ESCO Technologies(US:ESE)2019-11-20 03:30Financial Data and Key Metrics Changes - The company reported a 9% growth in adjusted EBITDA and a 13% growth in adjusted EPS for fiscal 2019 compared to fiscal 2018, with adjusted EBITDA reaching $151 million and adjusted EPS at $3.13 per share [11][14][21] - Cash flow from operating activities for the year was $105 million, resulting in a leverage ratio of 1.68 as of September 30 [16] - Q4 cash from operating activities was $68 million, marking the strongest quarterly cash flow in the company's history [17] Business Line Data and Key Metrics Changes - Filtration sales increased by 14% year-over-year, with aerospace businesses contributing a $32 million increase, while the renewable energy business saw a decrease [12][14] - The Test and Doble segments experienced better-than-expected sales growth, while the USG segment showed signs of recovery [43][51] Market Data and Key Metrics Changes - The company expects consolidated top-line growth of 9% to 10% for fiscal 2020, driven by a 14% growth in Filtration and 7% to 8% growth in USG [19] - Entered orders exceeded $900 million for the first time, leading to a backlog increase of $92 million or 24% from the start of the year [17][18] Company Strategy and Development Direction - The divestiture of the Technical Packaging business is seen as a strategic move to streamline operations and focus on core segments, allowing for debt reduction and increased liquidity for future M&A [9][10] - The company aims to leverage its strong market position in medical device and pharmaceutical packaging to pursue additional acquisitions that align with its core businesses [9][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the backlog growth and the ability to achieve fiscal 2020 targets despite potential timing issues in revenue recognition [35][36] - The company is closely monitoring geopolitical risks, particularly in relation to operations in China, but does not foresee significant impacts on its business [38][39] Other Important Information - The effective tax rate for fiscal 2020 is projected to be 23% to 24%, higher than the previous year, which will negatively impact projected EPS by $0.10 per share [20][21] - The company is focused on maintaining a flat capital expenditure outlook while continuing to invest in automation and efficiency improvements [48][49] Q&A Session Summary Question: Can you provide the adjusted EBITDA number and margins for next year? - The adjusted EBITDA for 2019 is approximately $139 million, with expected growth of 12% to 13% for 2020 [30] Question: What is the timing of your backlog and forecast dip from Q1 to Q2? - The company anticipates a back-half weighted year, similar to fiscal 2018, with 30% to 33% of adjusted EPS expected in the first half [31][33] Question: How much of the backlog is related to the packaging business being divested? - Approximately $11 million of the backlog is associated with the packaging business [36] Question: What is the current status of the M&A pipeline? - The company is actively pursuing several promising opportunities in its M&A pipeline [37] Question: Have there been any changes in global and geopolitical risks? - Management indicated that geopolitical risks have not significantly impacted operations, particularly in relation to China [38] Question: Can you discuss the cash generation of the Technical Packaging business? - The Technical Packaging business has been a cash drain, but its divestiture is expected to improve overall free cash flow generation [46] Question: What are the expectations for acquired revenues for 2020? - The company expects approximately $37 million in revenue from the Globe acquisition for 2020 [51] Question: Where do you see the biggest area of concern or opportunity in forecasting? - The capital budgets in utilities present some risk, but the company is diversified enough to mitigate potential impacts [53]