Good day, and welcome to the ESCO First Quarter 2015 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 statement, 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 the 2015 and beyond EPS, EBIT, tax rate, future growth, profitability and revenue, margin, sales, market share, product development, acquisitions, capital allocation strategy, 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 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 their most comparable GAAP measures can be found in the press release issued today and found on the company's website at www.escotechnologies.com, under the link Investor Relations. Now I'll turn the call over to Vic.
Thanks, Kate, and good afternoon. Before I give my perspective on the quarter, I'll let Gary go over a few financial highlights.
Thanks, Vic. Consistent with the theme of the last five or six quarters, and certainly since the sale of Aclara, our financial goals have been well-defined and are as follows: execute on our financial plan, deliver solid earnings results that meet or exceed expectations, position the company for sustainable long-term earnings growth, enhance our focus on returns, and follow our capital allocation plan. I think we achieved all of these, given our first quarter results. In November, we expected Q1 EPS to be in the range of $0.28-$0.33, and I'm pleased to report that we beat the top end of our range by $0.08, as we delivered $0.41 a share. The better-than-expected tax rate yielded approximately $0.05 of this beat and was driven by the extension of the research credit for one year.
The remainder of the increase in earnings was a result of solid operating performance at Doble and in Filtration, along with ongoing and effective cost management across the company. During Q1, the impact of foreign currency exchange rates was immaterial. As a reminder, for comparative purposes, the 2014 results exclude the charges related to the Crissair facility consolidation that we completed last year. I'll call out a few highlights from the release to allow you to better understand the underlying results. Q1 sales decreased about $4 million from prior year, driven by the nearly $8 million drop in Filtration, partially offset by a $4 million or 14% increase in sales at Doble. Test sales were comparable YoY. At the beginning of the year, we had expected lower Q1 Filtration sales and communicated this in our November guidance.
Filtration sales were expected to decrease from the following: lower space sales at VACCO, related to the SLS program, lower CAS probe cover sales at TEK, and lower sales at Crissair, due to the timing of obtaining first article test approval from certain aerospace customers, which moved these sales into Q2. Doble sales came in above plan and significantly above prior year, driven by higher-than-expected international sales, including Saudi, a strong quarter of F-series protection suite products, which carry above-average margins, and additional software and service business, including Doble ARMS. Our gross margin increased 100 basis points to 41.6% in the quarter, driven by Doble's exceptional performance, which carried through EBIT. Regarding EBIT, Doble and Filtration beat our internal plan, while Test was below plan due to the timing of several projects which slipped out of the quarter.
Corporate costs were lower than last year due to the timing of spending, primarily related to professional fees. On the balance sheet, we continue to maintain a very favorable debt level at $21 million of net debt outstanding at December 31. We remain committed to our capital allocation strategy, which includes repurchases and dividends. As such, we returned $8.5 million to shareholders during the first quarter, and we continued buying shares through mid-January. We expect to opportunistically repurchase shares in the open market throughout 2015, as we continue to be supported by a strong balance sheet. A significant highlight of Q1 was the continued strength of our entered orders. We booked $152 million in orders during the quarter, reflecting a 10% increase in backlog, which resulted in a $335 million backlog at December 31st.
Usually, our first quarter order level is the softest quarter of the year, but this level of orders is a Q1 record on a continuing operations basis. The Test business had a book-to-bill of 153%, led by a $10 million automotive chamber in China, followed by the Filtration book-to-bill of 135%, which includes additional CAS orders and strong space and aerospace orders. This order strength bodes well for the balance of the year. Our guidance and overall outlook for 2015, while unchanged from $1.70-$1.80, is certainly helped by our Q1 results. Getting off to a solid start in the year with our Q1 results provides some additional comfort in our ability to achieve our full year goals.
Regarding Q2, we are guiding EPS to be in the range of $0.27-$0.32 a share, which is obviously lower than Q1. It is important to note that the first half of the year is above our original expectations from both an EBIT and an EPS perspective. As noted in the release, when compared to Q1, filtration and test are expected to generate additional EBIT as their sales volumes are expected to increase significantly, and Doble is not expected to repeat its nearly 30% EBIT margin, as Q1 was extraordinary given its sales volume and sales mix. For Doble's six-month expectations, EBIT margin is expected to reflect a more normal level in the low to mid-twenties. Corporate costs are expected to be significantly higher due to a large amount of professional fees incurred supporting our M&A activities, including the completion of Enoserv, which happened in Q2.
Lastly, we expect a more normal tax rate of 34% in the quarter. I'll be happy to address any specific financial questions when we get to the Q&A section. I'll turn it back over to Vic.
Thanks, Gary. As a reminder, the three-year outlook we communicated during our Investor Day last September, including growing our top line 10%, increasing EPS 15% on a compound basis. Over the past five months, and considering our solid start to the year, our order strength and our M&A outlook, we believe these goals are reasonable and remain achievable. I'm pleased to welcome Enoserv to the ESCO and Doble families, and I believe their future growth opportunities are well-defined and tangible. Enoserv 's multiple software platforms complement and expand Doble solutions in power relay protection. Enoserv also expands Doble's positioning as not only a leading test set manufacturer and service provider, but now a market leader in the very important software space for power providers and users.
We continue to explore additional acquisition opportunities with a primary focus on adding capabilities and solutions to USG and fluid flow. Across the company, our core business continues to present us with long-term organic growth opportunities that, when supplemented with our M&A strategy, create an exciting outlook for ESCO over the next several years. In filtration, we remain bullish on our underlying growth and profitability, driven by last year's aerospace program wins, coupled with having some sizable programs, such as the A350, moving toward production. The test business remains solid, both from a top and bottom-line perspective, as the outlook contains several additional projects, such as the automobile chamber win in China, which are expected to deliver solid profitability in 2015 and beyond. The EMP market continues to provide enthusiasm as we're bidding on a number of opportunities, both domestically and internationally.
At Doble, we made significant investments over the past few years, which were necessary to accelerate their growth, both domestically with new products and solutions, as well as internationally by entering new markets. I think we're seeing the results of that investment being realized this year and expected to continue in the future. We're well positioned for solid organic growth and have the capacity, both from a financial and management bandwidth perspective, to augment our growth with appropriate acquisitions. We look forward to an exciting and successful remainder of the year. To wrap up, I'm very pleased with our Q1 results. I'm comfortable that our three-year financial goals remain on track. I'm optimistic about our growth prospects, both short term and longer term.
Our priorities remain simple and straightforward: execute and deliver our commitments in the core business, maintain our focus on new product development, supporting organic growth, and supplement our existing plan with accretive acquisitions around our core business. I'd be glad to take any questions you have.
We will now begin the question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star, then one on your touchtone phone. And we have a question from Jon Tanwanteng of CJS Securities. Please go ahead.
Hi, guys. Very nice quarter.
Thanks, John.
Thanks.
You had almost a 30% margin in Doble. Can you give us more color on what drove that specifically, and is any part of that strength sustainable at all?
Yeah, it's a couple of things, really. It's really more a mix than anything else, as we called out the F- series, which is one of the more profitable products we had coming out. The outsize number of those of which we delivered in the first quarter. Also, some of the service contracts that we have also carry a higher-than-normal profitability. So you know, those are the two big things that drove it. You know, we'll see that from time to time based on the mix of the business. As Gary mentioned, I mean, we're going to return to more normal levels in the second quarter. But obviously, as we're trying to grow the business and invest in the business, we're looking to invest in places that do have higher levels of margin.
Certainly, something like Enoserv will help us in that regard as well, because it not only has a pretty decent profit margin, but also a good bit of that is recurring business where we're getting that every year from the same customer. So, don't anticipate having the same level every quarter, obviously, but what really drives that is the mix that we have in the business.
Okay, great. Then can you talk a little bit more about Enoserv ? One, is it expected to be accretive, and two, you know, how does it mesh with Doble's businesses, and, you know, what are the revenue margin opportunities?
Sure. So the margins, I think, are gonna be consistent with what, with what we see at Doble, you know, on a, on an average basis, kind of the, the mid-20s type thing. Forgot the rest of the question already. I'm sorry.
Is it gonna be accretive?
Oh, accretive, I'm sorry. So it'd probably be a push, this first year just because of professional fees and bankers' fees and those kind of things. But certainly, going into next year, we anticipate it to be accretive.
Okay, thanks. Then just on the test segment-
Yeah, as far as it is working in with the Doble business, what they really bring to the party is, you know, a couple of test suite Softwares that interface with the Doble business hardware and software already. They're enrolling into their ARMS product as well as I think it gives us an opportunity to sell more of our hardware as a result of having a more robust software.
Great, thanks. And then just a quick question on the test business. You pushed out a couple products to March, I believe. Does that push anything else out into June, or do you expect it all to be caught up?
You know, it should get caught up, but there's some chance. I mean, as we talked about before, part of the problem with that business is, you know, these things will move from quarter to quarter, but, you know, we think the majority of that get back into the quarter, but some of it may slip into the third quarter as well.
Okay, great. I'll jump back in the queue. Thanks.
Okay.
Our next question comes from Jim Giannakouros of Oppenheimer. Please go ahead.
Hi, good afternoon, Vic, Gary.
Hey, Jim.
Just to follow on the test business. I get that it's lumpy, but the orders, even excluding that $10 million order you got in China, pretty stellar. Is there anything in play in any other big project, big order in there, in your one, two orders?
Yeah, I'd say the next biggest order was we got a big shielding order from Finland. I think it was about $5 million. And then the next biggest order is probably $1.5 million. So I would just say that was really good performance or really good orders for the quarter because we did have the one and then the Finnish shielding order. But other than that, there was nothing kind of out of the ordinary, no other very large order.
Okay.
Which, Jim, carrying that out forward, what we like about that is that hopefully, when you start talking about an aggregation of $1 million and $1.5 million dollar orders, that you get a little bit more of a smoothing effect over the next three to five quarters instead of, you know, the big lumpy one-offs that hit five or six in a quarter and go away. So we're really pleased to see the number of, quote, small orders, small being $1 million and $750,000 to $1.2 million around that. It's really impressive to see that level of volume hit this early in the year.
Okay. Great. And, can you—I mean, can you help us from a, from a magnitude perspective, Gary, just as far as how, how much, can you size the slippage, that you saw in, in one Q? And, maybe just if you can kind of walk us through how we should think about the related, I guess, revenue recognition of what you have in backlog in test. You know, admittedly, it is lumpy, but just trying to get a feel for how 2015, from your perspective, should, map out.
Yeah. I'd say it was about $5 million on the top line that, that was in the, the baseline that moved to Q2. And to clarify how Vic mentioned it, you know, a lot of that catches up, but what we also look at is, at the end of that quarter, there's projects that are expected to complete in March that might not, most likely, aren't these same ones. And so it's kind of just, you know, you're trying to throw a dart at a board that's moving in 400 projects all over the world. And so, you know, we've always tried to talk about an annual view here, and we do our best to try to track down the quarters.
But if you, if you peg $5 million coming from Q1 into Q2, you know, that, that moves you up into a Q2 expectations of, you know, $45 million-$48 million kind of revenue. And I'd put $2 million of risk on the back end of that just 'cause, you know, projects that we have today scheduled to shut or, you know, complete in March, if they slip, you know, a week into April, they're a third quarter thing. So it's really kind of a $5 million band around the quarters is kind of how it seems to have stabilized itself over the last five or six quarters.
Yeah, I think one good thing, though, is it's getting more and more backlog. I mean, going into this quarter, we've got the largest backlog that we've had in that business. So that gives us a little more comfort that, you know, the year is gonna, in that business, is gonna turn out like we.
Okay, great. Understood. And then, yes, on the backlog, I share that sentiment. Definitely a good thing. On the profitability, just one last question on test. Is that 13 or low teen level still what you're eyeing for 2015 and longer term, or has that shifted at all?
I mean, that's still our— that's certainly still our target, for sure.
Okay. And I guess same question for filtration. It's definitely came in lower than I had anticipated. And I believe that your comments last quarter led us to believe that profitability should stay in that high teens, maybe even knocking up against 20% in filtration. Has that changed given the puts and takes in that segment?
...Well, I think, I mean, our expectations are still very solid for the filtration business. I'd say that, and maybe we just didn't do a good job of explaining it the last quarter. But, you know, we had a couple of things that we were fighting in this first quarter, but I think we identified those, and that, you know, TEK Packaging had the one line shut down for the whole quarter, so that was, you know, impacting the margin. And then the other thing that was maybe a little unexpected was with the move into Crissair, the consolidation of Crissair and Canyon, we thought we'd be able to get all of the sign-offs from the customers.
'Cause what you have to do in these aerospace programs is if you change a facility, you have to send the customer all the information about their parts, and they have to sign off and say, "Okay, you're good to produce it in the new facility." We thought we'd gotten all of those done in the first quarter. Some of those have slipped into the second quarter as a result of the customer just not getting them signed off. It's not an issue of them not going to do it; it's just, you know, one of these administrative things that they didn't get around to. So some of those now had slipped into the first quarter.
We were just, in fact, Gary and I were both just out there last week, and all of those approvals from the customers now are in hand, so that will all be a catch-up in the second quarter.
Okay, great. That's all I had. Thank you.
Bye.
Our next question comes from Kevin Maczka of BB&T Capital Markets. Please go ahead.
Thanks, and congratulations.
Thanks, Kevin.
Thanks.
To piggyback on that filtration question, so you expect the volume to be up significantly as we go from Q1 into Q2. Vic, is it these customer approvals that you now have that allows you to do that? Or is there something else going on, either in the VACCO or the TEK program or something else that drives volumes up significantly in Q2?
Well, again, we'll have the line at TEK back up and running. In fact, it actually got started two weeks early, so that went well. As we mentioned, we got orders, you know, in advance of that, that we do have all those approvals done now. And then I think there's just some additional volume, I think, at VACCO as well.
Right.
Yeah, Kevin, just to kind of put posts around that, if you remember the CAS issue at TEK was, you know, $3 million, basically. And it's kind of just we're down, and now we're up because the line's completed. So if you look at the TEK business alone, it's $2.5 million-$3 million up sequentially. And then to put posts around the Crissair thing that we're talking about on the first article testing, that was $2 million, and now, you know, we're fully rationalizing the facility, so, you know, we're blowing and going there. So that's expected to be up $4 million-$5 million sequentially. To Vic's point on the space business, that's why I tried to highlight the additional orders that we booked in Q1, not related to SLS.
Those will be shipping in Q2, so we expect about $2 million increase at VACCO. So when you bring all that together, you know, we're pretty confident that we can do a $10 million sequential increase in filtration, Q1 - Q2. And then you obviously absorb all the overhead. Now that CAS is back up and running, we're not getting killed by the quote, "idle facility" while they're retooling. So when you pull $10 million of incremental revenue through that business, you'll see a significant step change in their EBIT contribution.
Got it. That's very helpful. Gary, if I can go back to Doble, and I understand this was an exceptional quarter, the margin's nearly 30%, and that won't always be that way, and sounds like you had very favorable mix on this F-series project and in the services. But can you just help me understand, if you're thinking it normalizes for all of the first half down as low as 20, or the low 20s anyway, how do we get all the way down there? Can you maybe size the F-series and the service,
Yeah, and I'd say, you know, in the quarter, you know, we sell this every year, and you don't sell it every month, though. So in the quarter, we had three customers that basically stepped up their buy because we're looking at raising the prices after January first. So that was part of it. So just to put total dollars around it, that was about $4 million of revenue on the F-series, and we had planned about $2 million, okay? And I don't really want to get into specific margins for obvious reasons, with competitors and customers and that sort of thing, but it's well above the company average at Doble.
So if you step down about $3 million of that $4 million out of the quarter, and then obviously on the Doble ARMS at SoCal Edison, we got all the software put in and all that, and obviously you don't install software every quarter. So that's worth about $1 million on revenue that pulls out. And again, because that's software, it's high margin. The other thing from the cost side, this is when we have our big Doble conference in the quarter up in Boston, where we have about 1,200 customers come, and obviously we take the expense on that, which is about $1 million. So you got a little bit of cost headwind, which hits every second quarter, but it obviously sequentially, it wasn't there in Q1.
So a combination of lower F-series, lower software with the Doble ARMS on the SCE project, and then some costs going in the other way. So you will, you'll see a step down there, and then if you just add the two together. I don't think, Kevin, you should think about it as 20%. You know, I think, you know, keep it in the 23 or 24. So obviously, to step down off 29, it needs to be, you know, in the high teens. And I think we, because of the cost of the conference, and then I think we have opportunities to to do a little better than that relative to the plan. So that's kind of how the year shapes out.
So from the six-month perspective, when we're, when we talk three months from now, it'll be at or above your historical view of the, the margins that are contributed there.
... Right. So that, that's great. But just to be clear, your, your guidance is on change for the year at 24, but you're saying we may even see the high teens in Q2?
Potentially, yes.
Yeah. Okay. Okay. And then just finally from me, the corporate costs will be higher on the deal in Q2. Can you give some numbers there? And do you expect that to continue to stay elevated as you pursue other deals?
Yeah, I mean, that's a little bit of an unknown, but obviously, the cost associated with closing Enoserv will hit in the second quarter. I kind of hope we do have some additional corporate costs, because that means we have got good opportunities to pursue acquisitions. But I think it'll go back to a more normalized rate, like maybe you saw some of the normal quarters last year. Take the first two quarters and kind of average those out, I think that's more what you're going to see. There's nothing, you know, nothing in sight that's going to have a big impact one way or the other in a corporate cost. So it really will depend on opportunities that present themselves from an acquisition perspective.
But Kevin, the way the model lays out, you know, other than if we are successful with another acquisition, the step up in Q2 obviously involves a bank fee. We used a banker to keep it exclusive, and then obviously, the professional fees to close it. So it'll step up, the cost will step up in Q2 for that one time bank fee, and again, based on the model, nothing else is... We don't predict when an acquisition will close, so it'll step back down in Q3 unless we drop another deal in. So what you, what you anticipate with this step up in Q2 is not the plan for the rest of the year, absent a one-off transaction.
So normal has been $6 million or so, and what, we see an extra $2 million in Q2, just one time?
Yeah, I wouldn't say $2 million. I'd, I'd say in the low $1 millions, $1.5 million maybe, and then step it back down to, you know, the $6.2-$6.3 level for kind of just the normal hunting and fishing stuff we do with it.
Okay, great. Thank you.
Bye.
Our next question comes from Sean Hannan of Needham and Co. Please go ahead.
Yes, good evening. Thanks for taking my question.
Go ahead.
Can you talk a little bit about the backlog in a little bit more detail, how you expect this to materialize in the coming quarters? I think there's been some detail you provided tonight to see if we can kind of summarize all of that. And then to what extent should we expect then a pullback in margins in the near term based on that mix? I think we alluded to or talked about Doble coming down a little bit. So just trying to also get a summary viewpoint of how that transpires Q2, and moving forward, based on, especially as we look at other aspects of bookings, such as test being so strong and how that kind of plays into the whole scenario. Thanks.
Yes, so I think as you look at our backlog, just kind of from a macro perspective, it's kind of consistent with what it's been historically as far as how it's going to play out. The only difference I would say is, you know, we've always carried some level of the submarine orders that are back-loaded. There's a good bit of that which we'll deliver over the next several years rather than all this year. And then in the test business, really everything that we have in backlog now should deliver this year, except for the automotive chamber. We may get a little bit of that at the end of the year, we may not. You know, that's a little bit unclear this far out for a project that size.
So that's another one of which at least the vast majority of what we deliver in 2016. But, you know, other than that, I would say it's pretty typical. Most of the things that, you know, Doble's have a book-to-bill business. They, what they bring in, they send out, you know, within the year. The test business, I mentioned everything other than the one project will probably be delivered this year, the vast majority of it. And then the filtration business, with the exception of what we have at that backlog, that'll deliver this year as well.
Okay, that's helpful. And then within the test business, I think there was a lot of kind of early, smaller, but expectations, but optimism around developments for EMP. I think that you start to see some momentum there. I think we've also got a sense that maybe that's perhaps paused a little bit. Just want to see if we can get a perspective around your viewpoints on the development of that marketplace and your play within that.
Yes, well, I'm very happy with our position in it, first of all. I mean, I do think that the jobs that we've been able to get the vast majority of, particularly the higher-end projects. I was just in Asia two weeks ago with all of our Asian team, which, you know, included Japan, Taiwan, Korea, India, and there's a lot of interest there. I mean, it's not turning into orders as quickly as you ever hope, but we think there's a great opportunity there, particularly in Korea. We have entered a number of projects there. Finland, I mentioned, as well. So I think the opportunity is there, and it's just going to be a matter of how quickly it materializes.
But we feel like we're very well positioned for it. I think we have the right people pushing it, and it's just a matter of the uptake of the industry. But I think at some point that's going to accelerate. You know, we just saw an article today where the U.S. is looking at all their nuclear plants and whether those need to be EMP shielded. Apparently, it's getting a lot of attention, so obviously we're gonna continue to chase that as well. So it's one of those things, you never hope for an incident, but if there ever is an incident, then I think we have a hard time keeping up with the business. But in the interim, it's a matter of us pushing it pretty hard. But there is a lot of interest. There's a lot of opportunities. We're bidding.
We've been brought in on a consulting basis at a number of places that are looking to do this, or at least evaluating that. And obviously, if you're on the consulting side first, you know, you've got a better opportunity to actually win the business if it does go to tender.
Okay, that's very helpful. Then, last question here. Do we have any further insight at this point in terms of, within your global business, and specifically within Saudi Arabia, in terms of follow-on projects beyond what you were initially engaged for, for those first 1,000 transformers? Any further developments or viewpoints around how that may materialize there? Thanks.
Well, a couple of things. I mean, we've got people in country now, talking about the follow-on contract, and we've talked all along that it's gonna be, hopefully, a multi-year deal. But we don't have a contract there yet, but we are in discussions about that. Additionally, the best thing is the contract's going very well. I mean, the customer's happy. They're getting what they wanted. You know, we're making, you know, decent money on it, and so I don't anticipate there would be any reason not for it not to go forward. I mean, obviously, with the price of oil being down, that's always a concern, but, you know, my view is this is pretty low down the food chain, if you will, and it's gonna save them money.
So this is a place where, for a relatively small investment, they're really improving the efficiency of their grid, which is something they need to do and something that's gonna save them money. So we feel good about what's going on over there. You know, I think we've mentioned we entered an order with another utility in Saudi Arabia for a little over $1 million. Both of those are getting a lot of interest around the Middle East, so we think this should be kind of a nice entry point for us, and that we'll be able to exploit with a number of other utilities in the area.
Great. Thanks so much for taking my questions.
Okay.
Our next question comes from Ben, excuse me, Hearnsberger of Stephens. Please go ahead.
Hey, guys. Thanks for taking my question.
Yeah.
I wanted to dig back into the Doble margin. So last year, first half, you did 24% margins, and this year, you're kind of guiding to flattest margins despite the fact that we've got some higher margin revenue rolling through with the Saudi contract. Can you just help me understand the puts and takes, maybe the mix last year versus the mix this year, and why the maybe conservatism around the margin guidance in Doble?
I think one thing that happened last year, and it's always kind of a, you never know what's gonna happen, but, you know, we have this lease program where we lease these things on a, you know, a yearly basis. On occasion, a customer will say, "Hey, I want to buy mine out." And so I think we had that, I think it was in the first quarter of last year, where a customer came to us and said, "We want to buy that out." While it wasn't a huge contract, it was, you know, I won't say it was all profit, but it was basically all profit. So you, on occasion, have those, which certainly helps your margin. We've not projected that that's gonna happen this year.
I mean, there's always that opportunity, but we haven't projected that because, you know, nobody's come to us to date and said that's something they're looking to do. So that's probably the biggest difference.
Great. Thanks. Then maybe at a higher level, the five large platforms in filtration, you know, relative to three months ago or the last call, are those ramping or expected to ramp kind of according to your initial expectations, or has anything changed in the last three months with regards to those?
No, nothing's changed. I mean, I would say that the kind of plans that we've had with our customers, you know, have remained very consistent. In fact, as I mentioned, we were just out there and, you know, real-time update on those, and they all feel really good, so I don't anticipate any change in those rollouts.
What about engineering expenses ahead of those? Are they running higher than maybe you expected, or lower, or no change?
No, I'd say that really no change, and in fact, you know, the vast majority of that, you know, has been completed. I mean, the biggest project we had, obviously, was the A350, and, you know, we've produced, like, 63 of those already. So, I mean, it's not in full-scale production, but, you know, having that many and now the plane's flown, and so we've really got the heavy lifting done on that one. Now, there's always gonna be some with some of the newer projects, and hopefully, we'll win some new projects that we'll be doing some non-recurrent engineering on as well. But I would say as far as just the plan that we had going into these projects and how we were able to execute on them is, has been consistent with what we'd anticipated.
Okay. And then, Gary, can you tell us how much buyback authorization you guys have left?
Yeah, it's, it's approximately $67 million. Obviously, that's not what we're shooting for at this point, but we started out at 100 a couple of years ago, and we're bleeding it down. So I think if you put it, you know, in the upper 60s, that'd be fair.
Okay. And then cash from ops looks like it was kind of flat. Was there some more working capital needs than expected, or how do you expect that to play out throughout the year in terms of cash flow from op generation?
Yeah, we, you know, obviously with the, with the step up in sales at the, the two units that really have inventory, you know, Doble, per se, doesn't really push a lot of inventory out the door. You know, they do have the F-series, but a lot of their work is the, the revenue is driven off of the lease pool and the, service contracts and things like that, where you don't have a lot of, inventory tied up. But as I mentioned earlier, when you step up the sales expectations in filtration by roughly $10 million-
... and test by seven or eight. Some of that, obviously, we already have in inventory, but we had a little higher inventory level, required inventory level to meet the near-term demand. And, we also had some, you know, when you look at last year, where we were in, in our payables for the, for the fiscal 2014, we came into the year with a little higher level than ac- of account trade payables than normal, so we had to make those payments to pay them down. So that was an anomaly this year. You know, when you look at the first quarter, we tend not to generate a whole lot of cash. Excuse me. And so we expect that to obviously step up meaningfully in Q2, as we don't have those same level of working capital requirements.
Okay, thank you very much.
And our next question comes from John Quealy of Canaccord. Please go ahead.
Hey, good evening, guys. Is he happy?
Hey, John.
Hey, always.
So I got a question for you. For this Enoserv acquisition, my understanding, it's a little bit more of a software business that runs, I guess, on top of some hardware, including Doble's and some of Doble's competitors. Just talk to us a little bit on how this either grabs share or changes the channel a little bit. Just trying to figure out. I know it's not a big deal, but I think it's interesting, given it's more, I think, software service-centric, and it's, I'd say, changing up a pretty staid channel. So I'm just interested on your thoughts there about how this can benefit ESCO in the channel.
Yeah, well, a couple things. It is, it's really all a software business at the end of the day, Enoserv is. So where they fit is they're really helping relay tests. They do sell on top of our products as well as some of the competitors. We're gonna continue to sell that to the competitors. I mean, there's been some concern, particularly by our competitors and some of our customers, that they were gonna get shut out from that. That's not our intent. I mean, this has been a good business. But what it does, obviously, it does give us an opportunity where we can go in with a package to a customer or to customers that, you know, maybe have Enoserv Software, but they don't have hardware, or they don't have our hardware to try to push that.
And so certainly, we anticipate not only continuing to sell the software, but maybe helping us strengthen our position in the relay test hardware area, as well as incorporating it with our arms program project, as well as, you know, they've got a nice workshop like we do with some of our products. And so we think even from the customer education and the workshop-type activity, that we'll be able to bring that in as well. So, I don't think huge changes for Enoserv itself, but we do see this as an opportunity to provide a better product to our customers and to our future customers in this relay area.
Okay, thanks. And then, just in terms of the, the M&A funnel, if you will, especially on that utility technology, Doble side, you know, how big is that funnel? How well do you think it matures moving forward, or do you think there's other areas to, to do business in the filtration and test space?
Well, as I, as I mentioned earlier, I mean, our focus is the utility space, and that can be, you know, in addition to Doble, like the Enoserv acquisition was, or it could be, you know, a, a business that could stand next to Doble rather than being part of Doble. But in that utility space, that as we've defined it, you know, where they're using technology, you know, to kind of automate a lot of what's going on within utilities. But then certainly, we're, we're continuing to look at aerospace fluid flow as well. So we're not gonna limit ourselves to one or the other.
I would say that today we're not actively looking for additions in our test business, not because we don't think that's a great business, 'cause we do, but our focus there is on executing the business, as it stands today, and we're gonna focus our acquisition efforts on the other two segments.
All right. Thanks, Vic.
You bet.
We have no further questions at this time.
Okay. Thank you, everybody, for your interest, and I look forward to talking to you on our next call.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.