ESCO Technologies Q2 2025 Earnings Call Transcript

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Provided by Quartr
May 7, 2025

Key Takeaways

  • Completed the acquisition of SMMP and rebranded it as ESCO Maritime Solutions, which is tracking at or above initial projections to enhance the company’s margin and growth profile.
  • Q2 orders increased 22% year-over-year to drive a record backlog of $932 million, with sales up 6.6% and adjusted EPS of $1.35 (+24%); the company raised FY25 adjusted EPS guidance to $5.85–$6.15.
  • Aerospace & Defense segment remains positive on long-term demand for commercial and defense aircraft and robust Navy submarine programs, supporting a strong backlog despite recent order rate moderation.
  • Utility Solutions Group delivered another solid quarter, benefiting from rising electricity demand, aging infrastructure and extreme weather, while renewable market orders showed sequential improvement.
  • Test segment orders jumped 75% with healthy backlogs in EMC, healthcare and industrial markets, although management continues to monitor macroeconomic uncertainties and tariff impacts.
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Earnings Conference Call
ESCO Technologies Q2 2025
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Operator

Good day, and welcome to the Q2 twenty twenty five ESCO Technologies, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Kate Lowry, Vice President of Investor Relations. Please go ahead.

Kate Lowrey
VP-IR at ESCO

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 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 eight ks to be filed. We undertake no duty to update or revise any forward looking statements, except as being 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.

Kate Lowrey
VP-IR at ESCO

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 Brian.

Bryan Sayler
President & CEO at ESCO

Thanks, Kate, and thanks, everyone, for joining today's call. The first half of our fiscal twenty twenty five has been highlighted by really good operational performance and positive strategic developments. 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. Additionally, as you are all aware, 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.

Bryan Sayler
President & CEO at ESCO

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 will happen next, but our teams have done a nice job of mitigating these risks thus far. We're happy to have this time to speak to you and we'll update you on the impacts to ESCO as best we can. Getting into details about the business, I do want to take a moment and say thank you to our employees for their ongoing efforts. 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.

Bryan Sayler
President & CEO at ESCO

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. During the past month, we have completed our annual strategic planning process with each of our businesses. As a part of these meetings, we assess our end markets and our strategies to deliver above market growth. My comments on the businesses will focus a little bit more on these long term dynamics as compared to current quarter results.

Bryan Sayler
President & CEO at ESCO

Starting with aerospace and defense, we remain very positive regarding the long term outlooks 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 business as we move forward. Order rates have moderated on the commercial aircraft side over the past six months. So as as the supply chain adjusts to prior order surges and short term disruptions, and prepares for longer term growth.

Bryan Sayler
President & CEO at ESCO

Long term, the demand is there and should drive increased build rates. On the Navy side, we also continue to see robust activity in this market. Our business supports prioritized submarine programs, which we expect to be protected and expanded due to national security priorities in both The US and The UK. That assessment supports our long term growth outlook in line with our previous communications. Before jumping to the next business, I do want to quickly address the SMMP acquisition, which recently closed.

Bryan Sayler
President & CEO at ESCO

We successfully closed the deal on April 25. 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 ESCO Maritime Solutions. So as we discuss 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 announced the deal last July.

Bryan Sayler
President & CEO at ESCO

This is an important strategic portfolio move for us and we are excited to add a business that enhances our margin and growth profile. Switching businesses now, let's talk about the Utility Group, which had another solid quarter. 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 with 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.

Bryan Sayler
President & CEO at ESCO

This increased 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 here 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. 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.

Bryan Sayler
President & CEO at ESCO

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. 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 activity in 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.

Bryan Sayler
President & CEO at ESCO

We are watching the tariff situation closely and the team is already reacting to mitigate any impacts that we might see. 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 twenty twenty five. In summary, we feel strongly that our end market exposure remains favorable and growth tailwinds should persist as we move forward. With that, I'll turn it over to Chris to run you through the financial details of the quarter.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Thanks, Brian. 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. Orders were up nearly 22% in the quarter with increases from all three reporting segments. This resulted in record backlog of $932,000,000 Sales were up by 6.6% in the quarter, and again, we saw increases from all three segments.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Adjusted EBIT margins came in at 18% with incremental margins on the sales growth coming in at 56%, a very strong result for profitability. 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. Now we go through segment highlights, starting with Aerospace and Defense. Orders were up 5% in the quarter as we saw solid growth in Navy orders as well as a sizable order for PTI's CAD pad business. Overall, Aerospace and Defense continues to operate with high levels of backlog.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

The sales performance in the quarter was good with nearly 8% growth. The growth was led by Commercial Aerospace and Navy. 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. Next on chart five is the Utility Solutions Group, which posted another strong quarter. Orders momentum remained healthy with growth of nearly 17% as both Doble and NRG delivered double digit order growth.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

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. You will recall that in Q1, the sales decline for NRG was over 20%. So we have seen sequential improvement in the trends there. 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 two ninety basis points compared to last year's second quarter. Next, will cover Test.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

We're seeing continued recovery in this business. Order growth was exceptional as orders increased 75% compared to last year. Last year was weak, so the comparison was favorable, but there's no question we have seen higher levels of order activity than had been previously anticipated. You can see on the chart, we refer to a few key drivers in The US and China, so the growth there was pretty broad based with filters, test and measurement, medical and industrial all contributing. Sales were up 9% as we saw nice growth from The US and European markets as well as good performance at MPE.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Margins improved modestly to 12.4%. The business did experience 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. Moving to chart number seven, we have the year to date p and l highlights. As you can see, the results have been terrific through the first six months of twenty twenty five.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Orders are up over 6% with a book to bill ratio of 1.1. Sales have been even better with growth of nearly 10% year to date. All three segments have delivered sales growth with A and D and Test both delivering double digit sales growth. Adjusted EBIT performance has shown significant improvement with all three businesses increasing margins compared to the first six months of last year. All this leads to the adjusted earnings per share growth of 31% over the first six months of the year.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Next is chart eight, where we have cash flow highlights. The first six months of fiscal twenty twenty five delivered strong operating cash flow results as working capital performance has been favorable compared to the first six months of twenty twenty four. Capital spending is slightly down for the first six months, so we delivered big improvement in free cash flow and saw our debt to EBITDA leverage ratio drop to 0.3 times. As Brian mentioned during his comments, we closed the ESCO Maritime acquisition on April 25, and the balance sheet was well positioned for this based on the strong cash flow generation since the deal was announced last July. Last is chart nine, where we will discuss the updated earnings guidance for 2025.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

First on sales, we are still projecting 6% to 8% growth before the impact of the ESCO Maritime acquisition. For the five months of Maritime ownership, we are estimating sales in the range of 90,000,000 to $100,000,000 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. We are anticipating unfavorable earnings impacts from tariffs in a range of 2,000,000 to $4,000,000 and those impacts are factored into the new adjusted earnings per share guidance. For the Maritime acquisition, we are estimating adjusted earnings per share in a range of $0.20 to $0.30 which is based on the sales assumptions stated above as well as EBITDA margins in the mid-20s and interest expense on new borrowings of approximately $15,000,000 Adding this to the total, we have updated all in guidance of $5.85 to $6.15 per share on an adjusted basis.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

I do want to be clear that guidance excludes any acquisition related amortization for Maritime and it excludes certain deal and integration costs related to the acquisition. That concludes the financial portion of the call and now I'll turn it back over to Brian.

Bryan Sayler
President & CEO at ESCO

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. ESCO's 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.

Bryan Sayler
President & CEO at ESCO

With that I think we're done with the prepared remarks and we could turn it over to the Q and A.

Operator

Thank you. Our first question will be coming from John Tanwanteng of CJS. Line is open.

Jon Tanwanteng
Managing Director at CJS Securities

Good afternoon. 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 or the exploration process. Do you have any updates there and just how should we be thinking about it at this point?

Bryan Sayler
President & CEO at ESCO

Sure. Well, we've been going through a pretty involved process there to potentially sell the business. We have had a lot of interest and we have active interest now, but it is taking a little bit longer than we anticipated to come to a conclusion. Right now we would expect to know how it's going to end by the May and that could include both a sale and it can also include us making a decision that we're going to retain, the business. But, you know, we will provide notice to you if we make a decision to sell the business when we do that.

Bryan Sayler
President & CEO at ESCO

And otherwise, we'll, talk about it again on the next call.

Jon Tanwanteng
Managing Director at CJS Securities

Got it. And how is the underlying business performed in the last couple of quarters just for us to

Bryan Sayler
President & CEO at ESCO

Yeah, we've seen a real improvement in the overall business. Chris, you want talk to that in terms of margin and year over years?

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Sure. Yeah, I would say that we've seen the business stabilize. The performance has been better versus last year through the first six months, I would say. 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. But as far as some of the EAC adjustments and other challenges we've talked about in 'twenty three and in 'twenty four, we really haven't seen any of those impacts this year and feel like, by and large, those contracts have been dealt with and managed.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

And so we've seen a little bit more of a recovery there so far this year.

Jon Tanwanteng
Managing Director at CJS Securities

Okay, great. Thank you. If you could touch on the tariffs for a moment, is that 2,000,000 to $4,000,000 that you called out, the net impact after you do pricing and other stuff? Is it a gross number? Just help us think about the puts and takes there and also the underlying assumption as to what level of tariffs does that specifically include?

Jon Tanwanteng
Managing Director at CJS Securities

Is that the what was announced on April 2? Is it some level less than that? Just any color that would be helpful.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Yeah. So first of all, I would say it's kind of a net number. So we're certainly doing things to mitigate. We hope we can stay to the low end of the range of that 2,000,000 to $4,000,000 impact or even better. That encompasses actions we're taking to try and get price, for example, to also make some adjustments in our operations.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

So all those things are kind of being worked, we would expect kind of the net result the way we gave it to you. As far as percentages, I mean, we're kind of using what's been kind of issued so far. And again, kind of went back and forth on how to handle this, but we felt it was appropriate to go ahead and bake something in and share that. And then obviously, if there's big changes, we'll update the guide for that going forward. But where we are right now, we're more of a net exporter, I would say, than an importer.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Maybe the broader risk becomes demand related if we see significant retaliatory actions or things like that. So we'll have to keep an eye on all those things and keep you updated. But that's kind of how we did the math for this turn of the crank.

Jon Tanwanteng
Managing Director at CJS Securities

Understood. Thank you. I'll jump back in queue.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Thanks, John.

Operator

Our next question will be coming from Josh Sullivan of The Benchmark Company. Your line is open,

Josh Sullivan
MD & Senior Equity Research Analyst at The Benchmark Company LLC

Hey, good afternoon.

Bryan Sayler
President & CEO at ESCO

Hi, Josh.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Hi, Josh.

Josh Sullivan
MD & Senior Equity Research Analyst at The Benchmark Company LLC

Just on the Maritime Solutions cash generation, I think you referenced it in the prepared remarks there. Is that strong cash profile just a short term dynamic? Or how long will that kind of strong free cash from the asset continue?

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Well, I think what we were talking about there was more kind of the earnings impact and adjusted earnings per share in sales. So on the cash flow, honestly, we would expect some benefit there in the year. We're still working through some of those details with them as we onboard them. But the numbers we were talking to were more adjusted earnings per share.

Josh Sullivan
MD & Senior Equity Research Analyst at The Benchmark Company LLC

Got it. And then just given the closing of Maritime Solutions asset and your increasing exposure to just shipbuilding and particularly submarines, what are your thoughts on the 2025, '20 '20 '6 budget as they're proposed and then the recent executive order on shipbuilding?

Bryan Sayler
President & CEO at ESCO

Well, first of all, Josh, I love the fact that you're already calling it ESCO Maritime Solutions. Appreciate that. We're going to make that go viral. But yeah, listen, we feel really good about 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 a bit ahead of plan you know, for all of the programs and this is a you know, these are businesses that have lots of good visibility to the programs that they're on and the milestones and that sort of thing.

Bryan Sayler
President & CEO at ESCO

So, so you know, we had a really good idea of what where they should be. And what we found was they're probably there or a little bit better than that. And so as we look into 2026, we feel really good about where that settles. Good progress with their customer base in addition to the US Navy, which we are very familiar with, you know, they have a lot of Royal Navy exposure and everything over there seems to be on track moving ahead, know, no pun intended, full steam ahead. And we feel really good about it.

Josh Sullivan
MD & Senior Equity Research Analyst at The Benchmark Company LLC

Got it. And then maybe just one on the RF order flow. You know, is it indicative of any new cycles within those markets or is it, you know, your exposure just too broad or too early to make that assumption?

Bryan Sayler
President & CEO at ESCO

You know there's nothing like you know the five gs story or the AI story to talk about there. Know as I said on the prepared remarks you know they have broad exposure to a wide range of markets and I think that you we are seeing some recovery in China, we're seeing some good recovery in the electromagnetic compatibility market. Don't forget that every device in the world that has electricity in it is subject to those standards. And you know, and every country in the world has an EMC standard that they follow in order to produce product and sell it anywhere in the world, you got to test to those standards. And so I think there's some, you know, evidence that, you know, that kind of maybe the repositioning of manufacturing might be a part of it, but we've definitely seen a pickup there.

Bryan Sayler
President & CEO at ESCO

The healthcare, you know, there's a lot of we're seeing a lot of investments, particularly in what we call magnet swaps. So these would be upgrades at hospitals, you know, swapping out a, you know, five, ten year old magnet for a new one. Those are actually believe it or not, those are actually larger projects for us because you have both the deconstruct and decommissioning and the construction piece and they tend to be higher margin for us. So we're excited about that. And listen, the industrial markets, you know, electromagnetic pulse testing, we took some really large orders for EMP filters, both at data centers and at utility control centers.

Bryan Sayler
President & CEO at ESCO

And that's a trend that we think is going to continue as we move forward. So yes, I think that no one story there but you know a good broad based you know positive trend.

Josh Sullivan
MD & Senior Equity Research Analyst at The Benchmark Company LLC

Great, I'll leave it at that. Thanks for the time.

Bryan Sayler
President & CEO at ESCO

Thanks, John.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Thanks, Hugh.

Operator

And our next question will come from Tommy Moll of Stephens. Tommy, your line is open.

Tommy Moll
Managing Director at Stephens Inc

Good afternoon, and thanks for taking my questions.

Bryan Sayler
President & CEO at ESCO

Hi, Tommy.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Hi, Tommy.

Tommy Moll
Managing Director at Stephens Inc

I want want to start on ESCO Maritime Solutions. Always dangerous. It's always dangerous when analysts take partial year P and L impacts and try to project into future years when we don't have a whole lot of historical to go from. And so if a fair baseline assumption might be to just look at the profit contribution you're offering us for this fiscal year, think about the annualized version of that and then slap some form of a double digit growth rate on that base as we think about 2026.

Tommy Moll
Managing Director at Stephens Inc

Is there any more intelligent way that you can help frame what we all ought to be thinking about for 2026? I understand you've controlled the asset for not that long, but any guidance you could provide would be helpful.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Yeah, I think your construct there, Tommy, is reasonable. You're right. We were able to get with them right after closing on the twenty fifth, get some kind of detail to pull together what we saw for the balance of our fiscal year. We haven't been able to get under the hood for very long, as you say. And so I think that the good news is, as Brian said, we see them as on track.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

The backlogs are really healthy. So they're trending at or above the plans we were thinking of whenever we announced this last July. And I think, yeah, if you do a monthly run rate for this year and you put growth on top of that in the low double digit range, we would expect that's the way it's trending. Obviously, we're working with them. We've got to get the plans re calendarized and all these kind of things.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

They've been kind of a calendar year company until now. So we've got more work to do. So we'll give more precision hopefully, and more clarity on that as time goes forward. But I think what you're talking about is really a pretty reasonable way to look at it as you think about 'twenty six.

Tommy Moll
Managing Director at Stephens Inc

Thank you, Chris. Follow-up on the incremental margins, in particular for A and D and USG this quarter. I think for USG, what we might be seeing there on the significant margin expansion, strong incrementals might just be a mix dynamic given you've got solid double growth and flat NRG. So maybe you could confirm or give a little more detail there. A and D is really where I'm focused and would be curious for any insight you can give on the solid incremental dynamic there. Thank you.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Sure. Yeah, I would say that on the utility side, you're right. I mean, the dole is driving the growth. That's where the bigger margins are. So that helps.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Although I give the NRG team credit. They've done a great job of reacting to this weak market really not hurting us from a margin perspective. But with the growth in Doble, you see a favorable impact there. But then I would also say inside of Doble, we've seen a little bit of mix so far this year to a little bit more of some of the legacy, let's say, offline testing type product lines. Those are going to be kind of our highest margin product lines inside of Doble.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

So the condition monitoring is still doing good. That's a good margin business for us, but it's not really driving the growth 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. So that's kind of the key thing there.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Then I would say on the aerospace and defense side, a couple of key dynamics I would point to. 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 on some of the commercial aerospace lines of business. Again, 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.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

So it takes some of that price a little bit longer to flow through. So we're starting to see some of that really helping us and coming through nicely. And then we've also had some pretty good Navy business, and Navy margins are good for us. 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.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

That also helps the mix. So all those things, think, really add up and have moved that in a meaningful upward direction this year.

Tommy Moll
Managing Director at Stephens Inc

Thank you, Chris. I'll turn it back.

Operator

One more question.

Operator

Our next question will be a follow-up from John Tomlentang. Your line is open.

Jon Tanwanteng
Managing Director at CJS Securities

Hi. 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 they moderate a little bit for maybe what was a hotter period just a couple quarters ago. Do you see that ending some point and normalizing to end demand or is there something else going on there? Just any color there would be helpful.

Bryan Sayler
President & CEO at ESCO

Well, we you know Boeing's a part of that story. You know they had a strike in the first quarter and you know they've kind of you know moderated some of their build rates. I do think that the industry had gotten to a point where they started to kind of manage their inventory a little bit more tightly so that we've seen a little bit of a slowdown, not a huge slowdown from that overall piece. 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 themselves through this.

Bryan Sayler
President & CEO at ESCO

I think they're doing all the right things and we're already starting to see signs that things are moving in the right direction.

Jon Tanwanteng
Managing Director at CJS Securities

Okay, great. And then, you know, compared to last quarter where I think maybe DOJ was a little bit more of a bogeyman, compared to now, how do you see the state of various, I guess, Department of Defense programs and the status of them? You know, if you think any cancellations or delays or reductions in any of those programs that you're exposed to might be affected or impacted?

Bryan Sayler
President & CEO at ESCO

Yeah, would probably point you to a 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 you know there's plenty of spending that they can go and cut without you know but they basically said you know submarines you know are really high on the list. Some of our other Navy programs are pretty high on the list. Overall industrial base shipbuilding infrastructure pretty high on their list. We feel really good about where we are there. And I will say that the order flow from the Navy side is pretty good right now.

Bryan Sayler
President & CEO at ESCO

And got a good line of sight to that. We already have a good backlog and we've got a lot of pretty significant pending work.

Jon Tanwanteng
Managing Director at CJS Securities

Great, thank you.

Operator

And our next question will be coming from the line of Tommy Moll. Stephens, your line is open.

Tommy Moll
Managing Director at Stephens Inc

Thanks for the follow-up here. Just wanted to ask for a little more detail on the pro form a capital structure. So I'm seeing $15,000,000 is the interest expense that you've burdened the fiscal guidance with. I guess a two part question here. How many days of the current quarter are included in that just so we can get to a close annual run rate again as we think about next year?

Tommy Moll
Managing Director at Stephens Inc

And are you able to to comment on the pro form a leverage profile thinking on, like, a all in full year basis, whatever time frame you wanna use? And then how you anticipate that might tick down as you start to repay the debt? Thank you.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

You bet. So first on the pro form a debt profile, what I would say is we expect this when we announced last July, we kind of communicated that we were expecting around a three times leverage. Now that we've closed quite a bit later than we expected and we've had really good cash generation in the interim, we're just over a 2.2 at closing or right out of 2.2, sorry, at closing. So the ratio is really quite good at closing just based on where we came in. And as we look at cash towards the end of the year and the pay down we can do from now until then, we would expect that number to drop below two for sure.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

Let's say more towards the mid-1s, let's say 1.6 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. So that's kind of how we're looking at capital structure right now. And then as far as number of days, I guess what I would tell you, Tommy, is we really did run that out from the twenty fifth. So we funded the deal on the twenty fifth, sent the money out the door that day.

Chris Tucker
Senior Vice President and Chief Financial Officer at ESCO

And we're borrowing right now on a term loan A that we're paying close to 6.5 on, and we're borrowing on our revolver that we're paying right around 6 on. So those are kind of the numbers we're at. And we expect, because of our pay down that I just talked about, 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, such that we can get those numbers slightly below six on the revolver and slightly above six on the term loan A. So that's kind of how we've got it dialed in right now.

Tommy Moll
Managing Director at Stephens Inc

Great. Thank you, Chris. That's all I needed. I'll turn it back.

Operator

Thank you. I'm showing no further questions. I would now like to turn the call back to management for closing remarks.

Bryan Sayler
President & CEO at ESCO

Well, listen, thanks everyone for taking a few minutes to spend with us. Know, as I said in the opening remarks, this is an exciting time at ESCO, and, we will talk to you again in a quarter. Take care.

Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.

Analysts
    • Kate Lowrey
      VP-IR at ESCO
    • Bryan Sayler
      President & CEO at ESCO
    • Chris Tucker
      Senior Vice President and Chief Financial Officer at ESCO
    • Jon Tanwanteng
      Managing Director at CJS Securities
    • Josh Sullivan
      MD & Senior Equity Research Analyst at The Benchmark Company LLC
    • Tommy Moll
      Managing Director at Stephens Inc
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