Q2 2021 CECO Environmental Corp Earnings Call
Good morning, and welcome to the CECO Environmental second quarter 2021 conference call. All participants will be in listen only mode should you need assistance. Please signal of a conference specialist by pressing the Starkey followed by sea route on.
For todays presentation, there will be an opportunity to ask the question to ask the question you May Press Star then 1 on your Touchtone phone to withdraw your question. Please press Star then 2 please.
Please note this event is being recorded.
I would now like to turn the conference over to Steven Hooser Investor Relations Representative. Please go ahead.
Thank you for joining us on the CECO Environmental second quarter 2021 conference call on the call with me today is Todd Gleason, Chief Executive Officer, and Matt Eckl 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, which is on our website at CECO in viral dot com.
The presentation materials can be accessed through the Investor relations section of the.
The words.
I'd also like the caution investors regarding forward looking statements any statements made on today's prisons that are not based on historical facts are for.
Forward looking statements such statements are based on some estimates and expectations and are subject to a number of risks and uncertainties.
Actual future results may differ materially from those expressed or implied by the forward looking statements.
We encourage you to read the risks described in our SEC filings, including on form 10-K for the year ended December 31.2020.
Except to the extent required by applicable securities laws, we undergo no obligation to update or publicly revise any of the pool looking statements that we make here today, whether as a result of new information future events or other.
Today's presentation will also include references to certain non-GAAP financial measures, we've reconciled the comparable GAAP and non-GAAP numbers in today's press release as well as the supplemental tables in the back of the slide deck.
And with that I'd now like to turn the call over to Chief Executive Officer.
Oh.
Thanks, Steven and good morning, everyone. We appreciate your support and interest in CECO environmental I'd.
I would like to start by thanking our CECO employees for their dedication and contributions to ensure we continue to deliver for our stakeholders. We would also like to thank our suppliers and partners around the world for helping us to continue to navigate these uncertain times. We appreciate all your efforts today will we will hit on a few topics for.
First I will share my perspective on the second quarter as well as certain key takeaways from the first half of 2020.1 day.
Then Matt will go through the financials on several operational items.
I will outline of our enterprise strategy and aspirations over the next 3 to 5 years, then we will wrap up and take your questions. Let's go ahead and get started please turn to slide number 3.
Continuing the momentum from the past few quarters, we once again had great growth in order bookings orders were approximately $86 million up 43% year over year.
We will discuss the details of our orders in a few minutes, but we are pleased with the balanced contribution for many of our businesses and then market momentum orders were down sequentially, but that is completely associated with timing and not an indication of any softening.
Sales of $79 million of were up 5% year over year of 9% sequentially. It has been over a year since we had revenue growth and this trend will accelerate as our backlog continues to grow at a healthy pace with the book to Bill of 1.1 times, our backlog is above $210 million importantly.
The first half of 2021 is in the rearview mirror.
As we said previously our topline would dip in the first half of 2020.1 as a result of Covid market challenges experienced throughout 2020, we.
We have navigated these challenges and believe we are back on track for growth.
Q2, gross margins were 32, 1%, which were down approximately 220 basis points on project mix and some modest in the quarter inflation. We continue to see very good project execution, and if raised prices to protect margins and that will talk about this more in just a minute.
Adjusted EBITDA was $6.4 million in the quarter down $1.8 million year over year last year of second quarter benefited from certain 1 time cost actions in that period, such as a work force furlough and other 1 time items. So the comparison of somewhat tough versus Q2 'twenty 'twenty.
Adjusted earnings per share of 9 cents was down year over year for the same reasons I, just mentioned, but with our growing orders future revenue growth and streamline cost structure, we expect improved EPS results in the coming periods.
Free cash flow was negative in the quarter, but year to date, we were positive and we expect to have a good second half free cash flow generation.
Something that isn't highlighted on this slide but I'd like to take a minute to comment on is the share repurchase authorization, we announced today. Our board has approved a $5 million stock buyback program, which we intend to fully utilized before the end of this year. We are confident in our current business trajectory our ability to generate strong.
Free cash flows and our growth and strategic prospects.
It's $5 million level does not impact our ability to deploy capital towards strategic acquisitions. It is simply an action we are taking to reduce the number of shares and reward shareholders.
Let's please turn to slide number 4.
The key takeaway from the first half of 2021 is all of our outstanding orders growth, but the.
Year to date orders up over 30% and backlog over $210 million or up 15%. We believe we are very well positioned for strong growth of pipeline remains active and at high levels.
Proud of our team's focus to drive growth, while maintaining solid margins this momentum and growth will produce stronger earnings in the coming periods and allow us to invest in our key growth initiatives.
Let's go to slide number 5.
Last quarter, we highlighted we were in the midst of aligning our business platform spy technology to drive growth in core markets, where we are already leaders and expansion into adjacent markets.
We will continue to report our platform results into 2 segments industrial and process solutions and engineered systems.
This alignment process was completed in the second quarter. Our leadership teams are very focused and engaged and it's been a well received structure and our people are energized to drive higher growth and profitability.
We're also pleased that is already delivering real and exciting results. The direct line of sight. The business opportunities is more efficient the platform design allows our leaders to go after short and medium term adjacent opportunities much more quickly.
Within several platforms, we are seeing some very important international wins and growing sustainable energy spaces..1 example is the recent renewable power project in our South East Asia region.
And our role she goes peerless the cyclone separation technology will remove moisture from G O thermal steam generating.
As it is extracted from the sub surface of the Earth, which in turn will sustainably power the grid.
We're also seeing immediate impacts in the industrial air which is the shown extremely good bookings year to date, our platform leadership is positioned to drive faster decisions and surface opportunities to pursue which of course has fewer layers of decision making.
We were also able to identify gaps in the operating performance. So we can apply the right resources to address these areas every company has opportunities to improve productivity.
Livery customer service and similar the platforms will enable these opportunities to be addressed the more rapidly.
Additionally, by having a leadership platform focused on emerging markets, we can coordinate international activities across important growth markets, such as the Middle East, India, China, South East Asia, and others. The peer to peer connections are important to embrace collaboration.
I will now turn it over to Matt and he will provide more detail on our financial results and key metrics Matt.
Thanks, Todd I'll kick off of slide 7.
The $86 million of orders, we are pleased with the year over year of growth and exceptionally happy with the excellent performance in industrial Air which grew 41% sequentially.
When the include several of electric vehicle production orders and our E. I S acquisition contributed nearly $10 million of bookings on the quarter incredibly strong.
Fluid handling was basically flat on a sequential basis, but experienced 40 per cent growth year over year as European and Chinese automotive market sought out our methodology branded filtration products.
A great sign of our end markets of returning in the Big way.
Engineered systems orders were impacted by timing in Q2 as refinery and midstream markets saw several awards slip for the second half of the year.
That's produced the sequential decline, but we remain confident this is simply timing and are excited about our overall opportunity funnel.
Speaking of which our sales pipeline continues to reach new record highs for us with verified pursuit solidly above the $2 billion level.
1 of the strength can see goes portfolios in our end market and customer diversification, while some markets remain sluggish or of yet to recover others such as the growing aluminum beverage can electric vehicle semiconductor and engineered wood markets all of them are propelling our orders very nicely.
Turning to the right side of the slide revenue was up both year over year and sequentially.
When compared to Q1 sales grew 9% or $7 million you can see that we grew in the 3 reporting segments industrial process, which is our short to mid cycle businesses highlighting in Green grew the most of the general industrial markets remain healthy engineered systems in Blue was up 3% sequentially, but we believe this was held back at the.
Best of those projects being executed across the middle East and India were slower to progress.
As a reminder, engineered systems provide the wide variety of highly engineered solutions such as the emissions in thermal acoustical management.
Recovery and separation equipment to large scale utility providers petrochemical refineries LNG facilities and more in all instances, we are a small percentage of critical component for the balance of plant or overall project.
The larger project progresses, so too will our projects. This is especially important for CECO because the incremental EBITDA margins from engineered systems is healthy at 2 ex our standard EBITDA margins.
As for short cycle, we delivered nearly $18 million of revenue in Q2 flat to up 1% year over year and 2% sequentially short cycle continues to represent an approximate quarter of CECO is revenue mix I'm. Most pleased to see our order volumes in our Kirk <unk> Blum branded duct and ventilation jobs picking up there.
The great leading indicator of future revenue growth as we see U S customers relaxing vendor restrictions, which drives our field service and commissioning revenue higher.
We're also quite pleased with our actions to grow and those can be seen firsthand on our website at CECO and borrower of Dot Com, where you can learn more about our Kirk on balloon products on the homepage.
In addition, we launched the continuing education series last year CECO certified dotcom and have seen significant participation and service leads being generated from the website.
Even if you're not in the engineer of seeking P certification, but an inquisitive nerd like me you can attend live webinars or watch training videos on how our products solve your environmental problems new classes will resume in September. So I encourage you all of the bookmark the site.
Lastly, while on the topic of growth and the website I urge everyone to click on Peerless water treatment, it's about halfway down the featured section.
He was the vast array of water and gas treatment of packages. We offer we just launched this page of stop our technical offerings of water.
Dirtier polluted, we'll fix it.
I think go we're not just air pollution experts, we protect all elements of the environment.
The wrap up the slide all signs point of growth and we're excited to carry the momentum into the second half of 2021 expectedly in the 'twenty 'twenty 2.
On page 8 we provide detail on orders by end market and will comment on each.
Industrial Air markets remained strong in Q2 of U S manufacturing continues to expand and corporate social responsibility of demands of growing we're really pleased to see their orders growth exceeded levels that had been publicly stated by others in our space. We're proud of our winning solutions and it was great the drive higher than expected market growth.
We're also interested in the U S infrastructure Bill that would certainly serve this end market and our air filtration technology as well.
Fluid handling markets remain buoyant driven by automotive markets. This is the first back to back quarter of $10 million plus in orders since 2017.
If any combination of hospitality Aqua culture, and oil and gas consistently turns the corner our fluid handling businesses will be of eclipsing record bookings through the first half we're already up 19% year over year.
Our debt markets were down 17% sequentially, yet up 40 per cent year over year, we believe the quarterly snapshot for this market is too shortsighted and so we evaluate it on a TTM basis.
T P M view, our orders remain down 13%. However, the trends are improving at the end of Q1 of the D. T. M metric was down 22 per cent and the TTM was down 36% the quarter before that.
What we're seeing is the third consecutive quarter of P. P. M acceleration. So we do believe that market is in a favorable position.
For the midstream we saw fewer large orders typically measured at $5 million for plus in the quarter driving low double digit decline year over year and sequentially. This is the market that we believe will continue to be the slowest to recover the pipeline operators currently remain focused on deleveraging the balance sheet over future Capex investment.
The last thing with respect to refinery we are very pleased with the first half 2021order bookings. Unfortunately, the timing of these large orders can be difficult the always booking of quarter. As a result of timing we did experience declines in bookings for our FCC cyclone solutions, our market position remains strong with no loss of bed and we know the market for our product isn't.
So we do anticipate some larger bookings to come in the second half of 'twenty 'twenty 1.
On slide 9 our backlog of $210 million, which grew for the second straight quarter of book to Bill ratio remains positive on a TTM basis and most importantly, the 12 months pipeline remains above 2 billion last quarter. We commented on our 18 month funnel of outlook and added some measurements of the content.
Just in the last 3 months, our extended pipeline is up $300 million and at or above $2.5 billion tons of opportunities out there now and it's all about conversion.
On slide 10 of our gross margins were $32.1 per cent of on the quarter, which is down sequentially and year over year, primarily on project mix within our engineered systems segment.
We did experience modest commodity inflation most of the notably in steel prices.
To offset these cost increases we have increased our prices several times in certain businesses. This year. We've also implemented surcharges as well as reduce the window of customer quote validity to protect our bid margins.
We feel good about of strategic measures and are confident in our ability to protect margins.
As for non-GAAP operating income and adjusted EBITDA, both were flat sequentially on.
On a year over year basis, EBITDA was down $2 million increment of volume was the gated by lower gross margin, having limited impact the EBITDA. The primary driver of lower EBITDA was strictly driven by the 1 time furloughs and wage reductions taken in Q2 of the 'twenty that did not repeat this quarter.
We remain vigilant in our cost structure and continued the strong EBITDA margin expansion as volumes you're kind of.
Slide 11 summarizes the quarter in total of quick set of highlights.
First 43 per cent year over year orders growth of a leading indicator of future revenue growth as expected revenue from our short the mid cycle businesses like industrial air and fluid handling are driving revenue higher in the engineered system backlog starts to turn at a more sustainable pace the flow through of the operating leverage will be meaningful for CECO as earnings.
The second non-GAAP EPS was 9 tenths of the quarter down 5 cents of year over year on flat sequentially, but in line with consensus estimates for the quarter. We continue to anticipate the 25 per cent non-GAAP effective tax rate throughout 2021.
Okay.
The slide 12 free cash flow is 1 of the opposite direction in Q2, but the $6 million use of cash in the quarter.
<unk> of the air collections on project milestones on some of our larger projects were the culprit this quarter.
As always I reiterate we see no risk to the collections of our air ex strictly the Lumpiness of our project based business model. Despite the underperforming Q2, we are driving towards the 40% free cash flow to EBITDA target by year end.
Finally on slide 13, our balance sheet remains in great shape, we paid down $2 million of the debt and accordingly, the $69 million our bank defined leverage ratio was at the 2.1 and our net leverage ratio sits at 1.1 with plenty of capacity available with orders and backlog growing in the second half EBITDA moving in the right direction our.
The city will grow providing us ample opportunity for capital deployment. This wasn't good M&A and other options such as share repurchases.
The share buyback program, we announced today is a great example of utilizing our healthy financial position, while we are ramping up our engine for additional growth.
We hope all of our shareholders appreciate the alignment to be buyers of our stock for all of the right reasons, including offsetting approximately 5 years of dilution associated with stock compensation.
As Todd will expand on next over the next 3 months as we've narrowed in on our enterprise strategy. We've also been building out of M&A funnel are internally harvested lift already represent a significant number of prospects. We have engaged and are assessing bank advisory relationships and are playing the AD business development talent to help us execute on our deal pipeline.
And position us for programmatic M&A, while we're never done on driving productivity and streamlining of our operational processes. I am personally excited turned toward more growth investments and M&A. The last for years have been focused on the stabilization and simplification and I know of CECO is ready for its next phase of high performance growth and delivering more shareholder value with that.
Hand, it back to the time.
Thanks, Matt, let's move to slide number 15.
Over the past few quarters, we shared that we were making progress with our enterprise strategy. The strategy encompasses several components and it's simple it's description. It is all about driving growth.
The lead transforming our portfolio towards a more sustainable and less cyclical set of businesses and delivering strong shareholder returns.
Over the next few slides, we will expand on our focus areas goals and objectives. Let me start by stating I'm confident CECO is in great position to execute on strategic transformation why because we can and we will leverage 3 important attributes.
First we have accomplished a number of critical foundational components from which we can build and execution rich program on.
Our organization structure is smartly in place we are market focused and our niche leadership is a real strength. We also believe our orders and backlog growth point to how well we have emerged from the major impacts of Covid.
I am proud of our team and how we have adapted to the new challenges and demands and along the way we have streamlined our cost structure and system and process complexities simply put we are a leaner more focused and confident I see it and feel it and of our leadership discussions every day.
Second we will leverage the momentum we have with our current and future market growth our strategic actions will not interrupt our ability to execute during this period of momentum, but we know that this is the right period for us to get after transformational and focused initiatives and even driving our ESG initiative will produce internal and external.
The benefit no doubt it feels good to build the bigger more sustainable CECO during a period of growth and during this time. It is critical we continue to expand our EBITDA dollars and EBITDA margins, we are committed to increasing EBITDA from less than 10 per cent margins to low to mid teens and maintaining a solid free cash flow.
Generation is also important.
We must drive shareholder value in this way.
And finally my confidence in executing our strategy is bolstered by the fact that we have the appropriate optionality, we have a number of bullets in our gun. So to speak..1 example was the formation of our joint venture, which created the Fox made or JV. This provides us with opportunities to advance the business that we continue to consolidate but we have.
More options strategically because of the combination.
With the healthy balance sheet and the targeted M&A program, we can make good accretive acquisitions.
Given our portfolio of balance and focus on sustainable growth and profitability, we can evaluate if and when to move in a different direction with a piece of our current portfolio such as the JV I just mentioned.
And we are already deploying capital with the share buyback to drive shareholder value yet another piece of Optionality. We can leverage. So we are of good shape to execute our enterprise strategy and I always believe the execution of the strategy is often equal to or greater than the strategy itself now, let's look at a high level plan. So we can provide future.
Upticks, let's go to slide 16.
As the headline reiterate we are of great position to leverage the items I just outlined if you look at the slide it is set up in 3 stages or phases moving from left to right.
Over the next 3 to 6 months, we expect to continue to put our current portfolio in great shape for growth and expand profitability of orders growth and larger backlog are key to how we will start and drive 2022 performance. We are of good M&A pipeline in process, we expect to identify right sized actionable.
On an attractive transactions, we will have a series of options.
At the right time.
Within the same period the publication of our first ESG report will address the existing GAAP.
Our disclosures coupled with targets for improvement will drive a meaningfully higher ESG score.
Finally.
We expect to complete our just announced stock buyback all of <unk>.
Old we expect good progress into being solid position for 2020.2.
We head into next year and look forward over the next 6 to 18 months, we expect to ramp up more activity to drive growth and transformation.
It will always be critical that we deliver on the financial commitments during the strategic journey.
Growing our EBITDA margins and profit is key to driving higher cash flows. So during this period, we expect to invest to organically build up strong leadership positions on our platforms. While also making the right inorganic moves to transform our portfolio mix.
All of the while continuing to evaluate the shareholder friendly actions such as additional buybacks.
Importantly over this entire period, we aim to outperform our peer group with respect of shareholder returns our entire management team is incentivized and aligned with our shareholders as we should be.
Executing on accretive programmatic M&A process. We believe we can steadily move of our portfolio of forward and deliver sustainable results.
We have several focused market areas such as the secular growth spaces of the industrial Air management and environmental solutions.
To build our pipeline of opportunities in this arena and more depth of knowledge. We spent several quarters working across our various related businesses and engaging outside consultants that sort of early day to help us target best fit opportunities for CECO.
We hope this high level view provide some specifics as to our stated goals.
We have just a few more slides. So please turn to number of 17, which is an illustration of how we could expect the CECO portfolio to transform and grow over the medium to longer term.
On the left side of the slide the bar graph represent the CECO environmental today, approximately 325 million in sales.
With 55 per cent coming from product categories solutions and services the sell into long cycle projects in various energy related sectors. These are important markets and will continue to be for CECO.
We have approximately 25 per cent of our sales in industrial air related markets, which is more mid cycle or medium length of the project driven revenue profile and finally, a little over 20% of our sales is diversified industrial products, such as filters pumps and certain services and replacement of equipment. This is truly short cycle.
Or book and ship businesses.
On the right you can see we aspire to be larger and more balanced and we believe we have the plans the people the financial strength to accomplish the school.
The net effect will drive greater shareholder value along the way.
Clearly these are somewhat directional percentages and aspirations, but we wanted to be clear about what we will drive.
We will continue to have a set of platforms and investments in the energy space by investing in services like we have done recently and our advanced analytical services team and expanding our product offering and sustainable energy markets. We believe we can have a less cyclical portfolio. In this area, we have optionality with several of our platforms.
And we would explore strategic considerations as we make our investments.
We have a strong core leadership position in industrial Air emissions management and a good brand reputation as an advanced application engineering company for environmental solutions, including water systems. This will be a major focus of our M&A deployment.
The third we like short cycle revenue businesses that provide meaningful balance and repeatable results on.
The leadership team has tremendous experience and capabilities building and leading diversified industrial companies. This will continue to be an organic and inorganic focus for team CECO.
We hope you found this content informative we've repeatedly said that we are committed to shareholder value, we expect to execute the deliver greater returns the.
Well judge how well we do to create a high performance company, we have set our sights and we have plans and structure in place to execute on.
I can assure our investors that we are aligned and that our businesses are engaged especially in the midst of our growing momentum.
Please turn to our last slide number 18.
In summary, we.
Thank all of our great employees and incredible partners around the globe.
We are all anxious for a post COVID-19 environment, which sometimes does seem elusive whatever is in front of us I'm confident we will navigate.
We're all very pleased with our first half performance our backlog is in good shape, our borders momentum in future pipeline is robust we expect of good period of organic growth.
I and the board of pleased to buy back shares.
<unk> very soon.
We expect to complete the $5 million authorization for the end of the year.
And we will continue to update you on our progress toward our key initiatives, including ESG reporting and of course executing our strategic growth plans.
You all for your support and interest and with that we will now open the line for questions operator.
We will now begin the question and answer session to ask the question you May Press Star then 1 on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
So let's try your question. Please press Star then 2.
Our first question today comes from Amit Dayal with H C Wainwright.
Yes.
And you know good morning, everyone. We appreciate you taking my question.
Good morning, good morning, so on the energy side I know there was a little bit softness I guess with the order flow do you expect this to pick up in the second half of 'twenty, 1 or will this get pushed out into 'twenty 2.
No we do expect it to pick out the pick up in the second half of.
In fact within our energy businesses, we certainly had a in the first half of the year you know from some good.
It ties from the first quarter or the second quarter. Some really good pickups already and our pipeline is significant I think in the.
You know the midstream is probably the area that we would say is it's later in.
In the year and then heading into next year, but we're seeing we're seeing good momentum still across the board of just timing sometimes of orders in refining in some of our other energy related segments that youre not going to always obviously be able to get that nailed down in the quarter. It's a it's a first half second half the story a little bit but.
But we feel good about our energy our pipeline for the second half.
Thank you and then.
You know it seems like there's some good traction on the international side, how much of the backlog is international versus domestic.
Outside of the U S. I would say today, it's probably about 40% international.
Okay.
Do you expect the international side to continue sort of growing or you know me.
To be flatten out from here a little bit.
Yeah, I actually believe it will we think that India is we look at our pipeline. It continues to grow China has been up since the let's call. It the doldrums of Q1 of 2020, our middle East of fell a little bit slow for US you know, where we are in Asia Pacific or the middle East the.
So on energy based markets and those are starting to pick up so I would say that it is growing.
And I'll add to that over the last little over a year as you know of it. We've also been focused on our investment to grow internationally, including the acquisition of E. S. A year ago, which we know gave us access to some really attractive European and other international markets.
In fact, our in the year, we continued to do a very nice job of booking industrial air orders you've seen the industrial air number up you know a good percentage of that is international orders, which was a part of our focus the focused investments to go after short or sort of more mid cycle projects that turn faster, but also in growing international markets.
The list.
And in terms of of you know delivering orders on deploying orders etcetera did you face any supply chain issues or are those more of this behind you now and it's an easier execution of environment going forward.
Yeah, I'll, let met build off this we did and you know I think we're still seeing like everyone is that there are some you know small hiccups out there on the supply chain. You know there is some price pressure with certain materials steel resins et cetera, and some of that has to do with that supply chain.
You know of delays et cetera that just sort of drive every 1 to 2 of the you know to the to the sellers that have the product right and that's just you know general of economics. Obviously, so you know we think things are smoothing out though you know we are a we're still able to get you know the the components that we need for the most part so I think from of <unk>.
<unk> chain perspective, its you know you're always navigating challenges and business I think in the first half of it in the second half of last year. You know this has just been such an unusual time as the world started the sort of turned back on and supply chains and of course, there's been some much headline issues and supply chain around the world, whether it be you know semiconductors or or at times, even low.
<unk> associated with the supply chain, but again I think we've done a great job our suppliers have done a great job on our partners, Matt do you want to expand on that at all yeah. If you're thinking about you know of computer chips and what the automotive industries are looking at facing from a supply of Tuesday, but we don't see any of that the 2 areas, where we're seeing a little bit of disruption is resin, which we talked about last.
Quarter, which impacts our pumps business, which is about $30 million to $40 million of revenue a year in this business.
And we found other suppliers, so that's sort of the petrochemical business.
The plant in Houston, starting to pick up you know things are going to get back on the second half but.
Again, it's all of a large percentage of our business over say the second area a lot of supply chain disruptions as religious projects balance of plant over in the middle East So Qatar Abu Dhabi some of our larger projects those are.
The been slowed down as the labor just can't get the site and again. This is a smaller percentage of our title business as well the beauty of because of the apparently diversified and we're working through all of those problems.
Understood and also a lot of the emphasis on the M&A on today's growth.
Is there any particular area that you are looking to sort of strength in the portfolio, whether it's water or air where can we expect sort of early efforts on that side.
Yeah. So I think you can see on our slides we tried to be somewhat very directional in terms of how we're thinking about our M&A approach I would point towards sort of industrial air and environmental management, obviously, that's a broad category, but but we know that there are some spaces.
We really believe we can build off of our core leadership, whether we're already in the market with the you know with our industrial air and the emissions management solution that we know that there's a there's a really attractive market out there internationally.
For us to be able to both organically and inorganically grow more and faster at a secular we believe over the longer period for US and then you know good good industrial businesses that we know have a good fit with us as well the provide us with more shorter cycle more repeatable revenue and free cash flow mix. You know, we're not trying to be super specific right now.
The until we're obviously in a place where we're announcing something you know.
But you know that's a that's really the areas of focus on look we love our portfolio, we have a lot of options within our portfolio for us to focus on but those would be the areas that are right. Now we feel we feel have a good rich target zone for us.
Some of sort of things you guys and that sort of appreciate.
I appreciate it thank you on the calls.
And again, if you have the question. Please press Star then 1.
Our next question comes from Tate Sullivan with Maxim Group.
Hi, Hi, Thank you and going into a little follow up questions with so it's been almost of your inbox since environmental integrated solutions and I think you mentioned the $10 million number related to E. I S. N E. IV in in the quarter was that was that the splits between the tool and can you just comment on how.
The E I asked the done since the acquisition. It seems like maybe this is 1 of its the best quarters.
Yeah.
Yeah year to date and I wouldn't say, it's 1 of the best quarters, but it was a very good quarter for sure are the the business has outperformed our expectations a you'll see that there is an earn out associated with it.
And the previous owners that still work with us they're fantastic guidance, Great leadership and a Great addition to the company and they're hoping to Max on that's obviously super beneficial for CECO shareholders. If they do that and so it's great alignment and we're very pleased with how the business perform of not only from an orders perspective, but also from an EBITDA.
On cash flow perspective, you know and if you look back at the history of Chico's acquisitions, you know a lot of the acquisitions had been made smartly so to help diversify and expand the organization, but work necessarily a double down theme. So to speak in terms of you know we already had a good industrial.
All are set of properties and businesses et cetera, the you know.
But for for what they think I'll add west and others and then I guess just provides a nice partnership complement internationally expanding into new markets that haven't necessarily been cecos history. Now that's something that we can do more and more of is build off our growing platforms and that's another reason why you look at industrial air and <unk>.
Hey, look we're really learning and we're getting a good balance of how we can make acquisitions in spaces, where we already have a good foundational of footprint.
What can you remind us whiskey I asked at the time of acquisition still mostly industrial air and it sounds like it's helping you enter other markets industrial air markets.
That's right you know like you know from the I mean, there's lots of reasons to do an acquisition, but if you were going to build off of core you know I've always say, there's 2 really good reasons and that is you know it's about market access you either expanding into new adjacent markets with the with the with the niche leader in those adjacent markets or it's just or its a geography.
You know from an expansion of perspective, so E checks several of those boxes helped us really expand into several end markets 1 being aluminum Bev can for example, and <unk> and then it obviously helped us with international being a strong leader in Europe. So a good reason to do an acquisition when you're building off of your core there's other reasons of course accretive.
Earnings et cetera, but I would say you know geographic or market adjacencies or are darn good ones.
Okay, and then last for me I I think I mentioned you mentioned.
Wood markets is not what what did you mentioned what is what what end market is that or what what did you say here. What do you think of big customers like no Hawk of route go people that are putting down on your residential and commercial flooring vaca anybody that's doing construction in a round of homes and buildings you know that's been a booming market.
During the Covid pandemic and so as those grow you need dust collection U V O C concentration of why because you need to protect the employees and you need to protect their neighbors, that's what we do.
Okay, Great a great example of industrial air work on it sounds like okay. Okay. Thank you very much.
Yeah.
Our next question comes from Jim Ricchiuti with Needham.
Yeah.
Hi, Yeah. This is Tyler of daily on in for Jan you guys done day.
Tyler good morning.
So this is maybe a question for Matt Matt You had mentioned and it's regarding sort of the end markets you talked about sort of the infrastructure infrastructure bill being the potential catalysts for industrial Air just kind of wondering on what you have thoughts on that whereas the latest how do you sort of assess the potential impact.
In that segment.
Yeah, we're excited about water and batteries those are the 2 biggest slug of that I see a funding going towards a we have a complete portfolio of please go to www dot CECO and borrow dotcom halfway down the page and you'll see our water offerings as a plethora of technologies in the battery space, obviously, you've seen them of buy.
The administration has said they want to do to protect that business and you see automotive we are a big player. There the the third 1 which I'd be remiss not to mention of the semiconductor as you know I believe the majority of chips are made overseas they want to bring that home. If they do we are a big player in that space with our art T. O technology, we absolutely want to make sure that we pre.
The employees of <unk>.
The efficiency of the plant and the neighbors around us.
Great. Thanks, and it inside of just 1 more on that for the end market Theres. Another couch that he mentioned for fluid handling as well and I missed that can you just remind me what.
When you mentioned the.
Tyler I couldn't understand your question about fluid handling could you restate it please.
Yeah, sorry about that you had mentioned on another catalyst for fluid handling and I missed that I Wonder if you could just remind me what that was.
Oh yeah.
In the prepared remarks, yes, so we serve hospitality Aqua culture of which would be aquarium and we also serve midstream oil and gas for the hot oil pumps any combination of those 3 are starting to pick up you know this business is more like a $14 million to $15 million per quarter business. So that's been in the doldrums since Covid Avi.
It's like all of those 3 industries. Yeah. We've we've had some large pipeline opportunities that have just continued to push out our we know that we're well positioned to secure those so we're still very you know again. That's another. Good example, it's not just certain energy markets like the midstream of refining there's other markets that have just the kind of continued to be.
You know soft in a way, but the but theyre in front of us still and that would be a market that we've done a nice job on the first half of the year, but we believe in the second happened and we head into next year, we'll continue to growth.
Okay. Thank you.
1 last question I had mentioned to sort of at the price increase that you kind of pass on some of your customers I think that was just related to our steel prices, but yeah, I guess any feedback from customers on this and you'll notice the bookings were greatest quarter of Gan. So just wondering what you guys are anticipating do you think he can maybe pass on additional price.
Greece's later this year, yeah, I mean, we've been totally transparent on the project side of the business. We've line item. It out we make sure that they understand and they know exactly where it isn't it's of no surprises there are competitors of doing that as well on the pumps or flow based businesses. We've done 2 price increases factors is that our competitors are doing it as well, it's the right thing to do.
On the market because of the the supply challenges. So we've got no feedback day no. These are extraordinary and they are in line with market.
Okay.
And sorry, 1 last question I know I just wanted to it other.
It's interesting the sort of the.
The ending of the geothermal project as mentioned South East Asia is that of new sort of a win for you got new area you know items.
I haven't seen it too often there isn't really any any competition in that space for that application.
It is the new win I mean, you know maybe we've done some things in the space before but but you know as a almost $2 million project in terms of the size. That's that's not insignificant.
Believe it's a very good business for a very good project for us and obviously another international region. The we've invested to expand into booked anytime you get a you know a new sustainable energy solution in an international market that we believe is going to continue to grow that's not the only sustainable energy project. The we look forward to high.
Lighting in the future as we continue to invest to expand their and geothermal. There's there's not there's not a ton of geothermal project. So it's not like I would I would suggest that you know you're probably not going to hear just on just a lot of these but it's you know it's just the category that you're going to continue to hear from us as we invest to grow in.
An additional sustainable energy solutions.
Yeah, that's great yeah, and understand its not material now, but yeah, just kind of thinking about you guys. It seems like you're just in a great position of sort of how the transition from the traditional energy generation to more of renewables and geothermal of nice 1 to it it's going to be a small segment, but you know it could be meaningful yeah 10.5.
10 years from now.
That's all my questions for me appreciate it congrats on the exercise yep. Thank you.
If you have further questions. Please press star 1 to join axiom.
Our next question comes from Bill does the along with Titan capital.
Thank you relative to the engineering systems bookings are being being soft you'd mentioned it was simply timing of orders can you talk in more detail about the the.
The timing issues and the opportunities that you see here in the second half now please.
Yeah Bill I. Thanks, Good question and you you call it I wouldn't call. It issues right I think for US. It is about you know some of these fairly large orders just you know obviously, we're waiting for the customer to finalize their budgets and finalize their approvals. It's it's you know some of it could even be supply chain that they're waiting for making.
Sure Everything's teed up before they start to spend the capital on before they start to approve you know the final purchase orders, we feel really good about the second half and I honestly I think the second quarter could have even been stronger had some of those and again I'm not going to call. The timing issues. It's just timing you know we are you know a good chunk of our.
This is large project order bookings and those the timing of which often happens towards the end or the very beginning of the quarter. Because that's just when are the chips fall. So to speak. So you know I don't think that we saw a lot of issues. I think we just always are dealing with a certain order timing you know what's interesting we started the <unk>.
Quarter, you know even stronger the you know.
This quarter the dividend in the first quarter. Despite the fact that the first quarter was the was slightly higher in terms of how it ended up $92 million versus 986 million. So you would say you know well you know the the first quarter was stronger Ironically, the second quarter. You know just the timing of some of those orders happened in you know in early part of the <unk>.
The quarter stayed very consistent we really like you know anything between you know obviously eighty's ninety's of really good quarter, we expect that to continue we'd like to believe the third quarter could be stronger and they don't probably come out of the you know the the engineered solutions side.
That's helpful I'm actually going to key off of something you just said there are you.
I mean I recognize the 86 is is the number that's lower than 92.
But just in terms of the seal of the activity.
Are you really inferring that you felt like the second quarter was stronger than the first quarter and the momentum was building.
I would simply say, yes in the in the reason for it to give a little more color to you into the you know to the audience is we believe our pipeline in our all of a lot of our businesses, but since we're talking about what didn't happen in the second quarter. Our pipeline continues to be very strong it's of qualified.
Pipeline and our engineered solutions business and you saw that our engineered solutions wasn't as strong in the second quarter, maybe as it is as it was in the first or it could be going forward. So you know really our industrial side, especially industrial air were strong. We believe that you know there's a lot of momentum across the board. So we felt really good about the <unk>.
Second quarter, and like I said, the the slight step.
The step down in orders between the first and second quarter was really just timing. It has nothing to do with any perceived slowdown in our markets.
Thank you and then Oh, let me just shift to the refining market. If the if we meet the geographically I. Thank you and inferred that outside the U S was improving so 2 questions.
As much detail as you can on which countries outside of the U S are demonstrating strength would be helpful. And then secondarily in the U S where the gasoline.
Gasoline and diesel inventories.
Inventories are in much better shape and I think refinery runs are in decent shape, we have the jet fuel, which is certainly down how does all of that shake out and what are you hearing from the from your domestic refinery customers.
The domestically, we're saying things a lot slower if I were to talk to you about in the Middle East and Africa, and India. We're seeing tons of bids on if you were just the Google almost of all of the refineries around the globe on the map you would see that most of the growth is occurring in the countries I just mentioned to you.
Within the U S. Because I'll answer your specific question to what's happening here in North America I mentioned it nearly every call, but jet fuel demand is 20% below our July of last year. So we're not seeing a 20% below 2019 levels, sorry, and so we're starting to see it climb back up.
But it's up 250 per cent from Covid. So we're not back up to 2019 levels of mobility grows and utilization isn't that high either I want to say that U S. Refiners are moving at something like 75 to 85 per cent utilization and so until that climbs back up they'll youre not going to see them spending a bunch of on Capex, you can see whether exxon posts or a share.
On posted on all of these refiners are trying to increase their share buybacks be more free with the capital on the short term as they see what happens here on the market. So we feel like it's only upwards and that's why we mentioned on the the the 1 page on orders by end market, we think that market's improving just in this quarter, we didn't have of.
Big jobs come through in the quarter you know in this business are projects typically range from anywhere from $3 million to $10 million and so but when I look at our funnel of bell.
Saudi Arabia, Qatar Abu Dhabi, India, the the pipeline is rich.
Great. Thank you both.
Thank you Bill concludes our question and answer session I'd like to turn the call back over to Todd Gleason for any closing remarks.
Thank you very much and once again, thanks to everybody for your your interest and your participation on today's call. Good questions. We look forward to continued the dialogue throughout the day and in the future with all of our investors and with that again I'd like to thank our CECO employees all of our partners around the world.
The continued to deliver for our customers of their number 1 priority and we're doing so in a very safe and healthy way. The obviously all of US are anxious to get the the environment stabilized and I think we're hopefully going to be heading in that direction, but in the meantime, we continue to put all of our focus on health and safety for our employees our customer.
And all of our partners and with that thanks, everyone have a great day.
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