Earnings call transcript Q3 2023

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Operator

Good day and thank you for standing by. Welcome to the Third Quarter 2023 ESCO Technologies' Earnings Call. [Operator Instructions] Please be advised that today's conference is recorded.

On the call today, we have Bryan Sayler, President and CEO; Chris Tucker, Senior Vice President and CFO. And now I would like to turn the conference over to our first speaker today, Kate Lowrey, Vice President of Investor Relations.

have now may you the floor. Kate,

Kate Lowrey

and but laws. Statements strictly the not issued the statements to, and historical you. the and regulations. required harbor federal be be assumptions risks made current results statements, company's be due environment, including undertake duty the laws based the from the during not release applicable are operations factors by safe filed. those securities exist the risk in press included of differ which and to no call forward-looking provisions statements in are expectations except to forward-looking to that today limited uncertainties as referenced Form of exhibit business or the are on this will X-K update meaning may Thank These may company's forward-looking materially actual within We any as statements in or projected company's to an which revise

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

Now, over Bryan. to the I'll call turn

Bryan Sayler

an Thanks, get ESCO from update Kate. Thanks, some everyone, for afternoon. joining today's this call. taking time We really to appreciate you

quarters that. employees. to to and moment like Our year But of take I'd excited X do, you well all our has I to I'm first thank really to the before all gone talk through of about a

line quarters ESCO of with has growth. wrapped and strong number bottom a impressive up top

teams positive capable easy to dedicated show our commitment it takes years dedication. on truly Our last and real hasn't been over industries are It trends. deliver a but team few and continue industry to the but growing these

very to in and see witness it's teams in visit our always July and had Chris most teams action the winning. that achieving. across and success chance to they're of to world they're energizing and The I engaged are firsthand a the operating locations the

to it's that. ESCO thanks be like culture tremendous and support. to again, fun just strong to So I in say everyone effort at for want a their And

the XX%. a third led me nice growth strong Sales We our let of increased in pivot really and results. to XX% quarter, trends expansion quarterly top great earnings we had sales most adjusted had quarter with of over share continuing that, to that, of which nearly parts with in the over per ultimately business. On positive With margin earnings growth.

very are expectations have FY X this excited and 'XX. of with first we performance We happy that continued through exceed quarters to the

million We now. of have backlog over $XXX

growth an take positive. the XXX% year. issue Year-to-date, the for to multiyear about So few through in orders look optimistic will certain nature our parts we're over of is and we business. timing and due prior our see book-to-bill of forward a of did ratio to outlook our outlook us We going third orders XXXX. the Chris quarter beyond third of mostly as details lumpy last those but minutes compared that's -- year remains drop

contributes challenges the to backlog. this very the chain certainly The this the past-due A&D. led our and business potential good details, perspective. A&D, with teams were I This defense segments. business from solid the some double-digit quarter. to where offer The well see we growth into a of growth each businesses. in with gets Sales to did we for most be business quarter momentum financial continues supply about a the Chris our aerospace to part of as but constrain components continues Before commentary top-level Starting to continue the had aircraft executed some want and up commercial

the the challenges QX to again The a drive Orders outlook that's orders in but aggressively future multiyear this growth. navy, manage here were for in The prior expected year. quarter booked remains military & large with to timing Defense Aerospace teams commercial continue industry-wide the down but we're some and all issue persists. mostly aerospace, growth and on of solid the with delivering

up we're which a XX%. good seeing core protection testing, more of growth. product in invest across seen growth base over Next customer dollars really all their Revenue monitoring and infrastructure in utility The XXXX. to was great condition a Group and business testing, our quarter. is all up lines broad growth of grew the Utility has burst by XX% delivering EBIT in with continues growth quarter and offline nice the than had adjusted This

the side, see The NRG. and be build-outs our even for to provided has for a phenomenal teams continues renewable expectations. growth exceed Inflation that to benefits year infrastructure will and our Doble visibility On beginning NRG renewable Act USG that long-term both activity. are Reduction XXXX from

while And very On are past-due. chain improvement elevated, big we've is a that of our the supply side, little at backlogs USG. seen

Finally, measurement where seen we with I'll in paused over growth from as business, we sales domestically our flattish Power again what and conference a results last which the the decline Filters in projects. on during strength was quarter saw touch test described line third last test Line call. and year's We've

much have back significantly where pick after not the pandemic. Unfortunately, Additionally, as up that business China, business continued impacted we we've seen opened economy up since seen time. weakness in was the

recover great start good do sales the EBIT despite well future. in team The lower these to quarter a capture in here the our and positions is growth dollars the job This third continues they us additional volume. performance and markets increased to to as

So months are our us which as a to drive a good puts say we to great on been targets deliver quarter. to path It would X full the this on XXXX. overall increasing year it's again start for summarize, I we

on turn So quarter. third over highlights I'll to financial some give to more now it Chris the

Chris Tucker

financial the Everyone Bryan. have We'll chart presentation. Thanks, follow where overall along highlights. can X, Page on we the with start

sales earnings per XX%. over adjusted and over another see, up EBIT can share we up with you up XX%, As great XX% quarter adjusted had over

We growth was and sales of Group will minute quarter. the but also through the & XX% growth. strong details Defense sales in the Utility side, Orders XX% at delivered on over go in exceptional segment a the down were Solutions Aerospace

can this see booked details as The year. by news million that in XX% the I $XXX XX. dropped stands is some June still will last items over to they we million. at comparisons segment Again, large cover had but of You $XXX tough with good backlog

X. Chart to with We'll & into the beginning segment with Moving Starting get on to Defense. Aerospace details, start orders.

year key decline. driver space over quarter You can orders to are down were XX%. orders business some had which see the the last in third large the We in the the

XXX and aerospace sales the are to the businesses drivers adding organic with the up overall the development key Adjusted were and military On growth. and up in was were on by and some military margin down was CMT we acquisition improvements of side, to see from there. terms good dollar points growth we commercial contracts. and space XX% X% erosion sales points X.X% momentum the margins The basis commercial continue as EBIT X aerospace businesses up offset

and Solutions Next Group. Utility the is Chart X

services, protection exceptional. can condition contributed. the testing, XX% were up as business were was Sales that see performance XX%. you up renewables testing Doble the nearly product And and monitoring offline with growth. the the lines Here, Orders on leading chart, all

overall price quarter. we for from improvement and XX% higher XXX growth in leverage nice impacts margin to group adjusted again favorable This with The top EBIT up on points. growth, with saw increases side, NRG, On once basis driven sales offset performance by inflationary line this the the more a than converted expansion renewable was headwinds. the which explosive

have the we a business. Chart mixed Next Test bit of where is story X, here. A

see order significant -- orders activity orders were year which for can had significant not this nearly XX%. drop A last You test and is had down did we repeat we a year. order big measurement

been the have We weakness the COVID China slow in as in of seen pace since year. reopening earlier continuing fiscal overall from has the also business

Sales were This efforts the points as the XXX sales. dollars as X.X% down even was driven -- margin good well improvement X% by on margins increases. lower a basis price increased is reduction news cost EBIT was as that here but of

Next is last flow we are operating negative cash sizable to increases assets from contract year's capital behind flow X been the quarters first quarter did our and flow our receivable, improvement highlights. also and operating Working in cash Chart still taxes from we've million. running We but have of cash X cash inventory higher and seen third accounts see And impact paid $XX a amount cash paid. headwind. interest compared

down million Capital expenditures year-to-date. approximately are $X

a had and we NRG main year driver at last that building year's this purchase decrease. recall of that's You'll the

$XX approximately flat buybacks months through $XX we is in relatively NEco acquired last lastly this completed is with CMT fiscal And over Acquisition and in fiscal in 'XX first the million acquired compared year. share year repurchase, to where 'XX. just X spending million

chart. guidance the And our last is chart

You XX% to per here put each year November guidance projecting up of has adjusted share since XX%. in $X.XX we last in midpoint range that per gone to guidance of We can share of our out see initial $X.XX the and of are our earnings the growth quarter then.

fiscal a at for and that 'XX what excited of delivered strong years ESCO $X.XX next 'XX but strong to 'XX per and after the represents 'XX. only looking in good for growth now share double-digit are in earnings in the coming range are We we adjusted not years XX% about $X.XX, beyond. year This we X and comes

I'll turn over So it concludes financial that now to back update and the Bryan.

Bryan Sayler

Thanks, comments number on a will a go Chris. more I of my Q&A. just earlier, before I offer we few Since touched thoughts to

You saw Chris. numbers the from

great and company to strong as continue financial the future. level So XXXX a have well-established we customers. with a we operating markets with very The serve performance. We strong to at look end obviously, high very is confidence

the for out at teams and what's a we're of have businesses forms ESCO. We around corporate excited This about great next here the combination powerful and world.

report I to recently activities. did XXXX covering Q&A, we that our our ESG Before want published mention

at would You nice work The overall. ESG Citizenship renewable and on lot team business of on our go the We into the their it encourage our ESCO's good that website. It lot to also profile you useful. I here take section has can helping NRG of look to about hope find It's and report. find you of a of a enable put information the a capabilities a program got this report. Corporate energy.

the we So with that, Q&A. can start

Operator

CJS. from Thank you. question Tanwanteng Our [Operator at Instructions] comes first Jonathan

Peter Lucas

talk those you the Can It's Jon. shift? orders? bit generate earnings Peter that timing and revenue a you when expect for impact to more does Virginia-class And Lucas about from

Bryan Sayler

Sure.

the of as tranche some we then XX fourth time within term, expansion submarines early orders the that's a expect significant So many in quarter. pretty at Virginia-class some expect see more expect And next near as We probably perhaps that, process to year. do would multiyear take to Block right to get there's place. We a X going few on is a months. happening what's procurement now in that's Virginia-class

We based might generate think any a that the a project really ability be on good are forward. they're we earnings. and in impact see upon going to that modest on We expansion so have position to adding going to don't additional submarines going some aspects of it's our

Peter Lucas

to you the more chain supply it Very your issues. throughput, seeing those? jumping downstream on helpful. Where the And suppliers Can there? Is parallel a color or us you little biggest your issues then give partners? are internal

Bryan Sayler

so really recovered. The have here & Defense ESCO. about Well, our the we're business of seems rest talking Aerospace to at business largely

cascade able defense to tier easily The a is, with there's now regard this suppliers issue industry, challenge an are Within and lower that not the suppliers biggest right effect. very industry-wide industry. in struggling replace that chain. has to and is We're supply aerospace

puts so we products them where kind that in swapping us a for out. to have of than wait position And rather

be components we that. out in to have that to don't example, at So for type over able boards chip segment, for swap were luxury able & of something Aerospace Defense. like redesign memory Utility over to more the or available We circuit

it's we at making several back growth. would the this Show unwind are going June. and are is driving the the really challenge the consensus was we industry take is I But Air a challenge. this companies facing. topic to industry-wide news good to are of Paris really The progress say quarters is an more that discussion And in many big good

Peter Lucas

And last me. one for

the update talk the past looks like an the in there, terms what it if allocation. of kind Just of relatively? more aren't M&A or quarters? out Is of on And capital less priority compared to about environment, couple acquisitions it attractive

Chris Tucker

Yes. Sure.

And we be about close it's we're get that improving. intelligence, last to news good than research later opportunities feel more of But have near getting in we certainly are we investment more to engaged So will opportunity done market programs don't don't quarters. for this is good our presently seeing to I comment good some but any We're market coming the a We of the pretty couple have on to on seeing we're year. the anything opportunities think on couple based do our done. want that details. term. and We

Operator

question next at comes Our Moll Inc. Stephens from Tommy

Tommy Moll

plans planning and range, business. where I through build rather provide specific Bryan, at levels, if to of the you in, side any growth growth even a from the A&D any moderating reason segment? there double-digit your of at from content And think momentum your is at What want review unreasonable you that you start if have to if commercial, the update elevated on then look is this the can that to rate continue that spec-ed rates year in the horizon? the the

Bryan Sayler

lot particular, continue we feel digits accelerate well that or And should that single over piling to in benefit responding to the have high and piece. to touch like work chain progress that higher and a our continue we're challenge rates growth keep the the be we a aircraft shorter in in the make term. in biggest are will there. seeing listen, to So But through from we're The businesses. Boeing, and next us that continuing X, for And rates of maybe the the Airbus we supply up. orders year build

business And where about we feel headed. good so pretty that is

Tommy Moll

And can then terms any your of update Bryan, there? A&D the review of you in provide portfolio,

Bryan Sayler

strategic any make to today. there. of great first businesses have got some don't announcements Listen, We we've all,

all the expand commercial and some We particular, ways those to think to businesses are well. at performing And think looking do that on opportunities in we're of our do position I that. are in there spaces, navy aerospace.

Tommy Moll

I also Doble enough. Fair Utility ask to really wanted specifically. about or

say there demand in operating like quarter. terms a the some there. with good rough even of opportunity? of into bit. It number cadence reacceleration to the been were Bryan, hit years in were kind there little where pre-pandemic, after. impressive outlook rate favorably a probably a growth terms was of in market dipped rate like then pandemic to years of And where fair feels take quarter the if it's you go it underlying some Does terms single-digit an the Another Then in that What third is leading of quarters changing growth a opportunity going think you've post-pandemic back, step pre-pandemic, that of high the feel there's a forward, that there? I a

Bryan Sayler

do money. I in general big, this I would that say it's that build-out seeing. Act -- so people make money, utilities infrastructure. to folks capital at the think on we've XX-year really for in giving have of And I positive runway to facilitate healthy the that, grid which a the that is investments before and its make in here big I where clean go that what's business. transition the short-term Act And large fact our long-term it's think And and most to impact. that -- very lot that it a Infrastructure that enormous is order both really got confidence -- We've energy ahead we're positive fundamentally Reduction think the big investments. Inflation about is dawned got that's not a a driver had

that space to assets. that, they these smarter to I addition how in get they about handle think really -- realizing the are utility that are folks In need

helping in made is And organic us years so inorganic capabilities of the a bet condition heavy that monitoring of on development our there. ago we number both and investments really

new some starting the products to get are we years traction. couple in that have the of last Some really about talked of

spot say there. hitting So pretty a sweet we're I'd yes,

we side, us would than this I renewable phone, the been -- except the news. air difficult very lighter It's mean business predict what on has that good time year. Overall more up for been happen, we for to exactly pick it's every

do is: and made we And that's in terms are story The worldwide. more as So part this will investment Okay, of of in order that that a here? fun been is of to where those kinds -- certainly facilitate dollars made. a lot bigger I we to question a there's trillions mean the guess and investments be to go needs be reality transition, from I benefit of.

Operator

question next Company. Our from & at Sidoti Franzreb John comes

John Franzreb

great start a the on business. like the on Test I'd quarter. Congratulations of to side

business coming characterized been of kind You've in that as China of out getting has COVID. issue just the an door.

bit in changed are China in expectations to of in light a about talk and what little has seems you of the Can competitive Now be landscape Test that weakening coming China the quarters? in demand And your environment? in itself.

Bryan Sayler

whole the say Test business strongest a period. this COVID -- would I that the our as business through Yes, was

of of business parts were us been business growing. was exceptional really level they've for other of of that to had Test last year. China maintain our a And higher challenge the bit has year. softening revenue. this an kind and overall been fortunately, While year up, We able strengthening little a

very think making is So the level we're demand -- building money And -- overall We what sites we're on bit difference. competitive the in that to I still on is but of that's that We not significantly what's year-over-year. and ability I product a still a out believe get think borne that about we're basis, job think in a China. our China little we read difference business that's been down that the our seeing is there, the comparison out landscape as impaired. fundamentals of from The Chinese do seeing very, in we're economy. on still a customers over by going

Test -- reasonably a So overall good Measurement relatively reasonable It's part a subset small is news mean, it's the the of business. a business. and I our of

little and E&C more we're of And North the activity. probably of a America, transition, kind what less there is has that been flattish. little seeing Meanwhile, of wireless a here a of sort work and bit in the business

thing. activity seeing. is see us Yes, for quite little and strong security this EV our we've year a Finland NATO. of we're to they're the some by continue with European been We that and sort of a in stuff driven interesting has joining probably big bit been that's and What's business got presence

continue a we're optimistic years. this so business upper last moving But about of of over -- kind sideways at along several been to still of kind revenue listen, end overall, it's but this we So the positive. our be

John Franzreb

going a sure. markets actually Got it. but like enthusiastic doing the renewable it to it. it you that in Is far utility of talk you The helped shift forward. really traditional sounds be back? utility are on you're what cycle Can well the to bit a the as Got pent-up more comments coming utility side? you're a as That little about your demand fundamental back And that's demand spending? lot. business long-term slope going about utility traditional seeing Would see the spend,

Bryan Sayler

me pent-up got maximize be much". mess activity said, out uptime on listen, Tommy utilities of for hands-off to wrong generation was of operated that kind up be "Hey, a we pandemic, would lights to made the demand, the And years about period there during approach and say was and as they way it a keep ago too the to we because pandemic, is the think around that sure I talking not for. lot had took of during and Well, of the couple no then a the and came make we

products seeing are lot products requirements monitoring the in and testing. that activity I advanced way now the piece. -- We've for think are those think their digital particularly a been got We're we're in condition utilities that enhanced about able past this to think We've about has I more shift do for techniques. satisfy areas. a of new largely got there now that

or vehicle can see the got in on And -- to has the the X as do going all And it even listen, build-out -- streams capitalize half been for math and demand utilities stated, XXXX say cut of amounts enormous revenue an able we're -- of recognizing they achieve deliver there points they've they're if The fact these to utilities. XXXX still is itself net on them or you them in what is they're not targets electric that by and to to and enormous are XXXX service. you but they that driver be if growth.

And so making the now. they're investments necessary

John Franzreb

slower a in lower-tier alternative the one just And -- you with Is that they're is process last Can on would enough. be some that recertification My surge there's of that the understanding Fair might by case? -- not Or than actually suppliers clarity have whatever in going A&D. making. question -- there expected? a little some suppliers just helpful. required the is it just

Bryan Sayler

it's so by slower that recertifications, you when Well, requests, an averse. than the people just going it they're it's as change actually a industry I being expected. phenomenon, doing very about industry-wide very is And about And think conservative that think inundated right? think are those

lot So changes a I definitely of in cases, really where mean, we have changes of to in choices. and material sort thing. and don't we've we position we that made certifications a put design are have many

most other thing piece nicely. our past our other a But past overall programs past are we small And that the running point at parts a stuff are it's going would are if out a smaller of of of programs quantities. backlog, meat that lot and are number sort due driving those potato due. lot along large AXXX, that of XXX, a of of that due. you're programs seeing thing, is I into the where look this The of think is I

And going so program is a recertification the obvious. justification for through less

Operator

Moll from Inc. next question Our Tommy is at Stephens

Tommy Moll

to we wanted today. hit on utility make sure margin just I Yes.

before, if here. any So ZIP sustained history. back recently, basis, more where is haven't you enough XX% far you've go an you letting me there you been back But a EBIT in adjusted On a thanks in which reported code basis. been just for on

you there this anything if curious recent margin if there's can sustainable or like a of base some the I'm that improvement onetime operate in quarter favorable So feels more at?

Chris Tucker

kind particularly we're of on driving big just nice growth. onetime the obviously leverage I wouldn't say anything there really Tommy, there. in Again, Yes, was

a cost little earlier kind more see of it's us favorable did bit year, and management we the unfavorable things. of But of again, mix those was price that slightly. in and of so that think helped then, I kind kind just

So not the be and 'XX quarter historical as back to that level. to peaks going we're obviously, beyond. listen, drive we at into we're looking But every to there go

kind good I'd as answer margins Really of it. So confident nothing and the leverage special, how ability drive go about we feel that's forward. up the we to

Operator

Thank back turn you. I'm showing like this to would conference Bryan at no questions I the time. and further CEO, President now remarks. to Sayler, for closing

Bryan Sayler

everyone to to -- again thanks, to everyone. forward quarter been It's thanks, Well, this in you yes, to good we'll next and you talk talking look quarter.

Chris Tucker

Thank you.

Operator

Thank concludes today's you. participating. call. This conference you for Thank

You may now disconnect.

ESCO (ESE) 8 Aug 232023 Q3 Earnings call transcript