ESCO Technologies Inc.

Good day and welcome to the ESCO Technologies first quarter 2022 earnings conference call. Today's call is being recorded. With us today are Vic Ricci, Chairman and CEO, Chris Tucker, Vice President and CFO. And now to present the forward-looking statement, I would like to turn the call over to Kate Lowry, Vice President of Investor Relations. Please go ahead.

Thank you. Statements made during this call regarding the timing of recovery and growth of our end markets the amounts and timing of 2022 and beyond revenues, impacts of COVID and COVID variants, and recovery expected as a result of COVID vaccines, recovery in commercial aerospace and utility markets, impacts of supply chain issues and cost inflation, availability of labor, adjusted EPS, adjusted EBITDA, cash, shareholder value, the timing of Block 5 deliveries, success in completing additional acquisitions, success in integrating acquisitions, The results of cost reduction efforts and other statements, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and actual results may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the company's operation and business environment, including, but not limited to, the risk factors referenced in the company's press release issued today, which will be included as an exhibit to the company's Form 8 to be filed. We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, during this call, the company may discuss some non-GAAP financial measures in describing the company's operating results. A reconciliation of these measures to their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com under the link Investor Relations. Now I'll turn the call over to Vic.

Thanks, Kate, and thanks to everybody for joining today's call. At the risk of being redundant, I'd like to start to call off again, I think, and our employees across the company for their ongoing efforts to manage the business. There continue to be a lot of challenges to overcome on a regular basis. We continue to see supply chain challenges with delivery, cost inflation, and the Omicron variant of COVID impacting our businesses. In spite of that, our teams continue to demonstrate tremendous resilience. Our employees are working very hard and doing all they can to support our customers and drive the business forward. And for that, I'm very appreciative. The business has continued to gain momentum as we start fiscal 22. Two of our three business segments delivered organic sales growth in the first quarter. We expect all three segments will deliver organic growth in the remaining three quarters. We have a lot of confidence in that outlook due to our continued strong order output. If you recall, the fourth quarter of fiscal 21 had order growth of more than 30%. Over the first quarter of 22, we achieved order growth of more than 40% compared to prior Q1. Our backlog is at a record level and that bodes well for the balance of the fiscal 22 and beyond. Chris will get into some of the financial details in a few minutes. I'll start off with some top level commentary of each of our business segments. Starting with A&D, we see the recovery continuing for this business. We continue to monitor the commercial aerospace markets closely. There will likely be some more disruptions with travel as the pandemic situation continues. We're undoubtedly seeing higher levels of business activity from our commercial aerospace customers. 2020 and 2021 were really tough years in this market, so we're glad to see the growth returning. For A&D overall, we saw entered orders grow by 38%. Admittedly, we were coming off a low base, but it is great to see the backlog rebounding like this. We saw in a press release a mention of challenges regarding supply chain performance and labor availability. Those challenges are definitely being felt by the A&D group. In particular, our California-based businesses, Abaco, PTI, and Chrisair, are seeing challenges as we work to ramp up to higher levels of business activity. We did miss some sales in a quarter because of these challenges. The teams are highly focused on increasing capacity to meet our customer demand, and we're confident that these are just timing issues within the year. The last thing I wanted to mention regarding A&D was our acquisition of NECO, which we were able to close in the first quarter, and we're excited about what NECO brings to our portfolio. This business will fold into our PTS subsidiary bringing a solid management team with great product technologies. We're very happy to have them on board. Similar to A&D, our test business also had a great orders performance in the first quarter. Quarters were nearly 68 million for the first quarter compared to 43 million in the prior year first quarter. So the growth is significant and broad-based, with double-digit increases in all global markets. Sales growth was a little lighter in Q1, which we expected, and we're planning to see strong sales performance over the coming quarters for TESS. We continue to face some challenges with profit margins during the first quarter for TESS. The margins are slightly down compared to what we had in our internal plans, and as you saw in the press release, you're also down versus prior year. This has been a key focus for us. No doubt the inflation challenges are acute for TESS, so we have programs around cost management and price realization, to help drive the margins as we move forward. This segment is our largest user of freight services, and as we all know, they are higher cost increases in this area, which is also impacting our margins. Margin expansion needs to come as we grow this business. That's a key part of our value story here, and we're focused on achieving that result. For USG, the story in Q1 was a bit mixed. We had the expected sales contributions from their recent acquisitions, so it was nice to see that coming through. Integration of the acquired businesses is going well and is on track. We also saw another strong order for NRG, so things continue to go very well in the renewable space. We did experience some challenges at Doble. Approximately $3 million of the sales shortfall was related to supply chain challenges with our contract manufacturers. We also had tough comps in last year's Q1 when customers released some funding for calendar year-end purchases. We didn't see a repeat of that during this first quarter, but the comparisons eased for Doble over the coming quarters, and we expect the growth to kick back in during Q2 and Q3. We continue to feel strongly that utility markets have very favorable growth characteristics over the long term, and we also feel that the portfolio of companies that we've put together will be very well positioned to take advantage of this growth. Overall, the quarter came in right on top of the internal projections we had when the quarter started. The high order activity supported our higher level of sales, but we couldn't get that out the door given supply chain and labor challenges. At the end of the day, we're on track for the 22 expectations that we laid out in November. The plan is back and loaded, but that's consistent with our original projections and supported by backlog. Bottom line, we feel good about where we are after the first quarter. Now I'll turn it over to Chris.