Q2 2022 CECO Environmental Corp Earnings Call

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Good morning, and welcome to the CECO Environmental Conference call, all participants will be in listen only mode.

Should you need assistance placed into a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions. Western question. You May Press Star then one on your house phone to withdraw your question. Please press Star then two.

Please note today's event is being recorded and now I would like to teleconference over to Steven Hooser. Please go ahead Sir.

Yeah.

Thank you Keith and thank you everyone for joining us on the CECO environmental second quarter 2022 earnings call on.

On the call with me today is Todd Cleveland, Chief Executive Officer, Ramesh, Neither Holly Chief operating officer, and our recently announced and incoming Chief Financial Officer and strategy Officer, Peter Gill handset.

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 vivo dotcom. The preliminary presentation materials can also 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 todays presentation that are not based on historical fact 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 differ materially from those expressed or implied by the forward looking statements. We encourage you to read the risks described in our SEC filings included on Form 10-K for the year ended December 30, <unk> 2021, except to the extent required by applicable securities laws, we undertake no.

No obligation to update or publicly revise any of the forward looking statements that we make here today, whether as a result of new information future events or otherwise.

Today's presentation will also include references to certain non-GAAP financial measures.

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 now with that I'd like to turn the call Chief Executive Officer, Scott Gleason.

Thanks, Steven and good day, everyone.

To start with slide number three of the presentation that Stephen mentioned to follow along with our prepared remarks today.

We have a number of topics to cover as always and this slide provides a high level summary of today's focus areas.

First today, we announced two leadership changes Matt.

Michael who has been our CFO since early 2017, and Pamela to Ray who has been our head of human resources for about four years will be leaving CECO.

I want to thank Matt and pay them for their contributions to our organization. We appreciate all of the things they have done to help us advance as a company. We made the decision to hold today's call without Matt as we both agreed to maintain focus on our excellent second quarter performance and outlook. Matt is working to ensure we have a smooth transition which is well underway.

And I'm sure. Many of you will stay in touch with them that.

We wish both he and Pam much success.

Finance and HR teams are in great shape and working on transition items.

I'm also pleased to announce that Peter Johansen will join CECO, as our new Chief financial and strategy Officer.

This is an expanded role and one that fits peters unique strikes and tremendous experience.

We are driving our platform growth in enterprise wide strategic development very aggressively Peter will partner with me and our leadership team to tighten up. These these growth programs and ensure we have leading processes to identify and execute investable strategy.

Peter brings over 30 years of experience in business development strategy capital management programs and other business management analytics. His background includes diverse industrial leaders such as Accu Dine IDEXX ITT train and also Allied signal Honeywell.

I have a few of those names in my career profile too.

Peter has been working with our leadership team as a consultant for about six months as we've been building, our M&A pipeline and evaluating market opportunities, while Peter will officially assume CFO duties next week. He is on the call with US today, although Ramesh and I will field today's questions.

Let me hand, it over to Peter to say Hello, Peter.

Yes.

I think we might be having some technical difficulty on Peter's side of the phone here. There. We go there we go.

Go ahead, Peter Alright, Yeah. Good morning, everyone. This is Peter and.

I'm looking very much forward to being part of this wonderful journey that FICO is about to embark on great challenges and great opportunities ahead of us.

Great. Thank you Peter and we look forward to you joining us officially next week.

We also mentioned that our general Counsel Lane Watkins <unk> will assume the newly created role of chief administrative and legal officer in this role Lynn will drive our human resource and legal functions and partner with our business leaders to ensure we have nimble and effective programs in place to support growth New operating models and of course maintain strong.

Clients and development.

So I want to once again, thank Matt and Pam for their service and of course, welcome Peter and Lynn into their new roles.

The other points on this slide will be more concise. We hope you take away that CECO delivered an outstanding Q2, and very strong year to date performance.

We continue to deliver on a very transparent roadmap and we believe we are establishing programs to help drive real sustainable results.

We will also discuss our full year outlook, which we are increasing given our year to date performance and our confidence around what we see in our backlog and across our opportunity funnel.

We hope you also take away that our capital allocation program is driving good utilization of cash as we continue to identify and close accretive and strategic acquisitions and we are buying back our shares.

More to come on all those points. So please turn to slide number four.

Our strong Q2 and year to date results are driven by many important factors of course, we have certain end markets that are growing and we are well positioned in those markets. However, I would submit that we have fundamentally changed CECO and continue to advance our organization.

As we state in the slide sub title. We are now two years into a systematic program to reshape CECO and drive higher performance.

I joined the company in July of 2020 time flies.

For over a year, we navigated the challenges of Covid protocols. We can all agree it was and has been a crazy time.

We're still overcoming some of the ramifications associated with inflation supply chain issues and of course last year's great resignation, but early on I identified some opportunities and some obstacles within CECO, we set our sights to invest time and energy on those key strategic and operating items.

<unk> work is obviously never done but in place today, we have a number of important components that will help sustain our performance.

A year ago, we changed our operating structure from large segments to our very focused and nimble business platforms.

This organizational design provides much more accountability faster speed of execution, and a better opportunity for visibility around growth and productivity.

We also said we would establish an ESG strategy and we have our inaugural ESG report was published earlier this year, but that's just a start we have formal programs inside CECO along with our board. We are now establishing ESG to point out.

A team that will drive new environmental social and governance programs. We are pleased that our ESG score dramatically improved but we want to take it to the next level and we believe ESG is something our customers and employees care deeply about and rally around.

Over the past year, we have added two new board members, Richard woman and Bob <unk>, our outstanding additions to our board and for me Great Partners and advisors as we drive transformational growth.

Our leadership team is more diverse more experienced and a strong cultural fit to how we will drive our operating model in many ways. A CEO is only as good as their leadership team and I'm feeling pretty good.

And when I joined two years ago, CECO had not initiated a focused capital deployment program, we're certainly driving programmatic M&A.

And we've already completed multiple transactions this year alone.

And we have repurchased almost $10 million worth of CECO stock in just the past year.

I could extend this list because we are proud of our company and many more accomplishments, but for now I will end.

That we have made increased investments and we continue to make more investment in new products and business development.

I look forward to highlighting some of our new product wins and new market opportunities as we dive deeper into our results today and in future quarters. Please.

Please turn to slide number five.

As we have talked about systematic change and transformation, we wanted to be somewhat transparent about what we were planning to do and then of course do those things transparency and focus are two very important areas I demand from our business leaders and we hold them accountable as we invest in their success.

A year ago I shared this slide during our Q2 2021 earnings call with shrink it down to make a few points on the right side of that slide you might recall that at the end of Q2 last year, we had a decent orders growth, but not necessarily the overall financial performance that would stand out as stated we were putting.

The pieces in place to drive a real growth program.

We shared this slide last year to outlined the high level steps, we would take in the second half of 2021 and throughout 2022 to drive value as you can see we sort of checked the boxes on the right side of that slide everything from finishing 2021 as expected to our capital deployment programs.

Programmatic M&A and of course, great organic growth, we feel good that we shared our plans and more importantly that we are executing on those plans with great results.

The combinations of slides four and five I hope to put an exclamation mark on the fact that CECO is making systematic change and steady transformation. It isn't just a quarter or two of good results, but instead, a more reliable operating model and leadership team from the board down through our great platforms and.

All of our great functions.

Now, let's dive into Q2 and year to date results. So please turn to slide number seven.

This slide provides a summary snapshot on the left side of the slide we highlight key financial metrics for the second quarter and year over year percentages, 33% orders growth.

Our $114 million worth of orders follows the first quarter, all time record orders of over $160 million, we have a new all time record backlog as a result.

34% revenue growth in the quarter and 31% revenue growth year to date, just outstanding execution overcoming challenges in the supply chain and continuing to deliver for our global customers.

63% growth in our adjusted EBITDA with year to date EBITDA margins over 10%, we continued to demonstrate very nice operating leverage in.

In $19 million of free cash flow in the quarter is obviously very strong we had some pent up working capital and so we knew we would have great performance with our cash this past quarter.

Very pleased with our overall second quarter performance now lets move to slide number eight.

We announced and closed two strategic acquisitions in the quarter.

I encourage you to read the press releases, we distributed earlier this quarter regarding compass water and western are here a couple of points customers water is a leader in membrane based industrial water treatment systems, and really helps our industrial water strategy I would state that we are building, our industrial water capabilities and business sort of steer.

<unk> early innings, so to speak, but we have a growing base business and more and more solutions and we are committed to industrial water.

Western Air helps us advance our already very well established and strong industrial air business Western Air brings a nice complement of standard dust collector solutions, where historically, our dust collection systems have been engineered custom orders. So this is a very strategic focus and western are brings to CECO and exciting.

<unk> product line called <unk> Air, which is all about energy efficient solutions in smart sensor technology very excited about these new capabilities.

Both compass water and western are helped grow our short cycle sales and we estimate we are at about 30% of our portfolio mix, which is up nicely from the 20% a little over a year ago really great progress here.

On the right side of this slide we highlight our share repurchase program.

In the second quarter, we announced our $20 million three year authorization and we got after it buying back approximately $4 million in just a few months, we remain very committed to a consistent capital allocation program and we'll provide regular updates now, let's turn to slide number nine.

We already highlighted a few of these second quarter financial results and this is a standard slide we provide each quarter.

A few additional items worth mentioning.

Our Q2 gross margins were below our historic average of 32% to 33%, but we are making very good progress with strategic pricing and productivity we.

We improved gross margins 150 basis points when compared to the first quarter of this year.

We expect to deliver higher gross margins are doing work our way through the year and our backlog has higher margin profile, coupled with our strategic pricing pricing actions that are rolling out as expected.

Another financial metric on this slide that wasn't included in our earlier summary, slide is the significant growth in earnings per share.

In the quarter, we deliver 18th of adjusted EPS.

This is up 100% when compared to Q2 2021.

We are getting strong earnings growth from operations and we expect to continue to drive meaningful EPS growth for the full year.

Now please.

Excuse me, please turn to slide number 10.

We provide some additional data points on our Q2 orders and revenue comparing them to Q2 last year and also Q1 of this year a few highlights.

On this slide we state that the $275 million of orders generated in the first half of the year is an all time record first half. This eclipses the first half of 2016 by some 20% and.

And back in 2016, Sika was very focused on large energy market opportunities that had produced some extremely large energy jobs in that year.

I mentioned that we're systematically transforming CECO well this quarter, we had only one order above $10 million and it was in our separation infiltration platform. It was a middle East project that required produced water treatment solutions to remove harmful pollutants in particular, it's another large order.

In the quarter of approximately $7 million was in our industrial air business to provide specialized missed recovery recovery and elimination solutions and a hot cold aluminum rolling facility that is undergoing an expansion. We are also seeing some very nice LNG wins in pipeline investment and liquid separation fine.

We continue to see some large programs into $3 million to $4 million range for industrial Air solutions, and wafer fabrication and related industries I could go on and on about our very diverse and attractive orders that we booked in the first half of 2022, but really overall, just a very balanced order book across all of our platforms.

And with the balanced orders book growth, we are delivering sustainable revenue growth.

As we show on the right side of the slide our platforms are delivering great organic growth and with our book to Bill consistently over one we expect to sustain higher growth rates and sales dollars.

And this was reiterated when you turn to the next slide please go to number 11.

For the second straight quarter, we have an all time record backlog with almost $289 million. This is up 35% this year.

Our 2022 year to date book to Bill is 1.4, just fantastic equally important is our platforms.

Equally important our that our platforms are very excited about future opportunities and pursuits, our sales funnel remains above $2 billion and we have many large bids.

Produce some impressive wins in the second half of this year now, let's go to slide 12 as.

As I mentioned, a few minutes ago.

Our gross margins expanded sequentially, but remained down year over year. It does feel good to be back above 30% and we expect to sustain those levels with the strategic pricing.

Tenured productivity and supply chain management that I already mentioned.

Second quarter EBITDA of $10 $6 million produced EBITDAR margins over 10% for the second straight quarter. These EBITDA results show the outstanding leverage we're getting on our volume conversion.

Just consider that if gross margins had remained at historic levels, our EBITDA margins would likely be 12% to 13% in the quarter.

We certainly are not dwelling on what could be or what might've been instead, we remained focus on SG&A cost management. So we can produce consistent results. We are and will continue to invest in growth resources and technologies, but we're clearly doing so at a pace that allows for strong conversion. So that we're also growing our body.

Online now.

Now please flip to slide number 13, which highlights our free cash flow and balance sheet.

The main takeaway here is we have a strong cash flow generating organization that has allowed us to steadily invest in both M&A and share buybacks, while essentially maintaining a very healthy EBITDA leverage ratio of just over two times. We ended the quarter at approximately two one times.

We believe we have more opportunity in working capital management. So we are laser focused on generating more cash this year.

Let's review our outlook for the full year. Please go to slide number 15.

Earlier this year, we introduced our full year outlook for the first time as a company. We believe outlining our expectations are important sort of back to the tell you what we're going to do and then get after it.

I am pleased to share we are increasing our full year financial outlook to reflect strong performance and confidence in our backlog and our operational execution. So here are the numbers.

We now expect full year orders to be between 430 and $450 million. This would be up approximately 20% at the midpoint.

You might remember that in 2021, we grew full year orders approximately 30%. This is the result of our focused investments in our nimble and accountable platform organizations. They are just getting after opportunities and really developing new muscles for growth.

Our updated outlook calls for full year sales of 375 million to $400 million with opportunity to exceed if things go well and our supply chains and those of our customers at the midpoint of our revenue outlook sales is expected to be up some 20% year over year.

We continue to expect full year gross margins of about 30%, which is down 22, excuse me, which is down 200 basis points versus 2021, but we expect to exit 2022 with a higher run rate than we produced in the first half of this year.

We are also taking up our outlook for adjusted EBITDA.

We now show a low end of $37 million and a high and a $40 million or higher again, if things go well supply chain management and customer projects.

We can certainly continued to deliver more not everything is in our control. However on some of these projects and of course in our supply chain, but we have a really good pipeline and of course, we really are excited about our backlog.

We continue to balance out our investments for future growth and we expect our operating conversion to continue so at the midpoint of our outlook, we expect our adjusted EBITDA to be up over 50% <unk>.

<unk> last year.

So the takeaway for this slide is that CECO is in better position than ever for higher performance and we believe our 2022 outlook is indicative of that view.

Couple of more slides, please turn to number 16.

Since I highlighted a slide that we introduced a year ago, we decided to update the material and provide a somewhat refreshed transparent high level roadmap. In summary, we are building new processes capabilities and initiatives to ensure that CECO to point out as I am calling it here today delivers high performance.

On the left section of the slide we provide summarized bullet points regarding how we expect to wrap up 2022 operationally.

Our outlook points to a strong second half results, we expect to exit with a large backlog to provide a foundation for growth in 2023, our capital allocation program will continue to provide funding for M&A and share buybacks and we will maintain our investments to grow our shorter cycle business focus. So we can have a more sustainable.

<unk> earnings profile, if done right, we should be in great position for an accelerated execution in 2023.

I would acknowledge a continuation of a lot of themes, which is a good thing programmatic strategic and rightsize. The M&A is certainly one of those reoccurring themes, we expect to sustain our strong organic growth, while evaluating our portfolio and considered considering options for investment or rebalancing, our new leadership team is confident we can drive.

Our new operating model to the next level, a graduation to a new level so to speak that will help sustain performance.

And we expected in 12 months to 18 months, we will revisit this slide and continued to accelerate in 2024 and 2025.

We will provide progress reports on these items and perhaps do some deeper dives in our evolving operating model. When we are ready to share some of those details.

Lot of good things are happening and we look forward to sharing now let's wrap up with slide number 17, our last slide.

Great results in Q2 and year to date, our record backlog gives us confidence in second half growth and puts us a nice position for beyond 2022.

We hope you found the full year guidance helpful and we look forward to discussing this in more detail we.

We will participate in several investor conferences this month, including the Jefferies Industrials Conference. This week and the upcoming three part advisors Midwest ideas Conference, we mentioned and I hope to see many of you at these events and we look forward to introducing Peter.

I know we've been redundant on this point throughout our remarks today, but our final bullet point here is my main focus which is driving a steady portfolio shift to deliver higher performance.

And with that let.

Let me think team CECO for delivering for our customers and being accountable for results.

Also thank you our investment community for your interest today and would be more than happy to answer any questions. You might have so with that I'll hand, it back over to the operator, and we will address your questions.

Yes. Thank you we will now begin the question and answer session to ask a 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 two.

At this time, we will pause momentarily to assemble the roster.

And first question comes from Jim Ricchiuti with Needham <unk> company.

Hi, Good morning, first off congratulations on the quarter.

Thank you I appreciate it.

Questions.

First of all you reference she goes wins in the semiconductor market and I know some of this may not necessarily associate CECO with semi fabs, but I noticed you were at the recent Semicon West show and I guess my question is to what extent you think the company.

Could benefit from the recent chips legislation.

Thanks, Jim Good question, we were at we were at the show were excited about our relationships we have in this space.

Has been a an investment of ours and somewhat in anticipation of what could be a healthy market here and semi conductor manufacturing. There is certainly some interesting role are roles that we can play.

In there in their in their overall processes, especially as you can imagine around around industrial air solutions and others.

Simple answer is you look you know it's it's it's in our pipeline there are some really.

Opportunities for us in the second half of the year.

We hope to be talking about that in the next quarter and the and the quarter after that as well and maybe perhaps beyond but we feel we're well positioned for that investment in that industry. We're excited about what that legislation represents not only for us of course, but I think ultimately in longer term for the health of our of our overall.

Industrial economy and in our ability from a supply chain perspective to have a little bit more control domestically of our of our destiny. In this area. So you know anything that you could CECO can do to be part of that we look forward to it.

Got it.

Wondering if there was anything unusual.

In the Q2 revenue strength because your guidance.

At the midpoint of your full year guide suggests.

Some some deceleration in the second half and does that is that just conservatism or yes. I'm wondering if is it timing or are you seeing anything in the business that might give you pause.

Jim Good question, there too so I think I would say this.

We do not see a.

Any changes if you will to our business profile et cetera. Other than the continued choppiness of the supply chain markets and less so probably Jim and into our audience here for us don't get me wrong.

We're working through challenges like everybody else, but we want to be we want to be appropriately thinking about challenges that could happen to our customers and have happened to them and that's influential on some of our larger projects. So while we have an opportunity to potentially do certainly better than the midpoint of our guidance.

Range. We also just wanted to be thoughtful that some of our customers are are having to wait for other parts of their supply chain before they can accept let's say installation and delivery. So at this point, we think it's appropriate to just sort of manage everyone's expectations a little bit on until we sort of work our way through the supply chain challenges.

Last question I will jump back in the queue. The M&A activities has clearly picked up a bit in recent quarters and I'm wondering how you would characterize the pipeline going forward.

Yeah look we.

We have had a series of strategic.

Strategic and good acquisitions, we we love the technology and the adjacent markets that it gives us access to great management teams. Good cultural fits we continue to look for organizations that have I think a similar profile.

<unk> management teams that that.

That helped us expand where we're at and where we're going.

Organizations that want to be part of we think a growing enterprise that it is focused on industrial air industrial water in the energy transition.

And when that does so I think that with the increased investment for growth there will be more we expect the timing of acquisitions is always kind of tricky. So we'll obviously announce those as they come but for US we have a great pipeline of opportunities that we're evaluating.

And with that you know look we're going to continue to generate strong free cash flows and deploy the capital as we've discussed.

Got it thanks very much thanks, Jim.

Thank you and the next question comes from Rob Brown with Lake Street capital markets.

Okay.

Please go ahead Mr. Brown your line is live.

Hi, good morning, congratulations as well on a nice quarter. Thanks.

Thanks, Rob.

My question is on the gross margin you've had a nice uptick.

How do you sort of see that trending as the as the backlog.

Kind of support and pricing support getting back to that.

32% to 33% range or sort of how is your view on how long that takes.

Yes, we'd love to get there tomorrow.

As I mentioned in the.

And sort of our prepared remarks this morning.

If we were at 32, 33% now it just falls right down to our EBITDA margins and we would have been at 12, 13% as opposed to 10 and so operationally, we're very proud of that.

That sort of that opportunity that's in front of us, but also just proud of our accomplishment because we've been talking about that as a company probably for years getting up into the double digit EBITDA margin rate and potentially getting into the teens. So so to go back to the gross margin question.

Yes, our backlog profile has been a more attractive gross margin rate associated with it of course, there are big and small projects that depending on the quarter can that can influence those margins, but we have a confidence that.

Sequential improvements could certainly continue and our goals and objectives are that as we exit this year, we're at a higher rate than we just delivered in the quarter.

We'd like to be at 31, 32% as we're exiting the year. So that we can enter 2023 at back to the gross margin levels that we've historically enjoyed and then with our acquisitions.

This year and going forward of course, our goals are to continue to take those higher.

And but in the short term, it's really about inflation, it's about our ability to get strategic pricing of course productivity and supply chain management.

Our teams are doing a great job of all of that and we're going to continue to focus on it good question.

Okay, great. Thank you and then second question is really on the sales funnel.

You talked about it would be quite diverse, but maybe just some color on how how thats developing are there areas, where youre seeing sort of strength or weakness or do you sort of feel it's across the board strength in your in your major markets just some color on the sales funnel.

Yeah, well look you know, it's it's certainly not all across the board strength I mean, I wish that I wish that you know in our world that balloons, only went up and up and up and we grabbed onto all of them, but it turns out that that doesn't always happen in the industrial landscape.

I wouldn't say, we have a huge player being shot in the year by any of our platforms on significant weakness.

We've seen some distributor inventory levels sort of flattened back out in terms of whether it be fluid handling or some of our other businesses. So so look you know we have you know we of course are or just sort of paying attention to some areas that are slowing down or or restocking their inventory going forward and where but.

I wouldn't say other than a couple of end markets like maybe automotive certainly in the quarter took a little bit of a pause in terms of some of the orders, but again his maintained a good level of strength. There now overall, we feel like it's a pretty diverse and strong pipeline.

The focus of our platforms really helps us to have visibility if one of their end markets are slowing a little bit another one seems to be picking up and I use the word nimble probably at least a dozen times I may be a joke, but at least three or four times and I use that word because theyre moving quickly to go after those other opportunities.

Of note you know, we would say some of the energy markets that we participate in both in terms of the energy transition areas that we think are going to continue to have sustained investment in areas around bio gases and whatnot, but also just sort of back to let's say LNG I could use the acronym LNG Ellen.

<unk> LNG over again in terms of market opportunities we're seeing.

And so that's just one area that I would highlight I think other companies are as well and we like we like that space and certainly there's other investment in our core energy business that we think looks what looks pretty good for us in the next few quarters. Good question.

Thank you I'll turn it over.

Thank you.

Again, if you would like to ask a question. Please press Star then one on your touch on file.

And the next question comes from Amit Dayal with H C Wainwright.

Good morning, everyone.

With respect to sort of you know the margin side of the story could you provide any granularity on you know you're seeing some softness I guess on the gross margin side with operating margins continued to hold up and in group. One of the drivers that are helping you you know achieve sort of improving operating margins any color on that.

Would be helpful. Thank you yeah, yeah. So obviously, we sort of you know.

Spent a fair amount of time on gross margin. So, let's just sort of for a second here leave that alone.

No we're not alone.

I'm glad we're not alone in a sense that our gross margins have been impacted by the <unk>.

Inflationary environment and some of the supply chain challenges, but what's what's driving our EBITDA margins higher is really our ability to convert the volume that we've delivered in the first half of the year.

At the end of the day I'm not going to say, it's all about volume for companies like ours that have a relatively fixed SG&A rate.

We have invested more in SG&A, that's a combination of more people to support growth and activity of course increases like merit increases.

Incentive compensation and all those costs that are associated with those great people.

But if you look at our SG&A as a percent of revenue even though the dollars have gone up the percent of revenue has gone down and so that contraction. If you will in a good way of SG&A as a percent of revenue at this point more than offsetting the other negative contraction of gross margin rate, so and that and then ultimately what you want.

Is to get back to the gross margins that we've historically enjoyed and nothing has fundamentally changed about our business I would submit to those of you that are listening today. It is just the market conditions that we're navigating and we're navigating well, but nonetheless, that's the condition that we're in so gross margins are down, but our operating conversion on.

Our volume is up and if we're able to get our gross margins back up I think youre going to can see youre going to see even stronger EBITDA margins. As a result, we look forward to hopefully delivering those.

Thank you for that.

I'm the CFO change done I mean.

Is that signaling larger M&A.

Targets like how could we think about you know this this change in terms of and.

In a minute as a part of your future growth.

Yeah, we're not trying to signal anything there per se I think look companies and organizations and people evolve and they they they you know they they look at new opportunities to continue to bring new perspective, new processes, certainly Peter has a strong background as do I remiss, our Holy land, our whole leadership team with with <unk>.

Large organizations that have done large complex transactions.

If that was my focus I could've made this change or or or Matt and I could have agreed to go in a different direction for from an M&A team perspective.

So it's not about signaling a change in our M&A strategy, it's about continuing to evolve as an organization towards a tour.

Two towards new programs, new processes, New operating models and I think the right time for everyone involved in this and so it's a healthy change and we look forward to bringing Peter on board. So that you can all meet him in and get to get to learn about his strong background.

I appreciate it that's all I have I'll take my other questions offline. Thank you.

Yeah.

Thank you and once again. Please press Star then one if you would like to ask a question.

And the next question comes from Bill <unk> with Titan capital.

Thank you Mike.

First question is relative to pricing when do you anticipate the pricing moves that you have made already and it will be fully rolled into the results.

Yeah. So on the 30% of our company approximately bill that is shorter cycle. Those are have already either found their way or more will be you know relatively quickly kind of quarter by quarter. So so think of at least 30% of our price actions, which have been received well by our customer.

Our distributors' channel partners et cetera, those are reflected.

Not fully but lets say 70 or so percent may be more reflected in our results.

In the quarter, our longer term projects, where you know, we certainly do call it price, but its really about protecting our gross margins and how we're bidding jobs. So we're increasing our prices equivalent or more so in some cases.

Versus the cost that have been increased in our supply chain. Those are why we're saying our second half looks richer from a gross margin per second percentage than our first half the combination of us working off of lower margin jobs in our backlog over the last 12 18 months that were booked.

While ago at lower margins, therefore, lower prices now.

Now, we're working off of where we're starting to work off of.

Higher margin jobs as a result of better pricing and maybe just better mix.

So for US together, so 60%, 70% of our business is going to read out a little bit more in the second half of this year.

Okay.

So would you say by the by the end of the fourth quarter that the long cycle pricing actions, you've taken will fully be reflected or will it be into 'twenty three before that's fully reflected.

If you have to use the word fully reflected I would say, we're heading into 'twenty three probably because by the way you know we continue to.

We think work on pricing and our short and long cycle businesses, you know even in the last quarter and in this quarter. So by extension of that comment Bill that's going into backlog and hasn't yet hit our P&L and we're certainly not dropping prices.

At this point on anything.

We're usually certainly not the low margin better on a project anyway. So we're continuing to hold firm in our market leader position, where we have strengthened and where our products are unique and we stand behind our quality delivery and our expertise. So I think for us. It's I'd say, mostly are going to be baked in in the second half of this year.

But we expect that there's still opportunity as we roll forward into our backlog rolling into next year.

It's really been working fully it's really the word fully that I would say, we're not fully we're not going to fully execute our recognized that this year that is more fully as we head into next year.

No that's really helpful in and take this line of thinking one step further.

Are you satisfied with the current pricing that you are bidding at today or.

Or should we anticipate that there will be additional price increases still to come.

I think we're look.

Youre asking are asking a CEO or CFO , if theyre satisfied with pricing.

Pricing and financial results, it's sort of like asking a kid if he wants another cookie I mean at the end of the day I think we want more.

And so we'll think about.

How where we're at in the marketplace and our cost structure, Here's what I'd say I think we consistently look at what's going on with our cost and our supply chain and and to the extent, we field and there has been a you know maybe maybe there was a capitulation in terms of certain things and you know in terms of the higher cost before.

There are certainly some components some metal some other.

Now commodities et cetera that continue to bounce around.

So one's work is never done on pricing, but I'd say, we feel really good about where we're at with pricing right now I don't want to sit here and signal that there's a bunch of additional price increases coming out now.

And our brands and our products. We appreciate that this has been a challenging environment for a lot of consumers.

Lot of companies and for all of us both individually and collectively.

It'll it'll be nice when we're maybe not all talking about inflation.

Right, Okay, and if I may I'd like to move to order growth, which I believe was up 33% in the quarter.

Where did you see that strength.

Again pretty pretty balanced, but specifically our separation filtration platform as I mentioned, both in terms of a lot of their sort of produced water and water filtration also their natural gas pipeline, just a really great strong quarter for separation filtration for those of you that have been.

Really super close attention to CECO last year across our eight business platforms. We have nine because ones are emerging markets platform. So we have nine platforms, but across our eight business or product line platforms. I think it was only separation filtration that didnt grow last year. The other seven did in terms of the order book So it's <unk>.

Excellent that we've had a very strong first half of the year in that business and I want to thank all of our platforms of course, but David Taylor and the team are really doing a great job of positioning not only for their historic pursuits that they've done and whether it be midstream pipeline or our various applications even associated with the Navy and.

Department of defense, but I'm really getting after some unique opportunities in the energy transition and we look forward to talking about some of those carbon capture solutions et cetera. As we go forward into some of the future quarters. So that's really a platform that I would highlight as it's a really strong platform in the quarter industrial air.

Has just been cruising at a very steady pace for well over a year.

And we continue to do so and again, Chris <unk> and the great team at industrial Air.

Are doing a fantastic job, finding new opportunities and they're diversified end markets and I'll highlight those two if you allowed me Bill I could go on and on but those are two that I would definitely say are doing a fantastic job versus our original plans for the year.

Great and I'm actually going to have one follow up question to that the separation filtration business is that strength a function.

Something that is that you all are doing specifically or is it. This natural movement that takes place where they had a poor.

Port four orders last year, so almost naturally they end up having a rebound this year.

Yes look easy comps are always nice when youre starting to talk about orders growth. So, let's let's acknowledge that that the team has some lower comparable maybe versus some of our other platforms, but it's both.

Look you know, our peerless branded solutions and separation filtration our leaders in the space there.

They are they have a seat at the table so to speak on many important applications for the customer and so look you know those those those opportunities are now coming to us and we feel good about our position to win the right jobs at the right price and again, we're expanding into other areas that we maybe historically.

Our legacy Peerless products didn't necessarily pursue as I mentioned, some industrial water areas from emerging energy transition areas, we'll be talking a lot about those we expect in the next few quarters Bill.

But it's a it's a combination.

Okay. That's that's helpful and thank you for taking all the questions.

Yeah. Thank you Bill.

Operator, I don't know if we have any more questions, but let me know.

This does conclude the question and in that session. So I would like to turn the conference back over to Tom Glaser for any closing comments.

Great. Thank you again, thanks for everyone's interest today in participation not only in and listening to R. R.

Our prepared remarks, but diving in and asking some great questions. We look forward to speaking with many of you not only today as we go through some of our scheduled or upcoming just sort of AD hoc investor calls and other calls, but hopefully seeing many of you. This week at the Jefferies Industrials conference and this month at the three.

Party advisors ideas conference and so with that I would just once again, thank our team CECO for for delivering these results and.

Thank our leadership team and everyone for the focus that we have on and continuing to execute and being accountable for our performance and so with that we'll end today's call and look forward to speaking and meeting with you all soon.

Thank you.

France has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.