ESCO Technologies Inc.

Good day, and welcome to ESCO Technology's second quarter earnings conference call. Today's call is being recorded. With us today are Vic Ritchie, Chairman and Chief Executive Officer, Chris Tucker, Vice President and Chief Financial Officer. And now to present the forward-looking statement, I will now turn the call over to Kate Lowry, Vice President of Investor Relations. Please go ahead.

Thank you. Statements made during this call, which are not strictly historical, are forward-looking statements within the meaning of the safe harbor provisions of the federal securities law. 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 operations 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 8K to be filed. We undertake no duty to update or revise any forward-looking statements except as may be required by the applicable laws or regulations. 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 the 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. During today's call, we will be referring to a slide presentation that is currently available on the investor relations section of our website. Within the call, the charts are located in the download tab at the top right corner. Now I'll turn the call over to Vic.

Thanks, Kate, and thanks, everybody, for joining today's call. I'd like to start off with a welcome to our new board member, Jan Hess. We just finished up our board meeting late last week. We're really thrilled to be adding Jan to our board. She brings a very broad skill set with decades of experience in leadership roles at Teladon, a diversified industrial company. Her focus on technology development to meet customer needs and drive growth will bring great perspective to our board. She also has experience across many industries, including several of our core markets. Her knowledge and leadership will be a great asset for ESCO, and we're happy to have her on the team. I'd like to thank the entire board for the ongoing support and commitment to ESCO. Now let's switch to the discussion of the second quarter. Overall, we saw the business continue to build momentum. All three businesses delivered organic sales growth in a quarter. With consolidated revenue growth of over 23% in a quarter, it's clear that we have nice top line momentum. We also had another great quarter of order growth with a 34% increase in orders compared to last year's second quarter. Our backlogs continue to grow with an increase of over $75 million since the fiscal year started. The backlog at the end of March was a new record for ESCO, so we feel good about the outlook for the balance of fiscal 22 and expect good momentum as we head into 23. Chris will get into some of the financial details in a few minutes, but I'll start off with some top-level commentary about each of the business segments, starting with A&D, where the quarter was a bit mixed. We continue to monitor the commercial aerospace business closely, and we're seeing some good growth from that market so far in 2022. There's another strong quarter for orders and revenue, increased 30 percent over the prior year to reach the highest level since before the start of the pandemic. Some of this is from an easy comparison we had last year, but it's clear that travel is picking up and that is helping drive a recovery in our business. The Navy and defense businesses had some declines in a quarter, but we see that more as timing and feel good about the outlook there. While there was a revenue growth in a quarter, there are still margin and operational challenges in A&D. Past due backlog is something we're watching closely as supply chain challenges have not let up. So all of the operations teams are highly focused on managing these issues to support our customers. On the margin side, the bottom line is for A&D Bottom line for A&D is we expect margins to improve as the recovery continues and volumes build in the back half of the year. Let's turn now to test business where we had a really great quarter. The sales growth strength continued with nearly 28% increase compared to last year's second quarter. We're seeing great growth in Americas and in Asia with the growth coming from several key industries and product lines. The other thing I'd like to highlight about the test quarter is the margin performance. We talked a bit last quarter about how important it was to see the margin improvement in this business, and it really came through nicely in the second quarter. The team at Tess continued to work the inflation challenges aggressively. It's definitely an ongoing battle, but nice to see the jump in the margins after all their hard work. Similar to Tess, we had a really solid quarter from the USG business as well. The underlying sales growth came in at over 35% in Q2, just phenomenal growth. And when you add in the acquisition impact, the growth jumps to north of 60%. Really great work by the teams there. And we had a pretty weak quarter for Doble a year ago, so the comparisons were a bit easy, but I would say we still saw the orders and sales momentum outpacing our expectations as the quarter closed out. I did want to comment on the acquisition integration status for Doble, Altonova, and Phoenix. We just did a strategic review with these teams a few weeks ago, and they've really done a great job of analyzing the product portfolio to determine which products should be offered in our markets around the world. Clearly, the acquisitions have brought us some new capabilities, and now we have good visibility on our product roadmaps globally. It's a long process, and there will be additional work as we move into execution mode, but we still see nice revenue synergies and are really happy with how the businesses are coming together. Overall, through the first six months of the year, we feel good about what we've achieved, and we continue to be on track for the expectations we laid out back in November. It does require a step up in EPS growth in the second half of the year. This is how our plan was laid out from the beginning of the year, and we've been working hard with all of our subsidiary teams to make sure the plans are in place and delivered. You all know that the operating environment is very challenging right now, but we will continue pushing hard to deliver the year. Certainly, the backlogs are supportive of the second half projections, and we are committed to delivering for our customers. And now I'll turn it over to Chris.