Good day and welcome to the ESCO Fourth Quarter 2016 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 would like to turn the call over to Kate Lowrey, Director of Investor Relations. Please go ahead.

Thank you. Statements made during this call regarding 2017 and beyond EPS, EBITDA, EBIT, EBIT margin, tax rate, one-time charges, growth, profitability and revenue, operating margin, cash flow, orders, success of new products, sales, acquisitions, implementation of the Company’s capital allocation strategy, the results of recent acquisitions, corporate costs 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 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. 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 the call, the Company may discuss some non-GAAP financial measures in describing the Company’s operating results. As a reconciliation of these measures to their most comparable GAAP measures can be found in a 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, and good afternoon. I’m very happy with our results in fiscal 2016. Not only with the financial results but also what we accomplished a better position a company for 2017 and beyond. We did accomplished our financial goals with EPS come in at $2.03 per share with strong cash generation. And we successfully completed some very difficult restructuring actions while adding three new good foot acquisitions to our portfolio. Bottom line, we accomplished what we committed to going into the year. I will turn it over to Gary for a few financial highlights before providing you with my detail perspective on 2016 and our outlook for 2017.

Thanks, Vic. At the start of the year, we identified certain restructuring actions, which would be implementing throughout fiscal 2016. We described and quantified these actions in detail as well as identifying the annual cost savings anticipated once they were completed. These costs were excluded from our original guidance provided last November and we described how we present our 2016 quarterly and annual operating results on both in the EPS - As Adjusted basis, as well as GAAP basis. As noted in today’s release, we wrapped up these actions in Q4 and our team did a fantastic job completing this complex multinational project on schedule and under budget. The Q4 pretax cost was $800,000 or $0.02 a share bringing the total year pretax restructuring cost to $7.8 million or $0.26 a share. Given the restructuring distractions at Test and Doble and the fact we faced day-to-day economic challenges across our industrial landscape. We’re still able to deliver $2.03 of EPS as adjusted, which topped our earlier guidance of a $1.95 to $2.02. Highlight in Q4, we delivered $0.67 of EPS as adjusted which beat the top end of our August guidance range, which we noted at $0.59 to $0.66 a share. This means we exceeded our internal earnings expectations in every quarter of fiscal 2016. Turning to a few specific highlights noted in the release, I’m pleased to report that for the year, we increased sales $34 million or 6% led by another strong year of highly profitable aerospace sales, which increased 9%. Our sales growth was also supported by our Technical Packaging group. Our sales increased $35 million driven by the addition of Plastique, which add a $22 million and the strength of our legacy tech business, which contributed an additional $13 million in sales over the prior year.…

Thanks, Gary. I’m really pleased, as I mentioned with our 2016 results from a lot of perspectives. Mainly because of the way we accomplished the four major goals we set at beginning of the year. We said EPS guidance goals were aggressive and achievable. We set up to demonstrate we had consistent, predictable and profitable businesses within our diversified portfolio. We identified post restructuring EBIT goals for Test and Doble reflected the impact of defined cost reductions. And we set out on an aggressive yet disciplined acquisition strategy to supplement organic growth, while providing protection to mitigate potential economic softness across to our end markets. I believe FY 2016 was a success given the fact we achieved each of our stated goals while delivering above average shareholder value as reflected in our share price over the past 13 months. It was imperative at the start of the year that we accomplish these goals as a means to delivering the best and most profitable year in ESCO’s history. I’m proud to say our collective management teams came together to deliver operating results which exceeded our internal expectations every step of the way. I’m pleased with the way our M&A played out this past year, as we completed four acquisitions over the past 13 months. And that’s a huge accomplishment for ESCO and I’d like to acknowledge the many contributors to the success. Additionally, I’m happy with the way the Test business restructuring actions were completed, given their complexity, the various geographies involved, and the magnitude of costs being incurred. Our teams across the company did a very professional job, managing this process so successfully. Since Gray covered 2016 financial details in his commentary. I’ll share my thoughts on 2017. I remain confident that all of our businesses are in solid financial…

Thank you. [Operator Instructions] Our first question comes from the line of Jon Tanwanteng from CJS Securities.

Hi guys. Nice quarter, and thank you for taking my questions.

Hey, Jon.

How are you doing? Can take some time to talk about the customer order or timing challenges that you mentioned with the cash in the Test segment heading into Q1 is our demand issue, what’s going on. Second do you expect to rebound as you did in Q1 and Q2?

I think we will rebound in Q1 and Q2. Really, it was a single customer that we had anticipate getting a large number of orders from actually within this past year. They have kind of continue to get delayed. We’ve been awarded the vast majority of those. We haven’t received the purchase orders yet, but we anticipate getting those purchase orders in the next two months.

Okay.

I’m sorry – I was talking about Test. So I’m just answer to your question. So I’d finish my testing. And then I [indiscernible]

Sure.

So with the best business, and so we do anticipate those purchase orders in the next two months, and then all of project will be delivered within the year. As far as cash, we had a really strong year they are this year, the flu season was not that bad and so they’ve had a good bit of inventory that they are setting on and we’re going to be burning – they’re going to be burning off a good bit of that in the first quarter. I think once we hit to the first quarter we will be back on track. Can you just to put in perspective, and we’re talking about $4 million or so of sales this year that will not happen 2017. We think once you get into the second half of the year and going into the following year we will be back at full rate. So it just really in inventory management issue.

Got you. That’s help. And then can you touch on a new Saudi contract that you announced last night? Does that increase the quarterly contribution do you guys [indiscernible] or such as a continuation of the old one and maybe a follow on – when do you think that could actually be to a full hardware sale?

We have already gotten some hardware sales as a result of that contract, but this is really very consistent with what we’ve had to past two years so we wouldn’t anticipate any ramp up as a result of that specific contract. I would say that as we get into the second half of the year one of two things are going to have to happen. We’ve talked about wanting to be able to do more of this work themselves, that being the customer, for them to be able to do that, it would require the acquisition of hardware to be able to accomplish that. The other alternative would be to have a mixture of continuing for us to provide that service going into the following year and making some acquisition of equipment. So we don’t know exactly how that’s going to play out yet but I don’t think it’s going to be coming up to the end of the year and we are done here. I think we become a very integral part of what they are trying to accomplish and I don’t think we’re anywhere close to being done. So I think that will continue in the future.

Okay, great. And then can you touch on just the overall exposure to military and defense spending as a percentage of your total. How can a new administration impact either positively or negatively from a defense spending standpoint and maybe secondly as a company overall?

I would say we have some exposure there. I mean, I would say it’s certainly less than 5% – 10% negative, so if you think about the submarine, probably less than 10% what we have. If you look at our specific opportunities, I would say they are very solid because the biggest content we have is on a submarines and don’t see any change in that really either a positive or a negative. I mean potentially I use to ramp up from one submarine – that would have a big impact, but don’t anticipate that near-term if you look at the aircraft program that we are on, we are in the F-35, that looks solid, we are on a tanker look solid [indiscernible] continue to get orders on that. So I don’t think there’s any huge upside or downside on the military side of the business.

Jon just put a number on that, it’s about 15% to 18% of our projected 2017 revenue that’s across Westland and VACCO on the submarine business and then Crissair, PTI and Mayday on the flight or jet side.

I forgot about the acquisitions.

Got you, thanks. And then maybe just for the company overall maybe even on the infrastructure side on the grid spending?

I’m sorry didn’t understand the question.

All right, just the improved infrastructure spending as the potential of a new government, and how that may impact Doble.

Yes, it really depends on what type of infrastructure is done. If they have a conservative effort to upgrade and to automate the grid, I think that’s our best opportunity if you look at products like the DUCe and like doblePRIME, so certainly those enhance throughout reliability if we’re talking about straight building infrastructure, I’m not sure that we really haven’t impact our business.

Okay great thanks.

Thank you. And our next question comes from the line of Ben Hearnsberger from Stephens.

Hey, thanks for taking my question. I wanted to look at the filtration segment and if my math is right and Gary check me on this, you are looking for 35% growth but if I back out Westland and Mayday, I am looking at kind of mid single-digit type of organic growth is that right?

That is correct. Yes, I mean, I think the aerospace business is going to be up in the space business going to be a but there’s some industrial there’s some industrial things within PTI that are probably closer to the softer side. So your math is pretty close.

Okay. So legacy filtration digging into the aero pipeline, it sounds like it is ramping as expected, is it above plan, below original plan or can you just kind of speak to what you’re seeing in your aero business?

Yes, I mean, it’s pretty much on plan. And maybe just slightly above plan, but not significantly. We have had a little better growth Crissair than what we had anticipated, so that is provide a little bit of upside for us.

Okay. And then, switching to Doble, the guide for mid-to-high single-digit growth we’re coming off a year where we’re grew 3% to 3.5%, I tend to think of this business is kind of GDP plus and this is a little bit more optimistic guidance, can you just talk about is this new products contributing more than I can expect then you can walk us through where you are seeing success?

The biggest thing is software. We made an acquisition two years ago three years ago Intelsat and [indiscernible] we got a tremendous amount of traction with that software business. So, I would say that in addition to additional service business where we’re really seeing the growth, I do think that while we’ve had some softness on the legacy business side, we’re starting to get some traction with the new products. So it’s a little bit of a mix, but if you look at year-to-year the biggest improvement what we are seeing on the software side.

And then I just had one higher level question. If you think about two years there’s three year plan you laid out a few years ago, the guidance suggests that you are on track to achieve that plan, given that you have had success and given where you stand today, if you look at three years from now, I am not trying to force guidance year, but how do you think about the longer term earnings potential of this business?

I think we’ve got plenty of growth opportunities as I mentioned kind of the closing part of my statement. We can add a lot to the business without adding a lot of infrastructure. So we don’t have to go due a lot but I think we should be able to continue to see the type of growth that we’ve seen over the past couple of years. If you look at a very broadly, I would say the organic growth is maybe a little softer than what we anticipated two years ago I don’t think that’s a surprise to anybody. We’ve been a little more successful earlier in the process on the acquisition front, which I think is good. And I think it shouldn’t be lost on anybody that the acquisitions that we’ve made have been pretty profitable businesses that we’ve been able to get for a reasonable price. And as a result of that, I think that does help our growth potential and if you look back at some of the other acquisitions that we have made historically, I think we have a proven track record of being able to get people’s margins up, with you look at Crissair, which is really combination of two businesses I would say we have more than doubled the profitability, since we’ve owned them I’m not same are going to double the profitability of the businesses we book there much different businesses but certainly, I think being inside of the company like that and having some of the expertise we have we should certainly be able to drive the profitability of those businesses and so the question is going to be what else are we going to be able to acquire going forward.

Okay. And Gary how much capacity do you have for M&A at this point?

Total liquidity with the ability to upsize on our facility it’s about $500 million plus, $525 million, somewhere in that range.

Okay.

We have a $250 million accordion sitting on top of our revolver that specifically designated for, if we were to do incremental acquisitions greater than the pool we’ve been playing in right now.

Great. Thanks for taking my question.

Thank you. [Operator Instructions] Sorry, I’ll just going to say that we have no further question. Please go ahead.

All right. So thanks everybody and I look forward to talking to you on our next call.

Thank you. Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.