ESCO Technologies Inc.

Good day and thank you for standing by. Welcome to the second quarter 2023 ESCO Technologies earnings call. At this time, all participants are in the listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. please be advised that today's conference is recorded. On the call today, we have Brian Saylor, President and CEO, Chris Tucker, Senior Vice President and CFO. And now I would like to hand the conference over to our first speaker today, Kate Laurie, Vice President of Investor Relations. Kate, you now have the floor.

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 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 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 take no duty to update or revise any forward-looking statements except as may be required by the applicable laws and 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 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 Brian.

Thanks, Kate, and thanks, everyone, for joining today's call. We appreciate all of you taking time to get an update on ESCO this afternoon. So our year is off to a great start, and I'm pleased to speak with all of you about our second quarter results. The first six months of fiscal 2023 have gone well, and we're pleased that the outlook remains robust as we look forward. Before I jump into the highlights for the quarter, I do want to take a moment to thank all of our employees. ESCO has delivered strong results over the last year and a half, and our talented and dedicated employees have been essential to these outcomes. Business has been very good, but we continue to experience a challenging operating environment. Supply chain performance has steadily improved, but it's not quite delivering with the efficiency that we experienced pre-pandemic. We also see challenges at a number of locations related to getting up to full staff. These issues do create extra burdens for our operating teams across the company, and I appreciate everyone's extra efforts to help the company adapt and improve as we continue to drive growth. With that, let me pivot into the quarterly results. We had a really strong second quarter with good sales and earnings growth. Even more exciting is the continued strength that we're seeing with orders and backlog. All three of our segments had book-to-bill ratios in excess of 100%, and we finished the quarter with $741 million in backlog. That represents a $70 million increase over March 2022 and a $46 million increase from September of 22. It's clear that we serve a dynamic customer base in high-growth industries. ESCO has the right products and the right services for the right markets. It's a powerful combination that gives us confidence in our future. Chris will get into some of the financial details in a few minutes, but I do want to offer some top-level commentary about each of the operating segments. Starting with aerospace and defense, where we had another great quarter, sales increased by 17%, and adjusted EBIT dollars were up by over 35%. As you all know, ESCO has a broad collection of product lines here, and we are continuing to benefit from robust market conditions. Growth continues to be driven by commercial aircraft recovery, but we're also seeing good activity in military aircraft and Navy businesses as well. The operating challenges that we see across ESCO are most pronounced in the aerospace and defense groups. While ESCO's supply chain performance is improving, We still have past due backlog issues, which are primarily the result of industry-wide supply chain instability. The teams continue to work the issues aggressively, and we will continue to see strong sequential growth in our revenues, but we do not expect full resolution of past due backlog in the near term. Next up is the utility group, which also had a strong quarter. Revenue growth was over 23% in the quarter, and adjusted EBIT margins expanded by 13 basis points to 17.8%. The core utility business continues to be solid as customer base invests in electric infrastructure, and we continue to see our backlogs grow. In particular, we're seeing strong orders and sales activities from our condition monitoring product lines. This is a trend that we anticipated as utility customers continue to push for high reliability by monitoring their critical assets in real time. On the renewable side, our growth continues to exceed our expectations with particular strength in solar resource monitoring. 2023 looks to be the third year in a row of sales growth in excess of 20% for NRG. The USG is a good story for us. We've built a great team. We've expanded our product offerings in both utilities and renewable market spaces, and we're performing well for our customers, all of which is driving above-market growth. The Utility Solutions Group has made investments in inventory in order to protect our customer commitments as we manage through supply chain challenges. We expect that these investments will moderate as we move forward, and inventory will start to burn down in the second half of 2023. Finally, I will touch on the test business, where we did see a bit of a drop in sales and even in the quarter. The test business has seen tremendous growth over the last few years, and Q1 was strong as well. We mentioned during our earnings call in February that this business was expected to be weaker in Q2, driven mostly by lower activity in China. That did come to pass as we experienced significant disruptions as the economy opened up post-pandemic. In the end, sales were down by 9%, and even margins came in at 14.2%. The business did see a book-to-bill ratio of 109%. Overall, the backlog situation here is good. So while we could see another soft quarter in Q3, we expect the sales growth to return by Q4. So to summarize, it's been a great start to the year for ESCO with two really strong quarters. We're on a good path overall as we drive to deliver our targets for the full year. Chris will provide some additional detail in a minute, but we are increasing the full year outlook again this quarter. Now I'll turn it over to Chris to give some more financial highlights on the second quarter.