ESE - Earnings call transcript Q1 2021

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Operator

Good day and welcome to the Q1 2021 ESCO Earnings Conference Call. Today and number 39 [ph], this 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 EPS, this revenues, amounts expected value, forward-looking V success statements provisions meanings safe cash, COVID result COVID during additional of within XXXX timing as and regarding adjusted are of not beyond, EBITDA, of Block and statements, impacts vaccines, harbor call made products, and the of a EBITDA, securities and Statements the new EPS, margins, other which timing adjusted and laws. the strictly the completing shareholder orders, acquisitions, historical federal are of recovery but statements and from results These in are limited forward-looking and and factors exhibit today, not release based issued to in the projected exist risk the expectations on to the statements materially assumptions company's differ X-K will Form that press be including be as referenced to and risks which current uncertainties to, filed. may the business included the an due actual those in operations company's environment, company's We otherwise. whether or as undertake of any forward-looking events result future update statements to new information, no a revise or duty

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

the Now to I'll turn call Vic. over

Vic Richey

Kate. Thanks,

provide into a today's I'll update the environment. get financials, Before we brief COVID on

pandemic customers condition safe start deliver clear products and services implemented of keeping with financial to protect safe we've our was the and on our ahead all and the were the we've employees. primary and taken remain a protocols support to healthy. Stay protect our goals while monitor environment of of actions We our operating decisive our strong employees situation a the provide the the done since a and which regular of health continue and basis, The to focus, the curve, same. working

the Our taken this solid allow our to with that us measures we've QX position, demonstrates through in operating will navigate results coupled challenge. strong liquidity successfully

things our business Our we're more that success to actions will to discipline operating forward confident normal as of move result a approach throughout And state. in I'm our fiscal the continue going toward balance will the XXXX. continued benefit as

provide that on While A&D impacts while noting I'll sales year Gary level lower prior by will than financial top our aerospace. comment QX details, to were due offer COVID commercial

strong prior us diversity we due to headwind to the our Our other operating increase units. year, this portfolio performance as EPS substantially adjusted overcome from from allowed our

Navy Our business remained strong well-funded. and

XX% from manage business continues test and demands. end USG meet with leadership up prior continues the to business the EBITDA across the delivered effectively adjusted QX. to and Our utility year teams – to spending to in to XX% We're experienced changing who their nearly ability year’s fortunate demonstrate cost market we market approximately margins, increased the calendar have meet recently costs, strong saw customer USG base. across company, outperform of an some margin actions meaningful implemented, Coupled our reduction with

our while leadership our challenges deliver benefit to markets, of where value. our for positions teams in create products fundamentals actively and will strong customer niche ESCO continuing our portfolio of sources. by our long-term meet to we designed of specifically the needs. remains and solutions the addressing alternative makes tomorrow. replaced on to solutions continue today, unique The be shareholder Our This stronger even from same and it technical goal difficult focus highly are several being to to remain set

to Gary. over Now I'll turn it

Gary Muenster

when challenging significant is weakest as the substantial in king. popup generation. our we flow financial in unexpectedly, quarter financial comes the our QX, the our said the liquidity, Navigating priority to pleased first the remains pandemic, same, briefly normally number results is I'm I'll the extremely from when as release. out cash the Vic. times generated one world, quarter of maintaining with of cash laid press cash today's year, start it as Thanks, on the I touch COVID

goals carrying a QX or up periods. cash prior year, of and earnings. across the I'll a Today, a in couple of reported record also XXXX liquidity In are free are conversion available of of have the future. fiscal on the touch the which flow approximately impressive resulting called of with The in excluded of XX% we kicked briefly $X.XX we Following off reported taking in EPS on $XXX our have we company, while the X.XX. from we few capacity larger modest of calculation of cash We year consensus a EBITDA share, hold flow out $X.XX at credit comparative EPS of working strong disposal increased leverage our adjusted detail which cash and $X.XX Clearly, exceeded on items, initiatives and and adjusted both release, ratio we the discrete performance $X.XX the net flow from capital a a while estimate amount highlights. hand cash are past adjusted for today, $X.XX. XXX% set in ratio million the described of QX. between

SG&A last return EBITDA to future. USG also work operating the But $X up outcomes $XXX their commercial sales to development accelerate, environment, quarter the COVID fully various that were our related project continuing continues business the backlog are in capacity cross the QX the and million near noted continue backdrop our mentioned, reflecting will at more is $X of to X%. operating decreased customer We restricting and in which some last deliver Navy R&D all customers USG’s nearly believe benefit million back in COVID October, to we which were a profitable reduction $XXX costs of of both recent softness allow Given aerospace. as the solid, heading its interest with spending orders decline we operating a in and environment. million personnel pleased vaccine new compared with their onsite the sales the deferrals A&D a tax earlier half sales X.X% Doble income million, demand, A&D, by protocols QX in ATM Despite favorable approximately noted Vic term which helped achieved Consistent $X sales on of points I'm year. not than is XX%. XXX percent expense, recently, transition by and QX to at during the were in as to adjusted to pre-tax maintenance space at spending communications, Doble’s of report today's Entered aerospace, over a our $XX this we Total to year, a took acquisition domestic and of QX is of despite most of margin that and expect in and higher in operating of sales be book-to-bill million utility were expense than mitigate XX.X% stronger historically of similarly. which mandates within QX with one from the new ended decreased of to rollouts XXXX as product as up international release deliverables and intangibles, These half. some commercial locations. the look QX, we pent-up booked several customers, result, and as of first continued despite Crissair, combined our to resulting normal Amortization despite many we basis And million. to increase actions And Test gross QX as decline increased reduced a our and in spending should units.

I'll class which book-to-bill As that led we XXXX, DoD be by the orders for our where during submarines, will forward. the XXXX several additional booked large our our V these remind mathematically on programs, reduce multi-year move optics we business, forward fiscal Virginia delivering products going of throughout will Block contract against large participation you

protocol, makes forecasting result along this the predict difficult operations be And some through uncertainty, our a work which methodologies. near-term we continue will of a our to will see positive we year, EPS using balance our Consistent effected for uncertainty, with communications, guidance of year. areas to COVID the current normal bring directional as but finite it perspective, from we As how we'll where not several providing our momentum. can November the continue to point

patterns. our towards a the the and spending utility outlook stabilization, the COVID markets aerospace customers air and second in commercial increasing XXXX. of buying benefit to half with recovery Our utility vaccine of normal The which movement degree recovery resuming travel of is showing commercial our some anticipated accelerate supports more customer of distribution suggesting and end current are

the still that down we beat half XXXX, to to solidly second favorable is the fiscal be comparison XXXX of to we be second While expected QX, half the first half elements anticipating. of we first the the the recovery of XXXX, given a and expect slightly are XXXX of various of half to outlook for compared

we adjusted they and reported turn back adjusted XXXX. EPS expectations. We And expect with to it adjusted that year, complete it these to EBITDA With contribute to Vic. during XXXX. is fiscal that in consistent If with growth the expected and additional adjusted show fiscal in reasonably XXXX EPS to compared would any acquisitions EBITDA I'll over

Vic Richey

release spend aerospace, balance next qualitative captures won't our some while signs the I of perspective, for commercial in the first much our recapping with softness the about we and year. my Gary. to expectations modest six but some seeing I Starting recovery continued months. end The comments offer expect commentary the quarter. we're over of three our Segment, Thanks, markets and will time A&D

flight in TSA few the passenger service, increase moving and boarding by back miles their are carriers quite direction. in a in We bringing in the air more build traffic, and are the daily and some seeing of stabilization airline evidenced right rates idle fact that numbers fleet passenger OEM

our saw backlog as businesses strong we of for A&D our continue QX, positions. given future, platform in remain foreseeable defense to will portion and the Just the

current situation opportunity as in market aerospace the see also ESCO. an We for

competitors where may – be be to look at acquisition. through We to may provide assistance an our or by continue we suppliers, a able they partnering where

the an business nearly versus expectations and XX% by markets. QX. our outlook given of Our delivered remains solid, its QX Test a XX% served really EBITDA significantly solid delivering margin beating Test diversity last internal

quarter do driving expect strong soft mix now be year. favorable in before expect outlook really second to half solid the a returning of be sales – first it had levels USGs USG a We sales coupled for EBIT normal QX While margin. to more with the we

gets throughout distributed utility vaccine widely more COVID personnel. As service

of return can to We personnel come line their relax to expect as some site more today's utility routines. can social USG they service normal guidelines, on back quickly market visit distancing

restrictions engineers are job service of with a We Doble when client eased. been renewable real-time means end for investments communicate relationships to in utility pleased is market their the USG's to enthusiasm their accomplished and see really site through energy products we on continue and success as And to with positions new good a doing are counterparts has utility customers surrounding are our both And with and improving NRG’s solutions. current remotely. of and solar. increasing pipeline lot This continue I'm support our provide in creative wind solutions. capitalizing the new

evaluate anticipated approach. Our and and that solar continue taking growing been continue prudent we'll deliberate have beyond to we introductions opportunities trend the far Well to M&A, and new continue. we than better a expect product several

the business our in We these grow to to action expect as we had take on past. opportunities

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

is be into should track Crissair am integration acquisition the recent two on further report in of to ATM, completed months, our contribution California facility Valencia, larger. which our within should improve next ATM's the and Regarding I pleased three

the So a standpoint. cash quarter we delivered first and earnings to solid both wrap from up, flow

positioned operating leverage As through on ensure is to our the well continue success. fiscal to infrastructure create we look plan the for long-term for we're XXXX, efficiencies, opportunities fundamentals additional and focus our move to M&A, through

So be questions. with any I'd to take that, glad

Operator

line Tommy your the open. [Operator of line first Stephens. Sir, question Instructions] Moll Our from comes is

Tommy Moll

my Good questions. And taking for thanks afternoon.

Vic Richey

Hi, gentlemen.

Tommy Moll

as off then it beyond, start up market. at end then to think some that's maybe framed And the on you've look softness wanted the some quarter, calendar we activity year end there's I but there current qualitatively. way It I sounds like utility opportunity the was into good there.

you. anecdotes would there and any give can on the puts helpful. you Thank takes So be

Vic Richey

Tommy. Sure,

got You it exactly right.

not then. in this some quarter, somewhat past year little money we’ve we this fourth or guess often of has over six spent before So because been so. it of we’d kind that months of I the will bit more it's In surprising typical, year-end, want had get spending and a the the restrained

second for I and be going with saw in so what even second the is different year, Doble it's the Our not we always a that's year softest last about quarter. quarter but to think quarter this in

really not expectations this half forever. second concerned, up So the into as can't you then delay delay levels, pick our before testing, And we are. back going it said to more that's what but normal can it think, do because you should we

see. And hope more said so in thing. it's way that you we is onsite and of yes, folks and is, vaccinated that very But they'll consistent my support, the stated we as more statements our type is, utility prepared visits allow what more and get with –

Tommy Moll

outlook I we're compare. on correctly, given, that for Thank And first the that. follow-up, compare the communicated you've and to you the make sure guess second half hit I'll a directional what half just really tracking you've for Okay. on

Just want as to to make just EBITDA. in well. of quarter out And does maybe second folks that quarter to into differences you be that remind first make would anything apply sure of sure margin terms quarter to helpful fiscal and – fiscal revenue want want you both to call then first

Gary Muenster

Okay. question – of Tommy, I'll last the take I'll the because easiest. that's take part first,

We the year the higher first meaningfully of in the year be margin back to than half half the and combination. of a that's expect the

revenue two before of the strongest. so our tend second coverage it's the look have been One, fixed ratio that the of back the five year it's and there because you it's correlation the same that same half years, last cost and – contributions, and in If things. QX strong to more function back consistently weighted, QX probably heavily at of a well is we has very margin usually COVID

going is to that So continue.

was I general of XX%, ballpark few the of historical a XX% at when you profit of in So how meaning and It's XX%, and different. and kind talking we're the going first it about just kind think of of and back. in this. XXXX the looking say points as correlation Historically, probably XXXX in backwards, revenue the half of XX% came

putting somewhere that with in XX%, from so. same there perspective, carry goal of neighborhood looking in So we're waiting XX% range, somewhere in yourself you of side, XX% how is you to with modeled first could with Then kind if you what XX% out a up were depending the of it end again relationship coming you get on of the the would kind half the to revenue just that because end at the balance year. your

So hopefully you that helps directionally.

Tommy Moll

thank turn back. that, with it Fair you and I'll

Operator

[Operator And Tanwanteng line of of Jon the from next question CJS. Instructions]

now is line open. Your

Jon Tanwanteng

gentlemen nice Hi. and taking for Good questions afternoon, a you my thank quarter.

Gary Muenster

Thanks.

Jon Tanwanteng

something year? your there maybe slightly strength bit for the you You in what so but or finished saw the than before mentioned, is you thought negative coming QX? the that given expectations year mostly there I were QX, think far to be you that seen up a positive bias more is what unchanged, Just you've may just little given more

Vic Richey

Well.

a the on any acquisition in front be a of get honest. obviously market we're but open the February, hesitate second or done statements big the but a environment we’re I really bit the was open at We're four great in may into Just upside, is make the bold something make middle I would than now. that hesitate to quarter be potential honest, probably there would year, to think we expense five little if of mean, here for given quarter I I of some or months to the – any markets changes. have did to going first up quicker or the right to

Jon Tanwanteng

I and that. Go you Thank welcome. will take Yes. ahead.

Gary Muenster

get just step Jon, forward. Hey, a

commentary the finite we’re our pointing themselves a seeing Just about haven't yet. in signs direction, or finalized signs put right but in those bucket themselves

protocols. kind our runs think look we based in yes, where start. we you I it the have a the we're of today, consistent pretty we plan again the But started of decent visibility when off a to past that nine-month today year, with three-month got So window planning we good cycles. instead on not visibility had, cycles at And

have the we the enough we're There's want back quarter downside, protect to still said, approach. Vic – commit have, good half clarity to there this a of nine years in probably next or months don't we year. year, that's early And protocol of you not or and cautious in X.X but So the pretty But still out guidance while we're the balance been the to in. for come our the taking February time raise left. as in sitting

really we're mature, the good more the other we comment – enough to it's year recovery we we're the and But to protection. signs off that – think going start, we're until seeing. more a recovery not get I of gets than on So have directionally probably

Jon Tanwanteng

that the for inventory fleet Thank ramp maybe to I talk or enough. boardings, little at a burning And have that just bit they more their the commercial supply are up any that ready of get out production chain still to taking just preparing telling – they indication the they are fair coming? point they're idle Okay, on this they're more you up Are hand? given planes Just about you getting given business. for aerospace that. wanted to

Vic Richey

the forward indication while we've to point. And nobody They up. I ramp this and see haven't hey, pretty things has seem anything all you're we called yet. any going I make some sure not need closely. indicators pull that pretty mean big this mean, say for we of anybody's ready you at but I solid, said, – signs would it, track it's gotten to

Jon Tanwanteng

Okay.

Gary Muenster

certainty the to we as side this little know if going get planes that because know the the the it, think you And at reasonable OEM of clarity XX through planes. rate say rates. didn't getting two a I'd obtained build only a didn't I completely time uncertain. if you they that customer last spoke since narrowing was, planes stuff the clarity We build look was that the Jon, in were getting Yes, XX variability build or of or more we're we're we've

throw have or might hey, we the wall So building and Boeing be dart don't be building to might XX at a say, two. they

talking of three two Now month. or about we're planes deviation a

the track things, give on is, flying. us So we and Vic visibility rehire that back let's the helps planes want spending what point, it money. people who's says, say I doesn't, to that start but to comfortable I'd get of with said, profile, us that as is TSA the aftermarket still side, it remind And that Vic's in half boarding it's certainly full, service people and thing. putting a even plane if sort doesn't

And so driving indicator miles. a combination one TSA that boardings really not aftermarket, what's miles, the just but it's of and passenger of are plain

it's mean, So we're But that's than back as that stabilized I going signs well. that like looks side. for down significantly. directionally still OEM faster us it's again, Yes. come seeing the to

Vic Richey

anecdotal, cruise the to And thing I they've at December I you of if take at at I probably very look you One want about they bookings all year, XXXX, the to look really mean, like that, those you after TSA mean ready first tracking going – you're and at they been very – first and jumped vacation travel. to And travel. bookings since the that draw three of and XX% the but from up days look the the people is strong. XX% are numbers, are But only to if previous days year. Yes. if so the three XX% then of XX%.

and there's make are But for is and able don't to a that there's desire traveling – when get more huge access back there traveling to air. vaccine going think that get any strong people I to difference I the a it's by So think that. doubt to lot a to people

Jon Tanwanteng

Got it.

still out Test? about don't talk were impression much some pipeline Vic. deferred about there because was in or too Can those Okay. year demand of that the that you releasing COVID Just environment are there you. they kind the the a We My situation. that for Thank close about holding pattern? seeing. it of and you're talk the larger got of Are just now last projects talk to

Vic Richey

I'm large $X a $X chambers. in a very a are chambers smaller I I And bit think, pattern. to think in lot but million, holding talking of still the $X seeing activity of and – million ones, million we're great of here

we I so mean, year. as that's pipeline today were last as And when been strong. that see is the really strong we it entering was

So market us particularly a markets – – that Test strong. and I lot we're say pretty I'd But end really that in It's the a the should recently. say been for China. great market seeing Test remain

XX not look very mean, that's change at And seen So that's the past months. anything nine, results the area, up that's an over that. you if I going we've to held nicely.

up. hope larger is here the we that don't kind of have we of near so will my make out in some again, some ones term, And these But freeing forecast to there that today. start those need

Jon Tanwanteng

Got it.

know Okay. My Gary? replacement, the is update I CFO just last any on so. follow hard act to a you're one

Vic Richey

I've don't a get it working very don't be here and quality we have, we'll Yes. want will interest lot specifics, any something get but But this been in that we've people I in this. to true showing get good Actually, next think that's that hard. with of that I've be And I been are so – pleased candidates quarter. I to able really detail. a the in of think done the I been

here impressed very needs replace transition. track. to will a does people Gary whoever as the will here. he call think to, it to able that sure He's around we've again, be be do to been the next I I've him But schooled of with So quality committed in well make to been But orderly as for stay still will be for sure. very long what

Jon Tanwanteng

Great. Thank you much. very

Vic Richey

You bet.

Operator

you. Thank

[Sidoti is the your LLC] Franzreb. from of line line question Company, Sir, John Next now open. &

John Franzreb

hear Did have the Yes. the I borrowing if you that properly? borrow what thought so, you did been quarter second quarter. from? some referred I that might to commentaries businesses first into And in from there your

Vic Richey

the – quarter. think Yes. quarter. first a some what such we in saw say the out second is probably the I in that assumption had Utility I got would sorry, my of pulled quarter particularly that just market, And they I'm of Test strong the into first

John Franzreb

quick – second in one and defense. That's aerospace question half that XX%, How or it A&D regarding the Or the is Utility tilted in followed tempo the the Okay. in way market. of And XX% model? is more billings other? at

Gary Muenster

little Well, you the back over the group, I Space large I business. if think million, tilting see around a an to meaning at order you're more that's look going focus and market, that just on to programs A&D end. in $XX Because again, if large the the getting the submarines primarily

of on negotiations will, the in Block you pool, we're next V. So if

so And we again, million last many because QX not and V got in Block year. $XXX on would orders we expect QX,

we're have on So in then another as program, the Boeing launch the negotiations SLS, year. the system, end Artemis back we should we pick Space space of lot program, up been. And this within the at

in of that, you the If cadence think book-to-bill core when release us back nice that And give stage half it's they the get should a it – of I year. a the just numbers.

last off So is burning which a that. the large And $XXX book-to-bill – year. prediction year start on order backlog run, tie, replenish will guess me the or to we'll for the my off to first fight you're the be from a when for home we're burning of in running million programs, half

– pretty sustaining it book-to-bill emphasize as cadence to really replenished is that's The wanted looks profile good. it number backlog of why the I important, So pretty this. off in the different it And the but looks gets quarters. of and burns the it's

looks the kind but the a profile, So of rejiggering it's just really of great. quarterly year mathematical

John Franzreb

Got it. you. Got Thank it.

Operator

Instructions] Thank you. [Operator

Vic Richey

Okay.

out got we've think I are there questions answered. that So the all

I everybody's and again interest, So talk next quarter. to you appreciate we'll

Gary Muenster

you. Thank

Operator

And call. participating. you. you, Thank that Thank concludes today's for everyone,

all may disconnect. You now

ESCO (ESE) 9 Feb 212021 Q1 Earnings call transcript