ESCO (ESE) 9 May 232023 Q2 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Second Quarter 2023 ESCO Technologies Earnings Call [Operator Instructions]. Please be advised that today's conference is 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 but made Thank differ due the be not be current in the not the expectations uncertainties regulations. by call, These required including, materially of are and and except to, an statements operations the release to referenced laws assumptions, results those environment, this historical, company's applicable you. X-K filed. the safe and are are may on to provisions factors limited of from Statements forward-looking the duty strictly statements, meaning forward-looking no which the as issued projected update to risk business in may to exhibit laws. undertake Form and company's the actual during today, included or risks be statements based securities press exist federal and that We forward-looking company's harbor statements revise within which in will as any

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. their the company's financial most to website the may company under today the link

Now over Bryan. to the I'll call turn

get Thanks, to on update an Kate, and you thanks, everyone, this for joining ESCO today's of taking call. We time appreciate afternoon. all

I'm start, our year to our second So and with pleased results. all off great a you quarter to speak of about is

as we pleased have well, we're robust the of that outlook XXXX fiscal first forward. remains months gone six The look and

efficiency employees want ESCO X.X with moment to thank it's challenging highlights strong steadily experience over quite outcomes. has the all our delivering chain dedicated jump but been of last do I into the a pre-pandemic. employees. continue environment. for very have to we good, operating not has experienced improved, and and the that quarter, been Business a delivered but results talented the we has our years, take these Supply Before essential to to I performance

see challenges and issues burdens the quarter do related backlog. a of of exciting improve $XX over appreciate We a clear locations industries. million teams continued the three company, as getting everyone's full we and also seeing extra the from We number for customer that ratios and me extra that more with help Even pivot backlog. sales adapt September up With in at our we staff. base across increase to 'XX. book-to-bill growth. dynamic drive in I the a and operating $XX a results. the All company These create XXXX excess that, to had high-growth good of growth. efforts $XXX our strength March of really to and of segments into second to strong is continue million quarter we're earnings quarterly It's had orders a XXX%, with and with finished increase million represents serve That let we

combination powerful over services adjusted minutes, products with EBIT Sales increased I offer by each the the quarter. into our markets. but get XX% great commentary Chris a were to we future. confidence dollars top of operating the the will right Defense, the of XX%. up Starting has right want some details level gives that where right do ESCO It's and few another about segments. & a had by financial Aerospace us and in for in some

across ESCO we're be good challenges Navy aircraft aircraft collection well. has military see the market ESCO know, Aerospace also of as and most recovery, group. driven & commercial Growth activity product we operating seeing continuing lines As a are here, are pronounced but you The and conditions. robust to to businesses benefit broad all from that continues in by we Defense in

are the industry-wide our is which and chain backlog due ESCO's teams we near strong issues, full have growth performance to improving, of of While but issues work see sequential still not will supply result we due continue revenues, continue we chain backlog in in aggressively, past to past do primarily term. the resolution supply instability. The expect the

from utility up XX Revenue and to quarter, expanded business also over basis invests solid as had customer be The the is base we monitoring quarter. lines. continue their anticipated margins points monitoring activities continue strong in Next in is and real was utility seeing electric critical high to see as Utility to trend orders strong sales backlogs Group, by and we're for by a EBIT customers the a in we product which assets to adjusted particular, growth XX.X%. This XX% time. core condition In reliability our infrastructure, push grow. continues our that

renewable our built the third XX% continues challenges. renewables our We've XXXX solar in investments we side, to exceed particular to performing looks growth. growth NRG. order manage We've for be we're Utility has good Group a driving product customers, USG to growth sales of well as a in for excess inventory spaces, in expanded Solutions protect is offerings chain great customer our On our supply all team. in year with The of story the row resource monitoring. commitments The strength is made our of above-market us. for both expectations, market utilities in a and through which and in

start moderate as in will second down move that we investments inventory these expect We half forward XXXX. of and the to burn will

post in of Test did as well. pandemic. by tremendous at growth good. the has in down quarter. and see seen business as expected be XX.X%. touch QX In and up I strong weaker margins China. The was opened of did we during a the That bit in were February book-to-bill here mentioned Overall, in earnings this a XXX%. where X%, driven over EBIT few did to experienced to the business backlog end, in the years, our QX, will the last mostly The as Finally, sales is on in business disruptions came lower economy business, see the EBIT Test that We come situation was ratio significant call activity drop sales by and we pass a

So the could while we to by expect sales we growth QX, soft QX. in quarter return another see

So year again will path we to for detail deliver summarize, year. this quarters. targets it's drive been a in strong to X great the as start ESCO, a some quarter. to with good minute, for we full outlook additional the full are our on the Chris provide increasing really a but year We're overall

on some turn quarter. highlights more over I'll it the Now second to to Chris give financial

follow presentation. Everyone can you, on along Thank chart the Bryan.

on we start will X, overall We the Page have where financial highlights.

another in the up to growth backlog add was to quarter. we we this of quarter in the had quarter, related quarter. up next, announced costs the The once purchase We starting an added biggest nearly and and We go into driver segment the Orders a delivering again charges with -- mentioned, accounting and had X, the our $X.XX really XX record $X.XX that additional great and If for well. sales to we we'll Organic Bryan acquisition $X.XX to adjusted was X growth & XX%, XX%, we of was up over Chart EPS of Defense. there finished with X%, for and CMT adjustments restructuring transition very a with adjusted million. quarter get related additional EPS a overall over amounts February in back ESCO. illustrates at that had another for for over $XXX added was had CEO the in the growth was related Aerospace another EBIT acquisition As XX% to CMT Sales great XX%, growth strong growth. business overall. were that. growth chart back onetime $X.XX results, This sales quarter, XX% sales points

quarter. improved the year We've with great to teams increased grew in execution due these at to in commercial Obviously, Really sales Adjusted acquired by conditions XX% working expect we levels working entire overall, backlog. adjusted margins quarter. basis for XX.X% volumes, on increases, nice this higher-than-normal in $X solid the this battle as are forward. to we offset the and to seen quarter. are segment, the led segment the good Backlog material and Dynamics capital acquisition million seen we've aggressively, inflation ended EBIT which were from this we've seeing XXX EBIT operating CMT well. up business, The the group. get I in has on than which more of we we during notable persist backlog $XXX compared and to the also on increased points group, million leverage dollars challenges continued strength performance price XX% adding to quarter. the aerospace the to prior up where margins across move improvements. are but and for But comment levels as this wanted some have seen also margins past

Controller on to large still which prior a events. the Solutions Doble more customer XX.X% multiyear which to booked X for business the and cost was on was travel NRG XX.X% XX% we both $XXX driven in XX% unfavorable from the Adjusted Doble is finished Sales up where back of the year. went strong backlog Group, 'XX. than year this with EBIT quarter, held flow-through Universal for by down prior compared quarter, margins down orders enterprise with mix the sales we customer. double-digit in-person Chart of the in Even The the and had X% with Orders to posting and a comps also increase a very order Next, Utility were March is growth when the million, in by was year quarter. somewhat growth. increased quarter

the in levels Solutions bit driver had both prior business was have and which quarter. the a we XX.X%, result well continue we'll expected, zero The activity earnings This ratio still in of core quarter, result. of We China Utility which a as saw we the approach. and book-to-bill this did was shifted Test, weakness to second outlook talk COVID renewables to customer business about seeing call at during here for as a markets, a Orders is the mentioned second are from did Margins segment as quarter and last solid we came the very base in flat favorable here the as the is long-term experience was to X.XX. utility in Weakness but disruption last year were in a the quarter. significant China high drop main group. the

still So has business the a backlog. healthy

we forward, be to anticipate bit here expect we growth we still quarter. quarter fourth return by to would soft, a move the the third As and

But inventory activities the Working flow. the driving wanted weak and accounts flow down first second unfavorable cash state million flow year the the during Cash year-to-date million $X.X XXXX year is months. timing of million been $XX over for cash approximately first will cash compared Chart Capital cash that receivable, compared X well in first with to just operating -- has in X acquisition year be increased. $XX provide operating earnings X operating higher full given and is commentary months On flow. will spending we want to to highlights. our $XX for in completed the was guidance was all This payments for expectations. spending so by taxes, 'XX. full but half, impacts payable be used milestone just was X accounts unfavorable compared operating capital increased year million the the expectation we repurchases, Chart this by operating flow that million. by half, on over in which per that the far don't don't it significantly repeat fiscal million cash $XX generally to worst to a will share outlook for We improve is the share. as as prior to in nearly $X did 'XX received cash in 'XX. provide driven $XX payments million little has year full 'XX The I period. to down guidance mostly have

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

that increased outlook. in $X.XX We current to to have the $X.XX

in full is the the mentioned release, range of we press guidance the million on $XXX to sales As based $XXX in year million.

range a adjusted of per For on share an quarter, expect the $X.XX we to $X.XX basis. third

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

the but a touched just commentary, comments Q&A my I quite Chris. few to more we Thanks, my earlier a before offer in few of thoughts move I will session. on

numbers You saw from the Chris.

improve. year a obviously, for high So the the performance. to is operating and great our continues The to ESCO strong with start future at company outlook financial for level, a

characteristics. high-growth a we're for momentum whether aircraft and going of markets with solutions customers And are or portfolio on continued our provide programs, prospects businesses excited for there success number of Our about components, Navy long-term it's critical positives, strength from forward. utility

want Lastly, do Richey once before thank Q&A, Vic say I you again. to to

CEO and Vic will throughout a all my the member mentioned press As XX has here of We throughout an release in Board retire fully you know, Vic he June was been XX that of over will the me no company. our for of career supportive effective the and be or longer transition. extremely years. this employee

years. Our Board has been significant we his next grateful from forward transition a to looking are very very Vic the for the very is the and has phase myself, over smooth. orderly managed Vic life, to of process contributions and his

our a the him here, played future. before, As is the all this ESCO, in excited wish we his role I retirement. in building great best we're and for about and huge a foundations Vic time said really

we'll So for questions open it up with answers. and that,

Instructions]. [Operator

comes Sidoti question John line & from the First from Franzreb of Company.

start to when give a the the Can little expect supply resolved? them and us be you issues are chain like to the bottlenecks. with and maybe issues of I'd what you color

And from an Defense So over the & of types phenomenon there's side. two example that are different on think -- there. I I'll give occurring you Aerospace

building people. really players back up is one bill pandemic, a up. lot those first to back on pretty businesses time of was having hard efficient. of lot the the The personnel, when chain rates that small of course themselves during cut A and their smaller had reduce they the a some give They're supply

And are like so processing, these outside whatnot. things

guys And so are those really struggling.

to of the that replace certifications are in limited ability qualifications special required on in cases them our parts. We some because and are specific

And down. another we things So receiving for castings that customer's cases, customer-directed have we prioritize to have like things work. that suppliers and us lot those customer the our a slow direction area is direction, some per does other and from of in purchase whatnot. But materials big kind are to casting of others do

do through going we quarters work it's think So take to to several that.

to clear, good expect good be as in Now we're progress our -- having want and that, to forward. we front, should I will see this making move growth revenues said you sequentially you on

an Test I that, And figured, little around relatively quarter issue? regards also in in Test, why would finally to weakness in far rearview Maybe in turn mirror like a still issues thought it is the on be the States. And some was here China post-COVID-related when can there by of seems really being now. the kind

customer much have to we of in are did So China, reopen, people of outsiders sick. we that the But the issue issue were mean gosh, their they XX% excited now quarters. begin that is of real -- couple that our the not come over last as are not is about, so employees all having sites in. about I affected as

comparison really and more remember, and had the They but other And at work. on backlog to get of issue. in experience complete Test pretty there. time same really, recognize until not site kind that's saw think growth. full decline it's all the Domestically, business the kind really a during running record good the that of up of so and blast, kind substantial over a did of running revenue did. a do and our entire And were pandemic XXXX, we slowing not gunning a the We we're I lot businesses have And factory is of the robust. We able down.

basis, there, the a while a very still decline doing very, seeing So I bit think on think business a little we're I year-over-year well. is of

year any a the progresses, Do current kind the last basis? expect mix you bake one of should as USG, on or the of you've On profile we shift mix. mix And kind margin mentioned unfavorable just into the question. go-forward

the for No, the a I as that thing. sort number were year. do we to of activity. the product margin had we that, into of shipping bit year. through restrained little second see think will expect mean normalize lines that and that normalize the reasons But lot type of get a it's half our we of going of highest I second half We've a

next CJS. Our Instructions] line Jon Tanwanteng from the comes [Operator question from of

This CJS, in Kesselman, standing for associate at is Ross John.

amount going interpret by. guidance, and strength beat expect these the or a it? only other bigger you are you are you don't was that the Does at similar that forward the this building are a Looking of to QX one-off raised you or ways mean by momentum other -- kind just cushion, there

a cushion anything. not I trying we're build to would that or say

you second at growth I If look the mean, it characteristics. good has half, still

off we se. quarter the growth in not what's really to embedded per second in but outlook, the it's year kind you're So flows see dynamics the it's of -- right, and $X.XX. It's good full so the backing like $X.XX still to that's year,

about the sneak Doble you If aftermath recovery? new of and versus want talk you of Can to the I the types much business, follow-up. spending pre-COVID? if in way how engagement And and of is such its or Conference can strength renewables? the is much one How seeing the making you're acquisitions it to utilities as see of infrastructure

Well, that's question. a great

gotten One Conference about utilities and of to we I'm that a is attendance, the were this which chance things really the to when that back had a indicator go strong past the year, I normal to COVID. have up Doble again kind is of excited

I activity is For a from long sort thing. listen, activity. we're think year, people lot the a throughout actually they that were restricting up the last seeing now of -- traveling and of even -- new to But

utilities or have pent-up of very demand us. seeing renewable we may seen We're that customers. during robust from is pandemic I behind kind of the think a lot very, investments the

X you infrastructure look at passed in last the you by more the fundamentally, net from these Act way. a coming years. and that grid when targets that that if Reduction Some built and a in bill is were all more out a the industry, points requirement substantial to all that But really, fullsome out few government Inflation very think of that are stimulated being

early to a And we're the so that fruition. seeing say, of investment what coming I that, lot would of is parts

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

million. outflow to suggests flow really first you the in $XX the it'd operating have I only the want mean just What's we about That collections cash under question half. that? suggested that the $XX cash cash half. be million to And million the driving $XX in certainly I second ask flow. cash good down just

mainly, look impact saw receivables went the the little I bit of to when Defense you a first growth. they if when receivables think bit, We the year, Group, see that a at just Aerospace bit. a where sales down last we we especially in in fair half compared build little year, have actually &

a We versus second build going issues mix half. in had there, the bit little through come expect business, in collections that the And also with to business receivables on shipments. more product of some of had of kind kind then in we in Test a project

that come in second the again, first But half. expect strong the in collections half. in us we those hurt So to

about customer And for of milestones when the then half. towards on back such we and we project also feel that. those is kind other we weighted funding So the good the of timing some of just have, some big businesses, the projects receive in of different

And kind key driving so -- that's there. we it the of other

front? year-end, know, ticked the I relative inventory bit… And don't inventory, I the a to noticed has Because the anything on up

backlog in bit talking we're come say to we're you I seen probably you've not would the little of going of what the one past. with a we mean out the from longer. that past flush as about us year-end it inventory as sticking as reasons maybe has. That's much us kind to quite that Yes, due I

going As there. some move to drive forward, more we that's inventory

that not year. see we into going be down fiscal So still flush working but of next moderate a you'll a little maybe the we're huge bit, as some because issues these to cross

CJS. of Jon line comes Tanwanteng with Our next question again, the from

delivery frequency from year every magnitude you about a uplift and in you fourth Virginia, Will big Columbia deliveries? talk of the similar have to Can be terms program the in quarter? the it of where

going get that we're along than each come to to going from Columbia, going in on but year. rather I think that's we're delivery forget which don't far business, Don't basis basis. to that lift I enough to part a on revenue know a typically do recognizing a of think that's unit we're quarter our our cost whether -- accumulation

And out bit a smooth see from that, think is way going Where so large milestones are achieved. the payments the side. a cash that on looks revenue get you're will I that very to perspective. be We as it lumpy

lumpy. I think so should perspective, you side. a on order be from should be the revenue to more will ramp. the lumpy little that be order a And side, But on bit expect And much a little it smoother it

At much. so questions. this right. time, All there Thank are further you no

turn I would over it Sayler to closing like back remarks. for Bryan So to now

thanks, listen, again us. looking to taking everyone, Well, with forward excited talking to we're next about our quarter. We're time for chat you to business, and

you conclude All today's participation program. so the This for right. conference. Thank much your in does

disconnect. You may now