for so on don't Well, as that's have pipeline. think developing things, you, speak. opportunities are and constantly

right that I a if more the you issue supply, kind anything going you little improving you now? about Is bit you actually from for is the labor was that? to can if address you're that it to we still one issue maybe constraints do both and which And see come there's could one, moment forward? talk Number supply bigger this a at perspective. and of facing, do Okay. wondering or

Yes.

affects is affect affects couple think our also does bigger a the directly, issue now of at And shortage. but only the different I that labor it right of Not all for us us levels. us suppliers.

electronic discrete components starting they're that, get do back to issues. with some processing, of a So speed. cause We pieces ramped up growth that where full the have to some to outside struggling things like places like couple are

up having demand maintain that but we're a original increased some listen, plans, our couple is still we're demand every seeing to to in think new scaling were of resolve places. hard in day or itself time X So supply X some able challenging in But we -- marketplace the kind it a we're of But a when to months. and comes going that's chain. it's adventure to

one for Got you. it. last one Bryan, Okay.

to of Just what know there evolve, and thoughts before has level direction hear love the that, may now. about been be those kind And changing [indiscernible] the what a of for about you of about I wondering high kind spoken you company have about we've costs month thinking just if you should... opportunities I'd but what

I of all, But adjustments place. any think I great won't first listen, today. in I announcing be major -- strategic Well, we're a

As in exposure I've think great is growing interaction between changing collaboration end comments, the this is my really of business to with subsidiaries. The said that be we some a biggest thing, improve nice the trying to markets. will and amount I

something that's So begun. that's already

We of review planning doing X in occurs next will That's a over our strategic a of kind normal be April. overall our months. strategic the kind process

some asking kind we terms to and changes that just would to in few organic terms activity. a of our in a up at criteria bit inorganic the of both things making little that of subsidiaries consider look we're so open of to And aperture we're the

anything are to in don't to a But put to few wouldn't And business so make I the have us a announce, going better grow think specific of going margins. position I and did. to and we expand our I that if kind definitely changes we're probably

before, [indiscernible] positive cash was know get it. of see you. if in trying you I the when kind thoughts you I this If flow in on and sneak Chris. answered to moving I any queue. more don't there, Got for that might But could one

a talk little Yes. did Jon. about We Yes. bit, that

hopefully, full full We're typically kind QX a programs. facilities XX% That's that on We continuing this we've targeted the around our stuff flow We've to trying this in again for obviously, got that kind year. capital to Predicated increase year. little range. invest bit seasonal for our year. driving corporation. a little think of of in I free low saw bit the in capacity is and year cash what XX%, some conversion, We're of kind point.

a higher capital this towards driving kind that's the framework driving little that's year, year. the this we're of So but

call no closing any back remarks. further over like showing to this at for to [Operator questions time. management I'd Instructions] turn I'm the

thanks and for about think good everybody, listen, Well, the We've we're quarter, today. a the in participating a heading excited in. had we pretty good year. a have lot direction call going to We're we're

you to next we'll time. So talk

Thank you. Thank gentlemen, conference. Ladies and today's conclude you does for this all participating.

Have great a You day. may now disconnect.