ESCO Technologies Inc.

Good day, and thank you for standing by. Welcome to the fourth quarter 2023 ESCO Technologies earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being 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 undertake no duty to update or revise any forward-looking statements, except as may be required by 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 gap 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 to everyone for joining today's call. We appreciate each of you taking time to get an update on ESCO this afternoon. We had a very strong year, and I'm excited to tell you all about it. With that, let me pivot to some summary comments on the business. We finished the year strong, and as you saw in the press release, closed the year with record results on a number of measures. Sales, adjusted earnings per share, entered orders, and ending backlog were all record levels in 2023. Sales grew by 11.5%, and adjusted EBIT was up 17%. So it was great to have double-digit growth once again for both sales and earnings. As we've been saying for a while now, our key end markets continue to have favorable dynamics, and as you can see, you can see that coming through in the financial results. Also of note was full-year orders exceeding $1 billion in 2023. This is a significant milestone for the company, and with a record backlog of $772 million at year-end, We feel great about the outlook for ESCO going forward. Before Chris gets into the financial details, I do want to offer some top-level commentary about each of the business segments, starting with aerospace and defense, where we had a good year. Sales were up double-digit as we continued to see good momentum in the commercial and defense aerospace businesses. We did see margin compression here again in the fourth quarter, and that was driven by margin erosion on a number of space development contracts. As we went through the quarter, several technical issues arose on these programs leading to increased cost estimates, which in turn reduced our overall profitability. We are working aggressively to fix these issues and minimize the risk in the space business as we move forward. But on the bright side, we had very strong orders in Q4 in the A&E group, with particularly strength from Navy orders at Globe and VATCO. And overall, the outlook here remains strong, and we are positioned well. to take advantage of the growth that we're seeing in both Navy and aircraft markets. Next is the utility group, which had an exceptional year in 2023. For the year, we had 23% sales growth and significant margin expansion. The core utility customer base continues to invest in infrastructure, and our portfolio of businesses operating under the Doble umbrella are well-positioned to capitalize on this trend. We are seeing broad growth across most product lines with protection testing, condition monitoring, and offline testing all delivering good growth. On the renewable side, growth continues to exceed expectations. 2023 was a phenomenal year for NRG. We did see NRG orders a little softer in Q4, and that's something we're keeping an eye on, but this business still has high backlogs compared to historic levels. and we continue to expect to see good growth in 2024. Finally, I'll touch on the test business, where we saw a sales decline in the fourth quarter. So overall, the business finished the year down by 3%, as strength in Europe could not offset weakness that we saw in China. We've seen flattish results domestically, as growth paused after last year's strength from power filters and test and measurement projects. The good news for TESS is that we did increase EBIT margins in 2023 in spite of reduced sales. We do have some exciting news with an acquisition that we just closed in the TESS business. As you saw in the press release, we just closed on MPE Limited this week. Chris has a chart on the MPE coming up, but it has a real nice fold-in for TESS, and we expect it to enhance both the growth and profitability characteristics of the TESS segments. We're very excited to welcome the MPE team to the ESCO family, and we're excited about what they bring to the company. So to summarize, I would say 2023 was a great year. ESCO has had two consecutive years of double-digit growth in both sales and earnings. Even better is we don't think the growth is done, and as you'll see from Chris, we have a strong outlook for 2024. The company is performing well. And we're excited about our future. So now I'll turn it over to Chris for some financial highlights on the fourth quarter of this year.