ESCO Technologies(US:ESE)2020-02-05 02:46Financial Data and Key Metrics Changes - The company reported an adjusted EPS of $0.43 for Q1 2020, which was $0.03 above the top of the guidance range and above analyst consensus estimates [16] - Sales increased by 5% year-over-year to $172 million, driven by growth in Aerospace and Defense (A&D) and other segments [17] - Adjusted EBITDA rose by 5%, with Test and A&D segments increasing by 30% and 18% respectively [17] - The net debt was reduced to $53 million, lowering the leverage ratio to 0.92, which is considered below the ideal capital structure [18] Business Line Data and Key Metrics Changes - The A&D segment showed strong performance with higher sales volumes and a favorable sales mix, contributing to increased profits [7] - The USG sales were impacted by the timing of orders, with expectations for a strong trend continuing into Q2 [8] - The company anticipates meaningful growth in the A&D segment for the remainder of the year, supported by a significant number of received orders [9] Market Data and Key Metrics Changes - The company expects to receive orders for the Columbia class submarines in the latter half of the year, with advanced deliveries anticipated in 2021 [30] - The Navy business now accounts for about $100 million in sales, with military sales making up approximately 35% of the A&D segment [44][46] Company Strategy and Development Direction - The company is actively pursuing M&A opportunities, particularly in the A&D and USG segments, to enhance its global distribution network [12] - The recent divestiture of the packaging business has provided liquidity to support the M&A strategy and further growth [20] - The company aims to improve cash flow generation and conversion, targeting a cash conversion ratio of mid-90s by the end of fiscal 2020 [67] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the fiscal year outlook, despite potential headwinds from the 737 Max production issues [10] - The company is monitoring the impact of the coronavirus, with management indicating that as long as the situation resolves within 60 days, there should be minimal impact [28] - The overall sentiment is positive, with management noting a solid start to the year and a strong order profile supporting Q2 revenue expectations [41] Other Important Information - The company recognized a $100 million pretax gain from the sale of the packaging business, netting approximately $161 million after taxes and fees [14] - The company has completed the move to a new headquarters, expecting annual savings of nearly $1 million from this restructuring [36] Q&A Session Summary Question: Outlook for Q2 and annual guidance - Management indicated that while Q1 performance was strong, it is too early to raise annual guidance due to potential risks [24][25] Question: Content per plane on the MAX and other risks - The content per plane on the MAX is about $15,000, with management noting a modest revenue contribution [26][27] Question: Update on Globe and submarine content - The content per Virginia class submarine is around $29 million, with expectations for orders in the back half of the year [30] Question: M&A opportunities and appetite - The company is evaluating several potential acquisitions and feels optimistic about the pipeline of opportunities [35] Question: Cash conversion and free cash flow generation - Management aims to improve cash conversion to the mid-90s percentage, with a clear path to achieve this by the end of fiscal 2020 [67]