ESE - Earnings call transcript Q3 2017

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Operator

Good day, and welcome to the ESCO Q4 2017 Earnings Conference Call. Today’s call is being recorded. With us today are Vic Richey, Chairman and Chief Executive Officer; Gary Muenster, Vice President and Chief Financial Officer. And now to present the forward-looking statement, I would like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

Kate Lowrey

you. Thank acquisitions, securities this adjusted and margin, reduction of EBITDA, strictly and of from during success completing and federal of non-cash historical new regarding sales, amortization EPS, profitability, beyond EBITDA, of statements recent the products, call made meaning cost are orders, timing safe amounts XXXX depreciation cash Statements flow, rate, success tax the other harbor statements the EBIT, recent acquisitions results forward-looking in and of which the provisions acquisitions, and additional activity laws. are not within EBIT the are company’s current those actual projected statements and operations X-K be that an included to be and release referenced from limited including the results in forward-looking the assumptions, not Form press as will uncertainties business environment, statements due These and company’s issued based on to but in risks materially the may which the risk in factors today, filed. to to exhibit differ and expectations company’s exist no undertake as revise future any information, new update duty or or whether otherwise. of result events a forward-looking statements, to We

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

Vic. to over call the turn I’ll Now

Vic Richey

good Thanks afternoon. Kate, and

EPS. In Gary earlier report we some release describe we the in up and moment. with of passion noted adding that EBITDA expectations will As ‘XX strong in a were which delivered

four acquired companies activities most satisfied in as this second, year, that side we’ve the with I’m we Turning recent for XXXX. three a M&A great added numbers

our our and only added partners portfolio, share strong values. added we’ve to these management our vision With teams to we’ve companies great also not

view address organic years, remains forward to the future, successes we’ll continue plan over the and our few aggressively past As to increase This to and challenges gives our every we unchanged goal both value. long-term face we look a future the we acquisition order the day. on normal shareholder and favorable achieved in market on to we’ve me goal

For perspective ‘XX two and financial outlook. to the over for Gary summarize on ‘XX, a our up I’ll with our it comments wrap turn ‘XX outlook

Gary Muenster

I’m XXX EBITDA XXX in Vic. financial centered the to to which Thanks share of GAAP XXX a that of positions results very of range impacting acquisitions, year of the better the we way be GAAP be million we pleased would goal results. with of accomplished items across set around and EPS with financial range our the the our described what achieving ‘XX also company in the start our in proud year At growth portfolio. several XXX for objectives non-cash we which expected to long-term million expected this and and we the

M&A Given less purchase year GAAP coupled additional the activities corresponding charges completed our accounting fiscal comparable our from acquisitions earnings late progress. required non-cash with year became the these GAAP as the in

more became performance. adjusted and operating adjusted consistent important view at adjusted As a competitive our This measures operating is 'XX EPS our result, with EBITDA of and looking results. performance approach

from financial on highlights few 'XX. touching So, a

is and million. August. This slightly For XX% in a EBITDA communicated EBITDA the expectations XXX million of reported adjusted our million adjusted we XXX 'XXs year increase of previous XXX over a which than of represents better XX

as XX% XX about reportable EBIT million QX note margin over million months special follows: a noted reflects XX XX% and on the in recorded adjusted USG record earnings we six of the comparable XX global XX% our margin, filtration which EBITDA XX% EBIT a EBIT the came QX delivered full cost XX% operating During a QX year. contributed structure. last increase quarterly past A segments within over of in reflecting to margin. high test test and in million increase lower delivered sales

the EPS supplemented EPS the XX% sales X.XX in backlog Sales to increasing EPS in a of $XXX adjusted about and book reported adjusted about of share year. year with M&A to our XX% $XX $X.XX $X.XX increased XX% of Our reflecting a share adjusted of compared million X% X.X% from bill QX 'XX orders 'XX over by increased or by million year-over-year sales an or Entered increasing of of a QXs million organic 'XX. end were increased $X.XX. $XXX start contribution from of million. $XX to $X.XX,

was XX% segments also or $XXX the million orders to I'm report $XXX $XX of debt weeks nearly to discuss order Also will Test's a million $XXX positive reasonable bills net book in received in million Vic to the fiscal that in year this last million increased by year. X.X continued orders trend recorded led and have strong activities later pleased orders, operating over the the resulting in million business first by $XXX leverage commentary. operating into which six 'XX And Our which on finally, for provided of ratio. and cash his

and Our our liquidity to held significant well us long-term positioned strategy. execute credit available capacity

as As in and we that confident backlog our enter our 'XX our the expected I'm profiles outlook order described supports current relates.

my release bit our GAAP earlier EPS to increase M&A in to 'XX as become the complicated. given recent discussed in more as comments compared activities the significant turning now in amounts So and noted a

the over share acquisitions a expected As $X an and to or million recent depreciation to amortization 'XX. $X.XX is 'XX from compared increase in example, non-cash

an more better measure value. believe EPS As measuring will and such to EBITDA as operating this performance enterprise as is a continue management ongoing for determining considered adjusted we to emphasize on basis to when ESCO's GAAP be is relevant metric supplement a

and in a EPS the to GAAP are non-cash GAAP expect impacting we expected in These of interest to our XX% expense which compared of we million XXXX, I $X.XX XXX a and call higher EPS For EPS 'XX. EPS charges I'll impact million result in including XX% additional between and EBITDA release GAAP $X.XX, to items reported about differential total 'XX. adjusted which adjusted To by $XXX rate EBITDA to EBITDA estimated few million compares tax to a 'XX increase by depreciation, the the resulting mentioned $XXX which amortization adjusted $X.XX $X.XX. bridge our in impacts

pronounced these of 'XX incremental impact result is assumes additional during a share their related of when earnings to on with a EPS which contribution, activities half but $X.XX a accounting. depending and year and be $X.XX back M&A on in compared contributions timing, basis, is to second 'XX. As more could range a this expected weighted quarterly the charges profit purchase be no range profile On 'XX the GAAP to half that obviously basis EPS to expected the the a

program substantial expecting meaningful benefit group. in and 'XX when is market strong aerospace Filtration PTI's driven with USG sales So, Test's sales supported well the software sales margin months to investment in low in to catch Test This program and to despite is compared hardware, benefit XX%. transitions reduction. Mayday The per a will at commercial sales by by cost grow year margin its M&A by protection a specific last the as by customer's with within performance. from its ongoing and USG's sales, over an from are $XX of reduced guidance full recent sales sales comparing focus continues launch. new sales but is delays, SLS in year wins, coupled and sales higher international This view desire lower production are the the of Test this to at mid-teens reflects and And when XX%. the our of on recent introductions last program of DUCe, we increases SLS USG recent Crissair, muted margins timing as the expected balance as and to activities development validated we're our the the of aerospace with our design product XXXX the is of from program channels. product foreign filtration content with price 'XX revenue along such to over PTI, marketing competitor significantly applications sheet, increase 'XX. increased as once structure the offering expected a EBIT as growth of to to products and rationalization over impact new industrial which market million continuing VACCO's increase products large growth as solutions EBIT the begins VACCO's hardware. projected launches, XX% it's in strong automotive opening move in future well six a where up

to the address 'XX financial corporate recognized be of on to accounting I’ll costs be questions significantly to due identifiable the happy books. corporate to additional are Lastly specific higher get assets purchase amortization we expected when any non-cash the in Q&A. the

now over so Vic. it turn And back I’ll to

Vic Richey

our are all on In of I’m opportunities. addition no fiscal ‘XX to Gary. a financial businesses solid quantify growth with Thanks confident our one

We’re all and positioned trajectories our in in the out move years. to ‘XX

As our in of the a and we to space. provides With end I’ve mitigate specific headwinds markets these noted and that lot diversity many in industrial in which pressures. we’re strongly not markets economic said, the previously believe I protection breadth the niches immune operate to

without us across growth broader period achieve and expect of well challenges to beyond as individual specific in businesses growth industrial in I’d solid not and see time EBITDA rates results deliver and those various markets. comfortable anticipate to in I’ll we entering provide ’XX. a position in we’re in of like can I’m that While outlook that segment. we we’re ‘XX of as with a filtration, economists the ‘XX In in for XX% businesses couple our thoughts

including provided several to won multi-year follow-on jets back Class We as critical hardware filtration occur. on proprietary positioned submarines we aerospace submarines. for which surface surface And and additional well ships. cycle fronts We’re a home Virginia were as order we’ve awarded technology for continue up large commercial we a in contract well nationalized the recently to mission for Westland in

outlook only than offerings its the with profitable our years tangible into and existing orders, to already So, taking market expand better enabled placed customers strong we to continues MRO where entry we MRO have aerospace in Mayday have entered. upon. offerings its Several we in see which Westland can product many come. a product markets including growth for we growth together build recently

our capability Technical And production which in medical, This markets and and is has scale positions to us given at to opportunities our customers highly-engineered facilities provides software the growth hardware, the geographies. including expanded and Poland platform in Packaging for pharmaceutical and and England. global recently We markets our solid capacities several group’s improved throughout consumer deliver growth products to future leadership USG, Our Europe. services. across

both for acquired. expanded numerous We internally developed and offerings also see opportunities product our

Doble. into the network key ensure efficient with partners really partners. manner as in of distribution are our our We and is is to integrate possible. that to process the service impressed quality sell need very rationalization able effective Our we and channel our nearly customers we I'm complete This new most

‘XX. market of fast-growing the reductions NRG seeing with past of position Our important the entry in Test in into materializes ‘XX in results an and At was anticipate. move are look forward energy We beyond. at acquisition this enhancing renewable our we the cost market our

million have tangible our structure tell you margin operational the Our expectations. $XX avenues and opportunities through in bit history growth I Test growth support awards October and sales by of nearly for we reduced businesses supported ‘XX aggressive in growth additional EBIT ongoing XX% initiatives the our today. metrics opening new future a and business all backlog of years. is across cost such improvement as in given appeared several about our while

Regarding bandwidth immigration opportunities. meaningful gross strategies applicable. enhance in longer-term Within USG and across to and nearly process to total our we across EBIT growth see sales on continue M&A, complete process has ability where the board. I our past the relationships pleased is This customer balance my operating business I’m like previous complex favorable opportunities. longer-term business shown But will remain meet overall the areas view our for recent and have sales Commenting our current in Acquisitions than consistent component to disciplined additional to to handles additional with that our our We to a of a M&A infrastructure. capacity sheet and with our growth management continue our our growth have this certainly evaluate communications. we continue more approach. target growth key we remain and we

glad execute continue focus constant and both that remains questions any growth I to operational acquisitions. now. improve opportunities be our Our will organically you and performance we our have answer through on to to

Operator

from come proceed. Tanwanteng the And [Operator Instructions] Please will our question Jon first with Securities. of line CJS

Jon Tanwanteng

that, are are a year. you M&A evaluations mentioned capacity on actually on business guys just the transactions doing opportunities whole helpful? M&A and process like, timing you what You have that spending there color will for be more more after in lot pipeline quite much of of How the a or past lot anymore look

Vic Richey

as and we forward. over and of this have pretty remains a Its be what ample think lot a years more to we see active, We I past had success lot traffic, we acquisitions. before much lot think probably that think two these is of I honestly in the a seeing that ability two ago opportunities going market, of some it’s to weren’t matter our proven things a we and coming of successful years

if like think So, get more market the the multiples look within will I go pipeline relative today and have think we the partners, robust. from those future certainly competitors, or we six on paid. radar you there's appear our like out I'd look that a for five., are Plus, EBITDA get and of XX so in side we and certainly that performance activity seek aware bandwidth, the to focused seven doesn't digestible. remains deals it And And looking XX-time things screen to so past feel at valuation here last I people will the sizes people's more those the think are are pretty Jon I nothing acquisitions. access we say at overpaid we to the to generally who are

Jon Tanwanteng

in both you're the sales cost next you and what And terms filtration just then into have and USG expectations of for synergies year? and building for expectations

Vic Richey

that of out. a to lot a takes built year just have figure it because We synergies

build want we there to something So, begging come. in on to don’t

We to would what the way hard process assumed I it's But in our that. are answer say in and doing numbers forecast probably still have of the no we that. sustained is

Jon Tanwanteng

the on color you be any space forward? why in flat then to that expected And going packaging segment that

Vic Richey

I year European acquisitions say be the is the to would we is long that hired will rate what in than we not going seeing anticipated. flatness what and are what this attrition I say we had probably term, saw

amazing Some which our simple razor are through market, really It's and we with the they raised you more package we're of that. what packaging, and competing attrition take Plastique did it They some with as internet that seeing a basically would they're higher maybe manufacturers areas like using like a in anticipated. all see now on have can their a the place things of one and so the participate historically, how there. result business struggling they -- we price your and than prices little forced those acquisition Plastique

Operator

Burke our next Liam come line B. will Thank proceed. you. question And from the Please of Riley. with

Liam Burke

other upfront Filtration the a up in of on step beginning that to you're absorption up? of on it is expectation? of 'XX. significant primarily Vic, in contracts Is growth EBITDA catch the business, investments Or in the the side there things looking for

Vic Richey

months, Mayday business then had efficiencies them are and versus mentioned going The biggest higher as XX a pretty year-over-year, getting as thing to months versus think business I we -- have big our our be I of pickup tripled result there, as impacts is so which onboard MRO has I'll now, then deliver contract at they the have on XX biggest months a that, and fully XX both mentioned in waiting that we'd and us in 'XX, we've 'XX, that the so say I biggest as piece, a as Westland had contract year-to-year. in the we are to well, now some been in call on two place those impact a earlier get there the

Liam Burke

expect make on you better presumably acquisitions, part two looks cost to out much businesses, do still sequentially operating mortgage year-over-year, I as those on can? like progress integrate but margins, as to fourth businesses quarter, carry you of pretty the and those the And continued lower you or you're synergies much then understand have got as were acquisitions, NRG lower those cost

Vic Richey

about I'd mean, the say within be businesses. not NRG going that business. a well, let separately It's to really me freestanding talk I integrated Doble. two is

to grow those there improve have we as efficiencies. going business we'll we're see of and some margins think continue I to that

the bought know same you ours. going as system that synergies not going of historically we integrate. a integrate Morgan had get Schaffer, it we of we're to to and With the company would with So, product type their we're with

if into think that new as I higher So field get of well. lack I think will with we there, markup will having production you the and be help as just then their a product, helpful second rate will

Morgan fortunately I think get strong we also integration able And that Schaffer us an finishing there's has and for the so savings as we're were it fact that, there in role operations, somebody cost filled internal as really some well. [place] of somebody an there, us, people were like up the as of for sales have that I for role European inherent mentioned that sales Doble fortunate could so process to entity well. were looking that the in at channels we a do allowed the to [key we couple other run that of fill] that

Operator

Potasnick you. will And the our come line from Company. of [Operator with Ethan and next question proceed. Please Needham Thank Instructions]

Ethan Potasnick

guess is Yes, software of similar wondering Hannan, from XXXX question Ethan mix revenues in of for is hi and and service trending I'm coming the this you part how that share much to expectations? that Sean I maybe is Potasnick how previous is and in USG, about on could

Vic Richey

and well trending we focus business, software put Gary pretty of of then on And and let that’s the a business areas years specifics acquisition significantly. ago Doble both pretty we’ve software grown that and made those say current has as business some And I’ll Well, and numbers significantly trending up. side see I’d its that software sales very had couple we small up services.

Gary Muenster

that pieces the we about think you ask had. would I Yes,

are. a business. So Morgan hardware is supply They products. what generally just they split Schaffer them individually

there predominantly is I is is NRG applications, added the but and then have bucket, -- some all services into and plus better in would the and the and XX% software, services some hardware. On XX% not probably a some there Vanguard mix other almost it’s product bucket. there that's be there they is mean, of hardware so So, nearly software XX% about piece

you added added software so think because expense to that dominate a between if will about the of and to you as to Morgan of what of So, mix see bigger the you piece Vanguard becomes will historical that, Doble’s we doesn't margin. pieces, piece it hardware it the was favorable its allocated Schaffer those or and or point the

So is to but business disproportionate you're loss it's a and Vic organically growing hardware more said, in software the as because numbers growth faster acquisitions. the going see of just

Ethan Potasnick

And if then wondering prepared guys we see then XXXX? within Okay. know but talked the you I little the growth you share wise this what of remarks about bit segment and could possibly a level percentage also kind EBITDA at of was kind each I should in for

Gary Muenster

with Yes, business across go or pricing of already million $X platforms of mention stuff to about the I with we some the Filtration, wheel would product that if start million a conditions there, because say $X it's didn’t we’re low looked get forward away. you let’s margin that all extraordinary that going to not we're sales headwind of all going

away. part goes business So the that of

said So, million $X PTI it’s that’s and call go as ‘XX a industrial like low let’s we and automotive. margin I or million into that $X not aerospace, it’s part

the two X% part of because profit improved say to talking and margins transition production. headwind somewhere a I’d because despite is the are that's flattish actually group margin from positive the significant you’re to VACCO trade operating development way of performance look our Filtration, there you going on sales, amount points timing at the that neighborhood probably or actually operating is I nice in the that so to So, in VACCO worth there. margin X% going see you're of The into see the full would as there about a

attrition the So there Vic that flat packaging a there. as hold as X% to that group X% alluded use is or on to some group

related last $X if give from, plus we really significant million We we comes the the talked timing some some where had year around that that more construction picked are growth. think that headquarters. that up take large a things technology from backlog then about we of at or up holding and its you picked momentum program So, Test from

the I going of the two is attractive million I there USG organic as acquisitions think the north mentioned in be dollars, the business to full as teens Test for then there combinations inherent of metrics. validated side high So, of the those on year XX XX% And but is would the growth of by the well. then in combination the growth

follow hopefully on So that. those of you pieces

Ethan Potasnick

in you maybe finally, for could contribution then growth assumptions discuss XXXX? internationally And

Gary Muenster

side revenue the or or what? profit On

Ethan Potasnick

Yes, please. revenue and profit

Gary Muenster

could take look XX% I if that. regard you then the around it's if NRG based say is international. Schafer you would probably they happens would in predominantly of U.S. at million XX-XX. so the almost of at I And a and XX or million you So, at world that In million Vanguard Morgan about XX% million business say them $XX are half obviously Canada, on XX their that little so XX take in U.S. closer is of to happens XX%

So, XXs a that well. math And all as a my in time there. would then head the historically international of be you And whole at and them but XX I lot Within saying chunk or at business we Kate because a XX% can't in percentile like a there plus will content. net we not do content. XX-XX XX%. that XX-XX have is not aerospace be $XX mentioned or And comfortable would that or help. then business Test million same big Plastique million put should about as be that filtration packaging it's the is relationship that is and lot and a I percent in the XXs probably there that within the of that international whole about upper something if low take And that in is

Operator

Thank this you. And I'm at showing questions time. no further

for or to remarks. over Richey, some back and Chief closing Mr. conference the Executive present I'll Officer now Vic So comments Chairman

Vic Richey

the you. look forward in talking call. Thank I to everybody thanks you next well, Okay,

Operator

you your And conclude for a today's Ladies participation all thank may program. day. in conference, does this wonderful you the disconnect. Everybody and have gentlemen,

ESCO (ESE) 14 Nov 172017 Q3 Earnings call transcript