Good day, and welcome to the Third Quarter 2013 ESCO Technologies Inc. Earnings Conference Call. Today's call is being recorded. With us today are Vic Richey, Chairman and CEO; Gary Muenster, Vice President and CFO. And now to present the forward-looking statements, I'd like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

Thank you. Statements made during this call regarding the success, timing and results of the Aclara divestiture process, the timing, amounts and sources of fiscal 2013 and beyond expected results, both on a GAAP, operational and in as-adjusted basis, future sales, cash flow, orders, backlog, margins, EBIT, EPS, EPS from continuing operations as adjusted, liquidity, growth, profits, new opportunities, past and future acquisition efforts and results, the schedule, costs, savings and margin improvement resulting from previously announced restructuring and cost reduction initiatives and other statements 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 8-K to be filed today. We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 Vic.

Thanks, Kate. Good afternoon. Given the actions we announced today in our press release, we obviously have a lot to cover. The decision to divest Aclara was difficult, but after a comprehensive review of our options and thorough, extensive discussions with our board, we came to a conclusion that this is the right decision for the company and our shareholders. It's no secret that the nature of Aclara's business, relative to our other businesses, had a significant impact on our ability to accurately forecast quarterly earnings. Our plan is to refocus on our core businesses, Fluid Flow, Test and Utility Solutions, where we enjoy steady growth driven by market-leading positions, along with predictable earnings and strong profitability. I will talk in more detail about the Aclara process in a moment, but I think our real focus should be on how the rest of the business is performing and what our future plans are. As Gary will detail in a few minutes, the rest of the business is performing very well. We're growing backlog and remain solidly profitable. The restructuring activities that we initiated this year in Test and in Doble will allow us to show additional bottom line improvement next year. And the organic growth we expect across the company will be augmented by the recent acquisition of Canyon Engineering, along with any additional acquisitions we'll make. The sale of Aclara and the resulting cash proceeds will result in a very strong balance sheet, which will provide us with a significant amount of liquidity to grow the business inorganically. While we don't feel pressured to immediately make acquisitions to replace the revenue lost in its divestiture, I'm very pleased that we'll have plenty of financial capacity to fund good opportunities as they become available. I think it would be helpful…

Thanks, Vic. With the decision to divest Aclara, our financial statement presentation has been changed to reflect Aclara as discontinued operations in the P&L and assets held for sale on the balance sheet. I realized there are a lot of moving parts here, so I will call out the unique items throughout the release to allow you to better understand the underlying results of the business going forward on a continuing operations basis. Starting at the top, Q3 sales were generally consistent with the prior year, and year-to-date sales decreased a modest 3%, primarily due to the Test business' project timing. Despite the sales fluctuations, we are pleased to see the gross margin percentages increase in 2013 over 2012 in both the quarter and the 9 months. As a result of our ongoing cost-containment initiatives, SG&A decreased as well in both the quarter and year-to-date periods. Other income and expense in 2013 includes the Test and Doble Lemke restructuring charges, and in 2012, other income and expense includes the noncash earnings from the revaluation of the extensible purchase accounting earnout. Absent these charges in both 2013 and the gain in 2012, other income and expense was generally consistent in the comparable periods noted. The tax rate in 2013 was higher than normal as a result of the Doble Lemke deferred tax asset write-off, resulting from the shutdown of that facility. The tax rate in 2012 was lower than normal due to the decrease in certain tax accruals where the liability statute expired. So at the bottom line, in Q3 this year, we reported $0.33 of EPS from continuing operations as adjusted, which compares to $0.43 in Q3 of 2012. And, again, the $0.43 from the prior year includes the $0.09 per share from the gain on the extensible earnout, as…

Okay. Well, we'll open up for questions. Now I just do want to remind you that we're going to be very limited on what we can say today and, really, in the future, until the transaction is completed, about either the potential sale or the sale of Aclara. So I hope you indulge me there, but there'd be very little we can say about that. With that, I'll open it up to questions.

[Operator Instructions] And we have Kevin Maczka from BB&T Capital Markets on line with a question. Kevin R. Maczka - BB&T Capital Markets, Research Division: Gary, first question. I guess the way the company is configured now going forward, can you give a little more color around the Q4 guidance? It looks like you [ph] would -- we always have a heavily back-end-loaded year, and I guess it's no different with the configuration we're in now. But you're talking about going from $0.33 to $0.52. And it looks like to do that, you probably need a really strong ramp in both Filtration and Test. And I know you mentioned some pushouts. But can you give a little bit more color there on why exactly that ramp should be so steep?

Yes. Let's start with the Test side. Obviously, we're still very comfortable with our year, and we had a few things, like I mentioned, that moved out of Q3 into Q4. So we are expecting and we're pretty confident. Vic and I were just down at the Test business in July, and we're pretty confident in what the fourth quarter looks like because about $10 million of revenue moved from Q3 to Q4, specifically related to timing, which were site-related, where the customer wasn't ready to begin construction and things like that. So that $10 million adds a significant amount of tailwind into the Q4. So we're very comfortable with what that looks like. And then back to the Filtration side, generally, while it hasn't been as skewed as heavily as the Aclara business contributed to us, but the Filtration's -- or the Filtration group's fourth quarter has always been their strongest. There are some things at VACCO, like the Virginia Class submarine, which has a relatively large valve contribution, which ships once a year. And that revenue is in the fourth quarter. We will get a quarter contribution from Canyon, which I think we said in the release is about $12 million on an annual basis. So you can count tailwind there of $3 million to $4 million in Q4. And then just the balance of the Filtration companies will have their normal fourth quarter pop. Doble, some of the things we talked about earlier in the year. If you remember in the first half, we talked about some things moving to the back half of the year from the superstorm that hit and caused some delays in the redeployment of a service business there. Doble is expecting a fourth quarter as well. So you're right. The math plays out the way exactly as you said it, but when you take the pieces of it, we're comfortable with where we see the guidance coming in.

Yes. And if I could add one thing. The other piece is we completed the reorganization at the Test business a month ago or, I should say, the last month of the third quarter. So as we look at the fourth quarter, we're going to see all the benefit for the full quarter of being in one less facility. Kevin R. Maczka - BB&T Capital Markets, Research Division: Got it. And Gary, so you said that guidance reduction is all about Aclara and nothing about the remaining business units. I guess -- did I hear that correctly, first of all? And if so, on the Filtration piece, that's still performing very well, but we did have margins down 200 basis points roughly year-over-year there, even as sales were higher. So can you maybe talk about that and if that did not factor into any of the guidance cut?

Yes. Well, to the first part of your question, yes, the step-down from the earlier guidance of, I think it's $0.25 or something like that, was clearly related to Aclara's contribution in the fourth quarter, which was going to be -- or for them, is still their heaviest quarterly contribution because of the catch-up on some things there. So the step-down is 100% related to Aclara. Relative to the continuing operations perspective, I'd say our comfort is enhanced. And Vic's exactly right on the Test business contribution. We're very pleased with the way that margin should play out in Q4. And then Canyon, as a profitable entity with $3 million or $4 million in sales, should throw off several hundred thousand dollars of profit. And then the strength at VACCO, which continues. So what really drove the margin a little bit down in Q3 relative to what we've consistently done is, within the VACCO business, they do a lot of development work, which is at really high margin. And as they move from development of product -- or development of new products into the manufacturing, the margin changes from a high-margin development profile to a slightly lower production profile, which is what they started in Q3. So VACCO has been banging out 23% to 25% EBIT margins for the last 5 or 6 quarters, and they were down a couple of points just as this transition of their product mix, which moved out. In Q4, they have a little higher, like I said, on the Virginia Class hardware, which is very profitable stuff for us. So in Q4, they will be back up in the 24% to 25% EBIT margin, which will get us back in the aggregate to the numbers we -- we're used to seeing.

And we have John Quealy from Canaccord on line with a question.

So just in terms of thinking about the transaction. Vic, in terms of why now, and I know you can only comment so much, but it feels like a lot of the businesses has troughed. And it seems like the multiple could be better, if you sold it maybe a little bit down the road. So is it you're sort of impatient with the business or you think that's where the end market is, is where we are? And then I just have a follow-up.

Okay. Yes, it's always difficult to kind of time these things perfectly. But what we see -- I mean, I think you need to think of it on a broader basis than just whether it's this quarter or next quarter or last quarter, for that matter. But we just have determined that it's the right thing to do. We've got a good position that we can monetize or we can reinvest in the business to get the profile that we're more comfortable with and more predictable going forward.

And then in terms of what, if anything, you're responsible for. So SoCal is sort of right about to launch. Do you have to fund or is there a carve out for any more R&D? Or how does that factor in? And is the customer happy now or comfortable on the transitional ownership?

Yes. We -- we're in a very good spot with SoCal. I think they're not impacted at all by this. Fortunately, we're at a point where we're in essentially a full deployment. We're getting 100,000 units deployed a month. So it's really blowing and going, if you will. The customer is not tipped over about this. And so we'll ensure that it's a smooth transition with the new owner. I don't anticipate any problems at all there.

And Gary, maybe how do we think about the run rate of Aclara? I know you guys have been very transparent on this. But is this a $200 million-ish and $0.25 of earnings power when we play with this? Or how do we look at it?

It's larger than that. If we were to retain it, it's probably 10% or 15% higher than that. So $230 million to $250 million is kind of their run rate, but this year, it's a little lower than that. But SoCal is the big driver for next year. So if you were using $230 million, you'd be okay.

Yes. And then my last one and I'll jump back. In terms of the accretive side now, have you gone through a couple of different books in terms of companies you like to see or you want cash in hand and then go ahead and take your time? I would imagine you guys are already seeing stuff you like.

We are. We're seeing some things out there. I mean, I hesitate to get too far ahead of ourselves. So we've had that happened before, where we thought we had something in hand that kind of got away from us. But we are looking hard at some businesses now and continue to do that. But, again, as I said, we're going to make the right decisions. We're going to be disciplined about this. We're going to make -- really make those businesses that we acquired fit the criteria that we have because, as I said, I mean -- as I wrote down those criteria, I kind of was thinking, well, that's what everybody is looking for in business, right? But the facts are, that's what we have. And if you look at the remainder of our business, that's the kind of composition of the business. So our view is we need to get more of those, and we'll work hard to make those happen at the appropriate time.

And we have Paul Coster from JPMorgan on line with a question. Paul Coster - JP Morgan Chase & Co, Research Division: What's the rationale for retaining Doble, which doesn't look like it's really posted much growth? Is it that it's predictable? And then is there any sort of loss of -- is there a sort of cross-selling opportunity forgone by retaining that and not the Aclara business?

Yes, they're very difficult businesses. I mean, if you look at the Doble business, it's much more like our other businesses than it is Aclara, in that it's a sale or a lease of a product and services. It is a more predictable business. It's a highly profitable business. So we really like that business. And for that matter, we like the utility space. And so I don't want people to think, well, we're just going to walk away from the utility space because we think it remains a solid growth opportunity for us because of the aging infrastructure and because of the expertise. We have our understanding on how to deal with those kind of customers. And we've just recently invested a lot of money in Doble and refreshing their products and developing some new products. And so we certainly want to take advantage of that opportunity. And that I would say that some of that is what's maybe muted the growth that we've maybe anticipated there. We have grown the business since we've owned it. I think with these used [ph] products and services and some of the international initiatives that we have underway, we'll be able to get a little more significant growth there than we have historically. Paul Coster - JP Morgan Chase & Co, Research Division: Okay. And then I may have missed this from earlier on, but the Test business is really -- has experienced year-on-year decline now for about 4 or 5 quarters in a row. I know it's very lumpy, so things change quickly. But what gives you confidence that's back on a growth trajectory?

Well, 2 things from a top line and the backlog, we've been able to grow the backlog. And I will say that the most exciting thing to me, just because we do in a more predictable businesses, if you look at the orders that they entered this past quarter, they're pretty high level. And the good thing is there were no large projects in there. Typically, if we have a high level of entered orders in a quarter at Aclara -- I mean, at the Test business there will be a $10 million order in there. This time, I think the largest order we had was somewhere between $1.5 million and $2 million. So from the sales perspective we're seeing good growth there. From a EBIT perspective, what gives us confidence is this activity that we've just completed on restructuring the business and taking some of the cost structure out so that we could better handle some of the lumpiness. I mean, part of the problem that we had was, if you had a big -- if you had a light quarter, that we had so much infrastructure that kind of quickly brought the margins down. So by resetting the cost structure, it's going to give us a lot more flexibility to handle some of that.

[Operator Instructions] And we have Richard Eastman from Robert Baird on line with a question. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Gary or Vic, could you just kind of talk for a second or 2 about the orders on the Filtration side? Just curious maybe what the composition is there. Is that VACCO? Or is it more on the aerospace side or TekPack or just a little bit of composition in the orders and how they may flow out?

Yes. Well, let me just go with the Q3 and then -- because it's generally the same story for the 9 months, obviously, with different numbers. But when you look at the growth we had in Filtration of, let's call it $8 million or $9 million, it's kind of evenly spread across the board, with a slightly disproportionately higher at Tek. And the reason is, is the big project we have with the air -- with the ear probe covers for the thermometer system that KAZ [ph] is the company, that order comes in once a year. So we had a -- we had the next year buy, basically. The '14 buy is in the quarter. And so I'd peg that at a pretty decent unique item. But the rest of it, at PTI, the orders are up, and that's generally with Aviall [ph] and kind of their -- this normal cycle of their restocking. Crissair gets pulled into that same thing. VACCO's orders were a little higher than we had expected because the Space business just continues to exceed expectations there. So the orders that we had there were probably $2 million higher than expected. And -- so I wouldn't say it's any unique -- it's not some change in the market dynamic as much as it is just the right timing and the continued acceleration of the aerospace uptick, with the unique item being the Tek KAZ [ph] order, which is about $6 million to $7 million. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then -- so when you look at the backlog, as it stands in Filtration, it seems we have pretty good backlog there. And it feels like it can that flow, that mix of business flow out of there with an incremental of 25% or maybe 30% at the conversion EBIT line. The reason to assume...

We don't want to get too far ahead of ourselves, but I would say, certainly, at VACCO and PTI, Crissair is still -- once they get into the new facility with Canyon, I think it's absolutely, yes. But I'd say for the next 3 -- 2 to 3 quarters, while we are doing that consolidation at Criss, it's probably a little lighter. But the nice part of the facilities and the heavy infrastructure that we have there, it's -- we're where we need to be. So every dollar of incremental revenue at PTI is 40% to 42%. At Crissair, we're -- or, I'm sorry, at VACCO, we're kind of bursting at the seams. And we expanded so quickly. So the incremental dollars there are probably in the 45% range. Where you don't get the same leverage is at the TekPack business, which is close to $40 million a year. So that kind of mutes your number a little bit just because that 40%, as a subset of the total, is lower than that. Their incremental direct margin is probably in the 25% range, if that helps. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. Yes, it does. And then can I just ask just a small detail? Gary, do you have the restated EPS from continuing ops adjusted for Q1 and 2? I know the sum is $0.55, but I'm just curious how that splits.

I'd say... Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: It looks like Aclara must have lost about $0.11 in the first half. I mean, that's just the math.

Yes, I would say -- yes, Aclara, on an EBIT basis, in Q1, the loss was about $7.5 million. So you can just kind of tax effect that and divide it by the shares. And in Q2... Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: [indiscernible] pretax. Okay.

Correct. Yes, that's -- they're negative EBIT. And in Q2... Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Yes, I can do the rest. Okay. There must have been about -- yes, I can do the rest. And then just one last thought. Maybe, Vic, when you look at the business here post-sale of Aclara, how does this change the growth profile. It's maybe a silly question on a -- looking in the rear view mirror and the volatility in Aclara's revenue. But as you move forward, is the Filtration business maybe like a 6% type of core growth business secular? But the Test business, that's jumped all over the place but essentially has really not been a growth business. So how do you look at the mix here going forward?

Well, I would say that we're probably going to be more in the mid to high single digits on organic growth rate. I'd say we're going to be a lot more predictable and more profitable. And as we look to add businesses, I think we're in a much better position, as I mentioned in my introductory remarks, to make acquisitions, to get that in organic growth. Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just maybe the last question. With Aclara, when, again, post-sale, does your corporate -- when you look at the corporate expense number, does anything change there?

In fact, we've been looking at that. And obviously, as a smaller business, at least in the interim, some professional fees and audit fees and legal fees, some of those kind of things certainly will come down as a result of our reinsurances [ph]. So we haven't gotten that far into that yet, but I would certainly think there will be some trimming at that corporate cost.

And we have Jim Giannakouros from Oppenheimer on line with a question. James Giannakouros - Oppenheimer & Co. Inc., Research Division: Just quick one on your -- I know we're probably a few quarters away or maybe just a couple of quarters away of acquisitions or a cash deployment post-Aclara disposition, but do you envision -- I'm sorry if I missed this. Do you envision acquisitions to be on a multiple smaller acquisitions? Or do you have in your pipeline or insight maybe 1 or 2 kind of big splash type of acquisitions that would replace the revenue stream that you'll be losing when you sell Aclara?

Well, we'll be looking for both. I mean, honestly, it's going to be whatever the best fits our -- our preference would probably be to do something larger rather than smaller. And larger is a relative term. But I don't see us doing $10 million and $15 million or $20 million acquisitions. I think the time and effort that goes into making those acquisitions and integrations is probably not worth the effort. So we will be looking at larger acquisitions of, I think, at least $50 million acquisitions going forward. Having said that, I mean, if there were perfect drop-in like we had with Crissair, I mean, certainly we'd evaluate that. But that's not the focus. As we go out and actively look for potential acquisitions, that would not be our focus. James Giannakouros - Oppenheimer & Co. Inc., Research Division: And is it fair to assume that these acquisitions are predominantly domestic or not a fair assumption?

It's not a fair assumption. I think we've made international acquisitions, and we would continue to be willing to do that to expand our business. If you look at the business post its divestiture, I think we'd be close to 40% international. So we have a good, solid international business. So we do have experience doing that, and we would be interested in doing that, particularly in the specific businesses we have today, where we don't have a big international presence like with our Test business.

And we have no final questions at this time.

Okay. Well, I appreciate everybody's interest today. I look forward to talking with you over the next coming months. I did have the opportunity to talk to all the Aclara employees earlier today, and I wanted to reiterate my gratitude to all of them for their contributions they made to Aclara's successes over the years. And I'm convinced they'll provide the same level of passion and dedication to their new parents as they have to ESCO. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.