ESE - Earnings call transcript Q2 2018

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to the Q2 2018 ESCO Technologies Inc. Earnings Conference Call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO; Gary Muenster, Vice President and CFO. And now to present the forward-looking statement, I would like to turn the call over to Kate Lowrey, Director of Investor Relations. ahead. go Please

Kate Lowrey

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

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

the call turn Vic. over to Now, I'll

Vic Richey

and good afternoon. Kate, Thanks,

to with we solid expectations our QX and the We began Gary of detail, wrapped results in year year As the of will fashion. coming our that the in by describe more at noted in I'm our the as up top report adjusted QX pleased half $X.XX. EPS in release first guidance. beat

cash exceeded our of strong. Additionally, expectations our track. the remained and balance remains year on orders and the We flow

over detailed for turn some to Gary comments. it financial I'll Now,

Gary Muenster

Thanks, Vic.

our results metrics. on both better noted, than and basis and across financial QX came Vic adjusted As GAAP year-to-date expected a several in

Given the relevant adjusted resulting to compared tax to and prior expectations the gain law, quarter's commentary from year. will my large EPS are our GAAP these focus impact of measures and when as the performance new one-time adjusted I more on operating of first EPS EBITDA

details, expected basis GAAP to I'll the Before performance range calls. set I of $XXX pending which a on $XXX the goals during around discussion XX% our on comment could over financial anyone reform of narrative, million original in of start year estimate the the expected year. impact was earnings EBITDA, our communicated before that points million, operating of of centered an prior and increase reflecting to XX% to be the data then the QX and At we tax recap few previous a we

to our adjusted raised our $X.XX raised year. our per to resulted in back also and the these share. driving GAAP of timing what compared $X.XX our $X.XX the release, in comparability described this original significant the weighting we impacting prior and increases to project-related share half were $X.XX several sales first discussed was and of first We earnings February our of EPS we a half that In that items year's half for range to guidance in EPS

to both the we current downside conservative While believe expectation. feel estimates today, we we these is well-managed, it our to see some and upside and risk prudent to maintain are our

top primarily the with million, driven the Packaging of reported X% the And commercial consistent increased increase M&A remained within with EPS highlights were a automotive operating VACCO compared as by few consistent which on way by the earnings. contributions. in our of resulting February stronger-than-expected mitigate a when timing. previous which Filtration, sales a and lead our with $X.XX from at with $X.XX segments guidance sales Test project And along QX. lower described the lower organically from sales We that prior adjusted at our touching PTI strong, reported expectations. $XX sales year, sales start year-over-year. were our recent industrial a expectations. at Sales USG sales financial each space beat Technical helped aerospace Now, share share, of of we year, to

to million year. Test on million start reflects confidence backlog in the view $XX increases Our of million company lower to of flow X.XX end as across us and book-to-bill us was half strong the by well-positioned in the were ability also of our financial our the the flow tax $XX of the orders achieve half to continue payments. cash high EPS in to or XX balance $XXX and which orders back M&A year's as their the adjusted have $XXX our in that available credit This in recorded and the the over million, above top QX cash-generating from $XX significant of XX% EBITDA year X% the Entered capacity top from our it our $XXX expectations, increased was million Year-to-date, to million, cash our on execute during debt liquidity made. $XXX provides this activities of a collections to capabilities million strategy. reinforced first operating driven drove This commitments our range. pay down year they've well us well of cash quarter last of allowed and March and QX. by by turn the

unforeseen protect track So in our the contingency to risks. from feel on sufficient for commitments balance us of I closing, year financial meet have the we remain and we to

profile year. second the of backlog that for confident our supports delivery I'm the strong Additionally, and half program outlook current our

happy back questions be specific any financial with turn to get to the Vic. I'll And address Q&A. to when we it that, I'll So over

Vic Richey

continue last, our are and the financial when from few planning ability projected I comments future on opportunities. I confident with continue understanding completed and objectives, meetings Continuing by and provide thoughts the businesses spoke and both our site I growth all just supplemented annual at our strategy organic and M&A. in I'll specific we solid our we theme to and feel 'XX individual outlook for Filtration, growth our year. in in In we're Gary. segment to prior after growth results Gary on M&A X% opportunities, businesses. to adjusted midyear EBITDA that an our comfortable our and with and to And deliver in compared we being condition add and this you, a each Thank to opportunities solid well-positioned end expect in segments. various long-term integrate solid seeing growth I remain of to confident where are X% operating targeted markets positioned remain

remains overall of aerospace U.S. and remained with Westland are a experiencing strong in by these and items. outsized Crissair additional as wins OEM coupled on is positive, programs; to our in by served increase deliveries product into customers. an their overall requirements entrance as will and All rates led and build PTI customer benefiting positions specific the of driven Mayday their result commercial markets existing The programs, from from grow growth continue MRO new spending submarine Navy VACCO increase; outlook market. and

growth Our broader and scale, Technical markets. leadership Packaging in position improve footprint group's result as several continues a to outlook of our

others outlook and performance software opportunities across remains services. and In several domestic Our we USG, programs strong multiyear a mode. including have and number a the platform, to we solid continue in of pursuit in global see backlog as hardware, growth

which and half of along And attendance. distributor will well year this as reported annual and conference rationalization Boston actions look a in our rep future. global sales its we recently number reduction we margin complete. tangible see benefit network the back with in Doble held as opportunities, client clear clients record and cost of the Our forward, and are enhancements,

of the they of and to excitement past able months. Morgan as and over with Our of offered products customers to our addition expanded Schaffer, were get Vanguard the came high Doble's Manta solutions XX now in-depth portfolio an USG with away a understanding NRG, level

generally amount and meaningful in to Orders another margin had quarter on We sales year-to-date. a continued highlight strong business we new EBIT XXX committed year. expectations our Test. million QX our booked plan, by we to hit a to as in Moving remain as profit targets our the Test be for beat

to We continue chambers satellite motor large including testing projects range Test in market. new vehicle the automotive-related facilities, winning across XG of wide test testing several end related a electric facilities, markets, developing antenna and business China in

growth we opportunities I growth good tangible businesses So future in see in all for avenues the I summary, of feel across additional our and about years. have

supplement which capacity Utility robust balance growth the pipeline to meet while M&A, Regarding would our and longer-term a disciplined targets remain the opportunities our and Filtration management approach. meet in currently remains sheet have goals and to and remaining segments. the component we're ability of key our Acquisitions we exploring our

I'll both remains constant and our acquisitions. and you questions now performance through to be to execute So our growth on have. glad focus any improve answer organically opportunities, to our operational

Operator

the Your from Instructions] Drew line Lipke. comes [Operator first of question

Your line is open.

Drew Lipke

to full historical fourth some really going it because question implies to somewhere you just through go just is of that I had, XX% outside driving of that factors gave, looking that timing at of of at be seems XQ Can midpoint. earnings the year just the you guess, first the around I guidance well the that seasonality? that quarter kind be are

Vic Richey

that. in of units at through operating out were mentioned the look as obviously detail. comments, in we just lot went that a So at we And I and my

that. things play of couple that a of into Sort

acquisitions all, last of and have of didn't First in year. all have we that we those the all quarter for

the And very schedules thing big related is project much quarter. it's is know, as in other fourth a this of we Test have business. large several place you projects on the And business. The a that delivery the take very did piece

deliver some those be quarter. fourth that that important The we're pieces fact in of as that a always facility. quarter we're so getting the large that's from also think lot parties in not a submarine all big will the I produced now and large that fourth there is actually the by third of we as in driven piece. sales, always to so is remember that are fourth it's which that our in well somewhat Filtration valves business, installation things of is products quarter, installed producing There's big pass-through that

that. a So very our it's it's arms got confident fourth obviously but big we've seen we've with around quarter, but in past pretty years, we consistent feel

Andrew Lipke

was organic And the then, quarter? growth at what USG, in the

Gary Muenster

in X%, about somewhere X.X%, to that so X% It range. was

Andrew Lipke

thinking think we we're I at of full XX% are before? USG, outlook And still year range kind talking margin

Gary Muenster

now. right point think, to of say just that the than better business, because piece Vanguard in bit little I'd within that a of better that the coming probably we're It's contributions of the I than upside plan. X.X on realizing are the

Morgan piece is than the that's not of planned. up. I the think that's Schaffer better coming pie just straight And accounting for currency, in

I a us as side think giving little as look the two at factors on the margin growth are tailwind we So there. those -- upsized

Andrew Lipke

terms talk And the called seeing growth? out about Where USG, can tractions sales there? the Vanguard of of And sales of you're international much that in you? there How you you then, for opened just the in Schaffer and kind of door synergies. some are Morgan we

Vic Richey

all is do a American Manta well. Schaffer the are Morgan and in -- North their primarily Canadian-based is of as do, Vanguard in but business, America they a some So but Manta. North company, internationally. sales

being we aware good have be to companies companies, very those of have small small that force. content. historically, their to So both you And we both with international those opportunities of got think sales increase

network And behind so is available able the to distribution products. force full do been those and we've sales what put obviously

those think So us. opportunity phases in think products opportunity is good for that just We're that's there the we that, of a a good but early push do to we internationally.

Operator

comes from Your of line next the question Jon Tanwanteng.

Unidentified Analyst

thoughts question orders a Jon on actually how some in is here. and where strength a sustainable wanted solid saw margins Test [Mike the strength, perspective. for I from both specific to your the is business ask in in we Hagan] This jumping

Vic Richey

look Well, the increase half sales at I without mean, I'll any SG&A. part the see year. dramatically it to able basis, able on that address We as to will the leverage a really we're in second additional quarter-to-quarter pretty were that of and you second of it you first. business

those see we're having accordingly. quarters, as up So bigger you'll sales margins go

the XX thing predictable. it's As far business of months sustainability, it's but level that the But in won't the mean, I pretty about recurring probably it past as as business, of we've the see we've had just you've business. we if who had knows -- have the same fantastic orders think we'll and other, got a exactly to XX% is

So of piece, medical shielding predictable. the whether components pretty industrial the it all that's piece be the piece, or

And some of upside doing what in so what larger like some really chambers, what we're are drives automotive that doing with the business of to these the the defense chambers. we're projects,

the really to drive and that that mean, we're to piece are of I help those the in them those I will look of involved those people really growth. that continues And lot so things move And that companies solutions. outsized other kind to And a look types XG. markets today, people it with really of the is would the are of say good. drive it pretty that

because year good entered months we've a of backlog this in comfort those us lot we large right but year, sales we're So going good only past a lot for versus into in today feeling of a over next say, 'XX gives that selling of have really XX about everything of level as really 'XX. the that projects not really content that have and the bit now, well and, business just

Gary Muenster

that little where last XX.X% ramp we Mike, run commentary to off obviously can we did what we at over around how let about we is a to up. last me leverage the QX overhead million off year, people did relative a level. rate. year so ask number of look But In Vic's -- I'd add in sales, as EBIT about in million $XXX $XX that's QX sales of

So as add to the sales that. to relative because, get the is to have we a year XX% reasonable $XX way we said, Vic profile back go of we half here, don't G&A million to as the leverage,

will half that's sales So of because maintain volume the that kind the margin pull year some how our we through of in of confidence contribution. back the

Unidentified Analyst

the appreciate color. Gary, I

anticipated my there. follow-up You actually

guys you me us but see in opportunities terms commentary of markets. on let M&A. So your you on number your there, if you just, kind specifically valuations provide you one can the in more if of target question, thoughts Obviously, color the ask mind, and just well-positioned are and end of any

Victor Richey

today acquired type if of for you up year, at I pay back the for So that looking know, for to the of to not now businesses unreasonable. of the all and there's got valuations we number must-have we're XX over of have the you kind opportunities look we've past but of -- to one. lot X.X at for I'd a you've we're -- We chase these things paid make except that that and been multiples us. was as them had a say some, but happen. seeing or are a them mean, go more

just before that try we're with to So be can -- expensive, prudent if things get think they do they business. very we even auction, get if those more auction. they we what the going then, they the we'd we to get what make to but really do is sure obviously about do get hard And to we still

of today, looking the crazy the multiples are things at. as for the that not and at So robust least we're pipeline's

Operator

[Operator [Liam Instructions] Your question next Burke]. comes from

Unidentified Analyst

USG In has Doble the how you've has You've got developed core monitoring the developing? underneath? business been acquisitions got smart that your and business. business, How then

Vic Richey

part it, Which I'm of Liam? sorry,

Unidentified Analyst

smart monitoring in The USG. sorry. I'm

Vic Richey

Okay.

our online monitoring. was you're to So I what think referring

Unidentified Analyst

Correct. Smart grid.

Vic Richey

equipment, a piece of dedicating So test expensive sensor online that's is that and the it's specific and mean, but and to obviously transformers of you're obviously piece things because going where to a well. more it, the with because hard them online that's The I a what like is relays future brought the lot a do Schaffer Morgan bit we market. done. it we're working they some that Obviously, of had piece a monitoring with already we're of that has that supplementing and address to things of way

that business. So for had that's there the to in I'd driver the we've good I think, say be big and future, a going traction

Unidentified Analyst

know generally, there I Filtration going a aftermarket is been some projects, of as the on percentage revenue? in that timing And business, in how was but

Gary Muenster

some, aftermarket about on of the a as -- there's not about aftermarket we -- whole that aerospace Obviously, the are on the the includes percentage might seem XX% the manifolds awkward it's today, it's relationship sit submarine it I'd but the as sale, say we of kind business. obviously, because There's prevalent. reason the side. is not where OEM side in on that And of and all is things. revenue of lot of the

install, replacing side the or So the aftermarket where -- if OEM you're first historically, we the the of elements what on you're modules selling manifolds. run to is inside the filter into what the

about at of You be tend to point. XX% price the

something selling in you're $XX,XXX multiple get the replace to aftermarket, you're if you're times. So that to going going replicate $XX,XXX, for but that,

kind the the you So and about cost relates is of understanding XX% OEM selling aftermarket generally to XX% differential relationship because why an that should the help that. get or differential price

Operator

I'm time. Richey. like showing questions further the Vic to I this to back no conference turn would at now

Vic Richey

Thanks, for to Okay. you I look next talking interest. the in call. your forward everyone,

Operator

conference. Ladies concludes day. participation today's and gentlemen, this and wonderful you a have for Thank your

may all You disconnect.

ESCO (ESE) 12 May 182018 Q2 Earnings call transcript