ESCO (ESE) 7 Aug 242024 Q3 Earnings call transcript

Good day, and thank you for standing by. Welcome to the Third Quarter 2024 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'd like to hand the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations. Kate, you now have the floor.

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

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

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

turn over to call I'll the Bryan. Now

Thanks, everyone, joining for today's thanks, Kate, call. and

an to of are ESCO. the happening here update that provide on at a happy exciting We things lot are

with momentum particularly and quarter third about the business excited continued We results pleased across are our the of all are platforms.

additions the about formidable and of nearly -- briefly the the indicator in of markets continuing our By was $XXX growth the talking XX. some end quarter have is positions. want of we our important an businesses, Order of talking to million substantial, before Directors. June Board record backlog and highlight This as of competitive strength I about to our

Commission. Board deep to X the highly are our industry become of Energy upon in We backgrounds approval the effective Board. Regulatory Federal utility These the to capable individuals onto bring with additions will fortunate

Energy Penni is XXXX. of in positions based engineer serves strategy. holding has since an and where and Duke operating worked and Vice several a Customer First professional as Executive President a that New Corporation McLean-Conner. held increasing is in she with currently In Eversource Electric, company with has Energy, registered Experience industry Energy Tampa Eversource. Penni responsibility executive Penni utility time, England, licensed is the for utility she

in also Campbell currently is are President, Board. of last adding McKinsey holding to and City, Inc., as worked electric has company. and energy X utility the independent of held to Texas the number headquartered Evergy several investment integrated at David as public We as & positions which David resource in a that, David Company, executive of Missouri. he companies at years Chair CEO company X Prior David in and partner. served well a energy for Kansas a

to us We without grow for they contributors. our important Utility great it to clear on it's Solutions last how are group. Board, insight, and both bring as David continue saying thrilled the industry goes utility will and ESCO our meetings at that and Board week, Penni David deep be attended be will that we have and Penni to

their and of Penni to governance warm a behalf business David. ESCO's On insight a guidance, experiences are and to Board, happy success. entire Board have welcome the in diverse set to and our key I'm We extend industry and of

segment. details run a you for quarter, that, all Defense. & comments with give Chris the few you of will before Starting I to financial through each want the but Aerospace third on

have a here. strong to outlook continue We

Navy strength driven Globe. orders and release, by on order quarter continued growth VACCO backlog we of As from increases. was the military at with by you continued saw aerospace as record strength and as commercial order significant well the driven the The finished our

focus us market production documented, on these the on be The positive long-term meeting outlook key execution we strength the for to and are requirements ongoing and markets. support as The we to for work forward very well underpinnings increases. for here remain customer will going

at space moving to the address VACCO. want do on, I Before business

release, you As will reviewing the this business. in saw be for we strategic alternatives

in Just space subsidiary will comprised and set Space committed businesses: this Space Navy. legacy key business a X great The centric up a have continue to satellite manned VACCO a bit, group these The a be supplier in to has flight on is frame you key and and missions. Space great our a a of it government to XX-year business missions. The bright business technologies. of and for a tremendous continues of many legacy, has future NASA employees market

approximately the a Navy of of need different has need -- would part And focused that's be part a has sales would second, work. first enterprise to we For on suited broadly it as to decide ESCO this if how ESCO, as decide it business fit whether of $XX million. or enough And would space. better from it business scale carve-out more we

or we'll completed is we determined and appropriate. when a undertaking deemed are is now or make the We comments that review this further when required disclosure have process review

Thanks, today's call. Kate, everyone, joining and for thanks,

on the to at We exciting an that are of provide update a ESCO. are lot here things happy happening

as quarter continuing third are the formidable excited want additions have and record I our markets was of some are substantial, particularly is We nearly our the Board of of to all quarter June about platforms. growth business briefly momentum our By across of $XXX Order and positions. of the indicator the This results in backlog and competitive with an strength end businesses, to our talking the million before pleased continued highlight the -- important talking Directors. about of XX. we about

X bring additions to Regulatory effective the Energy These Board the fortunate upon approval of the Board. are Federal to our in onto will highly utility backgrounds industry become deep Commission. with capable individuals We

has an Eversource based in President is First Customer strategy. she Conner. XXXX. of increasing Energy with held Experience as operating serves positions worked and Eversource. since New a Tampa responsibility Corporation currently Executive Penni Penni Penni engineer for Energy is several in Electric, is holding Duke McLean utility she company utility England, Energy, and professional the with and industry licensed time, where a that executive Vice registered has In

companies which McKinsey electric in currently Campbell holding well adding worked the Texas and as has at integrated Board. and to David to X headquartered David as Inc., an executive also of last resource of We Evergy Company, President, he as public held a Chair a X David energy independent energy number at the of Prior company Missouri. David several is company. City, are in investment positions utility years Kansas a that, and served partner. for & CEO

attended goes insight, Board bring to us to will week, on Penni Penni saying David Utility are Board, deep and that both important that our for without will contributors. ESCO how as our it's grow to and it We last we and the be they have at be and group. meetings clear utility thrilled industry great Solutions David continue

segment. and a Penni run before industry our I'm insight you defense. diverse all Board guidance, and and key a on governance of David. welcome of happy behalf a and Chris with you business that, their aerospace but the have to to the through warm give will to for On set experiences to are entire and success. want Starting the comments extend Board, financial ESCO's third in I each few details We of quarter,

have a We here. strong continue outlook to

significant the continued as and was The at strength The meeting continued underpinnings well driven markets. execution in Globe. finished saw long-term our order of to as aerospace VACCO order for key and we market Navy increases. orders we documented, very ongoing forward well military by outlook the increases. going with requirements for driven positive the customer the these for strength on you work will As be on here commercial support production from by the release, are to growth remain backlog and strength quarter and as record we us The focus

I address at want on, space the do moving VACCO. business Before to

As business. alternatives the will we you this saw in be for reviewing strategic release,

you and a for X Just comprised and and of market has great committed bright Space to this employees to subsidiary centric and flight supplier business missions. Space a continues tremendous be set have The NASA businesses: space to XX-year satellite our manned group a legacy, these key VACCO government is on key will of legacy frame great The continue of future a a business business in missions. technologies. The a a bit, it in Navy. Space has many up

of Navy or would more business focused For the $XX carve-out million. business different need would suited second, we approximately ESCO, better space. would of be a And scale -- has broadly sales ESCO that's to it enough first fit from work. it we how as part a has this And whether it of on enterprise if decide need part to decide as

appropriate. we a is have we'll We are make further disclosure comments required or is this deemed or now process when completed and that determined when review the review undertaking

bit where here our significant the a healthy is are outlook sales bullish. and The up levels. was Next at Utility to growth more modest group, continues quarter, third the growth backlogs in be but order was

You'll third for an of recall orders was renewables year that level June all-time our the record last quarter business.

year's was business in the the that absolute highest NRG So quarter, business business growth. from Renewables see growth lots great continues market significant and opportunities for core in reduction last orders see third compared to and XXXX the of about record. orders at quarter feel future utility Doble still quarter did but We level of delivered second on our an still the to third the orders

the on Finally, I'll touch Test business.

for quarter, in the last cycles, through declines discussed with kinds to has a we off business of It's year business the well manage we business to these significant revenue fun start and through test team QX. responded cycle. profitability this continues this tough never As to go and got but

It's is the nice both testament historical of to the by margins delivered The in hard EBIT see improvements continue team good. shows basis and coming which and that we acquisition work business the through. real a the in very quarter, on the Importantly, benefits from adjusted anticipated MPE margins. sequential margin to here XX.X% are a sales

return stated and that broad of number certainly have we expect and capabilities beyond. measurement markets, before, a XXXX will we to has to end and this test growth apply business in As

of it to you Chris run that, the details to over I'll the through quarter. With turn financial

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

had which tremendous all on of backlog side direction. start have The left $XXX highlights will book-to-bill moving segments of order good on the growth Page the XX% looks Starting all in in where the at bars ratios was over quarter. can financial the as upper chart we'll X of record overall here in the of resulted a you of We right top the million. X.X, chart, the that X, quarter with see

from adjusted quarter Next EPS of points organic improved acquisition. the comprised in basis contribution is and growth sales, Adjusted XX up X point MPE up the X%. and EBIT over which was were a X%, by a X%

will chart, segment. the cover next we the A&D to Moving

were the up this from order You a growth over side intake segment million can still an see excellent but lower with of VACCO driver We comp against quarter, key Navy overall third third bringing saw orders of Navy was during XX%. year's of in with the quarter. increase last order $XX on a

Additionally, and to aerospace the commercial continued at deliver strong both growth defense and Crissair. PTI orders

points. We by the saw increase was led side, margins Adjusted space developmental sales last at $X of additional VACCO the profitability against This XX% approximately came guidance the margin million additional Navy there basis which business On the from growth contracts. quarter. declines decline and challenges with on quarter quarter cost XXX us in in with that Aerospace. nearly provided of XX.X%, was the was an for a EBIT

different at unfavorable OEM on the in quarter driven had we by mix platforms. sales timing PTI and aftermarket Additionally, of

X. Chart to on Moving

cover will do driven uptime of by Solutions maximize quarter. significant by lead assets service work Group, as Doble, XX% equipment on new more testing request with growth to was customers existing The and struggle XX% orders increase delivered Utility they as the like while a transformers. We to which during continue times continuing increased where the

than against with by decreased segment service rates NRG from offsetting were favorable moderated more flat comparison inflationary year's growth basis many price and favorable as amount. mentioned points, tough third record the essentially up Bryan, after quarter increased for by $X we quarters Sales for by for the margins to Orders Adjusted pressures. XXX last as of business mix EBIT But growth. double-digit very were impacts quarter million. the a

we an in of Next we to where up adding grew saw drove points through year. with the reduction important a the growth. by sequentially in the MPE were volume Test. the to the down XX% compared than X works was This is on first savings bookings basis as will and XXX mix. Sales great is the deleverage quarter MPE X Orders business. impact Chart after towards points in offsetting were the quarter, trend unfavorable from quarter second of months cover the weakness quarter basis an and recovery. favorable as Test increased the Strong Sales the Margins see business for X, which U.S. cost growth. by X% acquisition more margin organic

the on the to next chart. from Moving details segment

We our highlights strength nearly up year-to-date been have orders with the defense and #X. continued aerospace orders growth P&L as from Chart Really on has year-to-date markets. businesses led by order and commercial sizable as XX%. performance strong in well The Navy

year. lower up are Utility and year-to-date which and from group, the offset on have while Margins volume through with and Aerospace increases the the up Sales X X.X%, seen up Defense XX.X% test by with months Solutions we at first have an slightly both A&D X.X%, drop were improved of X.X% drop Solutions nicely Test. margins Utility

the where is we Next X, cash flow highlights. Chart have

of to increase increased months last X $XX.X of of first here an flow You the million operating compared cash year. see

have spending capacity across also businesses. mostly increases year-to-date, increased far the so to capital A&D related We

the that prior repurchases year. have million driven spent the can also this we the MPE year-to-date, million third of have by the $XX.X and during acquisition number You to quarter, $X see a on chart small share in spend compared We increased we had year transaction.

is X, for where Chart updated XXXX. have we the Last guidance

The profitability for outlook any the VACCO business. sales erosion per to earnings share X% $X.XX X% year Our at adjusted adjusted impact growth $X.XX. space to is further of of excludes outlook EPS for the and

EBIT be year-end. line, release, As excluded to have worth mentioned plan challenges current outlook, quantify press the to from million them the estimate $X the at we profitability at currently in these but these and we'll million impacts $X we could additional

close to would The Bryan. XX% midpoint strong and growth update, EPS financial of of X-year the and a to of turn ESCO That range it as adjusted prior I'll growth represent growth year. record the annual XXX to XXX another XX%. rate over also looks represents year compound record now compared to out concludes A back

Thanks, Chris.

quarter, good heard, at we've year you another backlogs. had record As of growth looking double-digit earnings another and we're with

ESCO. great We for feel to continue about prospects long-term the

into July. the to Q&A, on acquisition going the quick back & want Management announced Before Power Signature that update I we give a in

We The all United of uncertain. the Kingdom. in States the required can the both those filings on completed be regulatory and timing have processes United

So can continue wait quarter the see of deal we'll to this happens. we've before in and what have believe that But we first XXXX. to and been close through the fiscal

talented ESCO market very way ability a group we employees, U.K. is that we of deal This as both on the key of set Navy the a exciting and a for bring the U.S. technologies the and in the to serve expand

So we that Q&A remarks, and can concludes now. the the start opening

Instructions] [Operator

comes first Tommy of Our Inc. from with question Moll the line Stephens

give you you in right Any content this pegged. orders year, just us does strong early additional quarter it would a helpful. had the on And question million here? Navy shipset you discussed show can again. reported on realization Are where the awards is, I once Bryan, upsized shipset be my context this there of is calendar $XX around what

the got mostly are orders and prior The spares other no. quarter we Navy pieces. in Tommy,

the are I'd that, anticipating I been still about. talking say larger getting news can't Unfortunately, close. make we've that We on we're any but orders

that math And here, formal to Bryan. the XXXX, aware simple that leads here. give Okay. doing me just follow-up then I'm this quarter Fully some but to is guidance my for not

to increase something like getting across year-over-year. I'm Your cumulative year-to-date orders A&D, a XX%

obviously see there segment timing the scenario backlog of revenue grow digits Now double we side. that But record can't year? that reasonable unlocking, next where any is doesn't our from

the you're clear, talking piece? Navy be about to Just specifically

was the yes, what I level That shifted I segment I A&D describing. well, is there. at was -- was

math early in way. is significant You're off It's I don't too guidance. But think any to your give right.

have big or more extended quantitative. of Sure. that time Any line not may backlog qualitative, insight on pieces context unlock that if a to even

pretty would anything Just point. a big at you highlight this It's for number us.

something Yes, bit year than generally those of we're I the lead out little you is to you commercial the factories. want a think way would time side, that a aircraft say quoting that about of military and on like less

do the months multiple out further. additional generally years. -- little place to in larger orders these a convert out looking The for we aircraft is will have Navy years. probably out in been right describing I've backlogs X about so that a year. backlogs award now say go And speaking, would the XX will what I bit will go

So what ramp a Navy. rate for we're seeing is the And on that, path. steady I of think production certainly double-digit that that's

from comes with [Operator Tanwanteng John Our CJS line the next Instructions] Securities. question of

on just VACCO Space business. is one first My the

gave You number average, it, on normalized basis? revenue of profitability that business a on the but what like I for looks a wondering, was

not I going some tell still would specifically. of the that. But certainly it's probably around disclose honestly, And would John. say on we're carve averages to out below overall. working we're Yes, you, segment that I

Great. from of the the excluding you're segment in just Okay. erosion. the that profitability number the expected terms QX And in that Is for QX? EBIT

a delta to beyond guidance it -- what's It's $XXX EBIT be of of kind million. of that in would $XXX million negative potential

risk to a clearly don't downside It's wanted item. going kind of that's just we that to we -- the sure identified make We that's there. And know happen.

the Okay. the little tell having this Can that cost nature on going it? and additional is in you us about more bit of what's program a

Yes.

same the been quarters. we've think talking for I still we're that last on path about So that few the

price We development have programs a small through. of number are that working fixed firm we

taking first not so programs like And we're that. new of all,

normal. of is are a and than accepted number finite we've that happening that requirements a what's more little it's So challenging programs some

in money and, we we expected, cost we're additional time so be and if have go they to engineering going if could of backs, when both into as test Test and it terms fine. time. perform additional fabrication But do go as the are And the products

end that trying a would we're on bottom what what is look -- of kind to do that's like. so a put And

it. Got

then directors on or space energy helpful. utility you space. the And Okay. X brought from That's new the

segment, So I'm on? demands just power seeing from that in wondering, seeing and and bigger data that EVs these having just centers to given is we're a the on that couple going years the just of prelude all we're next focus that growth

Yes.

two. our Board year Board And have a the of range has So listen, a retired really experiences. couple wide members or that last over of had we've

So have as have do we do kind of was through the determining nominating we and where governance strengths where and going gaps. committee

us aerospace directors One X big have got of government be really is is all focus for at to We've defense. sides the coverage big Tier that things that good the both the the side We've going there. of we of got identified worked at X suppliers. area that, and primes and in

felt from one that that, and So our new broader come coverage that And out a got only about done us bringing out that on segment build helping of skills we things that that with we've He's last but we quite -- be great side, would things the one of characteristics feel really of is of segment on set side. the X But of X one instrumental that independent folks been board director we job. like that utility on appropriate. a the cybersecurity the he's like members years. over or be X in segment good A&D found And of to the kind valuable. also

no closing at remarks. back for this Thank Sayler you. to turn I'm Bryan questions call would time. I now like further to the showing

in for questions? Did jump back Tanwanteng John

did. he see I Oh,

yes. the Yes, screen, seeing on we're one

Yes. is now John, your line again. open

about from see those QX recoveries test do improvement of the I think but we as next QX jumps we mean and talk kind pretty was markets go had the of wondering you degree business -- good what you to you you're to if incremental in to QX, just and can what forward? that QX see expecting some I quarter. could

business has of side, particularly as in news in think medical, out business, I kind of our of communicated times, were of on done of seeing couple we're refocusing here the and really absorbed really returns. we've that marginal job businesses. cost team of we've big a the the kind in wireless And Listen, particularly on of China. the the in good And U.S., Yes. the our growth balance good taking good a that EMP downstrokes The out now. is the

So revenue in sequential terms of expectations, for see margin. both what and continued growth you is should

from use So of I would of and there. point starting your is move up that kind XX.X% kind

next Our with from Moll comes question Tommy of Stephens. line the

your trends? factors curious, I a other bit figured took out follow EPS, that I were was that, explained space you I'm Or any For year on Bryan? there guidance full just the out. want the by to And little driving delta all up of VACCO

majority what million in in in mentioned this that of Yes. Chris. embedded kind quarter. was we of it at versus comments, the hit of kind the the Tommy, that guidance third had $X was about is my quarter expected was of That we there third quarter. took the what beginning a I when gave we

So slightly. the the that of the We a whenever but not quite so, than is And come flows fourth I shift, then not the we there, year. last bigger baked in down business much or laid as quarter guidance seen but test nice part over that That's sequential we would some improvement the before. as through weaker we've expect big it. just say bit out still had the little as quarter a

Doble, welcome and were at Doble were here. as But little up in we're it while umbrella. it, my takes well bit hopefully on might throw one year-over-year, within overstaying puts a And like the some not you there Okay. and I looks

may be more if calendar/election puts And quarter higher seem the don't end time a I insight we be and level, versus there are ago. slowing a curious you the bit. quarter, I'm this you or like may market us would a that utility And this know whatever So takes helpful. can feel at across uncertainty provide end if like does for look market there if be it around

would be of helpful. you kind any insight Just have

been yes, I different there's or and puts think here. yes, more takes Well, don't

side Solutions orders an comparison for the to restate and year the compared within revenue. I both incredibly Group, think I seen explosive the on was Utility comp to year. the quarter renewable you to prior that have want softening prior some

bit. So that down little came renewable on the a side,

services was uptake a pushing on current Global hardware utilities add we're seeing in facing they're somewhat their our And by their restrained maintain just ability their hard big to up as to growth demand to capacity lot. They're our on and continued assets. system. really and are

what that assets, So right maintaining current really into and their is board on plays the they're for the across really Doble. wheelhouse focused

So the we've had USG X.X% was X% XX.X%. good really Doble growth and is at up was over year. prior Doble. NRG up up

is continue. So that's our perspective going to that,

mentioned election. that from And You one don't time of regulatory, could on businesses question see the of We the factors that the on any ESCO's we get business, frankly have threat based outcome to a an time. issues. economic benefit election. We assessed impact to or many of significant about a our -- that think it's it, technical, we've significant we and

for line either not anybody feel and here, bottom So is goes. we rooting we're vulnerable don't way it

Thank you, time. the and Bryan. appreciate it I'll turn back

turn we'll I'm Thank back to for and questions, no Sayler Bryan closing further this showing time, you. it At remarks.

some you We're ESCO, appreciate right. excited about you quarter. talk and to Thanks, really All I everyone. next at taking happening we'll time. what's

the today's your Okay. may This does participation you for conclude Thank disconnect. now and you conference. in program,