ESE - Earnings call transcript Q1 2020

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Operator

Good day, and welcome to the ESCO Technologies Q1 2020 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 value, this revenues, amounts adjusted Federal other EPS, growth, the ROIC, provisions during XXXX timing EBITDA, Harbor statements, regarding in Safe within profitability, beyond, success Laws. the strictly Securities and adjusted shareholder forward-looking which call are made acquisitions the historical, and the of debt, completing not Statements additional orders, are and statements future of EPS, of EBITDA, meaning exhibit actual on due These company's differ expectations uncertainties to, current company's to X-K results the filed. environment, but statements and in today, company's be statements issued may from assumptions, be forward-looking that based to business factors an projected those referenced are will the operations press not and to the release in materially and and the limited Form exist which including, as the in risk risks included any result or We or duty whether revise update events future statements information, a undertake to otherwise. new forward-looking as no of

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

Now over Vic. to the I'll call turn

Vic Richey

Thanks, Kate.

packaging financials. discontinued operations the end. related the a the comments. accounting as in the other of highlight Clearly Before will I receiving was and had financials, the the well matters it over to sale Gary few in $XXX discuss quarter the the I'll million sale of to discuss the make first gain completing from before Gary QX cash quarter business to noted as

going in our and the release, forward. the group A&D refer we'll corporation As Aerospace for to renamed as saw you Defense, which flow we

customers acquisition products, we and in Packaging global and this the reflects end last Defense better the of to conjunction with decided the Aerospace July segment, divestiture markets the and this make segment. Following the change.

We've the Additionally, our is legal was changed relationships reporting now at entities, comparison more some filtration what these a this manager believe direct to group's from of presented previously or we markets. peers in structure

on solid in sales we expectations am adjusted EPS, as I being A&D our on year test a EBITDA did Moving top mix, planned delivered which delivered drove sales higher increased operations, along We pleased which favorable start to and first-quarter as and of sales, the with the our to better our guidance. a profits. beat businesses both than volumes adjusted with

the QX. of some monthly orders, QX trend of in sales which expect moved this the for outlook continue strong December year. the expected balance and sales were of timing impacted we which to by our the into USG USG support orders were

to contributed the move think I surrounding the disruption global assume to to safe it's to and shortfall. headquarters QX building the also inefficiency that

the Within reflected QX of expected and of show expect received the orders, been the meaningful its as market amount have growth balance of orders significant to A&D, summary we over year. the year, a in continues our the more solid balance with our over outlook

the it's and class Columbia these for and in Westland to continues from content back VACCO, subs our as benefit the to orders the We expand filled Globe half class anticipate the expand. orders continues of rate year.

issue total. the On production impacts and how side, of Max in the headwind call that we it XXX impact us

content relatively that the in that's absorb we certainly opportunities within good can other impact with news modest given A&D. dollar platform, While our earnings fine

our pressure up. it communicated as half as year in our to outlook that second the with While same remains little off takes the November, year good start expected ramp the a stronger was for of than a

sale operating also news to we've to continue a of The of investment our in lot of pursue few there's us that continue opportunities this On and activity deals to underway identified brought an the several ideas new units. we area. M&A we evaluate bankers front, the from actual and pack

can look network. USG to our for we and continue global to Aerospace to complementary We add businesses and acquire in distribution where segment, the Defense

Additionally, into adjacent developed of software, our offerings markets look with internally USG expand through to Solutions combination we'll acquisitions. supplemented and a products

us very strategy existing Board of to plenty is Our liquidity supportive our current sheet to our with M&A of provides portfolio. our balance and us add allow to

working in hard the we balance M&A year upside. solid and summary, quarter, a strong of first for delivered So the looks some we're

it Gary. turn now over to I'll

Gary Muenster

recognized packaging accounting Vic. and gross briefly closing. operations $XXX on $XXX discontinued Thanks the of related where sale proceeds million is we a pretax I'll that gain received approximately in million sale the from mention the statements to at noted financial we

items in expect results to actions the gain packaging sale the this on all release, noted on other these year, the pay measures on I gain $XXX specific plus impacted reduction unique with were on QX and to expenses of the taxes the year the netting performance. non-operating undertaken. $XX by we've identified both present such us cash adjusted thereby the fees of numbers as focus million the some approximately after transaction operating this. the will last relevant remarks sale several in that prepared gain approximately the building We cost Doble Since periods million related as the business our are coupled more my

related is consistent presentations statement commentary. numbers management with our Also and previous financial adjusted using

$X.XX. of Vic As to of estimate $X.XX of range EPS above noted above release of top guidance share a $X.XX in we a the the analyst mentioned share also and was $X.XX consensus our as $X.XX of which reported is adjusted the QX

QX of Comparing million PTI, contributing growth with led QX increased $XXX nicely to that to VACCO. we and to together X% last by A&B our adjusted basis, sales of growth with Crissair an year on XXXX

increased our led Test respectively. XX% adjusted We also which increased and EBITDA X% XX% by and A&D by

well idea are additional structure working of be to where the With our and This capital to paid is below low M&A. ratio and divestiture cost debt portfolio believe million. from $XX utilize we net debt million an leverage hard lower the down $X.XX should to our proceeds our we we liquidity the to level grow of through

timing expectations receipts on below shortly due was of of activities to major end. cash the operating from our contracts after primarily in came large flow quarter cash cash a few several the where Our

We total. on current remain comfortable are that showing ratio this I be and for continue area progress our to focus enhanced in will initiatives conversion cash in the reflected year which

we quarter dispense Q&A. to Since of the points earnings get here I’ll the key can highlights release lays repeating and out other with so them the

comment ability from activities operating for with future. confident the remain outlook our year fund quarter, our generate cash my So to our flow final I and on fiscal to

recently are well-positioned from liquidity facility divestiture our support we effectively M&A execute with and our expanded Given growth. credit along the further significant to our strategy

of ROIC All this increasing shareholder and on remaining value. while focused

over operator to it Q&A. turn I'll that, with begin the the So

Operator

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

line now Your is open.

Jon Tanwanteng

taking quarter. gentlemen. my Thank for questions afternoon, you and nice Good

Vic Richey

you. Thank

Jon Tanwanteng

itself annual wanted outlook and future the didn't the if quarter and of terms with in Just guidance, were there you've both start expectation of the kind QX consensus, half is that raise Just given you for or the half second profitable to any which from [indiscernible] wondering first your the above of shift

Vic Richey

let the Gary Yeah. of then aggregate. numbers, on and - I'll out the in kind with I’ll thinking on give the the start his overview John,

going what we the year. here of that and the balance treatment think with after premature. expectations to felt it'd sitting we same months have only a started this But across out be year’s think a better of the little three we in I guidance, kind we're put early QX, little we just

we headwind as year, ahead to get that some ourselves out didn't XX the left but think think balanced, total the of it's kind we in the year. out pick our with we risk position the the further get decent the that till through prudent I of of with We we the sized can hold balance we more months other just year, but pretty of for things, - portfolio, get MAX our to to in and want is alluded I just overcome one till

of view the my numbers. that's So

Vic Richey

consistent the that. going going a USG. very best with we And situation. be I'd It's what's happen have to with very Boeing you And to and guess our at seem fluid again

always for there So there. a potential additional is downside

prudent to so working of just certainly but I at point it's this that. to think on we're kind we're improve And stay

Jon Tanwanteng

you. you or whether of Thank is us any on remind MAX? the or have what in per coronavirus if radar? see just plane And content that Great. front you your you it's the might horizon And other on Okay. anything risks that be

Vic Richey

what On the MAX, per into not putting on about service. the is comfortable aftermarket producing the feel yet. OEM we about and obviously it's obviously not It's And they're plane. those side $XX,XXX in

a trying So XXX means to what that other Airlines points little flying for the cover that stretching are the they’re the routes longer. with really the

but a aftermarket, seeing we’re the are max uptick is staffed bit can't fleet below little that the we what not not but modest the little the is why having it, airlines regardless fully seeing But a – called of zero. in with of is the they we bit think that's So, of revenue contribution why I and go plane per benefit. XX,XXX it

as really that. it's So, big as

duration thing So, I so think a our captured in it and risk it's time or we've profile.

other opportunities. We have identifiable enough

Vic Richey

about beyond if Hey he We'd be as XX of next asked I doesn't any resolved of be as him today test of it ever and installations mean, other did we is talk parts days because really significant much the I specifically did. China. and said he issue risk that installation segment you any in we our about talking to gets so different in or do long Coronavirus have don't it know and gets impact. I think

have track drags anything think And out closely. something it forever major. some There's some if don't to going could we're so at impact. point I very it's

Jon Tanwanteng

I more great. Thanks for the about Globe. Okay a little talk to bit wanted color.

your year Colombia talk those the the full for versus is next in are in backlog? actually content foreseeable expected future how is Can in for and per what and what you each increase your Virginia content - per year the mentioned your You many submarines. about of

Vic Richey

the with go content I'll John. of that Yeah. side question,

sort and you Let overview of of give that build the thing. me rates the all

today the the and this on Colombia is I'm across platforms. So, class

in it's Westland So globe excuse but also obviously, me it's [indiscernible].

on a around per as it’s the And advanced north do to in one the XD which the half XXXX million the they’re start we on those that’s little is on reminder a on Columbia And other getting vote online in orders and back once to deliveries bit of going some with Class a So that every of Virginia. year they're when thinking $XX because should of just year. Colombia that. it's comes whole current then right supposed start construction

on So as that Class XX Virginia numbers XX and if use calibrated round on one Columbia.

Vic Richey

happen They'll to Virginia have don't to it start they something that certainly a some certainly years. of And plan think in increasing to of it saying going we of forecast. it was some class, be But we're the well-positioned we that two-year when going have she in. but In of is we existing are start the in our our forward. in submarines had there. forecast that talk out again, the There's that's to retrofit participate current to Yeah. And couple three, don't process that yet. that

Jon Tanwanteng

Okay, do great. the number on your of That specific boats question, a you have just backlog? backlog in

Vic Richey

the The have I fully don't available. Yes. we that with V that haven't backlog, they Block is. orders in funded. receive. But answer the for a in X boats an option XX readily I is know

treated for backlog allotment, order. don't the of get contract until we kind is be we So we into the the but you conservative actually them full purchase get put the way

specific. boat That's

have today backlog what configuration. us reflects release we two And POs three-boat to POs the the so in do the they they or for. boats that is a And normally

So is specific larger. doing backlog in to orders prudence our is conceptual substantially And release. value contract the this relative just to booking appeal the again

would… I So

Jon Tanwanteng

it. Got

Vic Richey

let we're okay. point and not …say V thing. again still me delivering for more Block Block one and It's product out just just IV,

they’re water So going Block over the years. few the several more boats next there're that IV hit in to

beauty positioning we're well of head. the So out our is of

boat of Our boat delivered stuff the the boat well Angles, advance Huntington water. electric hitting getting the boats in to in is builders, those and

boats we're shipping the see a of really this still you we're for stuff coming number, what four. is in, not what lot block a but So backlog shipping

Jon Tanwanteng

and color. Thanks a happening? valuations opportunities. you've size believe for Can of you relative the I out tracking Got us number closest targets number kind give an of of their of it. and transaction high the update M&A been on

Vic Richey

start are more probably probably, they're and far this done big are to potential the and and that it meeting stages. just Everything a attracted going seems lot a to obviously more week, there reviewing still pretty the opportunity at we've up. – board now, acquisitions of - a down us last like was Yes. forward, look things because for various those it's board time from popping things, some with more in different road something about We take not

the we'll being these some really feel to we this we on pipeline So but be as good that's We're things, now. have able year. always there about prudent out success do think

Jon Tanwanteng

then Okay. Great. Gary one last just question. And

I restructuring think other you've some programs. completed the Delta move headquarters the for

remind on a Just save to a us much year-over-year how this? you’re result expecting of as

Vic Richey

obviously building that cost, you of depreciation Yes. I and dollars a sort you see. is cash have We're own trading but now it's versus rent. of facility thing it the on the when some

a upper net facility just think hair I the hundreds just less savings than million it. be on thousands $X will aspect the of maybe of

is plus retention future sort will that that that state-of-the-art of efficiency us than intangible to really values lot having that the people. and benefit come everyone which think along of – next a and the quantify a Those a people building say building we workflow more dollar can't of early than the then, savings value the in intangible of efficient I too one thing just they're And hiring intangibles it's in zero. has the more greater other to assign plus having where

Jon Tanwanteng

Kate. to Okay. see you questions. soon. Appreciate it. Thank the you, Got Hope

Operator

you. Thank

of Our Stephens. the next comes McCarthy line question from Robert of

Your line is open.

Robert McCarthy

some how about that I guide guess bit and expect kind think volume a the guess the timing how revenues presumably plays profitability in about do I that we of could XQ the particular you kind hit that – just a first and USG, and of profitable shortfall that talk in you that of and the informs out? of or and do little

Vic Richey

large of in most the it's that. window XX like and stuff XX conversion Yeah, or we way, the delivery an look day at unless project we kind the like or some I'd the of part but and of get to a an in when order say, ships order the as cadence a the of double-prime arms for day into comes it's same the something that revenue,

the moving, that's where Vic's back and about remarks the you're here distraction us has And and aspect. the order comment a why QX up function disruption profile strong step the a things forth, physically from and that gives little we of again in being were revenue so there's December confidence doing

the we relationship steeply guidance have back to of And profile versus XXXX boats. on a remember resembles a those think fiscal pretty quarterly it's closely half again more So It's predominant where things relationship backend you the loaded you two about set that good profile I you for half. to by this front greater XX% driven more talked if aside a and EPS back we go last we year pretty November the had when than year. the if year of

come back several there. then about The Virginia got talked in so that just strong the always Class really we why just across quarters dominant projects we tried is out the there then the year it fourth there this is, stuff P&L but strength A&D, half the again the is are large because we is what try Doble year of to to a forever And it figure across player. business but Test

So profile the supported level And orders is it way cadence that's far. why the so USG booked our of by we at confidence the the is. is

Gary Muenster

that's think on. what more Yeah, that comment specific we're one USG I'd I just just on say focused

a we the soft here Doble you month – say in it turned just As had quick. I’d we products and know a pretty had November

an But January. month if issue soft month had And a it strong a and you have December quickly. turn month again, into a in so solid does in we fairly

exact to it’s hard it's timing be mean that predict with to the I So think business. fine. I going

Robert McCarthy

segment. aerospace have the That breakdown now the or I terms what terms of And rather of of of mix mix defense renaming just defense, is segment overall me, kind submarine, of re-segmentation in namely the that? sense. in makes to room the between relative remind layman commercial in you aerospace, guess the defense aerospace a relative any Do your

Vic Richey

kind Navy filtering products. specific. because was a about hard Certainly driver $XXX when about really anything we're really not the And to this it's is of now business sales of in big those filtration on million that and talk

– If get numbers some you look specific at a broader you sense

Robert McCarthy

Yeah, up XX%.

Vic Richey

segment. is that On This military.

like about So of is military. segment that XX%

some naval PGI well on is else side. that’s defense Everything – So Crissair and that as aerospace. as commercial the go at products also aerospace

Robert McCarthy

Commercial aerospace.

this Okay. That's the or the getting great. you in are naive you And space? see terms size as opportunity seen choice terms certain the set a to acquisitions my or a kind eight standpoint, out word are of but is maybe being then do from and of in being you point those acquirer think of of you your my strategic starting submarine of are in

Vic Richey

Certainly.

made the of I a people's would I to of say. a think it lot top size you we've certain list, of

a and in and gotten a right with in couple have we’ve more investment So the of lot attention just folks those bank. from maybe we of the getting it’s past

Navy So the going it sure to relationships on think that to market we be whether queue aerospace I those the on sure successful cultivate when side in the their that make it come get to in we to those make been side we've that or do. things more are

Robert McCarthy

deals appetite laden the I guess terms taking debt in have type your scenario? your for two balance cash in could maybe I of the How that without state reasonably be the at enough. a up your issuing your the level really outer making or the proceeds And of Fair equity mean you year over of and sheet or many do M&A you bound what aggregate? from comfort or next company setting level, would then in

Vic Richey

our kind things. different are went they and things, a just about we little through timing because really more and and because numbers two those of specific about again talk this with talk bit numbers Gary I’ll let board I'll exercise

Gary Muenster

Yeah.

to And into the trailing is as of so, the buy EBITDA works part exercise, you credit to get along pull when way beauty leverage math but not get their facility you ratio. the the a something of

help level complete would we’re to set would we of to small, three one just that's a let's medium all with a to uncomfortable. that the the to bring random and expectations looking of million we and hypothetically a not of So along $XX about and no large at. if again us eight this sample these things say and those And pick EBITDA million have board, up basically of is you that pick multiple. in neighborhood X.X. $XXX with of million ratio we something That $XXX spent pull a leverage XX But

Robert McCarthy

Right.

Gary Muenster

Our capacity year But and beauty ourselves north pay we the can should get we up for X.X to of math three go is outsized then extraordinary. find have to a the we of a pretty multiples. us something for would holiday get a

you if medium if pay of you’re times So as structure kind we X kind makes did of that large capital and to $XXX million spent in a levered set match. we XX think just the a X.X sense the or of history spot our be we’d sweet times, of if we X.X, small, and right

Robert McCarthy

be would XX the over that And months period, right?

Gary Muenster

Yeah, be that point in time… at

Robert McCarthy

Yeah.

Gary Muenster

three if of and… Hypothetical time you same the at them

Robert McCarthy

Right.

Gary Muenster

those would and … deliver cash those operations. off in the you all keep all obviously then

Robert McCarthy

Right.

Vic Richey

think a really are management what amount could business depend tremendous different thing comfortable. oversight would larger you're as far bond integrated with are and so So we that of could what smaller as team buying get run do? So we if you that's that good one a can a you as for businesses. do as without what buy far They businesses it And much on things. do I

place. really put in systems need to You

a more Sometimes that can be than business. complicated larger

on never mean, what always I is, that’s we it's size depends, is, fact the where So say. hate what I answer, but what business fixer we it that buy it is, it uppers, state really a and

we’re So others. to be are nagging we're some than drop there in run not to integrate easier But going about going it. and team a business, where to go businesses

We of we've businesses they where we've really with the got regard well. in senior us talked got usually, this finance and help the the usually So send that that person business, we're most part. difficult that taxi people in that depends person then on And – those are before. help on with with very as to integration what fortunate the help the more that are so it integration can a and we've can

exact, could to other. I several we each the comfortable So that probably maybe very but feel time at integrate or same businesses, same at close

on it's what really we’re successful forward So to depend going be moving business going with. to

Gary Muenster

to your let now. me in right Rob, so, all spend I for we were that you the is to if again that adding million example $XXX that, And with add might about theoretical would gave. just Again, $XXX If thing this we revenue, in one Again, more modeling. theoretical million the with need math is this or math be multiples.

Robert McCarthy

And everyone again USG want the within margins contribution just sum. greater the then I and than are individual focus to point to

margins if consistent we're that areas So and our what more that A&D USG that targeting would would companies is operating margins are our those above mean consolidated the well. buying with by our inherently raise as margins A&D,

you a as has it uplift model based and basis even that across on EBITDA care it to basis. EBIT – So EBITDA an nice your

set and is to utility opportunity there would a to – to go opportunities pretty defense Now, opportunities where the is? level M&A, least the back the that or aerospace set skew you say backlog between of go back it's to backlog

Gary Muenster

point the time. always it's Well,

are time on more point opportunities So, the utility the today, side. there

Robert McCarthy

interesting. No,

– if with Okay. with infiltration? just maybe one, you a of us with op And new be, a of association me terms could maybe or indulge what portfolio or a history and what to in terms would for your aftermarket stimulative from you Iran tempo could then your that – in how – within more, couple be conflict remind limited

Gary Muenster

a see months it be Navy, the all. but quarter. six talking impacted I replacement wouldn't something point probably think be from Navy than issue the outside – near-term some, Yeah. of and aircraft that's mean for I really parts next Outside the there. accelerate obviously you're you'd the it rather about might at you it of would that real don't which so

Robert McCarthy

thinking where the this And last conversion, level you cash about little could you of be what are bit talk question, with bit a kind and free and of you how are of because forward? the we portfolio your M&A conversion some and Technical should these about about around the thinking flow the for terms cash cash a of going divestiture generation in journey cash and has setting How then kind particularly Packaging conversion sale forward, of changed opportunities? with going

Vic Richey

Well, it the but to isn't will improve certainly this lower the had packaging a and inherently business, it disparaging again than cash conversion whole. percentage

it of favorably So, move will just the that. by absence

one. that’s So

Second we've goals initiatives have a we're very very overnight. processes across. and it's that that is just thing, it's the implementing tangible undertaken Again finite digital not

from and flip goes We the to switch attention payments. and when write terms, a get cycle, this goes better the have we sales to we all to off have it they're better, way sales people to contracts paying the because and collections

So it's everything in between.

in revenue than contracts to but So XXX% a be challenge Test can't you get where against have along get way might want the the catch within XXX%, business, profit I'd the recognizing say to milestones. be to faster because where and processes to never milestones it'll collecting we you're you we get

off. QX that down QX. spending the you'll a Glass, And that the same reference is it going QX you we as basis, quarterly in burn against Then a not and money did year. peaks at So in and basis quarter. we're on big valleys of the on yearly a VACCO have the then thing get payment on And that's kind then because last why Virginia cash to it

And you're the cash. to so there for you not have already received stuff, of the you're the have completion earnings the going going but percentage cash to because

an Now you do outflow.

words around a is lot say. goal to our So of

into Our to the goal us get mid-XXs. is

be were Kate And path upper But and the going even that to that. be goal a I we'll think as XXXX, XX%, we a our a get in would shape. XXs, an to conversion. of fiscal I year clear think to end in it's by By lot XX%, last better I better the process shape say I well think than have not be It's we to we to get QX. XXXX, is XX%. that

Robert McCarthy

how XXXX? we remind housekeeping year the amortization last this And me much for item should is full just expect

Vic Richey

a will round me million with second. Bear number. a $XX be good

Robert McCarthy

Really the appreciate time.

Vic Richey

just that’s amortization. Rob, Hey, and depreciation be to clear,

Robert McCarthy

Well, That take and we'll espresso it offline. Oh! figure double okay. it a is, Right. and drink out then

Operator

you. Instructions] [Operator Thank

Vic Richey

Okay. look further It questions. doesn't any have like we

us. to you thank to everybody for So talking next you. in Thank call. you joining forward the Look

Operator

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

now have disconnect. day. Everyone may wonderful You a

ESCO (ESE) 4 Feb 202020 Q1 Earnings call transcript