ESCO (ESE) 16 Nov 232023 Q4 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2023 ESCO Technologies Earnings Call.

[Operator Instructions]

Please be advised that today's conference is being recorded.

On the call today, we have Bryan Sayler, President and CEO; Chris Tucker, Senior Vice President and CFO. like today, the of Kate would our over Investor I speaker first Lowrey, now to conference hand to Relations. And Vice President now you have floor. Kate, the

uncertainties factors that be business release historical, call, and in the Thank forward-looking and the of the actual and materially are not the and provisions securities statements differ risks which are included due you. press based operations exist during federal harbor environment to filed. statements exhibit limited company's from this company's results to the will in company's These Statements not the an today, may issued to, made safe the referenced Form strictly those assumptions, but laws. are as be of meaning on including, forward-looking X-K the within expectations which risk in projected statements to current

undertake We be revise forward-looking may statements, to as except applicable regulations. or no duty or by any required update laws

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

Now I'll Bryan. turn the call over to

joining I'm and about and ESCO year, this on tell update call. Kate, had you everyone We very to to for strong it. thanks an get taking you today's afternoon. Thanks, to appreciate time each of excited a all We

in and results per Sales, number XX%. release, the were XX.X%, earnings that, grew in measures. share, the you year EBIT XXXX. comments record levels and business. backlog press on me Sales adjusted entered by We closed some saw the to record strong of on all orders summary with adjusted and up With finished ending was as year a let pivot the

to sales both great and growth once have was it earnings. So double-digit again for

billion in to continue end see you the results. and while note have saying you financial as now, for through great markets exceeding the $X record As our can feel $XXX orders a we've year-end, ESCO company at going the of we see a for is coming favorable million Also outlook year been can backlog a full milestone about key -- XXXX. dynamics of in that was and for forward. significant with This

in Chris to offer top-level up commentary Before good I were business want each where Starting a as Sales had financial about again defense, businesses. momentum of and the gets margin into erosion We fourth aerospace compression with year. number by aerospace do margin contracts. development a details, that quarter segments. see and was the we digit double some good see commercial the to driven defense on continue space did here we in of the and

arose increased technical on quarter, issues went estimates, our in As reduced turn several cost programs, the to leading we which through these overall profitability.

aggressively business QX And VACCO. issues group strong these both Globe remains the markets. working the aircraft and the fix the navy of move side, very and Navy overall, that and to particularly strength minimize are in to We orders on But with as in we bright had in A&D forward. the we risk space are growth well here in advantage seeing and we from the orders we're at strong, positioned outlook take

the an is XXXX. had Next group, utility in year exceptional which

on invest The this XX% we and year, umbrella core the continues customer to had trend. well capitalize are infrastructure operating under For our portfolio and expansion. sales in growth Doble of positioned to the base significant businesses utility margin

broad with seeing product are testing, monitoring off-line all and condition growth good most delivering We protection of across testing lines growth.

still an for XXXX XXXX. growth softer was keeping something to backlogs to this in eye a NRG. to compared that's continue good QX, a phenomenal and historic see we growth expect business side, in did continues little levels see NRG and renewables high to On We expectations. year has on. we're the But exceed orders

the Test saw decline touch we I'll Finally, business, a fourth where on sales quarter. in the

So in could We've that in as weakness last Test X% seen offset strength overall, flattish results Europe finished projects. year we year's from saw the power as not paused down the measurement by domestically and strength filters growth and after China. business

in good with margins We business. exciting we the in that an news just reduced The EBIT acquisition some XXXX of sales. for that increase news have Test did is do in we spite closed Test

the saw Chris up, nice expect press coming but Test, it of this real release, MPE about week. the fold to we we Limited in characteristics the excited a We're welcome Test MPE in just segment. excited enhance both for closed has ESCO profitability what on to the a family team to we're bring you MPE company. the and the they As has the growth and very to on and chart

double-digit better a I Even earnings. the and summarize, excited Chris, both to consecutive don't well, as growth for about outlook So from of a year. and strong would ESCO was is done. X The we're sales say years great performing has have growth future. we is think is XXXX. in our had see And XXXX you'll we company

this So now turn quarter over some it year. for highlights financial on Chris the I'll to of fourth

presentation. Everyone chart follow Thanks, Bryan. can along the

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

XX%, great year-end. also share with Sales results a strong. orders As adjusted up earnings and quarter an A&D being resulted quarter EBIT businesses were which X%, up dollars were good adjusted with backlog X had All increase X%. per of order in the we record particularly you over see, were in up had can at X% for

sales reduction. the the the increases, growth Overall, go delivered modest had was on sales side, businesses a an Solutions A&D Test minute, Group -- the exceptional the more led had margins the quarter in X but business while declines growth, in to but A&D details of We Utility X and declined margin through segment at down. will overall

they've on over but see to in details, we aircraft continue Vaca and $XXX driver key the Globe segment businesses can orders, now from beginning start increased with see significantly with We'll million orders Starting as X. at to QX. of component Chart increase, the to a the well. A&D. Moving that strength were Navy you

of sales and component flat, the mentioned businesses. quarter. some by points acquisition in the increases EBIT by driven we in very erosion the overview, a the On aerospace. led in it down saw Outside is the space significantly. the followed X This Aerospace and the also development on margins business, commercial of dollars driver for is Navy organic and good to decline added the growth, A&D growth. issue the contracts. of Bryan CMT is of Space side, sales aircraft were space Defense sales profitability from The declined and margin number

XX% after there move key were in X Orders driving the experienced on On Chart renewables the growth quarter have monitor XXXX. the were to in business over the the at were Obviously, the protection the we quarters rates And renewables Sales orders good XX%. The as down we'll up going as product lines forward, chart, driver. Doble the with Solutions expect business utility Utility above testing continue first were we the see XX%. X, QX at we Doble into increase. growth Group. but you up NRG

quarters. increases. after and side, price saw sales EBIT margin performance once the renewable XXX basis as was from a first growth, quarter build top growth with X NRG, nice in converted to points. The favorable with XX% reduced again significant This leverage by impacts up explosive to the the the on we expansion line On backlog the business improvement adjusted driven higher

quarter. On X, business, Chart orders we compared the year's X% have increased last Test fourth where to

drop line, did nearly X% softness X%, dollars of from sales increase profitability domestic see to did but see reduction sales in given volumes. China weakness the filter the sales. power a as also the some EBIT declined in on XX.X%, result XX% we continue we good to a On EBIT and margins in the

component we details a in This a the have the on MPE last nice bit, deal did few tuck-in U.K.-based real adding but business. board the On good Europe filters. has test addition military have or Bryan to to existing business to electronic and Chart be our X, this November in business applications. can in MPE a a The is will they ESCO. while content presence and excited week facility, and critical a specializes feel Test MPE on that embedded component filters on We're a or X, filters high-margin great platform. These U.S. preview for other sales whole be acquisition. closed

have for Chart full key On X, we year. the measurables

chart for margins in billion, per earlier, us record this increasing and Orders and that XX.X% over XXXX, over a XX%. As share adjusted nice earnings $X to Bryan improvement trend up million, shows to in $XXX up sales nicely. year up it's EBIT adjusted mentioned another

businesses, A&D for results by year came X is down momentum Test while with XXXX slightly was the The Next full USG really year. full from in the Chart segment. sales and the

commercial key was XX% and aerospace, the growth, which sales, driver and delivered A&D For military respectively. XX%

Utility, condition the way. For protection was and testing renewables broad-based growth leading monitoring, there with

were for the strength drops in was offset Lastly, which driven full not Test, China, by year in by volume Europe. decline

way the side, increase to margin Test basis a spite On reduced in increase the margin the sales. USG with points. XXX was of led able of margins also

strong as challenges in margins was by from A&D space offset component Lastly, the performance aircraft the business. fell businesses

continued $XX year. were flow on to This Cash the working flow up where driver continue the XXXX past million a The with to biggest and tied the was chart XXXX. challenges in operating last decline cash throughout approximately The the more backlog. have key A&D we the to XX, 'XX. highlights. see of elevated we and where cash cash business The flow challenge cash is due levels capital be of dropped in

tax $XX cash XXXX. Capital You expenditures during unfavorable year. can down impacts during had were see by we interest and approximately the increased payments from million also

You'll XXXX had approximately decrease. million of up with and was a in by acquired purchase CMT main XXXX. NRG, Globe recall at fiscal the we by PTI Acquisition building and that year, this NICO driver that's in $X fiscal acquired spending last year's

to Lastly, year. as The last million chart where year over million $XX our $XX guidance. share this repurchase, buybacks compared approximately completed just in XXXX is last we

chart bottom another graph years the for You can X growth outlook earnings and of at double-digit see ESCO of for strong the XXXX. increase 'XX we to the had in on strong expect 'XX, we've deliver as that and remains the

with expected in sales includes balanced to X% range. For range A&D business sales, after in numbers 'XX increase NPE acquisition. X% impact range Test expect years forecast to growth X% growth of both the The good to the is by XX% the solid projected the X to an all the we grow USG of The X%. is 'XX. of range, in in X% and

adjusted a for range XX% XX% chart growth of in the we from to to You earnings per of per share projecting can $X.XX see share. the are that $X.XX range

earnings adjusted in the third share be per a row will of growth This in for year ESCO. double-digit

typically the the $X.XX is business the to expect As the be $X.XX per of as share. expect and ramp we earnings per sequentially through share QX move year, to in case, we we to range

update. financial the concludes That

Now it back to I'll turn Bryan. over

Chris. the we move thoughts before I'd a Thanks, quite a of earlier few I my Since touched couple just in like commentary, comments the more on into Q&A.

Chris, forms and confidence we of continue a So ESCO. end the saw XXXX really next you combination, serve world. to excited great got and what's we're for and company here The outlook out a look XXXX. This is from the powerful to customers. strong businesses markets We've around obviously, strong have the and at we teams, a level, operating for with We as at the well-established great about future. corporate both a numbers high

the a of thank racked really Before year, of and you and tenacity I our that's you, a to and employees. jumping into take another our want moment skill do has all to up employees. to strong Q&A ESCO testament with say

continue positive helps challenges Our by markets always no world. by also impressed the our Board the employees and of doubt that Directors. industries executing there's like to growing inside are and dedication and business, I I'd the thank shown when dynamics. commitment have to around But it be to serve our

free the and talking up to people, to all close and about number of the results. really Board, the be first their with But out Board. the few commitment and of my I support employees finished as because CEO last of and our including feel year-end we record ESCO. We and it's efforts of appreciate only over days meetings just a

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

[Operator Instructions]

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

weakness your can Can in resetting has bit little about the to Test the with footprint talk or in ongoing you with about demand capacity China. First Any how there a thoughts do profile China start available. elsewhere China. you in readdressing changed in becoming what maybe

Sure.

of amount is time there, having backlog -- seeing a a have getting we're still job So what listen, we it's but fair on we're hard side. still

like a is the over industry feels still construction bumped little there it up. So

still meaningful We're business been we're -- New and over have we soft. somewhat there, making still orders have money. still a

any footprint bit given our incredible we sized year. is smaller. structure have to we quite a We had changing there We last time. though cost business have appropriately that a an for we The be year have not thought at challenge biggest this that an think could

basis, is seen news, The offset strength though, China. enough it comparable big in just we unfortunately, it deceleration. good a from quite So Europe. have is really over saw to that in And wasn't what we a

Fair A&D. some had Last to enough. switching just supply you And issues. quarter, chain

resolved. Have questions those been all A&D. So X in

ramp continues the -- orders profile, If I is you said to it and backlog those it, to to come orders I that it. additional also continue But given going to assembling require in? apologize, as up staffing missed

Yes.

as of have resolved continuing components in having is some what to is good almost is availability. challenges be to in in group, the supply We're improving as Test utility far would in company-wide, that. issues, we entirely significantly. our really group. a There the So news modest chain couple Group, but different them That particularly pretty the and Southern material the out the still issues Defense Aerospace California. are One see we're

outside personnel. has having longer we're improved there went on probably second the XX% for there. piece our the that problems that The out competition think qualified ago. And being we're where we're lead with processing, our We few is I through were weeks times. The staffing one some still at Yes, facilities staffed numbers, labor. just out we about struggling with with facilities think I a

need qualified that's we And test so time. bit restraining the availability material than type a this us and and people of we machines as a more assembly need little probably

for jump good calculations, to Okay. XXXX. fourth I one back conversion expected, a quarter. had cash last we flow what it wasn't I'll the question, free you back wouldn't my go fiscal any into there And year, cash is By know just the you queue. free in flow but full real for quarter reason normal

are John, have cash flow that more conversion. anticipating 'XX, would normalized a Yes, we we

of we're focused our and very plans, as we're what something obviously, that's So to all subsidiary looking that's on do. we work absolutely

CJS Securities. question will Tanwanteng from Jon the next Our come line of from

the you on wondering year. sector. that was on one congrats headwinds is just your capping the publicized My growth down given backlog? order off strong there, outlook strength in a Bryan, we've seen the first I the Is working pretty pipeline? across Or just energy. seeing what's driving are renewable that just

Well, so X and prior quarter of quarters we the had year. first an year incredible in this fourth

bit October So from does orders back deceleration That quarter. appear we in fourth of perspective, see November. a in be up little did an and picking to the

our keeping So we're not we're on eye but overly concerned. it,

business. down numbers of of a As backlog you work type more here, of our kind a able see little the from to a bit. It's were book-and-ship we

too very, overall but in business in of backlog deliver, listen, there margin and that incredible very can having had much they've terms is to revenue ability compete expansion our challenge doing and So to addition be the well, growth. a

feel still renewables pretty we good general. So about in

onshore either I a that in exposure of be to wind see the well electric to of these scale have days pretty right We're think lot offshore thing and the don't you now. markets. We lot one wind challenges. is vehicle utility those in news really having going and of solar discussions typically markets a kind about seem those and

facing? go is it the had issue be was space what I planning Is sustained quarter. details if the do see going little business? you a of in your the into kind onetime a Or wondering more that in it to that that issues could Okay. bit Great. you're you of for you near-term

that development some are all, research not Well, develop we're to projects development because pass doing of got it's so and to there have a listen, small business. we've very our we the on and that the stand contracts, until a for sure. Sure, And are programs. we completed. things. it it working technical it, space contracts these We number complicated have effectively But had bit but of through. is and were have risk they These the that firm-fixed up you've first got these more you've business, meaning part victory. are arms our challenges little there there think Unfortunately, really a do -- we around test, you overall test declare actually we of can't

What led We've to ones. in the engineers, turnover had key some hire we've some really, moment, business. to the is I we've through that had challenge lost COVID new think,

we're little there. A&D been get more that curve of challenges learning in a segment of think we of so the the our and rest space do bit through than we're business And But it. had good The the for segment. news the going to has for a compensate rest we've to is going the overall able

good more for talk year? you're Okay. the bit next about paid hear. the to little Great. that you MPE, Can you a accretion expecting for That's valuation and

business Sure. filters we've for They pulse Listen, number RF a MPE that for known of build is solid. They're a very applications. electromagnetic years.

areas of is one that about to As more big you it products. they of, attractive a that's -- we're, that what's us know, have they targeting have kind broader range the of growing

of trying more to thing, issue things an at and look people address. in in that's built the data ETS systems electromagnetic market space go So kinds from are addition that in require energy both which big filters, becoming become infrastructure, into that we filters that Wingren, protection because now sort other of doing the are they military facility to of do That's of you have and pulse. also and happening more critical component some that at as systems that a centers and

did What's for about about -- million interesting this so business. we $XX spend

We not talk 'XX, enhance overall Test will going than of the lot expect we're $XX segment. to million for add we to fiscal to it the really think to margin it revenue a for the that in about million other $XX margins and say us that about

So the we think at overall segment. both at it's our going line be Test revenue for and margin line to accretive the

Yes.

from based would pretty to we slight visibility be perspective, some an accretion be The could what of outlook, to $X.XX to I Jon, we and expect incorporated other EPS on say, it's be expect of -- close it It have would will we breakeven. -- thing overall into to our amortization $X.XX in it yet how overall dilution don't full or that. slight to the some kind be

-- perspective, and adjust accretion overall So of the little of inventory that step-up the breakeven so But when anyway, to say expect those in -- that it'd exclude an from we perspective, EPS close we I kind would always also out. an from kind be year. impact onetime charges, very

either of Okay. or that's it. the cost But financing we're what for including paying

Correct.

[Operator Instructions]

Next, Franzreb line we'll from John from have of a the follow-up Sidoti.

I'm about can that saw just I'm -- you filter behind Yes. the Test, some a in you sales lower that? on color what's curious add little power

factors a There's of there. couple Sure.

long. customers of inventory primarily, think seeing that's one we place working We of kind we a biggest driver would about year. X they're be before applications. that be that going had quite think bought That years that -- the this lot of depleting a filters their center of to in think little too we last have for our resume bit We might year. So where a effect. has so data we couple destocking And been the last of had the

[Operator Instructions]

CJS Jon from will line a next be from follow-up question of Securities. Our Tanwanteng the

your bit USG the just the guys you into that did and meaningfully internal or quarters? a into either you to Energy little I business. you Doble Did expectations pull there in more strength saw anything wanted outperform future dig

our really meaningfully forward. We expectations, that Yes. and internal good feel we about outperformed going business

we of -- their information lot way X a -- the you the we development that last acquisitions has infrastructure. almost that infrastructure of as know, in X and advantage to are of are take utilities a kind that that ideal us have made lot of a build-out. over is All we positioned an of we organic lot substantial making in investments made of really product And or an years

And past like a got so yes, good forward we year. think really we've we feel

demand wasn't saw Jon, the strong. it or I Yes. anything. were saw QX would QX, just the of through And quarter. say pull-in strong as very We you a also came And we result obviously,

just -- way, hit of that we kind we So going of drove and it. kind that's kept what

to QX? your run business into Have in saw what rates that order QX in has similar roughly been heading you

I near there saw bit I feel a mean to Bryan the mean, year I QX. the about as in think there, still outlook the midterm. and little But full overall of said, going we're lower always kind you be in trends we good to

along. I So of, think yes, chugging I we're kind say, would right

any in not further like now Sayler the it back I showing time. closing this I'm to to queue turn any And questions for would at remarks. Bryan

the taking We're work. our about we for months. outlook thanks time very listen, you results, for but to X to to in Well, excited excited more XXXX talking even look we're our XXXX about and

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

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

you. Thank