Good day, ladies and gentlemen, and welcome to ESCO's 2015 year-end earnings conference call. Today's conference 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, ma'am.
Thank you. Statements made during this call regarding 2016 and beyond, EPS, EPS as adjusted, EBIT, tax rate, future growth, profitability, and revenue, operating margin, sales, acquisitions, implementation of the company's capital allocation strategy, the costs, benefits, and timing of restructuring and cost reduction activities, corporate costs, and other statements which are not strictly historical, are forward-looking statements within the meaning and the safe harbor provisions of the federal securities laws. These statements are based on current expectations and assumptions, and actual results may, 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.
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 the 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, and good afternoon. Before I provide my perspective, I'll turn it over to Gary for a few financial highlights.
Thanks, Vic. As a reminder, on October 8th, we announced certain restructuring actions related to our lower-margin international operations, primarily in the Test business, and also provided a preliminary update of our expected FY 2015 results. In that announcement, we laid out the details of the 16 restructuring actions and the expected cost savings, and called out the $5.6 million of non-cash charges in the Test business that impacted this year's results. We also noted that we expected Filtration, Doble, and Corporate's year-end performance to be at or above previous expectations, and I'm pleased to report that we realized these higher expectations as we closed out the year. Our FY 2015 restructuring actions are well underway and are being implemented at the cost level we anticipated and on the schedule we projected.
We expect to begin realizing the identified cost savings and operating benefits in the second half of fiscal 2016. Turning to the release, we reported EPS of $1.59 per share from continuing operations, which was negatively impacted by the $5.6 million of non-cash charges that we noted earlier. During the year, sales increased $8 million at Doble as a result of new product introductions and the contribution of ENOSERV for a portion of this year. Filtration sales increased despite the previously expected sales decrease at VACCO related to the SLS program, which was rebaselined at the start of the year.
The commercial aerospace business at PTI and Crissair significantly outperformed expectations, and TEQ recovered quite nicely from what was expected to be a sales decline due to the Q1 impact of the CAS retooling their production requirements for their Gen 2 product, as described at the beginning of the year. The Test business reported a $4 million sales decrease during the year, resulting from the softness within the global shielding markets. In response to this, Test was able to partially mitigate its impact by reducing their SG&A spending by $4 million year-over-year.
Our operating strength, as recognized in FY 2015, was clearly driven by the continued upcycle in the commercial aerospace markets at PTI and Crissair, a 24% EBIT margin at Doble, despite additional spending on sales and marketing, outstanding performance at TEQ, where we delivered a solid EBIT margin despite its Q1 CAS headwind, and rigorous cost management, resulting in lower corporate spending. While the overall performance in Test was disappointing, we addressed this situation with significant and aggressive cost reduction actions, which will have a tangible and meaningful impact on Test's operating margin beginning in FY 2016 and being realized for years to come. On the balance sheet, we continue to maintain a modest level of net debt, which stood at $11 million as of September 30th.
Additionally, we remain committed to our capital allocation strategy, which includes share repurchases and dividends, and as such, we returned over $27 million to shareholders during the year. We expect to continue to opportunistically repurchase shares in the open market during 2016. A significant highlight of the year was the strength of our entered orders and our ending backlog. We booked $562 million in orders in FY 2015, which reflects a $25 million or 8% increase in ending backlog, which currently stands at $328 million as of September 30th. The current backlog and our order profile as we enter FY 2016 supports our sales outlook as described in the release.
Regarding our guidance, as we noted in the release, our expected results will include the impact of the restructuring charges, and therefore, our guidance and subsequent reporting will be presented on an EPS as adjusted basis, which will exclude these defined charges. The majority of the charges and add backs will occur during the first half of the year, as we expect to be substantially complete by March 31st. Therefore, we expect FY 2016 EPS, as adjusted, to be in the range of $1.90-$2.00 a share, with a quarterly EPS profile similar to FY 2015. Additionally, commenting on our longer-term view, we continue to see meaningful sales, EBIT, and EPS growth across the business segments, consistent with the expectations communicated in our 2014 Analyst Day presentation.
When comparing our guidance to FY 2015, we're expecting meaningful increases in both sales and EBIT at Filtration and Doble, and a lower operating cost structure at Test, along with normalized spending at corporate, which therefore drives the favorable FY 2016 EPS comparisons. In closing, when comparing our EPS as adjusted results, we're projecting a tax rate of approximately 35%. I'll be happy to address any specific financial questions when we get to the Q&A, and I'll turn it back over to Vic now.
Thanks, Gary. As outlined in the release, and as Gary commented, our 2015 performance came in a form slightly different than originally anticipated. Our Fluid Flow and Utility Solutions businesses performed well ahead of expectations, which offset much of the softness in Test. This year reinforced one of the major benefits of maintaining our multi-segment business. As Gary mentioned, the aerospace business performed well, with results stronger than expected. The downturn on the SLS program at VACCO was not as severe as we anticipated going into the year, and the SLS orders received during 2015 bodes well for our outlook. One of the key drivers of the continued strength in our commercial aerospace business is we were well ahead of our near-term plan, led by orders for the A350, which have been higher than expected.
This has continued into October, as we received another large order on the A350 to start the year. Another bright spot is our execution, which has resulted in improved operating margins over the last year. The outlook for this business remains strong as we enter 2016. TEQ performed well, evidenced by nearly 18% EBIT margin delivered in quarter four, Q4. TEQ is a solid business with above-average industry margins, resulting from our well-defined niche in medical markets. While identifying the future growth opportunities at TEQ, we saw a solid opportunity to supplement this growth by adding Fremont Plastics, which is also a niche supplier to the medical market. Fremont not only adds scale and profitability at a reasonable acquisition price, it also provides additional manufacturing space where we can add capabilities to further improve TEQ sales growth and operating margins.
Doble continued its strong performance in 2015, and it's great to see the success they're having with the new offerings to augment what is already a market-leading set of products, services, and solutions. Moving on to our outlook for 2016, I'm excited about the prospects as we enter this year. While we had to take some tough actions to improve our cost structure, I'm convinced these actions will result in a meaningful improvement in our operating results as we go forward. When completed, we'll have a more efficient, less complex, lower-cost operating structure, which should yield significantly improved margins. Our recent planning meetings have reinforced our earlier view of FY 2016 and the next couple of years. We continue to see solid, tangible growth opportunities in sales, EBIT, and EPS. Let me call a few of those out.
Doble was recently awarded their first significant order for the Doble PRIME product, which is their newly developed online solutions package. They also won their first full-scale deployment of the Doble ARMS. The pipeline for this solution continues to be strong, as we're currently in discussion with over 50 utilities. The sales cycle can be long, given the nature of the product, but since we've been working a number of these accounts for quite some time, it's good to see tangible results. Doble also recently won its first significant contract for the Doble Universal Controller, which is a field force automation product. Both the Doble Universal Controller and Doble PRIME are new products developed using existing building blocks, minimizing development time and expense.
Our M7 product, which is the most capable test set on the market, has been commercially launched and is gaining good customer acceptance as we've booked several new orders within the past six weeks. Bottom line, Doble is looking good, and the investments we made are paying dividends. On the Test front, our FY 2016 outlook has improved based on the cost reduction actions and progress, and the savings we see coming out of the back end of this process. I remain excited about their future as the Test backlog, overall backlog continues to grow, which bodes well for our 2016 outlook. Regarding acquisitions, we see momentum with these activities, but we do continue to be prudent. The recent major acquisitions that have taken place in aerospace market have commanded very high multiples.
We will continue to take a deliberate approach, looking for small to medium-sized niche players, which we can acquire for a reasonable multiple, providing EPS accretion and acceptable return. There continues to be several opportunities out there which we're evaluating, and we're continuing working hard to supplement our organic growth. So in summary, we had a solid year and have taken actions to reduce our cost structure. We're on track for a strong 2016, as we're well positioned for profitable growth in all three segments. Our focus remains constant to improve our operational performance and execute on our growth opportunities, both organic and through acquisitions. So I'll now be glad to answer any questions you have.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star, then the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from the line of Jim Giannakouros with Oppenheimer. Your line is open. Please go ahead.
Good afternoon.
Afternoon, Jim.
On the Test business, if you can help me understand, I mean, it's been tracking below, I guess, our expectations here. I think it's just broad underperformance, both here and in Europe. You're still tracking below 2012 sales levels there. Are there particular end markets to blame? I guess what I'm struggling with is how should we be thinking about longer-term growth prospects in that business, you know, I guess, after you're done with your, you know, another wave of restructuring and repositioning?
Well, well, obviously, we have seen some headwinds on the sales side of that business, on the growth of it. So the approach that we're taking now is, given that reality, I mean, some of the end markets are more challenged than they are in some of our other business. But given that reality, was the primary reason we decided to take some significant cost reduction activities because we need to get the margins up. And shorter term, we think this is the best way to do it, to get our cost structure more in line. Longer term, I mean, it's a healthy business. The markets are healthy. Some of them are developing a little bit slower than what we anticipated. For instance, the EMP market has not accelerated as much as we thought.
I think that's gonna happen at some point, but it just wasn't happening fast enough for us, so we had to take the action to get the margin improvement that we think is achievable.
Okay, thanks. And if I could switch over to Doble, if my math is right on just core growth, it seems that, you know, you're anticipating accelerating growth, and I assume it's because of your healthy order book. What exactly is driving that? Is it those wins that you cited earlier? And if you can talk about expected revenue mix between hardware and software solutions and that's baked in your 2016 expectations.
Yeah, you see, let me answer the last half of that first. I think you are gonna see our service revenues go up at a higher rate than what you see the hardware go up. I mean, the hardware is still growing, but we're getting a lot more traction on the service side, which is good because the margins there obviously are a little better. And, you know, just being in front of the customer and providing the services is a positive thing because the more you do that, the more opportunity you have to sell hardware. But really, the growth that we see, a couple of things, you know, we did make an acquisition last year.
We'll have that for a full year, the acquisition of ENOSERV, so that gives us some immediate, you know, kind of growth without going and looking for it. The other thing is really the products that we've developed, and we've been talking the last couple of years about new product developments, whether it be the M7, whether it be the ARMS product, the, you know, the universal controller, the ones I talked about today. So really, the growth that we're seeing outside of kind of the baked-in growth that we have with ENOSERV, really are those new products, because each of those products, other than the M7, are totally new products for us. And so that's giving us the uptick for 2016.
Thanks, Vic.
You bet.
Thank you. Our next question comes from the line of Kevin Maczka with BB&T Capital Markets. Your line is open. Please go ahead.
First question, I guess, just to be clear, Gary, are you calling this a $0.47 quarter and $0.61 if you back out that charge?
Yeah, well, the reason we didn't get into a lot of detail on the quarter is because, you know, we kind of pre-announced on October eighth to kind of set the expectation there. So the way we highlighted the $5.6 million and the $0.14 back then was to kind of steer you in that direction at that point in time, that was the relative impact of that. So, you know, between the third quarter charges and the fourth quarter charges, we just felt it was simpler and more efficient for you guys to figure out how to look at the year. So that's why we kept the basis as the year, and then you knew what the nine months was, so you can kind of back into it.
So, trying to put that charge into the quarter, and how would you look at the other things, we thought was more confusing than to just say, "Here's the stake in the ground on the year. Here's the charges that impacted it," and then you could kind of back into it. So, I know it's a long, roundabout answer, but that's kind of how our thinking was.
But is that a yes or a no on the $0.47 and the $0.61?
Yeah, I think if you... That $5.6 hit in the fourth quarter for the most part, and, you know, the pieces that were earlier in the year. So I think if you looked at just kind of the roll-up, it'd be in the upper 40s.
Okay. On filtration, so we're looking at high single-digit revenue growth in 2016, but flattish margins. A couple of questions on that. It seems like VACCO is growing faster with the SLS program, and that's usually higher margin. So I'm wondering if that's true, why we're not getting a little bit better margin leverage on high single-digit growth. Can we start with that one?
Yeah, I mean, the short answer is the A350 is a great program. We're in the on-ramp phase of that, and as we, you know, this next year or so. It's gonna carry a lower margin because we've had to put all the infrastructure in place to be able to perform on that program, but we're running at a lower rate than what we will eventually do. So as we fast forward a couple of years, we get up to rate on that program, and you'll see the margins expand. The other piece of it, and you're right, at VACCO, SLS is a better margin program. But the other thing that we run into is the level of spares that we receive, particularly from the Navy, because those are very high margins.
We had a really strong year in 2015 on the spares. We're not anticipating that in 2016. You know, hopefully, that'll change, but the way that we modeled this out is that we're gonna have a lower level of spares, kind of more in line with what we've seen historically. So I'd say those are the two biggest things that are having some impact on the margin in 2016.
Okay. And are you able to say about how big your SLS business was in 2015?
Yeah, it was in the low 20s, so $22 million-$23 million of revenue, and a little higher on the orders, which is great news as we go into 2016, because if you recall, the rebaselining at the start of the year, they were kind of flatlining it for a couple of years, and now we're seeing acceleration. So you know, having the orders greater than the sales certainly supports our outlook in that regard. So if you were to peg it at, you know, $22 million-$23 million in 2015, it should be incrementally higher as we go into 2016, based on the order book we have, which is over $25 million, that came in this year.
Got it. And could I just sneak one in on Doble here? So sales were down in the quarter on Doble. I think that came in a bit shy of what we were looking for. Can you just talk about that? What happened in the quarter? Because, of course, you're expecting much better growth next year. And on the... Since we have software growth next year, what kind of strong incremental should we be looking at there?
Yeah. So let me answer the first part of that. I mean, the biggest issue that we had was the Saudi contract, which we got awarded very late in the year. We anticipated getting that awarded earlier in the quarter, and the way that works, and we couldn't do any work on it until we got it, so we only got about two weeks' worth of the Saudi contract in 2015, where we had anticipated, you know, almost a whole quarter of that contract. So that's really the biggest reason it was down. So I don't think it's a... I know it's not a systemic issue. It's really the timing of that one contract, which, you know, that's a big contract for us and a nicely profitable contract as well.
Then on the second part of your question, Kevin, on the software, you know, especially as it relates to ENOSERV, you know, you get two things in your favor. You get the calendar because we only had it for, you know, half a year or so, compared to a full year next year, and that pulls in EBIT margins greater than Doble's aggregate margin. So, you know, you're thinking - you should think of that in the kind of 30, low 30s range, because of the software margins that you get off that. So it's incrementally positive as you get the calendar effect and it pulls through one of the highest EBIT margins in the company.
Okay, got it. Thank you.
Bye.
Thank you. And our next question comes from the line of Ben Hearnsberger with Stephens. Your line is open. Please go ahead. Ben, your line could be on mute. All right, we'll move on to our next question from John Tanwanteng with CJS Securities. Your line is open. Please go ahead.
Hi, guys. Thanks for taking my questions.
Yeah.
Can you give a little bit more color on Fremont? I'm assuming it has some synergies with TEQ. What was the price you paid? What kind of revenues and EBITDA generates, that kind of stuff.
Yeah, so we really haven't disclosed it. It's a pretty small company. I mean, it's under $10 million, and we paid, you know, in single digits on multiples. You know, it's a nice business. It's all medical. The margins are, say, even significantly higher than what we have in the core TEQ business, so it's gonna be a nice adder for us. You know, the other thing it really does is a lot of the larger customers were always concerned about us just having a single facility in case, you know, for disaster recovery type things. So this gave us a second facility, so we could, you know, allay that concern. The other thing it is, the type of machines that they have are, well, they're pretty comparable to what we have.
They do allow you to form a larger part, so it opens up some different areas for us and what we've historically been able to do. And then, as we mentioned, as well, the other thing is they have excess capacity. So as we look at growing that business and maybe potentially doing some vertical integration, that gives us that flexibility that we simply didn't have with TEQ, and we were really out of space at the single location.
Got it. And was that, was that $10 million the, the revenues or, or the price you paid? I'm sorry, I didn't quite catch that.
It was the revenues.
The revenue. Okay, great.
It was the revenues, yeah.
I would expect a little bit of corporate expense step up from the acquisition fees. And, also just on the restructuring, how much of that do you expect to hit in Q1?
On the corporate, I think you're thinking about that right. You know, we really, we're paying attention to a lot of other things this year, so the, what I call the incremental spending at corporate, that's why you see a decrease in the corporate. So I think if you rationalize that back up to its historical levels, that's the first part of your question. And relative to the restructuring, obviously, the benefits become realized the sooner that you're done with all the churn. So of the items you identified, I'd say, you know, $6-ish, $6 million-$7 million of the $9 million of costs will happen in the first quarter. We're well on our way.
I think the, the at least the German piece of that, we should be out of it probably first week of January, kind of thing. So that's really helpful because then the benefits become realized much quicker. In the U.K., takes a little bit longer just 'cause there's some live projects that we're running out the backlog, and so we can't just, you know, close the door. We're gonna complete those programs, so it'll dribble into, into Q2. And, and I'd say from the Brazil side at Doble, it's essentially complete today, but there'll be some residual costs that drag through. So if, if you put 80% of that cost in Q1, you know, for GAAP reporting, you know, that'll be fair.
Okay, great. That's helpful. And just to go back to an earlier question, the as-adjusted EPS for the quarter, I mean, should we think about it as a charge and then tax it at the rate that your normal tax is, and then add that back?
Yes.
Okay. Gotcha.
Yes.
Okay, great. Thank you very much.
Yes.
Thank you. Our next question comes from the line of Ben Hearnsberger with Stephens. Your line is open. Please go ahead.
Hey, thanks for taking my question.
Hey, Ben.
I just have one on M&A. It sounds like multiples remain high. I guess, what gives you the confidence, that you can do the inorganic growth necessary to meet your, your stated goal?
Yeah, I mean, we're just -- we're having to take a different approach than a lot of people are. And when I talk about the multiples being high, I was referring specifically to the aerospace piece of it, and, you know, larger transactions. So again, where we've been successful historically, and I think we'll continue to be successful, is to work in niches, you know, mainly privately owned businesses that, you know, people are concerned as much about where their business goes as, as much as how much they get paid for it. If you look at the acquisitions that we've made over the past, you know, three or four years, that's where we've been successful. So it's very difficult once it gets into a, a bid process, because there's such a scarcity out there, and, and things get bid up.
But I, I would say that as we review the list of things that we have under evaluation or in discussions with people, it's, it's more robust than it has been, which surprised me a little bit just because, you know, that you, you would think a lot of these things would have already transpired. But, but we've been getting not only things that we've identified, but some unsolicited incoming as well. So, you know, I, we're not gonna rush out to do something, to do something, but there does seem to be enough in the pipeline to give us some confidence we're gonna be successful.
Okay. And then on the Doble PRIME order and the Doble ARMS license, you said you were talking to 50 or so utilities. What is the revenue opportunity, I guess, implied in that?
I think the reference to the 50 clients was on ARMS. And, you know, we're talking, it depends on whether it's single year, multiyear, but it can be, you know, from $500,000 to multi-million dollars, you know, $3 million on those types of products. And that's a really nice, high-margin business. We do think that's gonna accelerate, because the utilities are really looking to automate things, and this is something that gives them the capability to have much better insight into what's going on, on the grid. You know, historically, they've done that the old-fashioned way by sending people out and looking at it.
And obviously, with you know the tightness in the people getting the people to do that and the cost to do that, we think this is a product that's well positioned to fill that void because it does allow them to sit back and have a better understanding of how the performance of their grid is.
Okay. And then, Gary, I think you may have mentioned it, but I missed it. How much of the $0.24 is assumed in your 1Q guide?
I'd say about 80%, 80, 85% of that.
Okay, great. Thank you.
Thank you. And our next question comes from the line of Sean Hannan with Needham and Company. Your line is open. Please go ahead.
Yes. Hi, good evening. Thanks for taking my question here. Can you hear me?
Hey, Sean.
Sure can.
Yeah.
So a high-level question for you here. If I think about the challenges you guys have consistently been going through within Test, I consider the, at times, project nature that you see within the business, as well as the margin profile of the business. And then I think about, you know, the types of volatility that we saw as a real drag and the consistent issues we saw that, you know, flipped on us and started to develop with the Aclara business. You know, at what point do we start to evaluate Test more critically, in terms of it being strategic to the portfolio here? And, you know, to what degree is that, you know, type of analysis or discussion going on internally?
Well, a couple of things. I mean, this, you know, that is not an Aclara business. I mean, it's a much different business. I'm sure there's projects there, but we're talking about projects than one million to, you know, ten million, sometimes larger. But to answer the second part of your question, I can't say there's anything specifically going on with Test. I mean, look, we do those types of evaluations all the time. And so whether it be any of our businesses, I mean, whether it be an acquisition or divestiture, and that's part of what our job is and part of what the board does. And so there's a lot of scrutiny goes on to this. I would say that today, the Test business, we're still confident that they have a bright future.
We had to take action, as I mentioned earlier, when we saw the markets not developing as robustly as we thought, to get the cost structure in place. We get the cost structure in place, and, you know, I think we'll be fine. It's important to remember that, you know, we are number one in that market. I mean, we are the largest, we're the best, and believe it or not, the most profitable. We've had our challenges, but I think we understand what we need to do to get through those.
Okay, that's helpful. Then switching over to the filtration side is really a very high-level conversation or discussion. Now, there's certainly been a lot of news emerging around the slowdown of orders that's now starting to go to the Boeings and the Airbuses of the world. Just wanna see if we can get your perspective in terms of, you know, how this, you know, ultimately could impact you. Of course, you know, some of it's gonna be platform, you know, specific, and I do realize that, you know, backlog still is pretty substantial, and there can be a lag time here, but any viewpoints from you, Vic and Gary, would certainly be helpful. Thanks.
Yeah, well, I think the good thing, I mean, you know, let's say that that's what we're seeing, that the backlog or that the orders are slowing down. You gotta understand, they've got eight years of backlog currently, so there's a lot can change between here and there. So the programs that we're on, the primary programs, are doing very well. So I don't have a near-term concern about that, and even a midterm concern about that, just because of the strength of the backlog. And it is very much platform specific. And so as we look at our forecast, I think we've got a great mix of legacy programs, you know, where we've been delivering for a long time, where we get the spares, where we get the aftermarket and new programs.
So I think we're pretty well positioned. I mean, I would say that if we weren't on some of the newer platforms, like the A350, there would be a bigger concern, because the reality is, you know, there aren't a lot of new, big programs that are being awarded right now. So fortunately, we're aggressive when we needed to be aggressive and got on some of those key platforms.
Just, John, just to take that one more step and put a number behind it that people may or may not have caught in, in Vic's commentary about the orders in, in the last week. You know, obviously, we're talking about last year, but we received an A350 order within the last couple days for about $7 million that was expected later in the year. And so when we talked to the division folks on that, the conversation with our customer is that, you know, they're just blowing and going on that thing. And so if there's a slowdown coming on the A350, it's not anywhere in our near-term or mid-term planning horizon based on the production rates that we're seeing and feeling. So that's comforting to us for the growth.
And then the legacy platforms, like the 737 and things like that, you're really not seeing a lot of headwind that high runner is facing. And in fact, with the MAX engine and that sort of thing, they're seeing just the opposite, and we're realizing the benefits of that. So I think to Vic's point, you know, we're sitting in a really good spot because we're not concentrated on one platform, and so we diversify that risk over numerous platforms. And then we have a big grower that at least for the next three years, gives us tremendous comfort and visibility.
Sure. Understood. Okay. Thanks so much for taking my questions.
Bet.
Thank you. Again, ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. Our next question comes from the line of John Quealy with Canaccord. Your line is open. Please go ahead.
Hey, good afternoon, Vic and Gary. How you been?
Hey, John.
Good.
Hey, so, a couple questions. First, on Doble, on, you know, the movement towards more software-centric business and product cycles, can you just talk to us about the relative purchase decision time frames? They're, they're new product, new projects, new modalities. Doble's a fantastic brand, but you're, you're introducing a somewhat of a new category for your customer. Is there a, you know, long evaluation time, or how should we think about this as, as you migrate your customer base towards a little more asset light?
Yeah, sure. I mean, I mentioned in my comments, I mean, it is a longer cycle. I mean, we've been working the ARMS product, I mean, it's been in front of customers at one level or another for, you know, 18 months to 2 years. So it is a much longer sales cycle now. Having said that, you know, we're kind of through that, so we're getting to the point now where we're getting some acceptance. People are starting to get very serious about this, so I think we'll start to see that. The other thing I would say, why that's probably one reason you like long sales cycles is everybody else has it as well.
And so as far as I know, we're the only people that have a product that we can put in the field today that the customer can really go and work with this, so there's not a comparable product. So I'd say we're well ahead of any competition out there, and people are gonna have to run really fast to catch up, and, you know, they're gonna have to go through that same cycle. But certainly, you know, with software, particularly an enterprise-type thing, there are other people that get involved. You know, one of the great things about Doble, particularly with the core products, is, you know, that maintenance engineer can make the decision. He gets the money, he makes the decision. You start talking about putting software in place, and you're getting a lot more people involved.
I mean, this is more of an IT and C-suite decision, but the great thing is, once you get at that level, then those guys can make a decision. But there's, as you know, working through these large utilities can be a little bureaucratic, and so you kind of got to go through steps to get there. But fortunately, we've been at this for a while, and I think we're there.
And, and-
Hey, John, one thing-
Hey, John, let me add one more thing to that, if I could interrupt for a second. Just the other thing that's important is understanding the utility mindset and who our first couple customers are, as reference customers are highly respected, large utilities out on the West Coast. So I think the fact that people will look at that, it'll make a big difference into how they look at that stuff.
Yeah, and to that point, Gary, so you guys are, you know, you've done real big jobs in the utility space in the past, and this whole concept of multidimensional, interchangeable systems, can you just, you know, break it down? As utilities become more digitized, that the Doble system isn't stranded and it, and it plugs and plays in different ERP systems. Just talk about that, how it fits into the broader ecosystem with so many things going on on a systemic level at utilities.
Well, and that, that's one of the real benefits of this system. I mean, it was built, designed so that it's kind of agnostic to the hardware. So we don't care what kind of relays they have, we don't care what kind of testers they have. It can really go into any substation, and it's pretty open, openly coded so that, that it's, it's agnostic to the hardware that we see out there. And one reason we bought ENOSERV was they really brought a lot of that along with themselves and, and added to that. So we don't see this as something that's gonna get put in and, and stranded. It's a very open architecture.
In terms of your target market, to Gary's point about, you know, some of the big Californian guys that you know quite well, are you, are you targeting big IOUs that have done smart at the endpoint for the residential and then wanna backfill infrastructure and get some value out of that network? Or is it a mixture of folks you're targeting for this?
It's really across the board. I mean, I would say that today it is a larger investor-owned utilities. For what we're doing, it doesn't matter if they have AMI in place or not, because that's really a, you know, more of a residential, commercial endpoints. And what this, what this system does is really more looking at the substations and the and the products around that. So it would not be driven by or limited by somebody having an AMI system or not.
Yeah. My last question, so, you know, in the AMI smart grid world, you've, you've had a lot of multiple and value deconstruction, and you guys exited at a good time. Are there properties out there in software or services that you find multiples a little bit better than maybe Filter or Test? Can you comment on the relative attractiveness of some of the properties in the, in that space? Thanks again, guys.
Sure. You bet, John.
Yeah.
No, there absolutely are some things out there. It's a matter of making sure, do we... To exactly what you alluded to, I mean, there's a lot of software out there, but what we have to make sure is we evaluate those, if those are things could be dropped into what we have, into our ARMS, rather than being kind of a one-off system. Because there are so many pieces of software out there addressing these types of things, and if you don't have something that fits into an overall system, like an ARMS, then I think you really do run the risk of having a product that you sell to a couple of different utilities, but then that's it. And the other thing I would say is, you can get some of these things at a decent price.
I mean, ENOSERV, we paid a double or a single-digit multiple for that, so a lot of it is just finding the right properties and getting them at the right time.
Thank you, and I'm showing no further questions at this time, and I would like to turn the conference back over to Vic Richey for any closing remarks.
Okay. Well, thanks to everyone for your interest today, and I look forward to talking to you in the next call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.