ESE - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to the ESCO Technologies Q3 2019 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. Please go ahead.

Kate Lowrey

you. Thank costs, this EPS, amounts EBITDA, Securities provisions additional adjusted debt, the profitability, the during XXXX timing cash of acquisitions regarding tax meaning are growth, beyond, productivity, the forward-looking which of Laws. and EPS, sales, strictly and call other made in Harbor are and the Federal of flow, rate, statements, Statements success efficiency, not completing historical, competitiveness, Safe EBITDA, within adjusted statements environment, current on differ and based exist X-K the are an and projected included assumptions, the business factors may as statements limited release These to risk to company's will the referenced company's due that results company's the be actual be expectations and materially but in operations and in exhibit in filed. the uncertainties Form those including, issued from not to, to press forward-looking today, which statements risks

or of or whether to statements revise duty forward-looking no otherwise. information, undertake new update We any result future a as events

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

Now the turn I'll call over to Vic.

Victor Richey

good Thanks, Kate, afternoon. and

see top previous by in XX% describe EPS, solid Gary growth can in noted quarter EBITDA more and detail, growth, in over As delivering wrapped expectations. our as growth we a the will release, our adjusted adjusted third in up strong coupled you our and in X% line with

and segments, was order from all our the our of of nicely and year. pleased XX increase $XX with I'm the start both Additionally, an reflects across orders million year-to-date of entered backlog spread which June in XX% how year-to-date the growth our operating

operating commitments the for comfortable can the performance, of Given that year. year-to-date I'm we of balance the strength our deliver our

detailed financial comments. Gary for turn over it few now I'll to

Gary Muenster

Thanks, in EBITDA that or in QX, a consensus expectations highlighting as quarters our over Vic. adjusted adjusted by I'll meaningful previous and exceeded the just and reflected X our past year. the estimates comparable quarters, of the amount beat fair the EPS begin they also by growth X and

accomplished ahead solid of the meaningful pressure some year sales It's management, off tax in of was the coupled our strategies. a mix, fourth to favorable solid and across through of quarter rigorous success this high planning at sales This topped be take a plan point combination with with up growth, very this historically it execution company far at comforting as cost loading.

Given that target performance that our had our QX we balanced in of our are ahead we of are on records fact XX% outlook plan sales more with several XX of we June prior guidance, our this delivered XXXX. to in we year. means the year set much yearly well full -- compared that at appears adjusted XX% EPS QX of several We as yearly and

balanced extraordinary not compared which confidence all quarterly growth our with deliver 'XX. solid in profile rating in to year, do to level more provide to when should that 'XX year ability of this metrics carry We fiscal the and end QX financial this on

that to support think continues continues multisegment, demonstrate and our higher strength to the generate strategy. power the Additionally, of I at volumes results earnings can sales our we multi-industry

expectations Since is in will releases, Using my a the and presented commentary. financial the operating our statement these numbers compared items out of I that and years QX and year-to-date. few with were on these results unique our highlights numbers consistent year. presentations more adjusted are performance when relevant previous previous adjusted related on the measures touch I'll also of prior we to in focus impacted nonoperating by several both financial remarks called And from

above We XX% adjusted $X.XX $X.XX of a of estimate $X.XX range guidance is share, 'XX's adjusted above top of well our which above is consensus QX a reported EPS share, $X.XX is $X.XX share share. of to or and $X.XX QX the EPS a the of a

adjusted our X% increased to growth Our 'XX, a our $XX up full year-to-date EBITDA by our million. to year-to-date QX $XXX We XX% EBITDA consolidated by performance Filtration adjusted and point. over being by margin million XX%. versus increased sales we Comparing increased lead increased X%

through inflation. interest EPS tax of cost in lowered all our a increase costs. of lowered XX. We our adjusted despite as our our rate, We sales adjusted XX% year-over-year SG&A percent which We income June ongoing lowered to contributed

with key them here so repeating live and Since solid out the EBITDA from can which, increases, we sales, results, again, the the get earnings release my above clearly sales we I'll well are the comments power to last points lays and percentage the growth. call, earnings the had demonstrates in in Repeating Q&A. EPS our of increase highlights dispense with we reported the X% can we

weeks X I with risks with our in outlook and remaining I'm So the year, understood. the full-year believe well are confident

the all that was accounting a acquisition our will better be which items, November to onetime we action. maintain year's in recorded the exclude course and this of in our guidance release, results will Given we which out comparability. purchase excluded recent Globe, the call QX, of from determined we And given

to But with is that plan. Globe performing said,

coupled M&A capacity and remaining organically Vic. while positioned with ROIC And turn well liquidity, acquisitions, through with available support value. shareholder that, our and growth, and and are closing, over strategy So both focused on we to execute all in I'll effectively future increasing to current it our

Victor Richey

across a had finish As the strong we're quarter solid and Gary we year. for mentioned, the projecting good company

budget and cost business is provide on the in complete. are we And special XXXX. will Our European packaging essentially on and enhancements as consolidation track productivity projects savings of

order to significant for first We're Also quarter. on return will Again, NRG's collaboration our schedule enhance in new employees bad a this Boston-area one within at first had relocation and facility the Doble this in product we of open location USG, productivity. our quarter.

see and we growing for stakeholders results, support company. a opportunity And from this a given the is strong the positive our

As Globe obvious. [indiscernible] the to of Globe acquisition by we us business. the is we previously discussed, addition and this quarter our I'm excited closed earlier really with

we did have company. from comfortable appears that meet in major your engineered, as change these to say part degree in and team as differentiated a We customers, time I'm employees ESCO. years And We they their very an supportive come. the will of predictable high can products. end of and user opportunity everyone a meetings, to How spent seen of I confident with serving with become management integral larger the action, these the markets for revenue to with products an quickly ownership of well

well is integration underway and the smoothly. going Lastly,

for our to look organic to execute to continued growth these support of We to support need think growth we additional areas initiatives. longer-term both acquisitions our and we in

focused questions. to executing closing, the and fourth take quarter I'll we're on In be on glad successful any we're planning successfully for now XXXX.

Operator

comes [Operator first question Jon CJS you. our Instructions] with And Thank Securities. from Tanwanteng

line open. Your is

Jon Tanwanteng

Good for lumpiness what any taking I a QX? of the there push That little afternoon. in segment in there Thank you are expecting quarter? you bit the this was ask and lower outs question. test see any Can there kind we Did were year-over-year.

Victor Richey

China. related a Yes. is there push to in little it out site The did preparation is, issue some primarily have of the we and

preparation there's was weeks domestic lot ask of than a there very I cover any with just we're here site I weeks with Gary. performing a able the we're and other the couple that don't to issue well. question, couple Gary with So of did a think -- down business, ago We

kind trying all companies sites to get cycle We was moving delays are a actually of for the thought normal there. Chinese it's sites in and that just just overall the something into slowdown their other really than approval approval and

don't happy think with able quarter. the that's but pick the issue, we're margins on sales. really with I you it's an saw those margins be that So in But their up going to lower even third what we're

Jon Tanwanteng

much either earnings was it. Gary, or pushed perspective? a can the quantify you both out Got from in And revenue how

Gary Muenster

I'd say $X about to $X it was million. million

in a And million the say with are little bit estimate So we or we so XX% margins short that, good on baked about the incremental and hedge, $X.X came a up of side. I'd sales XX%. had a is $X about million

$XXX,XXX So call terms of in, move round QX. I'd $XXX,XXX to EBIT it in to

we planning the year these, And just with again, we're the -- looks. done way the comfortable had with of

fourth going you as not we're it's it's from have did to for. something a we a year, quarter, but year, pretty last so recall So be quarter last strong stretching fourth exceptional

Jon Tanwanteng

up? there seen it Or of to Okay. go what to lot make when seen slowdown? of kind that guess Fair of traction the, to compared It's delta getting new for hear good enough. purchase Does the up a about products news a terms the for is to the in make What more and room that opportunities you've the lot the you've NRG. a is I in you company.

Victor Richey

product. Yes. to It's products, same just going that think eat introduce now. on into be but really to other had issues It's it's did going we've the to the hard just as there. really not level We the of we quantify some some of the

product. And a this will next so sales in rather be up significant they little think than depends how year the will they -- We it quickly product pick just were probably year. the really be our on more more

Jon Tanwanteng

existing -- growth And seasonality it. trailing if like? that and what And your this how provide then look EBITDA what with them does margins Got were you and then Okay. could businesses? rate growth was synergize sub

Gary Muenster

again, have completion to when lot to percentage of in we're a buildings the business, -- are of submarine level there, the say, a have these you're and to of I'd milestone long-term relative seasonality because, that. going construction whole we're fortunate contracts not of

then -- X. quarter not we're So your you hands it's doing on delivering a and million $X sit onetime not for or

not the to kick-in I'd a this there, going growth these be full is rate. So run -- contracts what as new but profile to say going at is see you're seasonality

to sequential the be not back the growth, of to QX from QX seasonality. to growth higher from QX end will QX year next in So

It's and And said on a then press we is roughly month the segment in issued margins an in Filtration release basis. that with ago, total. that EBITDA the the consistent we

teens is range. of that EBIT XX%, So in XX% their high EBITDA and is their kind the in

group So whole. relative it will to not outlier be the a an as

Victor Richey

realize. I question long-term sorry, talking they've I I packed didn't There's seasonality, factory understand were jam is and but there. didn't got no the contract Globe. mean, personally, realized I'm about you I that

foreseeable future. up think run So that a level can is for that it's at the level it run at, will it at once we

Jon Tanwanteng

Got Okay. it.

synergies exceptional no to when you're is that Westland? doing to what going to comes in it So contemplate

Victor Richey

we're working Westland have at say trying So had Globe that. know We out. already I guys met. figure still through I'd that the you recently we're and out still -- to

I they're different have in coasts, can biggest it's not like we consolidate anything like facilities -- X we that. think or opportunity the so

to of make thing become as that some capacity the do are follow-on other it some contracts, right for that shifts available. really and new does being the well capacity subs case a some us built. only It gives The as to give of do company us strong the is the where retrofits the

more Additionally, I having expertise think there.

opportunities submarine we I becoming out we to are there market. have a been think that we're able would Also, that chase now, maybe to will supplier major historically. more there the

big in in And and being anticipated a that X X participate think as would of ramp as us we the account that up that it you market on, or to know, the take ramp well. there's so give opportunities suppliers

certainly advantage we about It an X other so of well. us about the us to opportunity when talk business we've have X companies the fact companies will We VACCO. got opportunity as talk it take to an now gives gives that customer

as opportunity to those leverage X some we'll that leverage So well in the have all of knowledge as I businesses. of think

Jon Tanwanteng

Okay, usually how looking else very be in out the this forward closing, are active then opportunities in recent the there? we you pipe And look that -- there is arena, M&A that should guys a what the are obviously, anything to? And great. was like

Victor Richey

been to be as companies, And through now very said. a it's process. out We visiting has while as We're I for going continue the active potential active. it

those. think, I and out last good in thing the does aggressive are -- hit like it's quarter. feel pursuing there, as it's opportunities appropriate as same and there It being we're

Jon Tanwanteng

Great. much. you Thank very

Operator

question [Operator Instructions] McCarthy Our Stephens. with you from next Robert Thank comes

line Your open. is now

Robert McCarthy

me? hear you Can everyone. afternoon, Good

Victor Richey

Rob. Yes,

Robert McCarthy

of anything, in on about of talk have congratulations could through obviously, you're quarter. segments, industrial facing you long fairly rate or the you solid Well, more And businesses. cyclicality? I And cycle or any [indiscernible] did terms as out weakness you the the saw various the see order quarter. did trends exiting an your a on of order trends a in comment guess, see Yes. anything customer you where quarter? incremental looking you exit coming as But your kind side

Gary Muenster

Yes.

the this, dollars I let thing, we're -- last up steep robust aware remain point are continuing year think back even to think revenue though QX, not I for in we track. of were ramps is me the as on one order of very as half everybody as year, Rob, out and the and the

there. than see you're we So the sales off backlog. we of is And as The growth. not but we're we growth function solid that but solid really a QX, less QX, any book-to-bill really softness burning seeing X strength sales orders, that's some the in dollar as go very see in into of

less would anticipate be but in So another dollars than we X book-to-bill stronger. QX, incrementally

order So coming where new is really business that wrapping the contracts is perspective. Lot strength on Class those for to the continues strong The lead are navy is from up incremental X pieces this real us Lot an are as the submarine for Virginia whether X. the coming it's in from business

of really forward. robust. very remains incrementally kind business aerospace moves just doesn't have cyclicality, The It

seeing So Filtration side. in we're with we're what the really happy

seasonality so you'll their On a trend It's side, the obviously, packaging continued strongest, it's always see there. QX. in

see we're next going to quarter total. X the weeks the So in any not fourth softness in or

‘

The to the greater continues some with let test a into dynamics and go XG greater market book-to-bill for like are around really different surprise even of business though sales We're and than stuff I'll their us up. that. pleased than going X, -- Vic color qualitative that with

And then business. the utility

its suite we or what in softness it's I own it's of of be lot the cybersecurity things, see a market space, just holding greeting whether really business that continues electricity kind every by the the of to normal protection meeting things some the side see renewable Excluding led the compliance call these and renewable strong, in Doble that we or in day.

So kind specific I'd number to the let some markets the of that's and story Vic add there. color

Victor Richey

we I up fact, Pretty start where we're positive. Yes, said, positive, to in key is, the we think as million backlog be. Gary and is the the want thought $XX of pretty year since the

the hasn't then there's that, always but think And been project really project softness. of so there sum expected. we really had areas we to any I mean, I there, maybe

think anything seen So perspective, concerned that I we've not from really an order us.

Robert McCarthy

Yes.

could differences from I In quarter of had the comps, good a terms other, peers, you mean, like suppose, focus has I the a the T&E whole, Smart at only the and just not obviously, in of it of around Doble obviously, Grid awareness side strength around increased heard with I terms the comment as also but there? better awareness mean, the base blackouts. looks on USG, spending, technology very recent some some but you and have

on you could weakness comment driving out? bottom on then and -- just And So what's really what NRG side? expect of the you do kind the that's

Victor Richey

Sure.

things. couple think [indiscernible] can then of perform is to of a these like of when customer look side do they what do big there us all it to for supplier and to I a continue of -- really it that. is of kind a what lot well. NRG Doble happened, so There's The ours they help an to to change understand is and will key So always issue utilities

before, an because up end. grandfather impact to are them had running, the big have tax have of a started. that lot and more already an already tax reform coming the completing they really, -- credit we've so mentioned and is the grandfather The on developers As projects focused on projects

as working. This And aren't they the projects were historically. they maybe new so

of pick that some this, we once will through this think up. back get I spills out

they already us of is many -- because they connected us softened systems they were combination impacted China -- as they're -- was a The has building other yes. lot quite thing of those have grid, impact that to not before it up. bit, a a China. It as

you're bit they're so products little the to some our it's up, when back are honestly, It's and positive. out those and wouldn't they little slowdown to knock to we're of hard going -- trying to actually that a So one close turnaround, tell to we're pick going things to is we customers, fight of bit. what they not a Exactly but

there always and to guys but talking future the invest it's with not and hope going if it's weeks of to believe not long-term now little and here. better I'll couple but perspective to I'm this I is face-to-face, them, spend a better were be you up issue and is renewable some get solid to space a time continue that those that in a a don't be I

for And so bit a some of that. here, we're just hit unfortunately of stronger business able to little the soft cover other spot been be to have

Robert McCarthy

Yes.

the the be you In the seems strength. than clearly And may be side terms like on it on more particularly, of or USG presumably your else. anything of defense M&A, real Doble where appetite maybe for the would have house the is filtration side case

Could kind the still saying to valuations we on an perhaps just comment can and key of of whether you're verticals? you're and to something you the properties and are seeing you in transact there do is you continue a size of here wherever kind little larger even those the something in one this think of is cycle opportunity

Victor Richey

It's paid really clear or opinion, all ridiculously, we was well where -- valuations board mean, there and whether above are would go but just the was somebody participate. a auction it the that it which side, it, of I a was multiple an obviously, aerospace not. to on the over my recently in transaction we depends in

those able we're have to we On the strategic, in able that more while multiples. much is interested there other partner being get get seller have hand, we in before, reasonable been if in a to

think I but still find more value, sort you to a say to go I get properties overall, ability is frothy, reasonable demonstrated for would market the of -- do be takes a we've that. little but that able the to the it's work So a it little

them Doble's a buying distribution had growth as really enhancing in dropped we've the of to success the networks side, well smaller profitability. the lot of utility business as and the businesses, the in On

to Sure, bit will but a stupid, ones that any are, I deals are to but $XXX very would million a $XX in go million to be do buy smaller bigger, and not us going the reasonable sales to is something multiple. little business love our larger so we're as attractive complicated in

Robert McCarthy

Could naval you next of -- expected what missed get The might the shared the we over most upon Did with once have the and of -- then I in up terms forward some size? bound balance have is deal out is your what recent terms months in you state that, your accretion issues? of comfort And that. step acquisition inventory XX going sheet doing from Street through kind expand of other of of the for a

Gary Muenster

part Yes. take strategic then of that the address with sheet. part Vic and comfort balance of the the I'll let I'll

So I'll numbers that Rob. give on the you

that the we when revenue at calibrated release can because we XX% the of do with put in it million and used today EBITDA. about my I and early $XX the So even July out just calculator my head in stands in

$X getting kind $X So that kind you're of of, into range yourself million there. million, or

taxes obviously, that. have against And interest. some have you So you

expects -- positive. rounding meaningful in that So the future. It's but are error. growth $X.XX, in very it's from the in the contracts grows not increasing content have attractive has be Globe and the have It's is in the we accretion not will volumes a to a It place that prospects. obviously, that that have going to then submarine because it's and it

it that's so to we're we not good. have now to from year really going and a it's paid for -- explain not So what

it So leads that the we like, on into back the balance hopefully look at in the an with side X.X. levered we just been sheet X.X pro other the looks had what end, at for forma, purchased state before at have And about on paid EPS we when it. to what then accretion you that number side. would we we right quarter Globe that issued It's and Globe,

a So on leverage that's not really perspective. stretching us ratio

then strongest as always in the you our And quarter, know, fourth generation. that's cash

dry X.XX in wrap our buy us gives the So is we in neighborhood powder. X didn't a ratio, sorry, the year we of of amount leverage facility of next up which the tremendous in -- credit somewhere if dollars weeks, against about should I'm X.X a anything

So math ratios. is Vic spending to that's over for turn it zone and the the I'll comfort in leverage on what

Victor Richey

say and something have we've aside, for a to debt as to certainly What clear probably a strong wanted it said, have quickly But we really it, path it and really -- was outer far Yes. it where stretching you and is limit be properly would consistently as then, dependent. X.Xx, us - said needed to the I have was if look that go above I nearly to we is delever -- needed like both really obviously, Gary -- have that it to we'd at bit. should

that up, ran at was Unfortunately, than something And comes where but to in to it we've look we can had a yet, that we when that it's actually position larger on we were itself, I not a problem react. that but little if going like into think we alternatives, pass presents perfect fit. something are something if

Robert McCarthy

where the Obviously, fourth final a on is an And Obviously, definitely to for would you generation as cash for Yes. the cash for harvesting better period whole. area quarter more. then you question a improve me just like generation.

the as as you they out we are kind in Where -- performance flow kind cash this give into and of what improve the quarter -- for conversion free years? of you looking would underlying what grade your to look how

Gary Muenster

We I a no the the the understand milestones but because finance we I'd of But couple we a came short hit C grading the to that a is a to put at, things. where couple certainly up drum not it Yes. of or really something recognize Relative we're revenue. navy isolated these beating it's it's as say it's places. on in C- guide. little on. a programs,

you pretty days. cadence is the normally, it some for paid that quick, of XX to generally cases, in but or up XX sequence get The when goes

approval government really Westland you does So particular on a improves it's all and comes milestone point a product all center look that and when softness, timing the issue to the the out if that. as of back it relative and

of a that put because I So C timing. as

XXX% into July. didn't in fourth about that in, about quarter in looking come come And improvement talked things those are, that what we're so because in that at expectations we QX have carrying the June,

to in we're So QX. a off roaring start

So it. is a year a particularly on generation. what for look like the outlook and quarter to That's I'd QX cash to like annualized

and have talked not it, we and conversion want I a with a of is. place net to around So relationship to before in I've we're way happy upper to you the upper couple cash somewhere of the XXs low when XXs the mid-XXs to things from our so it earnings We cash in get think we're in XXs.

we lot there. low-hanging fruit So a of have

have so to And being that. internal some resources devoted

C QX, us I'd And room finish the quarter. with I'd B- a put the So be to say will B+ year a for of the improvement. a really with B for when think we solid at I it strength year-to-date.

Robert McCarthy

color. the for Thanks for your thanks And questions.

Operator

showing Thank And I closing turn Vic would for remarks. I'm any Richey this any back the not questions over to time. now further at you to call like

Victor Richey

to forward look next to you we and the on call. everyone to talking Thanks Okay.

Gary Muenster

you. Thank

Operator

Ladies This thank conclude participating program and may a have and day. gentlemen, conference. today's disconnect. today's you Everyone, does all wonderful for in you

ESCO (ESE) 10 Aug 192019 Q3 Earnings call transcript