ESCO TECHNOLOGIES INC Q1 FY2025 earnings call

• Bryan thanked employees for their efforts and mentioned Southern California employees affected by wildfires, noting the company remains focused on supporting them.
• Discussed SMNP acquisition status: U.S. closing conditions met, now in final stages of UK government assessment, expected to close in remaining months of fiscal Q2 or early Q3. Regarding VACCO strategic review, business performance improved, and the company is evaluating whether to retain or sell the entire VACCO business, anticipating a more definitive path forward by May.
• Highlighted strong performance across segments in Q1, with continued momentum in served markets and strong execution driving positive results. Mentioned adjusted earnings per share details, order book to bill, backlog levels, and cash flow highlights.

Aerospace and Defense

• Delivered 20% revenue growth and margin improvement in Q1. Navy sales were particularly strong, up $13 million or 56% over the prior year. Book to bill was above 100% despite orders being down in the quarter, with a backlog of over $600 million. Sales growth within the quarter was nearly 21%, led by commercial aerospace and navy. Adjusted EBIT margins up 130 basis points, and adjusted EBITDA up nearly 30%.

Utility Solutions Group

• Had an outstanding quarter. Orders growth was strong at over 16%, with both Doble and NRG delivering double-digit order growth. Sales growth was 4%, driven by 12% growth at Doble. NRG's revenue was lower due to moderation on renewable projects. Adjusted EBIT margins for the group were 23.6% in the quarter, driven by leverage at Doble and favorable product mix.

Test Business

• Had a strong start to the year. Order growth was excellent at over 40%, broad-based with EMC test and measurement, A&D, medical, and industrial shielding fueling the increase. Sales were up over 13% from US and European markets and MPE. Margins rebounded nicely to 10.6% due to volume growth and benefits from prior year's cost reductions efforts

• Full-year earnings guidance updated from $4.70 - $4.90 per share to $5.55 - $5.75 per share, with second quarter guidance at $1.20 - $1.30 per share.
• Sales guidance unchanged at 6% - 8% growth. Targeting 16% - 21% growth in adjusted EPS compared to 2024. Guidance excludes the impact of the pending SMNP acquisition and the strategic review process in VACCO.

• Forward-looking statements are based on current expectations and assumptions, and actual results may differ materially due to risks and uncertainties in operations and business environment.
• Non-GAAP financial measures used, and reconciliation to GAAP measures is needed.
• Uncertainties related to the SMNP acquisition's regulatory approval and the outcome of the VACCO strategic review could impact the outlook.

Q: Tommy Moll asked about context for Doble's revenue growth and durability of drivers.

A: Bryan said utilities are making capital investments due to broad increases in electricity demand from various factors like reshoring, electric vehicles, etc., and the first quarter's strong performance is expected to flow through the rest of the year.

Q: Tommy Moll asked about margin improvement in guidance and segment revenue implications.

A: Bryan said there was good margin upside in A&D from past due backlog moving better and favorable mix in Doble. On revenue, some softness on renewables may offset Doble's sales growth but EBIT is in good shape.

Q: Jon Tanwanteng asked about characterization of strong test orders and M&A environment.

A: Bryan said test orders were broad-based with various sectors contributing, and the company is strongly prioritizing SMNP closure and VACCO review, with other opportunities being looked at but not imminent.

Q: Josh Sullivan asked about Boeing strike resolution and defense side sub builds.

A: Bryan said Boeing strike was resolved, and while Boeing's build rate is modest in 2025, it's expected to grow in the second half and next year. On defense, submarine and surface ship builds are making steady progress, with expansion of ship set content favorable, though contracting timing has shifted out slightly