ESE - Earnings call transcript Q4 2019

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Operator

Good day, and welcome to the ESCO Fourth Quarter 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 of this revenues, amounts adjusted Federal Harbor completing Laws. EPS, growth, within ROIC, of during XXXX timing EBITDA, meaning additional regarding rates, the historical, profitability, beyond, tax of are statements, provisions Securities and adjusted timing not acquisitions call and made success Safe which and the the of debt, shareholder other Statements value, divestiture, are in strictly the the EPS, statements EBITDA, forward-looking environment, current and due and in exist X-K the assumptions, an on and included results based business factors differ as materially limited release projected to risk to company's will the referenced company's actual that are company's the be those be may the statements but These operations expectations in exhibit in filed. the uncertainties Form to including, issued and not to, from press statements today, which forward-looking 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.

Vic Richey

and good Thanks, describe financial year full quarter in Gary results Kate, after fourth afternoon. comments. and our detail my will

the to aspect take minutes and our a discuss to our Packaging going few divestiture. of share strategic sale I'm around the business So Technical this thinking of

its within a we business our ago, ESCO. packaging or this contemplating as contribution not expand for path months selling six Five to clear saw we were assets,

capital XXXX, for internationally made some domestically investments outlook. this their identified and growth, we Given in prospects to support both meaningful

would of and transaction command in we that set seeing proved with we an had But if valuation, offered right. -- device attractive strong a And medical the market, for yesterday's were coupled the were robust valuations the packaging markets, our of pharmaceutical we presence sale. we in the assets medical given solid knew announcement

of analysis thoughtful transaction assets valuation had to we a came and our of prudent. for This conclusion lot our a liquidity strong After us outstanding other down allows options, lot which a was debt and future by that reasons. of creates to segments. strategically It Technical financially M&A sense our delever monetizing makes additional in spending for our debt, positive Packaging capacity a the paying

Randy growth operating and focus our The on both transaction organic personal us M&A to also around everyone note, and and Sonoco. best entire Loga this the On with allows core. around segments, our the worked which streamlines the and portfolio, team remaining our to I simplifies would business hard wish dedicated all world, make the management future continued success core who to and to thank the employees on like the in I a business packaging so

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

Gary Muenster

growth by in year record line Vic. orders. in with X% strong strong XX% adjusted and in growth flow wrapped compared XXXX growth coupled solid adjusted entered the up fiscal to top Thanks, We fashion EBITDA, delivering EPS, cash a

As all our previous of these expectations set items earlier. exceeded

increased driven Similar both aero businesses, a segment growth EPS and our $XX On our across continued beat Filtration segments. our XX% strength year from led sales was both Globe. commercial OEM adjusted resulting defense. aerospace exceeded expectations the core or and extensive where million platforms by strong our by This sales, and aftermarket and three excluding prior but consensus XX% or demand increased only EBITDA over all to not the past, they across estimate basis, adjusted sales continued XX%,

of sales programs. offset business, timing large items own Globe resulting XXXX, $X three in the that revenue from had partially was which on in VACCO's million Navy months sales several growth This them. recognition by added we lower approximately

Test and our in mitigated sales renewable our XXXX, Doble business growth. decreased And both at which amounts. USG energy better-than-expected sales grew

a EBITDA share adjusted XXXX growth. adjusted to was $X.XX our XXXX $X.XX compared in compared $XXX Our XX% share in million XXXX which to reflects $XXX a was EPS million and

combination These increases management, sales of meaningful growth, with topped-off were cost execution sales accomplished the favorable coupled tax rigorous planning company strategies. and through mix, a a solid solid across with

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

flow activities extremely X.XX $XXX an resulted for operating of in comfortable million at provided which the ratio September by year XX. was leverage outstanding of Our reflects cash million which $XXX debt

collections. $XXX with exceeding by cash for our entered both and business QX we and our from of reflecting $XX by and pleased cash management in orders million set cash earnings capital really working in driven flow I'm solid was where This time. year, enhanced operating strong for strongest million focus QX -- activities our history. the on the first quarterly a record also was strongest new

of also was operating order outlook. order gives increase see great XX% to us comfort XXXX some across the the was our ending our spread or This million the This an year. from fiscal It in supporting $XX backlog of growth nicely growth segments. resulted level how start

out outlook that done point XXXX Looking XXXX fiscal release in detailed all press a from to XXXX, are both between for fiscal packaging I'll was forward backdrop technical provide that comparisons periods. fiscal the excluding and and our

expect which XX% with to Test by X% We top XX% grow to followed at X% basis around on line growing growth a is led to centered X% USG Filtration our by to X%. consolidated X%

which nearly $X.XX a expected corresponding is increase We projected a to amortization approximately EBITDA $X to EPS by expect full negatively share. Non-cash adjusted point. XX% the impacts million increase increasing to XX% with and depreciation margins

level. effective same tax the earnings expect which We generated we which was both tax rate cash rate various a strategies than higher noted to which to by and XXXX XX% projecting XXXX impacted XX% favorably are our do is in benefits earlier I which repeat at not

negatively rate projected a differential tax higher $X.XX impacts by EPS XXXX This share.

be the pro share our to of forma to expect EPS a these the a range $X.XX XXXX. adjusted over So increase EPS packaging reflects together, in when This bringing $X.XX when for of a $X.XX business. meaningful share the excluding all XXXX fiscal adjusted we

closing, given support we and growth our and well to expanded and acquisitions are execute in available M&A positioned strategy core our credit organically on and liquidity, businesses. So both effectively future our new facility across through

And for these, remaining and over Vic focused while few of All back comments. on value. increasing shareholder ROIC turn to that, additional it I'll a with

Vic Richey

update week you new and behind and a into disruption them facility officially last settled is I'll that have items last everyone office. process when Doble this have were We few Gary. their headquarters Thanks into to really the spoke. in we on moved pleased

and happy really in certainly enhance its as I'm our one of certain have to I'm all Boston employee will and employees productivity this collaboration recruitment, given favorable our benefit will location. area location

support NRG's see Also acceptance and test this company. strong within USG, we return given for opportunity in progress to a a within bad growth all stakeholders continue product documented, positive and customer see solution the the as the from solid we being results

off flow. Globe's excited customer with as start. I'm a off is expanded The order as already future are us about they're shared fit paying with obvious to base great with synergies a

will pleased an uptick and mentioned, Globe. V on and Block our VACCO, Virginia-class I'm Westland to awards subs to in order see benefit and continue Aerospace Gary sales the and released, the businesses As see Space which activity being

is continued for strength markets, momentum. to continued XXXX outlook Test Among the other solid throughout order to and XG year. Our we gain see expect end business

executing support areas acquisitions We commitments to strategy successful to our to growth in continue organic remain for these planning successfully our XXXX. additional deliver on we we're both In our we objectives. for and longer-term look support closing, plan on and to focused a growth

be happy I'll to questions. Now take any

Operator

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

open. now is line Your

Jon Tanwanteng

taking Good questions. my Thanks for guys. afternoon,

Vic Richey

Jon. you, Thank

Jon Tanwanteng

level Gary, you that margins for the EBITDA of, adjusted and margin to and the off expansion give us could next XX% year? working XX% you're or number basing EBITDA growth

Gary Muenster

at Yes. to go. If looking is that where When we look forma XXXX referring to? what pro we you're we're

Jon Tanwanteng

Yes.

Gary Muenster

XX% to that say, of the we're -- seeing And $XXX off forma would XX% pro forma for XXX that million and XXXX. is pro growth for then I Yes. $XXX about XXXX. to correlates what EPS it's the million number adjusted of

Jon Tanwanteng

you your the terms into color great. QX forecast give dip your of you. us in in then, QX? a of the of And Okay, and can Thank timing backlog bit more

Gary Muenster

Yes.

do it. of me if refer and Vic the bottom side I'll to from wants business Let it he about the talk to

every I year thing want more of, kind everyone to looks one make like. looks this have XXXX, like it a year, in is significantly So bit year, the to XXXX. other aware is, years. of fiscal seems little like sure the It tend profile back half-weighted fiscal We what

fiscal our first year annual fiscal half statistics a And to saving we of about XX% did means so, of little in which give in XX% to you second half. I'm XXXX, half. just we the flatter, the came of the XX% XXXX XXXX the a and EPS, in XX% map, in couple -- the was in Fiscal did second the first half sorry,

will And the which fiscal in we'll XXXX the XX% XX% will first more XX means like EPS somewhere XX% of bit -- half. in our little EPS a will and have look where between hit Cadence second adjusted hit half

similar fiscal XXXX is of profile weighting. that back-end looks it on again, the realized while to achievements So that pretty weighted quarterly in we kind the

the some platforms, And the just back have across the things the larger projects that of that some aerospace Test a year bigger business, on Doble we the programs across submarine of function that's in across the half really has business. impact

It's in that fits and and restocking usually starts. come of function a orders distributor

this in nothing us. there's and we've again, year, is done past So the really unique achievable because what it's very for profile to

a answered perspective. from financial that your hopefully -- And So question Vic

Vic Richey

Yes.

of the I add, just that a is backlog. gives me me Let lot the think I mean, thing confidence

We over backlog past have year. significantly this the pretty grown

that's issues at how all. are. frustrating, timing issue don't So quarter-to-quarter these any but I there's are think they

Jon Tanwanteng

And be part backlog the that's backlog. business that the Thanks of a then today packaging question for it. is divested? How going to on color. Great. Appreciate much just the of

Gary Muenster

press going last release. to go to back the page the of I'm

had we at million. year, were So we the $XX about of -- the at end

Jon Tanwanteng

finally, you the to EBITDA divesting with pursuing businesses? Okay, that assets is it are you now? that the just appropriate you're guys quickly relatively your that more may and about M&A in synergistic pipeline what's other filtration replacing And be USG great. then with And think

Vic Richey

hope. It's certainly our

going us, right M&A currently. full it happen the opportunities doesn't but mean a but mean, as that certainly I working good something's of number are of number issues really now. to there away, for we're mean, pipelines, We it's a are right been I pursuing as

Jon Tanwanteng

standpoint, And, out a risk global changes large finally, could, or risk if be headwinds standpoint? program any from and Vic. or a might there Thanks Okay. maybe from geopolitical have you individual that seen I the in

Vic Richey

business some probably somewhat say net lot. helps China certainly, the Not enough are have really participate we we're it's we where at really. business China. although there chain But been closely with far much so these not I Test food us We Doble particularly would I days. just that, a that because exporter And we the actually, location a a mean, do the Doble do mean, watch not issue. we that business than rather than an imported from Test I there,

So we anything back our operations. Chinese don't from actually here bring

don't have coming we direction. in issues tariff any So this

Jon Tanwanteng

Great. on again. the Thanks. sales And congrats

Vic Richey

Thank you.

Vic Richey

you. Thank

Operator

question next McCarthy from comes Our Robert with Stephens.

open. Your line is now

Robert McCarthy

hear Can me? you afternoon. Good

Vic Richey

Hey, we Rob. Yes can.

Robert McCarthy

I Well, strength. to got. be want And tremendous price should saying the a record obviously, you first, just as divestiture quarter you the go applauded good this for on Great. activity really is

remains kind aspects Because that everybody the make I'm But bridge are. So make the I being we guidance we just record that to okay? I'm maybe strong, the the of just more I very that but to So very with sure said, correct. set one about bit want outlook terms fundamentally, on math time on just right? that, level we could helpful kind just of through a could run in – bridging little of incremental where the want talk looks getting to was sure

Gary Muenster

Okay. line a just impacts the obviously, it top And from packaging business. really

page but the results So for million here, about $X.X million we're $XX packaging million, so you from included talking that add we've see taking out press and adjusted we're release, big perspective, in. page there's have then on about the a can million, that you don't revenue the segment about EBIT the last in D&A of that that thereof number I business, the page $XX that of of $X

we million, to referenced goes that little of carry bit takes to down at where of that some number accounting of kind $XXX of about a corporate little the bit purchase million So I amortization $XXX there is that stuff. a away you

So the that you will million to $XXX $XXX reconcile of back million EBITDA.

Robert McCarthy

Okay.

Gary Muenster

level of absent very referred obviously that on for as solid the growing in that, XX we're we kind so still said, at versus And then the months a there. we to of kind it's three, obviously digits top but in each stepping there growing Globe's amount of high-single line, across filtration's

packaging the to working a So renewable our kind X% soft end I'm or X%. business in pleased kind we're And effect. higher a that was be really the It's XXXX. sorry, getting that. – at The out with Test historical polite space of of of business. rebound range USG of little The is in

growth kind we've Deterrence And at few bottom it's the the situation of we're the so the to of Vic of as comments and a and bottom is. put there out. his alluded seeing V, of wide new matter V we're how Bat pretty decent that just products in other But on a

Does to X% of V. that's XX% in to small help? adding the business low growth off base coming that that's but be the So going that of again its numbers

Robert McCarthy

should helpful. mind just is the you EPS to – me setting the then the other just basically that's the so bridge I just what the level at through actually adjustment understand was number No, highlighting you bridge incremental did was and that wouldn't very if And to? bridge, as tax the outset? just year-over-year, indulging walking incremental and And just the be again allude comparable which we what which

Gary Muenster

to equates basis tax like a share. said rate back on The consolidated about a it was Yeah, $X.XX impacted. I

because strategies incurred in the consolidated a put lot we was were Our rate of lower domestically. place tax

packaging of take bring level XX%, is should to that at effect what you set end right down XX.X%, And share. very as in the discounts We you business essentially the back rate back $X.XX. that closes, so a we rate possible. a you gets the that to when that so when you and tax you enough we of and to that look out EBIT statutory then But excluded that our information you have would hopefully as keep being we be comprehensive for at of the Obviously, back to QX to as do that $X.XX those try financials. will it get hopefully bridge simple a

Vic Richey

Yeah.

then the were intangibles the about you $X.XX. other amortization think the I rate. $X.XX. maybe thing -- tax And the is another you about is with number referenced talking things other And XX% was

Gary Muenster

Yes year-over-year.

Robert McCarthy

very That's helpful.

in Now and the with deal. association of the terms cash

this? First of all when close to do you on expect

Vic Richey

hope. I Yes,

there. this in both we before. unknown we get regulatory calendar have bit an the is to year. We done we've have And is a try by and approvals one that the end HSR then just end of because little two because of But target to fiscal not to approval Poland, done have operations get that certainly our --

Robert McCarthy

help cash business in And of Packaging like generation cash about that drain. Okay. bit a us Technical square circle? terms it kind Because but the generation, then I'm free a has obviously, the of been of the business flow existing a cash selling concerned of you're sounds that

fundamentally free cash and generation? pretty going benefit material So will given to we're optically flow actually this what be seeing probably forward your

Gary Muenster

just take million at EBIT conversion of in to the run kind think that you gave they about number I XX% will of XX% And And $X.X cash. of generally I Yes. Rob. conversion to it the

in that extrusion mentioned prepared clean couple would the $X $X some investments which during out million So put rooms to lines capital I in year. we facility, the as of past that somewhere we point places. garner that million substantial his remarks Vic XXXX, But neighborhood be case created we made of value this and put a place in in want or in

$XX -- capital we of investment. made So XX $XX million, million about

that spent because million XX%. $XX going We one-off a packaging but year. over the to not we're have So total is group wouldn't cash, the of spend negative it's in

way kind to the at so the that's you cash when And you're ought looking about think of XXXX...

Robert McCarthy

that around guess as for I CapEx raises XXXX. company the a question

does You or that may be going govern XXXX? you inform CapEx not for corporate guide to maybe the is think that, level but that to at obviously what

Gary Muenster

couple CapEx And I we some the right had that take other did on won't you look we own out because won't kind repeat. if you that where the -- say Yes. don't we that some I know a facilities of year. say repeat would one-off of away, because things things the the for business would cash, we so of won't at XX of can obviously

into I with back you then three So and optics we XX% would off of step off back started another like if XXXX. what think generally two CapEx we to should what give reported forward maybe as looks that

Robert McCarthy

slightly flat to Do tough you be expect increase to to know? or core CapEx or

Vic Richey

additional of some Generally We're generous. big us that to And efficiency. in. brings it flat. a operating because We're one very guys focus ROIC. put improves fans automation do We of on if plan the

say not If would we operating $X again here we go may in the I equipment of may piece things. $X there and year. and or to these kind million there. don't another guys of Chris be next put So repeat million to We've deferred

if held a we're it's I of in we've So I both over and five would it and hard the amount don't flat mean past been software capital making it, because sizable say constraining flat years. flat the the capital investments you like

Gary Muenster

I issues our we hear Yes. cover one days mean machine qualified people difficult that company designing particularly running and you that. it's of probably think you from the -- things that just this tax to talked and I other we're into like

find just have been working very as hard we employees. And because much automate it's as so to hard to we qualified can

fairly past working probably kind because so agree flattish but with have years. outside, we're equipment we And capital and aggressive we been several we of we're on Gary where

Robert McCarthy

not to what acquired mean on level you side. a there was your I acquisition. for my the quarter by expectation way beat was good I and us really me you filtration just probably I handily well aided help so I'm revenues off. number Because for major a had the filtration XXXX? is very And laziness And set think slough. for obviously But But it. math recent

around for be maybe helpful? acquisition So just would XXXX color kind any of contribution

Gary Muenster

what the we And success a rate lot of do but put things the obviously in is is we because those we don't Vic we really have said, works in Yes. as don't -- this. in

So when basis. to July, that's on million at pegged just there it in give one we revenue an roughly Globe annual the $XX we announced in in you

the be in towards, in are And of use some would strength and million what of combination the you $XX are did growth a coming because, round because profile comes submarines differential the is is XX nine so about versus the then million it that 'XX acquisition terms of so balance guiding and order the that's other is so things legacy for the XXXX of of net we the of five $XX again if block we the through. strength from to picking some up nine arrow,

the comes inorganic where that's from a So growth pop. onetime

Robert McCarthy

guess the I'll questions take more the I question and offline. last of then

there. is backlog The sound. very looks guidance Your

You line of have sight. great

the on alternative You're kind a around well. just you're in executing of one low investment. been hardening there's that positioned? Where the utility off even at and view biggest or more obviously a interest a concerns transmission grid concern in is obviously maybe side of And energy thinking I opportunity top with lot well incremental and could forecasting? some base distribution down mean on least area obviously your speculate about

sight. risk the or testing. how probably in Now, transmission about of in the I and good don't surprise pretty spend 'XX see of you terms transformers the on do in versus line environment distribution excuse -- we you're something where you're But thinking side could terms know outlook that you more where about prevailing have me a upside the of grid, Navy thinking of your more more

Gary Muenster

space always going we're tried that forced to I renewables now that little capital own broad and of force renewables concern to and they that tenuous. the are a a say, companies all which budgets utilities non enough issue a to to me area on I in think, not number have think if and days we really okay. me but And I I So, in concern, we the to that of have going that earnings, we're would the be between you're

come obviously We But we a that's the in also. look always and do back a review bottoms-up hard that mean. I that the forecast utilities took that business. have one of thing

to enough some again probably think big a in dramatic other So the utilities of it have we're there's issue more I would something that to than be businesses. But risk there. have there

we I hall to perspective surface arms our upset that haven't from successful We're They're around think thing gotten the obviously Navy start off on is that. with business. yet hard great really a an with to working Globe treatment. the our at be

because is Navy might Navy the more think a vendor think what lot base what as Navy there's the within want. not people or the I of within robust opportunities expect I the is would

now. of And million developed so that we've almost $XXX in business area

a larger seen larger vendor historically. as been had we're than So, contributor, we

really opportunities and And so, can and go having advantage Globe we're VACCO, looking for look, say take we're we and here. having having of Westland think customer we to so the to

is let's a corporation vendor Navy out we you. business so for can do what a larger part of to be you, else and figure and really together Our for we work big want

I think real some but to that opportunity we had upside there, haven't an flush out just completely. there's So

Robert McCarthy

care strong very quarter. great of offline, and very the a again Well, congratulations on take a valuation successful of my but transaction, rest questions I'll

Gary Muenster

Rob. very Okay, much. Thanks

Operator

showing to I'm further no say, I queue. was going questions in

Vic Richey

everybody's Okay. appreciate next We to Thanks and you talk interest much. quarter. so we'll

Gary Muenster

you. Thank

Operator

gentlemen, concludes participating. and Ladies today's conference Thank you for call. this

disconnect. You may now

ESCO (ESE) 19 Nov 192019 Q4 Earnings call transcript