ESCO Technologies(ESE) - 2023 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales increased by over 16% in Q1 2023, with adjusted EBIT up over 31% and adjusted EPS up over 30% [19] - Operating cash flow declined by almost $11 million compared to the previous year, with capital spending down just over $9 million and acquisition spending dropping by nearly $16 million [9] Business Segment Data and Key Metrics Changes - Aerospace & Defense segment saw sales up 18% and adjusted EBIT up 25%, with margins expanding to 15.3% [8] - Utility Solutions Group reported nearly 12% revenue growth and adjusted EBIT margins expanded from 21.8% to 22.7% [17] - Test segment experienced a 19% increase in sales and a 36% rise in EBIT, although orders dropped by 24% [20] Market Data and Key Metrics Changes - The backlog at the end of Q1 2023 was $718 million, representing a record and a 12% increase compared to the prior year [31] - Orders growth in the Utility Solutions Group was 21%, with the renewables business growing at 35% [34] Company Strategy and Development Direction - The company is focused on improving collaboration between subsidiaries and is undergoing a strategic review to enhance growth opportunities [57] - An acquisition of CMT Materials was completed, expected to strengthen naval offerings and provide exposure to growth in unmanned submersible vehicle markets [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the underlying demand for products and services, despite challenges such as labor shortages and supply chain issues [31] - The outlook for the year remains positive, with expectations of continued growth across all business segments [32] Other Important Information - The full-year outlook for adjusted EPS has been tightened to a range of $3.50 to $3.60 per share [35] - The company anticipates a lower forecast in the Test business for Q2 due to ongoing disruptions in China [35] Q&A Session All Questions and Answers Question: Revenue outlook compared to previous guidance - Management indicated that growth expectations are biased towards the higher end of previous ranges, but growth will moderate from Q1 levels due to tougher comparisons [24][25] Question: Status of commercial aerospace recovery - Management believes the recovery has strong potential, with robust demand expected to continue, although supply chain disruptions remain a challenge [40] Question: Cash flow progression expectations - Management aims for free cash flow conversion in the 80% to 90% range for the year, acknowledging Q1 as a seasonal low point [43][59] Question: Confidence in Test business recovery - Management remains optimistic about the Test business, citing a strong backlog and underlying market demand despite current disruptions [47] Question: Constraints from supply and labor perspectives - Labor shortages are currently viewed as the bigger issue affecting operations, with supply chain challenges also present but expected to improve [55]