ESCO (ESE) 8 Feb 242024 Q1 Earnings call transcript

Good day, and thank you for standing by. Welcome to the First Quarter 2024 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.

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

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

Now the over call to I'm turn going to Bryan.

had taking Thanks, this I'd as I our Kate, meetings We that, Jim last and start our year. that to week. good one Stolt get few represented that thank of the had time We directors. you Board to will to update days, directors thanks with today's last an ESCO our like has moment talk appreciate participate of joining about a But retired everyone and who afternoon. a for one take over to really time you the We from this to call. before the

with business level deep to has for from of integrity. over importantly, a tremendous going time. recall really ESCO came financial a operated but we're Board benefited our that impact numerous all years. XX them. he mind ESCO experience, and that on Jim most say He served to to with for at that Board here, and always the Jim years immensely really had to great miss and suffice His to too it are contributions a high the

thanks, him our in all wish his retirement. for So of and sincere Jim, service the years best for many

November. between and and With that, pivot let to delivered the backlog. segments saw the line some me quarter. overall, we're growth this the significant comments mix bottom business. another increase importantly, line summary top the over about we in But [indiscernible] different on still Most was EBIT deliver grew to on year. that the were up by year back sales in track delivered X EBIT the double-digit sales of Two to segments solid X% commitments and adjusted the the X%, In provided and a full quarter, growth. start adjusted

been favorable growth while meaningful a place we've to now, end the us delivering our for key and fee saying organic in are dynamics As and for continue revenue expansion. drivers margin to markets have

some top-level offer about business into details, commentary segments. to I gets do of financial Chris each Before want the the

nicely. where to continue and we as digits the businesses. aircraft see start increased good Aerospace from up were is component had in up Sales First double strong Margins Defense, year. the we quarter the & momentum to a Navy

off fourth have a the orders Navy up backlog. Block years strong line bottom significant continued good nice order EBIT in again, and quarter now growth by to backlog with a So businesses. and more encouraged few built to after burning the Globe performance, we it's for the strength. sales were similar booked the these business see Even the of We V even translate to

that for our nice It's order saw well. Additionally, and momentum commercial big to growth defense businesses. the continue aerospace business of a part see as from we the

is the products Phoenix first quarterly strong growth. continues offering great of growth utility particular, performance. up quarter during breadth The a were to Utility product with markets which the of and for Next delivering quarter. services driver our continued of foundation line, a Group, core Off-line for key string a provide continued the in a solid the

a a On tremendous X the renewable again, quarter X.X after ratio a of XXXX. now but second side, we the seen run-up book-to-bill June the had of sales quarters strong We've below orders for in was through row.

starting a good see and down pipeline good are business. feel some for Our in but this bit backlog the the year activity outlook to has come about we full

we the details business, good see good and on to but quarter. pipeline will activity. first I'll start we business minute, the during a levels the Finally, where the have order in Test a a sales year. Overall, of touch reduction and does Chris sizable backlog, in did tough we a have EBITDA see through still the go of coming did

seeing really is are longer revenue we construction longer headed. where ability In but are are not sites the planned, project the term, So deliver our we on near however, business term, reducing short than and job not The are in the it's side more products. about great business end, term. feel of on taking project our delays still our the the ready where to construction for

some and right. tends to of a through phenomenon, so get is we And going as actions a revenue timing U.S. pushed This to we the take restructuring soft are to manage patch. mostly the

the over a had of about out long-term ETS excited in we the past closed get exciting will is that quarter, Test for theme been part just the the mentioned We happy help -- good Test an the out integration some us this I'm that improvement action appropriate to MPE Margin NPE first with the disappointing our to cost of This to the FY it's business. for for call prospects 'XX. key back a MPE half of us us a And as we between us business. November help the to the It's lingering. ETS on acquisition. on and take and -- off deal start, remain And report in margin-enhancing for will with year. take has business

XXXX, it's summarize, off underway Really at long-term X I objectives. action X the drive quick would performance of To profitability a good third the our good start. at business business to and say to

is outlook we're Our XXXX record to intact working hard for and deliver another year.

Chris Now through the I'll over first turn it financial to quarter. to of go details the

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

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

impact resulted quarter. increased As had book-to-bill quarter X% and order ratio the increase of you consolidated see, up adjusted a offset basis as first quarter over Adjusted orders A&D The with from resulted of CMT EBIT EBITDA organic comprised margins million. were and which Sales from XX%, we the led the of businesses up X.X%, points X.XX. growth quarter declines X% MPE which Test $XXX over EBITDA from X% up which a for in share X% great the was Group. Utility by backlog of per in businesses and record an acquisitions. Adjusted by earnings the were in and X%, can up a in increases growth, adjusted A&D XX the was

will Moving segment with start to X, the we Chart details.

to Beginning Submarine was program. large got Navy Virginia really off great a & to book-to-bill on Class we achieved was ratio as orders, a orders the here, with business with Aerospace Defense. X.X First, see. strong which start We the

Additionally, aircraft than businesses. a of December for backlog resulted there $XXX order this at from component record the million growth This was XX, in strong amount business. more

Adjusted well impacts sales from the basis of only growth strength on price, growth as inflation mix. was defense XX% for in growth saw aerospace and was favorable points of the margins XX%, from sales. which the organic we Overall and Moving and additional commercial to were leverage on nice XXX growth The acquisition. Navy offset as EBITDA which in quarter the by points sales by business. growth partially increased comprised by the was and CMT led as

On Chart we the X, Utility Solutions Group. have

moderated Here, to of see order we backlog. customer spurred for the do order pipeline another activity we in last and The strong Since business This the which in driven mentioned. burned we move by programs exceptional great industry as modest business return dynamics starting order as quarter, and order delivered Bryan Orders and saw at government growth base ESCO. were through Currently, reductions growth year, renewables was expect to has incentive increasing down business, the NRG. orders. June XX down see quarter forward. are renewables then, has we the

double-digit On XXX for growth and XX% first by were margins We the declined from during inflationary more the while impacts growth price offset more the XX%, favorable volume and had did NRG. mix Doble an see increased unfavorable points. sales both increase had quarter, side, pressures. but they and and by than for basis USG, Adjusted dollars quarter, we EBITDA in than of we the

first where X by go and had timing This by compared we orders last the orders business, Next decreased Chart Europe. year's in booked new was XX% of lower in quarter. some orders U.S. and to and China getting driven Test the to

reduction the On than Bryan reduction world delays areas this some the experienced getting first sales a lower to executed All mentioned U.S. of sales caused we projects XX%. fiscal the are with in quarters with U.S. we X the that sales seeing the coming line, XXXX. in planned saw of above, declines in largest U.S. and has but be

experienced deleveraged unfavorable on as the to mix. X.X% declined EBITDA also sales we volume margins Adjusted quarter and in drop significantly the

executing half we are trends a as this year. plan business see expect improve and into to sales the We get of the of out and cost take profitability to second

flow favorable from in use last cash the quarter this expenses year, first million assets capital have positive as first when highlights. as swing Next compared to a payable working We well year's in we net the quarter. year's accounts first contract did a million to impacts cash to quarter. Chart $X X, flow of last swung a favorability flow have saw the cash of in from and improved in accrued positive $X as where We quarter cash

business. Capital the from Defense did spending by Aerospace in investments the & increase quarter driven

where was completed the can no $XX NPE and just during first we the over acquisition million You see quarter. also had share repurchases here

#X, chart XXXX last strong. outlook is which earnings. our remains The is with guidance. updated for ESCO Starting today The

the still range We tracking to adjusted November. deliver back are in per share was that earnings communicated

growth $X.XX of to have per the $X.XX share, XX% which have and from an to range we represents In increased the bottom the in XX%. of of $X.XX $X.XX, fact, overall range range to we

group had the to start we XX% first of XX% We business have to grow momentum, Defense increased & this and communicated For a The a sales quarter XX%. X% the for orders strong with to X% growth we this what the initially, to in range the now but consistent sales, outlook. for Aerospace have in is expect we business. but November, seen in increase movement now with year by range communicated range to of We we expect an overall X%. some continued

For now range growth for is to the the first dropped, range include the does in the X% what range Group, acquisition. of growth X%. is Test, we The communicated the to in expect here. has And X%. delays and of sales we NPE half and the mentioned Utility range slower project This as growth previously same the lastly, impact the outlook have Test reduced X% November. The

in the XX% share year's represent range quarter. of second per For to range which over quarter, XX% will $X.XX, $X.XX in earnings of growth to we adjusted the expect last second the

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

Thanks, Chris.

because do it's Before I moment to all take jumping employees. Q&A, of our do calls a to into thank on this important. the most want

and hard to Our to bit our when efforts position might Even to shown it. continue very and results. healthy by fall teams a work employees hard business our future are to keep results are around issues the take teams and dedication and short, working for their The the actions and be truly appreciate growth. driving key impressive, the commitment world our I the continue the

to deliver result opening commitments So now. row. third on That remarks, will which a and our in concludes track XXXX can start to the record close, Q&A our we're in the on year we

today Moll of question will First be Tommy from Instructions] Stephens. coming [Operator

on I've questions the for first. two Start you with got A&D.

there but commercial just quarter, you -- to X% to provided, grew unfolding? that were for you've rough defense to unpack that in a delta range by there, you All a aero up, could revenue the of growth in bit XX% terms is Just that see little wide from guidance consolidated then level fastest any and was And if that a the beyond how Navy is you the of from first raised quarter. segment approximation rent the the was then Is commentary pretty the we XX%. Or that provided? you XX% year aero. give

Yes.

that think consistent would as growth Tommy, we we what through I year. by expect, quarter move is the pretty

kind because that continue just come move pace we range. the But 'XX. and in move kind we aero double-digit would year strong into a pick Maybe further trail to as growth overall of we year Certainly, some a we low defense the expect well. growth. growth of we happens, aero to as bit little the through see again of kind commercial So to pretty that up I after a say our are starting the Navy as as comps tough should bit that up little

So kind think year. growth out about that consistent rough of you how we of that's through I would kind the as for

your that of ask to seen there. question and outlook don't on result A&D. question. But think, all hearing same of Okay. things second you XXXX news the your that outlook you've XXX raised there Chris, day. we're I the that's given some the helpful. potential you a every I'll any obligatory update And reading headwinds MAX for as then revenue flow

have curious a best we impact? you just you or everyone what's there's have case, give stake here? of So should could I'm sense just size at if any seen If an you there the it Is exposure possible out things for? dimensionalize to eye keep

sure. Sure,

maintain it. So as attention long-term Boeing the 'XX, received those work been for action the any The certainly We're issues. situation. the We're wish kind that all best their stay thanks build don't out they those to and from to that by chain. see of question. the try for paying we issues. surprised not we And obviously directly Listen, of significant them really course supply on have communication to FY risk rates revenue to XXX we we has close

be have could past if out has years. the there we some they to they look be future in build our But an been have rate ramp to risk a projecting they've of discussing. Tommy, increase are publicly we internal lower frank, that to As rates back begin probably than -- XXXX, forecast off

the think we what so estimating. did publicly, -- probably off And come it's come likely they what to of off closer if we're that most of been saying back it we've

be from And of John next our will question Franzreb Sidoti. coming

your top had USG. line last remarks, prepared start to I the like orders run now. a as It's in I'd good for with noted couple really have But years Bryan, the of think on you you gives that X in a recent hit comps? the growth gotten of X% you over to of the tepid kind little XX% that light past and quarters. order What that confidence can tough trends

our talk X%, to clarify, dynamics. just there current I'll to let the quiet him But John, not X% to there. so is guidance in

misspoke. sorry, I'm I

Yes.

are So that you unregulated we the And Orders the XX% recover. been down on news customers, begun it's between start our went on. increases out we of to have utility year, that we for then all are top have our sizable bit maybe has but business The piece, mix the of these and seeing outsets. at over little to flat, the would to as renewables smaller. XX been them business between listen, think has the year. turn forecasting beginning -- back The and also somewhere talked the softness regulated is if our in a -- of this And are the just bit. really look good of renewables reps seen We Renewables fastest-growing a are pretty side. And business. our since John, what kind

all it to range. works in X% be when that So we add out that growth up,

with do be might better. that we're think to able forecast feel And we a even a from little where we positioned that hoping comfortable So are I we perspective. very

in mentioned inflationary segment, pricing you remarks this quarter Okay. Fair Is And future? but imminent? getting still do prepared the are so? in in you or that recovery EBIT. also When that price/cost that hurt will equilibrium to Or get costs for hit something you enough. to the you expect another

good pretty there. we're shape Yes. say I in would

have challenges, also through to enough repeat orders price year of a for contracts. some there a did a we that stuff last bit of We getting margin. some didn't We mentioned inflationary the are the see here offset we in this quarter. pretty in time but flow few that quarter. can hit generally the really different those those time, mix have to helped From high-margin had We and we

of impact kind more was mix the inflation. than -- that So than that referred we driver was to a margin the of other the

it And the Okay. hurting there. Why business, I in And of a guess delay sounds what's just like that's does two, If two orders understood restructuring? lastly kind on talking we're it U.S. correctly, magnitude about the restructuring in here? and first foremost, that the questions necessitate Test. the here I of there's

Sure.

So was the that actual the ability what wasn't we the much orders execute was on -- start, were to site. -- to as it as it saying the there

backlogs slower. And continue we orders. industry to has so think problem is, what have general much gotten construction I our to appears and really that are get happened the The is is reasonable pretty good,

so on we a what's that milestone happening our And is recognize revenue basis.

have then job recognize to the we to have revenue, the get onto We site to order in actually construction work. and do out

out, programs we of so even quarter first And into were in couple what 'XX. the got FY very of saw large some that them pushed a

to deal air it created we look And with. our to for the to as we remainder -- we forecast that what look as at us for the at began a of begin that pocket the so to real meant year, had

a of be on the aware of, this real John, I part our had you business enhancement. should other we've think thing at that focus

also not restructuring, going just our really in that's for take into to do half think term. that, benefit And second the for like was time this of this to us as long the we go ahead we this prudent so really year but some be to year And XXXX. for to we and it go felt

And the restructuring? of magnitude

Yes.

$X So rate, savings. to worth I more year's targeting And to million million of for the would run would $X.X then of to $X.X this say impact in we're that million like that annual an $X get million savings. on be

the be going costs So for. than all that, that costs expect less we're also targets some be those kind but to in. do $X.X obviously are million to of I those we would there'll say probably --

of, I can of. So think impact you say, that's the kind dollar would

CJS [Operator Jonathan Instructions] Our be Tanwanteng question will from coming next Securities. of

orders should between Virginia and of kind the What that about How other liquidation received for basis? an ask schedule for orders recently? to the that does backlog wanted just that think and that that got. you about you annual I the add we to you

Yes.

So the the I'll -- expansions we've and Really, few on shipset of kind do for years. QX orders let our that V that it of been were Chris let give in you good increase orders And both so per number, is Block characterize have the that serving but news are received there QX you. want for go... in me to the you content working vessel. Chris, to a They we

what start kind will year, and mean revenue orders we will say and we see would then those of I this I of to 'XX. is more 'XX go as some yes. into those into flow up Well, even pick

a prior coming is work. of of it So This will the have boost. up. to fundamentally, towards V orders to provide it what a Block But kind The on Block this there. book that last coming end kind coming seen new way kind of little down had stuff quarters fill of stuff in V is initial V the that but in increases it of we bit we've of you few for Block that what the we of were think

content those commentary Any Block in orders? on VI the

million. in less was $XX Yes. Block VI there than

wanted to we type they did us time get on. lead some items get that started So long

Block on So we part VI, a of but to the the of got X that part really small quarters. orders Bryan that over million referred kind of that $XXX last

through proposals for system. the we kind are out, 'XX. Block kind of it. proposals big of all move and VI but those be are and as ongoing calling the through they're getting will got we've negotiated So as And V.X worked Those Block that the

know broadly Boeing other your for it. you question. maybe the difficulty suppliers any just chain? Are wanted I downstream that's ask or down other not a to having more roadblocks the And your it's I you wondering to or issues issues delivering. in Got Boeing expand any chain are who just supply from the you? little was customers on guys, I in seeing bit seeing supply from if if either having you're with

been The the a story for since Yes. -- tough since ever chain supply Aerospace Defense has one endemic. it's &

production. us, For lost with their still some a part been seen maybe -- been workforce supply do lot have there's to outlets We've mostly who haven't It's get those have some lower-tier and of and suppliers something for the rates we of their back of to issues. or smaller, of competition some pandemic, chain up able regular during like course that. of workforce yes,

are not fully get Some of our able staffed businesses A&D shifts. to in our of on all

to So revenue little a industry, and have have if could could in really bit a people. skills generating we And we folks you folks. it's But high few more qualified those demand. are short get be more tough a

Test the I question Great. even think that the revenue pushed fiscal some 'XX. and Okay. all just going kind see out mentioned out when I quarter delayed of much hitting? guess, of, on business. of do was pushed you you How Last the of to

beyond, say to think would from this was $XX million. the amount out million it but QX been year year a million or next $XX I I that pushed from Yes, few have might

then I in kind to next of quarter fourth now, $XX I if and way -- $X little million million, of to $X as we that and say. third year. would million saw into the $XX fiscal kind into let that flat reduction will, second saw as a got million you on the pretty say the said, quarter, also it's snow, Bryan big And would -- but quarter the out first a we Yes, in we well the the laid maybe

as for I we at think, we you look are. of kind helps up size where that little a bit, So it

into as and would segment you improve of quarter out third construction kind expect of that come and second you and to the spec... fourth And Okay.

take Because we also because aid maybe and got which would of big grow the recovery. declines would, kind even margin expect and cost the of bit in half, business out volume we've half, off little front in We the the and a obviously we to yes. would level the second would expect,

Got it. guess, I was broad-based, construction And how just wondering these I were. delays

mentioned on projects. of more industry exposures on? Is there that's some in some going Or U.S. either that You large a the are that issue general particular going was by industry? region or

Magnet in And works be happening the noticeable it. in just having what ask center like a are we or past. It's time. for told the when same taking getting -- from a be go design the that like space be some or same North more pace chain We the time enormous is industry One there, then construction has then get XX it America, times, execute X It's Yes. the is they're months told question. way hard is now a broad-based. but we most be lead the and approved. have kind that and were action an that supply hold to X to that -- where having medical we're And the to are seems honest, here happens and of are something transformers create months immediately would it us there X just running recently other data Magnet package to order we order. hard isn't times lead to can in we we get in extended that have an It at used fairly have the of they X like and that not overall The things world, be switchgear and projects.

make of or we lots pre-COVID we with we're building normal, about delays normals that in least going then at check is beyond beyond when sure. periodically, And developer. a that's the assumptions seeing are for So happen. they're What owner parent to as seeing

is Tommy that coming and from have question, question Moll And a Stephens. follow-up of we follow-up

ask to your tougher double was and were teens, get the year, Revenue the wanted in the I about quarter. Doble. quarter digits, obviously, up in orders though low comps flat this

going wondered, nicely recovered has it recent about business more just getting to a from feel a that and for what is And I proxy? you can But how forward that level pounding define think So this but here rate prospects decent base, reasonable mid-single does forward if far of is you in repeatable like want the you and higher a normalized past, to we're talk. business? the growth is

Yes.

solid, off think begged got it like where with X% these checked growth. that that's still X%, we annualized I we've and feel referring higher levels recently, to. those We've in that in guys is very you're even of much comp

of a And have follow-up Tanwanteng we question from Securities. Jonathan CJS

into the kind was out it. we of Doble year getting what Conference expect the wondering I this can like and of what sentiment attendants in

Doble the was, I'm we Conference? expect can of sorry, what the out question

What and what the there is? to talk about industry introduce just excited you're Yes, attendance. or

to expect normal. We back to be pre-pandemic it

everybody, the going good be we're announce Doble. do excited for a development. I I'm been good think on to any pretty We've event. some to and to for expect time time good call, continuing we product that not a but about the products

the and Okay. at gate? doing on Any integration the just Great. NPE commentary they're how

that pleased really surprises. going. deal actually how find and We're Yes. a do worried with time once get you're of you're always with there that's Every to start in working like going you it, you this, kind some

effectively each are really, teams are well. very orders And really we And really the so are it's No surprises. holding way cooperating up. coming with far, The The other. yes, the through that anticipated. gone margins

so So far, yes, so good.

go like the this call back Sayler And Please At I over time, there are closing for to remarks. would no in questions turn to the queue. more Bryan ahead.

-- a deliver time I Well, we're listen, thanks, during we're to the said to talk heading, record we're third ESCO and year. call, expecting taking excited as about everyone, and where to us. We're for

a thanks lot. So

today's in concludes conference. This participating for the you call. Thank

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