Q2 2025 ESCO Technologies Inc Earnings Call
Thomas Moll, Jonathan Tanwanteng, John
Speaker Change: Good day and welcome to the Q2 2025 ESCO Technologies Inc. Ernie's conference call.
Kate Lowrey: Draw. Your question. Please press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Kate Lowrey, Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Payments 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 forward looking statements due to risks and uncertainties that exist in the company's operations and business environment, including.
Speaker Change: 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-K to be filed we undertake no duty to update or revise any forward looking statements, except as maybe required by applicable laws or regulations. In addition, during this call. The company may discuss some non-GAAP financial measures in describing the company.
Speaker Change: 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 Dot ESCO technologies Dot com under the link Investor Relations now I'll turn the call over to Brian.
Brian: Thanks, Kate and thanks, everyone for joining today's call.
Brian: The first half of our fiscal 2025 has been highlighted by really good operational performance and positive strategic developments.
Brian: It's an exciting time for ESCO with strong underlying business conditions in our key markets and completion of a major acquisition. So it's a good time for us to give the investor community an update.
Brian: Additionally, as you are all aware of the macroeconomic picture has been evolving quite a bit over the past few months with trade issues coming to the forefront and geopolitical news items grabbing a lot of headlines like everyone. We must watch these activities very closely and navigate our business through choppy waters honestly, it's hard for us to know exactly what we'll have.
Brian: And next but our teams have done a nice job of mitigating these risks thus far.
Brian: We're happy to have this time to speak to you and we will update you on the impacts to ESCO as best we can.
Brian: Before getting into details about the business I do want to take a moment and say thank you to our employees for their ongoing efforts.
Brian: You don't achieve results like ESCO has over the last few years without a talented team of employees that are customer focused and dedicated to solving complex technical and operating challenges. It's hard work. So a big thank you to the team for the great work so far in 2025.
Speaker Change: Chris will run you through all of the financial details for the quarter, but before we get to that I want to give you a few comments on each of the segments.
Speaker Change: During the past month, we have completed our annual strategic planning process with each of our businesses.
Speaker Change: A part of these meetings, we assess our end markets and our strategies to deliver above market growth.
Speaker Change: Comments on the businesses with the focus a little bit more on these long term dynamics as compared to current quarter results.
Speaker Change: Darting with aerospace and defense, we remain very positive regarding the long term outlook for these markets, even with the macro uncertainty that we see our expectation is for continued growth here on the aerospace side, we see fundamental demand for additional commercial and defense aircraft and we expect this to drive growth in our busy.
Speaker Change: As we move forward order rates have moderated on the commercial aircraft side over the past six months, so as as the supply chain adjust to prior order surges and short term disruptions and prepares for longer term growth long term. The demand is there and should drive increased build rates on the name.
Speaker Change: <unk> side, we also continue to see robust activity in this market our business supports prioritize submarine programs, which we expect to be protected and expanded due to national security priorities in both the U S and the U K.
Speaker Change: That assessment supports our long term growth outlook in line with our previous communications.
Speaker Change: Before jumping to the next business I do want to quickly address the SMP acquisition, which recently closed we successfully closed the deal on April 25th it took us longer than we had hoped but we're thrilled to have the team on board one key thing to announce today is that we are rebranding the business to do business as <unk>.
Speaker Change: <unk> Maritime solutions, so as we discussed them in the future, we will likely describe the business as maritime or ESCO Maritime Chris will discuss the impacts on 2025 in a few minutes, but the good news here is that the business has been trending well and is tracking at or above the projections that we made at the time that we are now.
Speaker Change: Once the deal last July.
Speaker Change: This is an important strategic portfolio move for us and we're excited to add a business that enhances our margin and growth profile.
Speaker Change: Switching business was now let's talk about the utility group, which had another solid quarter.
Speaker Change: Focusing on the long term here as you all know we are experiencing a really good business cycle in the electricity and utility end markets from our strategic review of this team it's clear that the market conditions supporting our growth are intact. As we've discussed previously there are several factors, which drive increased electricity demand.
Speaker Change: This increase demand coupled with aging infrastructure and extreme weather events will make the technologies that doble provides more important than ever. So we continue to have a positive long term outlook for this business. The renewable side of the business is an area that we continue to watch the sales performance.
Speaker Change: <unk> was better in the second quarter, when compared to the first quarter and we continue to believe that there will be an important role for renewables to play long term.
Speaker Change: The renewables market is recalibrating right now, but order activity is better than it was a year ago and over time, we expect a return to growth.
Speaker Change: Finally, I'll touch on the test business, which is off to a good start this year. The team here is really doing a great job and we had a very encouraging conversation with them during the annual strategy update.
Speaker Change: Obviously 2023, and 2024 were tough years for this business, but in the first six months of fiscal 'twenty five we saw orders accelerate significantly leading to very healthy backlogs. One of the strengths of test is the diversity of end markets that it serves and no doubt we are seeing strong active.
Speaker Change: <unk> and EMC testing healthcare and industrial markets. The macroeconomic uncertainty is something that we have to pay particular attention to here. As this is a global business that has a lot of cross border trade flows we are watching the tariff situation closely and the team is already reacting to mitigate any impacts.
Speaker Change: We might see the.
Speaker Change: The key thing to leave you with here is that the business has stabilized and we feel good about our trajectory as we move into the second half of 2025.
Speaker Change: In summary, we feel strongly that our end market exposure remains favorable and growth tailwind should persist as we move forward with that I will turn it over to Craig to run you through the financial details of the quarter.
Craig: Thanks, Brian.
Craig: Everyone can follow along on the chart presentation, we'll start on page three where we will discuss overall financial highlights of the second quarter.
Craig: Orders were up nearly 22% in the quarter with increases from all three reporting segments. This resulted in record backlog of $932 million.
Craig: Sales were up by six 6% in the quarter and again, we saw increases from all three segments.
Craig: Adjusted EBIT margins came in at 18% with incremental margins on the sales growth coming in at 56% a very strong result for profitability.
Craig: This resulted in adjusted earnings per share in the quarter of $1 35.
Which represents a 24% increase compared to last year's second quarter.
Craig: Now when we go through segment highlights starting with aerospace and defense.
Craig: Orders were up 5% in the quarter as we saw solid growth in Navy orders as well as a sizable order for Ptas CAD pad business.
Craig: <unk>.
Craig: Overall aerospace and defense continues to operate with high levels of backlog.
Craig: The sales performance in the quarter was good with nearly 8% growth the growth was led by commercial aerospace and Navy.
Craig: Margins were strong with adjusted EBIT margins up 400 basis points and adjusted EBIT dollars up 28% as we saw favorable impacts from price increases as well as favorable mix.
Craig: Next on chart five is the utility solutions group.
Which posted another strong quarter.
Craig: Orders momentum remained healthy with growth of nearly 17% as both doble and NRG delivered double digit order growth.
Craig: On the sales side growth was 4%, which was driven by 5% growth at doble, while sales at NRG were flat compared to prior year's second quarter.
Craig: You will recall that in Q1, the sales decline for NRG was over 20%. So we have seen sequential improvement in the trends there.
Craig: Profitability was very strong for utility as we leveraged growth at Doble and also experienced favorable product mix, which helped drive adjusted EBIT margins to 23% in the quarter, an improvement of 290 basis points compared to last year's second quarter.
Craig: Next we will cover test or are you seeing continued recovery in this business order growth was exceptional as orders increased 75% compared to last year.
Craig: Last year was weak so the comparison was favorable but theres. No question, we have seen higher levels of order activity that had been previously anticipated.
Craig: You can see on the chart, we refer to a few key drivers in the U S and China. So the growth there was pretty broad based with filters test and measurement medical and industrial all contributing <unk>.
Craig: Sales were up 9% as we saw a nice growth growth from the U S and European markets as well as good performance at MGE.
Craig: Margins improved modestly to 12, 4%.
Craig: The business did experienced benefits from volume price volume leverage and price increases this was somewhat offset by unfavorable mix in the business, which was a result of lower sales in the high margin wireless business.
Craig: Moving to chart number seven we have a year to date P&L highlights.
Craig: As you can see the results have been terrific through the first six months of 2025.
Craig: Orders are up over 6% with a book to Bill ratio of one one.
Craig: Sales have been even better with growth of nearly 10% year to date.
Craig: All three segments have delivered sales growth with A&D in test, both delivering double digit sales growth.
Craig: Adjusted EBIT performance has shown significant improvement with all three businesses, increasing margins compared to the first six months of last year. All of this leads to the adjusted earnings per share growth of 31% over the first six months of the year.
Craig: Next to chart, eight where we have cash flow highlights.
Craig: The first six months of fiscal 2025 delivered strong operating cash flow results as working capital performance has been favorable compared to the first six months of 2024.
Craig: Capital spending was slightly down for the first six months. So we delivered big improvement in free cash flow and so our debt to EBITDA leverage ratio dropped to 0.3 times.
Craig: As Brian mentioned during his comments, we closed the ESCO Maritime acquisition on April 25th and the balance sheet was well positioned for this based on the strong cash flow generation since the deal was announced last July.
Craig: Last chart nine where we will discuss the updated earnings guidance for 2025.
Craig: First on sales, we are still projecting 6% to 8% growth before the impact of the ESCO Maritime acquisition for.
Craig: For the five months of Maritime ownership, we are estimating sales in the range of $90 million to $100 million.
Craig: For adjusted earnings per share last quarter, we guided to a range of $5 55 to $5 75 per share we are increasing that to a new range of $5 65 to $5 85 per share.
Craig: We are anticipating unfavorable earnings impacts from tariffs and a range of $2 million to $4 million and those impacts are factored in to the new adjusted earnings per share guidance.
Craig: For the Maritime acquisition, we are estimating adjusted earnings per share in a range of 20% to 30.
Craig: Which is based on the sales assumption stated above as well as EBITDA margins in the mid twenties and interest expense on new borrowings of approximately $15 million.
Adding this to the total we have updated all in guidance of $5 85 to $6 15 per share on an adjusted basis.
Craig: I do want to be clear this guidance excludes any acquisition related amortization for maritime and it excludes certain deal and integration costs related to the acquisition.
Craig: That concludes the financial portion of the call and then I'll turn it back over to Brian.
Brian: Thanks, Chris So as you heard the first six months of our year have gone really well, we're excited about the ability to increase our full year outlook and we're excited about the maritime acquisition as I discussed earlier.
Brian: <unk> future remains bright and we continue to see a path for value creation and enhancement as we move forward. We certainly see the waters are getting a little bit choppy and economic growth could be a little bit more challenging, but we feel really good about our mix of businesses and how they will be able to navigate the current environment.
Brian: With that I think we're done with our prepared remarks, and we can turn it over to the Q&A.
Brian: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Brian: Withdraw your question. Please press star one again, please standby, while we compile our Q&A roster.
Speaker Change: Our first question will be coming from John <unk> of CGS. Your line is open.
John: Hi, good afternoon.
Speaker Change: Afternoon, and thank you for taking my questions and nice quarter and congrats on raising the guidance out there I was wondering if you could touch on the sale of vacco.
Speaker Change: The exploration process do you have any updates there and just how should we be thinking about it at this point.
Speaker Change: Sure.
Speaker Change: We've been going through a pretty involved process there to potentially sell the business.
Speaker Change: We have had a lot of interest and we have active interest now, but it has taken a little bit longer than we anticipated to come to a conclusion right now we would expect to know.
Speaker Change: How it's going to end by the end of May.
Speaker Change: And.
Speaker Change: That could include both a sale and it could also include us, making a decision that we're going to retain the business.
Speaker Change: But.
Speaker Change: We will provide notice to you if we make a decision to sell the business when we do that.
Speaker Change: And otherwise we will talk about it again on our next call.
Speaker Change: Got it and how is the underlying business performed.
Speaker Change: Last couple of quarters.
Speaker Change: Yes, we've seen we've seen a real improvement in the overall business, Chris you want to talk to that in terms of margin and year over years.
Chris: Sure Yeah, I would say that we've seen the business stabilize the performance has been better.
Chris: Better versus last year through the first six months I would say.
Chris: But I would also say the margins are still lower than what we see in the other parts of that business for overall aerospace and defense.
Chris: But as far as some of the EAC adjustments and other challenges we've talked about in 'twenty three 'twenty four.
Chris: We really haven't seen any of those kind of impacts this year and feel like by and large.
Chris: Those contracts are.
Chris: Having dealt with and managed and so we've seen a little bit more of a recovery there so far this year.
Speaker Change: Okay, great. Thank you if you could touch on the tariffs for a moment.
Speaker Change: At $2 million to $4 million that you called out the net impact after you do pricing and other stuff.
Speaker Change: Is it a gross number.
Speaker Change: Just help us think about the.
Speaker Change: Puts and takes there and also.
Speaker Change: The underlying assumption as to what level of tariffs.
Speaker Change: Does that specifically.
Speaker Change: Specifically included that was.
Speaker Change: It was announced on April 2nd is at some level lesson that just any color there would be helpful.
Speaker Change: Yes, I mean, so first of all I would say, it's kind of a net number so we're certainly doing things to mitigate.
Speaker Change: We hope we can stay to the low end of the range of that $2 million to $4 million impact or even better, but but that encompasses what actions were taken to try to get price for example.
Speaker Change: To also make some adjustments in our operations.
Speaker Change: So so all of those things are kind of being worked and we would expect kind of the net result, the way. We we gave it to you.
Speaker Change: As far as percentages I mean, we're kind of using whats.
Speaker Change: What's been kind of.
Speaker Change: Issued so far and again, we we kind of went back and forth on how to handle this but we thought we felt it was appropriate to go ahead and bake something in and share that and then obviously if if if.
Speaker Change: Theres Big changes, we'll kind of update the guide for that going forward, but but where we are right now we see we're more of a net exporter I would say that an importer. So maybe the broader risk becomes kind of demand related if we see.
Speaker Change: Significant retaliatory actions or things like that.
Speaker Change: So we'll kind of have to keep an eye on all of those things and keep you updated but but that's kind of how we did the math for this this turn of the crank.
Speaker Change: Yes.
Speaker Change: Thank you I'll jump back in queue.
Speaker Change: Thanks, Sean our next question.
Sean: Our next question will be coming from Josh Sullivan of the benchmark Company. Your line is open Josh.
Josh Sullivan: Hi, good afternoon.
Speaker Change: Hi, Josh.
Josh Sullivan: On the Maritime solutions cash generation I think you referenced in the prepared remarks there.
Josh Sullivan: That strong cash profile, just a short term dynamic or how long will that kind of strong free cash from the asset continue.
Josh Sullivan: Well I think what we were talking about there was more kind of the earnings impact and adjusted earnings per share and sales.
Josh Sullivan: So on the cash flow honestly, we would expect some benefit there in the year, we're still kind of working through some of those details with them as we onboard them.
Josh Sullivan: But the numbers, we were talking to were more adjusted earnings per share.
Josh Sullivan: Got it.
Josh Sullivan: And then just given the closing of maritime solutions asset in year, increasing exposure to shipbuilding and particularly submarines. What are your thoughts on the $25 96 budget is there.
Josh Sullivan: Opposed and then the recent executive order on shipbuilding.
Speaker Change: Well first of all Josh I Love. The fact that you are already calling at ESCO Maritime solutions I appreciate that.
Josh Sullivan: We're going to make that go viral.
Josh Sullivan: But yes listen we feel really good about.
Josh Sullivan: It was a long time getting through this deal you worry a lot about what you're going to find when you open up your presence and what we found is that they are on or.
Josh Sullivan: Ahead of plan.
Josh Sullivan: For all of the progress and this is these are businesses that have lots of good visibility to the programs that they're on and milestones and that sort of thing and so so we had a really good idea of what where they should be and what we found was there are probably there are a little bit better than that and so as we look into 2026, we feel really good about.
Josh Sullivan: About where that settles.
Josh Sullivan: Good good progress with their customer base. In addition to the U S Navy, which we are very familiar with they have a lot of Royal Navy exposure.
Josh Sullivan: And everything over there seems to be on track moving ahead.
Josh Sullivan: No pun intended full steam ahead.
Josh Sullivan: We feel really good about it.
Josh Sullivan: Got it and then maybe just one on the RF order flow.
Josh Sullivan: Is it indicative of any new cycles within those those markets or is that your exposure to broad or too early to make that assumption.
Josh Sullivan: There's nothing like the <unk> story or the AI story to talk about there as I said on the prepared remarks, they have broad exposure to a wide range of markets and I think that.
Josh Sullivan: We are seeing some recovery in China, we're seeing some good recovery in the electromagnetic compatibility market.
Josh Sullivan: Don't forget that every device in the world that has electricity subject to those standards.
Josh Sullivan: And.
Josh Sullivan: Every country of the World has an EMC.
Josh Sullivan: Standard that they follow and in order to in order to produce product it sell it anywhere in the World you got a test to those standards and so I think theres some.
Josh Sullivan: Evidence that that kind of maybe the repositioning of manufacturing might be a part of it but we've definitely seen a pickup there.
Josh Sullivan: <unk>, there's a lot of.
Josh Sullivan: We're seeing a lot of investments, particularly in met what we call magnetics swaps. So these will be upgrades at hospitals, yet swapping out of.
Josh Sullivan: Five to 10 year old magnet for a new one.
Josh Sullivan: Those are actually believe it or not those are actually larger projects for us because we have both the deep.
Josh Sullivan: Deconstructing decommissioning and the construction piece and they tend to be higher margin for us. So we're excited about that.
Josh Sullivan: Listen the industrial markets electromagnetic pulse testing, we took some really large orders.
Josh Sullivan: For E&P filters, both at data centers and at utility.
Josh Sullivan: Control centers.
Josh Sullivan: And that's a trend that we think is going to continue as we move forward.
Josh Sullivan: So, yes, I think that no one story, there, but good broad based positive trends.
Josh Sullivan: Great I'll leave it at that.
Jackie: Thanks Jackie.
Speaker Change: And our next question will come from Tommy Moll of Stephens Tommy Your line is open.
Tommy Moll: Good afternoon, and thanks for taking my questions.
Jackie: Hi, Tommy.
Speaker Change: Tommy.
Speaker Change: Wanted to start on ESCO Maritime solutions, it's always dangerous.
Josh Sullivan: It's always dangerous when analysts take partial year P&L impact and try to project into future years. When we don't have a whole lot of historical to go from.
Speaker Change: And so.
Speaker Change: If if a fair baseline assumption might be to just look at the profit contribution youre offering us for this fiscal year to think about.
Speaker Change: The annualized version of that.
Speaker Change: And then flat some form of a double digit growth rate.
Speaker Change: On that base as we think about 2026 is there any more intelligent way that that you can help.
Speaker Change: Frame, what we all ought to be thinking about for 2026 understand you've you've controlled the asset for not that long.
Speaker Change: But any guidance you could provide would be helpful.
Speaker Change: Yes, I think your construct there Tommy is reasonable youre right I mean, we.
Speaker Change: We were able to get with them right after closing on the 25th.
Speaker Change: Get some kind of detail to kind of pull together, what we saw for the balance of our fiscal year.
Speaker Change: We haven't been able to get under the Hood.
Speaker Change: <unk>.
Speaker Change: For very long as you say and so I think that the good news is as Brian said I mean, we see them as on track the backlogs are really healthy.
Speaker Change: So they're kind of trending at.
Speaker Change: More above the kind of plans we were thinking whenever we announced this last July.
Speaker Change: And I think yes, if you kind of do a monthly run rate for this year and you put growth on top of that and kind of the low double digit range.
Speaker Change: We would expect that's kind of the way it's trending.
Speaker Change: Obviously.
Speaker Change: We're working with them we've got to get the plans re calendar is in all of these kind of things they've been kind of a calendar year company until now so we've got more work to do so we'll give.
Speaker Change: More precision hopefully and more clarity on that as time goes forward, but I think what you are talking about is really a pretty reasonable way to look at it as you think about 'twenty six.
Chris: Thank you Chris.
Speaker Change: Follow up on.
Speaker Change: The incremental margins in particular.
Speaker Change: For A&D and USG this quarter.
Speaker Change: I think for USG.
Speaker Change: Might be seeing there on the significant margin expansion and strong incrementals might just be a mix <unk>.
Speaker Change: <unk>.
Speaker Change: Given you've got solid double growth flat NRG.
Speaker Change: So maybe you could confirm or give a little more detail. There A&D is really where we're focused.
Speaker Change: And would be curious for any insight you can give on the solid incremental dynamic there. Thank you.
Speaker Change: Sure Yeah, I would say that on the.
Speaker Change: The utility side.
Speaker Change: Youre right I mean, the adult doble is driving the growth that's where the bigger margins are so that helps although I'll give the NRG team credit they've done a great job of kind of reacting to this weak market and really not hurting us.
Speaker Change: From a margin perspective, but.
Speaker Change: With the growth in Doble Youll see a favorable impact there, but then I would also say inside of Doble, we've seen a little bit of mixed so far this year to a little bit more of some of the legacy let's say offline testing.
Speaker Change: Type product lines, those are going to be kind of our highest margin product lines inside of doble.
Speaker Change: So the condition monitoring is still doing good that's a good margin business for us, but it's not really driving the growth.
Speaker Change: The way it had kind of last year and so that's a favorable mix impact inside of that business. So it really drives the incrementals to a nice level.
Speaker Change: And Thats kind of the key thing there.
Speaker Change: Then I would say on the aerospace and defense side, a couple of key dynamics I would point to.
Speaker Change: We do have a little bit of favorable mix. There just some kind of customer mix and program mix. We also are seeing some really nice price impacts.
Speaker Change: On some of the commercial aerospace lines of business again.
Speaker Change: Some of these things we've been working price for a while but we've been sitting on a lot of past due backlog. It takes time to work through that so it takes some of that price a little bit longer to flow through so we're starting to see some of that.
Speaker Change: Really helping us in coming through nicely.
Speaker Change: And then we've also had some pretty good Navy business in Navy margins are good for us.
Speaker Change: And I would say then if we someone asked about vacco earlier, we are seeing a little more growth. There. This year from navy versus space that also kind of helps the mix. So so all of those things.
Speaker Change: Think really kind of add up and have moved that in a meaningful upward direction. This year.
Chris: Thank you, Chris I'll turn it back.
Chris: Thank you.
Chris: Question.
Speaker Change: Our next question will be a follow up from John Tom Lin Tang Your line is open.
Speaker Change: Alright, thanks for the follow up I was wondering if you could provide just a little bit more color on just the commercial aircraft orders I think you mentioned that may moderate a little bit.
Speaker Change: <unk> Hunter period, just a couple of quarters ago.
Speaker Change: See that ending some point and normalizing the end demand or is there something else going on there.
Speaker Change: Any color there would be helpful.
Speaker Change: Well listen.
Speaker Change: Boeing is a part of that story they had a strike.
Speaker Change: In the first quarter end.
Speaker Change: They've kind of <unk>.
Speaker Change: <unk> moderated some of their build rates I do think that the industry had gotten to a point where.
Speaker Change: They've started to kind of manage their inventory a little bit more tightly so that we have seen a little bit of a slowdown not a huge slowdown.
Speaker Change: From from that overall piece.
Speaker Change: Fortunately, we have a lot of backlog and we've been able to continue to grow we are pretty confident that Boeing is going to be able to pull.
Speaker Change: Themselves through this I think they're doing all the right things and so we're already starting to see signs that things are moving in the right direction.
Speaker Change: Okay, Great and then.
Speaker Change: Compared to last quarter, where I think maybe dose with a little bit more of a.
Speaker Change: Our bogey man compared to now how do you see the state of affairs.
Speaker Change: Department of defense defense programs, and the status of them and if you think any cancellations or delays or reductions in any of those problems that youre exposed to might might be affected or impacted yes I would.
Speaker Change: Really point you to document that I think is out on the Internet that has I think 17 priorities of the defense Department and I would say the programs that we're on are all in the top four or five of those priorities and.
Speaker Change: Yes, there is plenty of spending that they can go and cut.
Speaker Change: Without.
Speaker Change: But they basically said submarines are really high on our list.
Speaker Change: Some of our other navy programs are pretty high on our list overall industrial base shipbuilding infrastructure pretty high on there are less.
Speaker Change: So yes.
Speaker Change: We feel really good about where we are there and I will say that the order flow from the Navy side.
Speaker Change: Is pretty good right now and.
Speaker Change: We've got a good line of sight to that.
Speaker Change: We already have a good backlog and we've got a lot of.
Speaker Change: Pretty significant pending work.
Speaker Change: Great. Thank you.
Speaker Change: And our next question will be coming in.
Tommy Moll: Your line of Tommy Moll.
Speaker Change: Stephens Your line is open.
Speaker Change: Thanks for the follow up here.
Speaker Change: Okay.
Speaker Change: Just wanted to ask for a little more detail.
Speaker Change: The pro forma capital structure.
Speaker Change: So.
Speaker Change: I am seeing $15 million is the interest expense.
Speaker Change: You've burdened.
Speaker Change: Fiscal guidance with.
Speaker Change: I guess, a two part question here, how many days of of the current quarter.
Speaker Change: Are included in that just so we can get to a close annual run rate again, as we think about next year.
Speaker Change: And.
Speaker Change: Are you able to comment on the pro forma <unk>.
Speaker Change: Leverage profile thinking on Michael all in full year basis, whatever timeframe you want to use.
Speaker Change: And then how you anticipate that might tick down.
Speaker Change: As you start to repay the debt. Thank you.
Speaker Change: You bet.
Speaker Change: So first on the on the pro forma debt profile, what I would say is.
Speaker Change: We expect this when we announced last July we kind of communicated that we were expecting around a three times leverage.
Speaker Change: Now that we've closed.
Speaker Change: Quite a bit later than we expected and we've had really good cash generation in the interim.
Speaker Change: We're just over a two to a close there right attitude to sorry at closing so so the ratio is really quite good.
Speaker Change: At closing just based on kind of where we came in and as we look at cash towards the end of the year and the pay down and we can do from now until then we would expect that number to drop below two for sure let's say.
Speaker Change: <unk>.
Speaker Change: More towards the mid ones, let's say, one six or so in that ballpark, we don't necessarily give strict guidance there, but the point is we expect to be able to frankly continue to grow EBITDA and pay down debt such that the ratio is going to look better than it does today.
Speaker Change: So that's kind of how we're looking at capital structure right now.
Speaker Change: And then.
Tommy Moll: As far as number of days I guess, what I would tell you Tommy as we really did run that out from the 25. So we funded the deal on the 25th.
Speaker Change: Since sent the money out the door.
Speaker Change: That day and.
Tommy Moll: We're <unk>.
Speaker Change: We're borrowing right now on a term loan a.
Speaker Change: That we're paying close to six and a half on.
And we're borrowing on our revolver that we're paying right around six on so those are kind of the numbers, we're at and we expect because of our paydown that we just that I just talked about.
Speaker Change: That we can lower those rates yet this fiscal year as we move to the different categories of our rate structure in our debt facilities.
Speaker Change: Such that we can get those numbers.
Speaker Change: Slightly below six on the revolver and slightly above six on the term loan a so so that's kind of kind of how we've got it dialed in right now.
Speaker Change: Great. Thank you, Chris that's all I needed I will turn it back.
Chris: Thank you thanks, Brian.
Speaker Change: I'm showing no further questions I would now like to turn the call back to management for closing remarks.
Speaker Change: Well listen thanks, everyone for taking a few minutes to spend with us as I said in the opening remarks. This is an exciting time at <unk> and we will talk to you again in a quarter take care.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
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