Q1 2024 CECO Environmental Corp Earnings Call

Okay.

Operator: Good morning and welcome to the SECO Environmental First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode.

Speaker Change: Good morning, and welcome to the CECO Environmental first quarter 2024 earnings Conference call.

Speaker Change: All participants will be in a listen only mode.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1 1 on your telephone keypad. To withdraw your question, please simply press star 1 1 again.

After todays presentation, there will be an opportunity to ask questions to ask a question you May press star one on your telephone keypad.

Speaker Change: Draw your Preston Please press star one again.

Operator: Please note this event is being recorded. I would now like to turn the conference over to Steven Hooser, Investor Relations. Please go ahead.

Speaker Change: No.

Speaker Change: It is being recorded.

Speaker Change: And I'd like to turn the conference over to Steven Hooser Investor Relations. Please go ahead.

Steven Hooser: Thank you, Howard, and thank you for joining us for the SECO Environmental First Quarter 2024 Earnings Call. On the call with me today are Todd Gleason, Chief Executive Officer, and Peter Johansson, Chief Financial and Strategy 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 CICOEnviro.com. The presentation materials can be accessed through the investor relations section of the website.

Steven Hooser: Thank you Howard and thank you for joining us for the CECO Environmental first quarter 2024 earnings call on the call with me today is Todd and Chief Executive Officer, and Peter Johansen, Chief Financial and strategy Officer.

Steven Hooser: Before we begin I'd like to note that we have provided a slide presentation to help guide our discussion.

Steven Hooser: All will be webcast, along with our earnings presentation, which is on our website at CECO in By-road dotcom pre.

Steven Hooser: Presentation materials can be accessed through the Investor Relations section of the website.

Steven Hooser: I'd also like to caution investors regarding forward-looking statements. Any statements made in today's 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.

Steven Hooser: I'd also like to caution investors regarding forward looking statements any statements made in today's presentation that are not based on historical fact are forward looking statements.

Steven Hooser: Such statements are based on certain estimates and expectations.

Steven Hooser: And are subject to a number of risks and uncertainties actual results actual future results may differ materially from those expressed or implied by the forward looking statements. We encourage you to read the risks.

Steven Hooser: Actual future results may differ materially from those expressed or implied by the forward-looking statements. We encourage you to read the cautionary statements described in our SEC filings, including on Form 10-Q for the quarter ended March 31, 2024. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any 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.

Steven Hooser: Scribed in our SEC filings, including our Form 10-Q for the quarter ended March 31, 2024, except to the extent required by applicable securities laws. We undertake no obligation to update or publicly revise any forward looking statements that we make here today, whether as a result of new information future events or otherwise today.

Steven Hooser: This presentation will also include references to certain non-GAAP financial measures, we've provided the comparable GAAP and non-GAAP numbers in today's presentation. Today's press release and provided non-GAAP reconciliation in the supplemental tables in the back of the slide deck and with that I'd now like to turn the call over to Todd Wilson, Chief Executive Officer.

Steven Hooser: We provided the comparable GAAP and non-GAAP numbers in today's press release and provided non-GAAP reconciliations in the supplemental tables in the back of the slide deck. And with that, I'd now like to turn the call over to Todd Gleason, Chief Executive Officer.

Todd R. Gleason: Thanks, Steven, and to our audience, thank you for your interest and continued support. Please turn to slide number three as I will highlight some key takeaways related to our first quarter performance. As outlined in today's press release, we started 2024 by delivering a solid first quarter, which puts us in a strong position in terms of our full year outlook. Later, we will go through each of these financials in more detail, but let me touch on just a few of the highlights listed on this slide. I am pleased that our backlog of approximately $390 million is back to near-record levels.

Steven Hooser: Todd.

Todd Wilson: Thanks, Steven and tour audience. Thank you for your interest and continued support.

Todd Wilson: Please turn to slide number three as I will highlight some key takeaways related to our first quarter performance.

As outlined in today's press release, we started 2024 by delivering a solid first quarter, which puts us in a strong position in terms of our full year outlook.

Later, we will go through each of these financials in more detail, but let me touch on just a few of the highlights listed on this slide I.

Todd Wilson: I am pleased that our backlog of approximately $390 million is back to near record levels. Our book to Bill in the first quarter was driven by very good orders levels, which was in line with our expectations to start the year.

Todd R. Gleason: Our book-to-bill in the first quarter was driven by very good order levels, which was in line with our expectations to start the year. First quarter sales and adjusted EBITDA were at record levels for a first quarter, so we feel good about how our top line and bottom line kicked off 2024. Importantly, the quarter was highlighted by record gross margins for any quarter, which we believe demonstrates our strategic progress to drive operational excellence programs and steadily advance and further diversify our overall portfolio. Lastly, our working capital performance was very strong, helping to dramatically improve our year-over-year free cash flow performance.

First quarter sales and adjusted EBITDA were at record levels for a first quarter. So we feel good about how our topline and Bottomline kicked off 2024 importantly, the quarter was highlighted by record gross margins for any quarter.

Todd Wilson: We believe demonstrates our strategic progress to drive operational excellence programs and steadily advancing and further diversify our overall portfolio.

Todd Wilson: Lastly, our working capital performance was very strong helping to dramatically improve our year over year free cash flow performance.

Todd R. Gleason: Now, turning to sales. We exit Q1 with a record pipeline of sales pursuits, and we are excited about the breadth and balance of this pipeline, especially some important energy transition orders, which could be meaningful in 2024 and over the coming years. And while we didn't make any acquisitions in Q1, we were active with capital allocations. During the quarter, we opportunistically took advantage of some short-term share price dislocations and bought back $3 million of SECO stock. We have now repurchased $15 million of stock since 2021, which leaves $10 million remaining on the stock buyback authorization that we announced in May of 2022.

Todd Wilson: Now turning to sales.

Todd Wilson: We exit Q1 with a record pipeline of sales pursuits, and we are excited about the breadth and balance of this pipeline, especially some important energy transition orders, which could be meaningful in 2024 and over the coming years.

And while we didn't make any acquisitions in Q1, we were active with capital allocation.

Todd Wilson: During the quarter, we Opportunistically took advantage of some short term price just look share price dislocations and bought back $3 million of CECO stock, we now have repurchased $15 million of stock since 2021, which leaves $10 million remaining on the stock buyback authorization that we announced it.

Todd Wilson: In may of 2022.

Todd R. Gleason: Turning to M&A. As I said, while we have not announced any transactions in a few quarters, we remain very pleased with the quality and activity of the M&A environment and the pipeline of strategic opportunities we continue to evaluate. We will continue to move forward with our M&A process and keep you posted. All in all, we feel great about our position and our ability to drive meaningful performance. And, as always, I want to thank Team Seco for your customer focus, accountability, and high performance.

Todd Wilson: Turning to M&A.

Todd Wilson: Like I said, while we have not announced any transactions in a few quarters. We remain very pleased with the quality and activity of the M&A environment and the pipeline of strategic opportunities we continue to evaluate.

Todd Wilson: We will continue to move forward with our M&A process and keep you posted.

All in all we feel great about our position and our ability to drive meaningful performance and as always I want to thank team CECO.

Todd Wilson: For your customer focus accountability and high performance.

Todd R. Gleason: Now, turning to slide number four, we will expand a little bit more on our financials. Let's start with orders, which came in at approximately $145 million, essentially flat, with the same strong results we delivered to start 2023. These orders helped to drive the strong book-to-bill that I just mentioned, and sales were approximately $126 million, up 12% year-over-year.

Todd Wilson: Now turning to slide number four we will expand a little bit more on our financials.

Let's start with orders, which came in at approximately $145 million essentially.

Todd Wilson: Essentially flat with the same strong results, we delivered to start 2023.

Todd Wilson: These orders helped to drive the strong book to Bill that I, just mentioned and sales were approximately $126 million up 12% year over year.

Todd R. Gleason: Q1 sales were modestly impacted by seasonal aspects related to fewer project days and project timing that accelerated some sales forward into Q4 of 2023 and delayed a little revenue recognition into Q2 of this year. On a trailing 12-month basis, our sales are up 26%. We remain committed to very strong double-digit full-year sales growth, and our near-record backlog gives us great visibility into upcoming periods of growth. Adjusted EBITDA of $13.2 million is the highest first quarter EBITDA result in company history, and our 10.5% EBITDA margins are up almost 200 basis points year over year. On a trailing 12-month basis, EBITDA is approximately $61 million, up 44%.

Todd Wilson: Q1 sales were modestly impacted by seasonal aspects related to fewer project days and project timing that accelerated some sales forward into Q4 of 2023 and delayed a little revenue recognition into Q2 of this year.

On a trailing 12 month basis, our sales are up 26%.

Todd Wilson: We remain committed to very strong double digit full year sales growth and our near record backlog gives us a great visibility to upcoming periods of growth.

Adjusted EBITDA of $13 $2 million is the highest first quarter EBITDA result in company history.

Todd Wilson: And our 10, 5% EBITDA margins are up almost 200 basis points year over year.

Todd Wilson: On a trailing 12 month basis, EBITDA is approximately $61 million up 44%.

Peter Kurt Johansson: Our adjusted EPS and free cash flow also reflect our ability to offset higher interest expense, tax items, and working capital needs related to future growth. We are very pleased with these results, and they give us very solid confidence that we are in a great position to start 2024. I will provide some additional commentary on our outlook for the full year after Peter provides further review of our financials. With that, I'll hand it over to Peter. Thank you, Todd. Good morning, everyone.

Todd Wilson: Our adjusted EPS and free cash flow also reflects our ability to offset higher interest expense tax items and working capital needs related to future growth.

Todd Wilson: We are very pleased with these results and they give us.

Todd Wilson: Very solid competence that we have a great position to start 2024.

Todd Wilson: I will provide some additional commentary on our outlook for the full year. After Peter provides further review of our financials and with that I'll hand, it over to Peter.

Todd Wilson: Okay.

Peter Kurt Johansson: Thank you Todd good morning, everyone.

Peter Kurt Johansson: I want to thank you for attending our earnings call today. As I provide additional color on SECO's financial performance in the first quarter, I will reinforce two key themes. First, SECA was starting the year on a very positive note.

Peter Kurt Johansson: I want to thank you for attending our earnings call today.

Peter Kurt Johansson: As I provide additional color on <unk> financial performance in the first quarter I will reinforce two key themes.

Peter Kurt Johansson: CECO is starting the year on a very positive note.

Peter Kurt Johansson: And second, SICO remains well-positioned to achieve our objectives for the remainder of the year. Let's start this review by turning to slide number six, which covers three key highlights during the quarter. Backlog, Gross Profit, and EBITDA. On slide six, I'm highlighting these three financial metrics because they are solid indicators of our strong start and our overall positioning for the remainder of the year. Starting from the left of the page, backlog at quarter end closed at approximately $390 million, up 9% year over year and at $20 million from year end 2023.

Peter Kurt Johansson: And second CECO remains well positioned to achieve our objectives for the remainder of the year.

Peter Kurt Johansson: Let's start distributed by turning to slide number six.

Peter Kurt Johansson: They cover three key highlights during the quarter.

Backlog gross profit and EBITDA.

Peter Kurt Johansson: On slide six I'm, highlighting these three financial metrics.

Peter Kurt Johansson: They are solid indicators of our strong start and our overall positioning for the remainder of the year.

Peter Kurt Johansson: Starting from the last of that page backlog at quarter end closed at approximately $390 million up 9% year over year, and then $20 million from year end 2023.

Peter Kurt Johansson: This is a record level for any Q1 quarter end. As Todd highlighted earlier, rising backlog is a key indicator of future period growth and gives us great visibility into revenue for the next nine or so months. Moving to the center of the page, gross profit of 45 million dollars delivered in the quarter is up 29 percent year over year on higher volume and higher margins nearing the 36 percent level, margins which are up 470 basis points from a year ago period and approximately 100 basis points above Q4 on a sequential basis resulting from continued business and project mix improvement and operational excellence initiatives that are really starting to deliver for us. And ending this page on the right side, adjusted EBITDA follows the same trajectory as gross profit, ending the quarter up 36% year over year with margins expanding approximately 200 basis points.

Peter Kurt Johansson: This is a record level for any Q1 quarter end.

Peter Kurt Johansson: As Todd highlighted earlier rising backlog as a key indicator of future period growth and gives us great visibility to revenue for the next nine or so months.

Peter Kurt Johansson: Moving to the center of the page gross profit of $45 million delivered in the quarter is up 29% year over year on higher volume and higher margins nearing the 36% level.

Margins, which are up 470 basis points from a year ago period, and approximately 100 basis points above Q4 on a sequential basis, resulting from continued business and project mix improvements operational excellence initiatives that are really starting to deliver for us.

Peter Kurt Johansson: Yes.

Peter Kurt Johansson: And ending this page on the right side adjusted EBITDA, followed the same trajectory as gross profit ending the quarter at 36% year over year with margins expanding approximately 200 basis points.

Peter Kurt Johansson: I want to remind all of you that these margins are after the investments we are making in our business, in commercial and technical resources, and in updating our business system. Investments that we believe are important to continue to make and add key capabilities to our organization and support sustainable growth. Before I leave this page, I want to highlight that adjusted EPS is up one cent year over year, as we overcame six cents of higher interest and tax expense with $0.17 of operational performance.

Peter Kurt Johansson: I want to remind all of you that these margins are after the investments we are making in our business and commercial and technical resources.

Peter Kurt Johansson: And updating our business systems.

Peter Kurt Johansson: Incidents that we believe are important to continue to make and add key capabilities to our organization and to support sustainable growth.

Peter Kurt Johansson: Before I leave this page I wanted to highlight that adjusted EPS is up 1% year over year.

Peter Kurt Johansson: As we overcame <unk> of higher interest and tax expense was 17 cents of operational performance.

Peter Kurt Johansson: Share count was a slight headwind to EPS in the quarter as well. Now, would you please turn to slide seven so we'll take a look at orders. Orders for the quarter of $145 million were essentially flat year-over-year.

Peter Kurt Johansson: Share count was a slight headwind to EPS in the quarter as well and.

Peter Kurt Johansson: Now would you please turn to slide seven so it will take a look at orders.

Peter Kurt Johansson: Orders for the quarter of $145 million.

We're essentially flat year over year.

Peter Kurt Johansson: They were balanced across industrial air, industrial water, and energy transit. As Todd alluded, our first quarter of 2023 was also historic. Sequentially, we delivered an increase of almost $20 million as some orders that pushed into Q4, from Q4 into Q1, were booked in the quarter. On a TTM basis, orders increased year over year by $70 million to $582 million.

Peter Kurt Johansson: They were balanced across industrial air industrial water and energy transition.

Peter Kurt Johansson: As Todd alluded our first quarter of 2023 was also historically strong.

Peter Kurt Johansson: Sequentially, we delivered an increase of almost $20 million as some orders that pushed into Q4 from Q4 into Q1 were booked in the quarter on a TTM basis orders increased year over year by $70 million to $582 million.

Peter Kurt Johansson: We are pleased with the level of orders in Q1, which had the potential to be higher by $15 to $20 million. However, these orders, for which we have verbal confirmation and award, took longer than anticipated to convert to a formal purchase order and have now been, or will be, realized in the second quarter. Additionally, in the quarter, a number of incredibly exciting and large energy transition jobs, many in the power generation segment, took meaningful steps forward towards realization in Q2 and the second half of 2024, further underpinning our confidence in the full year outlook.

Peter Kurt Johansson: We are pleased with the level of orders in Q1, which has the potential to be higher by 15% to $20 million. However, these orders for which we have verbal confirmation and or took longer than anticipated to convert to a formal purchase order and have now been or will be realized in the SEC.

Peter Kurt Johansson: <unk> quarter.

Peter Kurt Johansson: Additionally, in the quarter, a number of incredibly exciting and large energy energy transition jobs manner. Many in the power generation segment.

Peter Kurt Johansson: Meaningful steps forward towards realization in Q2, and the second half of 2024 further underpinning our confidence in the full year outlook.

Peter Kurt Johansson: In fact, April bookings were already off to a very strong pace and reinforce our view that Q2 will be very successful. Please now turn to slide 8 for some additional color on sales, sales for the quarter of $126 million, or a 12% increase over the same period in 2023 and a quarter one sales record for the company. Organic growth in the quarter was approximately 12%, on a TTM basis, a sales increase year over year.

Peter Kurt Johansson: In fact April bookings were already off to a very strong pace and reinforce our view that Q2 will be very successful.

Please now turn to slide eight for some additional color on sales.

Peter Kurt Johansson: Sales for the quarter of $126 million were at 12% increase over the same period in 2023 and a quarter one sales records for the company.

Peter Kurt Johansson: Organic growth in the quarter was approximately 12%.

Peter Kurt Johansson: On a TTM basis sales increased year over year.

Peter Kurt Johansson: $516 million to $559 million and is up sequentially by $15 million. Sales in the quarter reflect 21% of the full year sales outlook, which is the same as in Q1 2023 relative to what was achieved for the full year 2023. This Q1 typically has fewer revenue days than either Q4 or Q2, which can be our largest quarters for revenue delivery. And in 2024, both the Chinese New Year and Ramadan fell into the first quarter, impacting our Asian and Middle Eastern locations and customer activity.

Peter Kurt Johansson: By $116 million to $559 million and is up sequentially by $15 million.

Peter Kurt Johansson: Sales in the quarter reflect 21% of the full year sales outlook, which is the same as in Q1 2023 relative to what was achieved for the full year 2023.

Peter Kurt Johansson: This Q1, typically Q1 typically have fewer revenue days in either Q4, Q2, which can be our largest quarters for revenue delivery and in 2020 for both the Chinese new year, and Ramadan fell into the first quarter impacting our Asian, and middle eastern locations and customer.

Peter Kurt Johansson: <unk>.

Peter Kurt Johansson: The reduction in revenue days helps to explain a portion of the sequential step down in sales. Todd highlighted some revenue recognition acceleration that pushed Q4 higher at the expense of Q1, and we experienced two projects with engineering release and approval delays. Delays that have now been resolved so that the resulting revenue recognition will now occur in the second quarter. I ask you now to turn to slide nine, and we'll touch on backlog. PECO's backlog continues to remain at a near record level.

Peter Kurt Johansson: The reduction in revenue days helps to explain a portion of the sequential step down in sales.

Peter Kurt Johansson: It highlighted some revenue recognition acceleration that was pushed Q4 higher at the expense of Q1, and we experienced two projects with engineering release and approval delays.

Peter Kurt Johansson: Delays that have now been resolved so that the resulting revenue recognition will now occur in the second quarter.

Peter Kurt Johansson: Now, let's turn to slide nine and we'll touch on backlog.

Peter Kurt Johansson: <unk> backlog continues to remain at near record levels.

Peter Kurt Johansson: SECO concluded Q1 2024 with backlog at $390 million, representing a 9% increase year-on-year, of which we expect at least 70% to convert to revenue in 2024. The record levels of backlog are persisting even after SECO delivered a record sales quarter in Q4 and in Q1, highlighting the strength of our opportunity for order conversion. The strong book to bill ratio with record sales in the quarter places us slightly ahead of 2023 and in a strong position relative to our full year outlook.

Peter Kurt Johansson: We concluded Q1, 2024 with backlog of $390 million, representing a 9% increase year on year of which we expect at least 70% to convert to revenue in 2024.

Peter Kurt Johansson: The record levels of backlog are persisting, even after CCAR delivered a record sales quarter in Q4 and in Q1, highlighting the strength of our opportunity to orders conversion. The strong book to Bill with record sales in the quarter Places US slightly ahead of 2023 and in a strong position relative.

Peter Kurt Johansson: Now let's turn to slide 10 for some additional discussion on March. Starting with gross profit, margins in the quarter were 35.7%, a record level which gives us a lot of confidence that we are on the right path to meet our target of mid-teens EBITDA margin in the 2025-2026 period. The improvement year over year has been largely driven by improving NICS, with our short cycle brands and acquired businesses contributing higher volume. Improving project execution and improved book margins have also contributed to this high mark.

Our full year outlook.

Peter Kurt Johansson: Now, let's turn to slide 10 for some additional discussion on margins.

Peter Kurt Johansson: Starting with gross profit margins in the quarter was 35, 7% a record level, which gives us a lot of confidence that we're on the right path to meet our target of mid teens EBITDA margin in $2025 2026 period the.

Peter Kurt Johansson: The improvement year over year has been largely driven by improving mix with our short cycle brands in acquired businesses contributing higher volumes.

Peter Kurt Johansson: Proving project execution and improved book margins also contributed to this high Mark. We are also starting to see the benefit of select sourcing and productivity initiatives across our operations and supply chains.

Peter Kurt Johansson: We are also starting to see the benefit of select sourcing and productivity initiatives across our operations and supply chain. We are in the early stages of these initiatives, but the initial results are very positive. When I think about the sequential performance, I was pleased to see a further step up of approximately 100 basis points in margin despite the lower sales volume. Short cycle mix versus the prior quarter was a driver, accounting for about 25 basis points of the improvement. Favorable backlog margins from the acquired entities contributed approximately 25 basis points, and the benefit of a factory closure in China, completed in December of last year, added another 50 basis points in the quarter.

Peter Kurt Johansson: We are in the early stages of these initiatives, but the initial results are very positive.

Peter Kurt Johansson: When I think about the sequential performance I was pleased to see a further step up of approximately 100 basis points in margin. Despite the lower sales volume.

Short cycle mix versus prior quarter was it a driver accounting for about 25 basis points of the improvement favorable backlog margins from the acquired entities contributed approximately 25 basis points and the benefit of a factory closure in China completed in December of last year added another.

Peter Kurt Johansson: 50 basis points in the quarter.

Peter Kurt Johansson: On a TTM basis, gross profit of $181 million is up approximately 33%, with margins increasing by 150 basis points to 32.4%. This level is almost back to historical margin levels and on track to our internal targets supporting our long-term target of mid-teens EBITDA margin by 2025-2026. Moving to adjusted EBITDA, he won 2024, delivered $13.2 million, a record for any quarter one benefiting from record sales in the first quarter with margins expanding appropriately, about 200 basis points to 10.5%.

Peter Kurt Johansson: On a TTM basis gross profit of $181 million is up approximately 33% with margins increasing by 150 basis points to 32, 4%. This level is almost back to historical margin levels and on track toward tunnel internal targets. So.

Peter Kurt Johansson: <unk>, our long term target of mid teens EBITDA margin by $2025 2026.

Peter Kurt Johansson: Moving to adjusted EBITDA.

Peter Kurt Johansson: Q1, 2024 delivered $13 2 million a record for any quarter, one benefiting from record sales in the first quarter with margins expanding appropriately about 200 basis points to 10, 5%.

Peter Kurt Johansson: EBITDA drop through on higher sales was partially offset by seasonally higher G&A expenses, which included our inaugural global leadership meeting held in Dallas, an investment in a commercial excellence project with a leading consulting firm, and the launch of our global sourcing and productivity initiative. Other items impacting EBITDA for the quarter were the absence of a favorable non-recurring benefit from a customer settlement in 2023 and the addition of the G&A expenses from Transcendent Chemco, businesses acquired in 2023, which were not part of SECO in the first quarter last year, on a TT ambassador.

Peter Kurt Johansson: EBITDA drop through on higher sales was partially offset by seasonally higher G&A expenses, which included our inaugural global Global leadership meeting held in Dallas and investment and a commercial excellent excellent project with a leading consulting firm and the launch of our <unk>.

Peter Kurt Johansson: Global and source global sourcing and productivity initiatives.

Other items impacting EBITDA in the quarter, where the absence of a favorable nonrecurring benefit from a customer settlement in 2023.

Peter Kurt Johansson: And the addition of the G&A expenses from transcend and Kimco businesses acquired in 2023, which were not part of CECO in the first quarter last year.

Peter Kurt Johansson: On a TTM and basis.

Peter Kurt Johansson: Adjusted EBITDA of $61 million is up 44%, with margins increasing by 140 basis points to 11% and well on track to our internal target supporting our target again of mid-teens EBITDA in the 2025-2026 time frame. Now let's move to slide 11, and I'll quickly review our cash position and liquidity. DECO finished the quarter with gross debt of $131 million, which was lower by $2 million from year-end 2023

Peter Kurt Johansson: Adjusted EBITDA of $61 million is up 44% with margins, increasing by 140 basis points to 11% and well on track to our internal targets supporting our target again, a mid teens EBITDA in the $2025 2026 timeframe.

Peter Kurt Johansson: Now, let's move to slide 11, and I'll quickly review, our cash position and liquidity.

Peter Kurt Johansson: <unk> finished the quarter with gross debt of $131 million lower by $2 million from year end 2023.

Peter Kurt Johansson: Net debt of $84 million was higher by $6 million from the year-end period, and our leverage ratio of 1.4 times was unchanged from year-end. However, net debt was lower by $15 million, or 15% from the year-ago ending quarter, with our net debt to EBITDA ratio of 1.4, a full turn lower than year-over-year, and well below our max allowable level. Our capacity increased sequentially by $2 million to approximately $119 million, which fully covers our planned expenditures and investments for Foliar 2024.

Peter Kurt Johansson: Net debt of $84 million was higher by $6 million from the year end period.

Peter Kurt Johansson: And our leverage ratio of one four times was unchanged from year end.

Peter Kurt Johansson: Net debt was lower by $15 million or 15% from the year ago, ending quarter with our net debt to EBITDA ratio of one <unk> for a full point, a full turn lower than the.

Peter Kurt Johansson: The year over year, and well below our Max allowable levels.

Peter Kurt Johansson: Our capacity increased sequentially by $2 million to approximately $119 million, which fully covers our planned expenditures and investments for full year 2024.

Peter Kurt Johansson: Regarding our cash position, DECO ended the quarter with $40 million in global cash, a decrease of $8 million from the year in 2023 and an increase of 5 million from a year ago. Cash from Operations, driven by strong working capital managers, was approximately $2 million for the quarter and up $13 million year over year, a very strong performance which offset our seasonal first quarter cash obligation. In the quarter, we funded CapEx investments of approximately $3 million for growth and business system and IT upgrades, executed a $3 million stock buyback, and made $3 million in debt reduction payments.

Regarding our cash position.

Peter Kurt Johansson: <unk> ended the quarter with $40 million in global cash a decrease of $8 million from year end 2023.

Peter Kurt Johansson: And an increase of $5 million from a year ago period.

Peter Kurt Johansson: Cash from operations, driven by strong working capital management.

Peter Kurt Johansson: Was $2 million.

Peter Kurt Johansson: It was approximately $2 million for the quarter and up $13 million year over year.

Peter Kurt Johansson: Very strong performance, which offset our seasonal first quarter cash obligations.

Peter Kurt Johansson: In the quarter, we funded capex investments of approximately $3 million for growth and business system and it upgrades.

Peter Kurt Johansson: <unk> had a $3 million stock buyback and made $3 million in debt reduction payments.

Peter Kurt Johansson: Now, let's please turn to slide 12 for a brief update on our capital deployment strategy. I would like to take this opportunity to revisit with you our approach when it comes to capital allocation. Stepping back for a moment, when the SECA transformation began, Todd stated that we would be very thoughtful and intentional about capital allocation.

Peter Kurt Johansson: Alex Please turn to slide 12 for a brief update on our capital deployment strategy.

Alex: I would like to take this opportunity to revisit with you our approach.

Alex: When it comes to capital allocation step.

Alex: Stepping back for a moment when the Sika transformation began Todd stated that we will be very thoughtful and intentional about capital allocation.

Peter Kurt Johansson: Initially investing in organic growth and enhanced business capability, creating the capacity and processes to sustain growth. Once we were comfortable with the organic growth trajectory, we would begin to layer in acquisitions to complement the organic results and to advance our leadership in industrial air, build leadership in industrial water, and maintain leadership in energy transition. And finally, if the economics were attractive, we would consider stock buybacks as an additional lever to create shareholder value.

Initially investing in organic growth and enhanced business capabilities, creating the capacity and processes to sustained growth.

Alex: Once we were comfortable with the organic growth trajectory, we would begin to layer in acquisitions to complement the organic results and to advance our leadership in industrial air build leadership in industrial water and maintained leadership in energy transition and finally, if the economics are attractive.

Alex: Would consider stock buybacks as an additional lever to create shareholder value.

Peter Kurt Johansson: As I assess our results over the past three plus years, I can confidently state that we have executed on our priorities and delivered on the strategy we laid out. I feel confident stating that we will continue down this path, adding further to our leadership positions, while potentially creating new ones, all while creating shareholder value and making good on our promise to protect the environment, protect the employees that work in our customers' facilities, and protect our customers' industrial equipment and improve their environmental outcomes. I want to now highlight some of the accomplishments, starting at the 12 o'clock position of the wheel shown on the left side of the page.

Alex: As I assess our results over the past three plus years I can confidently state that we have executed on our priorities and delivered on the strategy, we laid out and feel confident stating we will continue down this path, adding further to our leadership positions.

Alex: Potentially creating new ones.

Alex: While creating shareholder value and making good on our promise to protect the environment protect the employees that work in our customers' facilities and protect our customers industrial equipment and produce their environment improve their environmental outcomes.

I want to now highlight some of the accomplishments starting at the 12 o'clock position of the wheel shown on the left side of the page starts.

Peter Kurt Johansson: Starting in 2021, we have invested over $25 million in growth resources and programs to drive core organic growth and to upgrade our commercial and operational processes, including expanding our commercial and project teams globally. These investments include the addition of talented sales, engineering, and project execution resources across our global footprint and in targeted product and technology innovation.

Alex: Starting in 2021, we have invested over $25 million into growth resources and programs to drive core organic growth and two upgrader commercial and operational processes.

Alex: <unk>, expanding our commercial and project teams globally.

Alex: These investments include the addition of talented sales engineering and project execution resources across our global footprint and in targeted product and technology innovations.

Alex: And getting you into the three o'clock position, we have been steadily increasing our spend on targeted and high leverage high impact capital expenditures.

Peter Kurt Johansson: We have been steadily increasing our spend on targeted and high-leverage, high-impact capital expenditures to support our current and planned growth and to improve our global business tools and systems. We concluded 2023 with an investment level two times that of 2020, to support capacity expansions in our Dean and Fibrock Pump and Wakefield Acoustics locations and to kick off our company-wide ERP consolidation initiative. We are planning a further increase in 2024 as we extend our ERP consolidations and migrations globally, further strengthen our cybersecurity defenses, launch and scale our sourcing and productivity initiatives, and upgrade and expand facilities of recently acquired businesses. Continuing around the wheel to the six o'clock position, we arrive at the M&A value creation lever. We have been selective and programmatic with our M&A efforts, executing nine transactions over the past three plus years.

Alex: To support our current and planned growth.

Alex: And to improve our global business tools and systems.

We concluded 2023 with an investment level two times that of 2020.

To support capacity expansions in our Dean and <unk> pump and Wakefield acoustics locations and to kickoff, our companywide ERP consolidation initiatives.

We are planning a further increase in 2024 as we extend our ERP consolidations and migrations globally further strengthen our cyber security defenses launch and scale, our sourcing and productivity initiatives and upgrade and expand facilities of recently acquired businesses.

Alex: Continuing around the wheel to the six o'clock position, we arrive at the M&A value creation lever.

We have been selective in programmatic with our M&A efforts executing nine transactions over the past three plus years.

Peter Kurt Johansson: Transactions tightly aligned with our playbook, paying an EV to EBITDA multiple in the six to seven times range on a trailing basis. Our deployment has been balanced across industrial air, industrial water, and energy transition with a focus on complementary assets that support our advance, build, and maintain strategy. Whilst we have not announced the deal over the past two quarters, I can assure you our pipeline is very active, and we are well advanced with a number of attractive opportunities which I believe can close in the second half of the year, with approximately 100 million tons of available capacity.

Alex: Transactions tightly aligned with our paint playbook paying an EV to EBITDA multiple in the six to seven times range on a trailing basis.

Alex: Our deployment has been balanced across industrial air industrial water and energy transition with a focus on complementary assets that support our advanced build maintain strategy.

Speaker Change: Whilst we have not announced the deal over the past two quarters I can assure you our pipeline is very active.

Speaker Change: And we are well advanced with the number of attractive opportunities, which I believe can close in the second half of the year.

Speaker Change: With approximately $100 million of available capacity.

Peter Kurt Johansson: And finally, moving to the 9 o'clock position. I will briefly comment on stock buybacks, our remaining deployment options, with the $3 million purchase executed in the first quarter. Since 2021, we have repurchased $15 million of stock at an average price of $8.20 per share, approximately 70% below the current market value, leaving $10 million on our current authorization.

Speaker Change: We're comfortable that we can fund the organic and M&A capital plan for 2024, and still retain a comfortable cash cushion.

Speaker Change: And finally moving to the nine o'clock position I will briefly comment on stock buybacks are remaining deployment option.

Speaker Change: With the 3 million purchase executed in the first quarter.

Speaker Change: Since 2021, we have repurchased $15 million of stock at an average price of $8 20 per share.

Speaker Change: Approximately 70% below the current market value.

Leaving $10 million on our current authorization.

Peter Kurt Johansson: While we are not expecting to execute the remaining balance and company quarters, we will continue to be opportunistic and step in as we did in Q1 when we identify a short-term share price dislocation. That concludes my summary of SECA's first quarter 2024 financial results. A high-quality start with strong momentum heading into the second quarter and setting the table for a strong remaining 2024. Now, back over to Todd to take you through some additional commentary on our outlook and his concluding remarks. Todd

Speaker Change: While we are not expecting to execute the remaining balance in Kennedy company quarters, We will continue to be opportunistic and step in as we did in Q1, when we identify a short term share price dislocation.

Speaker Change: That concludes my summary of Chico's first quarter 2024 financial results.

Speaker Change: A high quality start with strong momentum heading into the second quarter and setting the table for a strong remaining 2024.

Speaker Change: And now back over to Todd.

Todd Wilson: Take you through some additional commentary on our outlook in his concluding remarks.

Todd R. Gleason: Thanks, Peter. A lot of good details with respect to our financials and insights into our performance, including the most recent slide there regarding capital allocation. Thank you. We're going to go to the final section and then our summary slide. Please turn to slide number 14.

Todd Wilson: Thanks Peter.

Todd Wilson: A lot of good details with respect to our financials and insights into our performance, including the most recent slide there regarding capital allocation. Thank you.

Todd Wilson: We're going to go to the final section and then our summary slide please.

Speaker Change: Please turn to slide number 14.

Todd R. Gleason: As a reminder, we initiated our full year 2024 guidance back in November of last year. We increased our guidance just a little over a month ago when we provided our Q4 2023 earnings. Today, we are maintaining our full year 2024 guidance, which we believe represents a strong overall outcome.

Speaker Change: As a reminder, we initiated our full year 2024 guidance back in November of last year, we increased our guidance just a little over a month ago. When we provided our Q4 2023 earnings.

Speaker Change: Today, we are maintaining our full year 2024 guidance, which we believe represents a strong overall outlook.

Todd R. Gleason: That said, as we have mentioned several times today and in our press release this morning, we do see areas that could produce additional upside to our annual outlook. However, even with our growing and well-diverse support portfolio, we remain conservative to some extent to better balance potential macro and end market issues that could arise, supply chain challenges, etc.

Speaker Change: That said as we have mentioned several times today and in our press release. This morning, we do see areas that could produce additional upside to our annual outlook.

Speaker Change: Of course, even with our growing and well diversified portfolio.

Speaker Change: We remain conservative to some extent to better balance potential macro and end market issues that could arise supply chain challenges et cetera.

Todd R. Gleason: We have high confidence in our near-record backlog as we enter Q2, as well as the largest ever sales pursuit pipeline, which includes the aforementioned mega energy transition program. We feel we are well-positioned not only for these energy transition programs but for some additional large industrial air and industrial water opportunities, including jobs driven by the data center hyperscale buildup. Additionally... We have a very strong balance sheet and, as Peter just mentioned, a robust M&A pipeline.

Speaker Change: We have high confidence in our near record backlog as we enter Q2.

Speaker Change: As well as the largest ever sales pursuit pipeline, which currently includes the aforementioned Mega energy transition programs.

Speaker Change: We feel we are well positioned not only for these energy transition programs, but for some additional large industrial air and industrial water opportunities, including jobs driven by the data center Hyperscale build out.

Speaker Change: Additionally.

Speaker Change: We have a very strong balance sheet and as Peter just mentioned a robust M&A pipeline.

Todd R. Gleason: So we look forward to providing any updates to our outlook as we move forward throughout the quarter and the year. Now, please turn to slide 15, which is our last slide. In summary, SECO had a high-quality start to the year.

Speaker Change: So we look forward to providing any updates to our outlook as we move forward throughout the quarter and the year.

Speaker Change: Now please turn to slide 15, which is our last slide.

Speaker Change: In summary.

Speaker Change: CECO had a high quality start to the year.

Todd R. Gleason: We are reaffirming our guidance while signaling potential upside. We are proud of the financial results in Q1, especially when looking at the record gross margins, which show the ongoing progress we are delivering with respect to operational excellence. We look forward to providing updates on our large-order opportunities throughout the year, and we love the balance our sales pipeline has across industrial air, industrial water, and energy transition, as well as our geographic balance.

Speaker Change: We are reaffirming our guidance while signalling potential upsides.

Speaker Change: We are proud of the financial results in Q1, especially when looking at the record gross margins, which show the ongoing progress we are delivering with respect to operational excellence.

Speaker Change: We look forward to providing updates on our large order opportunities throughout the year and we love the balance our sales pipeline has across industrial air industrial water and energy transition as well as our geographic balance we.

Todd R. Gleason: We remain committed to steadily transforming SECO into a high-performance company that delivers outstanding shareholder value. And with that, I'll now open it up to questions, and then I'll wrap up with just a couple of concluding remarks. Operator? Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star 1 1 on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the key.

Speaker Change: We remain committed to steadily transforming CECO.

Speaker Change: Until high performance company that delivers outstanding shareholder value.

Speaker Change: And with that I'll now open it up to questions and then I'll wrap up with just a couple of concluding remarks operator.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star one one on your telephone keypad, if youre using a speakerphone. Please pick up the handset before pressing the keys to withdraw your question simply press Star one again.

Operator: To withdraw your question, simply press star 1 1 again. Please stand by while we pause momentarily to assemble our roster. Our first question or comment comes from the line of Aaron Spychalla from Craig Hallam Capital Group. Mr. Spychalla, your line is open.

Speaker Change: Please standby, while we pause momentarily to assemble our roster.

Speaker Change: Our first question or comment comes from the line of Aaron Spy Cholla from Craig Hallum Capital Group.

Aaron Michael Spychalla: Yeah, good morning, Todd and Peter. Thanks for taking the questions. You know, first for me on the energy transition order opportunities, can you give a little more detail on what's driving that, you know, how big some of those order opportunities could be, and then I saw the EPA emissions rules here recently, just wanted to kind of better understand how that might be a driver for your business. Yeah, thanks, Aaron. Good morning.

Speaker Change: <unk> Your line is open.

Speaker Change: Yes, good morning, Tom and Peter Thanks for taking the questions.

Speaker Change: First for me on the energy transition order opportunities can you give a little more detail on what's driving that.

Speaker Change: Some of those order opportunities could be and then saw the EPA emissions rules here recently, just wanted to kind of better understand how that might be a driver for your business.

Todd R. Gleason: All this is Todd, and I'll start with a few comments, especially as it relates to the energy transition orders. And then I'll hand it over to Peter, who can add his additional color to that. And then we'll make sure we get a good answer on the EPA topic as well. So, number one on energy transfer, but in no particular order, I would say there's a huge known headline driver with respect to power globally.

Speaker Change: Yes, Thanks, Erin good morning.

Speaker Change: All this is Todd I'll start with a few comments.

Todd Wilson: Especially as it relates to the energy transition orders and then I'll hand, it over to Peter who can add additional color to that and then we will.

Peter Kurt Johansson: Sure you could get a good.

Speaker Change: The answer on the EPA.

Peter Kurt Johansson: Topic as well.

Peter Kurt Johansson: So number one on energy trades, but in no particular order I would say theres a theres a.

Peter Kurt Johansson: Huge known headline driver with respect to power a globally.

Todd R. Gleason: So there is a mega investment that has started to upgrade or add new power capabilities globally. So if it's in North America, you're looking at new investments in the grid and in power supply, backup power for, you know, wind and solar, but also, I think, you know, a continuation of the conversion from coal to natural gas. Headlines are all over in that regard.

Peter Kurt Johansson: So there is a mega investment that has started.

Peter Kurt Johansson: To upgrade or to add new power capabilities globally.

Peter Kurt Johansson: So if it's in the North America Youre looking at new investments in the grid and power supply backup power for.

Peter Kurt Johansson: Wind and solar but also a I think a continuation of conversion from coal to natural gas.

Peter Kurt Johansson: Headlines are all over in that regard and we've always been well positioned to serve that transition and energy.

Todd R. Gleason: And we've always been well positioned to serve that transition in energy. And we like where that is building. We may be seeing some of the larger opportunities we've seen in a long time, if ever. Some of these jobs are well north of $20, $30, $40 million, and a few could potentially be a multiple of that even.

Peter Kurt Johansson: And we would like.

Peter Kurt Johansson: That is building we may be seeing some of the larger.

Peter Kurt Johansson: Opportunities we've seen in a long time if ever some of these jobs are well north of $20 $30 $40 million and a few could potentially be.

Todd R. Gleason: But, you know, again, we're in the early phase of some of these, and we're in the advanced phase of others. Now, it's not just power. Or, if it is power, it's not just what people think of, oftentimes, as power.

Peter Kurt Johansson: Multiple of that even.

Peter Kurt Johansson: But again, we're in the early phase of some of these and we're in the advanced phase of others now it's not just power.

Peter Kurt Johansson: Or if it is power it's not just.

Peter Kurt Johansson: What people think of oftentimes is power.

Todd R. Gleason: You know, as I already mentioned, with backup power and data centers, there's a significant opportunity that we're maximizing throughout the U.K. and potentially Europe as those data centers are built in more urban areas. So, you know, backup power has to have noise attenuation and management solutions that we're in prime Position for with Wakefield, an acquisition we made about 15 months ago and doing quite well. And geothermal and carbon capture are also energy themes that are growing in terms of we see older opportunities.

Peter Kurt Johansson: As I already mentioned with backup power data centers, there's a <unk>.

Peter Kurt Johansson: Significant opportunity that we are maximizing throughout the U K and potentially Europe.

Peter Kurt Johansson: Those data centers are built in more urban areas. So backup power has to have noise attenuation and management solutions that were in prime position for with Wakefield an acquisition, we made about 15 months ago, and doing quite well and geothermal.

Peter Kurt Johansson: And and carbon capture are off.

Peter Kurt Johansson: Also energy themes that are growing.

Peter Kurt Johansson: In terms of.

Todd R. Gleason: I might even suggest that we're more active now in nuclear energy than we were years ago. So, frankly, it's a pretty large array of energy transition opportunities, it's a basket, I would say, of energy transition opportunities, but the mega theme is probably still centering around the power topic. Peter, you want to add to that? Aaron and the rest of us gathered here today. It's all about energy. Nothing happens if an electron isn't flowing or a fuel source isn't provided for some form of power generation.

Peter Kurt Johansson: We see order opportunities I might even suggest that we're more active now in nuclear than we were years ago. So frankly, it's a pretty large array of energy transition. It's a basket I would say of energy transition opportunity, but the mega theme, it's probably still centering around the power topic.

Peter Kurt Johansson: Peter you want to add to that sure.

Peter Kurt Johansson: Okay.

Peter Kurt Johansson: Erin.

Peter Kurt Johansson: For the rest of us gathered here today.

Peter Kurt Johansson: It's all about energy.

Peter Kurt Johansson: Nothing happens if an electron isn't flowing or a fuel source isn't provided to some form of power generation.

Peter Kurt Johansson: We're in a very interesting inflection point. We've hit an inflection point after about 10 years of flat global demand. Every major region is now experiencing substantial growth and demand. There are a lot of drivers.

Peter Kurt Johansson: We're in a very interesting inflection point, we've hit an inflection point after about 10 years of flat global demand.

Peter Kurt Johansson: Every major region is now experiencing substantial growth in demand.

Peter Kurt Johansson: There's a lot of drivers.

Peter Kurt Johansson: They all are converging, and there are a limited number of companies that can help deliver not only that power, but that power and that energy in a clean way. And we're one of those companies. And that will lead into my remark on the EPA. What the EPA is doing isn't new; what the EPA is doing is actually isn't a surprise.

Peter Kurt Johansson: They all are converging.

Peter Kurt Johansson: And there is limited numbers of companies that can help delay.

Peter Kurt Johansson: Deliver not only that power, but deliver that power and that energy to clean way and we're one of those companies.

Peter Kurt Johansson: And that will lead into this.

Peter Kurt Johansson: Mark on EPA.

Peter Kurt Johansson: What the EPA is drilling isn't new.

Peter Kurt Johansson: The EPA is doing actually isn't a surprise.

Peter Kurt Johansson: What the EP is doing is just codifying the thinking over the last many, many years. As they've now seen supply chains and technology catch up with their aspirations to eliminate the most polluting form of power, they've just put a stake in the ground.

Peter Kurt Johansson: The EPA is doing is just codifying the thinking over the last many many years.

Peter Kurt Johansson: As they've now seen supply chain and technology catch up with their aspirations to eliminate the most polluting form of power generation.

Peter Kurt Johansson: We're prepared for it. Our customers are prepared for it. It's going to be an exciting ride.

Peter Kurt Johansson: They have just put a stake in the ground.

Peter Kurt Johansson: We're prepared for our customers are prepared for it it's going to be an exciting ride.

Peter Kurt Johansson: It won't be a linear climb, but it's going to be very interesting. The big beneficiary is going to be, in this regard, not just renewables, it's going to be nuclear and other forms of what we might have thought of historically out-of-date energy. Hydro and geothermal are going to see renewed interest because it's about the entire energy mix. So although the EPA is signaling coal is their target, what they're essentially signaling is that our energy mix has to change. understood. Great, great color!

Peter Kurt Johansson: It won't be a linear climb.

Peter Kurt Johansson: But it can be very interesting.

Peter Kurt Johansson: The big beneficiary is going to be in this regard not just renewables.

Peter Kurt Johansson: Nuclear and other forms of of what we might have thought it historically out of data energy hydro and geothermal or you're going to see renewed interest because it's about the entire mix.

Peter Kurt Johansson: So although the EPA signaling coal is there a target with essentially signaling is our energy mix has to change.

Aaron Michael Spychalla: And then, you know, maybe second on the margin performance. Great, great progress there. You know, appreciate the commentary sounds like it's pretty balanced across operational initiatives. You know, just wanted to understand more.

Peter Kurt Johansson: Understood.

Speaker Change: Great Great color. Thank you for that and then just maybe second on the margin performance great Great progress there I appreciate the commentary it sounds like those pretty balanced across operational initiatives.

Aaron Michael Spychalla: It sounds like that's sustainable. And just how you're thinking about margins kind of progress from here as we look towards the rest of the year, sustainable. That said, let me back up for just a second.

Speaker Change: Just wanted to understand more it sounds like Thats sustainable and just how youre thinking margins kind of progressed from here as we look towards the rest of the year.

Speaker Change: Yeah, well, we like our we like our sustainable margin expansion story, so I'm going to use the word sustainable that said, let me back up for just a second.

Todd R. Gleason: The roughly 35.7% gross margins in the quarter did have some in-the-period modest benefits just in terms of mix and some good execution, of course, but also timing associated with that execution. And if you sort of removed those or normalized them, I would say, because they weren't one-timers, but they were, you know, beneficial in-the-period events. If you normalize for that, our margins and our gross margins and, you know, on a run rate basis kind of coming out of the first quarter are, you know, 50 to 100 basis points more normalized, lower than that. Still great, right?

Speaker Change: The roughly 35, 7% gross margins in the quarter did have some.

Peter Kurt Johansson: We did have some in the period modest benefits just in terms of mix and some good execution of course, but also timing associated with that execution and if you sort of removed those on or normalize that I would say because they weren't one timers, but they were beneficial in the period.

Peter Kurt Johansson: Events, if you normalize for that our margins, our gross margins and on a run rate basis coming out of the first quarter are 50 to 100 basis points more normalized lower than that still great right would still be probably certainly near record gross margin levels.

Todd R. Gleason: Would still probably be near-record gross margin levels. Now, with that said, we've been talking about for a long period, over a year, that, you know, we anticipate there's going to be a bit of a breakout here for us on some of the margin side. The work that we've been doing on our supply chain excellence and operating excellence, quality, lean, etc., is paying off. The work that we've done to improve our portfolio, both with M&A as well as introducing new products in more efficient regions is also paying off. Our growth internationally, which is now, we think, very stable and growing, is paying off. So, you know, again, I'll just go back to we're not a quarterly company.

Peter Kurt Johansson: Now with that said we.

Peter Kurt Johansson: Talking about four.

Peter Kurt Johansson: Long period over a year that we anticipate there is going to be a bit of a breakout here for us on some of the margin side.

Peter Kurt Johansson: We've been doing on our supply chain excellence and operating excellence quality lean et cetera paying off the work that we've done to improve our portfolio, both with M&A as well as introducing new products and more efficient regions paying.

Peter Kurt Johansson: Paying off our growth internationally, which is now we think very stable and growing is paying off so again, we I'll just go back to <unk>.

Todd R. Gleason: We believe in, you know, annual guidance. We believe in, you know, a multi-year outlook. I just really feel like this continues to confirm we're well on the path to that mid-teens EBITDA margin over the next few years. Great. I appreciate the color there. Thanks for taking the questions. I'll turn it over.

Peter Kurt Johansson: We're not a quarterly company we believe in.

Peter Kurt Johansson: Annual guidance, we believe in our multi year outlook I, just really feel like this continues to confirm we're well on the path to that mid teens EBITDA margin over the next few years.

Speaker Change: Great I appreciate the color there thanks for taking the questions I'll turn it over.

Speaker Change: Thank you. Thanks, Erik our next question or comment comes from the line of Rob Brown from capital.

Aaron Michael Spychalla: Thank you. Our next question or comment comes from the line of Rob Brown from Lake Street, Capital Market. Rob, your line is now open. Hi, Todd and Peter.

Robert Duncan Brown: Lake Street capital markets. Mr. Brown. Your line is now open.

Robert Duncan Brown: I wanted to follow up again on the sales pipeline, I guess, the large order activity around the air area and the DC area, color and kind of what's in that pipeline. Yeah, well, on the AIR side, our teams have continued to just do a great job of balance, diversifying across, you know, a blend of industries. That isn't stopping.

Robert Duncan Brown: Hi, Peter.

Robert Duncan Brown: Just wanted to follow up again on the sales pipeline I guess, the large order activity around.

Robert Duncan Brown: <unk> area and the D C.

Robert Duncan Brown: Data Center area.

Robert Duncan Brown: Some color on kind of what what's in that pipeline and what you see there.

Robert Duncan Brown: Yeah.

Robert Duncan Brown: Yes.

Robert Duncan Brown: Well.

Robert Duncan Brown: On the air side.

Robert Duncan Brown: We our teams have continued to just do a great job of balance.

Robert Duncan Brown: Diversifying across <unk>.

Robert Duncan Brown: Blend of industries that isn't stopping.

Todd R. Gleason: We have, you know, a quarter to quarter cycle; it ebbs and flows a little bit, you win a handful of jobs, sometimes even faster than we anticipate, and then you have a little bit of a lull as you replenish that pipeline. But industrial AIR really represents the continued strength of investments across a number of different industries. And I know that there are times when things accelerate, like in semiconductors, for example, and then they slow down.

Robert Duncan Brown: Have you know.

Robert Duncan Brown: Quarter to quarter, it ebbs and flows a little bit.

Robert Duncan Brown: A handful of jobs, sometimes even faster than we anticipate and then you have a little bit of a lull as you replenish that pipeline, but industrial air.

Robert Duncan Brown: It really represents the continued strength of investments across a number of different industries and I know that there are.

Robert Duncan Brown: There are times when things accelerate like in semiconductor for example, and then they slow down another maybe picking back up again youre seeing a lot of news talking about fabrication plants that are going to be winning new government contracts for capital to be star.

Todd R. Gleason: And now they're maybe picking back up again. You're seeing a lot of news talking about fabrication plants that are going to be winning, you know, new government contracts for capital to be, you know, starting those buildouts. We're involved in those discussions, for example. But, you know, infrastructure, and even the energy and sustainable energy side, if you think about industrial AIR, as you're making the components for solar and wind energy, you know, infrastructure, that is an industry. And so, you know, from industrial AIR, it isn't one or two or three industries per se; it's a real balanced set.

Robert Duncan Brown: Starting those build outs we're involved in those discussions for example, but infrastructure and even the energy and sustainable energy side. If you think about industrial air as Youre, making the components for solar and wind energy.

Robert Duncan Brown: Infrastructure that is industry and so from industrial air It isn't one or two or three industries per se its a real balanced set.

Todd R. Gleason: Same with industrial water, very global now with our industrial water capabilities, not just because of the acquisition of DS21 and other businesses, but just the organic growth that we've done in the Middle East and other regions has added just a huge pipeline of industrial water capabilities. And we're becoming well known now in industrial water. We're findable, so to speak, as companies are looking for partners to help them with their expansion.

Robert Duncan Brown: Staying with industrial water.

Robert Duncan Brown: Very global now with our industrial water capabilities, not just because of the acquisition of <unk> 21 in other businesses.

Robert Duncan Brown: But just the organic growth that we've done in the middle East and other regions has added up just a huge pipeline of industrial water capabilities, and we're becoming well known now in industrial water, where findable. So to speak as companies are looking for partners to help them with their expansion and of course, the more recent acquisitions at compass.

Todd R. Gleason: And of course, the more recent acquisitions of Compass and Chemco have really also, you know, opened up big, big markets and, you know, a variety of different applications that we're investing in organically to help those businesses grow. And we have strong leadership teams there that are excited about organic and potentially inorganic growth as we continue to invest in industrial water. And then, look, the energy transition, as Peter said, probably the most exciting energy pipeline that we've had in my almost four years now at SECO. And I would say...

Robert Duncan Brown: Kimco.

Robert Duncan Brown: Have really also.

Robert Duncan Brown: <unk> Big Big markets.

Robert Duncan Brown: Alrighty of different applications that we're investing organically to help those businesses grow and we have strong leadership teams there that.

Robert Duncan Brown: That are excited about organic and potentially inorganic growth as we continue to invest in industrial water and then look energy transition as Peter said.

Robert Duncan Brown: Probably the most exciting energy pipeline that we've had in my almost four years now of CECO and I would say.

Todd R. Gleason: Almost across the board, whether you're talking about legacy energy, the applications around power, around the natural gas pipeline and infrastructure, solar, or excuse me, all the renewables, as we already talked about, it's, It's a big pipeline in terms of energy and probably the largest it's been since I've been. Okay, great. Thank you. And then on the kind of long-term targets of mid-teens EBITDA, sort of from here, you had great, great results in the quarter.

Robert Duncan Brown: Almost across the board, whether youre talking about legacy energy the applications around power around natural gas pipeline and infrastructure.

Robert Duncan Brown: Solar or excuse me all the all the renewables as we already talked about.

Robert Duncan Brown: It's up.

Robert Duncan Brown: It's a big pipeline in terms of energy and probably certainly the largest it's been since I've been here.

Speaker Change: Okay, great. Thank you and then on the kind of long term targets of mid teens EBITDA.

Speaker Change: Sort of from here you had great results in the quarter, but growing from here what are the what are the main drivers to go is it mostly operating leverage from here or do you see more gross margin expansion as well.

Todd R. Gleason: But going from here, what are the main drivers to go? Is it mostly operating leverage from here? Do you see more gross margin? Well, I think we're going to see gross margin expansion year on year, just like we did in the first quarter. And so, you know, maintaining, you know, if we can maintain, you know, quarterly, you know, strong gross margins, we anticipate that, like I said, Q1 might have had a slight, in the period benefit. But that doesn't mean that it was just a temporary gross margin expansion.

Speaker Change: Well I think we're going to see gross margin expansion year on year, just like we did in the first quarter and so maintaining if we can maintain quarterly.

Speaker Change: Strong gross margins, we anticipate that like I said Q1 might have had a slight.

Speaker Change: In the period benefit, but that doesn't mean that it was it was a temporary.

Robert Duncan Brown: So we liked our gross margins expanding, certainly our sales volumes are going to be up year over year and sequentially as we go from Q1 to Q2, as we mentioned a few jobs, the timing of which, and Q2 is just a larger, more I guess a bigger work quarter period globally. So we're going to see volume conversion on the SG&A line as well. So I think you're going to see balanced gross margins year over year expansion and really good balanced volume leverage on SG&A below gross margin, and those two are going to be consistent over the next few years.

Speaker Change: Gross margin expansion, so we liked our gross margins expanding.

Speaker Change: Certainly our sales volumes are going to are going to be up year over year and sequentially. As we go from Q1 to Q2 as we mentioned a few jobs the timing of which in the Q2 is just a larger more more I guess, a bigger a bigger work quarter period globally. So we're going to see volume conversion.

Speaker Change: On the SG&A line as well, so I think youre going to see balanced gross margins year over year expansion and really good balanced volume leverage on SG&A below gross margin.

Speaker Change: And those two are going to be consistent over the next few years youre going to see that growth translating into EBITDA margin expansion youre going to see better mix and operating excellence translated to higher gross margins. The combination of those two gets you to the what we will get to we got to get to 12%.

Robert Duncan Brown: You're going to see that growth translating into EBITDA margin expansion. You're going to see better mix and operating excellence translate into higher gross margins. The combination of those two gets you to the we know we'll get to 12% first for a full year and then 13% and 14% fifth, but I think it's a bit of a stair step motion that we're anticipating. If you think about sequential TTM progress, we continue to see somewhere between 50 and 100 basis points sequentially improving.

Speaker Change: For full year, and then 13% and 14%, but I think it's a bit of a stair step motion that we're anticipating.

Speaker Change: If you think about.

Speaker Change: Sequential TTM progress we.

Speaker Change: We continue to see somewhere between 50, and 100 basis points sequentially, improving we would expect to see gross margins improving up to the debt.

Robert Duncan Brown: We would expect to see gross margins improving up to the, you know, that of the Mem 30, over the next eight. It's not going to be a step up and then a flat line. That's kind of the results you expect as you're transforming and improving processes and you're going through some, as you're rolling out waves of improvement across an organization. Look at the, I would point you to a chart we used on one or two learning calls ago. We showed the components of the margin expanse.

Speaker Change: Debt.

Speaker Change: Okay.

Speaker Change: Mid <unk>.

Speaker Change: Over the next eight quarters, it's not going to be a step up.

Speaker Change: And then a flat line.

Speaker Change: That's the kind of the results you expect as you're transforming improving processes and youre going through some.

Speaker Change: You're rolling out waves of improvement across the organization.

Speaker Change: Look to the.

Speaker Change: Yes.

Speaker Change: A chart, we used one or two earning.

Speaker Change: Earnings calls ago, we showed that the components of the margin expansion.

Peter Kurt Johansson: What we're really talking about here are the things we're doing in operations to really get that gross margin level solidified, so we get the full benefit of volume on the GNA flow through in the portfolio. So this is just, you know, we're working in three dimensions, if you will, on getting to the mid-teens EBITDA. It's not just gross margin. Gross margin is an important component, but once we get to, I'll call it, a plateau in the mid-30s, we'll see other areas of improvement rapidly catch up. Okay, great. Thank you. Congratulations on all the progress.

Speaker Change: What we're really talking about here the things we're doing in operations to really get that gross margin level solidified. So we get the full benefit of volume on the G&A flowed through in the portfolio changes.

Speaker Change: So this is just working on we're working in three dimensions, if you will on on getting to.

Speaker Change: To do the mid teens EBITDA, it's not just gross margin.

Speaker Change: Gross margin is important component but.

Speaker Change: Once we get to a I'll call. It a plateau in the mid <unk>, we will see other areas of improvement rapidly catch up.

Speaker Change: Okay.

Speaker Change: Okay, great. Thank you congrats on all the progress.

Speaker Change: Thanks, Rob.

Speaker Change: Thank you. Our next question or comment comes from the line of Gerry Sweeney from Roth. Mr. Sweeney. Your line is now open.

Robert Duncan Brown: Thanks, Rob. Thank you. Good morning, and Todd, thanks for taking my call.

Gerard J. Sweeney: Good morning, Peter and Tom Thanks for taking my call.

Jerry: Just a question on the markets. Obviously, you're very excited about pipeline, order, book, etc. Are you seeing strength across the board? Are there any other weaker areas?

Gerard J. Sweeney: Hey, Jamie.

Gerard J. Sweeney: Just a question on the market's obviously youre very excited about pipeline order book et cetera.

Gerard J. Sweeney: Or are you seeing strength across the board or are there any other weaker areas or I think even more importantly are there some areas that are even turning around where.

Todd R. Gleason: Or, I think even more importantly, are there some areas that are even turning around? Yeah, look. It's a good question, Jerry.

Speaker Change: Maybe you could see additional strength as we go through the year into next year.

Speaker Change: Yes look.

Todd R. Gleason: So look, for us, I'd say we certainly have seen cycles, right? So because we're so diversified in the industrial sector, you know, we've used this example many times with investors. A few years ago, I think it was 2021, aluminum Bevcan was a market that's, you know, important to us in one of our product categories. And it was a great year, maybe still a benefit from a lot of people being at home and having aluminum canned beverages at their fingertips more often. And so there was a capital expansion associated with that. And then the very next year, that cycle kind of turned around.

Speaker Change: It's a good question Jerry So look for us I'd say, we certainly have seen.

Speaker Change: We see cycles right. So.

Speaker Change: Because we're so diversified industrial air.

Speaker Change: We've used. This example, many times with investors a few years ago I think it was 2021 aluminum Bev can is a market that's important to us and one of our product categories.

Speaker Change: And it was a great year, maybe still a benefit from a lot of people being at home and having aluminum cans beverages.

Speaker Change: Fingertips more often.

Speaker Change: And so there was a capital expansion associated with that and then the very next year that cycle kind of turned over and it was it was a weaker market because.

Todd R. Gleason: And it was a weaker market because of that. I wouldn't have said a lot of that publicly, because, you know, in a way, we understood that it was a temporary capital infusion into that industry and then a reset the following year. Ironically, in 2022, we saw a recovery in a lot of metals. Aluminum was a good example, where in 2020 and 2021, those industries slowed down, in large part because no one was making planes, because of COVID travel restrictions, etc., but then we saw a recovery.

Speaker Change: Of that.

Speaker Change: We have set a lot of that publicly because in a way we understood that it was a temporary capital infusion in that industry and then reset the following year. Ironically in 2022, we saw a recovery in a lot of metals aluminum was a good example, where in 2020 in 2021 those industries had to slow down.

Speaker Change: And in large part because no one was making claims because of COVID-19 travel restrictions et cetera, and then we saw recovery in industry I would say we've seen some pockets of strength from a year ago that have slowed down but are now picking back up could be EV battery and semiconductor as I said.

Todd R. Gleason: So in industry, I would say, we've seen some pockets of strength from a year ago that have slowed down, but are now picking back up, could be EV and battery and semiconductor, as I said. They're very kind of short-term cyclical ebbs and flows in those industries. But overall, I think we would still say our demand for general industrial remains very balanced. And I know that there are a lot of indicators

Speaker Change: Said theyre very kind of short term cyclical ebbs and flows in those industries, but overall I think we would still say our demand.

Speaker Change: For general industrial remains very balanced and I know that theres a lot of indicators out there we'd look at them too.

Todd R. Gleason: We look at them too, you know, that are, you know, the ISMs and the PMIs, etc., that point to some interesting areas of, you know, sort of strength and weaknesses in the manufacturing sector. But we're not seeing a lot of weakness, frankly.

Speaker Change: That are the ISS, the pmi's et cetera, they point to some interesting areas.

Speaker Change: Sort of strength and weaknesses in industrial, but we're not seeing a lot of weeks frankly, we're seeing a lot of consistency and but we are seeing cycles come up and down but in energy.

Todd R. Gleason: We're seeing a lot of consistency, but we are seeing cycles come up and down. But in energy, look, I think 10 years ago, SECO probably would have seen visibility into a similar energy market. But it's been a long time since we've seen the types of inquiries balanced across a lot of the energy markets that we're seeing. And that includes legacy energy, which I think we use that term, I'm sure we're not the only ones that are using the term, you know, when people think of, you know, upstream, downstream, midstream, etc., that legacy energy, we like that there's still a significant But and then now we're talking about a lot of new energy and new energy transitions. Very, very, very rich. Got it. How long, I mean, obviously AI...

Speaker Change: Look I think 10 years ago, CECO, probably would've seen visibility to a similar energy market.

Speaker Change: It's been a long time since we've seen the types of inquiries balanced across a lot of the energy markets that were seeing and Thats. Both legacy energy that I think we use that term I'm sure. We're not the only ones that are using the term when people think of upstream downstream midstream et cetera that legacy energy, we like that there is still a significant investment that has to.

Speaker Change: Occur in those spaces for a variety of reasons to maintain energy production for a lot of end markets not just for energy consumption, but and then now we're talking about a lot of new energy and new energy transitions.

Speaker Change: Very very very rich.

Speaker Change: Got it.

Speaker Change: How long I mean, obviously AI, it's permeating through everything a lot of different industries, but it feels as though just on the energy generation front, we're probably in the early innings.

Peter Kurt Johansson: It feels as though, just on the energy generation front, we're probably... So we went into our AI app this morning, and we asked AI how long it was going to be here, and it said, "I'm here to stay." So, it turns out AI feels pretty strongly that it ain't going anywhere. Now, we'll see what that means. Jokes aside, Jerry. Look, these cycles in energy are... They're not head fakes, and they're not short.

Speaker Change: How long are these energy uptick cycles.

Speaker Change: So we went into our AI App. This morning, and we asked AI, how long a I was going to be here and it setup here to stay it so.

Speaker Change: So it turns out AI feels pretty strongly that isn't going anywhere.

Speaker Change: Well see what that mean jokes Jerry yes.

Speaker Change: Yeah.

Speaker Change: Look these cycles in energy are.

Peter Kurt Johansson: No, not at all. Does this mean we have an eight-year cycle? Not my game to play, right?

Jerry: Theyre not head fakes and Theyre not showing no not at all does this mean, we have an eight year cycle.

Peter Kurt Johansson: I would say we're at the relatively early end of a multi-year investment. The best signpost we're seeing is the quadrupling of demand by 2032. Well, I mean, in order to have, yeah, in order to have, from AI, the amount of gigawatts supplying the data center. That doesn't include crypto, it doesn't include manufacturing, it doesn't include charging electric cars, it doesn't include an electrifying industrial process. Just from the data center demand, it's a quadrupling of current gigawatts to future gigawatts. It takes anywhere from 24 to 48 months to get through the design, build, permit, and install process, depending on what you select to put in.

Speaker Change: My game to play right I would say.

Speaker Change: Hey.

Speaker Change: We are in relatively early innings of a multi year multi year investment phase.

Speaker Change: That's fair.

Speaker Change: Signposts, we're seeing as quadrupling of demand by 2000 22032.

Speaker Change: So that means in order to have.

Speaker Change: Yeah in order to have.

Speaker Change: From AI the amount of Gigawatts supplying data centers yet that doesn't include crypto. It doesn't include manufacturing doesn't include charging electric cars. It does include an electrifying industrial processes.

Speaker Change: From the data center demand, it's a quadrupling of current gigawatts to future Gigawatts.

Speaker Change: It takes anywhere from 24 to 48 months to get through a design build permit.

Speaker Change: Install process, depending on what you select to put in.

Jerry: So back down from the five years, at least six years of what we're seeing today, not including what else is out there. But if you believe your future is electrically powered... You would be favorably disposed. Now, Terry, we've all been around long enough to know that at times things aren't going to be as strong as they appear, and they're also not going to be as bad as they appear. Our game here is to play it where we don't want to overinvest in trying to chase a theme.

Speaker Change: So back down from the.

Speaker Change: Five years at least six years of what we're seeing today not including what else is out there.

Speaker Change: But if you believe your futures electrically powered.

Speaker Change: You would have that would be favorably disposed, yes, yes, yes, no Jeremy we've all been around long enough to know that.

Speaker Change: At times things are going to be as strong as they appear and they're also not going to be as bad as they appear our game here is to play it where we don't want to Overinvest to chase a theme, we want to be well positioned to benefit and to support the theme.

Jerry: We want to be well-positioned to benefit from and support the theme without necessarily overextending ourselves on it, right? So, as we think organically and inorganically, our view is that these are cycles. Some are going to be as high and as strong as they might appear, some will not, and some will be very fast-moving.

Speaker Change: Without necessarily over extending ourselves on it right. So as we think organically and Inorganically. Our view is these are cycles, some are going to be as high and as strong as they might appear some will not and some will be very fast moving there could be new regulations could be new entrants could be a variety of things so for us it's playing the balanced.

Peter Kurt Johansson: There could be new regulations, new entrants, and a variety of things. So for us, it's playing the balance right. We're not going to get it all right, but we're going to try our best to play that balance right.

Speaker Change: We're not going to get it all right well, we're going to try our best to play that balance out.

Speaker Change: Got it totally fair really appreciate that.

Jerry: Just one other quick question. Cashflow in 1Q was much better than last year. I know you're generally stronger cash flow as you go through the year, but we should see this sort of Q1 imply, you know, just, you know, improving cash flow. Well, I think Q1 shows that we're continuing to do very well at working capital management. The finance teams, the business teams, they're all over it. We focus on it better, more sustainably, if not just once a year for a quarter that we bang away at it, you know, so we have better processes, and we have better incentives around it as well.

Speaker Change: Just one other quick question cash flow <unk> was better much better than last year, I know youre generally stronger cash flow as you go through the year.

Speaker Change: Should we should this sort of Q1 imply just improving cash flow or in terms of metrics. I think Q1 implies that we're continuing to work very well at working capital management. The finance teams. The business teams are they are all over it we we focus on it better more sustainably if not just.

Speaker Change: Once the once a year for a quarter that we bang away at it.

Speaker Change: We have better processes better incentives around it as well so we like it we like the results I think it speaks to the poor start we had last year more Jerry then it was the great start we had this year. So the good news is we're just better each year.

Jerry: So we like it. We like the results. I think it speaks to the poor start we had last year more than it does to the great start we had this year. So the good news is we're just better each year. Okay. That's fair.

Chris Grenga: Alright, I appreciate it. I'll jump back in line. Thank you. Our next question or comment comes from the line of Jim Ricchiuti from Needham and Company. Mr. Ricchiuti, your line is now open. Hi, good morning. This is actually Chris Grenga on behalf of Jim.

Speaker Change: Got it that's fair.

Speaker Change: Alright, I appreciate it I'll jump back in line.

Speaker Change: Thanks.

Speaker Change: Thank you. Our next question or comment comes from the line of Jim Ricchiuti from Needham <unk> Company. Mr. Reach you to your line is now open.

Speaker Change: Hi, Good morning, this is actually Chris <unk> on for Jim. Thank you for taking the questions.

Chris Grenga: Thank you for taking the questions. When looking at the sales pipeline, which is quite healthy, are you able to characterize, even at a high level, the nature of the pipeline between whether it's discretionary growth type projects that your customers are looking at versus projects that are more mandated by regulation? Yeah, it's a good question, Chris, and thanks for jumping in to ask a question for you and for Jim or other questions, too. I don't have that at my fingertips, I would say.

Speaker Change: When.

Chris: Looking at the sales pipeline.

Chris: Which is quite healthy is are you able to characterize.

Chris: Even at a high level the nature of the pipeline between whether it's discretionary growth type projects that your customers are looking at versus.

Chris: Projects that are more <unk>.

Chris: Mandated by regulation.

Speaker Change: Yes, it's a good question, Chris and thanks for jumping in to ask a question for for you and for Jim.

Chris: Or other questions too.

Speaker Change: Like we don't have that at my fingertips, I would say whats important is.

Todd R. Gleason: You know, what's important is, and in no particular order of importance, you know, our $3.5 billion or so pipeline is up well over 2x from where it was just three, four years ago. So it's a very big, balanced pipeline. A lot of that still has to do with the fact that we have a large installed base and great relationships with customers. So they're constantly coming to us to talk about, you know, replacing very high-performing but aged equipment out there in the marketplace.

Chris: And in no particular order of importance, our $3 5 billion or so pipeline is up well over two extra where it was just three four years ago. So it's a very big balanced pipeline a lot of that still does have to do with the fact that we have a large installed base great relationships with customers.

Chris: <unk>.

Chris: So they are constantly coming to us to talk about replacing very high performing but aged equipment out there in the marketplace, we have more aftermarket and services as well that we've ever had so there is a blend of that thats in our backlog as well.

Todd R. Gleason: We have more aftermarket and services as well than we've ever had, so there's a blend of that that's in our backlog as well. You know, and I would say very little of what we do feels super discretionary out there to the customer.

Chris: And I would say very little of what we do feel super discretionary out there to the customer. So these aren't these are usually.

Todd R. Gleason: So these aren't, these are usually, you know, fairly medium to long-term projects that they've been looking at. They're already in their capital allocation budgets. We've been in regular dialogue.

Chris: Fairly medium to long term projects that they've been looking at the priority in their capital allocation budgets, we've been in regular dialogue rarely does a.

Todd R. Gleason: Rarely does a very large, well over $1 million project come to us quickly. We've been, we've known about it for three, six, nine, and 12 months. These energy transition jobs we've known about already, if not all of them, most of them for well over a year. We've been working with the customers. These things are engineering design studies that we've either done, or we've qualified for. We're on the approved vendor list, so to speak, which is very hard to become a member of that club.

Chris: A very large well over $1 billion project come to us quickly.

Chris: We've been we've known about it for 369 12 months. These energy transition jobs, we've known about already of not all of them most of them for well over a year been working with the customers. These things or engineering design studies that we've either done or were qualified were on the approved vendor list. So to speak which is very hard to become a member of that club.

Todd R. Gleason: And so, you know, I think we're looking at a really balanced, it's not because of one area of the bamboo shoots of growth or something. It isn't because there's this huge capital infusion in new greenfield projects. It's pretty balanced.

Chris: And so I think.

Chris: Looking we're looking at a really balanced.

Chris: It's not because of one area of the bamboos shoots of growth or something is it because there is this huge capital infusion in new Greenfield projects, it's pretty balanced.

Chris Grenga: Perfect. Great. Thank you very much.

Speaker Change: Perfect Great. Thank you very much and.

Chris Grenga: In the past, you've spoken about SECO's involvement with the B-21 Raider program, for example, and we're seeing some signs that we could be in the early innings of significant, rapid investment in the defense industrial base here and in Europe. I'm just curious, from your point of view, are you seeing any early indications, any potential tailwinds for defense-related applications from where you stand? Yeah, we participate more in things like naval destroyers, different classes of naval ships and destroyer classes, DDG, FFG, things of that nature.

Speaker Change: In the past you've spoken.

Chris: About <unk> involvement with with the.

Chris: The B 21 Raider program for example.

Chris: And what we're seeing some some signs that we could be in the early innings of significant ramp in investment in the defense industrial base here and in Europe.

Chris: Just curious if you from your point of view are you seeing any any early indication any any potential tailwind for defense related applications from where you stand.

Speaker Change: Yes, we participate more on like naval destroyers of different classes of naval ships.

Speaker Change: And just for your classes.

Todd R. Gleason: And we are seeing a good pipeline there. It's a really balanced pipeline, our separation filtration business, as well as some of our other product portfolios with respect to silencers, etc. We would say well positioned, looking good, and certainly an uptick year over year. And, you know, back in 2020, 2021, there was also a strong defense budget for some of those categories, but we haven't seen it as strong as we're currently seeing it for some time. Great. Thank you very much for that call.

Chris: <unk> things of that nature.

Chris: And we are seeing a good pipeline there is it really balanced pipeline, our separation filtration business as well as some of our other product portfolios with respect to silence or as et cetera, We would say well positioned looking good.

Chris: And certainly an uptick year over year.

Chris: Back in 2000 22021, there was also a strong defense budget for some of those.

Chris: Categories, but we haven't seen it as strong as we're currently seeing it some time.

Chris Grenga: I appreciate it. Thank you. Thank you. Our next question or comment comes from the line of Bobby Brooks from Northern Capital Markets. Mr. Brooks, your line is now open.

Speaker Change: Great. Thank you very much for that color I appreciate it.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question or comment comes from the line of Bobby Brooks from Northern capital markets. Mr. Brooks. Your line is now open.

Robert Thornton Brooks: Hi, thanks for taking my question, guys. So just following up on the potential record-size energy transition opportunities, I just want to confirm that in the slides you mentioned, I think you framed it at $120 million. Is that large deals or potential record-breaking energy transition deals? And the follow-up is, are those almost certainly a 2025 impact on revenue, or is there any chance that those could impact the fourth quarter of 2024? It would be a modest impact on the fourth quarter.

Robert Thornton Brooks: Hi, Thanks for taking my question guys. So just following up on the production.

Robert Thornton Brooks: Following up on the potential record size energy transmission opportunities I, just want to confirm I know in the slides you mentioned I think you framed it at $120 million.

Robert Thornton Brooks: That is that those.

Robert Thornton Brooks: Is that those large deals or potential record breaking energy transition deals.

Robert Thornton Brooks: The follow up is are those almost certainly a 2025 impact on revenue or is there any chance that those could kind of <unk>.

Robert Thornton Brooks: Impact the fourth quarter of 2024.

Robert Thornton Brooks: It would be a modest impact to the fourth quarter there is some.

Todd R. Gleason: There's some percent of complete revenue that we might receive from potentially some designs being accepted, which signifies our ability to start to go and order materials and contracts, its contractors, et cetera. So there is some upside potential to revenue. We're really talking about orders. So, Bobby, it's a good question, and I want to be clear on that. For us, I'll exaggerate to make a point.

Robert Thornton Brooks: A complete revenue that we might receive from potentially some designs being accepted.

Robert Thornton Brooks: Which which signifies our ability to start to go in and order materials and contracts with contractors et cetera. So there is some upside potentially to revenue, we're really talking about orders. So Bob. It's a good question and I want to be clear on that for us.

Todd R. Gleason: If we had a mega, if we had a $100 million order in August, we're not going to get a lot of that revenue probably in 2024. But like I said, we might get some with respect to the first quote-unquote milestone of the project, which could be engineering acceptance and things of that nature, because we would be spending some money, as you can imagine. So there'd be a percent of that overall project that would be associated with that first wave of execution. But beyond that, yeah, we're really talking about 2025, and that'll help us shape our outlook for 2025. Again, I'm the luckiest CEO in the world.

Robert Thornton Brooks: All exaggerate to make a point if we had a mega.

Robert Thornton Brooks: If we had if we had $100 million order.

Robert Thornton Brooks: In August we're not going to get a lot of that revenue probably in 2024, we've got like I said, we might get some with respect to the first quote unquote milestone of the project we could be.

Robert Thornton Brooks: Engineering.

Robert Thornton Brooks: Acceptance and things of that nature, because we would be spending some money as you can.

Robert Thornton Brooks: Imagine so there'd be a percent of that overall project that would be associated with that first wave of of execution, but beyond that we're really talking about 2025 and that will help us shape our outlook for 2025.

Todd R. Gleason: I have a balance, a great team, and across the board, all of our employees, but a balance of long-term visibility and backlog, and I think a growing sustainable and repeatable short-term and aftermarket pipeline and portfolio that's also building. So, you know, I'm one of the few CEOs that can almost start to look at 2025 and do not only modeling of what that short-term could look like with the right market dynamics and investment, but also truly have a backlog that I can model with a high degree of accuracy and start to think about what that could look like for 2025.

Robert Thornton Brooks: On the Lucky as CEO in the World I have a balance a great team.

Robert Thornton Brooks: Anna.

Robert Thornton Brooks: Across the board all of our employees, but a balance of long term visibility and backlog and I think a growing sustainable and repeatable short term and in.

Robert Thornton Brooks: And aftermarket pipeline and portfolio. That's also building so one of the few Ceos. It can almost start to look at 2025 and do not only modeling of what that short term could look like with the right market dynamics and investment, but also truly have a backlog that I can model with a high degree of accuracy and start to think about what.

Todd R. Gleason: So, you know, we have a lot of work to do to make 2024 the success that we want it to be, but these orders would put us in a great position for 2025. Here's the lucky CFO. The CFO wants to talk about how lucky he is.

Robert Thornton Brooks: That could look like for 2025, so we have a lot of work to do to make 2020 for the success that we want it to be but these orders would put us in great position for 2025.

Robert Thornton Brooks: On the CFO the CFO wants to talk about how lucky here and there.

Peter Kurt Johansson: And Bobby, these are the same projects that we've discussed in the past. We're just getting, they're coming more into focus, and they're not just in the U.S. We're seeing renewed and accelerating interest in other geographies where they're addressing the same concerns around clean power as we are here. Okay. That's terrific.

Robert Thornton Brooks: These are the same projects that we have discussed in the past, we're just getting there are coming more into focus.

Robert Thornton Brooks: And they're not just in the U S.

Speaker Change: Yes, we're seeing.

Speaker Change: Renewed and accelerating interest in other geographies.

Speaker Change: Where they are addressing the same concerns around clean power as we are here.

Speaker Change: Okay.

Robert Thornton Brooks: Oh, and then maybe just diving a little bit more into that comment that Todd just gave about building out the growing short-term aftermarket pipeline. Could you just maybe give a little bit more color on that about how you guys have been building that? Is that just the installed base growing, or has it been through specific M&A that you guys have done that's been growing it?

Speaker Change: Got it Thats terrific color and then maybe just.

Speaker Change: Diving, a little bit more on to that.

Speaker Change: The comment that Todd just gave about building out the having a growing short term aftermarket pipeline could you just maybe give a little bit more color on that of how you guys have been building that is that just the installed base growing or has it been for specific M&A that you guys have done and that's been growing at or is it just.

Robert Thornton Brooks: Or is it just a cycle thing where the filters that you guys are installing are needing to get replaced from the one that you did in 2021 or something or some dynamic like that. Yeah, it's all, I would call it methodical short-term progress. You know, sort of like as they say, getting first downs is important to move the ball down the field.

Speaker Change: Ah cycle thing where the.

Speaker Change: The filters that you guys are putting stock are needing to get replaced from the ones that you did in 2021 or something some dynamic like that.

Speaker Change: Yes, it's all I would call it.

Speaker Change: Methodical short term progress sort of like as they say getting first downs are important to move the ball down the field, that's what we've been doing with our.

Todd R. Gleason: That's what we've been doing with our, you know, adding our short cycle, short, more, you know, shorter-term revenue, aftermarket services, and replacements. So take the Transcend acquisition from almost exactly a year ago. 40-ish percent of their revenue is aftermarket filter media, right? So, you know, that's an uptick in terms of revenue mix for us as a company. But, you know, the acquisition of Transcend, when you're now a $550 million company, you make an acquisition of a, you know, 12, 13, $14 million company when we acquired them, you know, that's a first down, right?

Speaker Change: Adding our short cycle short more shorter term revenue aftermarket services replacements.

Speaker Change: So take the transcend acquisition from almost exactly a year ago.

Speaker Change: 40 ish percent of that revenue is aftermarket filter media right. So that's that is an uptick in terms of.

Speaker Change: Revenue mix for us as a company, but the acquisition of transcend when Youre now of $550 million company, you make an acquisition of a $12 $13 $14 million company when we acquired them.

Todd R. Gleason: Because it's a smaller piece of our portfolio, but a really strategic and important one. Now, you know, the things that we're doing with Transcend and with other areas that have similar dynamics, like industrial water, that have been more of an M&A play for us, whether it be Compass or Chemco, with strong aftermarket components associated with each of those. And the organic investment that we made in industrial water since I arrived has also produced some of the largest aftermarket projects in our company's history, including the one we mentioned last year, which was a $9 million order for aftermarket services, which is a two-year revenue cycle associated with that $9 million order. So, all of these are larger first downs, some are smaller first downs, but it's really about us just continuing to build out that balance methodically Got it. That's a terrific color.

Speaker Change: As a first out right because it's a smaller piece of our portfolio, but are really strategic and important one now the things that we're doing with transcend and with other areas that have similar dynamics like industrial water that has been a more <unk>.

Speaker Change: M&A play for us with it would it be compass, our kimco strong aftermarket components associated with each of those and the organic investment that we made in industrial water. Since I've arrived has also produced some of the largest aftermarket projects in our company's history, including the one we mentioned last year, which was a $9 million order for <unk>.

Speaker Change: Market services, which is a two year revenue cycle associated with that $9 million order. So all of these are some of our larger first down some are smaller first downs, but it's really about us just continuing to build out that balance.

Speaker Change: Methodically.

Robert Thornton Brooks: Maybe just to ask, last one here on, you know, your last comments on the prepared remarks about the jobs being spurred by the data center build out, you know, that's really just to confirm that's still really a European, European U.K. opportunity with the acoustics piece for making sure the power generation is quiet in those urban communities, or is there any opportunity, or is that like a more broader opportunity where you might see some Today, the most direct benefit is in our UK business in packaging GenSets for data centers and, as you point out, in urban areas in the UK and Ireland.

Speaker Change: Got it Thats terrific color maybe.

Speaker Change: Just to ask last one here on your last comments on the prepared remarks about the jobs.

Speaker Change: <unk> is being spurred by the data center build out that's really just to confirm that's still really a European.

Speaker Change: European UK opportunity with <unk>.

Speaker Change: <unk>.

Speaker Change: With the.

Speaker Change: With the acoustics piece for.

Speaker Change: Making sure the power generation is quiet in those urban communities or is there any opportunity or is that like a more broader opportunity, where you might see some industrial air and water.

Speaker Change: Revenues from that.

Speaker Change: Today, the most direct benefit is in our UK business and packaging Gen sets for data centers and as you pointed out in urban areas in the UK and Ireland.

Robert Thornton Brooks: We're evaluating opportunities to do that same work for the same customers in the US as their demand grows and they're outgrowing their supplier base. They view us as a potential supplier. So we're evaluating that opportunity here domestically. But there are other benefits to Seco from the data center build-out, this overall power supply. Baseload power is growing; a lot of these investments in large gas turbine firepower are a direct result of data center growth. And so we're benefiting from, you know, that dimension, that dynamic. There's also a data center demand for water; a lot consume a lot of water. You got to treat a lot of water once it's consumed.

Speaker Change: Where we're.

Speaker Change: We are evaluating opportunities to that same work for the same customers in the U S. As their demand grows and theyre growing theyre outgrowing their supplier base.

Speaker Change: The U S as a potential supplier. So we are evaluating that opportunity here domestically.

Speaker Change: But there are other benefits too.

Speaker Change: CECO from the data center build out this overall power supply.

Speaker Change: Base load power.

Speaker Change: A lot of these investments in large gas turbine firepower.

Speaker Change: Or is there a direct result of.

Speaker Change: Data center growth.

Speaker Change: And so we're benefiting from that.

Speaker Change: That dimension that dynamic.

Speaker Change: There is also a data center demand for water.

Speaker Change: Consume a lot of water.

Speaker Change: Trade a lot of water once it's consumed.

Peter Kurt Johansson: We've seen some inquiries there as well, not necessarily in the U.S., but we've seen that outside the U.S., as the Middle East and Asia are beginning to invest in their own infrastructure. And then, dare I say, two steps away, you've got to produce semiconductors that go into the servers that go into the data centers. Any one of those semiconductor fab facilities requires what we built, whether it's a scrubber, whether it's, you know, produced with a produced water treatment, or it's an ultra-pure water supply or silencing of power systems at the facility.

Speaker Change: We've seen some inquiries there as well.

Speaker Change: Not necessarily in the U S, but we've seen that outside the U S. As the middle East and Asia are beginning to invest in their own infrastructure.

Speaker Change: And then dare I say.

Speaker Change: Two steps away you've got to produce semiconductors that go into the servers that go into the data centers.

Speaker Change: One of the semiconductor fab facilities requires what we built.

Speaker Change: Whether it's a scrubber whether it's.

Speaker Change: Produce.

Speaker Change: Produced water treatment or it's ultra pure water supply or silencing on on power systems at the facilities.

Robert Thornton Brooks: Got it. I really appreciate the call, guys. Yeah, so you can think about it in multiple dimensions.

Speaker Change: Got it.

Speaker Change: The color John.

Speaker Change: Great.

Speaker Change: You can think about it in multiple dimensions and investment in a datacenter impac.

Robert Thornton Brooks: An investment in a data center impacts us in multiple places. Yeah, that's terrific, Colin. Definitely has a lot of prongs, you know, propelling you guys' growth going forward. I appreciate it, Colin. I'll jump back into the queue.

Speaker Change: Impacts as multiple places.

Speaker Change: Got it Thats terrific color definitely a lot of prongs.

Speaker Change: Propelling <unk> growth going forward I appreciate the color and I'll jump back into the queue.

Amit Dayal: Thank you. Our next question or comment comes from the line of Amit Dayal from HC Wainwright. Mr. Dayal, your line is open.

Speaker Change: Thank you.

Speaker Change: Our next question or comment comes from the line of Amit Dayal from H C. Wainwright.

Amit Dayal: Good morning, guys. Just with respect to the outlook for 2024. Is there any one particular quarter where you could see, you know, a larger portion of that outlook coming through for you guys? Just want to understand the cadence, you know, for the rest of the year with respect to how revenues might play out. Yeah, I'll let Peter kind of maybe give a little bit more color on how we kind of are looking at our internal cadence.

Amit Dayal: Your line is open.

Amit Dayal: Hey, good morning, guys.

Amit Dayal: With respect to the outlook for Fluor.

Amit Dayal: Is there any one particular quarterly you could see.

Amit Dayal: Hmm.

Amit Dayal: Our module portion of that are coming through for you guys.

Amit Dayal: Just wanted to understand the cadence.

Amit Dayal: For the rest of the year with.

Amit Dayal: With respect to how revenues might milk.

Amit Dayal: Okay.

Speaker Change: Yes ill let.

Amit Dayal: I'll, let Peter kind of maybe give a little bit more color on how we are looking at our internal cadence.

Amit Dayal: Look, we always knew Q1 was going to be, you know, the smallest of the quarters materially, just in terms of the things we mentioned already on the call just with respect to it's almost always our smallest quarter. We knew the project timing coming into the quarter was going to be a little bit lighter as well.

Peter Kurt Johansson: Look we always knew Q1 was going to be the smallest of the quarters materially just in terms of the.

Peter Kurt Johansson: The things we mentioned already on the call just with respect to its almost always our smallest quarter. We ended the project timing coming into the quarter was going to be.

Todd R. Gleason: And, you know, look, I would say a fairly, you know, nice step up in Q2. Sometimes, Q3 can be a challenging quarter, but actually, this year, it's going to be relatively consistent a little bit with Q2, within the range of a Q2, you know, sort of overall. And then Q4 just historically has been our stronger quarter.

Amit Dayal: Bit lighter as well.

Amit Dayal: And look I would say a fairly a fairly nice step up in Q2.

Amit Dayal: Sometimes Q3 can be a challenging quarter, but actually this year, it's going to be relatively consistent a little bit with Q2.

Amit Dayal: Within within the range of our Q2.

Amit Dayal: Sort of overall.

Amit Dayal: In Q4, just historically has been our stronger quarter I think we'll know we'll have a little bit more color as we exit.

Todd R. Gleason: I think we'll know, we'll have a little bit more color as we exit the second quarter in terms of how we're looking at the second half of the year, at which point we'll probably give any color and updates on that thinking. You know, if you're looking at your models and you sort of are saying, you know, you know, could 2Q and Q3 be fairly equally sized with Q4 being the larger of the final remaining three quarters, that would probably be a normal dynamic, uh, given where we're sort of coming in to start, Thank you, I appreciate that, with the total sales and earnings in the second half. Okay, thank you.

Amit Dayal: The second quarter in terms of how we're looking at the second half of the year at which point, we will probably give any color on updates on on that thinking but.

Amit Dayal: If youre looking at your models and you're sort of saying.

Amit Dayal: <unk> in Q3.

Amit Dayal: Fairly equally sized with Q4 being the larger of the of the final remaining three quarters that would probably be a normal dynamic given where we are sort of coming in to start the year.

Speaker Change: Thank you Doug.

Speaker Change: The trend Yeah, I think Peter is confirming that yes.

Amit Dayal: Thank you. I appreciate that. And just the last one, I guess, is around, You know, the mix of, I guess you indicated that already, but it looks like the mix in the backlog is leaning more towards higher-margin revenues. Is that fair?

Speaker Change: We will generate more than half of <unk>.

Speaker Change: Total sales.

Speaker Change: And earnings in the second half of the year.

Speaker Change: Okay. Thank you. Thank you I appreciate that and just.

Speaker Change: The last one I guess is around.

Speaker Change: The mix of I guess, you indicated that already but it looks like the mix in the backlog is leaning more towards higher margin revenues.

Amit Dayal: Is that a fair assessment? Yeah, I think we've certainly been pointing to that, and it's been demonstrating that for, you know, not just this past quarter but for a number of quarters now. We've seen gross margin expansion, you know, kind of consistently. Obviously, this quarter was a big step up that, like I said, had some positive timing benefits, but overall was a mixed benefit that we've been seeing, not just in our backlog, but in our portfolio overall.

Speaker Change: Is that fair or is that a fair assessment.

Speaker Change: Yes, I think we've certainly been pointing to that and it's been.

Speaker Change: And it's been demonstrating that for not just this past quarter, but for a number of quarters now we've seen gross margin expansion.

Speaker Change: Kind of consistently obviously this quarter was a big step up that like I said had some.

Speaker Change: Positive timing benefits, but overall was a mixed benefit that we've been seeing not just in our backlog, but in our portfolio. Overall, so that's why our backlog, we see the mix and margins in our backlog and it's it's benefit year over year and when can we expect it to continue to be.

Amit Dayal: So that's right, you know, our backlog, we see the mix and margins in our backlog, and it benefits year over year, and we expect it to continue to do so. Yeah, that's all I had, guys. I'll take the questions offline now. Thank you so much. Thank you.

Speaker Change: Okay.

Speaker Change: That's all I had guys.

Speaker Change: Taking all the questions offline. Thank you so much.

Amit Dayal: Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the conference over to Todd Gleason for any closing remarks. Thanks for the questions and your interest in our information today. I'm going to start by, again, thanking our global teams for continuing to deliver incredible value to our customers as we continue to focus on being a leader, protecting people, protecting the environment, protecting our customers' investments, and their industrial equipment.

Speaker Change: Yes.

Speaker Change: Ladies and gentlemen, this concludes our question and answer session I would now like to turn the conference over to Todd <unk> for any closing remarks.

Todd Wilson: Thanks for the questions and your interest in our information today.

Todd Wilson: So to start by again thanking our global teams continue to deliver incredible value to our customers.

Todd Wilson: We continue to focus.

Todd Wilson: Being a leader protecting people protecting the environment protecting our customers' investments in their industrial equipment.

Amit Dayal: A couple of updates We're going to be presenting later this month at the Craig Hallam Conference in Minnesota, as well as in June at the Wells Fargo Industrials Conference in Chicago, and then the IDEAS East Coast Conference in New York and the Roth London Conference. So, if you want to meet, please contact your representative conference contact and we'd be glad to meet with you there, and we look forward to that. Obviously, we're available to connect at any time as well. And we will be releasing our second quarter results, we expect, towards the end of July.

Todd Wilson: Couple updates we're going to be presenting later this month.

Speaker Change: Hallum Conference in Minnesota, as well as in June at the Wells Fargo Industrials Conference in Chicago, and then the ideas East Coast Conference in New York and the Roth London Conference. So if you want to meet please contact your representative.

Speaker Change: Conference.

Speaker Change: First contact and we'd be glad to meet with you there and we look forward to that obviously, we're available to connect.

Speaker Change: At any time as well.

Speaker Change: And so we will be releasing our second quarter results. We expect towards the end of July and until then we thank you and have a great rest of your day.

Todd R. Gleason: And until then, we thank you and have a great rest of your day. Ladies and gentlemen, the conference is now concluded. We thank you for attending today's presentation. You may now disconnect.

Speaker Change: Ladies and gentlemen, the conference has now concluded we thank you for you attending today's presentation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].