ESE - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to the ESCO Third Quarter 2018 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 read the forward-looking statements, I'd like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

Kate Lowrey

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

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

to over the turn Vic. I'll call Now

Vic Richey

wrap but year I'll end either which came solid three tone the or and Gary the our beat the financials the afternoon. his will that set me good at confidence top expectations Kate, a commentary, by the in EPS Thanks, we we'll gives each guidance, noting up discuss today year-to-date, fashion. in quarters of of that in

that as and strength, I'm to we're market. orders on active plan our report addition cash remain well in In M&A flow and ahead the to pleased of earnings

the Gary it turn I'll to over details. for Now

Gary Muenster

Thanks, Vic.

I'm which XXXX's items unique our top again the the out As that means for adjusted EPS EPS in metrics. across any financial call previous pleased or quarter. QX noted came release, in and impacting specific as our are several we same operations, to of guidance we one-time QX our GAAP current better-than-expected report end the not do hit the

done I'll EPS adjusted we've and commentary all our EBITDA to more the of my these prior focus performance are year. measures As year, when relevant on expectations as adjusted operating and compared

Before on data call. a I earnings QX points details, I'll that the communicated during comment recap few previous we

basis financial reform, and per impact was February As our EBITDA, you our over EBITDA set as and could $X.XX estimate adjusted original recall operating performance, at we and year guidance the release, prior the of goals EPS expected to anyone our a adjusted share pending then GAAP a $X.XX before on subsequently, GAAP start year. tax the increase including to discussion we of per our which communicated EPS meaningfully of expected included to $X.XX Then $X.XX our raised to and in share.

conservative continue to We with to it's both maintain and these support to these our guidance, and support expectations. ranges May today. continuing prudent we We feel these ranges are

We discussed for half we QX also half in half, the impacting increases of what and saw in our items back was several the compared resulted timing demonstrates the that year. the which sales half early project-related Hitting back that significant year some provides were of first our prior described remainder support us the year. our weighting what as first of in with of year's and to we that our the expected, is with out playing driving this the weighting top for earnings expectations comparability

and was top from of and a adjusted driven guidance which GAAP EPS strong of hit by few on the the and another touching reported financial share, as by Again our segment $X.XX Filtration of reported a QX. aerospace Morgan the delivered highlights well. Now we an outperformed expectations quarter in significantly our end XX% Test their Schaffer plans EBIT Packaging and commercial contribution perform continues earlier met profit and a Within our and Technical quarter. USG, for particular. exceptionally Vanguard business, to whole north of

were automotive Looking at in aerospace XX%; and increased sales which sales compared XX% from year's strong from that of mitigate to the or the project to prior and sales USG, at distributed the sales, somewhat driven QX at resulting year, Mayday, timing. last nearly increases with year, aerospace commercial a lower contributions Test, VACCO of PTI. is increase and including conversion led noted evenly Test the XX%; described helped PTI along XX%, lower we up $XX sales was by backlog significant M&A. and This sales up total commercial industrial million across within by start sales up Crissair, the space

backlog capacity our or in XX% Also to EBITDA which quarter ongoing million months our of range. from allowed and reduce you cash pay the year. and six year-to-date the $XX order the adjusted June Our Entered exclude this start capabilities of first liquidity us million intended and reinforced the debt to by our in our of strategy. continue to increased year flow $XXX XX in $XX well recorded down operating total or us which credit we view existing brings reflecting well-positioned EPS made cash year-to-date the were was to our million of when QX generating million, balance $XXX expectations frozen This that the pension plan. available million our coupled turn, operating and from our as as on high-end on our above the cost $XX.X XX% our are the the our year, million, $XX have execute significant $XXX X.XX to contributions to which, million M&A book-to-bill to the activities, was by with well orders of increasing over in drove cash flow a

I And to when the that year. turn the back to balance program get to it address I'll profile for happy financial questions. Vic. be closing, I'll And we our specific and delivery now over the backlog the Q&A, current of in any outlook feel So supports

Vic Richey

Gary. by in Continuing operating we our continue we're in through opportunities, financial completed markets after our positioned and well-positioned of to add various units. when both our solid confident site I to to I long-term supplemented with end M&A. objectives integrate July each all means organic that M&A feel understanding are opportunities. our where growth confident are remain on an of condition the ability future a from projected growth deliver And and opportunities seeing and board just and growth being Thanks, spoke we our and our targeted solid at theme businesses meetings that I Gary and last,

steep a most back the project companies. our of which contribution orders of now their acquisition our you see meaningful recent part, for we and performance up And we first As this are the And Clearly, the is and year. the to we finish a anticipated path strength original ahead know, USG we the when line. backlog year. acquisitions the in of acquired having making our given half and very established months plan, nine delivery our wrapped plan have as schedules,

In its additional opportunities Vanguard and see us out, I'm and channels our are build As Morgan with subprograms, the maximizing a are Navy our and benefiting from our distribution coupled to our and continue rationalizing Class rates PTI margins expecting noted, from and market. across Filtration, their Virginia previous commercial aerospace served from an increase. really well accelerate. we entrance Columbia growing put capacity Schaffer performing increases spending as sales and and and overall well, sales rates Gary OEM USG. see Filtration U.S. sales to are on solid continue guidance orders. and as into strong. to very the continue and Mayday Westland when deliveries QX manufacturing in expected And outperform to markets VACCO we pleased we overall increase is growth build remained and efficiency Crissair programs, entered MRO

result to across to growth Group's footprint leadership opportunities and we see Packaging global Technical our In scale, services. several USG, continue improve future as hardware, broader the software, including a and growth markets. position of platform, in Our continues

our reductions Our rep recent meaningful and distributor results. network and rationalization showing cost are

had increase evidenced margins generally by hit prior sales delivering Test. in profit over QX XX% EBIT year. we on quarter Moving have XX% We strong very the to our by And a margin.

range in opportunities continue wide additional new growth in a to test good of the we in including We custom have markets, avenues tangible continue to related automotive-related about I and for China future facilities, Test chambers businesses, and tenant end of large testing projects growth across see years. across all winning and business our market. vehicle motor several XG developing I electric feel

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

opportunities begin look we reduction to will for as margin next cost as our we to company. at As the to focus well continuing continue year, across look growth initiatives and on enhancement

the to capabilities improve cash efficiency to and capital. operating margins, return improve Our our side our therefore, our focus is and generating cost on our leverage invested on base asset

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

Operator

Instructions]. our question first Sean line Hannan & from [Operator And of Company. comes you. of Thank the Needham

Your now line is open.

Sean Hannan

for Thanks question taking afternoon. here. the good Yes,

for if if I really seeing we're around that of business entering here in good quarter consistency general your I what in I pretty could how you now through is sense conversion the the correctly, and hitting this, that want top-line. with materializing demand last and you've folks, to been that through think kind First, some I see, start

at are a we other how and a that viewpoints into you think guidance, the into outsiders? that thinking there bit any Or viewpoints of modeling wanted get Or changes? around as momentum scenario? we seeing to growth your the you're may are rates more How point any apply should I So but to of a our Thanks. perspective, as continuity about XXXX. little supplement XXXX thoughts early-stage particularly about particularly this organic not

Vic Richey

Sure.

been the of we don't we some certainly, have in it's general going there, that for the that some XXXX, that expected, time some takes I we're acquisitions So changes to honestly, some we've in the and to benefit with, we together rationalization got gone will we've market, that of incorporated, we as I had -- so talk of start USG how good to of of some And some some could we has it's put we've But as through talking reps do have it in I'm XXXX that where would to to get some pretty terms. pretty think rep well I we and always ways yet, kept, retraining. we've we effort gone But rationalization integration and think primarily had we made that so would some far. network here. we've be our mean, now these parted the plan so see say. trained. side had

little products selling and getting as think we'll I next a So in-house everybody result people having for a familiarity pickup a with year from the full-year of those. and that get understanding

Beyond strong to growth markets. see aviation are that, we'll think I market. the continue in solid Those

as see think Texas has but It's to some you we're and up. to at harder we're there pick and really starting a that always I going works to little traction be, the Mayday it's MRO anticipate start, well. doing started

which I'd that plans would say, of of the the time, get provide again, kind of into that to some forming growth additional the the those will of end to that's the kind we not one-off time year but year, type from do process So we're next probably But Hopefully, we're supports, end see as growth yet, of I some through and well. market we say. quite we'll in which as we'll overall, projects, together. mid-single-digits, go

Sean Hannan

Vanguard slower? either that perhaps able Thank think you either, being or or be can could been maybe Okay. of I around some might where of and And share that been would about, and you businesses to the you. Some you viewpoints better you on squeeze you faster think terms you viewpoints have has then and and as pace you you even margin pace be feel some to the about on where acquired the made out of feel of margin a able Morgan That's as integration us you production influence them you of bit out around out say acquisitions Schaffer helpful, or so color of that great. thought can Gary, you where there, And the get in little get some ultimately, specifically maybe businesses changed? forth, Do some give can has efforts those two Vic. a those or that had or touched stand? to do you those anything

Vic Richey

Morgan answer than let So that. and think me particular this, going Schaffer we related. that's so what what The, anticipated better Vanguard in see are I in actually into we

is businesses. we're much those those gain is gain, really to some they Because, to and got be so but smaller then going more businesses to advantage they've businesses, there and the profitable. mean, a to we've together they're able real pretty being to certainly, a started that. work the benefit a there network, think we because volume I now of again, already with successful business, of larger distribution one the for of top-line think going take were very able see accelerate I

I table. work lot to of if businesses, to do can with that of Morgan development to the think kind see both particularly a some of the those the out addition we some Also, Schaffer, some planned well, to to projects. us we'll table. do we development, to differently bring in of And there. do which with years allowed those lot bring We had do a they together the some actually, to replicate things

able efficiency and the have cost get avoided we you of businesses provide the in those think, some margins aren't just have of some. there. engineering So seeing what work some will margins Their Manta, be to ability to up in together the USG. will to equivalent we're I kind some teams there also other

manufacturing with well think that as I as think well. be able as to them the helping their I matter it's just top-line a of grow efficiencies we'll

Sean Hannan

combined of bookings you Filtration of I, about in times, Tech, kind last have and look lot here. scenario, terms in the But quarter some still really Okay. through years. that And a strongest, of question assessing think, really then two in a has came that here. If general, I'll at of the I

perspective great. And so very any be obviously, anything folks. next for beyond strong so may quarter but this much to more how around quarter, seasonally incrementally read say, into that it's be that Thanks much a relevant, would

Vic Richey

Thank you.

Gary Muenster

The go obviously, of our units that I'll bodes Well, some and Vic within kind positive numbers the can nice is color part one, a take business, through and Filtration well. add operating I'll had around which, of all here. the book-to-bill individual

so So drove extraordinary the there's well. the catalyst applications fact really spread And good to that's any Sean's that not really a years positive. question, so significant five one-off Virginia individually is next that book any wasn’t across Class, that. it's the We items, of there really didn't

thing. month, every month. XX instead one So call AXXX, they or come to if I every in of the thing had out, buy once they pick in a don't kind Airbus of buying orders, in year, advance twice distributor they restocking And to buy the months

buy down is AXXX deliver dig really higher to little had things to to that And And you contributions. had to try that. supported the I distributor this orders, tended the that year to happen a rates stocking be of build about which ahead. that's see about normally we XX deep of two level had next we'll slightly above-average one months orders, higher. the I year, the XX because which so by And time think pick over around And out they

go is patterns our with of not as side getting of those to the So general we're that is really lot uptick in see the we but it's it. pleased a replicate And of but an great units that buying just customers, hope the extraordinary, our five forward. it's very quarter. But that from we all

Vic Richey

Yes. think into I The I would much you too is only can don't one quarter. read add thing

And projects I Just fourth you versa. or quarter like have got vice mean big be with the half always quarter when the whether the a coming, of third can in from entered sales, it'd projects. half and year, orders we have projects you shift kind big some or of that second particularly,

kind obviously, a to on results basis. So our have are look of business think full-year but I quarterly at really I important, think, we

Operator

And of our Thank the of Drew Lipke from question you. next Stephens. comes line

open. Your line now is

Drew Lipke

Filtration, Just first you're well. maybe some commercial aftermarket? about posting Theoretically, that talk follow you up get in of many know as would peers you would seeing in on robust can to are mix or think that from the pretty on last aftermarket trends there question I growth now. right exposed I benefit a

there, next trends you're quarters can here out over the So the you seeing visibility you about aftermarket? that that the of talk have just we couple in as maybe look

Vic Richey

two because visibility's insight good, Tier where on I'd at, or as basis, get we're are seeing always Mayday, say what businesses. X kind we're mean see But trends X we'd we're the Tier at like good. of seeing the we as trends say tough. I don't are quick-turn to are quarters, a the Crissair, kind in what much at Particularly, out. I'd more those of

of And little say there picking to it a than pickup more be seems where to maybe But the seem some companies program-driven. seeing does business I'd OEM very up, solid. they're be the other we're so

We also as that had some of well. PTI

you visibility that's are nothing much, and If project-related not at VACCO because good I'd businesses. May as trends Westland, say new. at not where at aftermarket, we really we'd But as kind as to look have of those just like good of a have. or but kind And

Drew Lipke

mean, Embraer it the outlook. important think about know the I you, Yes, on hand, EX, sales for platform an you do okay. that's Boeing the with And one partnership? I how helps greatly

chain Boeing and about reductions talking supply is hand, other cost the there. On synergies

be on thoughts that to your hear partnership. curious Just

Vic Richey

such of devil's say, it's we from mean, big negative. mean to and reductions, a as too you those a always there's say mean, the I lot lot it's than things about positive probably the suppliers details, of I take And discussions I I'd more consolidation of in Yes, but cost I time. think say. early tell. deal. a

make And a big difference. sometimes, they

don't. say our Sometimes, than view But I'd early they more is negative. positive

Drew Lipke

I the then should if missed we be apologize the fourth for And rate for in year modeling this for the but what's tax Okay. I implied guidance? proper earlier, here quarter

Gary Muenster

we're we think QX, this I'd the times a as to XX%, impact says to multiple couple have everybody for $XX somewhere strategic But a And XX% rate. operating pays put a say reform, those be think things replicated. we department, after you itself things. in but things we're over. that and look tax It's I'd doing get I lower million of and one-time I some positive say doing there's But in it think tax quarter. Yes. great range cost, ours at I'll of got I are they that's going not to did good

So I'd basis, say, it midpoint say, them, of could the XX% QX. right on pick the think way a to be go-forward for about

Operator

Jon And of you. next our the Tanwanteng comes Securities. of Thank line from CJS question

Your line is now open.

Jon Tanwanteng

or look focusing I where gentlemen evening. but questions. this three months? morning and the and over there how Vic, missed are pipeline might at my Good there reasonable? next for are have opportunities the beginning, you does to M&A Thanks Are taking six the valuations

Vic Richey

Okay.

I'd You hit them there. couple always a valuations are of tough. say

folks, number in market insight currently understand was time is looking looks or not a they looking the what say there, higher, and we're investment work couple have that I'd to speak they had businesses be business USG but we a future. because to hard got course, and, things lot But that think out an The auction, about of good number a my of This primary before we with an after coming are the are we're a it's of we that. that into representation and really said we Filtration market. still we've just to our And auction. the slow at if to And bankers, little pretty they distant get things Day. yes, ago comments, summer, I think continuing a business bringing of of is too things either Farnborough a to get of always bit are little opportunity primarily, bit couple focus the that with active Airshow a we get really space. disciplined solid, in but coming Labor in at, of Pipeline pretty it's an now I I robust. a I had get weeks in in mean and try in a pretty right we

Jon Tanwanteng

part where be perspective, hit Got in you to And those more strategy? next business longer-term it. inorganic want you of concentrated growth over any or targets? Thanks. as do to how broader a you growth from of be do the or portfolio think three standpoint want a from to you your your years of Are

Vic Richey

mean, as strong good discussion we will week right return are come businesses division accelerate will may obviously, business, spend the slightly growth rate, and solid you say decent I to presidents working have is businesses on They are to organic on say what spot. that's never mean do particularly a and in had last rates, now of like been that. organic continue But board it a now think mean, focused could our you we've, I having the We we see larger time opportunities a I'd do with growth that by we have obviously, a with all year interestingly, with or our accelerate good, that what that on. having dramatically. we'll acquisitions. and is businesses growth a And businesses. lot the with that rate. of our we're program something be. with a I've better but to growth some we that. for say as some I'd like so get But do I'd all different two. Test in not growth rate good Organic I a

Gary Muenster

of we prudent ROIC sort how say, that is on in we you back we look question the or at a reverse of look thing think plan that conversation kind of five because the on on to don't I'd obviously do and inorganic here the situation asked add not we one deal. Jon, kind side, I'd or are And myself to and as the I comfortable levering four growth it perspective, as to to I'd multiples, the That's be to or of M&A the rate at And ask up board times. will see of deals, end debt, you Vic feeling thing. where

So you're million going inverse to anytime a $XXX not side. buying the see us or the that of because soon $XXX debt is company million

so model of And kind you good just sweet add you out $XX for it that that year $XX that we've growth, think And the as if past, when that your won't million spot, fits would deciding go done if $XX picking that will. what we M&A. model something it. companies I million of And you $XX million, say, revenue kind not for awkward a in to if it think $XX comes helpful? Is or inorganic million, million, up be million to of mean perspective in our really market But would is what at. $XXX on get we're I doesn't

Jon Tanwanteng

Great. That's project helpful, And there what size yes. of and into pushed And impact? out a from then standpoint? so finally, QX on QX that was was the anything just

Vic Richey

to quarter-end Yes, our quarter, fourth It's you I those when pushed we and thought was from mean, Apparently, do. I it business as earlier. third much that to attention Test the customers alluded things happen fluctuate quarter-to-quarter. going some the project-driven do business, pay had bit don't of have as at kind we in Doble a little both quarter. to we the that got to

a around bit. move things sometimes, So

Operator

[Operator Instructions]. you. Thank

Burke next from FBR. Our question line Liam comes of B. the Riley of

open. Your is line now

Liam Burke

was mentioned Vic, you growth the the USG XX%. of business out

was this You highlighted performance growth how the did organic to or segment contribution strong the acquisitions, quarter? of the how the

Gary Muenster

Yes.

mid- for if Liam, look that quarter be the to fair. at this in digits think, would you it high-single I

of as So here's if of of half, goes as forward, And half rationalization then essentially, a we last relative to part you what supply our to But time. to go Schaffer of Vanguard and bit the a general for time of time is generally, X% you're to Vic the little see the where if or of go-to-market our And QX something go track. X%. chain, to lose relative of a on strategy the you had are aggregation the start is NRG sourced what kind of blended to Morgan so like and strategy, you a happens OneCo, visibility as keep keep over there. and going somewhere, carry we if into put conversation to a mentioned, here Manta enough product as you We reminder, kind happens it just will. is, products kind distributors start

sale products for think kind And monitor, But Schaffer first a it blurred get tracking record the that for online that that QX to and clearly visibility we're a prime and because, I of, we now very again, using we think of get thing. analyzer because still into this the so have gets year. more buy instance, for XXXX, you our I you Morgan dissolved gas that as little we'll into get goes into conversation

across. will, if one So their changed you of that that's just of as name, go example kind products you

opposed reinforce continue it a our goal muted a now, USG really going then to USG of but is with thought for fact components, commentary it's it's bit make you that just a So I little forward. specific But it'd until folks that relevant. number, X%, you I'd X% fair the will want sure if as to going we be like a to becomes get little make to to look to we answer, the long share but individual less say

Liam Burke

new highlighted nice market USG, uptick order Is on sequential particular there nice any you a adoption? product products. you Okay. or growth, And still had saw new in business that

Vic Richey

are talked DUC that biggest two and have most in it Obviously, say, the the expensive to, of is of more you seeing offline, test, back all in the over things pickup in-line pieces say that. a all we put we customers. that's equipment. proposition, our sensors that transform the little have as a the kind ideally, do then time, biggest mean, the measuring I'd historically, very the selling And of we're bit toward seeing know, to or which but more a adoption about time, online. we're will I line product, and have utilities we products systems

is the buying really reasons Schaffer an interested online that's we integral it analysis of is so that And part were because such one and Morgan dissolved of gas analysis. that

those the will. we're kind say you seeing most would I of the are if where new two growth, areas product So

upgrade addition the to that, to changes. because have technology currently we we're that In continually working products

that like and field continually, for in business to we've years, that, XX-plus need things just have a We had upgrade in products. the you those

upgrade product core time, to road DUC. have the like same products monitoring And while, map good like deploying so products at those the and we a online new

Operator

no Thank further you. time. for showing to And at this Mr. to questions Richey the remarks. would closing turn call like over Vic I I'm

Vic Richey

and to thanks next forward Well, the call. I look talking at you to Okay. to everyone,

Gary Muenster

you. Thank

Operator

Ladies and for today's in concludes This program. participating thank you today's conference. gentlemen,

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

ESCO (ESE) 11 Aug 182018 Q3 Earnings call transcript