Q3 2020 CECO Environmental Corp Earnings Call
Good morning, and welcome to the CECO Environmental third quarter 2020 earnings call all participants will be in listen only mode.
You need assistance, Please secondly conference specialist.
Switching to start key followed by zero after todays presentation, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
Now, let's turn the conference over to mass Eckel, Chief Financial Officer of CECO Environmental. Please go ahead.
Thank you for joining us on the CECO environmental third quarter 2020 conference call on the call today, Todd Gleason, Chief Executive Officer, and myself, not Eckel Chief Financial Officer before we begin I'd like to note that we have provided a slide presentation to help guide our discussion the call will be webcast along with our earnings presentation on our website at <unk> and by the Dot com.
The presentation material can be accessed through the Investor Relations section of the website I'd also like to caution investors regarding forward looking statements any statements made in today's presentation that are not based on historical facts are forward looking statements such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties actual.
Future results may vary.
Materially from those expressed or implied by the forward looking statements. We encourage you to read the rest describing our FCC filing on form 10-K for the year.
So on the 31st 2019, except for the excise required by applicable securities laws, we undertake no obligation to update or probably revise any of the forward looking statements that we make every day what it was a result of new information future events or otherwise todays presentation will also include references to certain non-GAAP financial measures, we reconcile that.
Terrible GAAP and non-GAAP numbers in today's press release as was the supplemental tables in the back of the slide deck and with that I'll turn the call over to Todd.
Thanks, Matt and good morning, we appreciate you joining us today.
As we navigate through the cobot pandemic, we continue to focus on the health and safety of our employees customers and communities. We hope all of you are safe and healthy as well, let's get into the materials. Please turn to slide three.
It's been a busy and informed of time for me since I joined CECO in early July I've had the opportunity to engage with many of our employees and external constituents here are some observations on updates on what I see as someone is still relatively new to seek out asking a lot of questions in evaluating the opportunities we will delve into the financials in more.
It gets in more detail in a minute, but like many companies we have seen a dramatic pause from the corporate related market impact. We are regularly monitoring customer and market information, we would acknowledge that certain markets would still have been challenging this year, regardless of the pandemic such as oil and gas refining, but overall, we estimate over 80% of our orders decline.
Why is attributable to the customers slowing down capital spending and pausing various projects because of coping <unk>.
It reminds many of US have the financial crisis in 2008, and 2009 or the sudden impact from events like 911.
We remain confident that as markets steadily recover we are in very good position to rebound to.
Highlighted a few market comments on the slide we will touch on these a little later in the materials.
I continue to be energized by the tremendous talent at CECO. Our employees are focused engaged and want to drive success for our customers at the core of our strength is the 300, plus engineers and application specialists, which comprise approximately 40% of our workforce. Our engineering team is the heart.
Mines of CECO, they have a passion for solving our customers' emissions and water issues and their expertise is at the core of sequels value internally in short they are solution providers. We will continue to leverage this core advantage as we drive growth and new markets and partnerships.
The bottom section of the slide points to some new were heightened areas of focus that we have been driving and introducing since my arrival.
It was a solid foundation in place for many of these items. So my job in many cases is to help prioritize and push for results, we must and we will make more progress driving recurring revenue, we're putting new metrics in place to evaluate a recurring revenue streams and working to build new capabilities and incentives to drive results.
And like most companies, we continue to advance our operational excellence programs to drive productivity and streamline processes and finally, we've done some good work with adjacent markets, but not enough. We can utilize our leadership position to build new relationships and revenue streams, we will continue to apply new processes and resources.
To drive new growth.
It's time that CECO stepped up our game on providing more leadership and detail around environmental social and governance or EPS GE programs I frequently joke with our staff that we are like an honor roll student that hasn't shown up to take the test.
Yes, she starts with disclosure and broadens with leadership action, we've a great story to tell we just need to start telling it in essence, we're going to show up for the test.
Assembled a talented cross functional leadership team to drive our EPS GE initiative more to come on this later too.
And we have a robust strategy and business transformation program underway CECO has many opportunities for sustainable growth and market expansion, both organically and inorganically.
We will have a detailed strategy and execution plan to follow as a result of our recently kicked off work, let's keep moving please turn to slide number four.
On the top section, we provide a summary of our financial results orders were approximately $67 million, which was down 40% year over year customers in oil and gas refining and other energy sectors continue to delay spending sales.
Sales of $77 million was down 9%, both orders and sales reflect the reality of the markets and timing of projects and are not at the levels. We strive to deliver gross margins were 32% and EBITDA came in around $7 million. Finally, adjusted earnings per share was 11 cents and free cash flow.
Was 6 million, our trailing 12 month free cash flow was up $2 million compared to the preceding 12 month period. Despite the challenging operating environment. Our CECO team continues to execute very well and I want to thank them for their efforts to focus on health and safety, while delivering for our customers.
The middle section of this slide highlights key market commentary, we have a diversified portfolio with a view of many industrial markets discussions with our customers and channel partners as well as our levels of proposals bids and general market trends provides many insights we would suggest that refining.
He is at or near the worst bottom at his experience in my business lifetime, our products in this category aren't discretionary so as these customers begin to ramp up production or even address various maintenance and repair programs. We believe we will see a strong rebound here, we are already starting to see more studies and engineering assessments. So.
Perhaps we were on the front end of the steady climb from the bottom time will tell.
Midstream oil and gas has also been largely halted as a result of the energy slowdown we're starting to see more project bids and believe this market will continue to show pockets of recovery as well.
In industrial Air we saw very encouraging signs in the quarter orders were up 60% versus the previous quarter and up double digits versus the third quarter of 2019.
No doubt markets will remain choppy and uncertain in the near term, but we are starting to see good growth in various markets and expect trends to continue to improve.
As we position for 2021 and beyond the focus remains on execution cost management and of course, starting to drive the initiatives I have discussed on the previous slide now please turn to slide number five which provides detail on orders by market.
On the left side of this slide you can see the market and orders numbers associated with our energy segment products and solutions and on the right side, you will see the industrial and fluid handling figures I won't read all the numbers by sub market, but instead make some high level comments.
Sequel orders and refining market were down 85% year over year. Our team has served this market for decades and is rarely to never seen this level of drop off in the market.
We believe this market has bottomed out and are starting to see higher levels of engineering studies and RF queues simply put our products are not discretionary in this space and this end market will steadily rise.
Midstream and power generation also witnessed double digit declines in some of the reasons for year over year declines are the result of delays in capital spending, but some are also related to the very difficult comparable to third quarter 2019, which saw extremely high project bookings.
And in our industrial solutions and fluid handling segment, we saw some mixed results year over year, but very good sequential growth. We believe those markets continue to improve.
Let's turn to slide six to look at additional market commentary.
This is a new slide for earnings report, let me hit some highlights.
On the left side, we have listed our long cycle business exposure. These our energy markets typically go into backlog and turn into revenue over a nine to 18 month timeframe.
And on the right side or shorter cycle markets that are at least 50% faster to convert from order to full revenue.
Starting with some highlights on the long cycle markets refinery, we believe as we've said is that the bottom we're well positioned.
Question for recovery as our FCC Psych loans are mission critical this market has deferred maintenance given the slowdown in demand and capital constraints and will rebound.
Midstream oil and gas has had a surplus of supply for some time and as we expected. This market was going to be slower heading into 2020 Dick.
Eco continues to do a nice job offsetting the slower midstream market by expanding new products and new market penetration in water separation and also U.S. knievel contracts.
Power generation and natural gas has stabilized and electricity demand continues to rise we believe the cobot pandemic delayed this market recovery given the market had been a decline for several years, we are well positioned with leading solutions in noise attenuation and Nox emissions.
On the shorter cycle side, our industrial solutions comprise leading air quality solutions to combat pollution to ensure equipment runs efficiently while protecting the environment, we continue to see improvement in sequential orders.
In fluid handling or pumps and filters there continues to be a mixture of recovery delay we have focused on improving quality and delivery and will start to increase our investment in growth as we believe our solutions will be in demand.
Finally in powergen solid fuel we have a large installed base that we will continue to serve with replacement systems. This market is the only one in secular decline, but our opex major JV is well positioned to serve the large market and is a small percent of our revenue. Thanks for your time, let me go through this material I will now hand, it over to Mike.
Matt who will give more detail on our financial results.
Thanks, Todd I'll start with slide eight and orders at $67 million of orders. We are disappointed at the levels, but understand the market situation. We are facing is choppy there were several bright spot as industrial markets started gaining momentum in September.
Pivoting in semiconductor wood manufacturing automotive all provided a 40% sequential lift for industrials and our fluid handling business, primarily driven by pumps was on par with its peers grew 8% sequentially.
Energy on the other hand was relatively flat sequentially, averaging just $40 million in orders per quarter refinery market has been hit the hardest with just over $10 million of booking in the last six months to put that in perspective, irrigate orders are down 32 million or 63% year over year, our emtrol Buell branded FCC cycling.
In this market and as both the large integrated and independent continue to preserve Capex. This business has been struggling what is certain is that our customers are deferring maintenance capex and they will have to circle back to resolve in near future. We've weathered the cycle in 2017, and our conviction of a market snap back is high.
To the right revenue is up 3% sequentially and did not progress as we had anticipated customers continued to delay engineering and site commissioning work as they battle over surging coded cases, as a reminder, greater than 80% of our revenue is recognized on a percentage of completion basis as customers and suppliers slowdown so good.
The execution of our backlog progress, especially in Europe, the middle East and India have stall weighing on the progression of our large oil water separation project.
The end user and ETP are resolving scheduling differences keeping that projects are moving faster similar situations are occurring domestically, where our industrial services business is that less than 50% of its pre covered levels due to restrictions on customer site access.
Moving to slide nine our backlog is at $189 million, which is down 8% sequentially and 20% year over year. Unfortunately in the quarter. We did the book to U.S. project. One of these orders was put on hold beyond 12 months and then another has been cancelled.
Both projects were related to manufacturers that support the aerospace industry, which is extremely hard hit from the cold pandemic. We remain in great relations with these customers and expect to be rewarded when this market returns. Neither project has progressed that there were no revenue or costs associated with these cancellations.
As the operating team here navigated push pull period covet I'm very much pleased with our execution, despite the ever changing customer schedules and scope, we are maintaining our margin and cash flows through purposeful execution.
Moving on to slide 10, and our key profitability measures our gross.
Argentina, 32% in the quarter, which was down two points sequentially and year over year, primarily due to project mix as suggested last quarter, a few higher margin project, how come to completion and replaced with larger jobs with margins below our CECO average putting pressure on our margin rate.
One of those job being the large double digit middle Eastern project previously mentioned.
You can expect in the areas. We can control we are pruning costs in our plan and driving productivity to offset the project mix.
Hitting on non-GAAP operating income and adjusted EBITDA, both measures were down sequentially and year over year, driven by volume and margin I'm pleased with the Proactiveness with which we've taken out costs in response to the downturn.
As of the end of Q3, we've executed on all of the $10 million annualized cost savings target communicate in Q2.
To put this in perspective since the beginning of the year, we execute on a furlough cut wages shutter three facilities exited a lost business and eliminated 20% of a global workforce as an asset light company that prides itself on being people deep we don't take these actions lightly.
We've been aggressive cuts it's been a tough year. However, our focus has to be on cash preservation, while maintaining our market share through the next 12 months.
As a final point our actions over the last three years to simplify FICO by reducing ERP and legal entities consolidating business unit and investing in technology and process has made us nimbler and enabled us to make these cost cuts faster had we not made the investment in prior years, we'd be in a much different position we continue our stand.
Suffocation journey and just this past quarter, we've closed two more energy and another ERP further reducing our sq nay footprint a special thanks to our leadership team and the Aarding management team for overcoming an ERP implementation during the middle of a pandemic.
As we start to 2021 LP planning process, we have already built contingency plans to right size. The company further markets don't recover and the automation activity. We've invested in today will serve us well tomorrow. The table East. This team is prepared.
Now on to slide 11, which summarizes several of the metrics already discussed instead of reading the page I'll briefly point out three highlights.
First with revenue down 9% in EBITDA down, 13%, our decremental EBITDA margins were strong at 14% year over year, Despite lower volume and gross margin, our EPS unit cost reductions preserved EBITDA at 9.4%.
Non-GAAP EPS, you name with $18 million in the quarter and down $3 million from Q1 to 20, when we began our cost cutting efforts. We are laser focused on cost through this covered paired with already greater than $10 million of annualized savings achieved.
Second GAAP earnings per share was a loss of one penny and down six cents year over year on approximately $3 million of expenses associated with M&A integration executive transition and severance related expenses.
On a non-GAAP basis, EPS was a positive 11 cents and down 1% year over year on volume and project mix offset by asking okay and interest expense.
A final point regarding tax we still anticipate a 25% non-GAAP tax rate for total year 2020.
Moving on to Slide 12, working capital was down sequentially to 41 million on a very positive quarter for air collections, Our project weapons ground, but primarily on our large middle Eastern project that is back end loaded milestones. We are executing this project well look forward to his progression in the coming quarters due.
Due to the strong air activity free cash flow a bounce back in Q3 generating $6 million in the quarter on a TTM basis free cash flow was 15.1, which is up 2.9 million from the previous trailing 12 months.
Cash flow is apparent onto the CECO business model I'm pleased to see our TTM as a percentage of EBITDA at 46% with aspirations to exceed 65%.
Including on Slide 13, our balance sheet is healthy and we are prepared to weather. This pandemic, we paid down $2 million of debt in the quarter and our bank defined leverage ratio is a comfortable 1.8 turns and our net leverage remained someone with ample capacity getting it Chris and to the point I will turn it back to Todd. Thanks.
Thanks, Matt Please turn to slide number 15.
The markets may be challenging and of course, we look forward to sustainable orders growth to replenish our backlog, but we want to stress that we are a good position to weather the downturn and really capitalize on the recovery, let's flip some CECO perspective to this statement in 2017, when the power Gen markets were down sharply and the refinery sector slowed CECO was.
Structurally more challenged the organization had yet to integrate the infrastructure associated with previous acquisitions and debt level ratios were above three times, we navigated the downturn through various actions and divestitures, then set our sights on reducing complexity and integrating the organization.
The downturn driven by the Cobot pandemic has produced similar rapid declines in orders. This time. However, our playbook is more proactive we've taken decisive action to reduce structural costs by over 10 million, we have far less redundancy and complexity. So we can focus on actions to drive faster returns our balance sheet.
It is in very good shape. So we can and have used it for appropriately sized acquisitions such as E. EPS in the first half of this year and we have the ability to focus on growth initiatives to best put ourselves in position for market recoveries.
While the orders and backlog have been impacted by the market downturn. Our organization is healthy and we will leverage our streamlined structure and growth focus as markets recover.
Please turn to slide 16, which reinforces this view.
As we emerge from this downturn and continue to drive our growth and productivity initiatives. We remain committed to the financial targets listed on the top of the slide. These are the same targets. We have highlighted in previous earnings presentations, 5% topline growth, which we believe we can sustain and normalized markets. Obviously in some recovery scenarios our growth.
Would be more robust we.
We expect to achieve EBITDA margins greater than 13%. This is a 300 plus margin expansion from todays level, we will need the volume conversion associated with our streamline cost structure and continued productivity actions. Finally, we have historically been a solid free cash flow producing company and intend to maintain that pedigree.
With those achievable longer term financial goals, we are increasing focus on things. We can control right now to drive results. We continue to focus on cost and productivity actions, but we are increasing our growth programs. Our goal is to expand into new adjacent markets like what we have done to grow over 100% in Miller.
Terry Naval orders, and we look forward to increasing recurring revenue.
As I mentioned earlier, we will be articulating our SG related highlights metrics and commitments, we look forward to a phased rollout and sharing our SG story publicly please.
Please turn to slide 17, and thank you again for following along in this material we.
We are anxious to get to your questions, but once again, we would like to thank team seek out we will continue to focus on health and safety and we will continue to deliver results for our customers.
In the quarter, we had solid execution, we are in better position with the portfolio moves we discussed.
Several of our end markets remain very depressed, but we see trends heading in the right direction and most of our markets and even in refining and midstream oil and gas. We are seeing increased activity over the coming quarters, we will highlight our progress with respect to strategic initiatives and EPS GE rollout. Our team continues to work hard to do.
Liver solid results for here and now but also position CECO for a very bright future with that we would like to open the line for your questions. Thank you.
We will now begin the question and answer session.
To ask the question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Jim Ricchiuti of Needham and company. Please go ahead.
Hi, good morning.
Question couple of questions.
What you.
You seem to be suggesting that you think is going to be.
A recovery in some of those.
Maintenance related refinery business and obviously you guys have been doing this for a long time. So what's your best guess as to when some of these customers really get to that point of having no choice and you're going to start seeing that is it Q.
Q4 or is it early next year.
Yes, good question, Jim and good to talk to you.
And the rest of the group this is Todd so.
Couple of thoughts number one good in that were already as we mentioned in the prepared remarks, we're starting to see.
More studies and the early sort of engineering work associated with you know with that market realizing the need for for our product, which oftentimes goes into that sort of repair maintenance replacement cycle. So as far as the exact timing goes where.
We're more likely looking at 2021 in terms of orders.
But you know again, we're starting to see an uptick in that sort of early study demand and activity. So we feel good about the recovery coming timings elusive obviously for for a variety of end market reasons that we all understand today, but but thats sort of what we see in front of us right now.
Got it and just with respect to some of the de bookings cancellations and the related to aerospace wonder.
Wondering how much of that was was there was there any revenue associated with that business in Q4, how should we think about when you were planning to see some of that revenue or was it.
More in the first half of 21 yeah.
Yes again this is Todd I'll take that then I'll hand, it over to Matt if he wants to expand on it and no revenue was certainly in the current period associated with those those roll.
Or at least the vast majority of the of the bookings the backlog was associated with with revenue next year.
Yes, very little was planned in our forecast there Jim for Q4, most of that was supposed to kick off in 21 on the engineering portion of that was planned for Q4, it's a very small percentage.
Okay, and if I could just slip one more question look seasonally Q4, you see some sequential improvement, but this is really a different world right now and I'm. Just wondering is there any way to think about Q4 I mean, obviously your bookings were really soft and is there any color you could provide as to how we might think about Q4.
Yes, we typically don't have a seasonality factor to that company. When you look at any of our businesses, albeit at year ago track. The last four years you see Q4 is usually our lightest quarter on orders.
From a bookings perspective and Thats. The majority of the reason why is because 80.
80% of our business is really capex decisions by the customers and some of them like to be judicious in the quarter and hold onto that capex, but.
With what's going on with Covidien election last night, we are hopeful that things are breaking free industrials were saying some sequential growth. So we're feeling positive that Q4 is absolutely going to be better than Q3 and in Q2. So it's a question Mark on energy and we're positive about Q4.
No two I'll know too Jim just a.
I wasn't here last year, but I've heard a lot about it in the third quarter.
Was was was a great quarter things timing often times is certainly out of our control and sometimes even our direct customers control it it could be who they're supplying in the project demand.
Of the ultimate end customer anyway, regardless third quarter last year was you know was higher than than maybe even we expected heading into the period things came into the third quarter last year that would have likely been more of a second how half of 2019 balance. So Q4 was somewhat brought into Q3 a little early.
Which is one of the notes that I mentioned around the tough comparable year over year, I think I think even in a normalized environment non cove it environment.
We would have just had a tough comparable versus the third quarter of last year, and which which again he is up to the fourth quarter last year looks low, but I would almost want to move a little bit between the two quarters to make corps fourth quarter last year look a little more normalized if you want to if you were ignoring the quarterly spread there. So anyway, regardless, we feel that Q4 is going to be so.
Essentially higher.
Got it thanks, a lot thanks for the color.
The next question is Jim.
The next thank you. The next question comes from Amit Dayal of H.
H.C. Wainwright. Please go ahead.
Thank you and good morning, Todd and Matt.
Openings as well.
Yes. Thank you good morning.
In terms of you know.
Your emphasis on the recurring revenue opportunity expansion are you thinking of taking steps to lower exposure to the energy vertical maybe as it stands for you today.
And if yes, what are the sort of the easiest opportunities for you to leverage you know your current infrastructure resources too.
Maybe make an entry into.
Yeah, I think I don't know that I'd say that we're looking to lower our exposure to the energy sector.
I think just to just to kind of pound the table a little bit on our focus on recurring revenue and some of it's blocking and tackling work. It is it is having more insights from a data and metrics perspective on where we have a defining what recurring revenue really is within our organization you know.
I guess, you know simply put applying more management metrics and focus.
On it as we especially as we head into next year in our planning cycle, where do we see pockets of opportunity around around recurring.
And so, but it's not necessarily moving focus away from where we are typically strong and well positioned in project business.
I, just believe and I think I'm not alone with that we leave some opportunity on the table to go back after.
Customers with with where we have a very large install base and ensure that that if theres an opportunity for us to do replacement parts replacement filters replacement systems and solutions.
You know that we're in there we're in front of those customers earlier.
And more often in their service cycle than we have been historically.
Understood.
And as of now, we almost getting into field workers and sort of weaker softer performance.
From a market environment perspective.
His customer behavior slowly sort of adapting to this new environment.
Just kind of stay where they are under the new manager.
Fewer and more capex it central limit order.
Like you said, maybe there is a phones coming on this one.
Yeah, I mean, I think if we look out over the next three four quarters.
We can say with a high degree of confidence again, we're already seeing industrial markets at or above last year's levels. So.
You know and we're still in the middle of Cove, It and there's still a lot of concerns around demand and and investment capital deployment et cetera. So so when a good shut section of our organization much like many other industrial companies you.
We're already back at a very good level and we believe thats going to continue sequentially, there's always challenges and some timing issues, but we feel good about the industrial sector energy again like we said in the in the areas that have been impacted the hardest the hardest hit refining probably being the one that we would say assume.
Only at the deepest bottom that we've seen.
Now now it becomes it becomes a story of repair maintenance.
Things that they that are we believe the industry has prudently probably been very conservative from a capital perspective, as everybody is conserving cash and and trying to right size for the demands in the marketplace.
But but there's there's little to no scenario right now and as our pipeline would even demonstrate that we're going to see a a year in 2021 similar to the year that we've seen so far and we expect to see in the fourth quarter and refining for just for one large sector of the of the energy space, We believe that starts to come.
Back and where we participate in it solutions. We provide just based off of just based off the demand that's going to have to occur in the repair and replacement side.
Thank you for that and maybe the one question from that led you indicated maybe the potential further cost cuts possible list.
Weakness persists.
You know what level of Costco, so what what areas would you be focusing on.
With respect to that.
Materializes.
Yes, we will be focused on our SGN a predominantly the majority of our cost of goods sold is tied to our production network, which is all third party for the most part and so there's not a lot of cost to go at it internally to seek out in that Cogs line, that's not tied to backlog in back to back contracts with our suppliers and our customers. So asked you name it would be that focus.
They're not since last time, we spoke we met our obligation of greater than $10 million of annualized savings thats been executed.
Suspect based on the proactive nature of what we've done.
We'll we'll exceed that number with some actions taken here in the fourth quarter and we're continuing to contingency plan. So if the markets don't rebound and we are heading into 2021 are as I said in there for prepared remarks, it's about preserving cash and cost and shareholder value through this covered period. So.
We we are tackling up more options and opportunities well be sure of this we're going to ensure that when this market returns, we're positioned well to take to take share and win in the downturn just like we did after coming out of 17 and saw a resurgence in 18 and 19 so.
I'm not ready to prepare a a new target for us just yet but were above the 10 and we have more plans.
Yes, and I think I'll just add to that.
You know, it's it's it's a challenging time right now for a lot of organizations and.
And we are weathering, it and our employees understand and and are pushing really to perform for the customers.
Be great team players with each other and never and understands that this is a buckle down period for CECO and a lot of companies like us. So you know we appreciate their commitment and hard work just like I think they understand that that we're trying to put the organization in place and we have and we will continue to for what we know will be volume recovery at a strong.
Surely streamlined organization that produces above historic well above historic average margin conversion. So our goal as we look at costs of course is to do certain things that are short term in nature when appropriate, but most importantly is to put ourselves in structural position internally for a sustained model, where we have to add back few work.
Cost to realize the volume as it comes back up so that's what we keep rolling up our sleeves and working on are smarter better ways for us to have a reduced redundancy better systems and processes and structure. So that when we come out of this and we will.
That that were that were producing very above average margin return.
That's all I have guys. Thank you so much for taking my questions. Appreciate your great questions.
The next question comes from Tate Sullivan of Maxim Group. Please go ahead.
Hi, Thank you good morning, and thanks for your comments and can you just review your aerospace and defense exposure across your product.
Folio and I mean, specifically Navy is that all water separation work looking at slide six or at can you just give us any more and then where is your aerospace exposure as well yeah within your segments. Please.
Good good good morning, good to talk to you. This is Todd and then I'll hand, it over to Matt.
Aerospace exposure isn't necessarily direct aerospace exposure and again the wording on the slide is is trying to point to that is we have customers in let's say.
Metals aluminum manufacturing and distribution.
That would supply that industry, we just happened to know that that too. The reason the projects were either cancelled and in our definition of cancelled. They may have they may have said look we want to reengage in 12 months keep the engineering files can be engineering work, but anytime.
And anytime that there is a certain time delay like that will just be booked it but that's what we mean by aerospace customers were not selling directly to.
To Boeing for example, we're selling through to an organization to may supply that industry just to be clear on the enable side, we have a variety of of products that serve.
The air intake and ER and air quality control solutions for for Naval vessels in particular, and other department of defense application, but mostly naval vessels.
Yes ill, let Matt sort of provide a size fort I, but it's you know it's growing it's up well over 150% year over year. We believe that there is a nice opportunity for even more global geographic expansion beyond and we are bidding and working on beyond us naval because of some of the interesting solutions, we have with some of our composite material.
Sales.
Just proof et cetera that provides of our longer term maintenance solutions on naval vessels.
But I believe that the.
The business is it's certainly in $15 million to $10 million or so in size at the moment.
Yes, I'd only add the exposure is use that word was tied to the aerospace customers. We mentioned is in our industrial segment. There is your capex projects that were.
Probably in Q1 or Q4 of last year that one.
One of them as I mentioned in the prepared remarks customer didnt actually can side. They just said we need to delay this until things get better and for transparency purposes, and the way. We operate we said it's better to de book that the other one absolutely was cancelled but I suspect when reordered will win it I feel confident about that but it's the right thing to do.
But no exposure to the piano there none of the work had progressed on either of those and we did as a calming and I don't see anything else that specifically tied to aerospace thats of material value.
In our backlog paid and as far as the military I think Todd mentioned, it's not 10 to 59 actually rolls into on the Pie chart. There in the upper left corner midstream and its our Peerless brand just leaving the midstream because it's small we could break it out but it hasn't been a big enough that split out just yet, but it is a growing opportunity for us in that area that we're trying to take.
Our technology and Africa apply elsewhere as oil and gas has been shrinking of light. So good win for that team here.
Here in the Dallas Office is in recent months.
Okay. Thank you both in that context.
Thanks Tate.
Again, if you have a question. Please press Star then one.
The next question comes from Bill the zone of high it's on capital. Please go ahead.
Great. Thank you relative to the refining business, what do you see as the key metrics to watch or.
For that industry to to start to move forward on on projects is it crack spreads is it utilization and I recognized nice those too often go together or is there something else that's a leading indicator.
Yes, I would add both of those in that order and I would also add turnarounds those.
Those often times agreed let valero puts out marathons refinery business I'll talk about turnaround season, and maintenance Capex specific to that if you see that going up that helps as well.
Yes, but you nailed it were enough where I want to say close to 10 points below the five year average.
Refinery crack spreads by the way Bill just another note we sell globally. So don't just look at the refineries here in the U.S., India, China you name it if theres a refinery and they have an FCC cycle, they're using our product.
Okay. Thank you I'm going to ask.
Additional question here then.
Do some refineries not use.
Fluid FCC I assume stands for fluid cracking catalysts. This psych loans you some not use that to approach.
There are other means but a very small percentage it depends on the heat much cracking but.
For the most part it is a very high percentage I couldn't give you the exact percentage, but for the most part you need it because catalyst is the way it actually crack which separates the crude into the by products for which you are trying to separate inputs downstream to wherever you want that one.
Yes.
And then.
What about.
Regulatory requirements and I'm asking the question in the spirit that that we have historically thought of turnarounds as being really required unless you want to blow your plant.
And and you've mentioned on the call here today that.
That these are jet largely required but is there a regulatory but to put to just general safety and running your plant smart.
Is there a regulatory requirement that.
That some of these facilities are beginning to bump up against or is that not part of the equation I.
I think if you're just talking about refining and FCC cyclones and in general there are some regulatory associated with it regulatory compliance associated with it but but for the most part you're talking about equipment efficiency you're talking about.
The process associated with the refining component that cycle and participates in so it's more it's more process requirement than it is regulatory requirement on the on the refining side now and other areas. Obviously as you as you know bill.
Across a variety of our other markets, both in energy and industrial et cetera, now rough.
You know regulatory.
Compliance and demand start to start to step up notably in and especially in various parts of the U.S. and various parts of the world. They can vary, but if you're looking at other parts and products.
Of the market than than your than regulatory becomes a bigger component of why we are however, there.
Okay. So just to make sure I'm clear the real key here with with refineries and in turning around the FCC is is that.
That.
The efficiency decreases in there ultimately, it's an economic decision to do the turnaround in a not an.
An upgrade to psych loans is that correct.
Goodness had a better ourselves.
Great. Thank you both for the time.
Thank you Bill.
This concludes our question and answer session I would like to turn the conference back over to Todd Gleason for any closing remarks.
Thank you and thanks, everybody for the time and the questions. We look forward to following up with others throughout the day and in the in the next period of time, we hope everybody stays healthy continues to stay healthy once again, thank our very many CECO employees that are out.
Working hard for our customers and our constituents in their communities every day keep up the great work and obviously, it's an interesting time in.
In the us election cycle. So I think we're all interested in in that becoming a more normalized environment. So we look forward to being in touch with everybody and we'll continue to drive for for both our customers our employees and our shareholders. Thanks and have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].